Viscount
Simon
:—This
is
an
appeal
by
special
leave
from
a
judgment
of
the
Supreme
Court
of
Canada
dated
February
11th,
1946,
which
allowed
the
appeal
of
the
present
respondent
from
a
judgment
of
the
Exchequer
Court
of
Canada,
dated
May
25th,
1945,
[1945]
C.T.C.
162.
The
action
was
brought
by
the
present
respondent
to
recover
the
amount
of
a
tax,
and
interest
thereon,
which
it
was
alleged
that
the
present
appellant
should
have
withheld
from
dividends
paid
to
such
holders
of
its
5
per
cent.
cumulative
perpetual
preference
stock
as
were
non-residents
of
Canada
during
the
period
between
April
Ist,
1935,
and
April
29th,
1941.
The
Supreme
Court
of
Canada
(Rinfret
C.J.,
Kerwin,
Taschereau,
Rand
and
Kellock
JJ.),
reversing
the
judgment
of
the
President,
[1946]
C.T.C.
109,
held
that
the
action,
which
took
the
form
of
an
Information
of
the
Attorney-General
of
Canada
filed
on
April
Ist,
1943,
succeeded.
Chapter,
41
of
the
Statutes
of
Canada,
1932-33,
added
the
following
provisions,
inter
alia,
to
the
Income
War
Tax
Act,
and
these
are
the
sections
upon
which
the
controversy
turns
:—
.-"9B—(1)
In
addition
to
any
other
tax
imposed
by
this
Act
an
income
tax
of
five
per
centum
is
imposed
on
all
persons
resident
in
Canada,.
except
municipalities,
or
municipal
01
public
bodies
which
in
the
opinion
of
the
Minister
perform
a
function
of
government,
in
respect
of
all
interest
and
dividends
paid
by
Canadian
debtors
directly
or
indirectly
to
such
persons.
which
interest
by
the
terms
of
the
mortgage
deed,
hypothec
or
other
instrument
under
which
the
debt
was
contracted
or
which
dividends
by
the
terms
of
issue,
are
payable
in
a
currency
which
is
at
a
premium
in
excess
of
five
per
centum
in
terms
ot
Canadian
funds.
°
(2)
In
addition
to
any
other
tax
imposed
by
this
Act
an
income
tax
of
five
per
centum
is
hereby
imposed
on
all
persons
who
are
non-residents
of
Canada
in
respect
of
""
(a)
All
dividends
received
from
Canadian
debtors
irrespective
of
the
currency
in
which
the
payment
is
made,
and
(b)
All
interest
received
from
or
credited
by
Canadian
debtors,
if
payable
solely
in
Canadian
funds,
except
the
interest
from
all
bonds
of
or
guaranteed
by
the
Dominion
of
Canada.
*******
44
(4)
In
the
case
of
interest
or
dividends
in
respect
of
fully
registered
shares,
bonds,
debentures,
mortgages
or
any
other
obligations,
the
taxes
imposed
by
this
section
shall
be
collected
by
the
debtor
who
shall
withhold
five
per
centum
of
the
interest
or
dividend
on
the
obligation
and
remit
the
same
to
the
Receiver-General
of
Canada.
*******
"(9)
Every
agreement
for
payment
of
interest
or
dividends
in
full
without
allowing
any
such
deduction
or
withholding
Shall
be
void.
"‘84.—(1)
Any
person
who
fails
to
collect
or
withhold
any
sum
of
money
as
required
by
this
Act
or
regulations
made
thereunder,
shall
be
liable
for
the
amount
which
should
have
been
collected
or
withheld
together
with
interest
at
the
rate
of
ten
per
centum
per
annum.
""
(2)
Any
person
who
fails
to
remit
any
sum
of
money
collected
or
withheld
as
required
by
this
Act,
or
at
such
time
as
the
Minister
may
in
special
eases
prescribe,
shall
in
addition
to
being
liable
for
such
sum
of
money
so
eollected
or
withheld,
be
liable
to
a
penalty
of
ten
per
centum
of
the
said
sum
together
with
interest
at
the
rate
of
ten
per
centum
per
annum.
*******
"
‘86.
No
action
shall
lie
against
any
person
for
withholding
or
deducting
any
sum
of
money
as
required
by
this
Aet
or
regulations
made
thereunder.
“87.
The
receipt
of
the
Minister
for
any
sum
of
money
collected,
withheld
or
deducted
by
any
person
as
required
by
this
Act
or
regulations
made
thereunder
shall
constitute
a
good
and
sufficient
discharge
of
the
liability
of
any
debtor
to
his
creditor
with
respect
thereto
to
the
extent
of
the
amount
referred
to
in
the
receipt.’’
Thus,
by
Section
9B
(2)
(a)
it
is
provided
that
non-residents
of
Canada
are
taxed
in
respect
of
all
dividends
received
from
Canadian
debtors,
and
by
9B
(4)
the
tax
is
to
be
collected
by
the
Canadian
debtor
who
is
to
withhold
five
per
cent.
of
the
dividend
and
remit
the
same
to
the
Receiver-General
of
Canada.
The
appellant
failed
to
do
this,
and
the
Attorney-General
of
Canada
claims
that
it
is
accordingly
liable
under
section
84
(1)
for
the
amount
with
interest
at
the
rate
of
ten
per
centum
per
annum
upon
it.
The
appellant
company
resists
this
claim,
contending
that
it
is
not
a
‘‘Canadian
debtor’’
within
the
meaning
of
the
section
above
quoted,
and
secondly
that
if
it
is
a
“Canadian
debtor’’
within
the
meaning
of
these
sections,
the
legislation
is
ultra
vires
of
the
Parliament
of
Canada,
notwithstanding
the
Statute
of
Westminster
of
1931.
On
the
first
question
the
Exchequer
Court
took
the
view
that
a
"‘Canadian
debtor’’
meant
a
debtor
of
Canadian
nationality
and,
as
applied
to
a
company
(which
is
plainly
included
by
reason
of
the
reference
to
dividends)
meant
a.
company
registered
under
Canadian
law.
It
is
not
perhaps
entirely
clear
from
the
President’s
judgment
whether
he
would
regard
a
company
incorporated
under
the
law
of
a
Canadian
province
as
a
“Canadian
debtor”
in
respect
of
its
dividends
or
whether
he
would
apply
the
term
only
to
companies
registered
under
Dominion
law,
but
the
material
point
is
that
he
considered
the
test
to
decide
who
was
a
‘‘Canadian
debtor’’
in
the
case
of
an
individual
depended
on
the
individual
‘s
nationality
and
not
on
his
place
of
residence,
and
therefore
logically
held
that
in
the
case
of
an
incorporated
company
the
test
was
the
place
of
the
incorporation
of
the
company
and
not
its
place
of
‘‘residence’’
as
understood
in
the
law
relating
to
companies,
i.e.
the
place
where
the
company
had
its
“head
and
seat”.
In
the
present
case
there
could
be
no
doubt
at
all
that
the
“residence”
of
the
appellant
company
was
Canadian.
The
company
was
incorporated
in
the
United
Kingdom
and
had
its
registered
office
in
England.
It
was
registered
in
British
Columbia
as
an
extra-provincial
company
under
the
Companies’
Act
1897
of
British
Columbia.
Under
the
Companies’
Act
1929
of
the
United
Kingdom
(19
and
20
George
V.
Ch.
23)
its
register
of
members
was
kept
at
its
registered
office,
and
under
section
103
of
that
Act
it
kept
a
Dominion
register
of
members
resident
in
Canada
at
its
offces
at
Vancouver.
The
stock
on
this
register
can
be
transferred
only
on
such
register,
but
all
other
stock
can
be
transferred
only
on
the
register
kept
in
England.
More
important
than
these
technical
details,
however,
are
the
following
facts,
which
left
it
beyond
dispute
that
the
company,
though
of
United
Kingdom
origin,
was
‘‘resident’’
in
Canada.
The
company
carried
on
the
business
of
supplying
electric
power
and
light
and
operating
electric
railways
and
motor
omnibuses
in
British
Columbia
and
had
its
head
office
at
Vancouver.
Since
1929
the
whole
business
of
the
company,
except
certain
formal
administrative
business,
was
required
by
its
articles
of
association
to
be
controlled,
managed,
conducted
and
carried
on
in
Canada.
All
general
meetings
of
the
company
and
all
meetings
of
directors
were
required
to
be
held
in
Canada,
and
all
directors
were
required
to
be
resident
in
Canada.
All
its
assets,
excepting
certain
records
and
books
of
accounts
kept
at
its
registered
office
in
England
and
certain
cash
remitted
there
from
time
to
time,
were
situated
in
Canada.
All
the
income
from
which
its
dividends
were
paid
was
earned
in
Canada.
In
short,
the
undertaking
of
the
company
which
produced
its
profits
was
in
every
respect
Canadian
and,
in
the
sense
in
which
"‘residence’’
is
attributed
to
an
incorporated
company
for
income
tax
purposes,
the
"‘residence’’
of
the
appellant
was
unquestionably
Canadian.
The
Supreme
Court
rejected
the
view
of
the
President
of
the
Exchequer
Court
and
held
that
‘‘Canadian
debtors’’
means
debtors
who
are
resident
in
Canada
and
that
as
applied
to
companies
the
phrase
is
equivalent
to
companies
resident
in
Canada
who
owe
dividends
to
their
shareholders.
Their
Lordships
agree
with
this
view.
It
is
true
that
there
are
sections
in
the
Income
War
Tax
Act
where
the
test
of
residence
in
Canada
is
expressly
applied
both
with
respect
to
individuals
and
companies,
but
it
does
not
follow
that
"Canadian
debtors''
may
not
have
the
same
meaning
as
debtors
resident
in
Canada.
If
the
view
contended
for
by
the
appellant
on
this
point
was
adopted,
extraordinary
results
would
follow.
A
Canadian
citizen
who
owed
a
debt
for
interest
would
be
caught
by
the
Act
wherever
he
resided,
purely
because
of
his
nationality.
The
language
of
the
Statute
would
require
him
to
make
a
deduction
when
paying
his
debt,
say,
when
paying
interest
on
a
loan
made
to
him
by
a
foreigner,
though
neither
of
them
was
residing
in
Canada,
and
to
transmit
the
amount
deducted
to
the
Receiver
General
of
Canada.
The
view
which
their
Lordships
reject
would
require
a
company
registered
in
Canada
but
carrying
on
all
its
business
and
making
all
its
profits
at
the
other
end
of
the
world,
to
deduct
the
amount
of
the
tax
when
paying
a
dividend
to
its
shareholder,
wherever
the
shareholder
might
be
found,
and
whatever
his
nationality
might
be,
although
there
was
nothing
whatever
Canadian
about
the
circumstances
except
the
place
of
registration
of
the
company.
It
appears
to
their
Lordships
that
the
test
to
be
applied
in
deciding
who
is
a
"
"
Canadian
‘
‘
debtor
is
not
the
test
of
nationality
in
an
individual
or
of
registration
in
a
company,
but
the
test
of
residence.
On
this
first
point,
therefore,
their
Lordships
must
decide
against
the
appellant.
The
appellant
is
within
the
language
of
the
Act.
Next,
it
is
contended
by
the
appellant
that,
even
though
it
is
to
be
regarded
as
a
^Canadian”
debtor,
the
duty
imposed
upon
it
by
subsection
(4)
of
Section
9B
does
not
on
the
true
construction
of
the
Act,
extend
to
the
case
where
dividends
are
being
paid
to
persons
who
are
non-residents
of
Canada
because
section
84
and
section
87
must
be
regarded
as
inter-related
sections
so
that
the
penalty
imposed
by
section
84
can
only
be
inflicted
in
instances
where
the
receipt
of
the
Minister
under
section
87
constitutes
a
good
discharge
of
the
company
‘s
liability
to
its
shareholder
in
any
Court
in
which
the
shareholder
sues
for
the
balance
of
his
dividend.
The
company,
being
registered
in
England,
could
be
sued
in
an
English
Court
for
any
part
of
the
dividend
which
was
unpaid,
and
the
appellant
contends
that
if
this
happened
the
receipt
of
the
Minister
under
section
87
would
not
provide
it
with
an
adequate
defence
for
withholding
the
amount
of
the
tax,
and
that
therefore
if
the
company
in
such
a
case
withheld
the
amount
of
the
tax
and
remitted
it
to
the
Receiver
General
of
Canada,
it
would
have
to
pay
the
same
amount
to
the
shareholder
as
well,
and
thus
in
effect
would
itself
be
taxed
instead
of
the
shareholder.
This
argument
is
re-enforced
by
pointing
out
that
the
tax
in
question
is,
by
sub-section
(2)
of
section
9B
expressly
imposed
on
the
non-resident
shareholder
and
is
not
described
as
a
further
tax
on
the
company
or
its
profits.
Their
Lordships
have
given
full
consideration
to
this
argument,
which
is
by
no
means
without
weight.
But
in
their
view,
the
governing
consideration
is
that
section
84
is
absolute
in
its
terms
and
cannot
be
read
with
the
qualification
that
the
receipt
referred
to
in
section
87
must
give
effective
protection
to
the
company
in
every
case.
Their
Lordships
are
therefore
not
required
to
decide
whether
the
appellant
is
right
in
saying
that
if
a
Shareholder
sued
the
appellant
in
England
for
a
portion
of
the
dividend
which
the
appellant
has
withheld,
the
receipt
of
the
Minister
would,
or
would
not,
in
an
English
Court
provide
a
valid
discharge.
The
appellant
contends
it
would
not,
and
reference
may
be
made
to
such
eases
as
Spiller
vs.
Turner,
[1897]
1
Ch.
911,
and
New
Zealand
Loan
Co.
vs.
Morrison,
[1898]
A.C.
349,
as
well
as
to
Dicey’s
Conflict
of
Lazes
5th
Edition
pages
678
et
seq.
The
respondent,
on
the
other
hand,
does
not
admit
that
the
receipt
would
fail
to
provide
the
appellant
with
an
efficient
shield
in
an
English
Court.
Their
Lordships’
conclusion
does
not
require
them
to
decide
on
this
point
of
controversy,
if
controversy
there
be,
for,
as
already
stated,
the
Board
does
not
take
the
view
that
the
appellant
has
no
liability
to
deduct
unless
section
87
provides
it
in
all
Courts
with
a
sufficient
discharge.
If
the
shareholder
who
claims
that
the
appellant
has
not
paid
him
the
full
amount
to
which
he
is
entitled
brings
his
action
in
the
Canadian
Courts,
section
87
will
of
course
provide
the
appellant
with
a
defence,
for
Canadian
law
gives
a
valid
discharge.
But
whether
this
is
so
or
not
in
the
event
of
a
shareholder
suing
the
appellant
in
England,
the
fact
remains
that
section
84
requires
the
appellant
to
make
the
deduction
and
to
remit
the
amount
and
imposes,
without
qualification,
a
liability
to
the
prescribed
penalty
if
it
fails
to
do
so.
The
declared
objective
of
section
9B
(2)
is,
no
doubt,
to
make
the
non-resident
bear
the
tax,
but
the
circumstance
that
the
machinery
provided
by
the
Act
may
in
certain
circumstances
work
so
as
to
make
the
company
the
sufferer,
is
no
reason
for
construing
section
84
as
though
it
only
applied
with
a
qualification
which
is
neither
expressed
nor
necessarily
implied.
It
would
indeed
be
exceedingly
difficult
to
determine
whether
the
penalty
imposed
by
section
84
could
properly
be
exacted
if
the
right
to
exact
it
depended
on
the
question
in
what
Court
an
aggrieved
shareholder
might
thereafter
sue
for
his
dividend,
and
what
are
the
correct
propositions
of
private
international
law
which
would
determine
whether
the
appellant
would
have
a
good
defence
if
it
was
sued
in
the
country
of
its
registration.
Finally,
the
appellant
contends
that
if
the
sections
of
the
Income
Tax
Act
on
which
this
case
turns
bear
the
construction
set
out
above,
section
9B
(2)
is
ultra
vires
of
the
Parliament
of
Canada,
notwithstanding
the
enlarged
scope
conferred
by
the
Statute
of
Westminster
of
1931.
The
Judges
of
the
Supreme
Court
of
Canada
have
dealt
in
a
most
effective
fashion
with
this
contention,
and
their
Lordships
entirely
concur
with
the
views
they
have
expressed.
Mr.
Justice
Kerwin,
in
a
judgment
with
which
the
Chief
Justice
of
Canada
and
Mr.
Justice
Taschereau
concurred,
observed
that
section
3
of
the
Statute
of
Westminster
left
no
basis
for
the
argument,
and
he
went
on:
"by
head
3
of
section
91
of
the
British
North
America
Act,
the
Canadian
Parliament
was
authorized
to
make
laws
with
reference
to
‘the
raising
of
money
by
any
mode
or
system
of
taxation’.
As
long
as
Parliament
legislates
with
reference
to
such
matters,
the
permitted
scope
of
the
legislation
is
not
restricted
by
any
consideration
not
applicable
to
the
legislation
of
a
fully
sovereign
state.
Such
a
state
may
tax
persons
outside
its
territory.
Here
it
is
clear
that
it
has
done
so
and
the
Canadian
Courts
must
obey
the
enactment.”
232
CANADA
TAx
CASES
[1946]
Mr.
Justice
Rand,
with
whom
Mr.
Justice
Kellock
agreed,
put
the
matter
thus
:—
"The
legislative
competence
of
Parliament
to
tax
non-residents
was
challenged.
It
is
argued
that
the
power
‘to
make
laws
having
extra-territorial
operation’
as
enacted
by
the
Statute
of
Westminster
(1931),
section
3,
is
subject
to
two
conditions:
that
the
legislation
deal
with
matter
assigned
by
the
British
North
America
Act
to
the
federal
legislature
;
and
that
it
be
of
such
a
nature
as
under
international
publie
or
private
law
would
be
accorded
extra-territorial
effect.
It
is
then
contended
that
the
power
of
the
Dominion
under
section
91
(3),
‘the
raising
of
money
by
any
mode
or
system
of
taxation’
does
not
extend
to
taxation
of
non-citizens
outside
the
boundaries
of
Canada;
and
that
international
comity,
apart
from
any
rule
against
giving
effect
in
one
state
to
fiscal
measures
of
another
state,
would
not
for
any
purpose
recognize
the
validity
of,
much
less
enforce,
what
Parliament
is
said
to
purport
by
this
legislation
to
do.
‘“The
power
of
the
Dominion
to
tax
is
to
be
interpreted
as
being
‘as
plenary
and
as
ample
within
the
limits
prescribed
.
.
.
aS
the
Imperial
Parliament
in
the
plenitude
of
its
power
possessed
or
could
bestow’:
Hodge
vs.
The
Queen,
9
App.
Cas.
117.
But
there
is
obviously
a
distinction
between
the
standing
of
legislative
enactments
by
a
sovereign
state
within
its
boundaries
and
beyond
them.
In
an
effective
sense,
a
declaration
by
such
a
legislature
that
it
imposes
a
tax
upon
a
citizen
of
a
foreign
country
toward
whom
there
is
no
internationally
recognized
bond
or
relation,
is,
beyond
the
territories
of
that
state.
a
futile
act,
and
it
is
futile
for
the
reason
that
beyond
them
it
is
incapable
of
enforcement.
Within
the
state,
however,
it
becomes
an
obligatory
rule
to
be
enforced
whenever
enforcement
is
feasible.
The
specific
investment
of
extra-territorial
power
by
section
3
of
the
Statute
of
1931
was
designed
no
doubt
to
remove
the
generally
accepted
limitation
of
colonial
legislative
jurisdiction,
a
limitation
which
the
courts
of
the
colony
itself
were
bound
to
recognize
:
McLeod
vs.
New
South
Wales,
[1891]
A.C.
455:
and
any
such
jurisdictional
inadequacy
no
longer
hampers
the
legislative
freedom
of
the
Dominion.
Within
its
field,
there
is
now
a
legislative
sovereignty.
That
the
enactment
of
section
9
(b)
is
an
exercise
of
taxing
power
within
that
Jurisdiction
does
not,
I
think,
admit
of
doubt.
It
is
an
assessment
uniformly
imposed
in
respect
of
special
items
of
a
general
class
of
defined
subject-matter
in
an
elaborated
tax
system;
there
is
admitted
jurisdiction
over
an
act
essential
to
the
sub
ject-matter,
i.e.,
the
act
of
performance
of
an
obligation;
and
these,
taken
with
the
language
used,
satisfy
the
taxation
criteria.
Legislation
so
enacted
will
be
effective
in,
and
must
be
enforced
by
the
courts
of
this
country.
To
what
extent,
if
at
all,
it
will
receive
recognition
in
the
tribunals
of
foreign
countries
depends
upon
different
considerations:
but
that
circumstance,
apart
from
its
function
in
interpretation,
is
not
one
in
which
the
local
tribunal
is
interested.”
Their
Lordships
would
point
out
that
what
is
here
in
issue
is
the
extent
of
the
legislative
power
of
a
Dominion
legislature
having
regard
to
the
language
of
the
Statute
of
Westminster.
This
is
not
the
same
question
as
the
question
whether
legislative
power
is
so
used
as
to
extend
beyond
what
will
prove
to
be
effective.
A
legislature
which
passes
a
law
having
extra-territorial
operation
may
find
that
what
it
has
enacted
cannot
be
directly
enforced,
but
the
Act
is
not
invalid
on
that
account
and
the
Courts
of
its
country
must
enforce
the
law
with
the
machinery
available
to
them.
The
law
in
this
case
has
been
validly
enacted,
for
the
effect
of
the
Statute
of
Westminster
upon
section
91
of
the
British
North
America
Act,
head
3,
is
to
make
that
head
read:
"the
raising
of
money
by.
any
mode
or
system
of
taxation,
even
though
such
laws
have
an
extra-territorial
operation.’’
For
these
reasons
their
Lordships
will
humbly
advise
His
Majesty
that
the
appeal
should
be
dismissed
with
costs.
Appeal
dismissed.
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