RIDDELL J.A.:—This is an appeal by the Corporation of the City of Toronto pursuant to the provisions of s. 85(1) of the Assessment Act, R.S.O. 1937, c. 272, by way of case stated by His Honour Ian Macdonell, Judge of the County Court of the County of York.
All the necessary facts are fully set out in Stated Case prepared by His Honour Judge Macdonell of the County Court of the County of York. It reads as follows:
"STATED CASE
Pursuant to the powers conferred by s. 123 of the Assess- ment Act, the Corporation of the City of Toronto enacted Bylaw 14140 dated June 25, 1934, as amended by By-law 14584 dated June 29, 1936, being a By-law respecting taxation of income.
4 The respondent is a company with its head office at 622 Fleet St. West, in the City of Toronto, where it occupies or uses land for the purpose of carrying on its business. It was assessed in the year 1939 for business assessment as a manufacturer under s. 8, para. (e) of the Assessment Act.
"‘It was also entered on the roll of taxable income under s. 123 of the said Act for the year 1940 for taxable income for the sum of $14,625. The respondent admitted that it had a taxable income of $4,125 but disputed its assessment for the balance of $10,500 and appealed to the Court of Revision which confirmed the said assessment. The respondent then appealed and the hearing came on before me at which time the appellant asked me to make a note of any question of law or construction of statute that might arise and to state same in the form of a special case for the Court of Appeal.
" " The amount in dispute is the said sum of $10,500 which was credited to the respondent Company by Rogers Radio Broadcasting Co. Ltd. and received as interest on bonds of the latter Company held by the respondent Company.
"‘Prior to 1934 the respondent Company owned and operated broadcasting station CFRB as part of its business. In that year Rogers Radio Broadcasting Co. Ltd. was incorporated and the respondent Company transferred to the Broadcasting Company certain capital assets including land, buildings and equipment used in eonnection with the operation of the broadcasting branch of the business, The respondent Company received as consideration for such transfer $200,000 in bonds of the Broadcasting Company as well as the entire issued capital stock. At the present time $150,000 of bonds are still held by the respondent Company, the balance having been redeemed.
"‘The Broadcasting Company was incorporated and the bond issue created in order that the respondent Company might have an asset upon which it would borrow money for its purpose and the bonds were used for that reason.
"The Broadcasting Company carried on the business of radio broadcasting thereafter (particularly in the year 1939 which is the year under consideration in this ease) operating radio station CFRB and was assessed for business assessment in respect of the premises occupied by it for this purpose at 37 Bloor St. West, in the City of Toronto, under s. 8, para, (k) of the said Assessment Act.
"The Board of Directors of the Broadcasting Company consists of three of the Directors of the respondent Company and two of the engineers of the Broadcasting Company. The companies have the same President and the same Secretary. Mr. Harry Sedgwick, the Manager of the Broadcasting Company is a director of both companies.
"The income of the Broadcasting Company is derived from the carrying on of the business of a broadcasting station. The books of the Broadcasting Company are kept at the Head Office of the respondent Company and are under the general supervision of the Comptroller of the respondent Company. The bookkeeper for the Broadcasting Company was at the office of the respondent Company, was paid by the respondent Company and a part of her salary charged by journal entry against the Broadcasting Company.
‘‘The broadeasting station is used for the purpose of advancing by advertising the sale of the radio receiving sets of the respondent Company without charge.
"Equipment for the Broadcasting Company in some cases was made by the respondent Company and charged to the Broadcasting Company at cost.
"The interest which is in question was not paid in cash but was charged by the respondent Company to the Broadcasting Company by means of journal entry and was thus received by the respondent Company. The profits of the Broacasting Company were turned over to the respondent Company and treated as an asset of the Broadcasting Company and a liability of the respondent Company.
"The following powers are included in the Letters Patent of the respondent Company dated May 13, 1925:
"(a) To manufacture, sell, lease, purchase, import, export and otherwise dispose of and deal in radio and electrical machines, appliances, accessories and equipment of all kinds;
"(b) To manufacture, sell, lease, purchase, import, export and otherwise dispose of and deal in all kinds of goods and merchandise directly or indirectly connected with or entering into the manufacture, construction and assembling of radio and electrical machines, equipment, accessortes and appliances, or the erection, equipment and operation of radio reception and transmission stations;
«(d) To build, acquire, equip, operate and dispose of radio reception and transmission stations ;
(i) To purchase, take or acquire by original subscription, or otherwise, and to hold, sell or otherwise dispose of shares, stock, debentures and other obligations in and of any other company and to vote all shares so held through such agent or agents as the directors may from time to time appoint.
« “ The respondent Company occupies three premises, one at 622 Fleet St. West, one at the Crosse and Blackwell plant on Fleet St. and one in a building on Hanna St., at all of which it is assessed for 60% of the value of the land occupied by it as a manufacturer. It manufactures radios, radio parts and equipment, electric refrigerators and similar products. Its income is derived from the sale of these products through a large jobber organization across Canada. The annual financial statements of the two companies indicate that both carry on a substantial business. In the year 1939 the Broadcasting Company had a net operating profit of $126,621.09 and the consolidated statement of the respondent Company and its subsidiaries shows a net operating profit of $101,308.26.
"‘DECISION.
"‘Upon these facts, I decided the said sum of $10,500 was not taxable and allowed the appeal reducing the assessment to $4125.
REASONS FOR MY DECISION.
11 Counsel for the appellant contended that because there were two corporations, each liable for business tax, carrying on separate businesses, the said sum of $10,500 received by the respondent Company from the Broadcasting Company as interest on bonds of the Broadcasting Company could not be income derived by it from the business in respect of which it was assessable under s. 8. He claimed that upon the proper construction of the said s. 9(1) (b) the amount was assessable. I disagreed with this contention whereupon counsel asked that I submit this question of law for the opinion of the Court of Appeal. Upon my construction of the statute I considered that I should find as a fact that the said sum was received as income derived from the business of the respondent Company and was not assessable.
"QUESTION.
"‘Upon a true construction of the Assessment Act, particularly s. 9(1) (b), was I right in deciding that the said sum of $10,500 did not form part of the taxable income of the respondent Company in the year 1940?
« Dated at Toronto this 29th day of October, A.D. 1942.
"I. M. Macdonell
"‘Judge of the County Court of the County
of York.’’
The respondent contends that the appeal is on facts and not on law. The result being the same however the appeal is looked upon,—I do not think it necessary to discuss this question at any length, the result in my opinion is the same whatever view we take of the case.
I content myself with saying that whatever view be taken in other cases here the facts being clear, and the sole question being the application to these facts of the provisions of a statute the sole question is one of law.
But I entirely agree with the conclusion of the learned County Judge and would so declare, the appellant to pay the costs.
FisHer J.A.:—This is a stated case submitted by His Honour Judge Ian Macdonell, one of the Judges of the County Court of the County of York, for the opinion of this Court.
The income assessed, and the subject of this appeal has its origin in bonds of $200,000 issued by the Broadcasting Corporation, hereafter referred to as B.C., and by it delivered to the respondent in consideration of the sale or transfer by that company to the B.C. if the lands, buildings and equipment formerly used by the respondent in connection with its business. The appellant assessed the income from the bonds under s. 9(1)(b) R.S.O. 1937, c. 272. That section reads: ‘‘every corporation although liable to business assessment under section 8 shall also be assessed in respect of any income not derived from the business in respect of which it is assessable under that section. ‘ ‘
The learned Judge was of opinion, and found, that the income received by the respondent on these bonds was derived from the business of that company as manufacturer and was not taxable. This appeal followed, and counsel for the respondent in support of the findings of the Judge contended that by reason of the fact that the respondent owned the capital stock of the B.C. used the facilities of that company to advertise its products and because these were interlocking directorates and the bookkeeping of the B.C. was done at the head office of the respondent that business of the B.C. is and was part of the business of the respondent, and therefore the respondent being assessed for business tax under s. 8 the income from the bonds was not taxable under s. 9(1) (6).
On the facts and the construction of ss. 8 and 9(1) (b), I am unable to agree with the contention. The B.C. and the respondent are two separate incorporated entities, carrying on distinct and different types of business in open competition with all others carrying on a business of a similar character. The respondent company, as found by the County Judge, was carrying on business as manufacturers of radios, electric refrigerators and other like products at three different premises in Toronto, and the other, the B.C., also found by the trial Judge as carrying on its broadcasting business at 37 Bloor St. West, Toronto.
The main question for determination is: was the income from these. bonds derived from the business of the respondent as manufacturer, or was it income derived from an independent source ?
The learned Judge found, as stated, that the income received by the respondent on these bonds was derived from the business of that company as a manufacturer. With respect, I am not able to agree with that finding. The income in the first place was earned in and from the operation of the business of the B.C. and the payment of the income by that company to the respondent was in discharge of the interest due on these bonds and was not income derived from its manufacturing business. It was all income from an independent source.
To my mind it might just as well be argued that if the B.C. had in payment for the assets of the respondent company delivered bonds of some other corporation, that the interest received on these bonds could be held to be income derived by the respondent company in carrying on its business as manufacturer. The word ‘ " business ‘ ‘ found in s. 9(1)(b) means business carried on by the respondent company and assessable for business and not income tax.
It is argued that the question for determination here, or the right of appeal, is the same as that raised in Toronto v. Famous Players Can. Corp., [1935] 3 D.L.R. 327, O.R. 314, and that consequently the question is one of fact and therefore, as was held in that case, no appeal lies. In that case Masten J.A., with whom the majority of the Court agreed, said at pp. 328-9 D.L.R., p. 325 O.R.:
"‘A determination of the nature of the respondent’s business is prima facie a question of fact. Cireumstances may exist where it involves a question of law, but here it seems to me to depend on’whether the various subsidiary corporations are independent personalities, or are mere agents controlled as such by the respondent company for the carrying on of its own business. That appears to me to be a question dependent solely on the facts adduced in evidence.’’
In this case it seems to me that the circumstances are such that the question involved here in determining the true relationship between the manufacturing company and its subsidiary company, the broadcasting company, is a question of the proper legal conclusion from the facts as found by the learned County Judge, and is therefore at the least a mixed question of law and fact. No doubt the broadcasting company is in a sense the agent for the manufacturing or parent company. But the question goes further than that; it is a question whether the broadcasting company is an agent for the manufacturing company for the carrying on of the business in respect of which the manufacturing company is assessed for business tax. The facts show that the subsidiary is an agent for carrying on a subsidiary or separate business which the manufacturing company finds it is more convenient to separate from its own business,—the business on which it is assessed for business tax— and carry on through an agent. Part, no doubt, of the broadcasting company’s business is the advertising of the parent company’s wares and merchandise, but by far the greater part of its business is an entirely independent business, and it is from that part of its business that it derives the profits out of which the interest on the bonds is paid.
The question of whether the subsidiary company is an agent for the parent company is, under the ruling of Masten J.A. in the Famous Players case, a question of fact, but the nature of the agency is a question of law. Here the nature of the agency must be held to be an agency for the carrying on of a separate business from that of the parent company, and once that conclusion is reached it becomes apparent that income derived by the parent company in any manner whatsoever from that agency is not income derived from the business for which the parent company is assessed for business tax. In the words of s. 9(1)(b) of the Assessment Act, therefore, the appellant ‘‘although liable to business assessment under section 8 shall also be assessed in respect of’’ this particular ‘‘income not derived from the business in respect of which it is assessable under that section.’’
For these reasons I would allow the appeal with costs.
MCTAGUE J.A.:—I have read the reasons of my brothers, Riddell and Fisher, and agree with my brother Fisher in the result. The reasons of my brother Riddell set out the statement of the case by the learned County Court Judge in detail, so that I feel there is no necessity for me to enlarge upon the problem on which advice is sought.
It seems to me that the result must be determined in general on the long established principle set forth in Salomon v. Salomon & Co., [1897] A.C. 22.
The respondent is a corporation carrying on the business of manufacturing, and is assessed for business tax on that basis. It formerly owned and operated a radio broadcasting station C.F.R.B. in Toronto, and in its letters patent is still retained the power to operate radio broadcasting stations. However, in 1934, Rogers Radio Broadcasting Co. Ltd. was incorporated and acquired the assets of the respondent used in connection with its broadcasting business. I do not think it makes any difference that the respondent owns the capital stock of the Broadcasting Company or that it owns all of its outstanding bonds, or that there are interlocking boards of directors, or that its accounting is done by the parent Company. The Broadcasting Company in fact carries on the business of broadcasting, and the respondent in fact carries on the business of manufacturing. This being the case, it seems to me that the interest on the bonds of the Broadcasting Company is income in the hands of the respondent not derived from the business in respect of which it is assessable for business tax.
The respondent contended that no appeal could lie to us, the question being one of fact, and relied on the Famous Players case [1935], 3 D.L.R. 327, O.R. 314, and the International Metal Industries ease [1940], 3 D.L.R. 50, O.R. 271. An examination of the question propounded to us clearly shows that whether the section was properly construed or not is an integral part of the question submitted—surely a matter of law.
Accordingly I would join with my brother Fisher in allowing the appeal. The question should be answered in the negative.
Appeal allowed.