Twentieth Century Fox Film Corp. v. Canada (Minister of National Revenue), docket T-540-99

Date: 20010130

Docket: T-540-99

BETWEEN:

TWENTIETH CENTURY FOX FILM CORP.

Applicant

- and -

THE MINISTER OF NATIONAL REVENUE

Respondent

REASONS FOR ORDER

MacKAY J.

[1]      The applicant, Twentieth Century Fox Film Corp. seeks an Order of mandamus to compel the respondent Minister to pay a refund of the tax paid under Part XIV of the Income Tax Act, R.S.C. 1985, (5th Supp.), c. 1, as amended (the "Act") for taxation years 1991 to 1995, plus interest. It is said the Minister is required to pay a refund pursuant to paragraph 164(1)(b) of the Act.

Facts

[2]      During the taxation years in question, the applicant was a U.S. corporation and it had an unincorporated branch in Canada (the "Canadian branch"). That branch was responsible for distributing in Canada, the films, videos and other products produced by the applicant.

[3]      In those taxation years, the Canadian branch earned income in Canada. It filed Canadian tax returns and paid tax on that income under Part I of the Act which is not in dispute in this application. In 1991 to 1995, it also paid tax under Part XIV of the Act, commonly known as Branch Tax. The total Branch Tax paid for the relevant taxation years was $396,816.

[4]      In each of the taxation years in question, the applicant was assessed by the respondent for Branch Tax on an "as filed basis", in accordance with the Branch Tax payable as calculated for the Canadian branch and shown on the tax returns as filed by the applicant. The applicant did not claim exemption from tax, and did not file Notices of Objection under the Act in respect of these assessments.

[5]      During the relevant taxation years, the applicant's principal business consisted of two principal categories of activities:

i.      the production, financing and acquisition of motion pictures and the distribution of motion pictures to theatres, to home videos, pay and commercial television, and other markets; and

ii.      the production, financing and acquisition of television programming and the distribution of this programming to commercial television networks, other program services, cable and satellite television systems and independent stations.

[1]      In the taxation years in issue, subparagraph 219(2)(b)(ii) of the Act provided an exemption from Branch Tax for corporations, inter alia, whose principal business was communications, in the following terms:

219(2) Exempt corporations. No tax is payable under this Part for a taxation year by a corporation that was, throughout the year, . . . (b) a corporation whose principal business was . . . (ii) communications, or . . .

219(2) Sociétés exonérées. Aucun impôt n'est payable, en vertu de la présente partie, au titre d'une année d'imposition, par une société qui était, tout au long de l'année: . . . (b) une société don't l'entreprise principale était . . . (ii) les communications, . . .

[7]          By letter dated September 23, 1996, the applicant applied to the respondent for a refund of the total $396,816 paid as Branch Tax for the years 1991 to 1995, plus interest. The basis for the application was that the applicant, it was urged, met the conditions of subparagraph 219(2)(b)(ii) during the relevant taxation years in that its principal business was communications.

[8]      By letter dated March 5, 1999, the respondent refused the applicant's request for a refund of Branch Tax on the ground that the applicant's principal business was "filmed entertainment", rather than communications. That determination led to this application for mandamus.

Issues

[9]      The parties raise the following issues:

1.      As a preliminary issue, whether section 18.5 of the Federal Court Act, R.S.C. 1985, c.-7, as amended, deprives the Court of jurisdiction to grant the application sought.

2.      If the Court finds that it has jurisdiction, has the applicant made an "overpayment" within the meaning of paragraph 164(7)(b) of the Act so as to be entitled to claim a refund pursuant to paragraph 164(1)(b) of the Act.

3.      If the Court has jurisdiction and finds that the applicant is entitled to a refund pursuant to paragraph 164(1)(b), was the applicant's principal business "communications" within the meaning of subparagraph 219(2)(b)(ii) of the Act. An incidental issue raised in dealing with this issue is whether evidence offered by the applicant as expert evidence concerning "communications" is admissible in this case.

Jurisdiction of the Court

[1]      The respondent urges that section 18.5 of the Federal Court Act precludes judicial review by this Court in the circumstances. That provision is:

18.5 Notwithstanding sections 18 and 18.1, where provision is expressly made by an Act of Parliament for an appeal as such to the Court, to the Supreme Court of Canada, to the Court Martial Appeal Court, to the Tax Court of Canada, to the Governor in Council or to the Treasury Board from a decision or order of a federal board, commission or other tribunal made by or in the course of proceedings before that board, commission or tribunal, that decision or order is not, to the extent that it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with, except in accordance with that Act.

18.5 Par dérogation aux articles 18 et 18.1, lorsqu'une loi fédérale prévoit expressément qu'il peut être interjeté appel, devant la Cour fédérale, la Cour suprême du Canada, la Cour d'appel de la cour martiale, la Cour canadienne de l'impôt, le gouverneur en conseil ou le Conseil du Trésor, d'une décision ou d'une ordonnance d'un office fédéral, rendue à tout stade des procédures, cette décision ou cette ordonnance ne peut, dans la mesure où elle est susceptible d'un tel appel, faire l'objet de contrôle, de restriction, de prohibition, d'évocation, d'annulation ni d'aucune autre intervention, sauf en conformité avec cette loi.

[2]      For the Minister, it is urged that by subsection 219(3) of the Income Tax Act, the provisions of that Act concerning Notices of Objection (s. 165) and Notices of Appeal (Division J) are specifically made applicable to Part XIV of the Act, which includes the provisions concerning Branch Tax. Subsection 219(3) provides that "sections 115 to 152, 154, 158, 159 and 161 to 167 and Division J of Part I are applicable to this part [i.e. Part XIV] with such modifications as the circumstances require". It is urged that the applicant had the right to claim the exception from Branch Tax when it filed its returns but it did not do so. It also had the right to appeal the assessment of tax, and it should have filed Notices of Objection and Notices of Appeal in respect of the Notices of Assessment issued by the respondent if the assessments were to be questioned, as taxpayers are regularly entitled to do. The applicant did not do so.

[3]      In the respondent's view, the jurisprudence is clear and well established that an assessment cannot be attacked by way of a motion for judicial review when the taxpayer might have challenged an assessment pursuant to the appeal provisions of the Act (see M.N.R. v. Parsons et al., 84 DTC 6345 at 6346 (F.C.A.); Beththold Resources Limited v. M.N.R., 86 DTC 6065 at pages 6067 to 6068 (F.C.A.); Robert Hart et al. v. M.N.R., 86 DTC 6335 at page 6339 (F.C.T.D.); Bonnie Ellen Danielson v. M.N.R., 86 DTC 6495 at pages 6496 to 6498 (F.C.T.D.); The Queen et al. v. Optical Recording, 90 DTC 6647 at pages 6651 to 6652 (F.C.A.); Ernest W. Haskowich v. The Minister of Communications et al., 93 DTC 5008 (F.C.A.)).

[4]      The applicant urges that there is exception to the general application of section 18.5 of the Federal Court Act in the phrase at the conclusion of that section, i.e., "except in accordance with that Act". Here the applicant relies on a provision of the Income Tax Act itself to support its case that it is not precluded by section 18.5 from proceeding. That submission, it seems to me, is based on the perception that section 164 of the Act, providing under paragraph (b) that the Minister shall refund any overpayment, provides an alternative process to filing Notices of Objection and Appeal for resolution of differences about assessments under the Act.

[5]      The provisions for assessments, objections to assessments, and appeals are specifically incorporated in Part XIV of the Act. Thus, in connection Branch Taxes, those provisions are applicable. If paragraph 164(1)(b) were interpreted as the applicant suggests, its application would not be limited to someone who did not object to an assessment and did not seek to appeal, for the provision sets out that the refund shall be made after mailing a Notice of Assessment if application for it is made in writing within the period specified. Those circumstances would apply even if objection and appeal had been initiated. Parliament cannot have intended to provide an alternative or a duplicating process for questioning assessments of tax, in my opinion. Thus, an application for a refund of tax allegedly paid in error or claimed on the basis of exemption, is to be made by the normal process of objecting to an assessment.

[6]      In short, I do not accept that the Income Tax Act itself provides any exception to the normal process of objecting to an assessment and subsequent appeal if the objection is not accepted. In the result, I dismiss the application for mandamus since, in my opinion, that relief is precluded by section 18.5 of the Federal Court Act. An appeal process having been specified under the Income Tax Act in relation to Branch Tax, the decision of the respondent made by Notice of Assessment, as section 18.5 provides, "is not, to the extent it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise deal with . . .".

[7]      That determination is sufficient to dispose of this application. Nevertheless, I deal with the other issues here raised, in the event that on appeal my finding, that the Court is without jurisdiction in this application, should be found to be in error.

Overpayment of Tax

[8]      If this Court were found to have jurisdiction to hear and determine this application for judicial review and for mandamus, the issue then to be considered becomes whether there was an overpayment of Branch Tax so as to warrant the refund requested.

[9]      In determining whether an overpayment has been made and a claimant is entitled to a refund, one must examine the wording of subparagraphs 164(1)(a)(ii) and (1)(b) and subsection 164(7)(b), which provide:

164(1) If the return of a taxpayer's income for a taxation year has been made within 3 years from the end of the year, the Minister (a) may, . . . (ii) on or after mailing the notice of assessment for the year, refund without application therefor, any overpayment for the year, to the extent that the overpayment was not refunded pursuant to subparagraph (i); and (b) shall, with all due dispatch, make the refund referred to in subparagraph (a)(ii) after mailing the notice of assessment if application for it is made in writing by the taxpayer within the period within which the Minister would be allowed under subsection 152(4) to assess tax payable under this Part by the taxpayer for the year if that subsection were read without reference to paragraph 152(4)(a). . . . (7) In this section, "overpayment" of a taxpayer for a taxation year means . . . (b) where the taxpayer is a corporation, the total of all amounts paid on account of the corporation's liability under this Part or Parts I.3, VI or VI.1 for the year minus all amounts payable in respect thereof.

164(1) Si la déclaration de revenu d'un contribuable pour une année d'imposition est produite dans les trois ans suivant la fin de l'année, le ministre: (a) peut: . . . (ii) d'autre part, lors de la mise à la poste de l'avis de cotisation pour l'année ou par la suite, rembourser, sans que demande en soit faite, tout paiement en trop pour l'année, dans la mesure où ce paiement en trop n'est pas remboursé en application du sous-alinéa (i); (b) doit effectuer le remboursement visé au sous-alinéa (a)(ii) avec diligence après avoir posté l'avis de cotisation, si le contribuable en fait la demande par écrit au cours de la période pendant laquelle le ministre pourrait ètablir, aux termes du paragraphe 152(4), une cotisation concerant l'impôt payable en vertu de la présente partie par le contribuable pour l'année s'il n'était pas tenu compte de l'alinéa 152(4)(a). . . . (7) Au présent article, un paiement en trop fait par un contribuable pour une année d'imposition est égal au montant suivant: . . . (b) si le contribuable est une société, le total des sommes versées sur les montants dont la société est redevable en veru de la présente partie ou des parties I.3, VI ou VI.1 pour l'année, moins ces mêmes montants.

[10]      The phrase " . . . refund without application therefor, any overpayment for the year . . ." incorporated in subparagraph 164(1)(b) from subparagraph 164(1)(a)(ii) indicates how this provision is to be applied. In my opinion, to qualify for a refund the taxpayer must claim an overpayment in the annual return in relation to income remitted to the Minister. If, in the Notice of Assessment, the Minister concurs that an overpayment has been made, a refund of the funds will be dispatched pursuant to paragraph 164(1)(b). However, if no overpayment is claimed in the return and the Minister accepts the taxpayer's calculations of tax owed, the taxpayer is not entitled to a refund, unless there is subsequently a successful objection to, or objection and appeal of, the Minister's assessment.

[11]      As was found in The Queen v. Heavyside (1996), 97 D.T.C. 5026 (F.C.A.), "it is trite law that liability for tax results from the Act and not from the assessment . . .". In this instance, the applicant paid the Branch Tax it calculated was required by section 219, and failed to object to the assessment when it was received from the Minister for each of the relevant taxation years. In seeking a refund without having filed a Notice of Objection as required by the Act, the applicant attempts to circumvent the relevant provisions for recovery of tax paid.

[12]      The applicant urges that paragraph 164(7)(b) defines an overpayment as the difference between "all amounts paid on account of the corporation's [tax] liability" and "all amounts payable in respect thereof", and that under the Act, in light of the exemption under subparagraph 219(2)(b)(ii), the amount of the "overpayment" in this case is the total of the Branch Tax paid. That argument is based on the interpretation of that subparagraph as including the applicant's business within the exemption for corporate taxpayers whose principal business is "communications".

Principal Business of "Communications"

[13]      In support of the applicant's case that it is exempt from the Branch Tax under subparagraph 219(2)(b)(ii), it urges the Court to accept the affidavit of Dr. Brian Lewis included with the applicant's motion record materials. It is urged that the decision in Vancouver Island Peace Society v. Canada, [1994] 1 F.C. 102 (T.D.) is determinative of the argument that Rule 81 has no application to the introduction of an expert opinion. However, in rendering the reasons for the decision, this Court commented:

An originating notice of motion for judicial review, as in this case, is not an interlocutory motion and affidavits submitted in support of such a motion must comply with Rule [81], except in very limited circumstances.

One of those circumstances is where the affidavit of an expert adduced at trial . . . (emphasis added).

But in that case, this Court noted at 138:

This is not a trial where viva voce evidence is proffered and cross-examination is possible, and issues requiring expert evidence have not been defined or agreed to by the parties. Moreover, expert evidence is irrelevant to the primary issues before the Court for those are legal issues concerning the authority of the [decision-maker] and the process followed in reaching the decisions here questioned. These issues are not of the sort on which the evidence of experts is admissible to assist the Court, they are not issues of a scientific or technical nature.

[14]      On the general question of whether an expert may provide an opinion on the ultimate issue, Sopinka and Lederman, in The Law of Evidence in Canada, 2nd ed. (Butterworths: Markham, Ontario, 1999) at 634-35, state:

The question arises whether a witness may testify on the very point or issue the court has to decide. There is no longer an absolute rule barring such testimony but the closer the testimony gets to the ultimate issue the fact finder has to decide, the more inclined the court is to reject it.

Furthermore, the authors comment at 641:

[i]n the final analysis, the closer the experts' testimony approaches an opinion on the ultimate issue, the stricter the courts will apply the requirements of reliability and necessity before admitting the evidence. This is so because the evidence then begins to overlap not only the fact-finding function of the court but the legal analysis that must be applied to the facts in rendering the ultimate decision.

[24]      Here the opinion of Dr. Lewis is not of a scientific or technical nature adduced

to assist the Court in rendering an educated decision. This is not a trial where viva voce evidence is heard. Moreover, his opinion deals with the ultimate issue before this Court, i.e. whether the films, videos and television shows produced and distributed by the applicant are forms of communication as well as entertainment, so as to bring its principal business within the meaning of the word Acommunications@ within subparagraph 219(2)(b)(ii) of the Income Tax Act . From an expert in the academic study of communication, his affidavit is intended to support the arguments of the applicant. It does not provide additional evidence of the activities of the applicant apart from the affiant's opinion. In my view, the affidavit of Dr. Brian Lewis is not necessary to resolve the issues before this Court, and it is not admissible in this proceeding.

[25]      I turn to the interpretation of subparagraph 219(2)(b)(ii). It exempts those corporations whose primary business is "communications" from the Branch Tax payable under Part XIV of the Act. Despite the applicant's assertion that it falls within the meaning of this provision, the respondent opposes this argument, and this Court agrees.

[26]      The applicant asserts that the definitions provided in The Dictionary of Canadian Law, 2nd ed. (Carswell: Scarborough, 1995), are instructive in this matter. They are:

COMMUNICATION ... "[I]nvolves the passing of thoughts, ideas, words or information from one person to another ... R. v. Goldman (1979), 108 D.L.R. (3d) 17 at 32.

COMMUNICATIONS. n. 1. A method, manner or means by which information is transmitted, imparted or exchanged and includes the transmission or reception of sound, pictures, signs, signals, data or messages by means of wire, cable, waves or an electrical, electronic, magnetic, electromagnetic or optical means. 2. The business of radio and television broadcasting and the furnishing of community antenna services, telephone services and other electrical or electronic communication services.

The definitions of "communications" are referred to by the respondent in Revenue Canada Technical Interpretation #9421715 dated 28 February 1995, and in Revenue Canada Technical Interpretation #9520645 dated 30 November 1995. Those interpretations refer to the Telecommunications Act, the Radio-communications Act and the Broadcasting Act as providing insight concerning communications activities subject to regulation. They further refer to the provision of communication or telecommunication services to the public, generally for compensation, as activities within subparagraph 219(2)(b)(ii).

[27]      Although the applicant presents a careful analysis of the aspects of its business that it considers "communication", the Act provides an exemption for corporations whose primary business is "communications", not "communication". In relying on the decision in Goldman, supra, and the definitions provided in The Dictionary of Canadian Law, supra, the applicant has failed to address the distinction that has been drawn between the art of "communication" and the industry of "communications".

[28]      The applicant has urged that the second definition of "communications" offered in The Dictionary of Canadian Law, supra, includes the industry within which it operates. I do not agree. The second definition makes reference to Athe business of radio and television broadcasting@, and makes no mention of the production, acquisition or distribution of programs. The applicant does not engage in broadcasting; it provides programming to those who do. In my opinion, the applicant's business does not fall within the definition of "communications" as used by Parliament in subparagraph 219(2)(b)(ii).

[29]      On this basis, I am in agreement with the respondent that the applicant's primary business is not that of "communications", within the meaning of that word as used in the statute. I therefore find that the applicant is not exempt within subparagraph 219(2)(b)(ii) from liability for payment of Branch Tax.

Conclusion

[30]      In disposition, I dismiss this application on the basis that this Court lacks the requisite jurisdiction to deal with the application.

[31]      In the event that determination is found in error on appeal, this application is dismissed on the grounds that the applicant has failed to establish that an Aoverpayment@ exists within paragraph 164(1)(b) of the Act . Furthermore, the applicant's principal business was not "communications" within subparagraph 219(2)(b)(ii) at the time of assessment, and thus the applicant was not exempt from payment of Branch Tax.

     JUDGE

OTTAWA, Ontario

January 30, 2001