ANGERS,
J.:—This
is
an
appeal
under
sees.
58
and
following
of
the
Income
War
Tax
Act
by
Edward
V.
Flinn,
of
the
Town
of
Dartmouth,
Province
of
Nova
Scotia,
against
the
assessment
with
regard
to
income
for
the
year
1944,
which
appears
from
the
copy
of
the
notice
of
assessment,
included
in
the
file
of
the
Department
of
National
Revenue
transmitted
by
the
Minister
to
the
Registrar
of
the
Exchequer
Court,
to
have
been
mailed
on
July
21,
1945.
In
his
notice
of
appeal
dated
August
8,
1945,
a
copy
whereof
forms
part
of
the
record
of
the
Department,
the
appellant
says
in
substance
:
the
appellant
is
an
accountant
in
the
employ
of
Wagner
Tours
Limited,
a
body
corporate
having
its
head
office
at
Halifax,
in
the
county
of
Halifax
;
in
December
1944
he
was
the
holder
of
30
shares
of
the
7%
cumulative
preference
shares
of
five
dollars
each
in
the
capital
of
United
Service
Corporation
Limited,
a
body
corporate
with
head
office
at
Halifax
;
in
December
1944
United
Service
Corporation
Limited,
being
in
arrears
in
respect
of
the
dividends
on
the
said
shares,
declared
a
dividend
of
3112
cents
in
respect
thereof,
but
by
the
provisions
of
the
resolution
declaring
this
dividend
postponed
the
payment
thereof
for
a
period
of
20
years
and,
as
evidence
of
the
right
to
receive
such
dividend,
issued
dividend
notes
for
the
amount
of
such
dividend
payable
on
December
15,
1964,
but
subject
to
previous
redemption
as
in
the
notes
provided
;
as
holder
of
the
said
30
shares
the
appellant
received
one
of
such
dividend
notes
for
the
sum
of
$47.25,
together
with
a
letter
from
the
president
of
the
company
outlining
the
steps
taken
in
connection
with
the
declaration
of
the
said
dividend
and
the
issuance
of
the
said
notes;
annexed
to
the
notice
of
appeal
are
copies
of
the
following
documents:
(a)
agreement
dated
December
9,
1944,
between
United
Service
Corporation
Limited
and
Fred
C.
Manning,
one
of
the
holders
of
the
said
preference
shares
acting
on
behalf
of
himself
and
all
other
holders
of
said
shares;
(b)
resolution
of
the
Board
of
Directors
of
the
said
company
passed
on
December
9,
1944;
(c)
the
dividend
note
received
by
appellant;
(d)
the
letter
from
the
president
of
the
company
received
by
appellant
;
the
appellant
desires
to
appeal
from
the
said
assessment
only
insofar
as
the
sum
of
$47.25
has
been
determined
by
the
Deputy
Minister
of
National
Revenue
for
taxation
to
be
a
part
of
the
taxable
income
of
the
appellant
and
insofar
as
the
appellant
has
been
assessed
in
respect
of
taxation
thereon
in
the
sum
of
$16.50;
the
appellant
‘s
reasons
for
appeal
are
as
follows:
sec.
12
of
the
Income
War
Tax
Act
specifically
provides
that
dividends
shall
be
taxable
income
of
the
taxpayer
in
the
year
in
which
they
are
paid
or
distributed
and
inferenti
ally
they
are
not
taxable
in
any
other
year;
the
said
dividend
notes
are
not
income
within
the
meaning
of
any
provision
of
the
Income
War
Tax
Act
until
paid
;
the
said
dividend
notes
are
merely
evidence
of
the
right
to
receive
the
dividend
on
the
date
on
which
by
the
terms
of
the
declaration
thereof
such
dividend
is
payable;
it
has
been
the
settled
practice
of
the
Minister
of
National
Revenue
not
to
treat
the
receipt
of
evidence
of
indebtedness
as
receipt
of
the
indebtedness
itself
and
in
this
regard
the
appellant
craves
leave
to
refer
to
the
rulings
of
the
Minister
of
National
Revenue
or
the
Deputy
Minister
for
taxation
in
connection
with
the
overdue
interest
on
bonds
of
Abitibi
Power
and
Paper
Company.
The
agreement
between
United
Service
Corporation
Limited
and
Fred
C.
Manning,
acting
on
behalf
of
himself
and
all
other
holders
of
preference
shares
in
the
capital
stock
of
the
company,
after
reciting
that
the
capital
of
the
company
is
divided
into
150,000
7%
cumulative
preference
shares
of
the
par
value
of
$5.00
each
and
35,000
common
shares
without
nominal
or
par
value,
that
all
the
preference
shares
are
issued
and
paid
up,
that
dividends
in
respect
of
the
preference
shares
are
undeclared
and
in
arrears
for
the
period
of
four
and
one
half
years,
that
the
amount
of
the
said
dividends
has
been
earned
through
the
operations
of
the
company,
but
that
it
is
considered
inexpedient
to
deplete
the
working
capital
of
the
company
by
the
payment
of
sueh
dividends
forthwith,
that
upon
the
execution
of
this
agreement
the
directors
of
the
company
propose
to
declare
dividends
upon
the
preference
shares
in
respect
of
the
period
of
four
and
one
half
years,
payable
in
accordance
with
the
terms
of
certain
notes
of
the
company
to
be
issued,
that
Fred
C.
Manning
is
the
holder
of
two
of
the
said
preference
shares
and
is
contracting
on
behalf
of
himself
and
all
other
holders
of
preference
shares,
that
by
clause
64
of
the
articles
of
association
of
the
Company
it
is
provided
that
if
at
any
time
the
share
capital
of
the
company,
by
reason
of
the
issue
of
preference
shares
or
otherwise,
is
divided
into
different
classes
of
shares,
all
or
any
of
the
rights
and
privileges
attached
to
any
such
class
may
be
modified,
commuted,
abrogated
or
otherwise
dealt
with
by
agreement
between
the
company
and
any
person
purporting
to
contract
on
behalf
of
that
class,
provided
such
agreement
is
ratified
in
writing
by
the
holders
of
at
least
three-fourths
in
number
of
the
issued
shares
of
the
class
or
by
a
resolution
passed
and
confirmed
at
extraordinary
general
meeting
of
the
holders
of
such
shares,
stipulates
as
follows:
‘1.
THAT
the
said
Fred
C.
Manning
agrees
to
and
with
the
Company
and
for
and
on
behalf
of
himself
and
all
other
holders
of
Preference
Shares
in
the
Capital
Stock
of
the
Company
that
if,
as
and
when
the
Directors
of
the
Company
declare
dividends
upon
and
in
respect
of
the
said
Preference
Shares
in
respect
of
the
said
period
of
four
and
one-half
years,
for
which
the
said
dividends
are
presently
in
arrears,
the
said
dividends
to
be
payable
according
to
the
terms
of,
and
at
the
times
and
in
the
manner
specified
in
notes
of
the
Company
hereinafter
described,
and
said
holders
of
the
said
Preference
Shares,
and
each
of
them,
will
accept
postponement
of
the
payment
of
the
said
dividends
according
to
the
terms,
at
the
time
or
times,
and
in
the
manner
specified
in
the
said
notes.
2.
THAT
the
said
notes
referred
to
in
paragraph
one
hereof,
if,
as
and
when
issued,
shall
be
unsecured
notes
of
the
Company,
shall
be
payable
December
15,
1964,
unless
sooner
called
for
redemption
in
accordance
with
the
terms
thereof,
shall
bear
interest
at
the
rate
of
4%
on
the
principal
amount
thereof
payable
half-yearly
on
the
15th
day
of
June
and
December
in
each
year
until
paid,
shall
be
callable
for
redemption
by
the
Company
in
whole
or
in
part
on
any
interest
date
at
102%
of
the
principal
amount
thereof
on
thirty
days
notice
to
the
registered
holders
thereof,
shall
be
subject
to
the
right
of
the
Company
from
time
to
time
to
purchase
all
or
any
of
the
said
notes
at
prices
not
exceeding
102%
of
the
principal
amount
thereof,
together
with
accrued
interest,
(any
notes
called
for
redemption
or
purchase
by
the
Company
to
be
forthwith
cancelled)
and
shall
be
registered
in
the
name
of
the
holder
thereof
from
time
to
time.
3.
THAT
this
Agreement
and
everything
herein
contained
shall
enure
to
the
benefit
of
and
be
binding
upon
the
parties
hereto
and
their
respective
heirs,
executors,
administrators,
successors,
and
assigns.
’
‘
Annexed
to
this
agreement
is
a
ratification
reading
as
follows:
"
We,
the
undersigned
holders
of
Preference
Shares
in
the
Capital
Stock
of
UNITED
SERVICE
CORPORATION
LIMITED,
hereby
ratify,
sanction
and
confirm
the
attached
agreement
dated
the
‘9th’
day
of
December,
A.D.
1944,
made
between
the
said
Company
and
Fred
C.
Manning
on
behalf
of
himself
and
all
other
holders
of
Preference
Shares
in
the
Capital
Stock
of
the
said
Company,
and
we
hereby
agree
with
the
said
Company
and
with
each
other
to
be
bound
by
its
terms.
‘
‘
This
ratification
bears
the
signature
of
a
large
number
of
shareholders
with,
opposite
their
names,
the
number
of
preference
shares
held
by
each
of
them.
A.
certified
copy
of
this
agreement
was
filed
as
exhibit
4.
The
resolution
mentioned
in
the
notice
of
appeal,
after
stating
that
the
7%
cumulative
preferential
dividend
on
the
preference
shares
in
the
capital
stock
of
the
company
is
in
arrears
in
respect
of
a
period
of
four
and
one
half
years,
that
the
holders
of
75%
in
number
of
the
said
shares
have
ratified
an
agreement
dated
December
9,
1944,
between
the
company
and
Fred
C.
Manning,
acting
on
behalf
of
himself
and
all
other
holders
of
the
said
preference
shares,
whereby
the
holders
of
the
preference
shares
agree,
in
the
event
of
the
declaration
of
said
dividend,
to
the
postponement
of
the
payment
thereof
in
accordance
with
the
terms
of
the
notes
therein
and
hereinafter
referred
to,
conclude
thus:
"BE
IT
THEREFORE
RESOLVED
that
the
Directors
do
hereby
declare
a
dividend
in
respect
of
the
outstanding
preference
shares
in
the
capital
stock
of
the
Company
of
thirty-one
and
one-half
per
centum
(3112%)
of
the
par
value
thereof,
being
the
amount
of
the
arrears
of
the
said
dividend
at
the
rate
of
7%
for
the
period
of
four
and
one-half
years,
payable
to
the
holders
of
the
said
Preference
Shares
of
record
as
of
the
15th
day
of
December,
A.D.
1944,
according
to
the
terms
of
and
at
the
time
or
times
and
in
the
manner
specified
in
the
form
of
note,
a
draft
of
which
is
attached
hereto
and
initialled
by
the
President
of
the
Company
for
purposes
of
identification.
BE
IT
FURTHER
RESOLVED
that
this
Company
do
issue
and
deliver
on
or
before
the
30th
day
of
December
A.D.
1944,
to
the
holders
of
the
said
Preference
Shares
of
record
as
of
the
loth
day
of
December
A.D.
1944,
its
notes
in
the
form
of
the
aforesaid
draft
as
evidence
of
the
rights
of
the
said
holders
to
the
aforesaid
dividend
to
which
they
may
respectively
be
entitled
and
in
the
principal
amounts
of
the
said
dividend
to
which
they
may
respectively
be
entitled,
and
that
the
President
or
the
Vice-President
and
the
Secretary
or
the
Assistant-
Secretary
of
this
Company
be
and
they
are
hereby
authorized
from
time
to
time
to
execute
on
behalf
of
this
Company
and
affix
the
Corporate
Seal
of
this
Company
to
the
said
notes,
and
to
do
any
and
all
matters
and
things
and
execute
any
and
all
documents
necessary
or
useful
for
carrying
into
effect
this
resolution.”
A
certified
copy
of
an
extract
from
the
minutes
of
a
Directors’
meeting
of
United
Service
Corporation
Limited
held
on
December
9,
1944,
containing
the
said
resolution,
was
filed
as
exhibit
5.
The
note
received
by
the
appellant,
a
copy
of
which
is
annexed
to
the
notice
of
appeal,
is
in
the
following
terms
:
"‘No.
33
UNITED
SERVICE
CORPORATION
LIMITED
$47
25
NOTE
UNITED
SERVICE
CORPORATION
LIMITED,
hereinafter
called
‘the
Company’,
will
on
the
15th
day
of
December,
A.D.
1964,
or
on
such
earlier
date
as
the
principal
monies
of
this
note
become
payable
in
accordance
with
the
conditions
endorsed
hereon,
pay
to
Edward
V.
Flinn
of
Dartmouth,
N.S.
or
other
registered
holder
for
the
time
being,
the
sum
of
Forty-Seven
Dollars
and
Twenty-five
Cents
of
lawful
money
of
the
Dominion
of
Canada.
The
Company
will
pay
to
such
registered
holder
interest
on
the
said
sum
from
the
date
hereof
at
the
rate
of
four
per
centum
per
annum,
until
this
note
is
paid,
by
half-yearly
payments
on
the
15th
days
of
June
and
December
in
each
year,
the
first
of
such
half-yearly
payments
to
be
made
on
the
15th
of
June,
1945.
This
note
is
issued
subject
to,
and
with
the
benefit
of,
the
conditions
endorsed
hereon
which
are
deemed
to
be
a
part
of
it.
GIVEN
UNDER
THE
CORPORATE
SEAL
OF
United
Service
Corporation
Limited,
this
22nd
day
of
December,
A.D.
1944.
(Sed)
F.
C.
Manning,
President
66
George
C.
Thompson,
Assistant
Secretary”
A
certified
copy
of
this
note
was
marked
as
exhibit
6.
Attached
to
the
note
in
question
is
a
document
entitled
‘
"
Conditions
‘
the
only
provisions
whereof
offering
any
interest
in
the
present
case
read
thus
:
"‘1.
This
note
is
one
of
a
series
of
Notes
payable
on
the
15th
day
of
December
in
the
year
1964,
bearing
interest
at
the
rate
of
4
per
centum
per
annum.’’
"
8.
The
notes
of
this
series
shall
be
callable
for
redemption
by
the
Company
in
whole
or
in
part
on
any
interest
payment
date
at
102%
of
the
principal
amount
thereof
on
thirty
days
notice
to
the
registered
holders
thereof.
In
the
event
that
the
Company
calls
for
redemption
less
than
the
whole
of
the
outstanding
notes,
the
notes
to
be
so
redeemed
shall
be
determined
by
drawing
lots,
such
drawing
to
be
made
by
a
person
or
persons
appointed
by
the
Board
of
Directors
of
the
Company
in
such
manner
as
may
be
determined
by
the
Board.
The
said
notes
shall
be
subject
to
the
right
of
the
Company
from
time
to
time
to
purchase
all
or
any
of
the
said
notes
at
prices
not
exceeding
102%
of
the
principal
amount
thereof,
together
with
accrued
interest
to
the
date
of
purchase.
Any
and
all
notes
redeemed
or
purchased
by
the
Company
as
aforesaid
shall
be
forthwith
cancelled.””
The
letter
of
the
president
of
United
Service
Corporation
Limited
to
the
preference
shareholders
of
the
company
dated
December
23,
1944,
a
copy
whereof
is
attached
to
the
notice
of
appeal,
explains
fully
the
circumstances
in
which
the
dividend
note,
with
which
we
are
concerned,
was
issued
and
the
conditions
of
payment
thereof.
I
believe
it
proper
to
quote
the
letter
am
extenso:
‘Dear
Shareholder
:
Your
Directors
have
had
under
consideration
for
some
time
the
question
of
payment
of
the
arrears
of
dividends
on
the
Preferred
Shares
of
the
Company
in
order
that
the
Preference
Dividend
might
be
placed
on
a
current
basis.
Dividends
at
the
rate
of
7%
per
annum
have
been
paid
since
1936
but
no
progress
has
been
made
in
paying
the
dividends
which
were
passed
for
the
four
and
one-half
years
preceding
1936.
Having
in
mind
the
plans
of
the
company
for
post-war
expenditures
your
Directors
have
felt
it
inadvisable
to
reduce
the
current
position
of
the
company
by
the
payment
of
these
arrears
at
the
present
time.
On
December
9th,
1944,
Mr.
F.
C.
Manning,
acting
on
behalf
of
himself
and
all
the
other
preference
shareholders,
entered
into
an
Agreement
with
the
company
whereby
the
Preference
Shareholders
agreed,
on
declaration
of
dividends
in
the
amount
of
the
arrears,
to
postponement
of
the
payment
thereof
in
accordance
with
the
terms
of
20-year
notes
for
the
amount
to
be
issued
by
the
Company.
This
agreement
was
ratified
by
the
holders
of
more
than
75%
of
the
outstanding
Preference
Shares
of
the
Company
and
under
the
articles
of
association
of
the
company
this
agreement
is
therefore
binding
on
all
Preference
shareholders.
Following
the
making
of
the
above
Agreement
the
Direetors
on
the
loth
day
of
December,
1944,
declared
dividends
on
the
Preference
Shares
covering
the
arrears
and
postponing
the
payment
thereof
in
accordance
with
the
terms
of
the
note
which
is
enclosed.
These
notes
are
payable
in
twenty
years
on
December
15th.
1964,
bear
interest
at
4%
per
annum
and
are
redeemable
by
the
Company
prior
to
the
maturity
date
in
accordance
with
the
conditions
endorsed
on
the
note.
{n
the
opinion
of
counsel
for
the
company
under
existing
legislation
delivery
of
this
note
to
you
does
not
constitute
payment
of
a
dividend
and
is,
therefore,
not
taxable
income
when
the
note
is
received;
but
when
the
note
is
redeemed
by
the
company,
the
amount
paid
will
be
taxable
income
in
the
hands
of
the
registered
holder
of
the
note.
Interest
on
this
note
when
paid
by
the
Company
constitutes
taxable
income.
Yours
very
truly,
(Sed)
‘Fred
C.
Manning’
President
UNITED
SERVICE
CORPORATION
LTD.”
À
certified
copy
of
this
letter
was
produced
as
exhibit
7.
A
copy
of
the
memorandum
and
articles
of
association
of
United
Service
Corporation
Limited
was
filed
as
exhibit
2.
The
only
article
which
offers
any
interest
in
the
present
instance
is
number
64,
a
certified
copy
whereof
was
marked
as
exhibit
3;
it
reads
thus:
^Modification
of
Rights
of
Shareholders
"
64.
If
at
any
time
the
share
capital
of
the
Company,
by
reason
of
the
issue
of
preference
shares
or
otherwise,
is
divided
into
different
classes
of
shares,
in
pursuance
of
the
provisions
of
the
next
preceding
article
or
otherwise,
all
or
any
of
the
rights
and
privileges
attached
to
any
such
class
may
be
modified,
altered,
varied,
affected,
commuted,
abrogated
or
otherwise
dealt
with
by
agreement
between
the
Company
and
any
person
purporting
to
contract
on
behalf
of
that
class,
provided
such
agreement
is
ratified
in
writing
by
the
holders
of
at
least
three-fourths
in
number
of
the
issued
shares
of
the
class
or
by
a
resolution
passed
and
confirmed
by
the
same
majority
and
in
the
same
manner
as
a
special
resolution
at
extraordinary
general
meetings
of
the
holders
of
shares
of
that
class,
and
all
the
provisions
hereinafter
contained
as
to
general
meetings
shall,
mutatis
mutandis,
apply
to
every
such
meeting,
but
so
that
the
quorum
thereof
shall
be
members
holding,
or
representing
by
proxy,
one-half
in
number
of
the
issued
shares
of
the
class.
This
clause
is
not
by
implication
to
curtail
the
power
of
modification
which
the
Company
would
have
if
this
clause
were
omitted.”
The
question
at
issue
is
whether
or
not
the
dividend
note
of
United
Service
Corporation
Limited
for
$47.25
dated
Decem.
ber
22,
1944,
payable
to
the
appellant
on
the
15th
of
December,
1964,
or
on
such
earlier
date
as
the
principal
moneys
of
this
note
become
payable
in
accordance
with
the
conditions
endorsed
thereon,
received
by
the
appellant
from
the
company,
which
on
the
date
of
the
appellant’s
return
of
income
for
the
year
1944
had
not
been
paid
constitutes
an
income.
Income
is
defined
in
sec.
3
of
the
Act,
the
material
part
whereof
reads
as
follows:
‘For
the
purposes
of
this
Act,
‘income’
means
the
annual
net
profit
or
gain
or
gratuity,
whether
ascertained
and
capable
of
computation
as
being
wages,
salary,
or
other
fixed
amount,
or
unascertained
as
being
fees
or
emoluments,
or
as
being
profits
from
a
trade
or
commercial
or
financial
or
other
business
or
calling,
directly
or
indirectly
received
by
a
person
from
any
office
or
employment,
or
from
any
profession
or
calling,
or
from
any
trade,
manufacture
or
business,
as
the
case
may
be
whether
derived
from
sources
within
Canada
or
elsewhere;
and
shall
include
the
interest,
dividends
or
profits
directly
or
indirectly
received
from
money
at
interest
upon
any
security
or
without
security,
or
from
stocks,
or
from
any
other
investment,
and,
whether
such
gains
or
profits
are
divided
or
distributed
or
not,
.
.
.””
I
have
to
determine
if
in
1944
the
appellant
received
‘‘interest,
dividends
or
profits’’
from
“stocks
or
from
any
other
investment”.
It
is
clear
to
me
that
the
appellant
during
the
year
1944
received
only
from
United
Service
Corporation
Limited
note
number
33,
dated
December
22,
1944,
for
$47.25,
which
is
to
mature
on
December
15,
1964.
or
on
such
earlier
date
“as
the
principal
monies
of
this
note
become
payable
in
accordance
with
the
conditions
hereon’’.
As
submitted
by
counsel
for
appellant
the
time
of
payment
of
a
dividend
determines
the
year
in
which
it
is
assessable
to
tax.
Subsec.
(1)
of
see.
12
of
the
Act
indeed
enacts:
“Dividends
or
shareholders’
bonuses
shall
be
taxable
income
of
the
taxpayer
in
the
year
in
which
they
are
paid
or
distributed.’’
The
authors
and
the
jurisprudence
support
the
doctrine
that
it
is
the
time
of
payment
of
a
dividend
which
determines
the
year
in
which
it
is
subject
to
assessment.
Plaxton
and
Varcoe,
in
their
Treatise
on
the
Dominion
Income
Tax
Law,
second
edition,
make
the
following
comments
(p.
168):
""
Received
and
Accrued.—In
considering
this
question
of
the
method
to
determine
profits
it
should
be
remarked
that
the
Dominion
Act
imposes
the
charge
simply
upon
the
annual
net
profit
or
gain
directly
or
indirectly
"
received’
rather
than
earned
or
made,
and
this
provision
contemplates
the
determination
of
profits
by
the
best
accounting
system
applicable
to
the
particular
business
in
question,
and
the
word
"‘received’’
must
be
interpreted
to
mean
‘received’
in
a
sense
in
which
it
would
be
used
by
a
business
man
in
referring
to
the
profits
of
the
year
of
assessment.
In
many
cases
it
means
‘accrued’
or
‘earned’
so
that
profits
earned,
but
not
actually
received
or
paid,
should
wherever
a
business
is
carried
on
be
regarded
as
‘received’
for
the
purpose
of
assessment.’’
In
the
case
of
St.
Lucia
Usines
and
Estates
Company
Ltd.
and
Colonial
Treasurer
of
St.
Lucia,
[1924]
A.C.
508,
the
headnote,
fairly
accurate
and
comprehensive,
reads
thus:
""In
1920
the
appellants
sold
all
their
property
in
St.
Lucia
and
ceased
to
reside
or
carry
on
business
there.
In
1921
interest
upon
the
unpaid
part
of
the
purchase
price
was
payable
to
them,
but
it
was
not
paid.
The
appellants
were
liable
to
pay
income
tax
for
the
year
1921
under
the
Income
Tax
Ordinance,
1910,
of
St.
Lucia,
only
if
the
interest
above
mentioned
was
‘income
arising
and
accruing’
to
them
in
1921:
Held,
that
though
the
interest
was
a
debt
aceruing
in
1921
it
was
not
‘income
arising
or
accruing’
in
1921,
and
that
the
appellants
were
not
liable
under
the
Ordinance
to
pay
tax
for
that
year.
Held,
further,
that
the
appellant
not
being
liable
to
assessment
at
all
for
1921,
it
was
not
material
that
by
s.
25
of
the
Ordinance
an
assessment
when
entered
in
the
list
was
to
be
final
and
conclusive’.”
The
following
observations
by
Lord
Wrenbury
are
pertinent
and
interesting
(p.
512)
:
"‘The
words
‘arising
or
accruing’
occur
repeatedly
in
the
Ordinance,
e.g.,
in
s.
4,
sub-s.
1(a)
(ô)
(c)
(d)
and
(e),
coupled
with
the
words
‘and
derived
from’
or
‘or
derived
from’.
Sometimes
the
expression
‘derived
from’
is
used
alone,
s.
5,
Sub-s.
l(a)
(c)
(g)
(i)
and
(ii).
The
respondent
contends
that
the
above
interest
‘accrued’
to
the
company
in
the
year
1921,
because
it
was
payable
in
that
year
and
none
the
less
because
it
was
not
paid
in
that
year.
Their
Lordships
do
not
agree.
The
words
‘income
arising
or
accruing’
are
not
equivalent
to
the
words
‘debts
arising
or
accruing’.
To
give
them
that
meaning
is
to
ignore
the
word
‘income’.
The
words
mean
‘money
arising
or
accruing
by
way
of
income’.
There
must
be
a
coming
in
to
satisfy
the
word
‘income’.
This
is
a
sense
which
is
assisted
or
confirmed
by
the
word
‘received’
in
the
proviso
at
the
end
of
s.
4,
sub.-s.
1.
If
the
taxpayer
be
the
holder
of
stock
of
a
foreign
Government
carrying
say
5
per
cent.
interest,
and
the
Government
is
that
of
a
defaulting
State
which
does
not
pay
the
interest,
the
taxpayer
has
neither
received
nor
has
there
accrued
to
him
any
income
in
respect
of
that
stock.
A
debt
has
accrued
to
him
but
income
has
not.”
In
re
Cross
v.
London
and
Provincial
Trust,
Limited,
[1938]
1
K.B.
792,
the
Court
of
Appeal,
affirming
the
judgment
of
Finlay,
J.,
held
that
:
"Where
a
debtor
defaults
and
the
appropriate
income
being
money
is
not
changed
into
something
else
but
remains
money
which
the
debtor
promises
to
pay
at
a
later
date,
it
cannot
be
said
that
the
security
has
produced
any
income.
The
form
of
the
funding
bond
has
nothing
but
a
promise
to
pay
at
a
future
date
the
interest
in
respect
of
which
default
has
been
made.
The
respondent
company
was
not
therefore
assessable
to
the
income
tax
under
Case
IV.
of
Sch.
D
of
the
Income
Tax
Act,
1918,
in
respect
thereof.’’
At
page
796
we
find
the
following
relevant
comments
by
Sir
Wilfred
Greene,
M.R.:
"It
is
not
open
to
question
that
income
can
be
in
the
form
of
money’s
worth.
Nor
is
it
open
to
question
that
if
the
holder
of
a
security,
the
contractual
income
from
which
is
money,
receives
from
the
person
liable
to
pay
that
money
something
of
money’s
worth,
namely
goods,
instead
of
the
money,
such
goods
are
income
arising
from
the
security.
Compare
Scottish
and
Canadian
General
Investment
Co.
Ltd.
v.
Easson
(1922),
8
Tax
Cas.
265,
where
debentures
of
a
new
company
were
received
in
place
of
interest
due
on
bonds
issued
by
an
old
company.
On
the
other
hand
where
there
is
a
mere
substitution
of
a
promise
to
pay
at
a
later
date
for
the
obligation
to
make
an
interest
payment
presently
due,
the
owner
of
the
security
cannot
be
said
to
have
received
income
from
it.
In
such
a
case
in
truth
that
is
exactly
what
has
not
happened,
since
the
payment
has
been
postponed
instead
of
being
made
on
its
due
date.
Nor
do
I
see
how
it
can
make
any
difference
if
upon
the
true
reading
of
the
transaction
the
original
obligation
is
extinguished
and
the
promise
to
pay
at
a
later
date
is
accepted
in
its
place.
If
the
holder
of
a
mortgage
agrees
to
accept
a
post-dated
cheque
in
lieu
of
interest
which
has
accrued
due,
it
would
surely
be
a
misuse
of
language
to
say
that
he
had
received
income
from
the
mortgage,
and
that
notwithstanding
the
fact
(which
I
will
assume)
that
the
post-dated
cheque
was
a
thing
of
money’s
worth.
A
question
of
this
nature
arose
under
the
Indian
Income-tax
Act
(XI.
of
1922)
in
Commissioner
of
Income-tax,
Bihar
and
Orissa
v.
Maharajadhiraja
of
Darbhanga
(1933),
L.R.
60
L.A.
146,
161.”
MacKinnon,
L.J.,
expresses
the
same
opinion
(p.
803):
""The
essential
nature
of
the
transaction
was
that
the
debtor,
avowing
his
inability
to
pay
what
had
fallen
due,
gave
instead
his
written
promise
to
pay
at
a
future
date.
He
might
Just
as
well
have
given
his
own
post-dated
cheque.
Or,
still
more
simply,
he
might
have
written
on
each
of
the
gold
bond
coupons
a
promise
to
pay
it
in
twenty
years,
with
interest
annually
until
payment.
It
is
quite
true
that
income
may
arise
by
the
receipt
of
money’s
worth
as
well
as
by
the
receipt
of
money.
And
it
is
equally
true
that
a
debtor
may
pay
his
debt
by
giving
the
promise
of
a
third
party
to
pay;
indeed
the
best
form
of
payment
in
the
world,
Bank
of
England
notes,
if
subjected
to
the
unusual
treatment
of
being
read,
will
be
found
to
be
promises
by
a
third
party
to
pay.
But
I
am
satisfied
that
there
can
never
be
payment
of
his
debt
by
a
debtor
by
giving
his
own
promise
to
pay
at
a
future
date.
And
I
am
equally
satisfied
that,
though
income
arises
to
a
creditor
from
a
debtor’s
having
his
debt,
income
does
not
arise
by
the
debtor’s
promising
that
he
will
pay
his
debt
later
on.”
The
same
view
was
adopted
in
Associated
Insulation
Products
Ltd.
v.
Golder,
[1944]
1
All
E.R.
533
and,
[1944]
2
All
E.R.
208.
In
the
first
instance
that
was
a
decision
of
Macnaghten,
J.,
later
affirmed
by
the
Court
of
Appeal
(Scott
and
du
Parcq,
L.JJ.,
and
Uthwatt,
J.).
The
headnote
relating
to
the
judgment
of
Macnaghten,
J.,
is
thus
worded
(p.
533)
:
"The
appellant
company
was
the
beneficial
owner
of
a
number
of
shares
in
a
corporation
formed
under
the
laws
of
the
United
States
of
America.
On
Dec.
15,
1936,
the
American
corporation
declared
a
dividend
but
by
a
further
resolution
provided
that
the
distribution
of
the
dividend
should
be
in
the
form
of
a
certificate
of
indebtedness
to
the
shareholders
payable
on
Jan.
1,
1940,
with
interest
thereon
at
a
fixed
rate
until
payment.
The
appellant
company
contended
that
it
was
assessable
to
income
tax
in
respect
of
this
dividend
in
the
year
in
which
the
dividend
was
declared:
Held:
the
company
was
assessable
in
respect
of
the
dividend
in
the
year
in
which
it
was
actually
paid.’’
In
his
judgment
Macnaghten,
J.
makes
the
following
observation
(p.
534)
:
"‘In
the
computation
of
the
profits
of
a
trade
or
business
debts
due
in
respect
of
the
trade
or
business
must,
no
doubt,
be
included;
but
dividends
are
not
assessable
until
they
are
received.
Dividends
payable
in
future
are
not
assessable
until
they
become
payable
and
are
actually
paid.’’
Counsel
for
appellant
intimated
that
the
facts
in
that
case
are
very
close
to
those
in
the
case
at
bar,
noting
that
the
main
difference
is
that
the
declaration
of
dividend
in
the
latter
was
followed
by
the
distribution
of
notes
in
compliance
with
the
resolution,
whilst
in
the
former
the
American
corporation,
after
declaring
a
dividend,
provided
by
a
further
resolution
that
the
distribution
should
be
in
the
form
of
certificates
of
indebtedness.
Counsel’s
submission
that
a
promissory
note
is
a
certificate
of
indebtedness
accompanied
by
a
promise
to
pay
at
a
later
date
is,
in
my
opinion,
well-founded.
In
the
Court
of
Appeal
Scott,
L.J.
expressed
this
opinion
(p.
203)
:
"‘The
only
question
which
I
think
calls
for
any
consideration
is
what
was
the
substantial
effect
of
the
double
resolution
of
the
American
company
passed
on
Dec.
15,
1936,
and
of
the
similar
one
passed
on
Dec.
20,
1937.
If
those
resolutions
provided
in
reality
for
a
distribution
by
way
of
dividend
not
of
money
but
of
money’s
worth,
the
income
tax
due
in
respect
of
it
under
case
V
would
be
not
on
the
money
figure
of
interest
payable
on
each
share,
but
on
the
market
value
of
the
certificates
on
the
date
of
their
distribution
multiplied
by
the
number
of
shares
held.
If,
on
the
other
hand,
the
reality
of
the
transaction
was
the
declaration
of
a
money
dividend
payable
not
presently,
but
only
on
a
future
date,
namely,
Jan.
1,
1940,
then
it
follows
that
till
the
due
date
arrived
and
payment
was
in
fact
received
by
the
respondent
company
as
shareholder,
no
income
arose
from
its
foreign
possessions.
On
the
whole
I
think
the
latter
is
the
true
view
of
what
was
done.
The
first
half
of
the
double
resolution
expresses
the
real
intention
rather
than
the
second.
The
certificates
seem
to
me
to
have
been
intended
as
a
consolation
for
postponement
of
payment,
which
would
on
the
one
hand
assure
a
reasonable
rate
of
interest
during
postponement,
and
on
the
other
give
some
of
the
advantages
of
a
security
for
an
existing
debt,
debitum
in
praesenti
though
only
solvendum
in
futnro
:
for
they
would
have
some—perhaps
a
high—market
value.”’
Du
Pareq,
L.J.
made
substantially
similar
observations
(p.
204)
:
"‘I
cannot
accept
the
suggestion
put
forward
by
the
appellants
that
the
decision
in
Cross’s
case
(Cross
v.
London
&
Provincial
Trust,
Ltd.,
[1938]
1
K.B.
792)
turned
on
the
fact
that
the
promise
made
under
the
funding
plan
was
substituted
for
an
earlier
promise
to
pay
interest.
On
the
contrary,
this
court
seems
to
me
to
have
decided
as
it
did,
not
because
of,
but
rather
in
spite
of,
the
fact
that
a
new
promise
had
been
substituted
for
the
earlier
one.
The
Crown,
as
I
read
the
report
of
the
argument,
was
seeking
to
rely
on
that
fact.
The
argument
was
that
the
old
debt
had
gone,
and
that
the
bondholder
had
taken
something
marketable
in
its
place.
‘The
interest’,
it
was
said,
‘is
discharged
and
money’s
worth
takes
its
place’.
The
argument
for
the
subject
was
that
a
repeated
promise
to
pay
is
no
more
equivalent
to
payment
than
the
original
promise.
Promises
are
not
payment.
This
latter
argument
prevailed
and
it
was
held
that,
when
all
was
said,
the
funding
bond
then
in
question
was
‘nothing
but
a
promise
to
pay
at
a
future
date
the
interest
in
respect
of
which
default
has
been
made’:
see
the
judgment
of
Sir
Wilfrid
Greene,
M.R.,
at
p.
800,
[1938]
1
All
E.R.,
at
p.
433).
If
the
words
‘in
respect
of
which
default
has
been
made’
are
omitted
from
the
statement,
the
logic
of
the
proposition
and
the
principle
which
it
states
are
alike
unaffected.
To
my
mind,
it
is
clear
from
the
judgment
of
Sir
Wilfrid
Greene,
M.R.,
read
as
a
whole,
that
a
post-dated
cheque,
or
a
promissory
note,
or
a
promise
in
the
form
of
the
‘negotiable
instrument’
(as
it
is
called)
which
we
have
before
us
in
the
present
case,
can
never
be
regarded
as
‘income
arising
from
securities
out
of
the
United
Kingdom’
or
(to
quote
the
words
now
applicable
to
the
case)
as
‘income
arising
from
possessions
out
of
the
United
Kingdom’.
They
are
money’s
worth,
no
doubt,
but
they
are
not
income.’’
Uthwatt,
J.
agreed
with
his
colleagues
and
stated
(p.
205):
‘“The
material
surrounding
circumstances
as
found
by
the
Commissioners
are
(i)
that
the
corporation
while
having
a
fund
of
profits
available
for
distribution
had
not
the
necessary
cash
in
hand
and
were
unwilling
to
borrow
and
that
this
was
the
reason
for
the
issue
of
the
certificates;
(ii)
that
while
neither
resolution
used
the
word
'dividend’,
the
circular
which
accompanied
the
second
distribution
records
that
the
directors
in
their
resolution
relating
to
it
‘had
declared
a
dividend
of
16
per
cent’,
and
states
that
‘the
distribution
of
16
per
cent
is
not
to
be
paid
in
cash
but
to
be
in
the
form
of
scrip
.
..
which
is
in
the
form
of
a
certificate
of
indebted-
ness‘;
(iii)
the
accounts
of
the
corporation
refer
to
the
two
distributions
as
‘dividends’
and
to
the
latter
distribution
as
a
dividend
paid;
debit
the
total
amount
of
their
‘surplus’
and
enter
the
amount
payable
under
the
certificates
on
the
liabilities
side
of
the
balance
sheet
along
with
current
indebtedness,
but
do
not
treat
the
sum
in
terms
as
loan
capital.
To
my
mind
the
proper
inference
is
that
a
distribution
of
profits
as
such
was
intended
and
made.
The
substance
of
the
transaction,
in
my
opinion,
was
the
declaration
of
an
ordinary
dividend
attracted
by
the
stock,
such
dividend
being
payable
at
a
future
date,
and
the
stockholders’
rights
in
respect
of
the
dividend
being
for
convenience
stated
in
a
document
which
erystallised
the
position
and
made
their
rights
conveniently
marketable.
Taking
that
view
of
the
transaction,
the
first
paint
taken
by
the
company
fails
and
upon
the
second
point
it
follows
that
upon
the
authority
of
Cross’s
case
([1938]
1
K.B.
792)
taxable
income
did
not
arise
to
the
stockholders
before
the
due
date
for
payment
under
the
certificates.’’
The
case
before
me
and
that
of
Associated
Insulation
Products
Limited
v.
Golder
are
very
much
alike.
It
would
be
difficult,
I
presume,
to
find
two
other
eases
showing
so
many
points
of
similitude.
In
the
case
of
Associated
Insulation
Products
Limited
v.
Golder,
the
resolution
sets
out
that
the
directors
of
the
company
have
declared
a
dividend
of
16%
and
that
its
distribution
will
not
be
paid
in
cash,
but
in
the
form
of
a
scrip
which
is
equivalent
to
a
certificate
of
indebtedness,
payable
on
a
future
date.
In
the
matter
now
pending
United
Service
Corporation
Limited,
which
had
on
hand
earnings,
but
not
in
the
form
of
cash,
and
wished
to
pay
to
its
shareholders
the
dividends
in
arrears,
passed
the
resolution
hereinabove
related
declaring
a
dividend
payable
twenty
years
later,
save
in
certain
contingencies
which,
by
the
way,
did
not
materialize.
Every
condition
required
to
be
made
in
the
Associated
Insulation
Products
Limited
case
in
order
that
a
dividend
should
be
paid
in
the
year
in
which
it
was
acually
received
and
not
the
year
in
which
the
certificates
were
issued
exists
in
the
present
case
but,
judging
from
the
report
of
the
Associated
Insulation
Products
Limited
case,
the
facts
herein
are
more
clearly
established.
see
also
Lambe
v.
Commissioners
of
Inland
Revenue,
[1934]
1
K.B.
178.
There
are
no
judgments
of
our
Courts,
as
far
as
I
know,
in
conflict
with
the
decision
of
the
Court
of
Appeal,
which
unanimously
affirmed
the
judgment
of
Macnaghten,
J.,
and
I
feel
that
it
should
be
followed.
The
balance
sheet
and
the
profit
and
loss
statement
(exhibit
8)
of
United
Service
Corporation
Limited
for
the
year
ending
December
31,
1944,
show
the
way
in
which
the
liability
to
the
shareholders
amounting
to
$236,250.17
was
carried.
The
same
amount
appears
in
the
balance
sheet
and
the
profit
and
loss
statement
for
the
year
ending
December
31,
1945,
filed
as
exhibit
9.
The
following
decisions,
in
the
same
sense,
may
be
consulted
beneficially
:
Income
Tax
Case
No.
71,
3
S.A.T.C.
60;
Rand
Ropes
(Proprietary)
Ltd.
v.
Commissioner
of
Inland
Revenue,
13
S.A.T.C.
1
and
S.A.L.R.
(1944),
A.D.
142.
In
the
first
case
it
was
held,
allowing
an
appeal,
that:
"the
receipt
of
a
cheque
did
not
result
in
a
receipt
of
cash
by
the
recipient
until
the
cheque
had
passed
through
the
bank
and
the
amount
had
been
credited
to
the
payee;
consequently
on
the
basis
of
assessment
adopted
in
respect
of
the
appellant
the
amount
of
a
cheque
which
could
not
be
deposited
with
the
bank
for
collection
before
the
1st
July,
1925,
could
not
be
included
in
his
income
for
the
year
ended
on
the
30th
June,
1925.”
In
re
White
Star
Line
Ltd.,
[1938]
All
E.R.
607
the
headnote,
after
relating
the
facts
in
detail,
gives
a
brief
but
substantial
summary
of
the
judgment.
I
believe
it
apposite
to
quote
this
headnote
:
"The
R.M.
Co.
was
the
holder
of
a
large
number
of
shares
in
the
W.S.
Co.
Both
companies
were
in
liquidation,
and
a
claim
was
made
by
the
liquidator
of
the
W.S.
Co.
requiring
the
payment
of
£750,990
from
the
R.M.
Co.
as
contributories
in
respect
of
the
shares.
The
R.M.
Co.
contended
that
by
an
arrangement
sanctioned
by
the
court
the
sum
of
£750,990
was
agreed
to
be
satisfied
by
the
issue
of
deferred
creditors’
certificates
by
which
the
payment
of
the
debt
was
postponed
to
an
indefinite
date,
the
W.S.
Co.
together
with
all
other
creditors
obtaining
a
certain
measure
of
control
over
the
business
of
the
R.M.
Co.
and
payment
of
interest
in
the
meantime
only
out
of
contingent
profits.
It
was
contended
that
this
was
a
payment
in
money’s
worth
of
the
calls
upon
the
shares.
The
deferred
certificates
were
at
all
material
times
worth
less
than
their
face
value
:
Held:
on
a
due
consideration
of
all
the
facts,
money’s
worth
was
not
given
by
the
issue
of
the
certificates.
The
consideration
for
the
release
of
the
calls
was,
therefore,
illusory
and
the
transaction
did
not
amount
to
payment
within
the
Companies
Act,
1929,
s.
157.”
See
also
Hope
v.
Minister
of
National
Revenue
[1928-34]
C.T.C.
30;
Capital
Trust
Corporation
Ltd.
et
al.
v.
Minister
of
National
Revenue
[1935-37]
C.T.C.
364,
387;
Robertson
Ltd.
v.
Minister
of
National
Revenue
[1944]
C.T.C.
75;
Trapp
v.
Minister
of
National
Revenue
[1946]
C.T.C.
30;
Dominion
of
Canada
Taxation
Service,
H.
H.
Stikeman,
formerly
assistant
deputy
minister
of
the
Department
of
National
Revenue
for
taxation,
pp.
12-2
and
12-3.
It
was
submitted
on
behalf
of
respondent
that
United
Service
Corporation
was
in
a
position
to
pay
the
arrears
of
dividends
which
it
owed
and
for
which
it
distributed
dividend
notes
to
its
shareholders.
From
this
premise
counsel
concluded
that
the
amounts
of
these
notes
in
the
hands
of
the
shareholders
constituted
income.
In
his
opinion,
the
agreement
between
the
company
and
its
shareholders
was
that
the
company
would
declare
the
dividend
and
that
the
shareholders
would
lend
the
money
back
to
the
company
and
draw
interest
of
4%
per
annum
on
the
money
so
loaned.
This
would
undoubtedly
be
a
very
ingenious
scheme
for
evading
income
tax.
The
scheme
however
has
not
been
established
and
I
do
not
think
that,
without
any
evidence
to
that
effect,
I
should
assume
that
the
transaction
which
intervened
between
the
company
and
its
shareholders
was
executed
for
the
purpose
of
avoiding
income
tax.
On
the
contrary
the
balance
sheet
of
the
company
for
the
year
ending
December
31,
1944,
shows
that,
at
the
time
the
dividend
notes
were
issued,
the
company
had
not
the
available
cash
to
pay
the
outstanding
dividends.
It
was
the
duty
of
the
Crown
to
establish
that
the
appellant
was
liable
to
taxation
;
this
the
Crown
has
failed
to
do.
I
do
not
think
that
the
judgment
in
Waterous
v.
The
Minister
of
National
Revenue
[1928-34]
C.T.C.
163,
cited
by
counsel
for
respondent
is
relevant
and
has
any
bearing
on
the
question
at
issue.
A
careful
perusal
of
the
Act,
of
the
doctrine
and
of
the
precedents
has
convinced
me
that
the
dividend
note
for
$47.25
dated
the
22nd
day
of
December,
1944,
payable
on
December
15,
1964,
or
on
such
earlier
date
as
the
principal
monies
of
the
note
become
payable
in
accordance
with
the
conditions
endorsed
thereon,
received
by
appellant
from
United
Service
Corporation
Limited,
is
not
‘‘interest,
dividends
or
profits’’
received
from
"stocks”
during
the
year
1944.
In
my
opinion,
it
will
only
acquire
that
quality
when
it
is
paid.
Presently
it
merely
constitutes
an
acknowledgment
of
debt
in
so
far
as
the
company
is
concerned
and
a
claim
with
regard
to
the
appellant.
Like
many
other
claims
it
may
never
be
satisfied.
There
will
be
Judgment
maintaining
the
appeal,
setting
aside
the
assessment
for
the
year
1944
and
the
decision
of
the
Minister
affirming
it
and
ordering
that
the
sum
of
$16.50
representing
the
tax
on
the
dividend
note
aforesaid
be
struck
from
the
assessment.
The
appellant
will
be
entitled
to
his
costs
against
the
respondent.
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