Bronze Memorials Limited v. Minister of National Revenue, [1969] CTC 620, 69 DTC 5420

GIBSON, J.:—These four appeals against re-assessments, all dated April 28, 1965, for income tax of the appellant for the taxation years 1959, 1960, 1961 and 1962, were tried together.

In other proceedings before the Tax Appeal Board and before this Court a gain of $138,150 made by the appellant in 1958 on the sale of $176,000 of certain real estate in the New Westminster District of British Columbia was characterized as income and not as a capital gain. An appeal from the decision of this Court in respect thereto to the Supreme Court of Canada is pending.

The said sale consideration of $176,000 by the provisions of the sale contract was payable and paid over a five-year period in the following amounts:

In each of the respective years 1958 to 1962 inclusive the appellant in fact received the above amounts as provided in the sale contract.

In assessing the appellant’s income for the taxation year 1958 the Minister assessed tax on the entire gain of $138,150, notwithstanding, as noted, that approximately four-fifths of it was a receivable at that time.

In the pleadings before this Court in respect to the appeal proceedings in relation to the appellant’s 1958 income tax the Minister pleaded that he assessed tax on the entire profit of $138,150 in the appellant’s 1958 taxation year, ‘‘but he is now prepared to assess tax on the profit as it was in fact received by the appellant, or he will deduct an amount as a reserve for 1958 pursuant to the provisions of Section 85B(l)(d)* [1] of the Income Tax Act’’.

By the said re-assessments dated April 28, 1965 for the taxation years 1959 to 1962 inclusive the respondent did not re-assess tax on the appellant’s income for any of these years on an accrual or receivable method and pursuant to such method deduct any amounts as receivable pursuant to the provisions of Section 85B(1)(d) of the Income Tax Act; instead the respondent assessed on a cash or received basis and in the words of the agreement as to facts of the parties in this action ‘‘included in the appellant’s income the portion of the sale price which was in fact received in each of the respective years, and the respondent deducted a portion of the cost of sale as appears in the following table:

Net Amount

	Portion of Sale		Added to
	Price in Fact	Portion of	Appellant’s
	Received	Cost	Income
1959	$35,000.00	$7,570.00	$27,430.00
1960	35,000.00	7,570.00	27,430.00
1961	35,000.00	7,570.00	27,430.00
1962	35,000.00	7,570.00	27,430.00

In the said agreement as to facts the parties also say:

The Appellant had not adopted, during any of the said fiscal periods, a method for computing income from its business or businesses which did not require it to include any amount receivable in computing its income for a taxation year unless it had been received in the year.

and

. . . The appellant has not claimed or deducted any other amount in respect of a reserve pursuant to the said provisions of Section 85B.

In summary, the Minister in assessing the income of the appellant for the taxation year 1958 brought into income for that year the whole of the gain (of which approximately four-fifths was a receivable, at that time), pursuant to the provisions of Section 85B(1) (b)* [2] of the Income Tax Act, and did not allow the appellant a reserve under Section 85B(l)(d) of the Act. (The respondent since has agreed to do so, but has not done so as yet, pending the disposition of the said appeal before the Supreme Court of Canada respecting the 1958 re-assessment. )

The taxpayer in filing its returns of income for each of the years 1959 to 1962 did not adopt a cash or received basis of computing and filing for tax purposes its income from this said gain. In other words, it did not in any of the said years, in the words of Section 85B(1)(b) of the Income Tax Act adopt a method ‘‘for computing income from the business and accepted” by the Minister which did ‘‘not require . . . (it) to include any amount receivable in computing . . . (its) income for a taxation year unless it has been received in the year’’.

The Minister, however, and notwithstanding these re-assess- ments of income for the taxation years 1959 to 1962 of the appellant, re-assessed on the premise that the appellant had filed its returns of income in each of those years in respect of the said gain on a cash or received basis and not on a receivable or accrual basis.

In my view, the Minister had no right to so re-assess on a cash or received basis, and predicated on the pleadings and the evidence in this case there is no power in this Court to refer these re-assessments back to the Minister for further re-assessment on a receivable or accrual basis to tie in with the way that the Minister may assess this gain in the taxation year 1958 of the appellant, in the event the appellant’s said appeal to the Supreme Court of Canada is not successful. Also to do so in effect would be to allow an appeal to the Minister from his own re-assessments, on these appeals therefrom by the appellant taxpayer.

In the result, therefore, for the reasons stated, I am of the opinion that the appellant has established that there is no basis in fact or in law for any of the re-assessments for the years 1959 to 1962.

In addition, as to the re-assessment for the taxation year 1959, there is another reason why it has no validity. This reason is that the Minister had no power to issue the said re-assessment dated April 28, 1965 since more than four years had elapsed from the date of the original assessment for income of the appellant’s 1959 taxation year and the Minister at this trial did not adduce any evidence, as he had the onus to do, that the appellant “at any time . . .” ‘‘made any misrepresentation or committed any fraud in filing . . . (its) return or in supplying any information under this Act’’ within the meaning of Section 46(4) of the Income Tax Act.

The appeals are therefore allowed with respect to all of the taxation years, namely, 1959 to 1962, and are referred back to the respondent for the purpose of deleting from the appellant’s income for the said years 1959 to 1962 inclusive any amount in respect of the said gain of $138,150.

The appellant is entitled to costs.