Cattanach,
J:—This
is
an
appeal
from
a
decision
of
the
Tax
Review
Board
whereby
a
penalty
in
the
amount
of
$6,844.92
imposed
by
the
Minister
of
National
Revenue
upon
the
defendant
for
its
1973
taxation
year
pursuant
to
subsection
163(2)
of
the
Income
Tax
Act
was
disallowed.
Subsection
163(2)
reads:
Every
person
who,
knowingly,
or
under
circumstances
amounting
to
gross
negligence
in
the
carrying
out
of
any
duty
or
obligation
imposed
by
or
under
this
act,
has
made,
or
has
participated
in,
assented
to
or
acquiesced
in
the
making
of,
a
statement
or
omission
(in
this
section
referred
to
as
a
“false
statment”)
in
a
return,
certificate,
statement
or
answer
(in
this
section
referred
to
as
a
“return”)
filed
or
made
in
respect
of
a
taxation
year
as
required
by
or
under
this
Act
or
a
regulation,
is
liable
to
a
penalty
of
25%
of
the
amount,
if
any,
by
which
(a)
the
tax
for
the
year
that
would
be
payable
by
him
under
this
Act
if
his
taxable
income
for
the
year
were
computed
by
adding
to
the
taxable
income
reported
by
him
in
his
return
for
the
year
that
portion
of
his
understatement
of
income
for
the
year
that
is
reasonably
attributable
to
the
false
statement
exceeds
(b)
the
tax
for
the
year
that
would
have
been
payable
by
him
under
this
Act
had
his
tax
payable
for
the
year
been
assessed
on
the
basis
of
the
information
provided
in
his
return
for
the
year.
The
defendant
is
a
joint
stock
company
incorporated
at
the
instigation
of
five
brothers,
each
of
whom
pursues
his
own
profession
or
business,
as
an
investment
or
holding
company,
the
principal
asset
being
a
building
bequeathed
to
the
family
by
their
mother.
The
building
was
transferred
to
the
defendant
in
early
1973
and
was
sold
on
March
29,
1973.
For
that
sale
a
capital
gain
resulted.
There
is
no
doubt
whatsoever
that
in
its
1973
taxation
year
the
defendant
received
rental
income
and
a
capital
gain
which
were
not
reported
in
its
income
tax
return
for
that
year.
A
nil
income
return
was
filed.
The
brothers,
engrossed
as
they
were
in
their
private
affairs,
left
the
computation
of
the
income
tax
returns
to
the
defendant’s
accountant,
Paul
Lee,
a
chartered
accountant.
The
records
of
the
defendant
showed
in
complete
detail
and
exactitude
the
rental
income
and
capital
gains
realized
in
its
1973
taxation
year
and
were
made
available
to
Mr
Lee
by
the
defendant’s
president,
Mr
On
Lim.
The
accountant
was
in
a
quandary
as
to
the
most
advantageous
manner
in
which
to
deal
with
the
income
so
as
to
attract
the
minimum
tax.
Mr
On
Lim
fully
expected
that
the
defendant
would
be
obliged
to
pay
tax
on
the
rental
income
and
capital
gains.
He
had
set
an
amount
aside
in
a
term
deposit
to
meet
that
tax
when
the
amount
was
ascertained.
He
constantly
enquired
of
Mr
Lee
as
to
what
the
amount
of
the
tax
was
but
was
consistently
given
the
reply
that
the
amount
had
not
been
figured
out.
Meanwhile,
he
remained
poised
with
pen
in
hand
to
write
the
cheque
in
the
determined
amount
payable
to
the
Department
of
National
Revenue.
The
accountant
never
did
figure
out
the
amount
of
tax
payable
by
the
defendant.
The
deadline
for
filing
the
return
was
rapidly
approaching
so,
just
under
the
wire,
the
accountant
filed
a
nil
return.
The
rental
income
was
not
included
nor
was
the
capital
gain.
It
was
the
intention
of
the
accountant
to
treat
this
return
merely
as
an
interim
one
and
that
he
would
file
a
supplementary
return
at
a
later
date
disclosing
the
amount
of
rental
income
and
the
amount
of
the
capital
gain
when
the
computation
thereof
had
been
completed
in
accordance
with
the
formulae
in
the
applicable
statutory
provisions.
On
Lim,
the
president
of
the
defendant
corporation,
did
not
know
that
the
accountant
had
filed
that
return
and
that
the
return
did
not
disclose
the
rental
income
and
capital
gain
realized.
The
return
was
not
signed
by
On
Lim.
The
name
On
Lim
was
affixed
not
by
Mr
Paul
Lee,
the
defendant’s
accountant,
but
by
some
person
in
the
accountant’s
firm
and
possibly
with
a
device
following
the
handwritten
name
indicating
that
the
signature
might
have
been
affixed
per
procuration.
That
the
accountant
should
sign
the
return
on
behalf
of
the
defendant
appears
to
have
been
the
accepted
custom
to
which
the
defendant
had
taken
no
objection.
In
those
instances,
such
as
in
this
instance,
all
requisite
financial
information
had
been
made
available
by
the
president
of
the
company’s
accountant
but
in
the
former
instances
that
information
was
included
in
the
return
and
a
copy
was
immediately
given
to
the
officers
of
the
defendant
company.
These
latter
two
circumstances
were
not
present
in
this
instance.
The
accountant
never
did
file
a
supplementary
return
correcting
the
omission
of
income
from
the
initial
return
and
that
was
because
circumstances
peculiar
to
the
accountant
intervened.
Despite
repeated
enquiries,
On
Lim,
the
responsible
officer
of
the
defendant,
was
at
no
time
informed
by
the
accountant
that
an
incomplete
return
had
been
filed
on
behalf
of
the
defendant.
Rather
his
enquiries
were
met
by
the
response
that
the
accountant
would
inform
On
Lim
of
the
amount
of
the
tax
payable
when
he
had
computed
it,
which
he
never
did.
Thus
the
defendant
did
not
“knowingly”
make
a
false
return.
The
question
therefore
remains
whether
the
defendant
“under
circumstances
amounting
to
gross
negligence”
had
acquiesced
in
the
omission
of
income
from
the
return.
The
difference
between
the
concept
of
“negligence”
and
that
of
“gross
negligence”
(that
used
in
subsetion
163(2)
)
is
one
of
degree.
In
my
view
the
conduct
of
the
defendant,
through
that
of
its
president,
does
not
constitute
gross
negligence.
On
Lim,
the
president,
entrusted
the
responsibility
of
preparing
the
proper
income
tax
return
from
the
complete
financial
information
necessary
for
the
completion
of
the
return
made
available
to
a
chartered
accountant
possessed
of
specialized
knowledge
to
do
so
and
which
ability
had
been
satisfactorily
demonstrated
over
the
previous
years.
The
accountant,
in
this
particular
instance,
by
his
deliberate
decision
and
act,
without
the
knowledge
of
the
defendant,
omitted
income
from
the
defendant’s
return.
In
accordance
with
the
practice
of
the
accountant
the
signature
of
On
Lim,
as
a
director
of
the
defendant,
was
affixed
to
the
inaccurate
return
by
an
employee
of
the
accountant.
The
defendant
did
not
know
that
the
return
was
inaccurate
and
had
no
ground
whatsoever
for
suspecting
this
might
be
so.
Had
either
circumstance
prevailed
any
tacit
understanding
that
the
accountant
was
authorized
to
sign
the
return
would
most
likely
be
revoked
but
On
Lim
was
not
given
that
opportunity.
Upon
these
facts
I
have
concluded
that
the
defendant
was
not
grossly
negligent.
By
virtue
of
subsection
162(3)
where
a
penalty
is
assessed
upon
a
taxpayer,
the
burden
of
establishing
the
facts
justifying
the
assessment
of
the
penalty
is
on
the
Minister.
The
Minister
has
not
discharged
that
onus.
I
do
not
accept
the
proposition
that
the
knowledge
of
the
accountant
can
be
attributed
to
the
defendant.
The
general
rule
is
that
a
person
is
not
personally
responsible
for
infractions
of
a
penal
nature
committed
by
another
in
the
position
of
an
agent
but
this
rule
is
not
absolute.
A
principal
may
be
involved
in
or
absolved
from
penal
responsibility
for
the
act
or
omission
of
his
agent
by
the
effect
of
that
statutory
enactment.
Where
a
statute
prohibits
someone
from
doing
something
“knowingly”,
as
subsection
163(2)
does,
it
is
clear
that
an
absolute
offence
has
not
been
created.
In
so
stating
I
do
not
disregard
that
line
of
cases
where
even
though
a
statute
provides
that
someone
shall
not
do
something
“knowingly”
and
does
not
personally
know
nevertheless
if
the
person
has
delegated
his
control
to
the
person
who
does
the
thing
the
knowledge
of
his
delegate
is
imputed
to
him.
This
principle
has
evolved
as
a
canon
of
construction
under
the
Licencing
Acts,
and
involves
the
relationship
of
master
and
servant
between
the
delegator
and
the
delegate.
That
relationship
does
not
prevail
in
this
instance
and
the
interpretation
of
subsection
163(2)
of
the
Income
Tax
Act
must
be
construed
primarily
upon
the
language
used
therein.
I
am
in
complete
agreement
with
the
interpretation
of
subsection
163(2)
as
attributed
thereto
by
the
learned
member
of
the
Tax
Review
Board
which
is
not
surprising
relying
as
he
did
on
Udel
v
MNR,
(1970)
Ex
CR
176.
The
appeal
is
dismissed
for
the
foregoing
reasons.
The
defendant
in
its
defence
especially
prayed
for
costs
in
the
event
of
its
success,
to
be
calculated
pursuant
to
subsection
178(2)
of
the
Income
Tax
Act.
Subsection
178(2)
provides
that
if
the
Minister
appeals,
otherwise
than
by
cross-appeal,
from
a
decision
of
the
Tax
Review
Board
where
the
amount
of
the
“tax”
in
controversy
is
less
than
$2500.00
the
Federal
Court
shall
order
the
Minister
“to
pay
all
reasonable
and
proper
costs
of
the
taxpayer
in
connection
therewith.”
In
this
instance,
in
one
document,
entitled
a
notice
of
reassessment,
the
Minister
assessed
tax,
interest
and
penalty.
These
are
three
separate
and
distinct
subjects
of
assessment.
That
assessment
as
a
whole
was
appealed
to
the
Tax
Review
Board.
The
Board,
as
it
was
obligated
to
do
under
section
171
of
the
Act
and
by
reason
of
the
conclusions
reached,
allowed
the
appeal
and
varied
the
assessment
deleting
the
imposition
of
the
penalty.
That
is
the
decision
of
the
Baord
which
is
appealed.
The
only
matter
placed
in
controversy
is
the
matter
of
the
penalty.
The
assessment
of
the
tax
is
not
placed
in
controversy
because
the
defendant
in
its
pleading
admits
the
propriety
of
the
assessment
of
the
tax
and
the
amount.
Accordingly,
the
amount
of
the
tax
placed
in
controversy
in
this
appeal
is
nil
which
is
less
than
the
amount
of
$2,500.00
as
provided
in
subsection
178(2)
from
which
it
follows
that
the
Minister
shall
be
ordered
to
pay
“all
reasonable
costs”
of
the
defendant.
If
the
parties
cannot
agree
upon
a
“reasonable
and
proper”
amount
the
costs
may
be
taxed.
My
brother
Mahoney
in
The
Queen
v
Creamer,
[1977]
CTC
20;
77
DTC
5025,
concluded
that
Parliament
did
not
intend
to
create
a
new
Classification
of
costs
by
enacting
subsection
178(2)
nor
did
it
use
the
term
“all
reasonable
and
proper
costs”
as
a
synonym
for
party
and
party
costs.
He
therefore
awarded
costs
on
a
solicitor
and
client
basis.
I
follow
the
decision
of
Mr
Justice
Mahoney
and
do
likewise.
The
appeal
is
therefore
dismissed
with
costs
to
the
defendant
upon
a
solicitor
and
client
basis.