O’Connor, J.:—This is an appeal from the decision of the Provincial Treasurer affirming the assessment for income tax of the late James Ramsey for the taxation year 1931. The assessment is disputed in two particulars:
(a) The sum of $1,904.99 received from the James Ramsey Company Limited.
I quote the following from the statement of facts :
"‘(1) The James Ramsey Company Limited was a private company,
incorporated under the Alberta Companies Act, having as its principal asset in 1931 two buildings known as the ‘Kelly Building’ and the ‘Ramsey Building,’ which were rented to The T. Eaton Company, Limited, as a part of its mercantile establishment in the City of Edmonton.
(2) The said company had during years prior to 1931 set aside out of rentals received from The T. Eaton Company, Limited, for the use of the said buildings an amount equivalent to the depreciation on the said buildings allowed by the Income Tax Department of the Federal Government, which was the only authority levying income tax at that time.
“(3) On the 17th day of January, 1931, the company having
then on hand certain moneys which had been set aside out of rentals received during the year 1930 for depreciation on these buildings as aforesaid, decided that it would not require the said moneys immediately and distributed it in specie amongst the shareholders of the said company, the resolution providing for the distribution referring to it as a ‘depreciation dividend.’ The share paid to the said James Ramsey of this depreciation fund amounted to $1,904.99.”
Section 19 subsee. L. of the Companies Act 1929, Alberta, ch. 14, gives the company power to ‘‘distribute any of the property of the Company among the members in specie, ’ ‛ but the company did not take the necessary legal steps to reduce its capital.
The sum of $1,904.99 was derived from income. It was deposited in the company’s bank account until it was disbursed as a “depreciation dividend.’’ Entries were made in the company’s books and statements showing that the buildings were worth less than the original book values and that a depreciation reserve was set up to offset this loss.
Mr. Auxier points out that the company could not have increased its capital so as to capitalize this reserve as suggested in Re Bates, [1928] Ch. 682, and Hill v. Permanent Trustee Co., [1930] A.C. 720, where the reserve came from a capital profit. This is correct. The company could however have invested the reserve so as to maintain it as capital. It was sound financing to make the bookkeeping entries to set up the reserve but neither such entries nor the styling of the dividend as a "depreciation dividend’’ turned income into capital. Only the investment and maintenance of the reserve fund could do this. The company had the privilege and the duty of setting up the reserve for depreciation, but when the company elected to disestablish the depreciation reserve and distribute it the accumulated income forming the fund was and could only legally be distributed as income.
Counsel for the respondent relies on Re Bates (supra), a decision of Mr. Justice Eve, a decision of the Privy Council, and two decisions of the members of the Exchequer Court of Canada, Eve, J., said :
"‘In the state of affairs it was a fund which the company could treat as available for dividend and could distribute as profits, or having regard to its power to increase capital could apply to that purpose by, for example, increasing the capital, declaring a bonus and at the same time allotting to each shareholder shares in the capital of the company paid up to an amount equivalent to his proportion of the bonus so declared. Unless and until the fund was in fact capitalized it retained its characteristics of a distributable profit . . . No change in the character of the fund was brought about by the company ‘s expressed intention to distribute it as capital. It remained an uncapitalized surplus available for distribution, either as dividend or bonus on the shares, or as a special division of an ascertained profit . . . and in the hands of those who received it, it retained the same characteristics.”
In Hill v. Permanent Trust Company, [1930] A.C. 720, Lord Russell of Killowen (p. 731) :
‘A limited company not in liquidation can make no payment by way of return of capital to its shareholders except as a step in an authorized reduction of capital . . . Whether the payment is called ‘dividend’ or ‘bonus’ or any other name, it still must remain a payment on division of profits.
“Moneys so paid to a shareholder will (if he be a trustee) prima facie belong to the person beneficially entitled to the income of the trust estate . . . No statement by the company or its officers that moneys which are being paid away to shareholders out of profits are capital, or are to be treated as capital, ean have any ‘effect upon the rights of the beneficiaries under a trust instrument which comprises shares in the company’.”
In Northern Securities v. The King, [1935] C.T.C.; [1936] 1 D.L.R. 65, Maclean, J., said at p. 73 :
“But while this provision of the Companies Act permitted the company to pay a ‘dividend’ even if it impaired capital, that does not make the payment of the ‘dividend’ a distribution of capital, which might have been done by reducing the capital of the company, if the company had acquired the power to do so . . . The exception, as to the payment of dividends, in favour of mining companies where capital is impaired, does not give a new characteristic to the dividend paid ; it is like any other dividend and is not a return of capital. It seems to me that the reserve funds in question here, built up from profits earned from the operations of the company, could be treated by the company, and were treated by the company, as a fund available for dividend, and they could and did distribute the same, or a portion thereof, as profits derived from the operations of the company. Accordingly, I am of the opinion that the dividends here paid were not distributions of capital but distributions of profits derived from the operations of the company and therefore taxable as income received as dividends under the particular provisions of the statute here in question.”
In McConkey v. Minister of National Revenue, [1937] C.T.C.; [1938] 1 D.L.R. 657, Angers, J., said at p. 676:
‘‘The cases cited are not identical with the present one . . - It will suffice to note that they lay down categorically the following principles by which I feel I must be governed: that until a reserve fund is effectively capitalized it retains the characteristics of distributable profits; that a corporation not in liquidation can make no payment to its shareholders by way of return of capital except as a step in an authorized reduction of capital and that any other payment made to its shareholders can only be made by way of dividing profits. ’ ’
Counsel for the appellants suggests that this case is distinguishable from the foregoing decisions on the following grounds, viz. :
1. The two English decisions are not taxation cases, but disputes between life tenants and remaindermen where there is no question of statutory interpretation. The principles laid down in the English cases however as to what is income and what is corpus are properly applied to the taxation and interpretation of statutes in the two Canadian cases.
2. That in the Canadian cases the companies in question had no power similar to the power implied by sec. (19) L of the Companies Act, 1929, Alberta Ch. 14, viz., to ‘‘distribute any of the property of the company among the members in specie. ‘ ’ But the company in the McConkey ease was also an Alberta Company. This power is necessary in order to reduce capital and if it is absent the memorandum of association is sometimes amended to include it, but it cannot be exercised except as set out in the Act, viz., by a special resolution confirmed by the Court.
3. The cases dealing with the power of a company to declare dividends without making provision for depreciation of fixed assets apply to assets of a "wasting’’ nature such as mines, quarries or patents and the Ramsey Company owned only improved real estate. I cannot see that the invalidity of the alleged dividend in this ease is a proper ground of distinction. Directors who declare a dividend improperly cannot be in any better position than if the dividend was regular.
I follow these decisions and find the dividend of $1,904.99 is a division of income and taxable.
The sum of $448.55 claimed by the deceased as travelling expenses I quote the following from the statement of facts.
(1) During the year 1931, James Ramsey was a Director of Canadian National Railways.
(2) During the said year, while on a combined business and pleasure trip to the Orient, he received notice requiring him to attend a meeting of the Directors of the Canadian National Railways in Montreal. He consequently travelled from Shanghai to Montreal to attend this meeting, and following the said meeting was obliged to return to Shanghai in order to complete the business that he left unfinished there.
(3) Mr. Ramsey received from the Canadian National Railways during the year 1931 as Director’s fees the sum of $528.00, and he claimd to be entitled to deduct therefrom the sum of $448.55, being the cost of travelling from Shanghai to Montreal in cornection with the business of Canadian National Railways.
Section 5 of The Income Tax Act in 1931 was in part as follows :
4(5. (1) ‘Income' as hereinafter defined shall for the purposes
of this Act be subject to the following exemptions and deductions.
(f) Travelling expenses, including the entire amount expended for meals and lodging while away from home in the pursuit of a trade or business.
Section 6 was in part as follows :—
^6. In computing the amount of the profits or gains to be assessed
a deduction shall not be allowed in respect of
(a) disbursements or expenses not wholly, exclusively and necessarily laid out or expended for the purpose of earning the income.”
The corresponding rule made under the English Act uses the words "the expenses of travelling in the performance of his duties. ‘ ‘
In Ricketts v. Colquhoun, [1926] A.C. 1, 42 T.L.R. 66, the taxpayer held the office of Recorder in Portsmouth and lived in London, so that it was necessary for him to travel to Portsmouth. The Court held his expenses were not deductible. Cave (Lord Chancellor) said at page 66 (T.L.R.) :
"They (the expenses) are incurred not because the appellant holds the office of Recorder of Portsmouth, but because living and practising away from Portsmouth he must travel to that place before he can begin to perform his duties as Recorder, and having concluded those duties, desires to return to his home. They are incurred, not in the course of performing those duties but partly before he enters on them and partly after he has fulfilled them.’’
In Cook v. Knott, 4 The Times L.R. 164, Pollock, C.B., said ;
‘“The exemption is claimed upon the ground that this £15 was expended in travelling in the performance of the duties of a " public office or employment where the person exercising the same 18 necessarily obliged to incur and defray out of the salary, fees, or emoluments of such office or employment the expenses of travelling. ‘ It cannot be said his travelling from the place where he lives, whether near or far, to the place where he has to discharge his duties, is a travelling in the performance of those duties.”
In Minister of National Revenue v. Dominion Natural Gas Co., ante page 144, Duff, C.J.C., says at page 158 :—
"" . . . In order to fall within the category ‘disbursements or expenses wholly, exclusively and necessarily laid out or expended for the purpose of earning the income’ expenses must I think be working expenses; that is to say, expenses incurred in the process of earning the ‘income’.”
The authorities show that expenses such as are in question here are not ‘‘the expenses of travelling in the performance of his duties’’, or “expenses wholly, exclusively or necessarily laid out or expended for the purpose of earning the income. ’ ’
Then were the expenses here ‘‘expended . . . while away from home in the pursuit of a trade or business’’? I hold they were not. James Ramsey was not away from Edmonton in pursuit of his trade or business as a director of the C.N.R. In my view, the section refers to expenses such as those of a commercial traveller.
I dismiss the appeal, with costs.