CAMERON,
J.:—This
is
an
appeal
from
an
assessment
to
income
tax
dated
May
17,
1946,
in
respect
of
the
taxation
year
1944.
The
appellant
declared
his
income
at
$7,800.00,
but
the
respondent
added
thereto
an
item
of
$78,165.87
said
to
be
made
up
of
undistributed
income
received
from
Arrow
Bedding
Limited
in
that
year
and
assessable
to
the
appellant
under
section
19-1
of
the
Income
War
Tax
Act.
The
taxpayer
appealed
and
by
his
decision
the
respondent
affirmed
the
assessment;
notice
of
dissatisfaction
was
given
and
in
his
reply
the
respondent
affirmed
his
assessment
as
levied.
By
order
of
this
Court
pleadings
were
delivered.
Woon
and
one
F.
J.
Mackie
were
the
beneficial
owners
of
all
the
issued
stock
of
Arrow
Bedding
Limited,
which
company
carried
on
business
until
January
31,
1944.
By
agreement
in
writing,
dated
June
2,
1933
(Ex.
1)
Woon
and
Mackie
entered
into
an
agreement
with
themselves
and
with
the
Toronto
General
Trusts
Corporation,
as
trustee,
the
effect
of
which
was
that
upon
the
death
of
either
Woon
or
Mackie,
the
personal
representatives
of
the
deceased
should
sell
and
the
survivor
should
purchase
all
the
shares
of
the
deceased
party
in
the
capital
stock
of
Arrow
Bedding
Limited,
at
a
valuation
to
be
arrived
at
as
set
forth
in
the
agreement.
Mackie
died
early
in
1943,
and
pursuant
to
the
agreement,
Woon
was
called
upon
to
purchase
Mackie’s
shares
in
the
Company.
Certain
insurance
monies
on
the
life
of
Mackie
had
been
provided
for
the
purpose
of
paying
for
his
stock,
but
were
insufficient
to
the
extent
of
$35,000.00
to
complete
the
full
payment.
Woon’s
only
available
assets
consisted
of
his
shares
in
the
company.
After
a
consultation
between
Woon,
his
solicitor,
and
an
official
of
the
Toronto
General
Trusts
Corporation
(which
was
also
one
of
the
executors
of
Mackie’s
estate),
and
following
certain
interviews
and
correspondence
with
the
Commissioner
of
Taxation
(which
will
later
be
referred
to),
the
following
plan
was
arranged
and
carried
out
by
or
on
behalf
of
the
appellant.
A
new
company—Arrow-Bedding
(Eastern)
Ltd.
(hereafter
to
be
called
"'the
new
company”)—was
incorporated
on
January
19,
1944,
one
of
its
purposes
being
the
purchase
as
a
going
concern
the
business
assets
and
all
the
undertaking
of
Arrow
Bedding
Limited
(hereinafter
to
be
called
‘the
old
company’’)
and
to
pay
therefor
by
the
issue
of
its
fully
paid
up
shares.
The
capital
of
the
new
company
was
divided
into
1000
redeemable
preference
shares
of
a
par
value
of
$100.00
each
and
3000
common
shares
without
any
nominal
or
par
value.
On
January
31,
1944,
by
deed
and
bill
of
sale,
the
realty
and
all
other
assets
of
the
old
company
were
conveyed
to
the
new
company,
the
consideration
therefor
being
800
redeemable
preference
and
fully
paid
up
shares
and
3000
shares
without
nominal
or
par
value
of
the
new
company,
to
be
allotted
to
the
old
company
or
its
nominees.
Thereupon,
the
only
assets
of
the
old
company
then
remaining
consisted
of
stock
in
the
new
company.
On
March
27,
1944,
the
old
company
passed
a
by-law
providing
for
the
distribution
of
its
assets
rateably
among
its
shareholders
and
thereafter
for
the
surrender
of
its
charter.
By
direction
of
the
old
company,
the
new
company
issued
to
the
appellant
or
his
nominees
800
preference
shares
and
3000
common
shares.
The
next
step
taken
was
that
on
or
about
March
31,
1944,
the
new
company
passed
a
by-law
providing
for
the
redemption
of
315
shares
of
its
preference
stock
at
$100.00
per
share,
all
of
which
shares
were
to
be
taken
from
the
shares
held
by
the
appellant.
The
by-law
further
provided
for
payment
to
the
Receiver
General
for
Canada
of
$1,260.00,
being
the
tax
payable
under
section
19A
of
The
Income
War
Tax
Act
and
being
4
per
cent
of
the
par
value
of
the
shares
so
redeemed.
The
tax
was
paid
on
or
about
April
1,
1944.
315
preferred
shares
of
the
new
company
which
were
held
by
the
appellant
were
then
redeemed
by
the
new
company
and
$31,000.00
paid
to
him.
The
agreement
(ex.
1)
provided
that
after
applying
the
net
proceeds
of
the
life
insurance
on
the
purchase
price,
the
balance
would
be
paid
to
the
Mackie
estate
within
five
years
of
Mr.
Mackie’s
death,
in
half-yearly
instalments
and
with
interest.
Woon,
however,
with
the
cash
available
from
the
redemption
of
the
shares,
was
able
to
negotiate
a
cash
settlement,
and
instead
of
spreading
his
payments
over
five
years
secured
a
10
per
cent
discount
on
the
ascertained
value
by
payment
of
the
whole
in
cash.
The
facts
which
I
have
just
enumerated
are
not
in
any
way
disputed.
It
is
also
admitted
that
as
of
January
31,
1944,
and
just
prior
to
the
sale
of
its
assets
to
the
new
company,
the
books
of
the
old
company
showed
a
surplus
of
undistributed
income
of
$75,444.08.
As
shown
by
the
evidence
of
Mr.
Me-
Lachlin,
an
assessor
in
the
Toronto
Branch
of
the
National
Revenue
Department,
that
that
figure
was
adjusted
by
certain
additions
and
deductions
and
as
a
result
the
amount
of
such
surplus
of
undistributed
income
was
finally
ascertained
to
be
$78,165.87
as
of
January
31,
1944.
No
objection
is
now
taken
to
that
computation.
The
respondent
being
of
the
opinion
that
the
receipt
by
the
appellant
in
1944
of
the
shares
of
the
new
company,
upon
the
winding
up
of
the
old
company,
brought
him
within
the
provisions
of
section
19-1
of
The
Income
War
Tax
Act,
assessed
him
accordingly.
That
section
was
then
as
follows:
"19-1.
On
the
winding-up,
discontinuance
or
reorganization
of
the
business
of
any
incorporated
company,
the
distribution
in
any
form
[of
the
property]
of
the
company
shall
be
deemed
to
be
the
payment
of
a
dividend
to
the
extent
that
the
company
has
on
hand
undistributed
income.”
The
appeal
is
based
on
two
grounds:
(1)
That
the
provisions
of
section
19-1
have
here
no
application
because
at
the
time
of
the
winding-up
of
the
old
company
it
had
no
undistributed
income
on
hand;
(2)
That
the
respondent
is
estopped
from
alleging
that
section
19-1
is
applicable
to
the
appellant
because
of
a
‘‘ruling’’
made
by
the
Commissioner
of
Taxation
that,
if
the
procedure
which
was
in
fact
followed,
was
carried
out,
the
only
tax
which
would
result
would
be
that
arising
under
section
19A,
and
that
that
tax
had
in
fact
been
paid.
At
the
trial,
counsel
for
the
respondent
made
a
general
objection
to
the
admissibility
of
any
evidence
as
to
any
statements
or
rulings,
either
verbal
or
in
writing,
made
by
the
Commissioner
of
Taxation
or
the
Deputy
Minister
of
National
Revenue
(Taxation)
in
regard
to
the
incidence
of
tax
which
might
result
from
any
step
proposed
by
or
on
behalf
of
the
appellant,
on
the
ground
that
such
statement
or
ruling
was
irrelevant
to
the
issues
here
raised.
Upon
his
statement
that
the
presentation
of
his
case
would
not
in
any
way
depend
on
my
ruling
on
that
objection,
I
thought
it
advisable
to
reserve
my
opinion
until
later.
The
objection
is
based
on
the
submission
that
the
evidence
is
led
for
the
purpose
of
establishing
an
estoppel,
and
that,
as
the
doctrine
of
estoppel
does
not
apply
as
against
the
Crown,
the
evidence
is
therefore
irrelevant
and
for
that
reason
inadmissible.
In
the
pleadings
the
appellant
has
set
out
the
facts
on
which
he
relied
as
giving
rise
to
the
application
of
the
doctrine
of
estoppel
and
has
pleaded
estoppel.
Those
facts
are
therefore
in
issue.
Later
herein
I
shall
have
occasion
to
refer
to
certain
cases
in
which
the
question
of
the
applicability
of
estoppel
in
pais
as
against
the
Crown
has
been
considered.
It
is
sufficient
to
say
at
this
point
that
the
decisions
are
somewhat
conflicting.
The
point
is
not
sufficiently
clear
to
justify
a
categorical
finding
that
it
can
never
apply
as
against
the
Crown.
If
that
were
the
ease
then
the
evidence
proposed
might
be
considered
irrelevant
and
therefore
inadmissible.
Under
the
circumstances,
however,
the
issue
being
clearly
raised
in
the
pleadings,
I
think
the
evidence
is
in
this
case
admissible.
Mr.
Woon,
faced
with
the
problem
of
raising
money
to
pay
for
the
shares
held
by
the
Mackie
estate,
consulted
his
solicitor,
Mr.
John
Jennings,
K.C.
On
April
28,
1943
Mr.
Jennings
had
an
interview
with
the
then
Commissioner
of
Taxation
in
Ottawa
and
discussed
with
him
the
possibility
of
the
old
company
redeeming
its
shares
to
such
an
extent
as
might
seem
desirable,
and
the
resulting
tax
that
would
be
payable
by
Mr.
Woon
upon
the
receipt
of
the
old
company’s
undistributed
income
in
that
fashion.
Ex.
2
is
a
copy
of
a
letter
sent
by
Mr.
Jennings
to
the
Commissioner
on
the
following
day
and
attached
thereto
is
the
Commissioner’s
reply
of
May
1,
1943,
confirming
Mr.
Jennings’
opinion
as
to
the
effect
of
the
interview
on
April
28,
1943.
While
it
was
thought
advisable
to
proceed
under
the
plan
proposed
in
the
letter
of
April
29,
1943,
it
was
decided
to
submit
a
further
proposition
to
the
Commissioner
as
to
the
tax
effect
of
proceeding
under
section
19A-1
of
the
Income
War
Tax
Act,
which
section
then
was
as
follows:
19A-1.
Where
the
assets
of
a
company,
which
had
on
hand
undistributed
income
at
the
end
of
its
1929
taxation
period,
have
been
received
by
another
company,
either
directly
or
through
an
intermediary,
and
whether
by
the
sale
of
the
assets
of
such
first
mentioned
company
to
such
other
company,
or
through
the
sale
by
the
shareholders
of
the
shares
of
such
first
mentioned
company,
and
such
other
company
issues
or
has
issued
redeemable
shares,
bonds,
notes,
or
other
like
instruments
in
an
amount
which
in
whole
or
in
part
absorbs
the
said
undistributed
income,
then
on
any
redemption
of
such
instruments
the
company
redeeming
shall
pay
a
tax
of
four
per
centum
on
the
amount
of
such
instruments
redeemed
to
the
extent
of
the
said
undistributed
income.’’
Mr.
Jennings
states
that
on
September
10,
1943,
he
had
a
further
interview
with
the
Commissioner
of
Taxation
at
Ottawa,
the
particulars
of
which
may
be
found
on
pp.
17-18
of
the
evidence.
He
outlined
to
the
Commissioner
a
proposal
to
proceed
under
section
19A
in
the
same
manner
as
was
eventually
carried
out
and
which
I
have
above
set
forth.
He
asked
for
a
ruling
as
to
whether
under
the
suggested
proposal
there
would
be
any
incidence
of
taxation
other
than
the
4
per
cent
tax
mentioned
in
section
19A.
He
states
that
thereupon
the
Commissioner
gave
him
"‘a
clear
unequivocal
‘ruling’
that
if
the
procedure
outlined
in
section
19A
were
carried
out
in
detail
the
only
incident
of
taxation
which
would
result
would
be
the
4
per
cent
on
the
redemption
of
the
securities
of
the
new
company’’.
The
Commissioner
also
stated
that
he
thought
it
unfair
that
the
tax
in
this
case
should
be
only
4
per
cent
when
others
were
paying
a
much
higher
rate
and
that
he
proposed
to
have
section
19A
removed
from
the
Act
at
the
then
session
of
Parliament.
Accordingly,
he
advised
Mr.
Jennings
to
do
nothing
further
until
that
section
was
removed.
Mr.
Jennings
delayed
proceedings
until
the
end
of
the
Parliamentary
session
and,
as
section
19A
still
remained
in
the
Act,
he
considered
it
proper
to
proceed
thereunder
and
in
accordance
with
the
Commissioner’s
ruling.
Mr.
Jennings’
evidence
as
to
this
interview
is
not
denied.
No
letters
were
exchanged
as
had
been
done
in
respect
of
the
original
proposition.
Mr.
Jennings
then
proceeded
with
the
matter
in
the
manner
which
has
been
outlined.
Under
these
circumstances,
it
is
submitted
by
counsel
for
the
appellant
that
the
respondent
is
now
estopped
from
alleging
that
Mr.
Woon
is
subject
to
the
taxes
imposed
by
section
19(1)
and
from
assessing
him
accordingly.
The
question
as
to
the
applicability
of
rule
of
estoppel
in
pais
as
against
the
Crown
has
been
raised
in
many
reported
cases
and
the
opinions
expressed
therein
are
not
all
uniform.
In
the
following
cases
it
was
held
that
it
did
apply.
In
Queen
Victoria
Niagara
Falls
Park
v.
International
Railway
Company
63
O.L.R.
49,
Grant,
J.,
stated
that
it
is
well
established
that
the
doctrine
of
estoppel
in
pais
operates
as
against
the
Crown.
In
Attorney-
General
to
the
Prince
of
Wales
v.
Collom
[1916]
2
K.B.
192
at
204,
Atkin,
J.,
found
that
the
defendant
had
established
a
good
equitable
defence
based
on
estoppel
and
that
such
equitable
defence
was
good
against
the
Crown.
Reference
may
also
be
made
to
Attorney-General
of
Victoria
v.
Ettershank
L.R.—P.C.
304,
Plimmer
v.
Mayor
of
Wellington
9
A.C.
699,
and
Attorney-
General
for
Trinidad
v.
Bourne
[1895]
A.C.
83,
and
The
King
v.
Canadian
Pacific
Railways
[1930]
Ex.
C.R.
26.
For
cases
in
which
the
opposite
view
was
held,
reference
may
be
made
to
the
following:
Western
Vinegars
v.
The
Minister
of
National
Revenue
[1938]
Ex.
C.R.
39;
[1937]
C.T.C.
325;
Bank
of
Montreal
v.
The
King
38
S.C.R.
258;
and
to
Attorney-General
for
Canada
v.
C.
C.
Fields
&
Co.
[1948]
O.R.
120
at
129,
and
the
cases
therein
cited.
It
is
not
necessary
in
this
case,
however,
to
consider
the
effect
of
the
cases
to
which
reference
has
just
been
made.
It
is
sufficient
to
state
that
the
assessment
here
under
appeal
was
made
pursuant
to
the
terms
of
a
statute
and
that,
therefore,
it
is
not
open
to
the
appellant
to
set
up
an
estoppel
to
prevent
its
operation.
In
Phipson
on
Evidence,
8th
Ed.
667,
it
is
stated
that:
“Estoppels
of
all
kinds,
however,
are
subject
to
one
general
rule:
they
cannot
override
the
law
of
the
land.
Thus,
where
a
particular
formality
is
required
by
statute,
no
estoppel
is
required
by
statute,
no
estoppel
will
cure
the
defect.
‘
‘
The
most
recent
case
that
I
am
aware
of
is
Maritime
Electric
Co.
v.
General
Dairies
Ltd.
[1937]
A.C.
610,
in
which
it
was
"‘Held,
that
the
appellants
were
not
estopped
from
recovering
the
sum
claimed.
The
duty
imposed
by
the
Public
Utilities
Act
on
the
appellants
to
charge,
and
on
the
respondents
to
pay,
at
scheduled
rates,
for
all
the
electric
current
supplied
by
the
one
and
used
by
the
other
could
not
be
defeated
or
avoided
by
a
mere
mistake
in
the
computation
of
accounts.
The
relevant
sections
of
the
Act
were
enacted
for
the
benefit
of
a
section
of
the
public,
and
in
such
a
case
where
the
statute
imposed
a
duty
of
a
positive
kind
it
was
not
open
to
the
respondents
to
set
up
an
estoppel
to
prevent
it.
An
estoppel
is
only
a
rule
of
evidence,
and
could
not
avail
to
release
the
appellants
from
an
obligation
to
obey
the
statute,
nor
could
it
enable
the
respondents
to
escape
from
the
statutory
obligation
to
pay
at
the
scheduled
rates.
The
duty
of
each
party
was
to
obey
the
law.”
The
judgment
in
that
case
was
delivered
by
Lord
Maugham.
At
page
620
he
said:
"‘The
Court
should
first
of
all
determine
the
nature
of
the
obligation
imposed
by
the
statute,
and
then
consider
whether
the
admission
of
an
estoppel
would
nullify
the
statutory
provision.
‘
And
at
p.
621
:
‘‘Tf
we
return
to
the
authorities
it
must
be
admitted
that
reported
cases
in
which
the
precise
point
now
under
con-
sideration
has
been
raised
are
rare.
It
is,
however,
to
be
observed
that
there
is
not
a
single
case
in
which
an
estoppel
has
been
allowed
in
such
a
case
to
defeat
a
statutory
obligation
of
an
unconditional
character.
The
textbooks
have
regarded
the
cause
as
one
closely
analogous
to
the
eases
of
high
authority
where
it
has
been
decided
that
a
corporation
could
not
be
estopped
from
contending
that
a
particular
act
was
ultra
vires."
He
referred
also
to
In
re
A
Bankruptcy
Notice
[1924]
2
Ch.
76,
in
which
Arkin,
L.J.,
stated
:
"‘Whatever
the
principle
may
be
(referring
to
a
contention
as
regards
approbation
and
reprobation)
it
appears
to
me
that
it
does
not
apply
to
this
ease,
for
it
seems
to
me
well
established
that
it
is
impossible
in
law
for
a
person
to
allege
any
kind
of
principle
which
precludes
him
from
alleging
the
invalidity
of
that
which
the
statute
has,
on
grounds
of
general
publie
policy,
enacted
shall
be
invalid.’’
In
the
instant
case,
section
19(1)
of
the
Statute
expressly
provides
that
the
payment
received
by
a
taxpayer
under
the
circumstances
there
mentioned
shall
be
a
dividend
and
therefore
part
of
a
taxpayer’s
assessable
income.
It
was
therefore
the
duty
of
the
taxing
authorities
to
apply
the
provisions
of
the
section
to
the
case
of
any
taxpayer
falling
within
its
terms
and
it
was
the
duty
of
such
taxpayer
to
pay
such
tax
as
might
properly
be
payable
thereunder.
It
was
the
duty
of
both
to
obey
the
law.
I
think
it
is
quite
clear
that
the
‘‘ruling’’
said
to
have
been
made
in
this
case,
was
made
without
authority
and
was
not
in
any
way
binding
upon
the
Crown.
There
is
nothing
in
the
section
itself
which
confers
any
sort
of
discretionary
powers
on
the
Minister
or
his
officials.
Parliament
has
said
that
under
certain
circumstances
certain
things
are
deemed
to
be
dividends
and
manifestly
the
Commissioner
of
Taxation
had
no
power
to
declare
otherwise
or
to
settle
the
limit
of
taxation
thereunder,
other
than
according
to
the
statute
itself.
In
that
connection,
reference
may
be
made
to
Carling
Export
v.
The
King,
[1981]
A.C.
485,
in
which
at
p.
438
Lord
Thankerton
said:
""In
their
Lordships’
opinion
it
is
not
to
be
readily
assumed,
in
a
Taxing
Act,
that
Parliament
has
delegated
to
a
Minister
the
power
to
settle
the
limits
of
taxation,
and
such
intention
must
be
clearly
shown
by
the
terms
of
the
statutory
provision.’’
In
Liberty
&
Co.
Ltd.
v.
C.I.R.
12
T.C.
630,
a
somewhat
similar
case
arose.
There
the
Commissioners
of
Inland
Revenue
had
issued
an
official
notice
regarding
the
effect
of
subscriptions
to
certain
war
loans
on
the
liability
to
excess
profits
duty.
Rowlatt,
J.,
in
referring
to
the
power
to
issue
such
a
notice
said
at
p.
638:
1
‘But
thereupon
two
difficulties
are
raised
by
Mr.
Konstam,
and
they
arise
out
of
the
circulars
that
were
sent
by
the
Inland
Revenue
when
it
was
desired
to
attract
as
much
money
as
possible
into
War
Loan.
The
Solicitor-General,
quite
correctly
and
quite
properly,
and
I
think
in
the
performance
of
his
manifest
public
duty,
takes
the
point
that
he
is
here
to
argue
the
real
question
of
law
and
to
get
a
determination
of
what
the
law
is,
and
that
he
cannot
be
prevented
from
doing
that
and
must
not
allow
himself
to
neglect
to
do
it.
I
think
that
it
is
absolutely
right,
and
it
must
be
pointed
out
that
the
Commissioners
of
Inland
Revenue
have
no
power
to
bind
the
Crown
by
a
general
declaration
of
what
the
law
is
in
particular
circumstances
beforehand.
They
make
a
statement
for
the
*
information
of
those
who
like
to
act
upon
it
in
perfect
faith
and
having
great
skill,
and
the
parties
to
whom
it
is
addressed
may
say
‘The
Commissioners
say
this,
it
is
probably
right,’
and
they
are
justified
in
acting
upon
it
from
that
point
of
view
in
the
same
sense
as
they
are
justified
in
acting
on
the
view
of
any
person
who
advises
them
with
knowledge
and
to
the
best
of
their
ability.
But
the
Commissioners
cannot
bind
the
Crown.
It
used
to
be
said
in
the
old
cases
there
was
no
estoppel
against
the
Crown.
It
used
to
be
said
in
the
old
cases
that
.-
employment
under
the
Crown
was
by
law
at
will
only.
Both
those
sounded
arbitrary
principles
in
favour
of
monarchical
rights,
but
as
at
present
expressed
and
as
rarely
understood
it
means
this,
that
no
servant
of
the
Crown
has
authority
in
a
case
of
service
to
create
a
freehold
office
by
a
promise
on
behalf
of
the
Crown
when
there
is
not
one
by
law,
and
no
servant
of
the
Crown
is
entitled
to
lay
down
principles
of
law
for
the
future
which
will
bind
the
Crown.
Looked
at
from
that
point
of
view
they
are
not
principles
which
support
an
autocratic
Government,
they
are
principles
which
protect
the
public
from
being
fettered
in
the
future
by
the
acts
of
persons
who
for
the
time
being
are
occupying
important
positions.
Therefore
I
think
that
it
is
an
answer
to
it,
although
I
can
understand
Mr.
Konstam
‘s
clients,
if
the
case
really
turned
on
that,
feeling
a
little
soreness
about
it
in
the
circumstances,
they
themselves,
of
course,
not
being
constitutional
lawyers.
But
I
ought
to
say
that
I
think
any
soreness
of
that
kind
is
quite
ill-founded
because
really
on
the
substance
of
the
case
it
is
perfectly
clear
in
my
judgment,
for
the
reasons
I
have
already
expressed,
that
on
the
facts
looked
at
in
the
broadest
possible
way
the
Crown
are
right
in
this
case.’’
That
judgment
was
affirmed
by
the
Court
of
Appeal,
12
T.C.
640.
In
the
case
of
Anderton
&
Halstead
Ltd.
v.
Birrell,
[1932]
L.K.B.D.
271,
The
Inspector
of
Taxes
after
full
disclosure
of
all
the
facts
had
agreed,
in
writing,
to
the
writing
down
for
two
years
successively
of
a
doubtful
debt.
Subsequently,
by
an
assessment,
the
writing
down
of
the
doubtful
debt
was
disallowed
on
certain
grounds.
In
considering
an
appeal
from
the
Commissioners
of
Inland
Revenue,
Rowlatt,
J.,
said
at
p.
279
:
"‘In
order
to
clear
the
ground,
I
may
point
out
at
once
that
there
is
no
question
of
the
Crown
having
been
bound
by
the
first
action
of
the
inspector
by
way
of
mere
contract.
No
officer
has
power
to
do
that.’’
On
the
principles
laid
down
in
these
cases
I
have
reached
the
conclusion
that
the
so-called
‘‘ruling’’
of
the
Commissioner
was
nothing
more
than
his
personal
opinion
as
to
the
meaning
of
the
statute,
or
at
the
most,
that
the
department
in
assessing
the
appellant
would
carry
into
effect
the
"‘ruling’’
so
made.
In
either
event
it
was
made
without
authority
and
was
not
binding
on
the
Crown.
I
find,
also,
that
it
cannot
be
invoked
by
the
appellant
as
a
ground
for
raising
estoppel
in
this
case,
as
to
do
so
would
be
to
nullify
the
requirement
of
the
statute
itself.
The
only
other
ground
of
appeal
is
that
under
the
circumstances
mentioned
the
old
company,
at
the
time
of
its
winding-
up
or
discontinuance,
had
no
undistributed
income
on
hand.
It
is
submitted
that
when
on
January
31,
1944,
it
transferred
its
whole
undertaking
to
the
new
company
in
return
for
preferred
and
common
shares
in
the
latter,
the
undistributed
income
was
absorbed
in
the
shares
of
the
new
company
and
that
therefore,
so
far
as
the
old
company
was
concerned,
it
had
thereafter—
and
on
the
date
when
it
distributed
the
shares
of
the
new
company
rateably
amongst
its
own
shareholders
and
was
wound
up
—no
undistributed
income
on
hand.
It
is
submitted
that
as
the
undistributed
income
of
the
old
company
was
‘‘absorbed’’
in
the
issue
of
the
redeemable
shares
by
the
new
company,
within
the
meaning
of
‘‘absorb’’
as
contained
in
section
19A,
that
having
been
so
‘‘absorbed’’
it
became
non-existent
in
so
far
as
the
old
company
was
concerned
and
that,
therefore,
the
old
company
did
not
have
it
‘‘on
hand’’
at
the
time
of
its
winding-up
or
discontinuance.
In
support
of
this
contention
there
is
cited
the
case
of
Stewart
and
Company
Limited
v.
M.N.R.
[1946]
Ex.
C.R.
669;
[1946]
C.T.C.
311.
In
that
case,
O’Connor,
J.,
did
determine
that
in
the
situation
there
arising
under
section
19A,
the
undistributed
income
of
a
vendor
company
could
be
absorbed
by
the
issue
of
redeemable
shares
of
the
purchasing
company.
But
he
decided
also
that
"'to
absorb’’
meant
‘‘to
incorporate”,
although
it
had
at
times
another
meaning—"to
swallow
up’’.
He
did
not
suggest
that
in
any
such
transaction
the
undistributed
income
disappeared
or
became
non-existent
so
far
as
the
vendor
company
was
concerned;
in
fact,
he
was
of
the
contrary
opinion.
At
page
672-3
he
said
:
"
"
Does
an
issue
of
redeemable
shares
in
a
transaction
of
this
kind
incorporate
the
undistributed
income
of
the
vendor
company
?
I
reach
the
conclusion
that
it
does
so,
and
that
this
can
be
best
shown
by
the
position
after
the
sale
and
on
the
winding-
up
of
the
vendor
company.
The
asset
side
of
the
balance
sheet
of
the
vendor
company
would
show
the
redeemable
shares
of
the
purchaser
company
in
lieu
of
the
assets
which
it
held.
Both
before
and
after
the
sale
the
liability
side
would
show
the
paid
up
capital
and
the
undistributed
income.
The
undistributed
income
of
the
vendor
company
is
then
in
the
form
of
redeemable
shares
of
the
purchaser
company
and
on
the
winding
up
when
such
shares
are
distributed
among
its
shareholders,
the
undistributed
income
is
distributed
in
the
form
of
such
shares.
So
to
that
extent
and
in
that
sense
the
issue
of
redeemable
shares
has
incorporated
the
undistributed
income
of
the
vendor
company.”
It
is
suggested
that
the
sentences
which
I
have
underlined
are
obiter
;
but
even
if
that
be
so
I
am
satisfied
that
they
correctly
state
the
true
situation.
The
undistributed
income
of
the
old
company
prior
to
the
sale
of
its
assets
to
the
new
company
was
represented
by
buildings,
stock
on
hand,
equipment
and
the
like;
upon
the
sale,
its
form
was
changed
and
thereafter
it
was
represented
by
the
preference
redeemable
shares
of
the
new
company
in
which
it
had
been
incorporated.
It
did
not
thereby
become
non-existent
although
it
was
represented
in
a
new
form.
These
shares
were
the
ones
received
by
the
appellant.
I
do
not
think
that
it
is
of
any
importance
that
he
received
them
direct
from
the
purchasing
company.
{Merritt
v.
Minister
of
National
Revenue,
[1941]
Ex.
C.R.
175;
[1940-41]
C.T.C.
226
affirmed
on
this
point
by
[1942]
8.C.R.
259;
[1942]
C.T.C.
80.)
Actually,
it
is
not
clear
that
he
did
receive
them
directly
from
the
new
company.
The
oral
evidence
indicated
that
such
was
the
case
but
the
minute
book
of
the
old
company
(Ex.
3)
contains
a
record
of
the
directors’
meeting
of
March
27,
1944,
in
which
it
is
recited
that
the
shares
had
been
received
by
it,
and
a
by-law
was
passed
authorizing
their
distribution
rateably
among
its
shareholders.
I
am
of
the
opinion,
also,
that
notwithstanding
the
fact
that
the
appellant
received
the
shares
before
the
charter
of
the
old
company
was
surrendered,
that
they
were
distributed
during
the
process
of
winding
up
or
discontinuing
the
business
and
that,
therefore,
they
fell
within
the
opening
words
of
section
19(1).
(See
MacLaren
v.
Minister
of
National
Revenue,
[1934]
Ex.
C.R.
13;
[1928-34]
C.T.C.
135).
It
is
to
be
kept
in
mind
that
the
assessment
now
under
appeal
was
made
under
section
19(1).
That
section
is
quite
distinct
from
section
19A,
the
latter
being
concerned
only
with
payment
of
a
specified
tax
by
a
purchasing
company
under
the
conditions
therein
mentioned;
while
the
former
declares
to
be
dividends
(and
therefore
taxable
profits
or
gain),
what
is
distributed
to
a
taxpayer
upon
the
winding
up,
discontinuance
or
reorganization
of
a
company,
to
the
extent
that
such
distribution
includes
undistributed
income
of
that
company.
Payment
of
the
tax
under.
19A
does
not
in
any
way
affect
the
question
as
to
what
constitutes
dividends
under
section
19(1),
or
the
liability
of
a
taxpayer
receiving
dividends
thereunder
to
pay
income
tax
thereon.
I
think
that
the
Arrow
Bedding
Company
Ltd.
did
have
undistributed
income
on
hand
at
the
time
of
its
winding
up.
It
is
admitted
that
it
was
on
hand
on
January
31,
1944,
and
at
least
from
a
taxation
point
of
view
it
could
not
lose
the
quality
of
being
"‘undistributed
income”
by
the
conversion
of
the
assets
of
which
it
was
made
up
into
another
form
of
assets,
such
as
cash
or
stock
in
a
new
company.
It
may
be
conceded,
I
think,
that
such
undistributed
income
was
here
incorporated
in
the
preferred
shares
of
the
new
company
but
these
were
the
shares
which
became
the
property
of
the
old
company
and
were
distributed
to
the
appellant.
The
form
in
which
the
undistributed
income
is
distributed
is
quite
immaterial
because
of
the
word
‘‘in
any
form’’
contained
in
the
section.
I
agree,
also,
with
the
opinion
of
O’Connor,
J.,
in
the
Stewart
case
that
from
an
accounting
point
of
view
the
old
company’s
balance
sheet
following
the
receipt
of
the
shares
in
the
new
company
should
show
on
the
liability
side
the
paid
up
capital
and
the
surplus
of
undistributed
income.
That
was
not
done
by
the
accountant
of
the
company,
the
liability
side
of
the
balance
sheet
(Ex.
8)
comprising
only
the
same
items
as
on
the
asset
side,
namely,
the
preferred
and
common
shares
of
the
new
company.
My
conclusion,
therefore,
must
be
that
the
shares
which
the
appellant
received
in
1944
were
so
received
upon
the
winding
up
or
discontinuance
of
the
business
of
Arrow
Bedding
Company
Ltd.
and
constituted
a
distribution
of
the
property
of
that
company
;
and
that
to
the
extent
that
the
company
had
on
hand
undistributed
income,
they
constituted
dividends
in
his
hands.
The
amount,
as
I
have
said,
is
not
in
dispute.
Such
receipts,
therefore,
fall
squarely
within
the
provisions
of
section
19(1)
and
they
were
properly
added
to
the
income
of
the
appellant.
The
Income
War
Tax
Act
levies
taxes
on
profits,
and
it
is
the
clear
intention
of
section
19
that
the
undistributed
income
of
a
corporation
(which
is
composed
of
corporate
profits
remaining
undistributed
for
the
time
being)
should,
at
the
time
it
is
distributed
upon
the
winding
up,
discontinuance
or
reorganization
of
the
company,
constitute
dividends
in
the
hands
of
the
recipients
and
therefore
be
subject
to
taxation
in
the
year
in
which
they
are
so
received.
For
the
reasons
which
I
have
stated,
the
appeal
will
be
dismissed
with
costs
to
be
taxed.
Judgment
accordingly.