Lord
MACMiLLAN
:—In
the
fiscal
year
1940-41
the
appellant
company,
in
pursuance
of
their
business
as
lumbermen,
held
three
Government
licences
under
which
they
cut
timber
in
three
areas
of
Crown
Land
in
the
Province
of
Alberta.
In
making
their
income
tax
return
for
the
year
they
deducted
a
sum
which
they
claimed
as
an
allowance
for
depletion
of
the
timber
included
in
their
licences
at
the
rate
of
$1.40
per
thousand
feet
of
timber
eut.
To
this
deduction
they
claimed
that
they
were
entitled
under
section
5(1)
(a)
of
the
Dominion
Income
War
Tax
Act,
R.S.C.
1927,
c.
97,
which,
as
amended
by
section
10
of
1940,
e.
34,
reads
as
follows:
"5.
‘Income’
as
hereinbefore
defined
shall
for
the
purposes
of
this
Act
be
subject
to
the
following
exemptions
and
deductions
:
(a)
The
Minister
in
determining
the
income
derived
from
mining
and
from
oil
and
gas
wells
and
timber
limits
may
make
such
an
allowance
for
the
exhaustion
of
the
mines,
wells
and
timber
limits
as
he
may
deem
just
and
fair,
and
in
the
case
of
leases
of
mines,
oil
and
gas
wells
and
timber
limits
the
lessor
and
lessee
shall
be
entitled
to
deduct
a
part
of
the
allowance
for
exhaustion
as
they
agree,
and
in
case
the
lessor
and
lessee
do
not
agree
the
Minister
shall
have
full
power
to
apportion
the
deduction
between
them
and
his
determination
shall
be
conclusive.”
In
the
assessment
subsequently
made
upon
the
appellant
company
the
deduction
which
they
claimed
was
disallowed.
They
thereupon
served
a
notice
of
appeal
upon
the
respondent,
the
Minister
of
National
Revenue,
in
which
they
set
out
as
the
ground
of
their
appeal
that
under
the
above-quoted
provision
of
the
Income
War
Tax
Act
they
had
a
‘‘statutory
right’’
and
were
"‘entitled
to
an
allowance
for
the
exhaustion
of
the
said
timber
limits”,
being
the
areas
included
in
their
licences;
and
that
the
Minister
had
"‘a
duty
of
a
quasi-judicial
character,
to
be
exercised
on
proper
legal
principles,
to
fix
a
just,
fair
and
reasonable
amount
as
an
allowance
to
the
appellant
for
the
exhaustion
of
the
said
timber
limits’’,
which
duty
the
Minister
had
failed.
to
perform.
The
Minister
affirmed
the
assessment,
stating
his
decision
as
follows
:
‘“The
Honourable
the
Minister
of
National
Revenue,
having
duly
considered
the
facts
as
set
forth
in
the
Notice
of
Appeal
and
matters
thereto
relating,
hereby
affirms
the
said
Assessment
on
the
ground
that
the
taxpayer
is
not
entitled
to
an
allowance
under
the
provisions
of
sub-section
(a)
of
section
9
of
the
Income
War
Tax
Act
for
the
exhaustion
of
timber
limits
owned
by
the
Crown
in
right
of
the
Province
of
Alberta
on
which
the
taxpayer
has
been
licensed
to
cut
timber.
Therefore
on
these
and
related
grounds
and
by
reason
of
other
provisions
of
the
Income
War
Tax
Act
and
Excess
Profits
Tax
Act
the
said
Assessment
is
affirmed?
‘
The
appellant
company
gave
notice
to
the
Minister
of
their
dissatisfaction
with
his
decision
and
of
their
desire
that
their
appeal
be
set
down
for
trial.
In
an
accompanying
statement
of
particulars
they
repeated
their
contention
that
they
had
a
statutory
right
to
a
deduction
for
depletion.
The
Minister
replied
denying
the
appellant
company’s
allegations
and
re-affirming
the
assessment.
The
documents
were
thereupon
transmitted
to
the
Exchequer
Court
at
Edmonton
and
the
matter
was
under
the
Statute
deemed
to
be
an
action
in
the
Court
ready
for
trial
or
hearing.
An
order
for
formal
pleadings
was
pronounced.
The
appellant
company
lodged
an
amended
statement
of
claim,
in
which
they
reasserted
their
statutory
right
to
a
deduction.
The
Minister
lodged
a
statement
of
defence
denying
the
right
claimed
and
further
submitting
that
the
appellant
company
had
no
proprietary
or
other
depletable
interest
in
the
timber
limits,
that
they
were
not
lessees
within
the
meaning
of
the
Act
but
were
simply
purchasers
of
the
timber
and
that
the
cost
of
the
timber
in
the
year
in
question
had
been
allowed
as
a
deduction
in
determining
the
profits
subject
to
tax.
The
ease
having
come
on
for
hearing
before
His
Honour
Judge
Cameron
both
parties
were
allowed
to
amend
their
pleadings.
The
Minister’s
amendment,
to
which
no
objection
was
taken,
consisted
in
adding
to
his
statement
of
defence
the
following
paragraph
:
(17.
That
in
the
years
prior
to
the
taxation
year
1941
the
Minister
has
allowed
to
the
appellant
amounts
for
exhaustion
which
have
enabled
the
appellant
to
recover,
free
of
income
tax,
its
entire
cost
of
any
timber
licences
or
permits
held
by
it,
and
in
making
the
said
allowances
the
Minister
has
exercised
the
discretionary
power
vested
in
him
by
the
provisions
of
section
5(1)
(a)
of
the
Income
War
Tax
Act.”
No
evidence
was
led
at
the
trial
on
behalf
of
the
Minister
but
each
party
put
in
evidence
extracts
from
testimony
given
on
examination
for
discovery
by
Mr.
C.
Fraser
Elliott,
the
Deputy
Minister,
who,
as
the
duly
authorized
delegate
of
the
Minister,
had
made
the
decision
impugned.
Several
witnesses
were
called
and
gave
evidence
on
behalf
of
the
appellant
company.
In
the
extract
from
the
evidence
of
Mr.
Elliott
on
discovery
put
in
by
the
appellant
company
the
following
passage
occurs
in
his
examination
on
behalf
of
the
company
:
"‘Q.
Mr.
Elliott,
in
exercising
your
discretion
here
you
have
taken
the
position
that
the
appellant
is
not
entitled
to
an
allowance
under
the
provisions
of
section
5(a)
for
the
exhaustion
of
timber
limits,
I
take
it
because
the
timber
limits
are
owned
by
the
Crown
and
the
appellant
has
only
been
licensed
to
cut
the
timber?
A.
Because
he
has
only
a
licence.
Q.
And
that
is
your
sole
objection
to
the
allowance,
I
take
it?
A.
That
is
right.’’
In
another
passage,
put
in
evidence
on
behalf
of
the
Minister,
Mr.
Elliott
in
cross-examination
explained
that
his
disallowance
of
the
deduction
claimed
was
based
not
only
on
his
conception
of
the
legal
position
of
the
appellant
company
in
relation
to
their
timber
limits
but
also
on
the
view
that
they
had
been
allowed
as
expenses
‘‘all
expenditures
incurred
in
securing
the
timber
‘
‘
and
had
14
made
no
capital
investment
which
we
feel
required
depletion’’.
His
Honour
Judge
Cameron
on
20th
December,
1945,
dismissed
the
appeal,
holding
that
the
Minister
on
a
sound
interpretation
of
the
Statute
had
"‘a
discretionary
power,
after
considering
all
the
facts,
to
grant
or
withhold
any
allowance’’
and
that
the
Minister
had
‘‘execised
that
discretion
according
to
proper
legal
principles”.
The
appellant
company
then
appealed
to
the
Supreme
Court
of
Canada
which
unanimously
affirmed
the
judgment
of
the
Exchequer
Court
and
dismissed
the
appeal.
Special
leave
to
appeal
having
been
granted
to
the
appellant
company
by
Order
in
Council,
their
Lordships
have
heard
the
ease
fully
areued
and
now
express
the
conclusions
which
they
have
reached.
In
both
of
the
Courts
in
Canada
there
was
much
argument
as
to
the
precise
legal
position
of
the
appellant
company
as
licensees
of
their
timber
limits.
The
Minister
contended
that
being
mere
purchasers
of
the
timber
which
they
cut
and
not
being
lessees
they
were
not
entitled
to
invoke
section
5(1)
(a)
of
the
Statute
and
were
not
eligible
for
any
depletion
allowance,
so
that
his
discretion
to
make
an
allowance
was
not
called
into
action.
Before
their
Lordships
counsel
for
the
Minister
abandoned
this
contention
and
no
more
need
be
said
about
it.
The
argument
at
their
Lordships’
bar
was
mainly
directed
to
two
questions,
(1)
whether
under
the
Statute
the
Minister
is
bound
in
law
to
make
a
deduction
for
depletion
in
determining
the
income
derived
from
the
enumerated
classes
of
undertakings
and
has
a
discretion
only
as
to
the
amount
to
be
allowed;
or
whether
he
has
a
discretion
not
limited
to
the
amount
of
the
allowance
but
entitling
him
to
refuse
to
make
any
allowance
at
all;
and
(2)
whether
on
either
view
the
Minister
in
the
present
ease
validly
exercised
his
discretion.
(1)
Taking
the
Statute
as
it
stands,
their
Lordships
are
of
opinion
that
the
section
in
providing
that
the
Minister
may
make
under
the
head
of
‘‘depletion’’
such
an
allowance
for
exhaustion
of
timber
limits
as
he
may
deem
just
and
fair,
plainly
confers
on
the
Minister
a
discretion
to
determine
whether
the
case
before
him
is
one
for
making
any
allowance
at
all
and
does
not
limit
his
discretion
to
determining
the
extent
of
the
allowance
to
be
made.
He
has
a
double
discretion,
first,
to
determine
whether
the
case
is
one
for
an
allowance
and
second,
if
so,
to
determine
how
much
shall
be
allowed.
The
Minister
"may''
not
"shall”
make
an
allowance.
The
language
is
permissive
not
obligatory.
The
Dominion
Interpretation
Act,
R.S.C.
1927,
e.
97,
s.
37,
provides
that
"‘in
every
Act
unless
the
context
requires
.
.
.
(24)
‘shall’
is
to
be
construed
as
imperative
and
‘may’
as
permissive’’.
It
was
suggested
that
the
opening
words
of
section
5
of
the
Income
War
Tax
Act—“Income
.
.
.
shall
for
the
purposes
of
this
Act
be
subject
to
the
following
exemptions
and
deductions’’
supplied
a
context
which
required
“may”
in
head
(a)
to
be
read
in
an
obligatory
sense.
But
these
opening
words
merely
require
the
Minister
to
make
a
deduction
under
head
(a)
if
he
has
decided
that
the
case
is
one
for
a
deduction.
They
cover
a
whole
series
of
heads
from
(a)
to
(0)
some
of
which
prescribe
automatic
deductions
and
others
deductions
involving
the
exercise
of
the
Minister’s
discretion.
Reference
was
also
made
to
the
words
in
the
latter
part
of
head
(a)
providing
that
in
the
case
of
leases
‘‘the
lessor
and
lessee
shall
be
entitled
to
deduct
a
part
of
the
allowance
for
exhaustion
as
they
agree
and
in
case
the
lessor
and
lessee
do
not
agree
the
Minister
shall
have
full
power
to
apportion
the
deduction
between
them’’,
and
it
was
suggested
that
this
implied
that
there
must
be
a
deduction,
otherwise
there
would
be
nothing
to
apportion.
But
all
that
is
meant
is
that
if
the
Minister
allows
a
deduction
then
it
shall
be
apportionable
between
lessor
and
lessee.
So
far
their
Lordships
have
considered
the
language
of
the
Statute
as
it
at
present
stands.
But
their
reading
of
it
is
strongly
reinforced
by
the
history
of
the
enactment.
In
the
statute
as
originally
framed
section
5(1)
provided
for
the
deduction
under
head
(a)
of
"‘Such
reasonable
amount
as
the
Minister
in
his
discretion
may
allow
for
depreciation
and
the
Minister
in
determining
the
income
derived
from
mining
and
from
oil
and
gas
wells
and
timber
limits
shall
make
such
an
allowance
for
the
exhaustion
of
the
mines,
wells
and
timber
limits
as
he
may
deem
just
and
fair.’’
Here
depreciation
and
exhaustion
are
included
under
the
same
head
and
as
regards
exhaustion
it
is
provided
that
the
Minister
shall
make
such
an
allowance
as
he
may
deem
just
and
fair.
In
the
case
of
Pioneer
Laundry
and
Dry
Cleaners
Limited
v.
Minister
of
National
Revenue,
[1940]
A.C.
127,
which
related
to
a
claim
for
depreciation,
the
Board
held
that
the
appellants
were
entitled
to
a
deduction
for
depreciation
to
such
extent
as
the
Minister
might
allow,
and
that
the
Minister
had
not
properly
exercised
his
discretion
inasmuch
as
he
had
had
regard
to
inadmissible
considerations.
It
was
after
this
decision
that
the
Statute
was
amended.
Depreciation
was
transferred
for
treatment
to
section
6
which
was
amended
so
as
to
provide
that
no
deduction
should
be
allowed
for
depreciation
except
such
amount
as
the
Minister
in
his
discretion
might
allow;
and
in
the
provision
of
section
5
relating
to
depletion
or
exhaustion
"‘may’’
was
substituted
for
"‘shall’’.
The
contrast
is
pointed.
When
an
amending
Act
alters
the
language
of
the
principal
Statute,
the
alteration
must
be
taken
to
have
been
made
deliberately.
In
tax
legislation
it
is
far
from
uncommon
to
find
amendments
introduced
at
the
instance
of
the
Revenue
Department
to
obviate
judicial
decisions
which
the
Department
considers
to
be
attended
with
undesirable
results.
The
Minister
in
their
Lordships’
opinion
was
accordingly
not
under
any
legal
obligation
to
make
a
depletion
allowance
in
the
ease
of
the
appellant
company.
(2)
There
remains
the
question
whether
the
Minister,
in
exercising
his
discretion
as
to
whether
he
should
or
should
not
make
a
depletion
allowance
in
the
present
case
and
deciding
not
to
do
so
proceeded
on
just,
reasonable
and
admissible
grounds.
In
order
to
deal
with
this
question
it
is
necessary
to
explain
in
some
detail
the
facts
which
were
before
the
Minister.
Of
the
three
licences
operated
by
the
appellant
company
two
had
been
granted
originally
by
the
Dominion
Government
while
the
third
had
been
granted
by
the
Provincial
Government
after
the
transfer
of
certain
natural
resources
from
the
Dominion
Government
to
the
Government
of
Alberta.
The
first
two
had
been
renewed
successively
by
the
Dominion
and
by
the
Provincial
Governments
from
year
to
year
and
the
third
had
been
annually
renewed
by
the
Provincial
Government.
In.the
case
of
the
two
original
Dominion
grants
the
licensee
was
required
to
pay
down
a
lump
sum
or
bonus
in
addition
to
the
rent
and
other
dues
payable
under
the
licence.
This
sum
was
not
repayable
to
the
licensee.
In
the
ease
of
the
Provincial
grant
no
lump
sum
or
bonus
was
payable
by
the
licensee
but
he
was
required
to
deposit
a
sum
as
security
for
the
payment
of
dues
and
this
sum
so
far
as
not
applied
to
the
payment
of
dues
was
repayable
to
the
licensee.
The
only
irrecoverable
capital
outlay
by
the
appellant
company
or
their
predecessors
in
acquiring
right
to
cut
the
timber
in
the
three
areas
thus
consisted
of
the
two
sums
paid
to
the
Dominion
Government
on
the
grant
of
the
first
two
licences.
In
each
year
up
to
1939
the
appellant
company
in
computing
their
income
for
tax
purposes
had
deducted
as
an
expense
part
of
the
sums
paid
to
the
Dominion
Government
for
the
first
two
licences
and
this
deduction
had
been
allowed.
By
1939
these
successive
deductions
amounted
in
total
to
the
whole
sums
originally
paid
to
the
Dominion
Government.
The
view
of
the
Minister
in
the
exercise
of
his
discretion
was
that
this
circumstance
afforded
a
fair
and
proper
reason
for
not
making
any
further
allowance
for
depletion
or
exhaustion,
having
regard
to
the
fact
that
the
appellant
company
were
not
the
owners
of
the
land
or
of
the
timber
thereon
which
was
in
process
of
being
exhausted.
For
the
appellant
company
it
was
contended
that
it
was
wrong
in
principle
to
have
regard
to
the
capital
cost
of
obtaining
the
right
to
eut
and
carry
away
the
timber
and
that
under
the
Statute
the
Minister’s
duty
was
to
consider
what
was
a
just
and
reasonable
allowance
for
the
progressive
exhaustion
of
the
timber
on
their
limits
without
relation
to
what
the
company
had
paid
for
the
right
to
cut
and
acquire
it.
It
was
argued
that
the
Minister
in
originally
intimating
his
decision
had
in
effect
stated
that
he
based
it
on
the
ground
that
the
appellant
company
as
licensees
were
not
as
such
entitled
under
the
Statute
to
any
allowance
for
depletion
of
timber
limits
which
belonged
to
the
Crown,
and
in
this
connection
reference
was
made
to
the
evidence
of
Mr.
Elliott,
quoted
above.
This,
it
was
said,
showed
that
the
Minister
had
misdirected
himself
in
exercising
his
discretion
and
it
was
contended
that
he
was
not
entitled
subsequently
to
justify
the
exercise
of
his
discretion
by
adducing
reasons
not
present
to
his
mind
when
he
gave
his
decision.
But
in
his
decision
the
Minister
relied
on
other
"‘related
grounds”
and
Mr.
Elliott
in
later
passages
of
his
evidence
qualified
and
explained
what
he
had
said
in
the
quoted
passage,
while
in
the
amendment
of
his
statement
of
defence
allowed
by
the
Court
the
Minister
amplified
and
made
clear
his
grounds
for
the
disallowance.
Moreover,
in
a
letter
to
the
legal
advisers
of
the
appellant
company
before
the
decision
was
given
Mr.
Elliott
had
taken
the
point
that
their
clients
had
already
received
allowances
or
deductions
to
the
extent
of
the
capital
sum
which
they
had
paid
for
their
licences.
It
was
thus
made
abundantly
clear
in
the
course
of
the
proceedings
that
the
Minister
in
exercising
his
discretion
proceeded
on
the
view
that
what
was
beine
exhausted
was
the
timber
belonging
to
the
Crown
which
the
appellant
company
were
licensed
to
cut
and
acquire
and
that
the
only
allowance
for
depletion
which
ought
properly
to
be
made
in
favour
of
the
appellant
company
was
in
respect
of
the
sum
which
they
had
paid
for
the
privilege
of
cutting
and
acquiring
the
timber;
this
was
the
only
capital
asset
of
the
appellant
company
which
was
in
process
of
wasting
as
the
cutting
proceeded;
and
for
such
depletion
the
appellant
company
had
already
received
allowances
in
past
years
to
the
extent
of
100
per
cent.
In
their
Lordships’
opinion
the
Minister
was
entitled
in
exereising
his
discretion
to
proceed
upon
this
view
of
the
circumstances.
It
was
an
intelligible
view
which
was
both
tenable
and
admissible
and
in
adopting
it
the
Minister
cannot
be
said
to
have
transgressed
the
bounds
of
his
discretion
so
as
to
justify
any
interference
with
his
decision.
The
criteria
by
which
the
exercise
of
a
statutory
discretion
must
be
judged
have
been
defined
in
many
authoritative
cases,
and
it
is
well
settled
that
if
the
discretion
has
been
exercised
bona
fide
uninfluenced
by
irrelevant
considerations
and
not
arbitrarily
or
illegally,
no
Court
is
entitled
to
interfere
even
if
.the
Court,
had
the
discretion
been
theirs,
might
have
exercised
it
otherwise.
The
appellant
company
would
gain
no
advantage
by
a
remitting
of
their
claim
to
the
Minister
for
a
fresh
exercise
of
his
discretion
for
he
would
doubtless
only
repeat
his
decision
with
a
more
explicit
statement
of
the
grounds
on
which
it
is
now
clear
that
he
originally
proceeded
and
on
which,
in
their
Lordships’
opinion,
he
was
entitled
in
his
discretion
to
proceed.
An
attempt
was
made
in
the
Courts
in
Canada
to
show
that
the
Minister
had
unfairly
discriminated
against
the
appellant
com-
pany
in
view
of
the
allowances
which
he
had
given
in
the
case
of
other
undertakings
elsewhere,
but
this
plea
completely
failed
and
was
not
pursued
before
their
Lordships.
Having
thus
disposed
of
all
the
matters
raised
on
behalf
of
the
appellant
company,
their
Lordships
will
accordingly
humbly
advise
His
Majesty
that
the
appeal
be
dismissed
and
the
judgment
of
the
Supreme
Court
of
Canada
of
4th
February,
1947,
be
affirmed.
The
appellant
company
will
pay
the
respondent’s
costs
of
the
appeal.
Appeal
dismissed.
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