Sogemines Development Company Limited v. Her Majesty the Queen, [1973] CTC 383, 73 DTC 5304

The Chief Justice (ail concurring):—This is an appeal from a judgment of the Trial Division dismissing an appeal from a judgment of the Tax Appeal Board that dismissed an appeal from the appellant’s assessments under Part I of the Income Tax Act for its 1958, 1959, 1960 and 1961 taxation years.

In this Court, the only question that has been raised by the appellant is whether the tax fixed by each of the aforesaid assessments was excessive because it was based on a computation of the appellant’s income for the year in the calculation of which there was deducted a smaller amount than that to which the appellant was entitled under subsection 83A(3) of the Income Tax Act, which reads in part as follows:

83A(3) A corporation whose principal business is

(a) production, refining or marketing of petroleum, petroleum products or

natural gas, or exploring or drilling for petroleum or natural gas, or

(b) mining or exploring for minerals,

may deduct, in computing its income under this Part for a taxation year, the lesser of

(c) the aggregate of such of

(i) the drilling and exploration expenses, including all general geological and geophysical expenses, incurred by it on or in respect of exploring or drilling for petroleum or natural gas in Canada, and

(ii) the prospecting, exploration and development expenses incurred by it in searching for minerals in Canada,

as were incurred after the calendar year 1952 and before April 11, 1962, to the extent that they were not deductible in computing income for a previous taxation year, or

(d) of that aggregate, an amount equal to its income for the taxation year

(i) if no deduction were allowed under paragraph (b) of subsection (1) of section 11, and

(ii) if no deduction were allowed under this section,

minus the deductions allowed for the year by subsections (1), (2), (8a) and (8d) of this section and by section 28.

In applying this provision, a question arises between the parties concerning the determination of the amount that has to be calculated under paragraph (c). To be specific, there is a question as to how much of the expenses of the kind described in subparagraph (ii) that were incurred by the appellant in earlier years were “deductible in computing income for a previous year” within the meaning of those words in that paragraph. This is relevant, as a reading of the concluding words of paragraph (c) shows, because the expenses incurred by the appellant in previous years are only deductible by virtue of subsection 83A(3) for one of the taxation years now under consideration “to the extent that they were not deductible in computing income for a previous taxation year”.

The factual background to the dispute is that, in its return for each of the taxation years 1955, 1956 and 1957, the appellant claimed deductions under subsection 83A(8a) in respect of expenses incurred by its parent company. It is, at this stage, common ground that those expenses were not legally deductible but, at the assessment stage, the assessors appear to have mistakenly regarded them as deductible and, in consequence, issued, for each of those years, what is commonly called a “nil assessment”, which document is more accurately described as a notification that no tax is payable.

It is, I think, common ground that, if the expenses incurred by the parent company had been disallowed for the 1955, 1956 and 1957 taxation years, as they should have been, the amounts now in issue in respect of the 1958, 1959, 1960 and 1961 taxation years would have been “deductible” under section 83A(3) in respect of the 1955, 1956 and 1957 taxation years and, in that event, would not be deductible under subsection 83A(3) in respect of the 1958, 1959, 1960 and 1961 taxation years.

In this Court, the appellant limited his argument in support of the appeal to a single point, which point was not taken in the Trial Division.

The point is that the parent company’s expenditures were in fact “allowed” by the assessments in the earlier years and that that factual “allowance was sufficient, having regard to the concluding words of paragraph (d) of subsection 83A(3), to make the appellant’s own disbursements (for at least the parts of them that are now in dispute) not “deductible” in computing income for those earlier years so that they are deductible under subsection 83A(3) in the computation of the appellant’s income for the taxation years now under consideration.

This point in my view fails. The words upon which the appellant relies are

the deductions allowed . . . by subsections (1), (2), (8a) and (8d) . . .

These words do not, in my view, refer to amounts that are in fact allowed by the Minister because he rightly or wrongly thinks that they fall under subsection (1), (2), (83) or (8d). They refer to amounts the deduction of which is permitted by one or other of those subsections rightly understood. It is simply another way of saying “the amounts that are deductible by virtue of subsections (1), (2), (8a) and (8d).”

As that was the only point relied on by the appellant and as, in my view, it fails, it follows that I am of opinion that the appeal should be dismissed with costs.