Bouscadillac Gold Mines Limited v. City of Toronto, [1938-39] CTC 432

GILLANDERS J.A.:—This is an appeal by way of special case pursuant to section 85 of the Assessment Act.

The facts, the question involved, and the opinion of the learned County Judge are fully and clearly stated in the special case as follows:

“Facts: The appellant is a corporation incorporated under Part XI of The Ontario Companies Act for the following objects, namely ;

' (a) To acquire, own, lease, prospect for, open, explore, develop, work, improve, maintain and manage mines and mineral lands and deposits and to dig for, raise, crush, wash, smelt, assay, analyse, reduce, amalgamate, refine, pipe, convey and otherwise treat ores, metals and minerals, whether belonging to the Company or not, and to render the same merchantable and to sell or otherwise dispose of the same or any part thereof or interest therein; and

(b) To take, acquire and hold as consideration for ores, metals or minerals sold or otherwise dispose of or for goods supplied or for work done by contract or otherwise, shares, debentures or other securities of or in any other company, having objects similar in whole or in part to those of the Company hereby incorporated and to sell and otherwise dispose of the same.

"‘In the year 1936, the Company embarked on a programme of development of its mining properties and for the purpose of obtaining finances for the completion of its programme, disposed of shares of its capital stock, realizing from the sale thereof $182,500.00, expending during the same period the sum of approximately $75,000.00. In the year 1937 further sales of stock realized the sum of $67,550.00, and approximately $81,000.00 was expended in the development of its properties.

"Pending the expenditure of the monies raised from the sale of this capital stock, the directors of the Company placed them on deposit in an incorporated Trust Company and during the year 1937 received on account of interest on the capital on deposit, the sum of $2,292.79.

‘‘The Head office of the Company is located in the City of Toronto in office space assessed to the Company’s solicitors, and the Company does not appear on the assessment roll of the City of Toronto other than in respect of the assessment in respect of income forming the subject matter of this appeal.

4 ‘During the year 1937, the expenses of operating the Company, other than monies expended in the development of its properties, amounted to $8,003.95, which amount was made up as follows:

‘‘The whole income, except a small item of $6.43, was derived from interest on money on deposit with the said Trust Company and amounted to $2,292.79. I held that the said amount of interest was assessable income after allowing the statutory deduction of $1,500.00, and the assessment was therefore fixed by me at $792.79. I did not allow the contention of the Com-

pany that the amount of its expenses of operation should be deducted from the amount received as interest in determining the amount of taxable income.

“ “ My reason for so holding is that the appellant company 16 not occupying land for the purpose of carrying on its business in Toronto, and is, therefore, not liable to business assessment. Such a company, by the provisions of section 9, sub-section 1, paragraph (a) of the Assessment Act, is assessable in respect of its full income. In any case, the income received by it from the trust company as interest on money deposited is income not derived from the business in respect of which the appellant company would be assessable under section 8 of the Assessment Act.

Statement of Question: ""On the above facts and on the true construction of the statutes, particularly section 9 of the Assessment Act, as applied to the facts so stated, was I right in holding that the Company was assessable in respect of the income of the Company received by way of interest upon unexpended capital of the Company on deposit pending expenditure for the objects of the Company, and in not allowing any deduction therefrom for any of the Company’s expenses of operation ?‘‘

It is admitted by counsel that the appellant company, not being assessed for or liable to business assessment under section 8 of the Assessment Act, is under section 9 of that Act liable to be assessed in respect of income. The question for determination is whether or not, in the circumstances, the income is to be determined by charging the full amount received by way of interested on the unexpended capital of the Company and in not allowing any deduction therefrom for any of the expenses of operation.

This question involves the construction of section 1(f) of the Assessment Act defining i income, ‘ ‘ which reads as follows :

‘€ "Income’ shall mean the profit or gain directly or indirectly received by a corporation from its business or undertaking, and shall include interest, dividends or profits directly or indirectly received from money at interest upon any security or without security, or from stocks, or from any other investment, and also profit or gain from any other source. ’ ’

Counsel for the appellant submits that in arriving at the income, we must keep in mind that it means “‘profits or gain received directly or indirectly from the business or undertaking” of the Company, and that in arriving at such profit or gain, while ‘‘interest . . . received from money at interest or from stocks or from any other investment’’ is to be included, that this is only a factor in determining whether or not there is profit or gain, and further that the moneys here on deposit under the circumstances of this case, the Company being in the throes of development, were employed in its business or undertaking, and were not in the nature of an investment apart from the business of the Company.

On the other hand counsel for the respondent City Corporation submits that in ascertaining the income here, the Company was not engaged in the mining operations for which it was incorporated; that there is no profit or gain from its business or undertaking, but the interest from the moneys on deposit with the Trust Company has no relation to whether or not there was profit or gain from the business or undertaking, but must be assessed (subject to the statutory deductions) as income. He submits that the expenditures claimed were not made to earn the interest received from the moneys on deposit, and that this money is not in use in the business or undertaking of the Company, but is in the nature of an investment, the interest from which is assessable as income under the definition of the Act.

Several cases were cited and discussed, none of which decides the exact point here under discussion.

In City of Toronto and John Northway & Son Limited (1923) 94 O.L.R. 81, although the definition of "income’’ was slightly different in form from that in the present Act; for the purposes of this case there is no essential difference. In that case the Company was liable for a business assessment and under the Act was also liable in respect of any income not derived from the business in respect of which it was assessable ‘‘in addition to the business assessment. ‘ ‘

It was there held that, the Company being engaged in the business of making and selling clothing, and not of saving and trading in money, the income from certain investments which had been taken out of the business and were not used in the business, was liable to assessment.

In re City of Toronto and G. T. Fulford Co. Limited (1922)

22 O.W.N. p. 50, was a decision of the Municipal Board respecting the assessment of several items received by the appellant Company. The case is not of assistance here except as indicative of what income should and should not be viewed as derived from the business of the Company.

In Wallace Realty Co. Limited v. Corporation of the City of Ottawa [1930] S.C.R. 387, the main question involved was whether or not the appellant company was entitled to claim exemption, by way of deduction from its gross revenue derived from stocks and bonds, of an item of $8,004.83, which might be described as a u carrying charge. ‘ ‘ Although the question there under discussion was not the point here involved, a reading of the judgment of the Court delivered by Anglin C.J.C. is helpful in considering the definition of ‘‘income.’’ After referring to the statutory definition and discussing various English cases, he says :

‘ ‘ Of course, in construing English Income Tax decisions, one must always bear in mind that they depend largely upon the phraseology of the statutes under consideration; but I find it impossible to understand how, where the word ‘income’ is defined, as it is here, to be ‘profit or gain,’ not from any particular transaction, but from the whole business of an entire year carried on by the ‘person’ upon whom the tax, in respect to it, is to be imposed, such ‘income’ can be arrived at otherwise than by taking account of the receipts for the year and deducting therefrom at least all expenditure made in, and properly attributable to, the earning of such receipts as a whole, including therein expenditure made in the hope of earning receipts for the business or undertaking, although such hope has been disappointed.”

The definition of ‘‘income’’ in the Income War Tax Act, R.S.C. 1927, chapter 37, sec. 3, is somewhat different in form, but for the purposes of this case, to the same effect. In both Acts “income” is stated to mean . . . profit or gain . . . and shall include interest . . . from moneys at interest, and so forth, or from any other investment, and also profit or gain from any other source.

I have been unable to find any cases arising under the Income War Tax Act which would give support to the respondent’s contention here, but on the other hand they seem to indicate that what is intended to be taxed is profit or gain which can only be ascertained by setting against the receipts the expenditures or obligations to which they have given rise.

In construing the section, if income means the profit or gain received by a corporation from its business or undertaking, then we may substitute for the word “income” its meaning, that is “profit or gain directly or indirectly received by a corporation from its business or undertaking,’’ and the section goes on to provide that this shall include interest such as is here in question.

Furthermore, I think the moneys on deposit with the Trust Company were, under the circumstances here, employed in the business of the Company. Before setting out on the Company s programme of development, it was necessary to raise funds which was done by the sale of shares. It was prudent and proper to have the receipts deposited with the Trust Company pending expenditure. There is no suggestion that the deposit was of a permanent nature or that the Company thereby intended to divert this money from the development of its mining properties, but on the other hand it is said the money was raised to obtain finances for the completion of its development work, and under the circumstances I think that the moneys were, considering the position of the Company, part of the business and undertaking of the Company, and that in determining the Company’s taxable income, if any, there should be set off against the interest received from such moneys, the expenses properly allowable for operating the Company during the tax period in question.

In this case, without discussing the items claimed in detail, it would seem, after allowing the statutory deduction and proper

expense of operation, that the Company would have no taxable income.

For the reasons given I would so advise the learned County Court Judge.

The appellant Company should have its costs from the City Corporation.

MACTAGUE J. A., agreed with GILLANDERS J.A.

RIDDELL J.A. (dissenting) :—This is an application by way of stated case by His Honour Judge Parker on questions of law, relating to the assessment by the City of Toronto the matter being submitted under the authority of sec. 85 of the Assessment Act, R.S.O. 1937, ch. 272.

The facts are fully stated in the stated case and I need not here repeat them.

The decision of the matters must depend on the meaning to be attached to the language of the Statute, and especially secs. 1(f) and 9.

The former reads:

“ ‘Income’ shall mean the profit or gain directly or indirectly received by a corporation from its business or undertaking and shall include interest, dividends or profits directly or indirectly received from money at interest upon any security or without security, or from stocks, or from any other investment, and also profit or gain from any other source.”

Sec. 9(a) reads:

4 ‘Subject to the exemptions provided for in sections 4 and 8.

"‘(a) every corporation not liable to business assessment under section 8 shall be assessed in respect of income. ‘ ‘

Admittedly this corporation comes under this subsection; and the whole question is whether the interest received by it is. "‘Income’’ within the meaning of the Act.

As to that I have no doubt from the definition of ‘‘Income’’ in sec. 1(f). The subject of the verb ‘‘shall include” is clearly the noun " " Income, ‘ ‘ which noun is here clearly made to include in its meaning such interest as is here in question—it has no reference to anything else in or out of the business.

If it were necessary, this conclusion would be strengthened by the provision at the end of the subsection ‘‘gain from any other source.’’

I would so advise the learned Judge—the City should have the costs.

Appeal allowed.