WELLS, J.:—This is an application by way of stated case from a finding of M. G. Gould, a Magistrate in and for the District of Nipissing.
It is stated as follows :
“ (1) On the 1st day of February, A.D. 1957, an informa- tion was laid before C. A. Tayler, Justice of the Peace by the above named Albert J. St. Louis for the said Harvey P. Lamothe, of the Town of Mattawa, in the Province of Ontario, being a person who paid salary, wages or other remuneration to officers or employees and who, during the month of August, 1956, deducted from the said salaries, wages or other remuneration, amounts stipulated by the Income Tax Act, R.S.C. 1952, c. 148 as amended and regulations made thereunder, unlawfully did fail to remit on or before 15th September, 1956, to the Receiver General of Canada the amount so deducted, namely $468.75, thereby contravening see. 47(1) and committing an offence under sec. 131(2) of the said Act.
(2) On the 3rd day of May, A.D. 1957, the said charge was duly heard before me in the presence of both parties, and after hearing the evidence adduced and hearing what was alleged by counsel for both parties, I found the said Harvey
P. Lamothe not guilty of the said offence and dismissed the said charge, but at the request of Counsel for the said informant I state the following case for the opinion of this Honourable Court:
It was shown before me that:
(A) Harvey P. Lamothe was at all material times a person who paid salary, wages or other remuneration to officers or employees.
(B) In or about the month of April, A.D. 1956, the said Harvey P. Lamothe filed with the proper officers of the Department of National Revenue a personal income tax return whereby he claimed a retund of more than Two Thousand Dollars as being due to him from the Receiver General of Canada on account of his personal income tax returns for the years 1954 and 1955.
(C) The said claims for refund was justified and the said Harvey P. Lamothe was in fact entitled to recover from the Receiver General of Canada the sum of $2015.12.
(D) No finding in respect of the said claim for refund was made by the officers of the Department of National Revenue until the 14th day of December, A.D. 1956, on which date the said officers made an assessment declaring that the said Harvey
P. Lamothe was entitled to a refund on account of his personal income tax returns in the amount of $2015.12.
(E) During the month of August, A.D. 1956, the said Harvey P. Lamothe deducted from the salary, wages or other remuneration of his officers and employees the amounts stipulated by the Income Tax Act, R.S.C. 1952, chapter 148 as amended, and regulations made thereunder, in the total sum of $468.75.
(F) The said Harvey P. Lamothe did not remit the said sum of $468.75 to the Receiver General of Canada on or before the 15th day of September, A.D. 1956.
Counsel for the said informant desires to question the validity of the said dismissal on the ground that it is erroneous in point of law, the questions submitted for the Judgment of the Honourable Court being :
(1) Whether I was right in holding that on the 15th day of September, A.D. 1956, the Receiver General of Canada was indebted to the said Harvey P. Lamothe in the sum of $2015.12, notwithstanding that no final assessment in respect of the claim for refund was made until a later date.
(2) Whether I was right in holding that in respect of the said sum of $468.75, the said Harvey P. Lamothe was a debtor of the Receiver General of Canada and was entitled to set off against such debt the debt due to him from the Receiver General of Canada and to refrain from remitting the said sum of $468.75.”
The case is stated under the provisions of Section 734 of the Criminal Code.
As I see the matter, the first question asked by the learned Magistrate, that is, whether he was right in holding that on September 15, 1956, the Receiver General of Canada was indebted to Lamothe in the sum of $2,015.12 notwithstanding no final assessment in the matter had been made, is irrelevant to the point in issue, as it makes no difference, in the view I take, whether the Receiver General of Canada was indebted to Lamothe or not. I think it is quite clear that, whether the amount had been ascertained or not, subsequent events would appear to establish that he was entitled to this sum. This is set out in an earlier part of the stated case. The real question at issue is whether Lamothe is entitled to set off against this sum of $2,015.12 moneys which he was obliged to pay in respect of another taxation year, pursuant to the provisions of Section 47(1) of the Income Tax Act, R.S.C. 1952, ce. 148, without acting in breach of the statute.
As amended at the time the matter was dealt with, Section 47(1) is as follows:
“47. (1) Every person paying
(a) salary or wages or other remuneration to an officer or employee,
(b) a superannuation or pension benefit,
(ce) a retiring allowance,
(d) an amount upon or after the death of an officer or employee, in recognition of his service, to his legal representative or widow or to any other person whatsoever,
(da) an amount as a benefit under a supplementary unemployment benefit plan,
(e) an annuity payment, or
(f) fees, commissions or other amounts for services,
at any time in a taxation year shall deduct or withhold therefrom such amount as may be prescribed and shall, at such time as may be prescribed, remit that amount to the Receiver General of Canada on account of the payee’s tax for the year under this Part. ’ ’
Under Section 131 of the same statute, subsection (2), every person who has failed to comply with or contravened subsection (1) of Section 47 is guilty of an offence and is liable on conviction to a fine or, in the discretion of the magistrate, to a fine and imprisonment. Lamothe apparently claimed by way of defence to the charge laid against him under these sections that he was entitled to set off the moneys he had not sent in to the Receiver General of Canada against the moneys the Receiver General later acknowledged he owed him.
Set-off is not a common law right but a statutory one and was originally based on the English Statutes of 1729, 2 Geo. IT, ec. 22, Section 13, and 1735, 8 Geo. II, c. 24, Section 5, which, it is said, formed part of the law of England introduced into Upper Canada by the Legislature of that Province in 1792. As far as I know, these statutes never became part of the general law of the Provinces of Canada, that is, Upper and Lower together and there would therefore, in my opinion, be no statutory right to set-off in a matter of involving the Government of the Dominion as a whole. The present sections governing the matter in Ontario are found in The Judicature Act, R.S.O. 1950, c. 190, Sections 126 and 127, but these, I think, would have no application in respect of claims against the Crown in the right of the Dominion. The matter was discussed by the Court of Appeal in the recent judgment of Martin et al. v. McCall, 10 D.L.R. (2nd) 284, where my brother Schroeder dealt with the matter at pp. 286 and 287. The matter has also been discussed in England in the ease of Attorney-General v. Guy Motors Ltd., [1928] 2 K.B. 78, where Rowlatt, J., at p. 80, said:
“In this case the only question I have to decide is whether a set-off can be pleaded to an information. It seems to me that the Crown must be right in saying that it cannot, and for a very short reason. Hither a set-off depends upon the Act of George II or it does not. If it does it has always been stated in books of authority, whether there be decisions to that effect or not, that that statute does not bind the Crown, and I am certainly not going to say otherwise. But in fact that statute is repealed, and the matter now stands on the Supreme Court of Judicature (Consolidation) Act, 1925, and Order XIX.,
r. 3, of the Rules of the Supreme Court. But by the Order LX VIII., r. 1(C), of the Rules, they do not apply to Crown Proceedings. It seems to me that there is no way out of that. No doubt the Act applies to the Crown in some cases. It alters the name and constitution of the Courts in which the Crown finds itself. In that sense it does not apply to the Crown, but not in any way, speaking generally, so as to affect the rights of the Crown. I think it right to point out that at the back of the apparently hard rule that there can be no set-off in this case against the Crown there lies this fact, that the subject cannot make good a claim against the Crown except in a particular way, and my decision merely shows that he cannot get round that by refusing to pay a debt to the Crown and then asserting his claims by setting it off. Income tax must be paid as assessed, and other considerations are not to be involved. I must give judgment on this demurrer for the Crown.”’
In about the same year the matter was considered in Canada in respect of the Customs Act by the Exchequer Court of Canada. That case, which is the case of The King v. Cosgrave Export Brewing Co. Ltd. and The King v. John Lahatt Ltd., [1928] Ex. C.R. 103, is a judgment of Audette, J., and, at p. 104, he deals with the matter from the viewpoint of a Dominion statute, as follows:
“Under the present system of practice in England I find that set-off and counterclaim must be regarded as conferring definite and independent remedies upon a defendant against the plaintiff. There are two separate claims or causes of action. And until the fences of the prerogatives of the Crown are removed one cannot sue the Crown without fiat. That comes back to fundamental principle. No counterclaim can be set off at common law against the Crown. The subject must proceed by petition of right.
There can be no set-off against the Crown in so far as it is a substantive course of action.
The case of Fortier v. Langelier (1895), Q.R. 5 Q.B. 107, which also deals with the matter of this kind, holds: 1st that compensation does not take place between a debt due to the government for a direct personal tax and a debt due by government to the person owing such tax; and 2nd, no action can be sustained against the government except by petition of right allowed by the express consent or fiat of the Lieutenant- Governor, and to permit a plea of compensation to be set up, would be equivalent to permitting a suit to be prosecuted against the government without such consent or fiat.
There is a similar decision in the ease of Coté v. Cie du chemin de fer du comté de Drummond (1898), Q.R. 15 S.C. 561.
‘Juge : 1. On ne peut plaider compensation à une demande de la couronne sans avoir recours à la petition de droit. ’
A substantive cause of action cannot be pleaded as an incidental demand or counterclaim to an information by the Crown. Queen v. The Montreal Woollen Mills Co. (1895), 4 Ex. C.R. 348. The same principle was also recognized in the two cases: Hogaboom v. The King (1901), 7 Ex. C.R. 292; and The King v. British American Bank Note Co. (1901), 7 Ex. C.R. 119.
To allow a counterclaim or set-off the court must as a condition precedent be vested with the jurisdiction of hearing both the action and the counterclaim or set-off, and that this court has no jurisdiction to hear the counterclaim until a fiat has been given to hear the same; it is the fiat that gives the court jurisdiction to hear it.
Following the judgment of Lord Gorell, in the case of Bow McLachlan et al. v. Ship Camosun, [1909] A.C. 597 at p. 613, I have come to the conclusion that the real contest between the parties in the present instance, is with regard to a matter which is not a defence proper, and over which, if put forward as a claim, the Exchequer Court has no jurisdiction until a fiat is obtained to so hear the claim. The contest should be left to be settled by a cross action in a court having jurisdiction.”
Reference may be also made to the earlier decision of the Exchequer Court in the case of the King v. British American Bank Note Co., 7 Ex. C.R. 119, at 136. These decisions of our Exchequer Court relate to the right to claim a set-off in an action brought on behalf of the Crown in the right of the Dominion against the subject, and do not deal with the quasicriminal type of defence which was concerned here and which arose, as I have already indicated, from the provisions of Section 131, subsection (2), of the Income Tax Act. With respect, while the reasoning of Audette, J., which I have quoted, in The King v. Cosgrave Export Brewing Co. Ltd. and The King v. John Lab at t case, seems to me to be conclusive on the contention raised by the accused, all this appears to me to be somewhat beside the point. Under Section 47 of the Income Tax Act, there is a statutory duty cast upon every person paying salary or wages, or the other allowances mentioned in this section, to deduct from such payments and remit to the Receiver General on account of such person’s tax. That duty is not qualified in any way, and the mere tact that the Receiver General may owe the person paying money does not, it seems to me, quite apart from any question of set-off, afford a defence to an information alleging a failure to observe an obligation imposed by the statute. Section 131, subsection (2), creates an offence for every person who has failed to comply with subsection (1) of Section 47, and if there is such a failure, it seems to me that what may be regarded as the moral fairness of the situation is not a matter which has any application in view of the positive duty which Parliament has seen fit to impose on the subject. Consequently, in view of the nature of the application, the question of whether there was any right to set-off would appear to me, with respect, to be irrelevant and, both on the basis of the decisions as to set-off and on this ground, in my view Lamothe was not entitled to the benefit of the defence which he raised. Consequently question 1 of the stated case will not be answered and question 2 will be answered by stating that, in my opinion, the learned Magistrate was not right in holding as he did but was wrong in law in coming to the conclusion which he reached. The case should, accordingly, be remitted back to the Magistrate and be dealt with by him pursuant to the answers given and the reasons herein set forth. In my view, this is not a proper case for costs, and there will accordingly be no order as to costs.
Judgment accordingly.