HYNDMAN,
D.
J.
:—This
is
an
appeal
by
the
Crown
from
a
judgment
of
the
Tax
Appeal
Board.
The
case
was
heard
before
the
Chairman,
the
Honourable
Mr.
Justice
Graham,
and
Mr.
Monet
and
Mr.
Fisher.
The
Chairman
and
Mr.
Monet
held
that
the
company
being
a
mutual
insurance
company
was
not
liable
for
the
tax
assessed
against
it,
Mr.
Fisher
dissenting.
The
facts
are
fully
set
forth
in
the
very
able
reasons
of
the
Chairman,
with
whom
Mr.
Monet
concurred,
and
for
the
record
I
deem
it
convenient
to
repeat
the
salient
facts
as
found
in
the
said
Judgment
as
follows:
"‘The
appellant
is
a
provincial
mutual
company
incorporated
under
the
laws
of
the
Province
of
New
Brunswick
and
carries
on
the
business
of
a
fire
insurance
company
in
the
rural
areas
of
that
Province.
It
insures
against
loss
by
fire,
lightning
or
explosion
upon
farm
or
other
non-hazardous
property
under
the
premium
note
plan
subject
to
the
provisions
of
and
regulations
under
the
statutes
of
the
Province
of
New
Brunswick
.
.
.
the
business
is
not
wholly
confined
to
the
insurance
of
churches,
schools
or
other
religious,
education
or
charitable
institutions
and,
therefore,
does
not
come
within
the
saving
provision
of
Section
4,
paragraph
(g),
of
the
Income
War
Tax
Act.
Under
the
laws
of
the
Province
of
New
Brunswick
such
a
mutual
company
can
have
no
shareholders
but
each
person,
partnership
or
corporation
insured
under
a
policy
issued
by
such
company
shall
be
a
member
thereof.
The
company
operates
under
what
is
described
as
the
premium
note
plan.
Under
such
a
plan
a
person
taking
out
a
policy
of
insurance
gives
a
promissory
note
for
the
premium
based
on
the
tariff
of
rates
fixed
by
the
Board
of
Directors.
At
the
time
of
giving
the
premium
note,
he
makes
a
cash
payment
of
a
prescribed
percentage
of
the
total
amount.
The
member’s
liability
is
limited
to
the
extent
of
the
amount
of
the
premium
note
signed
by
him.
The
statute
provides
that
if
the
down
payments
received
are
more
than
sufficient
to
pay
all
losses
and
expenses
during
the
continuance
of
the
policy,
then
any
surplus
shall
become
part
of
the
reserve
fund.
If,
however,
the
company
requires
more
money
to
meet
losses
or
expenses
it
may
make
further
assessments
on
each
member,
limited
by
the
balance
owing
under
his
premium
note.
Again
any
surplus
resulting
therefrom
shall
become
part
of
the
reserve
fund.
In
addition
to
the
first
payment,
it
is
provided
that
the
insurer
shall
make
an
annual
assessment
on
the
premium
notes
of
not
more
than
twenty-five
per
cent
nor
less
than
five
per
cent
until
the
reserve
fund
reaches
the
sum
of
$500
for
each
$100,000
in
force
on
the
first
$1,000,000
of
risk
carried
and
$3,000
on
each
additional
$1,000,000
in
force
thereafter.
Section
249(2)
of
the
Insurance
Act,
Chapter
44,
R.S.N.B.
1937,
provides
that
this
reserve
fund
may
be
used
to
pay
off
such
liabilities
of
the
insurer
as
are
not
provided
for
out
of
ordinary
receipts.
The
Act
further
provides
that
the
reserve
fund
shall
be
the
property
of
‘the
insurer
as
a
whole’
and
no
member
shall
have
a
right
to
claim
any
share
or
interest
therein
in
respect
of
any
payment
contributed
by
him
towards
it
;
nor
shall
such
funds
be
applied
or
dealt
with
by
the
insurer
or
the
Board
other
than
in
paying
its
creditors,
except
on
the
order
of
the
Governor
in
Council.
Section
230(2)
of
the
Act
provides
that
‘every
application
and
policy
shall
bear
the
words
‘‘mutual
company—subject
to
pro
rata
distribution
of
assets
and
losses’’.’
These
words
must
be
printed
or
stamped
in
large
type
and
in
red
ink
at
the
head
of
the
policy.
Neither
the
charter
of
the
company
nor
the
statutes
pertaining
to
such
a
company
make
any
specific
provision
for
the
distribution
of
any
surplus
in
the
event
that
the
company
is
wound
up.
However,
it
will
be
noted
that
the
Act
declares
the
reserve
fund
to
be
the
property
of
the
‘insurer
as
a
whole’
.
.
.
The
New
Brunswick
Winding-up
Act,
Chapter
97,
R.S.N.B.
1927,
is
made
applicable
under
its
provisions
'to
all
companies
heretofore
or
hereafter
incorporated
by
the
legislature
or
under
the
authority
of
any
statute
of
this
Province.’
Section
19
reads
as
follows:
‘If
there
is
any
surplus
of
the
fund
realized
from
the
assets
of
the
company,
after
the
payment
of
all
the
creditors
thereof
in
full,
the
same
shall
first
be
devoted
to
the
adjustment
of
the
rights
of
the
contributories
among
themselves,
and
afterwards
shall
be
distributed
pro
rata
among
the
contributories.’
‘Contributory’
as
defined
by
the
said
Act
means
every
person
liable
to
contribute
to
the
assets
of
a
company
in
the
event
of
the
same
being
wound
up
and
includes
a
creditor
or
stockholder
of
a
company.
(The
Chairman
observed:
‘There
have
been
judicial
decisions
that
would
expand
on
some
occasions
the
meaning
of
the
word
"‘contributory’’
to
include
a
member.
However,
in
the
case
under
review
a
member
of
the
appellant
company
is
one
who
is
insured
against
certain
risks
under
a
policy
issued
by
the
company.
It
is
apparent,
therefore,
that
in
either
case
the
word
"‘contributory’’
would
be
limited
to
the
members
and
policy
holders
at
the
time
of
the
winding
up
of
the
company.’)
”
The
Chairman
further
goes
to
say:
""The
issue
then
in
this
appeal
can
be
simply
stated:
Does
the
surplus
over
payment
of
losses
and
expenses
of
administration
constitute
profits
subject
to
Income
tax
under
the
provisions
of
the
Income
War
Tax
Act?
Such
surplus
in
the
case
of
the
appellant
can
arise
only
from
(a)
payment
or
of
membership
fees
of
$1
per
member,
(b)
initial
payment
of
a
percentage
of
premium
notes,
(c)
further
assessments
of
an
added
percentage
of
amount
still
owing
under
premium
notes,
if
deemed
necessary,
and
(d)
special
assessments
of
a
percentage
of
amount
of
premium
notes
in
order
to
build
up
reserve
to
at
least
a
minimum
amount
required
under
the
provisions
of
the
statute.
There
is
one
other
source
of
revenue,
and
that
is
interest
earned
on
the
investment
of
funds
lying
in
the
reserve.
It
is
admitted
that
such
interest
is
income
within
the
meaning
of
the
Income
War
Tax
Act
and
as
such
is
taxable.
This
appeal
is,
therefore,
concerned
only
with
the
revenue
derived
from
membership
fees
and
assessments.”
The
majority
judgment
of
the
Board
held
that
the
respondent
company
is
a
genuine
mutual
company
and
its
operations
bring
it
within
the
principles
governing
mutual
companies
with
regard
to
taxation
as
laid
down
by
the
authorities
hereinafter
referred
to,
and
that
consequently
it
could
not
be
held
that
there
is
any
°
profit”
or
‘‘gain’’
or
‘‘income’’
within
the
ambit
of
the
Income
Tax
Acts.
Mr.
Fisher
on
the
other
hand
was
of
the
opinion
that
the
company
was
not
a
truly
genuine
mutual
company
and
therefore
any
surplus
after
payment
of
losses
and
expenses
was
properly
taxable.
I
have
studied
most
of
the
important
decisions
bearing
on
the
subject
of
mutual
concerns
and
find
that,
running
through
each
one
of
them,
is
the
fact
or
assumption
that
the
contributories
or
members
are
also
the
owners
of
the
surplus
or
reserve
funds
set
up
obviously
for
protection
against
future
possible
claims
or
liabilities;
that
there
is
complete
identity
between
the
contributory
members
and
the
participators,
in
other
words
genuine
mutuality.
Up
to
the
end
of
1946
Section
4(g)
of
the
Income
War
Tax
Act
read
as
follows
:
"
"
4.
The
following
income
shall
not
be
liable
to
taxation
hereunder.
(g)
the
income
of
mutual
corporations
not
having
a
capital
represented
by
shares,
no
part
of
the
income
of
which
inures
to
the
profit
of
any
member
thereof
and
of
life
insurance
companies,
except
such
amount
as
is
credited
to
shareholders’
account.”
But
in
1946
an
amendment
was
enacted
applicable
to
the
1947
income
tax
year
and
Section
4(g)
now
reads
as
follows:
"‘4.
The
following
income
shall
not
be
liable
to
taxation
hereunder.
(g)
the
income
of
mutual
corporations
not
having
a
capital
represented
by
shares,
no
part
of
the
income
of
which
inures
to
the
profit
of
any
member
thereof
except
mutual
insurance
companies
that
do
not
derive
their
premiums
wholly
from
the
insurance
of
churches,
schools
or
other
religious,
educational
or
charitable
institutions.”
I
am
in
agreement
with
the
Chairman
of
the
Board
that
in
the
case
of
a
purely
mutual
concern
the
wording
of
the
said
amendment
fails
to
accomplish
its
purpose
for
the
reason
that
there
ean
be
no
""profit”
or
“income”
as
defined
by
the
Income
Tax
Act
except,
however,
income
such
as
interest
on
investments
and
returns
from
business
carried
on
with
persons
outside
the
membership
of
the
company.
The
leading
case
relied
on
by
the
respondent
herein
is
New
York
Life
Insurance
Co.
v.
Styles,
14
App.
Cas.
381.
Lord
Herschell
at
p.
408
said:
"The
chief
part
of
the
surplus
shewn
by
the
accounts
to
which
I
have
referred
is
paid,
or,
as
the
company
alleges,
is
returned
to
the
policy-holders
(that
is,
to
members
of
the
company)
as
bonuses.
The
remainder
of
the
surplus
is
carried
forward
as
funds
in
hand
to
the
credit
of
the
general
body
of
the
members
of
the
company.
These
bonuses
are
not
paid
in
cash,
but
the
amount
of
the
same
is
deducted
from
the
next
premium
due
or
is
added
to
the
policy.
The
only
question
raised
by
the
case
is
whether
the
surplus,
so
far
as
the
same
is
derived
from
the
premium
income
received
from
members
of
the
company
in
respect
of
their
policies,
is
a
profit
or
a
gain
of
the
company
liable
to
be
assessed
to
income
tax
under
Schedule
D
of
the
16
&
17
Vict.
c.
34."
Again,
at
p.
409
Lord
Herschell
goes
on
to
say
:
‘‘
In
the
case
before
us
certain
persons
have
associated
themselves
together
with
the
purpose
of
mutual
assurance;
that
is
to
say,
they
contribute
annually
to
a
common
fund,
out
of
which
payments
are
to
be
made
in
the
event
of
death
to
the
representatives
of
the
persons
thus
associated
together.
These
persons
are
alone
the
owners
of
the
common
fund,
and
they,
and
they
alone,
are
entitled
to
the
management
of
it.
It
is
only
in
respect
of
his
membership
that
any
person
is
entitled
to
be
assured
a
payment
upon
death.
‘‘
Lord
MacNaghten
at
p.
412
said:
°
I
do
not
think
that
that
decision
compels
your
Lordships
to
hold
in
a
ease
like
the
present,
where
the
business
is
a
mutual
undertaking
pure
and
simple,
that
persons
who
contribute
in
the
first
instance
more
than
is
wanted,
and
then
get
back
the
difference,
are
earning
gains
or
profits,
and
so
liable
to
income
tax.
‘
In
Jones
v.
South-West
Lancashire
Coal
Owners’
Association,
[1927]
A.C.
827
at
p.
830,
Viscount
Cave,
L.C.,
quoting
from
Lord
Watson
in
the
Styles
case,
said:
‘When
a
number
of
individuals
agree
to
contribute
funds
for
a
common
purpose,
such
as
the
payment
of
‘annuities,
or
of
capital
sums,
to
some
or
all
of
them,
on
the
occurrence
of
-events
certain
or
uncertain,
and
stipulate
that
their
contributions,
so
far
as
not
required
for
that
purpose,
shall
be
repaid
to
them,
I
cannot
conceive
why
they
should
be
regarded
as
traders,
or
why
contributions
returned
to
them
should
be
regarded
as
profits.
That
consideration
appears
to
me
to
dispose
of
the
present
case.
In
my
opinion,
a
member
of
the
appellant
company,
when
he
pays
a
premium,
makes
a
rate-
able
contribution
to
a
common
fund,
in
which
he
and
his
copartners
are
jointly
interested,
and
which
is
divisible
among
them,
at
the
times
and
under
the
conditions
specified
in
their
policies.
He
pays
according
to
an
estimate
of
the
amount
which
will
be
required
for
the
common
benefit;
if
his
contribution
proves
to
be
insufficient
he
must
make
good
the
deficiency
;
if
it
exceeds
what
is
ultimately
found
to
be
requisite,
the
excess
is
returned
to
him.”
Viscount
Dunedin
at
p.
833
said:
"The
whole
case
for
the
Crown
rests
on
the
idea
that
because
in
a
single
year
the
premiums
received
exceed
the
sums
paid
in
respect
of
the
losses
in
that
year
the
balance
represents
a
profit.
It
represents
no
such
thing.
It
is
simply
a
sum
of
money
which
is
carried
forward
in
order
that
it
may
be
available
to
meet
excessive
losses
in
a
future
year,
or,
if
it
is
found
in
the
end
to
be
redundant,
be
returned
to
the
shareholders
either
in
the
form
of
reduced
premiums
or
of
cash.
The
basis
of
the
Crown’s
case
seems
to
me
to
fail,
apart
from
the
fact
that
I
agree
that
the
present
case
is
absolutely
ruled
by
the
case
of
New
York
Life
Insurance
Co.
v.
Styles.’’
In
Municipal
Mutual
Insurance
Ltd.
v.
Hills
(1932),
147
L.T.R.
62,
Lord
Warrington
at
p.
65
said:
"
"
Mutual
insurance
business
is
now
perfectly
well
known.
It
consists
essentially
in
the
association
of
a
number
of
persons
who
insure
each
other
against
certain
risks
by
contributing
by
way
of
premiums
to
a
common
fund
to
be
used,
together
with
further
contributions
if
necessary,
for
the
purpose
of
indemnifying
any
member
or
members
who
may
have
suffered
injury
in
consequence
of
a
risk
insured
against,
any
surplus
being
either
carried
forward
or
used
to
reduced
future
premiums
as
the
members
may
determine.
"
Lord
Macmillan
at
p.
67
said
:
‘The
principle
on
which
the
surpluses
arising
in
the
conduct
of
a
mutual
insurance
scheme
are
not
taxable
as
profits
is
now
well
understood.’’
At
p.
68
Lord
Macmillan
further
stated
:
“The
cardinal
requirement
is
that
all
the
contributors
to
the
common
fund
must
be
entitled
to
participate
in
the
surplus
and
that
all
the
participators
in
the
surplus
must
be
contributors
to
the
common
fund
;
in
other
words
there
must
be
com-
plete
identity
between
the
contributors,
and
the
participators.
If
this
requirement
is
satisfied
the
particular
form
which
the
association
takes
is
immaterial.’’
The
decision
in
M.N.R.
v.
Saskatchewan
Cooperative
Wheat
Producers
Ltd.,
[1930]
S.C.R.
402;
[1928-34]
C.T.C.
47,
is
clearly
distinguishable
from
the
present
case
inasmuch
as
it
was
there
held
that
the
corporation
never
became
the
owners
of
the
reserve,
but
acted
merely
as
trustees
or
agents
of
the
farmers
who
contributed
the
grain,
and
for
which
they
were
given
certificates
of
ownership.
Furthermore,
the
company’s
books
showed
it
was
a
debtor
to
the
individual
farmers
who
contributed
to
the
reserve.
The
real
issue
in
this
case,
therefore,
is
whether
or
not
the
Stanley
Company
is,
in
fact
and
in
essence,
a
genuine
mutual
company
as
defined
by
the
leading
authorities.
It
is
true
that
the
New
Brunswick
Act
creating
the
company
insists
on
it
being
called
a
‘‘mutual
company.’’
But
in
my
opinion
so
calling
it
does
not
of
necessity
make
it
such,
at
least
in
relation
to
legislation
of
the
Dominion
Government
such
as
the
Income
Tax
Acts.
As
I
stated
above,
the
essential
features
of
mutual
concerns
is
that
the
contributors
to
the
funds
must
also
be
participators
in
the
surplus.
The
very
Act
under
which
the
company
operates
expressly
and
in
clear
language
states
that
‘‘the
reserve
funds
shall
be
the
property
of
the
insurer
as
a
whole
and
no
member
shall
have
a
right
to
claim
any
share
or
interest
therein
in
respect
of
any
payment
contributed
by
him
towards
it.’’
It
may
be
said
that
in
the
case
of
a
winding
up
the
then
members
would
be
entitled
to
their
appropriate
shares
of
any
assets
remaining
after
payment
of
all
claims.
That
position,
however,
applies
to
any
ordinary
company
or
association.
It
is
also
my
view
that
there
is
a
clear
distinction
between
the
“company”
and
the
shareholders.
It
is
not
a
case
of
the
members
together
insuring
the
individual
members
against
fire.
The
insurer
is
the
‘‘company’’
and
not
the
body
of
the
members.
There
is
no
provision
for
a
reduction
of
premiums
as
the
reserve
increases
as
is
the
case
in
purely
mutual
concerns.
The
premiums
are
fixed
or
based
upon
the
estimated
or
predicted
losses
and
expenses
each
year
and
not
in
reference
to
the
size
of
the
reserve.
As
I
see
it,
the
very
same
conditions
are
taken
into
consideration
in
fixing
premium
rates
as
in
the
case
of
an
ordinary
fire
insurance
company.
The
reserve
is
built
up,
and
properly
so,
for
future
use
in
the
event
of
excessive
losses
and
is
expressly
to
be
utilized
for
the
payment
of
creditors.
The
members
are
liable
only
to
the
extent
of
the
full
amount
of
the
premium
notes
and
no
further.
It
also
provides
that
payments
may
be
made
on
the
order
of
the
Governor
in
Council,
but
I
think
that
is
simply
for
extra
protection
against
possible
enterprises
or
investments
which
might
be
considered
questionable
or
improvident.
There
is
nothing
in
the
legislation
which
provides
or
implies
any
payment
to
members
or
reduction
of
their
premiums.
If
I
am
right
in
this
view
then
it
seems
to
me
there
is
no
real
distinction
between
this
so-called
mutual
company
and
any
ordinary
fire
insurance
company.
It
is
merely
a
device
or
method
to
obtain
cheaper
insurance
than
can
be
got
from
the
line
companies.
Beyond
that
I
can
see
no
substantial
difference
between
them.
I
think
a
fair
question
to
ask
is
to
whom
does
the
reserve
fund
belong?
Someone
must
own
it.
If
by
the
Act
under
which
the
corporation
was
created,
no
member
shall
have
a
right
to
claim
any
share
or
interest
therein
in
respect
of
any
payment
contributed
by
him
towards
it,
and
can
be
used
only
to
pay
creditors,
then
it
must
follow
that
it
belongs
to
the
company
only,
and
any
mutuality
disappears.
Such
surplus
then,
in
my
opinion,
must
be
regarded
as
a
profit
or
a
gain
to
it
and
not
to
the
members.
It
is
not,
therefore,
a
mutual
company
in
the
true
sense
and
does
not
fall
within
any
of
the
exemptions
provided
for
in
the
Income
War
Tax
Act,
and
consequently
taxable.
In
my
view,
the
company
is
not
merely
an
agency
or
trustee
for
the
members,
but
a
Separate
corporation
distinct
therefrom.
I
agree
substantially
with
the
reasoning
of
Mr.
Fisher
in
his
dissenting
judgment,
with
the
greatest
deference
to
the
very
able
reasoning
of
the
learned
Chairman
of
the
Board.
For
the
above
reasons,
therefore,
I
would
allow
the
appeal
and
confirm
the
assessments
of
the
Minister.
The
Crown
is
entitled
to
costs
if
it
insists
upon
same.
Judgment
accordingly.
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