Canalerta Technologies Inc. v. Minister of National Revenue, [1993] 2 CTC 2886, 93 DTC 1045

Rip, T.C.C.J.:— On December 24, 1992, I issued an interim judgment and reasons in the appeals by Canalerta Technologies Inc. (“Canalerta") from assessments issued in accordance with Part VII of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the“Act") with respect to the Canalerta's 1986 and 1987 taxation years, notices of which are dated March 10, 1988 and October 12, 1988 respectively. The interim judgment stated:

The appeals from the assessments issued in accordance with Part VII of the Income Tax Act with respect to the appellant's 1986 and 1987 taxation years, which notices of assessment are dated March 10, 1988 and October 12, 1988 respectively, are allowed and the assessments referred back to the respondent for reconsideration and reassessment on the basis that the appellant did conduct scientific research and experimental development within the meaning of section 2900 of the regulations with respect only to the application of electro-magnetic radiation to pre-impregnated matrix materials to effect rapid and uniform curing of polyester and other resin plastics, and to allocate the expenses incurred by the appellant with respect to such research.

If the appellant and respondent are unable to agree, within 90 days, as to the expenses incurred by the appellant with respect to such research, the matter of allocation shall be referred back to the Court to make such determination and to determine costs if any.

The appellant and respondent could not agree as to the expenses incurred by the appellant. On May 26, 1993, counsel for the parties were informed that these appeals were set down to be spoken to on June 16, 1993.

Mr. Olsson, counsel for the respondent, appeared at Court on June 16, 1993. Mr. Richard B. Jones, counsel for the appellant did not. Attached to these reasons is a copy of the transcript of proceedings of June 16, 1993. To my knowledge, neither Mr. Jones nor Mr. Gee has communicated with the Court since before June 16, 1993.

Upon reflection I have now concluded that since no counsel for the appellant appeared at the hearing of June 16, 1993 and having heard Mr. Olsson, it would be more efficient and just if final judgment were issued immediately rather than directing the Registrar to communicate further with the parties. Under the rules of the Court applicable to these appeals, which were filed prior to 1991, I cannot order costs against the appellant.

Accordingly, I shall be signing the judgment in accordance with my interim reasons allowing these appeals, without costs, and referring the assessments back to the Minister of National Revenue to reconsider the expenses incurred by the appellant with respect to the electro-magnetic radiation to preimpregnated matrix materials and reassess accordingly.

Proceedings of June 16, 1993

THE REGISTRAR: Order. This sitting of the Tax Court of Canada in the City of Toronto is now resumed. The Honourable Judge Rip is presiding. The first matter is number 90-1129(IT), Canalerta Technologies Inc. The taxation years are 1986 and 1987. There is no appearance for the appellant and Mr. Larry Olsson is counsel for the respondent.

HIS HONOUR: Is there a consent coming in on this, Mr. Olsson?

MR. OLSSON: No, there is not, Your Honour.

HIS HONOUR: Where are your colleagues?

MR. OLSSON: As of three in the afternoon yesterday I had received a letter which indicated that although Mr. Jones was to be in Calgary today, he was going to send a lawyer from his office, a Mr. Gee, to make some sort of argument, Your Honour. At 5:20 I received a call from his secretary where she said Mr. Gee was tied up in Divisional Court in Milton and would not be here. I told her that the Court would expect someone from the firm to be here. That was the last I heard.

HIS HONOUR: There will be costs awarded for today on a solicitor and client basis, I suspect, against counsel for the appellant.

HIS HONOUR: If Your Honour decides to proceed now, I am ready to explain the basis of the Minister’s allocation.

HIS HONOUR: Go ahead, please.

MR. OLSSON: The letter that I received yesterday from Mr. Jones, I do not think I will file it because it may be partly in the nature of discussions to see if we could resolve it and he has not said it was privileged but he might take that position, but there is the one paragraph where it says what position he intended to have Mr. Gee assert. I think I can convey that to Your Honour, if you wish to hear it, and then I could make my own submissions following that.

What he said in that particular paragraph is that:

Unfortunately I have to be in Calgary for the balance of this week. Accordingly, I am instructing Mr. Gee of our office to appear on Wednesday morning and to point out that the Tax Court has no jurisdiction to undertake the administrative functions of the Department of National Revenue. It is clear from the findings of Judge Rip that the assessment initially raised was fundamentally flawed. The correct disposition of the appeal is to vacate the assessment and to permit the Department, if it is so advised, to reassess as it may be permitted by law.

I was prepared to answer that if Mr. Gee was here. I do not know if Your Honour wishes me to answer it anyway.

HIS HONOUR: That is the same position he took initially.

MR. OLSSON: That is exactly what I was going to say, Your Honour. In substance it is the same point he took at the outset of the trial and I say that Your Honour has already allowed the appeals and referred the matter back to the respondent for reconsideration and reassessment and to determine the expenses incurred by the appellant with respect to the particular research that Your Honour found qualified. That referral is clearly, in my submission, in accordance with subparagraph 171(1)(b)(iii) of the Act which permits the Court in allowing an appeal to refer the assessment back to the Minister for reconsideration and reassessment. That is all I was going to say about it if Mr. Gee had made the point unless he had some authorities or something that he was going to rely on.

HIS HONOUR: I will be having the registrar write a letter to both parties in view of your comments. I will send a transcript of your comments to Mr. Jones and to you. If that is his position the matter will be disposed of accordingly, that the appeal will be allowed and referred back to the Minister to make a determination.

MR. OLSSON: Since Your Honour had already directed that be done, the Appeals Officer. . . .

HIS HONOUR: In my interim judgment I said:

If the appellant and respondent are unable to agree, within 90 days, as to the expenses incurred by the appellant with respect to such research, the matter of allocation shall be referred back to the Court to make such determination. .. . .

From your comments, Mr. Jones does not wish to refer the allocation to the Court.

MR. OLSSON: I took the interim judgment though to direct the Minister already make such a determination for a submission back to Your Honour for consideration and that step has been taken by the Appeals Officer. We notified Mr. Jones of that determination and inquired as to whether it was acceptable to him.

HIS HONOUR: The interim judgment reads as follows:

The appeals from the assessments issued in accordance with Part VII of the Income Tax Act with respect to the appellant's 1986 and 1987 taxation years, which notices of assessment are dated March 10, 1988 and October 12, 1988 respectively, are allowed and the assessments referred back to the respondent for reconsideration and reassessment on the basis that the appellant did conduct scientific research and experimental development within the meaning of section 2900 of the regulations with respect only to the application of electro-magnetic radiation to pre-impregnated matrix materials to effect rapid and uniform curing of polyester and other resin plastics, and to determine the expenses incurred by the appellant with respect to such research.

And I add:

If the appellant and respondent are unable to agree, within 90 days, as to the expenses incurred by the appellant with respect to such research, the matter of allocation shall be referred back to the Court to make such determination and to determine costs, if any.

So the Minister has made this determination of allocation.

MR. OLSSON : I put it as a proposed determination to my opponent, but I took it that the Court had directed that the Minister make such determination.

HIS HONOUR: I directed that he do it, but it also was on the understanding that this would be done in conjunction with the taxpayer.

MR. OLSSON: Yes. . . .

HIS HONOUR: What I wanted was that the determination be made on the basis of a settlement or an agreement between both parties.

MR. OLSSON: Certainly it wasn't a final determination in the sense that if the taxpayer came back and said, "No, we disagree, we would suggest you do it this way,” we would have then — it was not final in the sense that we would not have altered it if negotiations had led to an agreed situation. I felt that it was more than a settlement proposal in the sense that Your Honour had directed that the Minister in the first paragraph of the interim judgment. . . .

HIS HONOUR: I also qualified it by stating that if you are unable to agree within 90 days that it comes back here.

MR. OLSSON: Perhaps it is just a proposal then, Your Honour, that has not been accepted.

HIS HONOUR: The Court will take cognizance of your comments. I do not know what the allocation is and I do not want to know at this time.

MR. OLSSON: Very well.

HIS HONOUR: I will direct the registrar or the deputy registrar to write to the parties setting out your comments today. If the appellant agrees with the respondent's allocation, fine. If the appellant does not agree, if it wishes to make representations to the Court, or in view of the comments in Mr. Jones’ letter to Mr. Olsson, simply have the Court accept the respondent's allocation for lack of any other evidence. The costs of today — why Mr. Jones should not be put to solicitor and client costs since neither he nor anyone from his firm has attended in Court.

MR. OLSSON: Is Your Honour contemplating that further representations would simply be made by letter?

HIS HONOUR: I want a reply from him within ten days of when the letter goes out and on failure to reply the Court will accept the allocation of the respondent and you will write and advise the Court of the allocation.

MR. OLSSON: Very well, Your Honour.

HIS HONOUR: Is there anything else?

MR. OLSSON: Your Honour had in the interim judgment left the matter of the costs, if any, of the main trial to be dealt with today as well.

HIS HONOUR: I have to see what the amount of the allocation is.

MR. OLSSON: I had proposed to say something about success in the proceedings in relation to costs as well.

HIS HONOUR: That is what I want to know. You can make those representations in your letter advising the Court of the allocation.

MR. OLSSON: Very well.

HIS HONOUR: I want a copy of this transcript to be made and I will be sending a copy to both you and Mr. Jones.

MR. OLSSON: Thank you, Your Honour.

HIS HONOUR: Thank you.

Appeal allowed.