The Queen v. Cyprus Anvil Mining Corp., 90 DTC 6063 (FCA)

The taxpayer, which had a calendar year-end, generally computed its income for accounting and income tax purposes using the lower of cost and market method. For purposes of computing its income from a new mine for the three year period ending 31 January 1973 it initially valued its closing inventory at cost, but later, after reassessment, filed on the basis that its closing inventory should be valued at market, thereby increasing the amount of the exemption which the taxpayer claimed pursuant to former s. 83(5), which provided that "there shall not be included in computing the income of a corporation income derived from the operation of a mine during the period of 36 months commencing with the day in which the mine came into production."

Hugessen J.A. (with whom Pratte J.A. concurred) allowed the Crown's appeal simply on the ground that the words in s. 83(5) "can only mean that the income derived from the operation of the mine must be computed on the same basis as the income from which it is to be deducted." Urie J.A., in addition to allowing the appeal on essentially this basis found, in light of an admission that departing from the taxpayer's previous practice of valuing inventory in accordance with the lower of cost and market method was contrary to GAAP, that in order for the taxpayer's income for the 36-month exempt period not to be computed on a "distorted" basis, the consistency principle should be followed, i.e., the lower of cost and market method which was used for the taxpayer's calendar years should be utilized.

Urie J.A. found that the taxpayer effectively was precluded from computing its income for purposes of the former 36-month new mine holiday (by valuing closing inventory at market) on a different basis than its computation of income for its accounting and taxation years which overlapped, preceded and followed the 36-month exempt period (by valuing inventory at the lower of cost and market). "The critical principle, however, is that there be consistency in the computation of profit as that term is understood in subsection 9(1) of the Act."

Because Urie J.A. found s. 10(1) to be "a provision of general application conferring the possibility for a taxpayer to make a choice of his method of inventory valuation without reference to any time period" whereas computation of income under s. 9 "must relate to the taxpayer's taxation year", he rejected a submission that s. 10(1) was a specific provision overriding the general provision, namely, s. 9.