Collier, J:
1 This is an appeal by the Minister of National Revenue from a decision of the Tax Review Board.
2 The facts before the Chairman of the Board were the same as those before this Court. They are not in dispute. The defendant is a partner in a law firm. In 1971 the partnership had two fiscal periods ending in that year. The change in fiscal periods had the concurrence of the Minister. The total number of days in both fiscal periods was 699. The defendant elected to have the rules set out in subsection 37(1) of the Income Tax Act, RSC 1952, c 148 and amendments, made applicable. I set out the subsection in full:
37. (1) Where, by reason of a change made with the concurrence of the Minister in the fiscal period of a taxpayer who is an individual or the fiscal period of a partnership in which a taxpayer who is an individual is a member, there would otherwise be included in computing his income for a taxation year
(a) income from a business of which he is a proprietor for each of two or more fiscal periods, or
- (b) income from the partnership for each of two or more fiscal periods, and the number of days in the fiscal periods is greater than the number of days in the taxation year, the following rules are, if the taxpayer so elects, applicable:
but where a taxpayer elects to have those rules applicable for a taxation year, no amount is deductible under paragraph (e) of subsection (1) of section 27 in computing his taxable income for the year.
(i) the taxpayer's income from the business or partnership for the taxation year shall be deemed for the purpose of this Part to be the proportion of the aggregate of the incomes therefrom for the fiscal periods that the number of days in the taxation year is of the number of days in the fiscal periods; and
(ii) the taxpayer shall pay in addition to any other tax payable for the year a tax on the amount by which the aggregate of the incomes from the business or partnership for the fiscal periods exceeds his income from the business or partnership for the year as determined under paragraph (i), equal to the proportion thereof that the tax computed under section 32 [and section 104B] for the year on the assumption that his income from the business or partnership for the year is the amount determined under paragraph (i), is of his taxable income for the year computed on the same assumption,
3 The dispute between the plaintiff and defendant is over the amount of charitable donations which the taxpayer is entitled to deduct for the 1971 taxation year. The portions of subsection 27(1) of the Act relevant to this case are as follows:
27. (1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted from the income for the year...:
- not exceeding 10% of the income of the taxpayer for the year, ...[FN1: <p>My italics.</p>]
(a) the aggregate of gifts made by the taxpayer in the year (and in the immediately preceding year, to the extent of the amount thereof that was not deductible ... in computing the taxable income of the taxpayer for that immediately preceding year) to
4 The amount sought to be deducted by the defendant exceeds 10% of the figure arrived at using, as set out in paragraph (i) of subsection 37(1), the fraction or proportion (in this case 365/699) of the total moneys[FN2: <p>I have, at this stage, endeavoured to use a neutral word“moneys” rather than the word “incomes” which appearsin paragraph (ii) of the subsection.</p>] received for or during the two fiscal periods. If the 10% maximum is calculated on the total moneys received for or during the two fiscal periods, then the defendant has not, in the total gifts sought to be deducted, exceeded the maximum.
5 The disarmingly difficult question is whether the “income of the taxpayer” in subsection 27(1) is the “income” referred to in paragraph (i) of subsection 37(1). The Minister says yes, the defendant says no. The Tax Review Board agreed with the taxpayer. I agree with the decision of the Chairman of the Board.
6 The phrase “income of the taxpayer” referred to in paragraph 27(1)(a) is not qualified or restricted in any way, or made subject to any other sections of the statute. It must, in my opinion, refer to income, for the purposes of Part I, for the year, from all sources (see section 3). It is common ground between these parties the defendant had income in 1971 from non-partnership sources; it is common ground, as it was before the Board, that, for the purposes of the 10% calculation, the non-partnership income is to be added to the other figure (whichever is the correct one, the Minister's or the defendant's).
7 In paragraph (i) the income referred to is not the income of the taxpayer from all sources for the purpose of Part I, but only (in this case) the income from the partnership. The moneys referred to in paragraph (ii) are still, as I see it, income in the sense they are subject to income tax. This is so by the very words used. The amount on which a particular or special tax is payable (under paragraph (ii)) is calculated on the difference between the true aggregate incomes from the partnership and the arbitrary income determined by the fraction or proportion. I unhesitatingly use the tired cliché that the purpose of the income tax legislation is to raise revenue by taxing income. To my mind the moneys on which tax is levied pursuant to paragraph (ii) can have no other character but income. As such they are included in the wide meaning of that term as it appears in subsection 27(1).
8 Subsection 37(1) does not, in my view, change a portion of partnership earnings from something which is truly income into something which, for the purposes of permitted deductions, is not. The section merely establishes particular rates of taxation applicable in particular and limited situations: speaking generally, where a taxpayer must bring into taxable dollars for one taxation year dollars earned over a number of days falling within and without, but exceeding, the 365 days of the taxation year in question. Essentially, the subsection deals with computation of tax on income, and not the calculation of total income from all sources for the year, for the purposes of Part I.
9 For the above reasons, the action is dismissed, and the decision of the Tax Review Board setting aside the Minister's reassessment in respect of charitable donations is affirmed. The defendant is entitled to his costs of this action.