Bechthold Resources Limited v. Minister of National Revenue, [1986] 1 CTC 2406, [1986] DTC 1296

Christie, A.C.J.T.C.:—This is an application by Bechthold Resources Limited ("Bechthold") under subsection 167(1) of the Income Tax Act (“the Act") for an order extending the time within which a notice of objection may be served to an assessment made by the Minister of National Revenue regarding tax payable by Bechthold in respect of its 1986 taxation year. Subsection 165(1) of 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.

Bechthold was incorporated under the laws of British Columbia to carry on the business of scientific research. It has adopted 53 weeks as its fiscal period ending on January 22. Under the definition of "fiscal period” in subsection 248(1) in combination with paragraph 249(1)(a) of the Act, its 1986 taxation year is January 17, 1985 to January 22, 1986.

On January 17, 1985, Bechthold designated $30,000,000 under subsection 194(4) of the Act, being what was received by it on the issue of its securities on that day. Part VIII of the Act relates to the scientific research tax credit scheme. Its essentials are in sections 194 and 195 of the Act. By designating the $30 million under subsection 194(4), the company was required under subsection 194(1) to pay a tax equal to 50 per cent of the amount designated. This tax is refundable under stipulated conditions pertaining to scientific research and development expenses or the acquisition of scientific research tax credits. Under subsection 195(2) Bechthold was required to pay on account of such tax to the Receiver General of Canada 50 per cent of the designated $30 million at the time of making of the designation.

Subsection 195(1) of the Act provides:

195(1) Every corporation that is liable to pay tax under this Part for a taxation year shall, on or before the day on or before which it is required to file its return of income under Part I for the year, file with the Minister a return for the year under this Part in prescribed form.

Under paragraph 150(1)(a) Bechthold is not required to file a return of its income under Part I for its 1986 taxation year until six months from the end of the year, which is July 22, 1986. By notice dated March 26, 1985, the Minister assessed tax payable by Bechthold under subsection 195(2) in the sum of $15 million. In the ordinary course of things it should have been objected to within the previously mentioned 90 days; that is, by June 24, 1985. This was not done.

On December 18, 1985, Mr. Justice Collier of the Federal Court — Trial Division rendered judgment in W.T.C. Western Technologies Corporation v. M.N.R., [1986]1 C.T.C. 110; 86 D.T.C. 6027. A few weeks later, on January 16, 1986, Mr. Justice Addy of the same Court and Division delivered his decision in Bechthold Resources Limited v. M.N.R., [1986] 1 C.T.C. 195; 86 D.T.C. 6065. The applicant just mentioned is the same entity as the applicant in the case at hand. In these reasons the application dealt with by Addy, J. shall be referred to as Bechthold No. 1.

Western Technologies relates to a British Columbia corporation involved in scientific research and development. Its fiscal period ended March 28 and consequently its 1986 taxation year terminates on March 28, 1986. In April 1985 the company designated $24,875,000 under subsection 194(4), which sum had been received by it on the issue of its shares and debt obligations in the same month. The company is not required to file a return under Part VIII for its 1986 taxation year until September 28, 1986. By notice dated June 24, 1985, the Minister assessed the amount payable by the company under subsection 195(2) in the sume of $12,437,500, being 50 per cent of the $24,875,000.

The corporation made application under section 18 of the Federal Court Act for certiorari or relief in the nature thereof to, inter alia, quash the notice of assessment. The essence of the corporation's position, with which Collier, J. agreed, was that the assessment by the Minister before the end of the corporation's taxation year and before it was required to file a return of income was made without authority and consequently without jurisdiction. The assessment was quashed.

Counsel for the Minister contended that the Federal Court — Trial Division had no jurisdiction to deal with the matter in proceedings by way of certiorari under section 18. He relied on the judgment of the Federal Court of Appeal in M.N.R. v. Parsons et al., [1984] C.T.C. 352; 84 D.T.C. 6345. This appeal dealt with the question whether certain assessments made by the Minister of National Revenue under subsections 159(2) and (3) of the Act could be challenged in certiorari proceedings before the Federal Court — Trial Division under section 18. The answer was no on the ground that the application of section 18 was precluded by section 29 of the Federal Court Act because an appeal to the Federal Court from those assessments was expressly provided for. Mr. Justice Collier distinguished Parsons on the ground that what was before the Court in that appeal was the question of whether the Minister was right or wrong in his assessment, while in the case before him the question was whether there was jurisdiction to issue an assessment at all. In summary, it was held in Western Technologies that the Federal Court — Trial Division had jurisdiction under section 18 and that ‘there was no authority to make the assessment when it was made and that the alleged assessment should be quashed.

In Bechthold No. 1 application was made by way of certiorari under section 18 to quash the same assessment of March 26, 1985, in respect of which the extension of time to serve a notice of objection is now sought. Mr. Justice Addy disagreed with his brother judge on the distinction which the latter drew regarding the judgment of the Federal Court of Appeal in Parsons and held that certiorari did not lie. He went on to say in further disagreement that the Minister did have jurisdiction to issue the notice of assessment of March 26, 1985.

At the hearing of the application under consideration there was common acceptance that Western Technologies and Bechtold No. 1 are irreconcilable in respect of both the procedural and substantive issues.

I do not regard what has been described as “comity among judges"* [1] to be a matter of concern to me respecting judges of the Federal Court — Trial Division except to this extent. It is my view, and I have been guided by it in the past, that I am bound to follow and apply conclusions of law or principles enunciated by judges of the Federal Court — Trial Division that were necessary to the disposition of a matter before them if relevant to litigation which I am subsequently required to hear and determine. This conclusion is based on the fact that appeals lie from judgments of this Court to the Federal Court — Trial Division even though the method of appeal is the archaic and outmoded trial de novo.

Judicial authority exists for the proposition that where a judge is required under the doctrine of stare decisis to follow decisions of another court and there is conflict within that court on a question of law, it is the duty of the judge to apply the latest views expressed by the court whose decisions are an imperative precedent: Fisken and Gordon v. Meehan (1876), 40 U.C.Q.B. 146. I do believe however that I can apply that approach to this application for these reasons. Mr. Justice Collier had before him two questions. First, could proceedings by way of certiorari be taken under section 18? Second, was the assessment made without jurisdiction? Having answered the first in the affirmative he was obliged to deal with the second. On the other hand, Mr. Justice Addy, who had the same two questions before him, having said no to the first, thereby declared that he had no jurisdiction to deal with the substance of what was before him and this disposed of that application. To my mind, his subsequent conclusion regarding the validity of the assessment was an obiter dictum and not binding as a precedent. This is so notwithstanding that his remarks related to the same assessment that is now before me. Because of the finding of lack of jurisdiction under section 18 in Bechthold No. 1 it is distinguishable from a case where a court having jurisdiction over the subject matter before it has given a valid reason for its decision and then gives an additional valid reason for it. In that context, neither ground is to be regarded as an obiter dictum: Jacobs v. London County Council, [1950] A.C. 361; [1950] 1 All E.R. 737 per Lord Simonds at 369-70 (All E.R. 741).

What Mr. Justice Collier said that was necessary for the determination of the assessment issue in Western Technologies is not obiter because of his conclusion that he had jurisdiction to consider the application. I shall therefore apply that finding to the assessment of March 26, 1985. From this flows the conclusion that it was made without authority and without jurisdiction.

It has long since been declared by the Supreme Court of Canada that an assessment to tax made without authority is a nullity. In The Corporation of the City of London v. George Watt & Sons (1894), 22 S.C.R. 300, the Court had under consideration section 65 of the Ontario Assessment Act, R.S.O. 1887, c. 193. It provided that the assessment roll as finally revised was conclusive regarding all matters it contained. In delivering the judgment of the Court, Sir Henry Strong, C.J. said at 302:

I agree with the Court of Appeal in holding that the 65th section of the Ontario Assessment Act (R.S.O. ch. 193) does not make the roll, as finally passed by the Court of Revision, conclusive as regards question of jurisdiction. If there is no power conferred by the statute to make the assessment it must be wholly illegal and void ab initio and confirmation by the Court of Revision cannot validate it.

I do not regard subsection 165(1) of the Act as intending to provide for the serving of a notice of objection in relation to an act by the respondent which, in the eyes of the law, is devoid of legal force, validity or existence from its inception. In my opinion an assessment made under the Act without jurisdiction bears the same legal consequences as ulta vires legislation. In Kurisko v. M.N.R., [1984] C.T.C. 2737; 84 D.T.C. 1663, it is said at 2740 (D.T.C. 1665):

Legislation enacted by Her Majesty, by and with the advice and consent of the Senate and House of Commons, or by and with the advice and consent of provincial legislatures which is ultra vires by reason of the provisions of the Constitution Act, 1867 is a nullity and devoid of legal force ab initio. It is as if it had never been enacted: Lenoir v. Ritchie (1880), 3 S.C.R. 575 per Taschereau, J. at 624-5; Bawtin- heimer v. Niagara Falls Bridge Commission et al., [1949] O.R. 788 per McRuer, C.J.H.C. at 799; and Lefroy, Legislative Power in Canada at pages 300-4.

A fortiori I do not regard subsection 167(1) as providing for extending time to serve such a document.

The application is dismissed.

Application dismissed.