Pratte,
J.:
—This
is
an
appeal
from
a
judgment
of
the
trial
division
(Reed,
J.)
allowing
with
costs
an
appeal
by
the
respondent
from
income
tax
reassessments
of
its
1974,1975
and
1976
taxation
years.
In
reassessing
the
respondent
for
those
years,
the
Minister
of
National
Revenue
assumed
that
the
amounts
that
the
respondent
had
claimed,
under
subsection
135(1)
of
the
Income
Tax
Act,
as
deductions
on
account
of
payments
made
by
it
pursuant
to
allocations
in
proportion
to
patronage,*
had
to
be
reduced
in
accordance
with
the
prescriptions
of
subsection
135(2).t
Madam
Justice
Reed
held
that
the
limit
imposed
by
subsection
135(2)
on
the
deductibility
of
patronage
dividends
had
no
application
in
this
case.
Was
she
right?
That
is
the
question
to
be
resolved
on
this
appeal.
The
respondent
is
a
co-operative
which,
at
all
relevant
times,
owned
and
operated
an
oil
refinery
in
Regina,
Saskatchewan,
where
it
carried
on
the
business
of
producing,
refining
and
marketing
petroleum
products.
It
also
held,
with
others,
proprietary
interests
in
a
number
of
oil
wells
in
Saskatchewan
and
Alberta.
For
reasons
that
need
not
be
explained,
it
could
not
use
in
its
refinery
the
crude
oil
produced
by
the
wells
in
which
it
had
an
interest.
That
crude
oil
was
sold
to
third
parties.
The
respondent
purchased
its
crude
oil
requirements
from
the
Alberta
Marketing
Agency
and
sold
its
refined
products
to
Federal
Co-operatives
Limited,
its
sole
shareholder
and
member.
It
is
common
ground
that
the
respondent
paid
patronage
dividends
to
its
sole
member
with
respect
to
the
refined
products
sold
to
it
and
that
no
such
payments
were
made
to
the
purchasers
of
the
crude
oil
produced
by
the
wells
in
which
the
respondent
had
an
interest.
In
view
of
this
difference
of
treatment
between
its
various
customers,
was
the
respondent
prevented
by
subsection
135(2)
from
deducting
in
their
entirety
the
patronage
dividends
it
had
paid
its
member?
In
order
for
subsection
135(2)
to
apply,
the
taxpayer
must
have
acted
so
as
to
fulfill
a
negative
condition
formulated
in
the
following
terms:
if
the
taxpayer
has
not
made
allocations
in
proportion
to
patronage
in
respect
of
all
his
customers
of
the
year
at
the
same
rate,
with
apropriate
differences
for
different
types
or
classes
of
goods
.
.
.
.
The
trial
judge
held
that
the
respondent
had
not
fulfilled
that
condition.
True,
the
respondent
had
not
made
allocations
in
proportion
to
patronage
in
respect
of
all
its
customers
at
the
same
rate
since
it
had
made
an
allocation
in
respect
of
its
sole
member
and
had
allocated
nothing
to
its
other
customers.
However,
in
the
trial
judge's
view,
that
difference
was
an
appropriate
difference
"for
different
types
or
classes
of
goods".
Counsel
for
the
appellant
did
not
contest
the
judge's
finding
that
this
difference
of
treatment
between
the
purchasers
of
crude
oil
and
the
purchasers
of
refined
products
was
appropriate
within
the
meaning
of
subsection
135(2).
His
contention
was
that
this
was
an
irrelevant
consideration
since,
in
his
view,
the
clause
“with
appropriate
differences
for
different
types
or
classes
of
goods"
in
subsection
135(2)
qualifies
the
phrase
“at
the
same
rate"
with
the
result
that
the
clause
applies
only
when
allocations
in
proportion
to
patronage
have
been
made,
albeit
at
different
rates,
to
all
customers.
The
clause,
said
counsel,
does
not
apply
in
a
case
like
the
present
one
where
patronage
dividends
have
been
paid
to
only
one
class
of
customers.
Counsel
added
that
this
interpretation
was
supported
by
the
text
services,
or
classes,
grades
or
qualities
thereof,
the
amount
that
may
be
deducted
under
this
section
is
an
amount
equal
to
the
lesser.
.
.
(4)
For
the
purposes
of
this
section,
(a)
‘allocation
in
proportion
to
patronage'
for
a
taxation
year
means
an
amount
credited
by
a
taxpayer
to
a
customer
of
that
year
.
.
.
computed
at
a
rate
in
relation
to
the
quantity,
quality
or
value
of
the
goods
or
products
.
.
.
sold
.
.
.
to
the
customer
.
.
.
with
appropriate
differences
in
the
rate
for
different
classes,
grades
or
qualities
thereof
.
.
.
”
of
the
definition
of
the
phrase
“allocation
in
proportion
to
patronage”
found
in
paragraph
135(4)
which
expressly
specifies
that,
in
the
computation
of
the
allocation,
there
may
be
"appropriate
differences
in
the
rate
for
different
classes,
grades
or
qualities
thereof".
The
appropriate
differences
referred
to
in
that
definition,
according
to
counsel,
are
the
same
as
those
mentioned
in
subsection
135(2);
in
both
cases,
those
differences
are
limited
to
differences
in
the
rate
at
which
the
allocations
are
calculated.
These
arguments
certainly
find
support
in
the
convoluted
language
of
subections
135(2)
and
(4).
However,
as
pointed
out
by
the
trial
judge,
they
lead
to
an
absurd
result,
namely,
that
the
deduction
of
patronage
dividends
is
subject
to
the
limit
imposed
by
subsection
135(2)
if
no
allocation
has
been
made
in
respect
to
the
particular
type
of
goods
sold
to
a
class
of
customers
but
is
not
so
limited
if
an
allocation
of
an
insignificant
amount
has
been
made
with
respect
to
the
same
goods.
In
order
to
avoid
that
absurdity
and
ensure
that
subsection
135(2)
attains
its
obvious
object
of
limiting
the
deductibility
of
patronage
dividends
only
when
the
differentiation
between
customers
is
not
reasonably
attributable
to
differences
in
the
goods
or
products
that
were
sold
to
them,
the
trial
judge
concluded
that,
for
the
purposes
of
section
135,
there
could
be
a
zero
allocation
or,
which
comes
to
the
same
thing,
an
allocation
at
the
rate
of
zero.
That
interpretation
certainly
stretches
the
meaning
of
the
words
used
in
the
section.
However,
it
is
the
only
one
that
is
in
harmony
wih
the
obvious
purpose
of
the
provision
and,
for
that
reason,
I
cannot
say
that
the
learned
judge
erred
in
adopting
it.
I
would
dismiss
the
appeal
with
costs.
Appeal
dismissed.
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