Bowman
J.T.C.C.:—The
appellant,
Farm
Business
Consultants
Inc.,
appeals
to
this
court
from
eight
reassessments
under
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
for
the
taxation
years
ending
April
30,
1983
to
April
30,
1987,
inclusive
and
August
31,
1987
to
August
31,
1989.
Essentially
three
issues
are
raised.
(a)
Whether
the
Minister
of
National
Revenue
was
correct
in
treating
a
purported
consulting
agreement
as
being
in
substance
a
sale
of
goodwill
giving
rise
to
a
deduction
of
a
portion
of
the
amounts
paid
by
the
appellant
as
an
eligible
capital
expenditure
rather
than
a
fully
deductible
current
expense.
(b)
Whether
the
Minister
was
entitled
to
assess
the
years
up
to
and
including
those
ending
August
31,
1987
beyond
the
normal
reassessment
period,
by
reason
of
a
misrepresentation
of
the
type
described
in
subparagraph
152(4)(a)(i).
(c)
Whether
the
Minister
was
justified
in
assessing
penalties
under
subsection
163(2).
A
procedural
issue
arose
at
the
opening
of
trial.
Since
the
Minister
has
assessed
the
years
up
to
and
including
August
31,
1987
beyond
the
three-year
period
from
the
date
of
mailing
the
notice
of
original
assessment,
the
onus
was
upon
the
respondent
to
establish
that
the
appellant
had
made
a
misrepresentation
of
the
type
described
in
subparagraph
152(4)(a)(i).
In
addition
to
contending
that
the
assessments
were
out
of
time
the
appellant
also
contended
that,
on
the
merits,
they
were
incorrect.
Counsel
for
the
appellant
contended
that,
with
respect
to
the
years
alleged
to
be
statute-barred,
the
respondent
should
present
evidence
and
argument
first
on
this
point
in
order
to
establish
the
Minister's
right
to
assess
those
years
beyond
the
normal
reassessment
period.
The
matter
was
fully
argued
by
both
counsel,
and
with
some
hesitation,
I
ruled
that
the
Minister
should
open.
The
authorities
on
the
point
are
not
easily
reconciled.
The
leading
case
is
M.N.R.
v.
Taylor,
[1961]
C.T.C.
211,
61
D.T.C.
1139.
In
that
case
Cameron
J.
stated
at
page
214
(D.T.C.
1141):
After
giving
the
matter
the
most
careful
consideration,
I
have
come
to
the
conclusion
that
in
every
appeal,
whether
to
the
Tax
Appeal
Board
or
to
this
Court,
regarding
a
reassessment
made
after
the
statutory
period
of
limitation
has
expired
and
which
is
based
on
fraud
or
misrepresentation,
the
burden
of
proof
lies
on
the
Minister
to
first
establish
to
the
satisfaction
of
the
Court
that
the
taxpayer
(or
person
filing
the
return)
has
"made
any
misrepresentation
or
committed
any
fraud
in
filing
the
return
or
in
supplying
any
information
under
this
Act"
unless
the
taxpayer
in
the
pleadings
or
in
his
notice
of
appeal
(or,
if
he
be
a
respondent
in
this
Court,
in
his
reply
to
the
notice
of
appeal)
or
at
the
hearing
of
the
appeal
has
admitted
such
misrepresentation
or
fraud.
In
reassessing
after
the
lapse
of
the
statutory
period
for
so
doing,
the
Minister
must
be
taken
to
have
alleged
misrepresentation
or
fraud
and,
if
so,
he
must
prove
it.
[Emphasis
added.]
Counsel
for
the
respondent
pointed
out
that
in
that
case
no
issue
was
taken
with
the
correctness
of
the
assessments
apart
from
their
timeliness,
and
she
sought
to
distinguish
it
on
the
basis
that
other
cases
had
decided
that
where
there
are
issues
both
as
to
whether
the
assessments
are
statute-barred
and
as
to
whether
they
are
otherwise
correct
the
taxpayer
must
proceed
first,
in
accordance
with
subsection
135(2)
of
the
Tax
Court
of
Canada
Rules
(General
Procedure).
She
contends
that
I
should
draw
this
conclusion
from
a
decision
of
Teitelbaum
J.
in
Levy
v.
The
Queen,
[1989]
2
C.T.C.
151,
89
D.T.C.
5385.
Evidently
there
were
two
issues
there—whether
the
assessment
was
correct
and
whether
there
was
misrepresentation
to
justify
its
being
made
beyond
the
normal
reassessment
period.
Teitelbaum
J.
held
that
if
the
appellant
succeeded
in
establishing
that
the
assessment
was
wrong,
the
issue
of
misrepresentation
became
a
non-issue.
He
therefore
ordered
the
appellant
to
proceed
first.
With
respect,
I
am
unable
to
accept
that
the
conclusion
necessarily
follows
from
the
premise.
It
could
as
easily
have
been
said
that
if
the
respondent
is
unable
to
establish
that
the
Minister
was
entitled
to
assess
beyond
the
normal
reassessment
period
the
correctness
of
the
assessment
becomes
a
non-issue.
Before
the
court
can
consider
whether
an
assessment
is
correct
it
must
first
decide
that
it
was
validly
made.
To
the
same
effect
counsel
relied
upon
the
decision
of
Rouleau
J.
in
The
Queen
v.
Taylor,
[1984]
C.T.C.
436,
84
D.T.C.
6459,
where
two
issues
were
before
the
Court,
the
correctness
of
the
assessment
and
the
imposition
of
penalties.
Rouleau
J.
held
at
page
6463
that
"when
there
is
an
onus
on
each
party,
the
taxpayer
shall
begin
first".
That
case
differs
I
believe
from
this
case
and
from
Levy.
In
the
1984
decision
in
Taylor
the
timeliness
of
the
assessment
was
not
in
issue.
It
is
essential
that
before
the
court
hears
evidence
on
the
correctness
of
the
assessment
it
be
satisfied
that
the
Minister
had
the
right
to
assess
at
all.
The
distinction
made
in
Levy
was
not
made
by
Cameron
J.
and
I
can
see
reason,
as
a
matter
of
logic
or
procedural
fairness,
for
making
it
here.
It
may
well
be,
as
Rouleau
J.
said
that
where
there
is
an
onus
on
both
parties
the
taxpayer
should
open.
Until
the
validity
of
the
assessment
that
is
otherwise
statute-barred
is
established
by
the
1
It
is
somewhat
difficult
to
see
how
it
can
be
said
that
the
onus
imposed
on
the
Minister
under
section
163
can
be
met
without
the
Minister
showing
that
the
amount
of
tax
giving
rise
to
the
penalty
was
properly
exigible.
See
also
Can-Am
Realty
Ltd.
v.
Canada,
[1994]
1
C.T.C.
1,
94
D.T.C.
6069.
Minister
under
subparagraph
152(4)(a)(i)
the
taxpayer's
only
onus
is
to
show
that
the
reassessment
was
made
outside
the
normal
reassessment
period.
I
should
think
it
would
be
a
rare
circumstance
in
which
counsel
for
the
appellant
would
willingly
yield
to
the
Crown
the
tactical
advantage
of
going
first.
Counsel
for
the
Crown
can,
of
course,
call
as
a
witness
the
appellant,
if
the
appellant
is
an
individual,
or
an
officer
or
director
of
the
appellant,
and,
under
subsection
146(3)
of
the
Rules,
may
cross-examine
that
person.
In
this
particular
case,
however,
it
does
not
appear
to
have
made
one
iota
of
difference
who
went
first.
The
facts
that
were
established
or
admitted
are
the
following.
The
appellant,
a
wholly
owned
subsidiary
of
Datatax
Business
Services
Ltd.,
carried
on
the
business
of
providing
financial,
accounting
and
tax
services
to
farmers.
Agricultural
Tax
Service
Ltd.
and
Agricultural
Tax
Service
(Canada)
Ltd.
carried
on
the
same
type
of
business.
These
latter
two
companies,
collectively
referred
to
as
"Agricultural",
were
owned
by
Maxwell
Earl
Whalls
and
his
wife
Nyla
Whalls.
The
Whalls
wished
to
sell
the
business
of
Agricultural;
Datatax
and
the
appellant
wished
to
buy
it.
The
only
asset
of
significant
value
to
Datatax
and
the
appellant
was
Agricultural's
goodwill
which
consisted
substantially
in
its
approximately
3,200
customers.
The
appellant
and
Datatax
therefore
entered
into
an
agreement
with
Agricultural
and
the
Whalls
whereby
Agricultural
and
the
Whalls
agreed
to
sell
to
Datatax
and
the
appellant
the
business
and
undertaking
of
Agricultural,
including
the
goodwill
and
certain
other
assets.
Clause
4
of
the
agreement
provided
as
follows:
4.
THE
purchase
price
payable
for
the
assets
hereby
agreed
to
be
purchased
and
sold
shall
be
as
follows:
(i)
Stationery,
office
supplies
and
office
equipment—"Datatax"
will
pay
to
"Agricultural"
the
sum
of
$45,000
which
is
represented
to
be
the
fair
market
value
of
the
above.
(ii)
Good
will—"Datatax"
will
pay
to
"Agricultural"
the
sum
of
one
dollar
which
will
include
the
name
and
customer
list.
(iii)
"Datatax"
will
pay
to
“Agricultural”
the
sum
of
$96,000
per
year
for
a
term
of
seven
years
pursuant
to
the
terms
of
a
consulting
contract.
Payments
will
be
made
commencing
May
24,
1982
and
thereafter
on
a
weekly
basis
until
May
17,
1989
when
the
said
consulting
contract
shall
expire.
(iv)
“Agricultural”
and
Maxwell
Earl
Whalls
will
cause
to
be
delivered
to
the
customer
list
on
closing
a
letter
in
a
form
similar
to
Schedule
"D"
attached
hereto.
The
agreement
also
provided
that
Mr.
Whalls
would
write
to
Agricultural’s
clients
a
letter
in
the
form
of
Schedule
D
to
the
agreement.
The
letter
read
as
follows:
Dear
Client:
Since
1968,
Agricultural
Tax
Service
has
been
pleased
to
represent
its
clients
to
the
best
of
its
ability
and
has
always
searched
for
ways
to
improve
the
quality
of
service.
Today's
complicated
tax
laws
make
old-fashioned
tax
preparation
obsolete
and
we
feel
that
to
serve
you
best,
the
latest
in
computer
technology
is
essential.
The
future
servicing
of
your
income
tax
affairs
has
been
assigned
to
FBC
which
is
the
largest
farm
tax
consultant
in
Canada
with
over
22,000
members
and
highly
sophisticated
computerized
tax
preparation.
I
have
no
doubt
that
you
will
receive
the
highest
level
of
service
from
FBC
and
I
thank
you
for
your
continued
support.
Yours
sincerely,
Earl
Whalls
President
The
consulting
agreement
contained
the
following
covenants:
1.
During
the
term
of
this
agreement
Agricultural
and
Whalls
shall
serve
the
company
and
shall
perform
such
duties
and
exercise
such
powers
as
may
be
from
time
to
time
assigned
to
or
vested
in
them
by
the
president
of
the
company.
2.
The
engagement
shall
be
until
May
17,
1989.
3.
Agricultural
and
Whalls
will
during
the
period
of
the
agreement
devote
their
time,
attention
and
ability
to
the
business
of
the
company
and
will
well
and
faithfully
serve
the
company
and
use
their
best
efforts
to
promote
their
interests
and
will
not
disclose
the
private
affairs
of
the
company
or
any
secret
of
the
company
to
any
person
other
than
the
officers
or
directors
of
the
company
or
to
those
persons
authorized
in
writing
by
the
board
of
directors
of
the
company,
and
will
not
use
for
their
own
purposes
or
for
any
other
purposes
other
than
those
or
the
company
any
information
they
may
acquire
with
respect
to
the
company’s
affairs.
4.
The
remuneration
of
Agricultural
and
Whalls
for
their
services
hereunder
shall
be
at
the
rate
of
$86,580
per
annum
which
payments
will
be
made
weekly
in
the
amount
of
$1,665
commencing
May
24,
1982
and
terminating
on
May
17,
1989,
when
the
said
contract
shall
expire.
Before
the
closing
Mr.
Whalls
became
concerned
that
he
and
his
wife
might
have
somewhat
onerous
obligations
under
the
consulting
agreement
and
at
closing
an
amendment
of
the
consulting
agreement
was
made
and
signed
by
all
parties.
It
read
as
follows:
1.
The
parties
hereto
agree
to
amend
their
consulting
agreement
dated
May
17,
1982,
as
follows:
The
company
agrees
that
Agricultural
and
Whalls
will
only
be
required
to
devote
a
maximum
of
five
days’
service
per
year
to
the
company.
The
Minister
disallowed
the
deduction
of
the
so-called
consulting
fees,
allowed
a
deduction
of
a
portion
as
an
eligible
capital
expenditure
and
a
further
portion
as
an
interest
component.
He
took
this
reassessing
action
with
respect
to
all
years
under
appeal,
including
those
that
were
statute-barred,
and
imposed
penalties
under
subsection
163(2)
for
all
years
which
he
reassessed.
I
have
set
out
the
agreements
to
show
what
the
parties
purported
to
agree
to.
The
agreements
do
not
reflect
the
legal
reality.
Apart
from
the
obligation
to
make
the
weekly
payments
of
$1,665
the
consulting
agreement
was
never
intended
to
be
acted
upon.
The
Whalls
were
not
expected
or
intended
by
the
appellant
to
render
any
consulting
services
and
in
fact
they
did
not
do
so.
If
the
concept
of
substance
over
form
has
any
meaning
whatever,
it
applies
here.
The
form
of
the
legal
relationship
between
Agricultural
and
the
Whalls
and
the
appellant,
insofar
as
it
purported
to
create
a
consulting
agreement
or
an
agreement
for
services,
did
not
reflect
the
true
relationship,
which
was
the
sale
of
a
business.
The
$86,580
per
annum
payable
to
Agricultural
and
the
Whalls
was
not
for
services
but
rather
for
the
list
of
customers
which
was
valued
at
$26.64
per
customer
per
year
for
3,250
customers.
The
original
agreement
of
purchase
and
sale
assumed
that
there
were
3,600
customers;
hence
the
figure
of
$96,000
as
the
alleged
fee
for
consulting
services.
There
is
no
need
to
repeat
the
jurisprudence
on
substance
over
form.
That
has
been
done
in
other
cases.
The
essential
nature
of
a
transaction
cannot
be
altered
for
income
tax
purposes
by
calling
it
by
a
different
name.
It
is
the
true
legal
relationship,
not
its
nomenclature,
that
governs.
The
idea
of
dressing
up
the
payments
for
the
customer
list
in
the
garb
of
consulting
fees
was
the
idea
of
Mr.
Ibbotson,
the
president
of
the
appellant,
because
he
wanted
to
turn
the
payments
for
goodwill
into
currently
deductible
expenses.
Evidently
the
Whalls
were
prepared
to
go
along
with
this
suggestion
but
their
acquiescence,
and
the
fact
that
they
were
prepared
to
include
the
payments
in
income,
does
not
assist
the
appellant,
nor
indeed
does
the
fact
that
the
Minister
did
not
question
the
Whalls’
inclusion
of
the
payments
in
income.
After
all,
why
would
he?
It
follows,
therefore,
that
on
the
merits
of
the
assessments
the
appeals
fail.
2
There
were,
it
seems,
a
couple
of
telephone
calls
and
one
meeting
but
I
regard
these
as
completely
insignificant.
The
more
difficult
questions
are
whether
the
Minister
was
entitled
to
reopen
the
earlier
statute-barred
years
under
subparagraph
152(4)(a)(i)
and
to
impose
penalties
under
subsection
163(2).
Subparagraph
152(4)(a)(i)
permits
the
Minister
to
assess
beyond
the
normal
reassessment
period
if
the
taxpayer
or
person
filing
the
return:
(i)
has
made
any
misrepresentation
that
is
attributable
to
neglect,
carelessness
or
wilful
default
or
has
committed
any
fraud
in
filing
the
return
or
in
supplying
any
information
under
this
Act.
The
French
version
of
this
provision
reads
as
follows:
(i)
soit
a
fait
une
présentation
erronée
des
faits,
par
négligence,
inattention
ou
omission
volontaire,
ou
a
commis
quelque
fraude
en
produisant
la
déclaration
ou
en
fournissant
quelque
renseignement
sous
le
régime
de
la
présente
loi.
It
is
important
to
determine
precisely
what
"misrepresentation"
if
any,
the
appellant
is
alleged
to
have
made.
The
"representation"
that
was
made
in
the
financial
statements
was
that
the
appellant
paid
"management
fees"
of
$86,580
each
year.
This
amount
varied
in
some
years
where
other
fees
were
deducted
or
where
there
was
a
short
fiscal
period.
It
is
quite
true
that
what
was
deducted
was
consistent
with
the
purchase
agreement
and
the
consulting
agreement
but
the
substance
of
those
agreements
was
a
purchase
of
goodwill,
the
customer
list.
The
origin
of
the
depiction
of
the
payments
in
the
return
of
income
as
management
fees
was
the
arm's
length
agreements
between
the
parties.
Does
this
make
their
description
in
the
return
any
the
less
a
misrepresentation?
I
think
not.
The
agreements
and
the
claim
for
a
deduction
were
integral
parts
of
the
arrangement.
I
think
therefore
that
there
was
a
misrepresentation.
The
second
question
is
this:
To
what
was
the
misrepresentation
attributable?
The
types
of
misrepresentation
by
a
taxpayer
that
will
permit
the
Minister
to
reopen
a
statute-barred
year
run
the
entire
gamut
from
innocent
carelessness
to
fraud.
Although
the
reply
to
the
notice
of
appeal
refers
to
neglect,
carelessness
or
wilful
default
counsel
for
the
respondent
relied
principally
upon
the
words
“wilful
default”,
alleging
that
Mr.
Ibbotson
knew
what
he
was
doing
in
portraying
the
payments
for
goodwill
as
consulting
fees.
Her
point
is
not
without
merit.
Mr.
Ibbotson
is
not
altogether
unsophisticated
in
income
tax
matters.
He
may
have
believed
that
where
the
parties
to
a
transaction
have
chosen
to
describe
or
misdescribe
it
by
a
particular
formula
of
words
that
description
is
conclusive.
I
place
no
weight
on
the
fact
that
the
financial
statements
of
the
appellant
were
audited
or
that
expert
testimony
was
adduced
to
the
effect
that
the
deduction
of
the
so-called
management
fees
was
in
accordance
with
generally
accepted
accounting
principles.
That
is
not
germane
to
the
question
here.
Whether
they
are
deductible
is
a
question
of
law.
If
they
had
really
been
management
fees,
they
would
have
been
deductible
and
accounting
evidence
would
not
have
been
necessary.
Moreover
the
expert
accounting
witness
assumed
that
services
were
in
fact
being
performed,
which
of
course
they
were
not.
I
have
no
difficulty
in
concluding
that
the
Minister
was
justified
in
opening
up
the
statute-barred
years
on
the
basis
that
a
misrepresentation
was
made
that
was
attributable
to
neglect,
carelessness
or
wilful
default.
Fraud
is
not
suggested.
The
reasons
for
the
misrepresentation
fall
within
the
broad
range
covered
by
those
three
words
and
if
the
only
issue
before
me
related
to
subparagraph
152(4)(a)(i)
it
would
not
be
necessary
to
decide
which
of
those
words
applied.
It
is
one
or
the
other.
The
issue
under
subparagraph
152(4)(a)(i)
is
not
however
unrelated
to
the
third
issue,
that
of
penalties.
If
the
misrepresentation
is
attributable
to
simple
neglect
or
carelessness
not
amounting
to
gross
negligence
the
penalties
under
subsection
163(2)
cannot
be
supported.
If,
however,
it
is
misrepresentation
attributable
to
“wilful
default"
it
is
much
more
difficult
to
conclude
that
it
is
not
equally
a
"false
statement"
which
the
appellant
made
"knowingly"
within
the
meaning
of
subsection
163(2).
On
one
view
of
the
matter
the
action
was
wilful,
in
the
sense
that
it
was
deliberate.
From
a
different
perspective
it
might
be
said
that
it
was
based
upon
a
wholly
erroneous
view
of
the
effect
of
the
description
or
misdescription
adopted
by
the
parties.
In
one
sense
the
misrepresentation
can
be
seen
as
attributable
to
Mr.
Ibootson's
failure
to
recognize
that
such
arrangements,
however
prevalent
they
may
be,
were
ineffective.
Had
he
taken
the
trouble
to
speak
to
a
moderately
competent
tax
lawyer
or
accountant
he
would
unquestionably
have
been
told
that
the
scheme
did
not
work.
The
question
then
is
whether
the
conduct
on
the
part
of
the
appellant
justifying
the
Minister’s
reopening
of
the
statute-barred
years
under
subparagraph
152(4)(a)(i)
equally
justifies
the
imposition
of
penalties
under
subsection
163(2).
That
the
two
provisions
are
not
coterminous
is
obvious.
"Neglect,
carelessness,
wilful
default
or.
.
.
fraud"
(négligence,
inattention,
omission
volontaire
ou.
.
.
fraude)
cover
a
wide
range
of
non-feasance
or
misfeasance,
innocent
or
intentional,
to
which
a
misrepresentation
in
a
return
may
be
attributable.
There
is
no
hiatus
between
the
words
in
this
series,
which
starts
with
ordinary
neglect
and
proceeds
by
gradual
degrees
to
fraud
which
would
justify
a
penalty
under
subsection
163(2).
The
type
of
carelessness
or
neglect
encompassed
by
subparagraph
152(4)(a)(i)
may
include,
but
is
not
as
extensive
as,
that
contemplated
in
the
words
"gross
negligence"
in
subsection
163(2)
("faute
lourde")
which
implies
conduct
characterized
by
so
high
a
degree
of
negligence
that
it
borders
on
recklessness.
It
would
be
difficult
to
conclude
that
the
state
of
mind
required
for
“wilful
default"
("omission
volontaire")
is
not
the
same
as
that
implicit
in
the
word
“knowingly”
("sciemment").
Subsection
163(2)
provides:
Every
person
who,
knowingly,
or
under
circumstances
amounting
to
gross
negligence
in
the
carrying
out
of
any
duty
or
obligation
imposed
by
or
under
this
Act,
has
made
or
has
participated
in,
assented
to
or
acquiesced
in
the
making
of,
a
false
statement
or
omission
in
a
return,
form,
certificate,
statement
or
answer
(in
this
section
referred
to
as
a
"return")
filed
or
made
in
respect
of
a
taxation
year
as
required
by
or
under
this
Act
or
a
regulation,
is
liable
to
penalty
of.
.
.
.
The
French
version
is
as
follows:
Toute
personne
qui,
sciemment
ou
dans
des
circonstances
équivalant
a
faute
lourde
dans
l’exercice
d'une
obligation
prévue
à
la
présente
loi
ou
à
un
règlement
d'application,
fait
un
faux
énoncé
ou
une
omission
dans
une
déclaration,
un
formulaire,
un
certificat,
un
état
ou
une
réponse—appelé
"déclaration"
au
présent
article—rempli
ou
produit
pour
une
année
d'imposition
conformément
à
la
présente
loi
ou
à
un
règlement
d'application,
ou
y
participe,
y
consent
ou
y
acquiesce
est
passible
d'une
pénalité.
.
.
.
The
type
of
conduct
envisaged
by
subsection
163(2)
may
overlap
portions
of
subparagraph
152(4)(a)(i)
and
I
think
that
it
does
so
in
this
case.
I
nave
made
a
great
effort
to
put
the
appellant’s
conduct
in
as
benign
a
light
as
possible,
and
to
attribute
it
to
a
naive
and
foolish
belief
that
schemes
of
the
type
involved
here
actually
work
rather
than
to
a
wilful
misrepresentation
of
the
true
state
of
affairs.
I
have
been
unable
to
do
so.
The
appellant
either
knew
what
it
was
doing
or
was
reckless
as
to
the
legal
efficacy
of
the
arrangement.
I
am
cognizant
of
the
fact
that
subparagraph
152(4)(a)(i)
has
as
its
purpose
the
opening
up
of
returns
for
statute-
barred
years
where
items
of
income,
for
a
wide
variety
of
reasons,
are
omitted
or
misstated,
whereas
subsection
163(2)
is
a
penal
provision
and
that
in
applying
it
if
there
is
doubt
as
to
the
type
of
conduct
to
which
the
misrepresentation
is
attributable
the
benefit
of
that
doubt
should
be
given
to
the
taxpayer.
In
Udell
v.
M.N.R.,
[1969]
C.T.C.
704,
70
D.T.C.
6019,
Cattanach
J.
said
at
page
6025:
There
is
no
doubt
that
subsection
56(2)
is
a
penal
section.
In
construing
a
penal
section
there
is
the
unimpeachable
authority
of
Lord
Esher
in
Tuck
&
Sons
v.
Priester,
(1887)
19
Q.B.D.
629,
to
the
effect
that
if
the
words
of
a
penal
section
are
capable
of
an
interpretation
that
would,
and
one
that
would
not,
inflict
the
penalty,
the
latter
must
prevail.
He
said
at
page
638:
We
must
be
very
careful
in
construing
that
section
because
it
imposes
a
penalty.
If
there
is
a
reasonable
interpretation
which
will
avoid
the
penalty
in
any
particular
case,
we
must
adopt
that
construction.
and
at
page
6026:
I
take
it
to
be
a
clear
rule
of
construction
that
in
the
imposition
of
a
tax
or
a
duty,
and
still
more
of
a
penalty,
if
there
be
any
fair
and
reasonable
doubt
the
statute
is
to
be
construed
so
as
to
give
the
party
sought
to
be
charged
the
benefit
of
the
doubt.
See
also
Holley
v.
M.N.R.,
[1989]
2
C.T.C.
2152,
89
D.T.C.
366
at
page
2157
(D.T.C.
369);
De
Graaf
v.
The
Queen,
[1985]
1
C.T.C.
374,
85
D.T.C.
5280.
A
Court
must
be
extremely
cautious
in
sanctioning
the
imposition
of
penalties
under
subsection
163(2).
Conduct
that
warrants
reopening
a
statute-barred
year
does
not
automatically
justify
a
penalty
and
the
routine
imposition
of
penalties
by
the
Minister
is
to
be
discouraged.
Conduct
of
the
type
contemplated
in
paragraph
152(4)(a)(i)
may
in
some
circumstances
also
be
used
as
the
basis
of
a
penalty
under
subsection
163(2),
which
involves
the
penalizing
of
conduct
that
requires
a
higher
degree
of
reprehensibility.
In
such
a
case
a
court
must,
even
in
applying
a
civil
standard
of
proof,
scrutinize
the
evidence
with
great
care
and
look
for
a
higher
degree
of
probability
than
would
be
expected
where
allegations
of
a
less
serious
nature
are
sought
to
be
established.
Moreover,
where
a
penalty
is
imposed
under
subsection
163(2)
although
a
civil
standard
of
proof
is
required,
if
a
taxpayer's
conduct
is
consistent
with
two
viable
and
reasonable
hypotheses,
one
justifying
the
penalty
and
one
not,
the
benefit
of
the
doubt
must
be
given
to
the
taxpayer
and
the
penalty
must
be
deleted.
I
think
that
in
this
case
the
required
degree
of
probability
has
been
established
by
the
respondent,
and
that
no
hypothesis
that
is
inconsistent
with
that
advanced
by
the
respondent
is
sustainable
on
the
basis
of
the
evidence
adduced.
Had
I
been
able
to
construe
the
statute,
or
to
view
the
evidence,
in
a
manner
that
permitted
me
to
give
the
appellant
the
benefit
of
the
doubt
I
would
have
done
so.
That
course
of
action
is
not
open
to
me.
The
appellant’s
depiction
of
the
legal
relationship
between
it
and
Agricultural
as
that
of
a
consulting
arrangement
went
beyond
simple
negligence.
The
appeals
are
dismissed
with
costs.
Appeals
dismissed.
3
Cf.
Continental
Insurance
Co.
v.
Dalton
Cartage
Co.,
[1982]
1
S.C.R.
164;
131
D.L.R.
(3d)
559;
25
C.P.C.
72,
perLaskin
C.J.C.
at
pages
168-71
(D.L.R.
562-64;
C.P.C.
75-77);
Baterv.
Bater,
[1950]
2
All
E.R.
458
at
page
459;
Pallan
v.
M.N.R.,
[1990]
1
C.T.C.
2257,
90
D.T.C.
1102
at
page
2264
(D.T.C
1106);
W.
Tatarchuk
Estate
v.
M.N.R.,
[1993]
1
C.T.C.
2440,
85
D.T.C.
404,
at
page
2443.
4
This
is
not
simply
an
extrapolation
from
the
rule
in
Hodge's
Case
(1838),
2
Lewin
227;
168
E.R.
1136,
applicable
in
criminal
matters
such,
for
example,
as
section
239
of
the
Income
Tax
Act
where
proof
beyond
a
reasonable
doubt
is
required.
It
is
merely
an
application
of
the
principle
that
a
penalty
may
be
imposed
only
where
the
evidence
clearly
warrants
it.
If
the
evidence
is
consistent
with
both
the
state
of
mind
justifying
a
penalty
under
subsection
163(2)
and
the
absence
thereof—I
hesitate
to
use
the
words
innocence
or
guilt
in
these
circumstances—it
would
mean
that
the
Crown's
onus
had
not
been
satisfied.
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