Aluminum Company of Canada Limited v. Corporation of the City of Toronto, [1944] CTC 1

ROBERTSON C.J.O.:—This is an appeal from the order of the Ontario Municipal Board, dated January 4, 1943, whereby it allowed the appeal of the present respondent from the decision of Judge Parker, Judge of the County Court of the County of York, dated November 20, 1941, and ordered that the taxable income of the present appellant for the year 1940 be increased from $9,127 to $1,811,806. An alternative claim of the present respondent that an additional amount of $16,901,679 should be added to the taxable income of the appellant for the year 1940, was dismissed by the Board, and there has been no appeal by the municipality from the dismissal of that alternative claim.

The appellant is incorporated by Letters Patent issued under the Companies Act (Dom.). Its nominal head office is at certain offices in the Canada Life Building on University Ave., in Toronto. The appellant has also, in Toronto, manufacturing premises situated on Sterling Rd. The latter premises are assessed to the appellant, and it is also assessed as a manufacturer carrying on business as such on the Sterling Rd. premises, for a sum by way of business assessment, under s. 8 of the Assess- ment Act, R.S.O. 1937, c. 272.

The appellant made an income return, in which it disclosed total income of a sum in excess of $15,000,000, and claimed exemption in respect of all of it but $9,127.18. On being required to give certain particulars of the income in respect of which it claimed exemption, it gave a statement showing as income from ‘‘subsidiary companies’’ the following particulars: Interest on money advanced by Aluminum Co. of

Canada Ltd. for the necessary operation of this subsidiary to cover the amount of which ($1,330,- 000.) bonds were issued by the subsidiary to

Aluminum Co. of Canada Ltd. 93,100.00

It is in respect of these items, totalling $1,985,580.89, but reduced by certain adjustments and deductions that are not disputed, to $1,802,678.82, that the present appeal relates. Appellant, having been assessed for the income it had received from its "‘subsidiary companies,” carried an appeal from that assessment to the County Judge, who allowed the appeal. The Ontario Municipal Board, on appeal by the municipality, restored the assessment. The question in dispute is whether the appellant is properly assessable for this income under s. 9(1) of the Assessment Act. Section 9 provides in s-s. (1), as follows:

"‘9 (1) 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;

"‘(b) 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 neat question would appear to be whether the income of the appellant here in question is ‘‘income not derived from the business in respect of which it is assessable” under s. 8. In some of its aspects this is, no doubt, a question of fact, in respect of which an appeal does not lie to this Court under s. 84(6) of the Assessment Act. Re Toronto v. Famous Players Can. Corp., [1935], 3 D.L.R. 327, O.R. 314; [1936], 2 D.L.R. 129, S.C.R. 141. As presented in argument, however, the appeal would seem to involve also the question of the proper interpretation of s. 9 of the Assessment Act, and, therefore, to be one that this Court may entertain. Rogers Majestic Corporation Ltd. and Toronto, [1942] C.T.C. 239; [1943] C.T.C. 216.

While it is not at all a determining circumstance, it should be stated that the operations carried on by appellant at its premises on Sterling Rd. in Toronto, are not by any means all the manufacturing operations, nor the only kind of manufacturing operations, carried on by the appellant in its own name and in every sense its business. At Sterling Rd., appellant converts into sheet aluminum, aluminum foil and aluminum castings, material that is brought there in the form of aluminum ingots, from appellant’s works at Arvida, in the Province of Quebec. Appellant has at Kingston, Ont., a large manufacturing plant that carries on operations similar to those of the Sterling Rd. plant. A much greater part of appellant’s business, carried on in its own name, and its business in every proper sense, is in the Province of Quebec. It is in the latter Province that appellant receives the bauxite from which its aluminum is developed, and it is there that the aluminum ingots are produced. It is estimated that 95% of this product is exported in that form, and that only 5% of it is sent on to the two Ontario plants for further fabrication. It is not disputed (so far as the present appeal is concerned) that, in the interpretation of clause (&) of s-s. (1) of s. 9, all of these manufacturing processes carried on by the appellant in Quebec, as well as in Ontario, come within the description of ‘‘the business in respect of which it is assessable ’ ’ under s. 8, although only a minor part of the premises used in that business is within Ontario, and assessable there for business tax. That question was, no doubt, involved in the appeal to the Municipal Board, but was decided against the city, and there has been no appeal to this Court in regard to it, although it is a question about which there may well be difference of opinion.

To develop the question raised on this appeal, it will be necessary to give separately, as to each of the five "‘subsidiary companies” some description of them, and of the businesses that they respectively carry on. As to all of them, however, there is this in common, that appellant’s income derived from them is in the form of dividends upon shares held by appellant in the subsidiary, or interest upon money advanced by appellant to the subsidiary.

Demerara Bauxite Co. Ltd. is much the largest contributor to appellant’s income, of the four companies contributing. It is Incorporated under the laws of British Guiana, and its head office is in the City of Georgetown, in British Guiana. This company holds in its own name, under lease, in the one case, from the officer administering the Government of British Guiana in the name and on behalf of His Majesty the King, and in the other, from the Commissioner of Lands and Mines of the Colony, certain lands in the County of Demerara on which there are deposits of bauxite. The lands in the first-mentioned lease are Crown lands, and the lands in the second, are Colony lands. The terms of the leases appear to be identical, so far, at least, as the matters hereinafter referred to are concerned. ‘The lease in each ease is for 99 years, and is declared to be made for the purpose of taking bauxite from the lands. In addition to a small fixed rental of so much per acre, the company is required to pay a royalty for all bauxite taken from the property and exported from the Colony. The leases require that at all times the lessee is to be and remain a British company, registered in Great Britain or a British Colony, and having its principal place of business within His Majesty’s Dominions, and that a majority of the company’s directors shall be at all times British subjects. The lessee is restricted in assigning, sub-letting or parting with possession of the demised lands without the consent of the Governor of the Colony, and there are numerous provisions designed to assure the British character of the lessee, and that the output of the mine will be available in war, or other emergency, for the purposes directed by the Governor of the Colony. The lessee further covenants as to the manner in which it will conduct its operations on the leased property. Failure to observe the terms of the lease may result in its termination by the Governor of the Colony.

A further important provision of the leases is a covenant by the lessee, Demerara Bauxite Co., that within seven years from the date of execution of the lease, the Northern Aluminum Co. Ltd. (then, the name of appellant), or some other company or firm approved by the Governor in writing, shall construct in Great Britain, or a British Colony, a plant for refining bauxite into aluminum of sufficient capacity to produce 50,000 pounds daily of anhydrous alumina.

Demerara Bauxite Co. was formed pursuant to the terms of an agreement made between the Crown Agents for the Colonies in London, acting for and on behalf of the Colony of British Guiana, of the one part, and the appellant, the Republic Mining and Mfg. Co., a corporation of the State of Georgia, the Merrimac Chemical Co. of Boston, Mass., the Aluminum Co. of America, of Pittsburgh, George Bain Mackenzie, of Little Rock, Arkansas, and Donald Fraser Campbell, of London, all of whom are included in the term "‘the applicants’’, of the other part. This agreement provides for the applicants procuring the formation of a company registered in Great Britain or a British Colony, with the object, amongst others, of the acceptance and fulfilment of the obligations of the lease as set out in the schedule to the agreement. The agreement, among other things, provides that the Memorandum and Articles of Association of the said company shall provide that the company shall at all times be and remain a British company, registered in Great Britain or a British Colony, and having its principal place of business within His Majesty’s Dominions, and that a majority of the directors of the company, including the chairman, shall be British subjects. The agreement then provides for the granting of a lease to the company to be formed, in the terms set out in the schedule. There are other provisions in the agreement, but I think they are of no important significance for the present purpose.

The appellant is the holder of all the capital stock of the Demerara Bauxite Co., with the possible exception of the directors’ qualifying shares, in regard to which counsel for the appellant was not definitely instructed. Some of the directors of the Bauxite Co. are also members of the appellant’s Board of Directors, but not a majority of them. The appellant exercises a large degree of supervision of the business and mining operations of the Bauxite Co., and, in normal times, is the principal buyer of its output. During the war the Bauxite Co. has been under a good deal of Government control as to the distribution of its output, and considerable quantities of it have gone, by direction of the Government, elsewhere than to appellant. For such bauxite as appellant has had, from the Bauxite Co., during the war, as well as before it, appellant has been charged at what is termed "‘the World’s Market Price.’’ The dealings in this respect are carried out as between buyer and seller.

There is no information on the record before us to explain what, if any, arrangements or relations exist between appellant and the other applicants who joined with appellant in making the agreement for lease with the Crown Agents for the Colonies, nor does it appear to whom the aluminum ingots go, that appellant exports and that form 95% of its output of that material.

I have set forth in some detail this account of the formation of Demerara Bauxite Co., and of the leases under which it operates, and of the relations it has with appellant, because it appears to me to be quite out of the question, in the light of all that I have set out, to regard the mining business carried on in British Guiana under the leases referred to, otherwise than as the business of the Demerara Bauxite Co. Great care was taken, both in the agreement for the leases and in the leases themselves, to stipulate certain matters, with the intent on the part of the lessors of assuring that the leases should be made with, and be held by, a British company governed by directors, the majority of whom should be British. Demerara Bauxite Co. was formed to fit in with these stipulations, and to be a proper holder of the leases. Having been granted the leases in that character, it is bound not to assign or sublet, nor to part with possession of the lands demised, without consent of the Governor of the Colony. To comply with the terms of the leases under which the mining lands are held and worked, it is essential that the identity and the character of the lessee in the particulars stipulated for, should be preserved. The Demerara Bauxite Co. must be the real holder of the lands under lease to it, and must itself carry on the mining operations. The appellant’s contention that the mining business is really its business, if adopted, would avoid all these carefully made and stringent provisions by the simple device of its becoming the holder of the shares of the Bauxite Co. In my opinion the stipulations of the agreement for lease, and of the leases themselves, are such that the Demerara Bauxite Co., while it continues to be the lessee, cannot be other than the holder of the leases in its own right, and the operator of the mines and the owner of their output. Appellant may properly enjoy the substantial advantages of being the principal shareholder, and, in ordinary times, of being the chief purchaser of the output of the Bauxite Co., but, under the terms of the leases on which the lands are held, and the bauxite is recovered from them, the Bauxite Co., or its assigns, with the stipulated consent, must be the real holder of the leases, and it alone is entitled to carry on operations. This is of the essence of the undisputed evidence and exhibits upon which the judgment of the Board is based.

It will be convenient to deal next with Sprostons Ltd.

The mining properties of the Demerara Bauxite Co. are on the Demerara River, some 75 miles from Georgetown, where the ore from the mines is loaded on ocean-going ships for transportation to a port on the St. Lawrence River, in Quebec.

Sprostons Ltd. is a company incorporated under the laws of British Guiana, and it held, even before appellant became concerned in it, a franchise for the river transportation necessary for appellant’s purpose, and had also a short railway to other territory where it was believed that bauxite was to be found. The appellant had nothing to do with the incorporation of this company, but has bought in all its shares. The principal business of Sprostons Ltd. is the carrying of the bauxite from the mines to Georgetown, and, no doubt, the carrying of supplies to the mining camp. We are informed, however, by appellant’s counsel that Sprostons Ltd. is a common carrier, and if there are other goods for transportation, it will carry them, and will also carry passengers. As in the case of the mining company, appellant has a representative on the Board of Sprostons Ltd. The operations of Sprostons Ltd. are carried on under its own corporate powers and in its own name, and appellant is charged for any service it is given as others are.

Saguenay Terminals Ltd. is a Quebec company which also was in existence before appellant had any connection with it. It had beach lots and under-water lots, on which a wharf had been erected. This was a convenient place at which to unload the bauxite that had been carried by ship from Georgetown in British Guiana on its way to appellant’s refinery at Arvida, Quebec. The appellant now holds all the shares of this company, and has improved and enlarged its facilities for receiving the ore and putting it in railway cars for further transport. The appellant has certain of the members of its own Board of Directors on the Board of this company, and pays for the service it is given.

Saguenay Terminals Ltd. also owns certain ocean-going ships which, with other ships that it has under charter, are employed in transporting bauxite from British Guiana to its wharves in Quebec.

The Roberval & Saguenay Railway Co. was also an existing company, incorporated by statute in the Province of Quebec, before the appellant was interested in it. The appellant now holds all its issued shares. The company owns and operates about 25 miles of railway line. This company is also a common carrier, but mainly its business is the transportation of appellant’s bauxite from the wharves of Saguenay Terminals to Arvida for which service appellant is charged as others are. Two members of appellant’s Board of Directors are members of the Board of this company. The construction or working of railways is expressly excepted from the powers of appellant under its letters patent.

The remaining subsidiary company is Saguenay Power Co. Ltd., the second largest contributor to the income in question. This Company develops hydro-electric power at points convenient for transmission to appellant’s refinery at Arvida, Quebec. The appellant, however, owns only a little more than one-half of the issued capital stock of the Power Co. and the Power Co. has other customers to whom substantial quantities of electric power are supplied. The ability to obtain electric power in large quantities and at low cost is said to be the substantial reason for the location in Canada of appellant’s works at Arvida. Nearly all of appellant’s raw materials are imported, and 95 per cent. of its out-put is exported.

The appellant, no doubt, exercises a large measure of control over the manner in which the several other companies in question carry on their operations, and no doubt the operations of these other companies are carried on in a way to facilitate the operations of the appellant, and, mainly, for its purposes. In the case of, at least, some of the subsidiary companies, their operations are managed at the administration offices of the appellant in Montreal. The income, however, now in question, except in so far as it is in the nature of interest on advances made, or on moneys expended by the appellant for the subsid- lary, comes in the way of dividends declared on the shares held by the appellant in the respective companies, and paid from their net earnings—dividends exactly such as the holder of one share would receive, in proportion.

I have, earlier in this judgment, stated certain facts that have particular reference to the case of the Demerara Bauxite Co. In the case of each of thea companies in question, however, there is, aS in the case of that company, a separate corporate entity for the carrying on of its particular business. There is a board of directors in the case of each company, in whom is vested the management of the company’s affairs. The properties of one kind and another held for the purposes of the business of each company are the property of that company. The revenues of each individual company, and the debts and obligations it incurs in its business are the revenues and the debts and obligations of that individual company. Even in such business dealings as there are between the appellant and the other companies in question, including the advancing of money by appellant, the relations that are observed are such as are usual and proper between two separate and distinct persons or entities.

In my opinion, the Municipal Board was right in holding that the income in question is not, on any legitimate construction of s. 9 of the Assessment Act, income derived from the business of the appellant. It may be true, that, in a broad sense, the operations of all these companies, beginning with the operations of the mining company, are directed to one end, that is, the production of aluminum from bauxite recovered from the properties leased to the Demerara Bauxite Co., and that, therefore, the ownership of the shares, or of the controlling shares, of the several companies concerned, gave the appellant, at one stage or another of this whole enterprise, a large measure of control of the operations of all these companies, so that they are devoted to appellant’s service, and, ultimately, it received in the form of dividends, any profits that were earned.

In my opinion, all this is foreign to the construction of this taxing statute. As was said in a passage, often quoted, from the judgment of Lord Cairns in Partington v. Attorney-General (1869), L.R. 4 H.L. 100 at p. 122:—

‘ " I am not at all sure that, in a case of this kind—a fiscal case —form is not amply sufficient ; because, as I understand the principle of all fiscal legislation, it is this: if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called a equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute. ‘ ‘

In Tennant v. Smith, [1892] A.C. 150 at p. 154, Lord Hals- bury said, "‘In a taxing Act it is impossible, I believe, to assume any intention, any governing purpose in the Act, except take such tax as the statute imposes.’’

Clause (b) of s-s. (1) of s. 9 of the Assessment Act says plainly enough that "‘the business’’ to which it refers is one in respect of which the corporation is assessable under s. 8. The persons who are assessable under s. 8 are the persons carrying on business as set forth in the several clauses of s-s. (1) of s: 8. The section expressly recognizes that one person may carry on more than one kind of business (see s-ss. (3) (4) (5) and (12)), and it makes provision for such cases. There is nothing whatever in the statute that warrants including in "‘the business’’ that clause

(&) of s. 9 refers to, a business in fact carried on by another corporation.

The Board has found that in each case the ‘‘subsidiary company ’ ’ carries on the business from which the income is derived, as set forth in appellant’s income return. In my opinion, that is a finding of fact, and it involved no question of law or construction of a statute in respect of which the Board is in error. Neither do I think the Board is in error, either in law or in the construction of the statute, in concluding that the income that appellant received from these several subsidiary companies was not derived, from the business in respect of which appellant was assessable under s. 8 of the Assessment Act. To place the construction for which appellant contends, on the relevant sections of the Assessment Act, would be to read into the statute words that it does not contain, and to impute to the Legislature an intention that it has not expressed, and that cannot fairly be implied from the terms of the statute.

The appeal should be dismissed, with costs.

FISHER, HENDERSON, and KELLOCK J J. A. agreed with Robert- SON C.J.O.

LAIDLAW J.A.:—This is an appeal by The Aluminum Co. of Canada Ltd. from that part of an order of the Ontario Municipal Board, dated January 4, 1943, whereby the taxable income of the Aluminum Co. for the year 1940 is increased from $9,127.00 to $1,811,806.

The question to be decided is whether the appellant company is liable to assessment under s. 9(1) of the Assessment Act, R.S.O. 1937, c. 272, in respect of income received by it by way of dividends on shares of stock in certain other companies, and for interest on money advanced to such companies.

The income in question was received by the appellant company from Demerara Bauxite Co., Sproston’s Ltd., Saguenay Companies Ltd., Roberval and Saguenay Ry. Co. and Saguenay Power Co. The appellant company is the owner of all the issued shares in the companies named, excepting Saguenay Power Co., and is the owner of 5312% of the issued share capital of that company. One or more officers or directors of each of the companies is an officer or director of the Aluminum Co.

It is necessary to examine the nature of the business of the appellant company, and of each of the companies controlled, through share ownership, by it.

The appellant company produces aluminum in the form of crude metal ingots, at its plant at Arvida, Quebec. About 95% of the total output of such metal is sold by the appellant company in that form, and about 5% is used in two plants situate at Kingston and Toronto, Ontario, for making aluminum foil, castings and screw machine products. In my opinion, the business carried on at Arvida, is not the same kind of business as carried on by the Aluminum Co. at Kingston and Toronto. I think that for the purposes of the Assessment Act they must be considered as different classes of business of the same company. At Arvida the business is the treatment and refinement of aluminum ore (dried bauxite) by chemical process and electrolytic smelting. The article produced is crude metal, available to industry for conversion and fabrication into new articles of different name, character and use.

At Sterling Rd. in Toronto the appellant company re-melts the crude metal ingots received from the plant at Arvida, casts slabs, rolls sheets and, as stated by the President of the appellant company, the business there is‘‘to change aluminum ingots into aluminum sheets, aluminum foil, aluminum castings and similar manufactured products. ‘ ‘ He describes the plant as " " a straight manufacturing plant taking rough product and turning it into a finished product. ‘ ‘

There is some doubt in my mind as to whether the business of producing the metal aluminum from the aluminum ore, bauxite, is the business of a manufacturer, within the meaning of the Assessment Act. But it 1s, of course, admitted that the business carried on at the plant of the appellant at Toronto, is the business of a manufacturer. Therefore, the appellant, occupying and using the land for the purpose of that business, is properly subject to business assessment, computed by reference to the assessed value of the land so occupied and used. Assessment Act, s.8(1)(e).

But the income in question was not derived from the business in respect of which the appellant was assessable under s. 8 of the Assessment Act. Such income is, therefore, assessable by virtue of the provisions in s. 9, [quoted supra].

There is no exemption in s. 4 or s. 8 properly applicable to this income.

The appellant argues that the business of each of the companies controlled by it is an integral part of the business of the Aluminum Co.; and that the income received from each and all of the companies is income derived from the business of the appellant. No doubt the ore mined by the Bauxite Company, and the service furnished by the other companies are necessary to the appellant, under present arrangements, for the production of aluminum. In the sense that the appellant must obtain raw material, transport it to the place where its mills are situate, and obtain electrical power to treat and refine it, each of the activities carried on by the respective companies is essential to the conduct of the business of the appellant. If such supply of material and service were not furnished by these particular companies, the appellant would be bound to arrange its business requirements in some other way. But the real question to be considered is whether or not the business of the appellant embraces, as component parts thereof, the business of each of the separate companies. To answer that question it is necessary to examine the nature and character of the business of each of such companies, and the relationship, if any, to the business of the appellant. The Demerara Bauxite Co. mines the ore, moves it to a central point, where it is washed and dried to remove free moisture, and make it ready for shipment. Mr. Powell, one of the directors (and President of the appellant company) says, "‘It is a mining company.’’ I agree. The company does not carry on the business of a manufacturer, and I think its business cannot be properly considered for the purposes of the Assessment Act, as part of the business or undertaking of the appellant.

Sprostons Ltd. and the Roberval and Saguenay Ry. Co. are transportation companies, whose services are used by the appellant to move the ore from British Guiana to the appellant’s mills at Arvida, Quebec. But that fact does not make the business of such companies the business of the appellant, nor can the business of the appellant rightly be said to have as one of its constituent parts, the business of transportation carried on by either or both of these companies.

Saguenay Terminals Ltd. owns and operates terminal facil- ities, and also certain ocean-going ships. But likewise, the business of the appellant does not include the business of Saguenay Terminals as a component part thereof.

Saguenay Power Co., as its name implies, is a company generating and selling hydro-electric power to the public, including the appellant. The final development of the project was no doubt due to activities and assistance of the appellant, but its business is a separate and distinct one from that of the appellant. The appellant is merely a purchaser, on favourable terms, of a large part of the power generated for sale.

The corporate relationship between the appellant and the various named companies may be briefly mentioned. Each company is a corporate entity, separate and distinct from the appellant company. All corporate rights and obligations of each company are independent, and unrelated to one another or to the appellant company. The corporate acts and policy of each company are controllable by the appellant through stock ownership, but the separate businesses and undertakings do not, in consequence, form one and the same business.

Finally, the Ontario Municipal Board, has found ‘ " that neither the facts nor the authorities cited support the arguments that the Aluminum Co. of Canada Ltd. is carrying on a business embracing a chain of development of aluminum from the mine to the consumer. The company is the owner of all the shares in each link (or company) except one, but the shareholders do not carry on the business. Each link (or company) carries on the business.’’ This finding is one of fact, supported by evidence, and without error. I agree with the finding and am not satisfied that there is any sufficient ground upon which it ought to be reversed by this Court. Re Toronto and Famous Players Cana- dian Corporation Limited, [1935] O.R. 314; [1986] S.C.R. 141.

For the reasons given, I think the appeal should be dismissed with costs.

Appeal dismissed.