Mahoney,
J:—This
appeal
is
from
the
assessments
of
the
plaintiffs’
income
tax
returns
for
the
years
ended
December
31,
1974
and
1975.
It
is
concerned
with
paragraph
12(1
)(o)
of
the
Income
Tax
Act
as
that
provision
applied
during
the
period
November
18,
1974
to
May
25,
1976.
12.
(1)
There
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
as
income
from
a
business
or
property
such
of
the
following
amounts
as
are
applicable:
(o)
any
amount
(other
than
an
amount
referred
to
in
paragraph
18(1)(m),
paid
or
payable
by
the
taxpayer,
or
a
prescribed
amount)
that
became
receivable
in
the
year
by
virtue
of
an
obligation
imposed
by
statute
or
a
contractual
obligation
substituted
for
an
obligation
imposed
by
statute
by
(i)
Her
Majesty
in
right
of
Canada
or
a
province,
(ii)
an
agent
of
Her
Majesty
in
right
of
Canada
or
a
province,
or
(iii)
a
corporation,
commission
or
association
that
is
controlled,
directly
or
indirectly
in
any
manner
whatever,
by
Her
Majesty
in
right
of
Canada
or
a
province
or
by
an
agent
of
Her
Majesty
in
right
of
Canada
or
a
province
as
a
royalty
or
an
equivalent
amount,
tax
(other
than
a
tax
or
portion
thereof
that
may
reasonably
be
considered
to
be
a
municipal
or
school
tax
levied
for
the
purpose
of
providing
services
in
the
immediate
area
of
the
property
of
the
taxpayer),
rental,
bonus,
levy
or
otherwise
or
as
an
amount,
however
described,
that
may
reasonably
be
regarded
as
being
in
lieu
of
a
royalty
or
an
equivalent
amount,
tax,
rental,
bonus,
levy
or
other
amount
(whether
such
royalty
or
equivalent
amount,
tax,
rental,
bonus,
levy
or
other
amount
is
receivable
pursuant
to
any
other
Act
or
a
contract)
that
may
reasonably
be
regarded
as
being
in
relation
to
(iv)
the
acquisition,
development
or
ownership
by
a
taxpayer
of
a
Canadian
resource
property
or
a
property
that
would
have
been
a
Canadian
resource
property
if
it
had
been
acquired
after
1971,
or
(v)
the
production
in
Canada
of
(A)
petroleum,
natural
gas
or
related
hydrocarbons,
or
(B)
metal
or
industrial
minerals
to
any
stage
that
is
not
beyond
the
prime
metal
stage
or
its
equivalent
from
an
oil
or
gas
well
or
mineral
resource
situated
on
property
in
Canada
from
which
the
taxpayer
had,
at
the
time
of
such
production,
a
right
to
take
or
remove
petroleum,
natural
gas
or
related
hydrocarbons
or
a
right
to
take
or
remove
metal
or
industrial
minerals.
Subsection
248(1),
with
an
immaterial
exception,
defines
“amount”
as
“money,
rights
or
things
expressed
in
terms
of
the
amount
of
money
or
the
value
in
terms
of
money
of
the
right
or
thing’.
The
principal
issues
are:
1.
Whether
the
royalty
share
of
crude
oil,
or
its
value,
of
Her
Majesty
in
right
of
the
Province
of
Alberta
(hereafter
“Alberta”)
delivered
in
kind
by
the
plaintiff
to
the
Alberta
Petroleum
Marketing
Commission
(hereafter
“APMC”)
after
December
1,
1974,
is
an
amount
within
the
contemplation
of
paragraph
12(1)(o),
and
2.
Whether
the
amount
required
by
paragraph
12(
1)(o)
to
be
included
in
the
plaintiff’s
income
in
respect
of
natural
gas
royalties
is
the
actual
amount
paid
Alberta
or
that
amount
plus
the
amount
of
Drilling
Incentive
Credits
(hereafter
“DIC’s”
applied
to
reduce
the
amount
which
would
otherwise
have
been
required
to
be
paid.
I
shall
refer
to
these
as
the
crude
oil
and
natural
gas
royalty
issues
respectively.
In
addition
to
them,
the
plaintiff
raised
at
the
trial,
although
it
had
not
pleaded,
the
constitutional
validity
of
paragraph
12(1)(o)
and
the
defendant
pleaded
that
the
plaintiff
is
estopped
from
raising
the
crude
oil
royalty
issue
inasmuch
as
it
was
not
raised
in
its
notices
of
objection.
It
is
convenient
to
deal
with
these
matters
first.
The
challenge
to
the
constitutional
validity
of
paragraph
12(1
)(o)
is
based
on
section
125
of
the
British
North
America
Act,
1867,
RSC
1970,
Appendix
11,
No
5.
125.
No
Lands
or
Property
belonging
to
Canada
or
any
Province
shall
be
liable
to
Taxation.
In
Phillips
and
Taylor
v
City
of
Sault
Ste
Marie,
[1954]
SCR
404,
a
provincial
tax
on
the
tenant
of
land
belonging
to
the
Crown
was
considered
by
the
Supreme
Court
of
Canada.
The
appellants,
who
fell
within
the
extended
meaning
of
“tenant”,
were
required
to
reside
on
land
owned
by
Her
Majesty
in
right
of
Canada,
Taschereau,
J,
as
he
then
was,
at
407,
in
delivering
the
Court’s
judgment,
said:
There
can
be
no
doubt
that
under
s
32(1),
the
assessor
places
a
value
on
Crown
property
for
tax
purposes,
but
the
concern
assessed
in
respect
of
the
land
is
not
the
Crown
but
the
“tenant”
who
is
the
one
who
pays
the
tax.
The
value
of
the
land
is
the
measure
of
the
tax,
but
the
Act
does
not
make
the
land
liable
to
taxation
and,
therefore,
does
not
conflict
with
s
125
of
the
BNA
Act.
Here,
the
amount
receivable
by
Alberta
as
a
royalty
is
the
measure
of
the
tax
levied
on
the
taxpayer
but
it
is
the
taxpayer,
not
the
royalty,
and
not
Alberta,
that
is
taxed.
The
estoppel
pleaded
arises
out
of
the
fact
that,
in
filing
its
tax
returns,
the
plaintiff
did
report
the
amounts
subject
of
the
crude
oil
royalty
issue
as
taxable
income.
It
also
reported
natural
gas
royalty
as
required
by
paragraph
12(1)(o)
less
the
amount
of
the
DIC’s.
That
deduction
was
the
only
issue
raised
in
the
notices
of
objection
put
in
issue
in
this
appeal.
The
crude
oil
royalty
issue
was
raised
for
the
first
time
by
the
Statement
of
Claim
herein.
The
defendant
readily
admits
that,
had
the
crude
oil
royalty
issue
been
raised
in
the
returns,
or
by
the
notices
of
objection,
the
position
taken
would
have
been
identical
to
that
it
now
urges
on
the
Court.
The
Act
provides
165.
(1)
A
taxpayer
who
objects
to
an
assessment
under
this
Part
may,
within
90
days
from
the
day
of
mailing
of
the
notice
of
assessment,
serve
on
the
Minister
a
notice
of
objection
in
duplicate
in
prescribed
form
setting
out
the
reasons
for
the
Objection
and
all
relevant
facts.
172.
(2)
Where
a
taxpayer
has
served
a
notice
of
objection
under
section
165,
he
may,
in
place
of
appealing
to
the
Tax
Review
Board
under
section
169,
appeal
to
the
Federal
Court
of
Canada
at
a
time
when,
under
section
169,
he
could
have
appealed
to
the
Tax
Review
Board.
section
169
prescribes
an
identical
condition
precedent
to
the
right
to
appeal
to
the
Tax
Review
Board
and
there
are
a
number
of
decisions
by
that
tribunal
to
the
effect
that
it
has
no
jurisdiction
to
hear
an
appeal
on
an
issue
not
raised
in
the
notice
of
objection.
For
example,
and
it
is
extreme,
in
A
S
Spence
v
MNR,
36
Tax
ABC
312;
64
DTC
651,
the
issue
raised
in
the
notice
of
objection
was
whether
a
company
of
which
he
was
a
shareholder
had
conferred
a
benefit
on
a
taxpayer
by
paying
the
amount
of
a
settlement
of
a
damage
action
against
him
as
well
as
the
incidental
legal
expenses.
The
taxpayer
sought,
before
the
Board,
to
claim
as
a
deduction
from
income
certain
alleged
farm
losses
which
he
had
not
claimed
in
his
original
return
and
in
respect
of
which
he
had
sought
to
file
an
amended
return
only
after
his
original
return
had
been
assessed
and
the
appeal
taken.
Another
example,
certainly
less
extreme,
is
G
Rosenberg
v
MNR,
[1968]
Tax
ABC
1131;
68
DTC
830,
where
the
Minister
had
disallowed
the
taxpayer’s
deduction
of
a
$3,550
loss
on
a
loan
to
a
company
of
which
he
was
a
shareholder
and
also
disallowed
the
deduction
of
$2,450
he
had
paid
under
his
guarantee
of
the
company’s
bank
loan.
The
taxpayer
dealt
only
with
the
$3,550
item
in
his
notice
of
objection
and
the
Board
refused,
for
want
of
jurisdiction,
to
hear
him
on
the
$2,450
item.
This
Court
appears
not
to
have
dealt
with
this
question
directly.
In
H
Goldman
v
MNR,
[1951]
Ex
CR
274;
[1951]
CTC
241;
4
DTC
238,
Thorson,
P,
was
concerned
with
whether
an
appeal
to
the
Exchequer
Court
from
a
decision
of
the
Income
Tax
Appeal
Board
was
a
trial
de
novo.
After
a
lengthy
review
of
the
legislation
then
in
effect
and
that
which
it
had
replaced,
he
concluded:
All
these
considerations
lead
to
the
conclusion
that
the
appeal
to
this
Court
from
a
decision
of
the
Income
Tax
Appeal
Board,
whether
by
the
taxpayer
or
by
the
Minister,
is
a
trial
de
novo
of
the
issues
involved,
that
the
parties
are
not
restricted
to
the
issues
either
of
fact
or
of
law
that
were
before
the
Board
but
are
free
to
raise
whatever
issues
they
wish
even
if
different
from
those
raised
before
the
Board
and
that
it
is
the
duty
of
the
Court
to
hear
and
determine
such
issues
without
regard
to
the
proceedings
before
the
Board
and
without
being
affected
by
any
findings
made
by
it.
The
Supreme
Court
of
Canada,
in
dismissing
an
appeal
from
that
judgment,
did
not
deal
with
that
particular
issue,
[1953]
SCR
211.
The
relevant
provisions
of
the
Act
have
since
been
extensively
amended;
however,
the
conclusion
that
an
appeal
to
this
Court
from
a
decision
of
the
Tax
Review
Board
is
a
trial
de
novo
remains
valid.
That
being
so,
I
do
not
see
that
this
Court
can
be
without
jurisdiction
to
deal
with
an
issue
not
raised
in
the
notice
of
objection
when
the
appeal
is
brought
directly
to
the
Court
under
subsection
172(2).
I
do
not
think
a
taxpayer
can
be
estopped,
in
any
technical
sense
of
that
term,
from
raising
any
issue
it
wishes
in
an
appeal
to
this
Court
under
subsection
172(2)
of
the
Act
only
because
the
issue
was
not
raised
in
its
notice
of
objection
or,
if
applicable,
before
the
Tax
Review
Board.
It
is
to
be
emphasized
that
it
is
the
Minister’s
assessment,
not
his
reasons
for
it,
that
is
the
subject
matter
of
the
appeal.
Section
175
of
the
Act
provides
the
methods
by
which
an
appeal
shall
be
instituted
in
this
Court
and
further,
that
175.
(3)
An
appeal
instituted
under
this
section
shall
be
deemed
to
be
an
action
in
the
Federal
Court
to
which
the
Federal
Court
Act
and
the
Federal
Court
Rules
applicable
to
an
ordinary
action
apply,
except
.
..
None
of
the
exceptions
have
any
relevance
to
this
issue.
As
in
any
action,
the
issues
which
the
Court
must
deal
with
are
those
defined
by
the
pleadings
regardless
of
what
has
gone
before.
That
is
not
to
say
that
an
estoppel
could
not
be
successfully
pleaded
on
behalf
of
the
fisc
but
the
plea
cannot
be
sustained
solely
on
the
basis
that
an
issue
is
raised
for
the
first
time
by
the
pleadings
in
this
Court.
A
good
deal
of
the
time
taken
by
the
trial
was
devoted
to
evidence
of
a
background
nature.
It
is
not
necessary
to
deal
with
much
of
it.
It
is
sufficient
to
start
at
the
point
at
which
conventionally
produced
petroleum
and
natural
gas,
owned
in
situ
by
Alberta,
reaches
the
surface.
I
shall
deal
first
with
the
crude
oil
royalty
issue.
A
typical
production
situation,
at
least
in
so
far
as
the
plaintiff
was
concerned,
may
be
described
in
the
following
terms.
What
rises,
or
is
pumped,
to
the
surface
in
an
oil
well
is
a
mixture
of
oil,
gas
and
water.
The
volume
of
that
mixture
is
metered
at
the
well
head
and
the
mixture
is
pumped
to
a
battery
which
receives
like
mixtures
from
other,
variously
owned,
wells.
The
battery
is
subject
of
a
contractual
arrangement
among
all
interested
producers
which,
inter
alia,
designates
one
of
them
its
operator.
The
production
of
each
contributing
well
is
tested
periodically
to
determine
its
composition.
The
production
of
all
of
the
wells
becomes
mixed
in
processing
at
the
battery
which
separates
the
water,
gas
and
oil.
The
crude
oil
flows
through
storage
tanks
to
the
pipe
line
of
a
common
carrier.
A
custody
transfer
meter
at
the
point
of
delivery
to
the
common
carrier
measures
the
quantity
of
crude
oil.
It
is
at
this
point
that
title
to
the
crude
oil
passes
to
its
purchaser,
price
is
fixed
by
the
APMC
and
the
quantity
to
be
paid
for
is
determined.
Likewise,
it
is
at
this
point
that
the
quantitity
of
Alberta’s
royalty
share
is
fixed.
Monthly
allocation
of
the
crude
oil
produced,
including
the
royalty
share,
back
to
individual
wells
and
their
owners,
involves
mathematical
calculations
taking
account
of
each
well’s
gross
production
and
its
composition
as
determined
by
tests
during
the
month.
Without
getting
into
lengthy
and
complex
details,
it
is
enough
to
recognize
that
the
battery
operator
is
constituted
the
agent
of
all
its
producers
to
receive
and
distribute
their
payments
and
to
carry
out
some
of
their
obligations
including
delivery
to
the
APMC
of
Alberta’s
royalty
share.
Prior
to
December,
1974,
all
of
the
crude
oil,
including
Alberta’s
royalty
share,
was
sold
by
the
producer
to
the
purchaser
at
the
custody
transfer
meter
and
the
producer
was
required
to
pay
Alberta
the
price
received
by
it
attributable
to
the
royalty
share.
Effective
at
7:00
am,
December
1,
1974,
all
crude
oil
was
required
to
be
delivered
at
the
custody
transfer
meter
to
the
APMC.
The
APMC
purchases
the
producer’s
share
of
the
crude
oil
at
that
point
and,
in
due
course
pays
the
producer
for
it.
The
plaintiffs
position
is
that,
upon
the
advent
of
this
new
regime,
no
amount
thereafter
became
receivable
by
Alberta
as
a
royalty
or
equivalent
amount
and
that
the
value
of
Alberta’s
royalty
share
no
longer
fell
within
paragraph
12(1)(o).
The
plaintiffs
rights
and
obligations
are
defined
by
provincial
legislation
and
by
the
leases
entered
into
with
Alberta
pursuant
to
that
legislation.
There
are
some
differences
in
the
forms
of
lease
executed
from
time
to
time;
however,
the
variations
appear
immaterial
to
the
issue
here.
The
material
portion
of
one
of
the
leases
in
evidence,
Exhibit
10,
reads:
NOW
THEREFORE
THIS
INDENTURE
WITNESSETH
that
in
consideration
of
the
rents
and
royalties
hereafter
provided
..
.
Her
Majesty
hereby
grants
unto
the
lessee
.
..
the
exclusive
right
to
explore
for,
work,
win
and
recover
petroleum
and
natural
gas
within
and
under
.
..
together
with
the
right
to
dispose
of
the
petroleum
and
natural
gas
recovered.
.
..
rendering
and
paying
therefor
unto
Her
Majesty
a
royalty
on
all
petroleum
and
natural
gas
obtained
from
the
location
and
on
all
substances
obtained
therefrom,
at
such
rate
or
rates
as
are
now
or
may
hereafter
from
time
to
time
be
prescribed
by
the
Lieutenant
Governor
in
Council,
such
royalty
to
be
free
and
clear
of
and
from
all
deductions
whatsoever.
The
maximum
royalty
payable
on
the
petroleum
and
natural
gas.
.
.
shall
not
exceed
one-sixth
of
the
production
from
the
location.
The
last
sentence
is
material
only
because
of
the
word
“payable”
in
it.
It
has
been
abrogated
by
legislation.
Clause
5
of
the
lessee’s
covenants
and
Clause
12
of
the
mutual
covenants
are
similarly
material
and
provide,
in
part,
that:
5.
The
lessee
shall
well
and
truly
pay
or
cause
to
be
paid
.
..
the
rent
and
royalty
payable
under
this
lease,
.
.
.
12.
If
and
whenever
the
rent
or
royalty
hereby
reserved,
or
any
part
thereof,
is
in
arrears
and
unpaid
.
.
.
The
lease
is,
by
definition,
an
agreement
under
the
terms
of
The
Mines
and
Minerals
Act,
RSA
1972,
c
238
as
amended,
and
petroleum,
oil
and
natural
gas
are,
by
definition,
minerals.
The
Act
provides,
inter
alia,
31.
(1)
A
royalty
is
reserved
to
the
Crown
in
right
of
Alberta
on
the
mineral
that
may
be
won,
worked,
recovered
or
obtained
pursuant
to
any
agreement
or
certificate
of
record
made
or
entered
into
under
this
Act.
(2)
The
royalty
to
be
computed,
levied
and
collected
on
the
mineral
won,
worked,
recovered
or
obtained
pursuant
to
any
agreement
or
certificate
of
record
made
or
entered
into
under
this
Act,
the
former
Act
or
The
Provincial
Lands
Act
shall
be
the
royalty
prescribed
from
time
to
time
by
the
Lieutenant
Governor
in
Council.
(4)
A
royalty
reserved
to
the
Crown
in
right
of
Alberta
on
a
mineral
(a)
is
payable
in
kind
except
as
otherwise
provided
by
this
Act
or
any
order
of
the
Lieutenant
Governor
in
Council,
and
(b)
is
payable
on
the
mineral
when
and
where
obtained,
recovered
or
produced.
121.
(1)
A
lease
grants
the
right
to
the
petroleum
and
natural
gas
that
are
the
property
of
the
Crown
in
the
location
subject
to
any
exceptions
expressed
in
the
lease.
142.
(1)
The
petroleum
and
natural
gas
obtained
from
any
location
acquired
under
this
Part
is
subject
to
the
payment
to
the
Crown
of
such
royalty
thereon
as
may
from
time
to
time
be
prescribed
by
the
Lieutenant
Governor
in
Council.
(2)
The
royalty
shall
be
collected
in
such
manner
as
may
be
prescribed
by
the
Minister.
170.1
(1)
Every
agreement
to
which
this
section
applies
is
subject
to
the
condition
that
the
Crown’s
royalty
share
of
the
petroleum
recovered
pursuant
to
the
agreement
shall
be
delivered
to
the
Alberta
Petroleum
Marketing
Commission
incorporated
under
The
Petroleum
Marketing
Act.
Paragraph
(a)
was
added
to
subsection
31(4)
and
section
170.1
was
enacted
by
SA
1973,
c
94.
All
leases
material
to
this
action
were
made
subject
of
section
170.1,
effective
March
1,
1974,
by
Alberta
Regulation
15/74.
The
1973
amendments
to
The
Mines
and
Minerals
Act
were
part
of
a
legislative
scheme
that
included
enactment
of
The
Petroleum
Marketing
Act,
SA
1973,
c
96,
whereby
the
APMC
was
created
as
a
body
corporate.
That
Act
provides,
inter
alia,
7.
(1)
The
Commission
is
for
all
purposes
an
agent
of
the
Crown
in
right
of
Alberta
and
its
powers
may
be
exercised
only
as
an
agent
of
the
Crown
in
right
of
Alberta.
15.
(1)
The
Commission
(a)
shall
accept
delivery
within
Alberta
of
the
Crown’s
royalty
share
of
the
petroleum
recovered
pursuant
to
an
agreement
and
required
to
be
delivered
to
it
by
section
170.1
of
The
Mines
and
Minerals
Act,
and
(b)
subject
to
subsection
(2),
shall
sell
within
Alberta
the
Crown’s
royalty
share
of
petroleum
at
a
price
that
is
in
the
public
interest
of
Alberta.
17.
The
Commission
shall
pay
the
proceeds
of
sales
of
petroleum
by
it
under
this
Part
to
the
Provincial
Treasurer
for
deposit
in
the
General
Revenue
Fund
in
accordance
with
the
directions
of
the
Provincial
Treasurer.
18.
(1)
The
delivery
to
the
Commission
of
the
Crown’s
royalty
share
of
petroleum
recovered
pursuant
to
an
agreement
operates
to
discharge
the
lessee
with
respect
to
his
liability
to
pay
that
royalty
to
the
Crown
in
right
of
Alberta
.
.
.
The
Petroleum
Marketing
Act
was
proclaimed
and
the
APMC
was
constituted
on
January
15,
1974.
It
became
operative
March
1.
Without
necessarily
accepting
its
legal
conclusions,
the
APMC’s
memorandum
to
producers,
triggered
by
its
receipt
of
T-5
information
slips
early
in
1975,
accurately
describes
the
crude
oil
royalty
regimes
in
effect
during
1974.
(a)
As
regards
production
from
Alberta
Crown
Lands
during
the
period
commencing
March
1,
1974
and
ending
November
30,
1974,
the
Commission
took
delivery
of
the
Crown
royalty
share
of
petroleum
in
kind.
The
lessees
delivered
this
Crown
royalty
share
of
petroleum
to
crude
oil
purchasers
for
sale
by
the
Commission.
The
lessees
received
from
the
crude
oil
purchasers
the
proceeds
of
sale
of
the
Crown
royalty
share.
The
receipt
of
these
proceeds
was
on
behalf
of
the
Commission.
Under
this
procedu
re
there
is
no
payment
by
the
lessee
to
the
Commission
of
either
“royalties
from
Canadian
sources”
or
“other
income
from
Canadian
sour-
ces
.
(b)
As
regards
production
of
petroleum
from
Alberta
Crown
Lands
for
the
month
of
December
1974
and
following,
the
Commission
took
delivery
of
the
Crown
royalty
share
of
petroleum
at
the
battery
and
received
payment
for
the
proceeds
of
sale
of
the
Crown
royalty
share
directly
from
the
crude
oil
purchasers.
Again
under
this
procedure
there
is
no
payment
by
the
lessee
to
the
Commission
of
either
“royalties
from
Canadian
sources’’
or
“other
income
from
Canadian
sources”.
The
regime
described
in
paragraph
(b)
prevailed
throughout
1975.
The
legal
basis
for
that
regime
is
established
by
the
provincial
legislation,
recited
above.
Stripped
of
verbiage
inapplicable
to
the
crude
oil
royalty
issue,
paragraph
12(1
)(o)
requires
a
taxpayer
to
include
in
his
taxable
income
any
amount
that
became
receivable
in
the
year
by
virtue
of
an
obligation
imposed
by
statute
by
an
agent
of
[Alberta]
as
a
royalty
or
an
equivalent
amount
in
relation
to
the
production
in
Canada
of
petroleum
from
an
oil
well
situated
on
property
in
Canada
from
which
the
taxpayer
had,
at
the
time
of
such
production,
a
right
to
take
or
remove
petroleum.
The
value
of
Alberta’s
royalty
share
is
readily
expressed
in
terms
of
money.
Indeed,
it
is
routinely
expressed
that
way.
Alberta’s
royalty
share
is
an
“amount”
within
the
extended
definition
of
that
term
under
the
Income
Tax
Act.
The
only
serious
question
is
whether,
under
the
regime
in
effect
from
December
1,
1974,
through
1975,
it
was
an
“amount
receivable”.
If
it
was
an
amount
receivable,
it
was
certainly
an
amount
receivable
by
Alberta’s
agent,
the
APMC,
that
fell
squarely
within
the
prescription
of
the
balance
of
paragraph
12(1)(o).
It
is
unnecessary
to
decide
whether
the
obligation
is
imposed
by
statute
or
is
a
contractual
obligation
substituted
for
a
statutory
Obligation;
it
is
clearly
one
or
the
other
or
both.
All
of
the
crude
oil,
including
Alberta’s
royalty
share,
belongs
to
Alberta
in
its
subterranean
situation.
At
some
point
in
the
production
process,
ownership
of
an
undivided
share
of
that
crude
oil
passes
to
its
producer.
I
accept
that
ownership
of
the
royalty
share
remains
with
Alberta
throughout,
until
sold
by
the
APMC.
Any
alternative,
for
example
that
the
producer
obtains
title
to
all
of
the
crude
oil
at
some
point
in
the
process
and
that
title
to
the
royalty
share
passes
to
Alberta
upon
its
delivery
to
the
APMC,
does
not
strengthen
the
Plaintiffs
case.
Nothing,
in
my
view,
turns
on
the
term
“receivable”
being
the
antonym
of
“payable’
in
common
accounting
terminology
nor
the
related
conclusion
invited
by
the
use
of
the
word
“payable”
and
variations
thereon
in
the
leases
and
the
provincial
legislation.
This
issue
is
not
concerned
with
generally
accepted
accounting
principles
but
wth
the
interpretation
of
a
statute.
While
it
may
be
that
no
royalty
became
payable
in
respect
of
crude
oil
under
the
regime
imposed
December
1,
1974,
that
is
not
the
issue
and
I
will
leave
to
someone
else
the
possibly
neat
question
whether
an
obligation
to
deliver
to
another
his
own
property
gives
rise
to
an
amount
being
payable.
The
issue
here
is
whether
such
an
obligation
gave
rise
to
an
amount
being
receivable
by
Alberta
or
its
agent,
the
APMC.
“Receivable”
is
not
defined
by
the
Income
Tax
Act.
It
is
not
a
technical
term.
Its
primary
meaning,
according
to
The
Shorter
Oxford
English
Dictionary,
is
“capable
of
being
received”,
while
that
of
“receive”
is
“to
take
in
one’s
hand,
or
into
one’s
possession
(something
held
out
or
offered
by
another);
to
take
delivery
of
(a
thing)
from
another,
either
for
oneself
or
for
a
third
party”.
“Receivable”,
in
its
ordinary
meaning,
has
nothing
to
do
with
a
change
in
ownership
or
title;
it
has
to
do
with
a
change
in
custody
or
possession.
While
it
is
impossible,
prior
to
delivery
of
the
crude
oil
to
the
APMC,
and
perhaps
after
as
well,
to
point
to
a
particular
unit
of
crude
oil,
either
after
separation
or
while
still
in
mixture
with
gas
and
water,
and
identify
it
as
a
unit
of
Alberta’s
royalty
share,
it
remains
that
the
royalty
share
exists,
in
fact,
from
the
moment
it
is
reduced
to
the
lessee’s
possession
at
the
well
head.
Subsection
170.1(1)
of
The
Mines
and
Minerals
Act
requires
that
the
royalty
share
be
delivered
to
the
APMC
and
paragraph
15(1
)
(a)
of
The
Petroleum
Marketing
Act
requires
that
the
APMC
accept
delivery.
Prior
to
such
delivery,
Alberta’s
royalty
share
is,
in
the
ordinary
meaning
of
the
word,
“receivable”
by
the
APMC.
The
value
of
that
share
is
an
amount,
within
the
clear
contemplation
of
paragraph
12(1)(o)
of
the
Income
Tax
Act,
to
be
included
in
a
lessee’s
income.
The
value
ascribed
to
the
share
in
the
assessments
subject
of
this
appeal
is
not
in
issue.
Turning
to
the
natural
gas
royalty
issue,
effective
in
1972,
Alberta
established
a
scheme
of
incentives
to
the
drilling
of
wildcat
wells.
The
plaintiff
earned
credits
under
that
program.
Amounts
credited
to
it
could
not
be
withdrawn
in
cash
but
were
available
to
be
applied
in
satisfaction
of
prescribed
obligations
including
natural
gas
royalties.
The
plaintiff
paid
natural
gas
royalties
of
$22,170.97
in
1974,
and
$50,122.47
in
1975,
and
included
those
amounts
in
its
taxable
income
pursuant
to
paragraph
12(1)(o).
The
plaintiff
also
requested
Alberta
to
apply
DIC’s
totalling
$3,138.56
in
1974,
and
$24,122.44
in
1975,
against
natural
gas
royalties.
The
Minister
assessed
on
the
basis
of
natural
gas
royalties
receivable
by
Alberta
in
the
amounts
of
$25,309.53
in
1974,
and
$74,234.91
in
1975.
I
note
a
$10
discrepancy
in
the
1975
addition.
Regulations*
in
effect
during
1974
and
1975
provided:
10.
Credit
established
pursuant
to
section
8,
upon
the
written
request
of
the
holder
thereof,
and
subject
to
procedures
established
by
the
Department,
may
be
applied
in
satisfaction
of
(a)
moneys
payable
by
him
with
respect
to
any
applications
and
dispositions
made
under
Part
5
of
The
Mines
and
Minerals
Act,
(b)
moneys
payable
by
him
pursuant
to
section
40
of
The
Mines
and
Minerals
Act,
or
(c)
taxes
levied
under
The
Freehold
Mineral
Taxation
Act,
and
becoming
due
and
payable
between
January
1,
1974
and
December
31,
1979.
Moneys
payable
to
Alberta
on
the
sale
by
a
lessee
of
Alberta’s
royalty
share
of
natural
gas
fall
within
paragraph
(a).
In
pleading,
the
plaintiff
alleged
that
the
natural
gas
royalties
receivable
by
Alberta
were
reduced
by
the
amounts
of
the
DIC’s
applied.
It
argued,
correctly,
that
it
never
had
a
right
to
receive
the
amount
of
the
DIC’s
in
money
but
was
entitled
only
to
apply
it
as
section
10
prescribed.
The
argument
then
was
that
the
DIC’s
were,
therefore,
not
a
debt
or
sum
owing
by
the
Crown
to
the
Plaintiff
and,
thus,
could
not
constitute
a
set-off
against
the
royalty
obligation
as
might
be
the
case
with
mutual
debts.
It
follows,
presumably,
that,
since
the
DIC’s
could
not
be
a
set-off
against
the
royalty,
their
application
to
that
obligation
must
have
had
the
effect
of
reducing
the
Obligation
in
a
way
that,
to
the
extent
of
the
reduction,
the
obligation
is
to
be
deemed
never
to
have
existed
rather
than
to
have
been
partly
satisfied.
I
hope
I
am
not
misrepresenting
the
position
but,
I
must
admit,
I
find
it
hard
to
understand.
In
any
event,
the
whole
argument
ignores
completely
the
plain
words
of
section
10.
The
DIC’s
“may
be
applied
in
satisfaction
of
moneys
payable”
by
the
plaintiff
with
respect
to
natural
gas
royalties,
among
other
things.
The
DIC’s
did
not
reduce
the
amount
receivable
in
1974
and
1975
by
Alberta
as
a
royalty
in
relation
to
the
production
of
natural
gas
by
the
plaintiff;
they
were
merely
available,
at
its
option,
to
be
applied
in
partial
satisfaction
of
that
amount.
They
were
so
applied.
The
plaintiff
also
argued
that,
in
any
event,
because
the
actual
amount
of
natural
gas
royalty
receivable
by
Alberta
in
respect
of
a
given
calendar
year
cannot
be
ascertained
until
the
following
year,
the
amounts
assessed
to
the
Plaintiff
for
1974
and
1975
should
have
been
assessed
for
1975
and
1976
respectively.
This
issue
was
not
raised
by
the
pleadings
and
I
do
not,
therefore,
propose
to
deal
with
it.
It
is
an
issue
which,
if
properly
raised,
would
likely
have
been
subject
of
evidence
and
not
just
argument
as
was
the
constitutional
issue.
Having
found
that
the
assessments
based
on
the
application
of
paragraph
12(1
)
(o)
were
correct,
it
is
not
necessary
to
deal
with
the
defendant’s
alternative
pleading
of
paragraph
18(1
)(m)
and
subsection
69(6)
of
the
Income
Tax
Act.
The
action
is
dismissed
with
costs.
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