Provincial Treasurer of Manitoba v. William Wrigley (Jnr.) Company, Limited, [1945] CTC 299

MCPHERSON, C.J.M.:—The respondent company was incorporated under the Dominion Companies Act and is licensed to do business in Manitoba. Its head office is in the Province of Ontario, in which province the manufacture of its product (chewing gum) is carried on. The company maintains a branch office and warehouse in the Province of Manitoba. Its Winnipeg

office handles all sales of the company’s product in the three prairie provinces, and for the purpose of carrying on its business the company ships its products in carload lots from Ontario to Manitoba, where it is stored and distributed as sold. All sales have to be approved by the head office and in most cases payment for goods sold is made direct to that office. The company keeps a separate record in the Manitoba branch office of all business done in the three western provinces.

The Province of Manitoba, in accordance with the Income Taxation Act, c. 209 of the Revised Statutes of Manitoba, 1940, and amending Acts, assessed the respondent in respect of the taxation periods 1936-1939 (inclusive), and an appeal was made by the respondent to the Provincial Treasurer of Manitoba, who affirmed such assessments. An appeal was thereupon heard in the Court of King’s Bench by Mr. Justice Major, who set aside the order of the Minister affirming the said assessments and referred the matter back to the Minister to make the assessments in accordance with the terms set forth in a judgment entered on June 11, 1943. The Provincial Treasurer now appeals to this Court to set aside the order of Mr. Justice Major entered on the said date.

The question was originally raised as to whether the respondent company was carrying on business in Manitoba, and numerous authorities were submitted in support of the appellant’s contention that the company did carry on business in the Province within the meaning of the Act. Counsel for the respondent, on argument, quite properly admitted that the company was carrying on business in Manitoba, and it is therefore unnecessary to consider that point. The general method by which the company carries on business is referred to above, but there are these additional important facts:

The respondent company, when it ships goods from Ontario to its branch office in Manitoba, charges said office with the cost of such goods at a fixed basic rate of 28-cents per unit. The actual costs of manufacturing the goods during the years 1936 to 1939 (inc.) were respectively .19180, 19860, 121630, and .22230. , The difference between actual cost and the 28-cents per unit

with which the Manitoba branch is charged represents a profit for manufacturing.

The matter in dispute is very simple. It is admitted that the respondent is liable for taxation under the Manitoba Income Taxation Act and the points at issue between the parties are

(1) The appellant contends that the Manitoba branch should be charged with the actual cost of manufacturing the commodity in each year and that, after adding expenses incurred in Manitoba and the freight costs from Toronto on goods shipped to Manitoba, the profit from the sale of such goods is the amount liable for taxation in Manitoba.

(2) The respondent contends that the company is entitled to an allowance as profit on the actual cost of manufacture in Ontario and that it is entitled to charge the Manitoba branch at the rate of 28-cents per unit in accordance with its practice.

(3) The appellant further contends that it is not a case for apportionment of profits, and that the formula adopted—or any formula for apportioning profits—should not be applied in determining the tax payable by the respondent in respect of its sales made in Manitoba.

The right of the appellant to levy any tax is governed by the Income Taxation Act, ce. 209, R.S.M.. 1940. As mentioned, the period for which assessments were made were the years 1936- 1939 (inc.), and although there were amendments and changes in the Act from time to time during such period, they do not effect the questions in dispute on this appeal.

The sections of the said Act referred to on the argument by counsel as being applicable are as follows :

4 9. (1) There shall be assessed, levied and paid upon the income during the preceding year of every person

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"‘(d) who, not being resident in Manitoba, is carrying on business in Manitoba during such year;’’

" ‘23. Where any corporation carrying on business in Manitoba purchases any commodity from a parent, subsidiary, or associated corporation at a price in excess of the fair market price, or where it sells any commodity to such a corporation at a price less than the fair market price, the minister may, for the purpose of determining the income of such corporation, determine the fair price at which such purchase or sale shall be taken into the accounts of such corporation.’’

“24 . (1) The income liable to taxation under this Part of * every person residing outside of Manitoba, who is carrying on

business in Manitoba, either directly or through or in the name of any other person, shall be the net profit or gain arising from the business of such person in Manitoba.

"‘ (2) This section shall apply to a taxpayer which is a corporation or joint stock company carrying on business in Manitoba and which has not its head office in Manitoba. ‘ ‘

"26. (1) Where a non-resident person produces, grows, mines, creates, manufactures, fabricates, improves, packs, preserves or constructs, in whole or in part anything within Manitoba and exports the same without sale prior to the export thereof, he shall be deemed to be carrying on business in Manitoba and to earn within Manitoba a proportionate part of any profit ultimately derived from the sale thereof outside of Manitoba.

" " (2) The Minister shall have full discretion as to the manner of determining such proportionate part.’’

"47 . The minister shall not be found by any return or information supplied by or on behalf of a taxpayer, and notwithstanding such return or information, or if no return has been made, the minister may determine the amount of the tax to be paid by any person.”

From the above sections it will be seen that sec. 9(1) is the general governing section which imposes liability for taxation, and the appellant submits that if it were not for the other clauses, all the profits made by the company—regardless of where they were made—would be taxable in Manitoba.

The appellant relies wholly upon sec. 24 as authority for the Province to levy an assessment on the total profit or gain arising from the sale of the goods in Manitoba.

The other sections deal with special conditions which may exist under which business is carried on in Manitoba, and are for the purpose of ascertaining the fair amount which should be taxed and to avoid possible imposition of double taxation.

The respondent maintains that secs. 23 and 26 indicate the Legislature acknowledged and approved the apportionment of profits where part of a business—as in the present case—are carried on in defferent provinces.

In so far as see. 23 is concerned : that deals solely with cases where a corporation is dealing in any commodity with a parent, subsidiary or associated corporation, and empowers the Minister, for the purpose of determining the income of such corporation, to fix a fair market price for the commodity being dealt with. If respondent’s counsel is right in his argument that an inference should be drawn that the Legislature intended to apply the principle of apportionment of profits, I would be of opinion that, owing to the peculiar relationship and method of doing business which existed between the appellant ‘s head office in Ontario and branch office in Manitoba, it would be more logical to apply section 23 to the present case in ascertaining the fair price to be charged to the branch office; and the information necessary for him to arrive at such price would be entirely different to that necessary under section 24.

Section 26 does provide for the apportionment of profits where the goods originate in Manitoba but the sale takes place outside the Province. Under that section the Minister has full discretion as to the manner of determining such proportionate part. The effect of the section is to protect the taxpayer from double taxation. Counsel for the respondent urges strongly that it shows the adoption by the Legislature of the principle of apportionment. I cannot agree with that contention but arrive at a conclusion the very reverse. The Legislature has enacted’ special provisions for special conditions and if it wished those special enactments to be given wider application it would have been quite simple to have included same in section 24.

I am therefore of the opinion that the problem is reduced to the effect of section 24 and to what extent it varies the liability for taxation under section 9(1); and, more particularly, what is the exact meaning and interpretation of the words: ‘‘income liable for taxation . . . shall be the net profit or gain arising from the business of such person in Manitoba. ‘ ‘

The question of where profits are made in carrying on a business has been dealt with extensively by the English Courts. In Erichsen v. Last (1881), 8 Q.B.D. 414, the appellant was a company carrying on a cable and telegraphic business in England through its head office in Denmark. Messages were accepted in England and transmitted to Denmark for delivery to all parts of the world over various connecting lines with which the company had business arrangements. It was held, for the purpose of ascertaining what profits were taxable, that the company was carrying on business in England and should pay on the amount of the receipts received under contracts in England, less the cost to the company of completing the delivery; but where part of the contract was performed by the company itself it was not entitled to deduct anything in respect of profits supposed to have been earned by it in the course of such part performance.

In Lovell v. Commissioner of Taxes, [1908] A.C. 46, the Court reversed the judgment of the Supreme Court of New Zealand, which held that profits earned by way of commission in London, under agency contracts for the sale of goods imported from New Zealand, were liable to taxation under the New Zealand statute. Sir Arthur Wilson, in delivering the judgment of the Court, stated at p. 52 :

"‘In the present case their Lordships are of opinion that the business which yields the profit is the business of selling goods on commission in London. The commission is the consideration for effecting such sales. The moneys received by the appellants, out of which they deduct their commission, and from which, therefore, their profits come, are paid to them under the contract of sale effected in London. The earlier arrangements entered into in New Zealand appear to their Lordships to be transactions the object and effect of which is to brings goods from New Zealand within the net of the business which is to yield a profit. To make those transactions a ground for taxing, in New Zealand, the profits actually realized in London would, in their Lordships’ opinion, be to extend the area of taxation further than the authorities warrant/ 9

In Commissioner of Taxes v. British Australian Wool Realization Association, [1931] A.C. 224, there were several questions to be disposed of and there were peculiar relationships between the respondent and the Governments’ interest in the disposal of wool accumulated under war conditions. Among the questions in dispute was the liability for taxation in reference to profits made on wool sold by the Association outside of Australia. Lord Blanesburgh, who delivered the judgment of the Court, dealt with that particular subject at p. 255, where he refers to Grainger v. Gough, [1896] A.C. 325, and Lovell v. Commissioner of Taxes (supra), and quotes the ruling in the latter case:

"One rule is easily deducible from the decided cases. The trade or business in question in such eases ordinarily consists in making certain classes of contracts and in carrying those contracts into operation with a view to profit; and the rule seems to be that where such contracts, forming as they do the essence of the business or trade, are habitually made, there a trade or business is carried on within the meaning of the Income Tax Acts, so as to render the profits liable to income tax/ 9

He held that the profits realized by sale outside of Australia were not taxable in Australia.

In Laycock v. Freeman, [1939] 2 K.B. 1, the manner of operation was very similar to that in the case now under consideration. The respondent company carried on a large retail boot and shoe business through its various branches in Great Britain. Prior to April 1, 1935, there were two subsidiary companies manufacturing boots and shoes of which the respondent company owned the whole capital and bought the whole output of goods. In March 1935 the two subsidiary companies went into voluntary liquidation and the whole of the business and premises were assigned to the respondent company, but they still continued to operate as departments of the respondent company and the manufactured products were sold through the respondent’s shops. Prior to April 1, 1935, the respondent company fixed the price at which the boots and shoes manufactured by the subsidiary companies were sold to it, and the whole of the profits of the two subsidiary companies were distributed in dividends to the respondent company. After April 1, 1935, the respondent company continued to keep separate accounts of the two manufacturing companies as departments of the respondent company, and by its system of accounting it added an arbitrary percentage of profit to the cost of manufacturing in order to arrive at a sale price to be charged the respondent company, which was similar to the cost price prior to April 1, 1935.

The Special Commissioners held that the business of the two manufacturing companies ceased on April 1, 1935, and that the respondent thereafter only made one profit, and that the profit could not for income tax purposes be divided into a manufacturing profit and a retail profit. The decision was appealed to the High Court, where the Commissioners’ decision was affirmed by Lawrence, J., and a further appeal was taken by the Crown. This was dismissed by the Court of Appeal. Greene, M.R., in giving the judgment of the Court, discusses in detail the contention of the Crown that it is possible to divide the profits into manufacturing, wholesales and retail divisions for the purposes of taxation, and says at p. 11 :

"‘In my judgment, that is wholly illegitimate. There is no such thing in a case of this kind, for any income tax purpose, as a wholesaler’s profit; it is wholly non-existent. The expression is a convenient one from the point of view of accountants, whose task is to dissect profits and attribute them in part to one aspect of their client’s activities, and in part to another aspect of their client’s activities. Obviously a wholesaler makes a wholesaler’s profit; a retailer makes a retailer’s profit; but to say of a manufacturer who sells retail that he makes two profits, a wholesoler’s profit and a retailer’s profit— although for accountancy purposes it may be very convenient and useful that the accounts should be kept on that basis—has no reality in fact, since no profit is realized until the goods are sold, and the profit that is realized is the profit realized by disposing of the goods by sale.’’

The respondent relies upon the dissenting judgment of Duff, C.J., in International Harvester Co. v. Provincial Tax Commissioner, [1941] S.C.R. 325, where the appellant company manu- factured goods in Ontario which were sold through agencies in the Province of Saskatchewan. No accounting record was kept whereby it was possible to ascertain the profits arising out of the Saskatchewan business. The respondents, under regulations providing the method of assessing for taxation purposes where such a condition arose, made assessments based upon such percentage as the company’s income from sales within the Province bore to the total sales of the company, and the assessment was sustained.

Duff, C.J., in giving a dissenting judgment, took the ground that the regulations were ultra vires as they attempted to tax profits arising partially outside the Province, and that the company was entitled to some share of the profits for manufacturing the product. In arriving at this conclusion his Lordship relied upon Commissiouers of Taxation V. Kirk, [1900] A.C. 588. With the greatest deference to his Lordship, I would point out that sections of the New South Wales Land and Income Tax Assessment Act of 1895, under which the levy was made, contained clauses entirely different to those in the statute we have under consideration. • Lord Davey, who gave the judgment of the Court in the Kirk case, said (p. 592) :

“The real question, therefore, seems to be whether any part of these profits were earned or (to use another word also used in the Act) produced in the Colony. This is a question of fact. At first sight it seems startling that the ultimate results in the form of profit of a business carried on (as found by the special cases) in the Colony is not to some extent taxable income there, but if it cannot be brought within the language of the Act that must of course be the result.”

Their Lordships held in that case that the following subsections of section 15 made the profits taxable in New South Wales:

"(3) Derived from lands of the Crown held under lease or license issued by or on behalf of the Crown;

"(4) Arising from or accruing to any person wheresoever residing from any kind of property except from land subject to land tax as hereinafter specifically excepted, or from any other source whatsoever in New South Wales not included in the preceding sub-sections.”

Counsel for the respondent further submitted that the judgment of Rinfret, J. (now C.J.), in the case of Firestone Tire Co. v. Commissioner of Income Tax, [1942] S.C.R. 476; [1942] C.T.C. 254, indicated his Lordship would have agreed with Duff, C.J., on the point that it was proper to allow a manufacturing profit if he had dealt with that phase of the question in the International Harvester judgment. I cannot find anything in the judgment of Rinfret, J., in the Firestone case which would lead me to agree with counsel’s contention on that point.

The question in dispute in the Firestone case was as to the effect of the contract between the agencies in British Columbia and the company in Ontario. The Court held that the goods supplied by the manufacturers in Ontario were sold outright in Ontario to the agents, and that the profits were not taxable in British Columbia. The Court divided, three to two, on this question; the dissenting Judges holding that the contract constituted one of agency of the appellant company, and that the profits made from the sales in British Columbia were subject to taxation there. Kerwin, J., in delivering the dissenting judgment of himself and Hudson, J., discusses at length the judgment in the Kirk case and draws attention to the difference between the statutory provisions of the New South Wales Act and the British Columbia Act. His Lordship follows Lovell v. Commissioner of Taxes, supra, and quotes with approval the judgment of Isaacs, J., in Commissioner of Taxation v. Meeks (1915), 19 C.L.R. 568, which he adopts, and closes his judgment by stating (p. 494) :

"The manufacture in Ontario of the appellants’ goods, however necessary to the existence of its business, does not earn income. The goods are manufactured for the purpose of sale and the income is earned when the goods are sold and all of the income, therefore, was earned within British Columbia. ’ ’

He would have dismissed the appeal.

In so far as the effect of section 24 is concerned, it is not, strictly speaking, necessary to refer to the formula submitted, and approved by Major, J., as the basis for a proportion of the profits to be allowed as manufacturing profits in Ontario, except that I do not wish it to be understood I would accept that formula if it were necessary to apply one. In reply to a question put by myself, counsel for the respondent stated there was no material difference between the amount of the profit as computed under the formula submitted and the amount of same as based on the charge of 28-cents per unit. A reasonable inference might be drawn that the formula was compiled to arrive at the same result as that attained by the arbitrary fixing of the price of 28-cents. The question immediately suggests itself as to why a profit of approximately 50% should be allowed on manufacturing while one of less than 7% is allowed on sales costs. Such a variation may be justified, but it would require considerable investigation and information to arrive at a fair decision. In one respect I think the formula is absolutely wrong when it adds cost of freight to the manufacturing cost on goods to be shipped from Ontario to Manitoba, instead of adding it the cost of goods at the Manitoba branch.

The judgment of the Court of King’s Bench as entered deals with the four taxation years in question, namely 1936, 1937, 1938 and 1939 separately in paragraphs 2, 3, 4, and 5, and each paragraph directs that the Minister do assess the Company on the basis set out and that it be referred back to the said Minister to assess the Company on such basis. No such direction was given by Major, J., as appears from a reference to his reasons for judgment, but counsel both for appellant and respondent stated to this Court when its judgment was handed down that the directions to the Minister were inserted in the judgment of the Court of King’s Bench by agreement of counsel who themselves settled and agreed upon the form of the judgment.

I would, therefore, allow the appeal and direct that the decision of the Minister affirming the original assessment be reinstated. There will be costs allowed to the appellant in this Court and in the Court below.

TRUEMAN, J.A. :—Sec. 58 of the Income Taxation Act, C.A. 1924, ch. 1, re-enacted in S.M. 1937, ch. 43, sec. 1, and now ch. 209, R.S.M. 1940, makes provision that any person who objects to the amount at which he is assessed may appeal to the Minister. See. 59 provides that the Minister shall consider the appeal and shall affirm or amend the assessment appealed against and notify the appellant of his decision.

See. 60(1) enacts that "‘If the person objecting is dissatisfied with the decision of the Minister, he may, within one month from the date of the mailing of the decision, mail to the Minister by registered post, a notice of his intention to appeal to a Judge of the Court of King’s Bench . . . and shall set forth the grounds of the appeal, and the appellant shall file a copy of the notice in the office of the Prothonotary of the Court. Within fourteen days after the date of mailing the aforesaid notice to the Minister, the appellant shall apply to the Judge for the appointment of a day for the hearing . . . .”

"‘(2) The Judge shall hear the appeal and the evidence adduced before him by the appellant and the Crown in a summary manner, and shall decide the matter of the appeal . . . .”

Sec. 47 is excluded by the above provision. The section provides as follows: ""The Minister shall not be bound by any return or information supplied by or on behalf of a taxpayer, and notwithstanding such return or information, or if no return has been made, the Minister may determine the amount of the tax to be paid by any person.”

The present matter came before Mr. Justice Major. There were no pleadings. In a studied judgment he made a terse review of the considerable issues involved. By agreement of the Minister and the Company the judgment is appealed by the Minister. Mr. Cousley, counsel for the Crown, is good enough to state in his brief that the facts are accurately set out in the judgment below.

The William Wrigley Jr. Company, manufacturer of chewing gum, has its head office and factory in Toronto and is incorporated under the Dominion Companies Act and licensed by the Province. It has a large capital and trade. The Company rents a branch office and warehouse at Winnipeg. Car loads of the product are forwarded from Toronto to the Winnipeg warehouses as required, and car pool lots are distributed in Manitoba, Saskatchewan and Alberta by jobbers and salesmen who make sales of the product to wholesale and retail customers. The business of the Company is conducted with scrupulous system.

In a brief addressed to the Minister under date of November 14, 1941, by the Company’s counsel at Toronto, with respect to assessments for the above years 1936, 1937, 1938, and 1939, the following submissions, inter alia, are stated:

"(a) That under the above statutes only the net profit or gain arising from the business of the Company in Manitoba is taxable ;

"(b) That these assessments seek to tax the total net profits of the Company received in respect of sales or deliveries made in the Provinces of Manitoba, Saskatchewan, and Alberta, and disregard the fact that only a portion of such profit ‘arises from’ that part of the Company’s business carried on in Manitoba;

"" (c) That the profits of the Company are derived from a series of operations, including the purchase of materials and ingredients, the manufacture of its products, the advertising, transportation. ’

It is obvious, in some measure of examination of the Company’s records, that while a large business is done, profits are greatly disproportionate to the business done in Western Canada due to expense in traffic and distance.

Schedule rates of taxation in the Act made applicable to corporations and joint stock companies grade from one per cent on the first thousand dollars, with the same percentage increase on each additional $1,000.00.

The Provinces of Manitoba, Saskatchewan, and Alberta, are treated by the Company as one Western Division, with apparently a single audit system. In point of individuality, each Province carries on its own business and has direct relations with the head office at Toronto.

The profits of the above mentioned four years are shown under the caption: "‘allocation of Profits—Western Division—for the years 1936 to 1939, inclusive,” and are respectively as follows:

For the year 1936—$38,152.00, less Dominion Tax, $5,723.00; For the year 1937—$33,181.00, less Dominion Tax, $4,977.00; For the year 1938—$30,634.00, less Dominion Tax $4,595.00; For the year 1939—$35,411.00, less Dominion Tax $5,311.00.

On the above taxable profits, the Manitoba tax for 1936 is fixed by the Company at five per cent—the sum total being $1,621.00 ; for 1937 the rate is five per cent, with a total of $1,410.00 ; for 1938 the rate is ten per cent, with a total of $2,604.00 ; for 1939 the rate is ten per cent, with a total of $3,010.00. The total taxation for the four years is $8,645.00. Payments on account have been made by the Company in each of these years.

On the other hand, the levy by the Province for the said years is set at $18,941.00, in the yearly sums of $3,714.71; $3,165.08; $6,294.56; and $5,767.05.

The controversy had two aspects. One pertained to certain assessments levied by the Provincial Treasurer for the years 1936 to 1939, inclusive. The Crown claimed that the profits arising from the business carried on within Manitoba embraced as well profits from sales in Saskatchewan and Alberta. The strange anomaly was indorsed by the Company. The ground for the Crown’s position was that as the Company sent ear loads and pool lots from the Winnipeg warehouse to buyers in Saskatchewan and Alberta the profits therefrom were leviable in Manitoba. The position was one that could not be supported. These were not Manitoba transactions; they were Ontario shipments help up for convenience in the Winnipeg warehouse until despatched on orders by the Toronto office to jobbers and traders in Saskatchewan and Alberta. Sales made by them were accounted for by them directly to Toronto. By no conceivable device could such transactions be charged to be sales within and to be subject to profits in Manitoba.

The discussion brings one to sec. 24 of the Income Taxation Act, S.M. 1937, ch. 43; now 311. 209, R.S.M. 1940. It enacts as follows :

(1) The income liable to taxation under this Part of every person residing outside of Manitoba, who is carrying on busi- ness in Manitoba, either directly or through or in the name of any other person, shall be the net profit or gain arising from the business of such person in Manitoba.

"‘(2) This section shall apply to a taxpayer which is a corporation or joint stock company carrying on business in Manitoba which has not its head office in Manitoba. ‘ ‘

The enactment has its own clarity with respect to the present corporation. It carries on business in Manitoba. In so far as it derives net profits and gains from its busines sales in Manitoba it is subject to income taxation. What the Company is not subject to is taxation on profits on merchandise forwarded from Toronto to jobbers and traders in Saskatchewan and Alberta. To hold otherwise would be to create a double taxation and set up a system of taxation in Manitoba without sales and profits in Manitoba.

For the rationale of the residence and domicile of Corporations with respect to Income Tax and the avoidance of double taxation, see The Law Quarterly Review, Vol. 61, (1945) July number, p. 225.

One is now drawn to the assessment of 1936, 1937, 1938 and 1939 {supra). The Company’s case before the learned Judge was incurable unless the assessments were set aside and the profits restricted to those earned wholly within Manitoba. It earlier has been stated therein that the litigation is destitute of pleadings explanatory of the issues.

In a decree following the hearing, the learned Judge, under date of March 10, 1943, held that the Minister in making and confirming the said assessments "‘had not given effect to the provisions of the taxation statute above referred to limiting the income liable to taxation thereunder of the Appellant as a person residing outside of Manitoba who is carrying on business in Manitoba to the net profit or gain arising from the business of the Appellant in Manitoba.” An order was thereupon made setting the assessments aside.

The decree proceeds as follows:

"And this Court doth further adjudge and declare that the net profit or gain of the Appellant arising from its business in Manitoba in the taxation period 1936 is $38,152.00, from which sum there should be deducted the amount of the exemption or deduction to which the Appellant is entitled under the provisions of paragraph (1) of subsection 1 of. section 5 of the Income Tax Act applicable for the said taxation period, and that the Minister do assess the said Appellant on such basis and that it be referred back to the said Minister to assess the Appellant on such basis. ‘ ‘

The years 1937, 1938, and 1939 are severally covered in the decree in the same terms.

A concluding order makes the costs of the proceedings payable by the respondent Crown.

I would dismiss the appeal with costs.

BERGMAN, J.A.:—This is an appeal by the Provincial Treasurer of Manitoba from the judgment of Major, J., pronounced on an appeal to him by the Wrigley Co. under sec. 60 of the Income Taxation Act, R.S.M. 1940, ch. 209, from the decision of the Minister (the Provincial Treasurer) which affirmed the assessments made against the company for the years 1936, 1937, 1938, and 1939. By the judgment of Major, J., the assessments and the decision of the Minister affirming same are set aside.

The statutory provisions which were in force on the relevant dates have been carried forward unaltered into the Revised Statutes of Manitoba, and are contained in ch. 209 thereof. For the sake of convenience I shall, therefore, refer to them by their numbers in ch. 209.

The business of the Wrigley Co. is the manufacture and sale of chewing gum. Its head office and factory are in Toronto. It maintains an office and warehouse in Winnipeg. All gum for sale in the so-called Western Division—which embraces the provinces of Manitoba, Saskatchewan, and Alberta, and Western Ontario, is shipped by the factory to Winnipeg. By doing this the company is able to make shipments in carload lots and thus effect a substantial saving in freight charges. All sales in the Western Division are made by the Winnipeg office, and the gum is shipped from that office. When a sale is made the Winnipeg office makes out an invoice in triplicate. One copy thereof is sent to the customer, one copy is sent to the head office, and one copy is retained by the Winnipeg office. The purchase price is payable at the head office of the respondent in Toronto, and the collections are for the most part made from there.

It is conceded by Mr. Williams that the company is carrying on business in Manitoba and is liable to pay income tax in this province. He, also, conceded for the purpose of this appeal, that the sales made in the Western Division outside of Manitoba should be included in the computation of the income taxable in Manitoba.

The points to be decided on this appeal are stated by Mr. Cousley in his factum as follows:

"‘1. Does section 24 of the Act require the apportionment between Ontario and Manitoba of profits from sales made in Manitoba ?

"‘2. Does section 6(la) of the Act authoribe the deduction from net income of an arbitrary amount of fictional profit called ‘manufacturing profit’?’’

In his factum Mr. Williams stated the issues as follows:

" " The points at issue in this appeal are therefore:

" (a) Whether the entire profit received by the Respondent in respect of sales made through its Manitoba Branch, or only a portion of said profit, is taxable in Manitoba ?

"(b) If only a portion of such profit is taxable, has the judgment appealed from adopted the correct basis or method of apportionment and, if not, what is the correct basis or method ? ’ ‘

Section 3 of the Income Taxation Act defines " income, ‘ ‘ as applied to the profits of a business, as ‘‘profits . . . received by a person . . . from any trade, manufacture or business . . . whether derived from sources within Manitoba or elsewhere. ‘ ‘

The taxation section is sec. 9, the relevant portion of which reads as follows:

"‘9. (1) There shall be assessed, levied and paid upon the income during the preceding year of every person

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"(d) who, not being resident in Manitoba, is carrying on business in Manitoba during such year;

* * * * *

a tax at the rates applicable.”

Sub. sec. (2) fixes the rates applicable where the taxpayer is a corporation.

Mr. Cousely argued, and I did not understand that it was seriously disputed, that, if this section stood unmodified, the respondent would be liable to pay in Manitoba a tax on its entire income wherever earned. In his factum he states this contention as follows :

" " If that section stood by itself, the respondent company, being a non-resident of Manitoba, but carrying on business in Manitoba, would be assessable in Manitoba in respect of its entire income for the years in question.”

He argued further that sec. 24 was enacted for the purpose of avoiding double taxation; that it does not impose a tax, but is in relief of the taxpayer; and that it is, in effect, an exception to sec. 9.(Id). Sec. 24 reads a follows:

"24. (1) The income liable to taxation under this Part of every person residing outside of Manitoba, who is carrying on business in Manitoba, either directly or through or in the name of any other person, shall be the net profit or gain arising from the business of such person in Manitoba.

"‘24. (2) This section shall apply to a taxpayer which is a corporation or joint stock company carrying on business in Manitoba and which has not its head office in Manitoba.’’

The only other sections which were discussed before us are sec. 6. (la) (dealing with non-permissible deductions from income), sec 23 (dealing with inter-company transactions), sec. 26 (dealing with the income of a non-resident arising from operations in Manitoba), and sec. 47 (giving the Minister arbitrary powers to determine the amount of the tax to be paid by any person). These sections read in full as follows:

"‘6. (1) 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.

"23. Where any corporation carrying on business in Manitoba purchases any commodity from a parent, subsidiary, or associated corporation at a price in excess of the fair market price, or where it sells any commodity to such a corporation at a price less than the fair market price, the minister may, for the purpose of determining the income of such corporation, determine the fair price at which such purchase or sale shall be taken into the accounts of such corporation.

"26.(1) Where a non-resident person produces, grows, mines, creates, manufactures, fabricates, improves, packs, preserves or constructs, in whole or in part, anything within Manitoba and exports the same without sale prior to the export thereof, he shall be deemed to be carrying on business in Manitoba and to earn within Mantioba a proportionate part of any profit unltimately derived from the sale thereof outside of Manitoba.

"‘(2) The minister shall have full discretion as to the manner of determining such proportionate part.

"‘47. The minister shall not be bound by any return or information supplied by or on behalf of a taxpayer, and notwithstanding such return or information, or if no return has been made, the minister may determine the amount of the tax to be paid by any person.’’

It is common ground that what is here involved is not intercompany transactions, and that sec. 23, therefore, does not apply. It is also common ground that this case does not come within sec. 26. Both these sections were, however, invoked by Major, J., in support of his view that there should be an apportionment of profits in cases to which sec. 25 applies. He held that secs. 23 and 26 constitute a recognition of the principle of apportionment of profits, and that the principle of apportionment must, therefore, be read into sec. 24. I shall deal with this contention later.

The Minister did not in this case exercise the powers conferred on him by sec. 47, so it does not require consideration. The issue involved in this appeal, therefore, boils down to the proper interpretation of sec. 24 as applied to the facts of this case.

For convenience the Ontario business may be referred to as the manufacturing division and the business in Manitoba as the selling division. The transactions between these two divisions were not purchases or sales, but were mere bookkeeping transactions. In each of the four years in question the manufacturing division made a charge on its books of 28 cents for each "‘unit’’ sent to the selling division. This was purely arbitrary amount. It was made up of the manufacturing cost (including cost of advertising, etc.) plus a so-called "‘manufacturing profit.” The evidence shows that the "manufacturing cost” rose from slightly over 19 cents a unit in 1936 to over 22 cents a unit in 1939, but the bookkeeping charge of a manufacturing profit of 28 cents a unit remained constant during the four years in question and has so remained up to the present time. No attempt was made to justify this as having any relation to the actual facts. The only explanation offered was that given by A. M. Sutherland, the accountant at the head office of the company. He simply said: "‘It is a matter of policy laid down by our Chicago office.” He added that this was done for the company’s own accounting purposes. The difference between the actual manufacturing cost of each unit and the 28 cents represents the so-called “manufacturing profit.”

For each of the four years in question the company made its annual return under the Act (sec. 33). These returns were made on the footing that in arriving at the taxable income in Manitoba the company was entitled to deduct the manufacturing profit which was included in the bookkeeping charge of 28 cents a unit, and that the respondent was taxable in Manitoba only on the difference between 28 cents and the price at which the gum was later sold. They were also made on the footing that in arriving at the taxable income in Manitoba only sales made to points in Manitoba were to be taken into account, and that sales made to points in the Western Division outside of Manitoba were to be excluded. On the argument before this Court this position was abandoned in favor of the apportionment theory which Major, J., adopted.

The respective positions taken by the Crown and by Major, J., are stated by Mr. Cousley in his factum as follows:

"‘The Crown claims that the profits arising from the business in Manitoba, and, therefore, subject to tax here, are the net profits from the sales in Manitoba after due allowance for cost of manufacture, cost of sale, and a certain proportion of general administrative expenses.

“The judgment appealed against hold that even after all such allowances have been made, the net profits from the sale of gum in Manitoba must be apportioned between Ontario and Manitoba.

*****

“The Province, in its assessments, has taxed the Company on all the net profit made from the Manitoba sales; that is, on the difference between the actual cost price and the actual selling price, ignoring for income tax purposes the arbitrarily fixed figure of 28 cents. ‘ ‘

After the returns had been filed negotiations took place between the Provincial Treasurer and the company for the purpose of trying to adjust the matters in dispute between them. During these negotiations the company put forward several alternative suggestions, none of which were acceptable to the Provincial Treasurer. On the hearing before Major, J., the company called Walter J. Macdonald, a chartered accountant, to offer a formula as to how, from a purely accounting point of view, the allocation of profits ‘‘between the taxing jurisdictions . . . could properly be made.’’ Mr. Williams admitted that ‘‘the law itself does not provide the formula. ‘ ‘ For that reason he said : “I have to bring before your Lordship an accounting expert who will give the basis upon which this can be done.’’ His formula is set out in exhibit 31. This formula was adopted by the learned trial Judge ‘‘in the absence of any other formula.” The concluding paragraph of his reasons for Judgment reads as follows :

“During the course of the hearing, Mr. Walter J. Macdonald, a Chartered Accountant of considerable experience, was called by the appellant (the company) to give evidence and to present an analysis of the earnings of the Company. He, also, presented a formula which appears to me to provide a reasonable method of proportionment of profit as between the Manufacturing and Selling Divisions. It is prepared on a pro-ration of costs basis, and, in the absence of any other formula, or failure to exercise the powers given to the Minister as above indicated, I direct that it shall be applied in determining the tax payable by the appellant. ‘ ‘

In the formal order that was taken out the actual amount of the profit for each year on which the tax is payable is set out.

Mr. Cousley, very properly in my opinion, declined to submit an alternative formula, because he took the position that see. 24 does not contemplate any apportionment of the kind suggested here. I am, therefore, back to the question of what is the meaning of see. 24.

I agree with Mr. Cousley ‘s contention that sec. 24 is not a taxing section. I, also, agree with him that sec. 9 is the taxation section. He argues that sec. 24 is, in effect, an exception to sec. 9. I think that a better way to put it is to say that sec. 24 furnishes a statutory definition of taxable income which is to be applied to cases coming within sec. 24.

We were referred to a large number of cases for the purpose of assisting us in interpreting sec. 24.

On the meaning of the expression 6 ‘ carrying on business in Manitoba’’ contained in sec. 24, Mr. Cousley referred us to Stroud’s Judicial Dictionary, Vol. 1, p. 235 (defining ‘‘ business”? and distinguishing it from "trade”) ; Grainger v. Gough, [1896] A.C. 325, at 343; and Werle v. Colquhoun, 2 Reports of Tax Cases, 402, at 410. In view of the admission by Mr. Williams that the respondent is carrying on business in Manitoba within the meaning of sec. 24 it is unnecessary to consider this point further.

That leaves for our consideration only the questions of a manufacturing profit and the apportionment of profits. For convenience I shall now deal with the cases cited by counsel in chronological order and not in the order in which they were cited.

1. Commissioners of Taxation v. Kirk, [1900] A.C. 588. The main importance of this case is that it was relied on by Duff, C.J., in support of his dissenting Judgment in the International Harvester Co. case, infra. The Kirk case arose under a statutory provision having no resemblance to our sec. 24 and is, therefore, not in point. In the Kirk case the company was incorporated in Victoria and had its head office in Melbourne in that colony. It carried on the business of mining in New South Wales on leasehold lands held from the Crown at Broken Hill in New South Wales. All the sales cf the company’s products were made, and the purchase money was received, either in London or in Melbourne. The company made large net profits from these business operations. The New South Wales Income Tax Act imposed an income tax on incomes " ‘ derived from lands of the Crown held under lease or licence issued by the Crown,’’ but provided that "‘no tax shall be payable in respect of income earned outside the Colony of New South Wales.’’ The contention of the company was that the income was derived from the sales— that is, from the business carried on outside the Colony ; and that in the year in question the company, therefore, did not have any income liable to taxation under the New South Wales Act. In the special case stated by the Court of Review for the opinion of the Supreme Court the first question asked—and the only one answered by the Judicial Committee—was whether the company had any income in 1897 within the meaning of the Act. Lord Davey does not discuss the meaning of ‘‘income’’ generally, but he discusses ‘‘this’’ income in order to ascertain whether it can be brought within the language of the Act. On that point he says, at p. 592:

"‘Their Lordships attach no special meaning to the word ‘derived,’ which they treat as synonymous with arising or accruing. It appears to their Lordships that there are four processes in the earning of production of this income—(1) the extraction of the ore from the soil; (2) the conversion of the crude ore into a merchantable product, which is a manufacturing process; (3) the sale of the merchantable product;

(4) the receipt of the moneys arising from the sale. All these processes are necessary stages which terminate in money, and the income is the money resulting less the expenses attendant on all the stages.’’

The answer to the question submitted is as follows (p. 594) :

“Their Lordships are, therefore, of opinion that the first question stated in the special case on each of these appeals should bave been answered in the affirmative, and this is all they are called upon to say.’’

All that the actual decision, therefore, amounts to is that it holds that the statutory provision there in question was effective to reach what would not otherwise be regarded as income.

2. Lovell v. Commissioner of Taxes, [1908] A.C. 46. I do not see that this case is of much assistance on the present appeal. It is primarily concerned with the question whether what the defendant there did constituted a carrying on of business in New Zealand. In view of the admission by Mr. Williams that the Wrigley Co. is carrying on business in Manitoba, no such issue is raised here. Mr. Cousley referred us particularly to the argument of Danckwerts, K.C., at pp. 48-49 of the report, which deals concisely and clearly with the question of the meaning of "profits’’ and when and where they arise. The Judicial Committee appears to have adopted that argument.

3. Commissioner of Taxation (N.S.W.) v. Meeks (1915), 19 C.L.R. 568. This case is the converse of the Wrigley case. It was decided under a statutory provision corresponding to sec. 26 of our Act. In the Meeks case a company incorporated in England, and having its registered office in London, conducted its Australian business at Melbourne in Victoria, and its practical operations of mining and treating and smelting ore at Broken Hill and Cockle Creek in New South Wales. By a contract made in London the company agreed to sell to purchasers a large quantity of concentrates produced from Broken Hill slimes, delivery of which was to be made at Broken Hill in instalments extending over a period of years. Pursuant to the contract the purchasers paid a sum of £63,000 in advance, but before any concentrates were delivered they made default in further payments which had become due. An agreement was then made in London by which the original contract was cancelled as from the date of the cancelling agreement, and the company was to be entitled to retain for its use all moneys which had been paid under the contract. No concentrates or slimes were ever appropriated, set apart, or treated by the company for the purchasers. Of the £63,000, the balance held by the company, after deductions of commission and brokerage, was £61,425. The question submitted for decision was whether this sum was taxable income within the meaning of the New South Wales Income Tax Acts (p. 578). The contention of the company was that this sum was not income within the meaning of the Act and was, therefore, not subject to income tax (p. 570). The special case was submitted on the theory that the amount in question was " i either wholly free or wholly liable” (pp. 580, 591); but during the argument Isaacs, J., pointed out that the proper inquiry, in view of the definition of income contained in sec. 4 of the Act, was whether the whole or any part of it was income derived from any source in the State of New South Wales, and that on investigation of the facts it might appear that part of it was such income and some not (p. 591). The case was, therefore, dealt with by the Court on that footing.

The taxing provision (sec. 4) on which the appeal turned is summarized by Isaacs, J., as follows, at p. 581 :

"The only income that is taxed under the Act of 1912 is ‘income derived from any source in the State.’ That income is divided by the Act into two classes, viz., ‘income derived from personal exertion’ and income derived from property.’ ”’

Griffith, C.J., states the issue to be decided as follows, at p. 579 :

‘““The Act uses the word ‘source’ in connection with income to denote a concept to which locality can be attributed. The first question for determination, therefore, is what was the source from which this income was derived. The next question is what is the locality of that source. ’ ’

See. 19(2) of the Act provides that in the case of a taxpayer ‘‘carrying on business both in and outside of the State his taxable income shall be deemed to be a sum which shall bear the same proportion to the net profits of such business as the assets of the business in the State bear to the total assets of the business. ’ ’

It was held that the sum in question should be treated as profits from the business of mining and treating and smelting ore which was carried on by the company mainly, if not altogether, in New South Wales, and, therefore, that it should be brought into account in ascertaining the taxable income of the company, subject, however, to the right of the company to show that a portion of it was not attributable to the business which was carried on in New South Wales.

It should be noted that the language of the section (sec. 4) there in question differs very materially from our sec. 24, and that there is also an express statutory provision for the apportionment of income which is not contained in our sec. 24. The decision turns entirely on these statutory provisions. I am, therefore, unable to see that this case has any bearing on the case at bar.

4. Commissioner of Taxes v. British Australian Wool Realization Association, [1931] A.C. 224. Pursuant to an agreement between the Imperial and Commonwealth Governments, the respondent company was incorporated in 1920 in Victoria, with a head office in Melbourne, for the purpose of selling the undisposed of surplus of wool acquired for the war, and distributing the proceeds. The wool was all sold during the years 1921 to 1924. The contracts of sale were made, and deliveries and payments thereunder took place, outside Australia. A large surplus was realized from such sales, and the respondent also received a large amount for commission on the sale of the portion of the wool owned by the Imperial Government. Sec. 35 of the Income Tax Act, 1915, of Victoria, provides: “‘So far as regards any company liable to pay tax, the income thereof chargeable with tax shall . . . be the profits earned in or derived in or from Victoria by such company during the year immediately preceding the year of assessment.’’ Under this provision Victoria made an assessment on the respondent in respect of the proportion of the surplus and commission which it regarded as being earned in or derived in or from Victoria within the meaning of sec. 35 of the Act. It was held that the surplus resulted merely from the realization of capital assets, and, therefore, no part of it was income chargeable to tax under sec. 35 of the Act. It was further held that no part of the surplus, or of the commission, could properly be classed as profits "earned’’ by the Association ; " " and even more clearly, if that be possible, were they not earned by it ‘in or derived in or from Victoria’ ” (p. 256). It is this final statement which has a bearing on this appeal. It appears to me that it disposes of the apportionment theory put forward by the respondent in the case at bar, and supports Mr. Cousley’s contention that the profit is made when and where the sale takes place.

5. Port Said Salt Association, Ltd. v. Commissioner of Income Tax, Bengal (1932), Gordon’s Digest of Income Tax Cases, 161. The headnote reads:

" Foreign company imported goods into India which were sold at a profit, and claimed that, in arriving at net profits of Indian sales, a deduction should be made for manufacturing profits earned in Egypt. Held: Non-deductible. ’ ’

Mr. Gordon’s digest of the judgment reads in full as follows:

"RANKIN, C.J.—The assessees have their headquarters in Egypt where they manufacture salt and export it to various parts of the world including India. They have raised the following question :—Is an assessee assessed under section 42 in respect of a business in which the manufacture of a commodity takes place in a foreign country and the sale thereof takes place in British India, entitled in computing the profits and gains of such business, to make a deduction representing the proportion of profits earned by manufacturing in the country of origin, or is he bound in computing such profits or gains, to do so on the assumption that the whole of these are earned in the country of sale? Profit, though it may be anticipated by valuation or otherwise, is not realized before price, and when the article is sold the whole profit is realized for the first time.”

The Indian Income Tax Act is set out in the Appendix, commencing at p. 130. Sec. 42 thereof, which was construed in the above case, is set out at p. 134 of the Appendix. Mr. Williams sought to distinguish this case on the ground that sec. 42 of the Indian Income Tax Act, under which it was decided, differs materially from our sec. 24. I am unable to detect any difference in substance between these to statutory provisions; and, in my opinion, this decision is a direct authority in favor of the appellant’s contentions on this appeal.

6. Commissioner of Taxation (N.S.W.) v. Hillsdon Watts Ltd. (1937), 57 C.L.R. 36. This is a decision of the High Court of Australia. I do not see that it has any bearing on this appeal. It was decided under a statutory provision which provided for the apportionment of income according to the “sources” from which it was derived, and the apportionment of income that was made was pursuant to that statutory provision (p. 46). Our sec. 3 excludes from consideration the " ‘ sources ’ from which the income is derived. I am, therefore, unable to see that this decision assists in any way in the interpretation of sec. 24 of our Act.

7. Gilpin v. Commissioner of Taxation for N.S.W. (1940), 64 C.L.R. 169. The material portion of the headnote to this case reads:

“The taxpayer, a company incorporated in Victoria and registered in New South Wales as a foreign company, carried on the business of a draper and warehouseman in ninety-six retail shops, twenty-nine of which were situate in New South Wales. Its registered office was situate in Melbourne where its central control and management was located. Goods or stock for the various shops in New South Wales were dispatched from Victoria and were sold by retail in such shops, which were staffed for that purpose. The prices at which such goods or stock might be sold were fixed by the central management. All the costing and accounting was done in Melbourne.

‘* Held that the goods sold in the shops in New South Wales were sold in the course of carrying on a business or businesses in the State; therefore, . . . the taxpayer was properly assessed to income tax in New South Wales in respect of the whole of the profit arising from the sale of goods in that State.”

8. International Harvester Co. v. The Provincial Tax Commission, [1941] S.C.R. 325. This case is important, because it involves a statutory provision which is exactly the same as our sec. 24, and because Mr. Williams virtually rests his entire case on the dissenting judgment of Duff, C.J., therein (concurred in by Davis and Taschereau, JJ.). The appeal was heard by the full Court of seven judges.

The international Harvester Co. had its head office and central management and control at Hamilton, Ontario. It had branch offices in Saskatchewan. It manufactured agricultural implements, the manufacture being wholly outside of Saskatchewan. It sold its products in Saskatchewan and elsewhere. All moneys received in Saskatchewan for sales or in payment of debts, were deposited in separate bank accounts and remitted in full to the head office in Hamilton. It kept no separate profit and loss account in respect of the business done in Saskatchewan; it kept at its head office in Hamilton a profit and loss account of its entire business.

Sec. 3 of the Act contains a comprehensive definition of "in- come’’ for the purposes of the Act. It provides, as does sec. 3 of our Act, that income, as applied to the profits of a business, is " profits . .. . received by a person . .. from any trade, manufacture or business . . . whether derived from sources within Saskatchewan or elsewhere.’’ Duff, C.J., expresses the opinion that the effect of sec. 21a (our sec. 24) "‘is, for the purpose of that section to delete from the definition of income in section 3 the words ‘or elsewhere’ ’’ (p. 331).

Sec. 4 enacts that the following incomes shall not be liable to taxation :

i( (m) profits earned by a corporation . . . in that part of its business carried on at a branch or agency outside of Saskatchewan. ‘ ‘

Duff, C.J., expresses the opinion that this provision is primarily directed to companies having their principal place of business in Saskatchewan. There is no corresponding provision in our Act.

Sec. 21a provides, as does our sec. 24, that the income liable to taxation of every person (including a body corporate) residing outside of Saskatchewan, who is carrying on business in Saskatchewan, "‘shall be the net profit or gain arising from the business of such person in Saskatchewan.”

Sec. 7.(4) of the Act provides that, where the Minister is unable to determine or to obtain the information required to ascertain the income within the province of any corporation, the Lieutenant-Governor in Council may make regulations for determing such income within the province or may fix or determine the tax to be paid by a corporation liable to taxation. By sec. 63 of the Act regulations made under the authority of the Act are declared to have the same force and effect as if incorporated therein. Regulations were issued ‘‘covering such cases where the Minister is unable to determine er obtain information required to ascertain the income within the province of a corporation or a joint stock company carrying on a trade or business within and without the province’’ (pp. 347, 348). A regulation (which was applied) provided that the income liable to taxation "‘shall be taken to be such percentage of . . . the income as the sales within the Province bear to the total sales” (pp. 334, 347); the sales being measured by the gross amount received from sales and other sources (certain kinds of receipts being excluded). The regulations went on to provide (sec. 5) that they should not be applied to determine the income within the province of a corporation carrying on a trade or business within and without the province where the method or system of accounting used by the taxpayer enabled the Commissioner to determine the income of the taxpayer liable to taxation.

The majority of the Court held that the application of the above quoted regulation was validly adopted in arriving at the amount of the company’s profits or gains arising from its business in Saskatchewan—a method which was rendered necessary as a result of the failure of the company to keep separate profit and loss accounts for the business it carried on in Saskatchewan. In fact, the company itself "‘was driven to the admission that its exact and precise income arising from its business in Saskatchewan could not be ascertained, owing to its method of bookkeeping and of keeping its profit and loss account” (p. 353). The Court went on to say that the method adopted "‘was the only method available to ascertain the income liable to taxation ‘ ‘ (p. 353). The Court held further that the regulation, and the authorizing statutory enactment, were intra vires.

The dissenting judgment of Duff, C.J., on which the respondent in the case at bar rests his case, held that the assessments were invalid, because the regulation pursuant to which they purported to be made either did not apply to the company or was ultra vires. Having disposed of the regulation in this manner, he next proceeds to examine the terms of the Act. He says that the profits of the company are derived from a series of operations, and that the essence of its profit making business is a series of operations as a whole, some outside of, and some within, Saskatchewan. He admits that that part of the proceeds of sales in Saskatchewan which is profits is ‘‘received’’ in Saskatchewan, but says that it does not follow that the whole of such profit "arises from’’ that part of the company’s business which is carried on there within the contemplation of sec. 21a (our sec. 24). He then sums up his views as follows, at p. 334:

"Nowhere does the Statute authorize the Province of Saskatchewan to tax a manufacturing company, situated as the appellant company is, in respect of the whole of the profits received by the company in Saskatchewan. It is not the profits received in Saskatchewan that are taxable; it is the profits arising from its business in Saskatchewan, not the profits arising from the company’s manufacturing business in Ontario and from the company’s operations in Saskatchewan taken together, but the profits arising from the company’s operations in Saskatchewan. ’’

Having made these generalizations, he does not follow them up by indicating how they are to be applied to the facts of the case before him. He leaves that question in the air, without attempting to give any intelligible basis of arriving at the amount of the company’s income arising from its business in Saskatchewan. He merely allowed the appeal and set the assessments aside. The only authority which he cites is the Kirk case. He makes no reference to any of the other cases which I have reviewed above, or to Erichsen v. Last, Laycock v. Freeman, or Briton Ferry Steel Co. v. Barry, reviewed below. He purports to purports to follow the Kirk case, but in my review of that case I have shown that it was dealing with a different problem and was decided under a different statutory provision. It would, therefore, seem to be appropriate to apply here the warning which he himself gave in The King v. National Trust Co., [1933] S.C.R. 670, where he says, at p. 676:

" " It is an important rule that the scope of a decision should not, speaking generally, be determined by reference to expressions in the judgment, and without regard to the subject matter upon which the court is pronouncing. Judgments must be read, as the phrase is, secundum subject am materiem.’’

As I read the Kirk case, it does not support the dissenting judgment in the International Harvester Co. ease in any way. In the Kirk case the Judicial Committee was dealing with the facts of the entirely different statutory provision, and it held that the facts of the case before it brought it within that statutory provision. It affords no assistance in interpreting the statutory provisions with which Duff, C.J., was dealing in the International Harvester Co. case or with which we have to deal in the present appeal. It applied the principle of apportionment solely because the statute expressly required that to be done.

9. Firestone Tire and Rubber Co. v. Commissioner of Income Tax, [1942] S.C.R. 476; [1942] C.T.C. 254. The Firestone Company is a Dominion company having its head office in Hamilton, Ontario ; it manufactures automobile tires, etc., in its plant in that City. It has no office or any employees in British Columbia. It entered into a contract, called a ^Distributor’s Warehouse Contract,’’ with MacKenzie, White & Dunsmuir Limited, a British Columbia company doing business entirely within that province as wholesale dealers in tires, automobile accessories, etc. The appeal turned on the question whether this contract was a contract of agency or a contract of sale. Rinfret, J., in giving the judgment of the majority of the Court, states the issue and the decision of the Court thereon as follows, at p. 486 :

"Ido not understand it to be disputed that if that contract is to be construed as an agreement of sale, made in Hamilton, Ontario, the profits accruing to the appellant are not income earned in British Columbia and coming within the charge of the Income Tax Act of that province. The ground upon which the Commissioner of Income Tax claims that these profits are subject to the charge is that the contract under discussion is one of agency, that the MacKenzie Company is only the agent of the appellant and that consequently the sales made to the purchasers in British Columbia are in reality made by the appellant.

"‘In my view, the relationship between the Firestone Company and the MacKenzie Company is one of vendor and purchaser; whatever profits are derived from it by the Firestone Company result from a contract of sale made in Hamilton, Ontario; and, accordingly, neither upon that contract as a matter of construction nor constitutionally, may the respondent Commissioner of Income Tax legally and validly assess the appellant’s profits as claimed in the present case.”

Kerwin and Hudson, JJ., dissented, but they differed from the majority of the Court only on the effect of the contract. On that point Kerwin, J., says, at p. 492: 4 ‘After consideration of all the arguments to the contrary, I have concluded that the effect of this agreement is to make the distributor merely an agent of the Company for the sale of the goods that are in issue in this appeal. ’ ’ Having reached this conclusion, it became necessary for him to consider the incidence of the tax imposed by the British Columbia statute on ‘‘income earned within the province of persons not resident within the province. ’ ’ On this point he says, at pp. 494-495:

“The manufacture in Ontario of the appellants’ goods, however necessary to the existence of its business, does not earn income. The goods are manufactured for the purpose of sale and the income is earned when the goods are sold and all the income, therefore, was earned within British Columbia.”

I cannot find anything in the majority judgment indicating any dissent from this statement of the law. In the absence of any authority to the contrary, I, therefore, accept it as a correct statement of the law applicable to the case at bar.

Mr. Williams argued that there is implicit in the reasons for judgment of Rinfret, J., in this case an acceptance by him of the views expressed in the dissenting judgment of Duff, C.J., in the International Harvester Co. case. With this argument in mind, I have read the judgment of Rinfret, J., with great care and I cannot find that it lends any support to this contention. All he says is that the conclusion which he has reached that the contract is one of sale and not of agency, makes it unnecessary for him to consider the constitutionality of the legislation imposing the tax—an issue which is not raised in the case at bar. I would also point out that the judgment of Kerwin and Hudson, JJ., in this ease takes on added significance, because they had before them the dissenting judgment of Duff, C.J., in the International Harvester Co. case and rejected it.

It is now necessary to consider what is meant by the expression * " The net profit or gain arising from the business of such person in Manitoba’’ which is contained in sec. 24. That in turn raises the question of what constitutes profits and, in particular, whether, in the computation of profits for Income tax purposes, there is any such concept as a manufacturing profit.

In his factum Mr. Cousley puts his argument under this head very concisely as follows:

"‘1. Section 24 of the Act taxes the net profits arising from the business, and not operations; 2. No profit arises from any of the operations in Ontario.

"‘Profits are derived, or arise from only one operation, and that is sale of the goods. All preliminary operations add to the cost of an article, and unquestionably add to its value, but they do not create one cent of profit.

Profits are made from sales only, and the profits arise from such sales at the place where the contracts are made.”

In my opinion there is, for income tax purposes, no such thing as a manufacturing profit, and there is no such thing as apportionment at common law of profit as between different departments of the taxpayer’s business or as between taxing jurisdictions, as contended by Mr. Williams. The question of the meaning of sec. 24 is, therefore, merely one of statutory interpretation. Some of the cases which I have already reviewed bear on this question. I shall refer to only three additional cases, all of which appear to me to be directly in point.

10. Erichsen v. Last (1881), 8 Q.B.D. 414 (C.A.). This is a decision of the Court of Appeal in England and was referred to by counsel as the leading case on the point with which I am now dealing. The questions to be decided were whether the Great Northern Telegraph Company, which was a foreign company established at Copenhagen, exercised a trade within the United Kingdom, and, if so, what was the profit arising therefrom in respect of which the company was taxable under the Income Tax Act. That Act imposed a tax on "‘the annual profits or gains arising or accruing to any person whatsoever . . . from any . . . trade . . . exercised within the United Kingdom.’’ This is substantially the same as the language of our sec. 24.

The company had three marine cables in connection with the United Kingdom. It had its principal place of business in Copenhagen, but had offices and servants in various parts of the United Kingdom, where telegraphic messages were received for transmission to various part of the world.

The Queen’s Bench Division held that the company exercised a trade in the United Kingdom, and that it was liable to income tax on the profit arising from such trade, such profit being the difference between the sums received in the United Kingdom for the transmission of messages, and the cost of such transmission without deduction for the trade profit from the use of the company’s own cables abroad.

The company appealed. On the appeal Jessel, M.R., after deciding that the company was exercising a trade within the meaning of the statute, said, at p. 417:

"‘The next point is the question of profits. Now what is profit? It is, as I understand, the difference between the price received on a sale and the cost price of what is sold. There

may be the expense of management or of the establishment in which the profit is earned, but that is only an element in the cost price. The difference between money received for goods sold and money received for messages is to my mind inappreciable. One must take the money received and deduct from that what it costs the company to transmit the messages, and the difference is the profit, and upon that difference the company ought to be taxed. But then it is said that the profit is earned in this way : The Company have abroad cables belonging to them which are not connected with this country directly (there being foreign cables intervening between the company’s cables abroad and the cables connected with this country), and that those cables are used by them to convey the messages and so earn the profit, and that, that profit ought to be deducted. The answer is, that those cables do not earn a profit. The use of them by the company may diminish the expense of earning a profit, therefore diminish the cost price, that is to say, the cost of transmitting the message aboard, but it is a fallacy to say that those cables earn a profit. Consequently the company can only deduct from the price received the cost of transmitting the message. It seems to me, therefore, that the decision of the Court below is correct and ought to be affirmed. ‘ ’

In a concurring judgment Cotton, L.J., disposes of the company’s claim that it was entitled to deduct a trade profit (corresponding to the manufacturing profit claimed in the case at bar) as follows, at p. 420 :

“They can, of course, deduct all expenses, including their own expenses, and sums paid to other companies, but they cannot deduct a profit which is imaginary and has no real existence/ ‘

11. Laycock v. Freeman, [1939] 2 K.B. 1 (C.A.) This is also a decision of the Court of Appeal in England. The respondent company carried on a large retail boot and shoe business with numerous branches. Before April, 1935, the company did not manufacture its goods, but bought from wholesale manufacturers. Included amongst these were two subsidiary companies, whose works were at Kettering and Leicester. The company owned the whole of the capital in these two subsidiary companies and bought the whole of their output. In March, 1935, the two subsidiary companies went into voluntary liquidation and the whole of their businesses and premises were assigned to the respondent company on April 1st.

From and after April 1st separate accounts, made up as when the two companies were in existence, were kept for the factories of the two companies as departments of the company, who sold at retail the whole of the finished products of these factories. The method of accounting, which showed in each case the cost of purchases made for the factory, and a figure for sale arrived at by the addition of an arbitrary percentage for profit, was then same as that which had been followed before April 1st, 1935, in relation to the small amount of manufacture then done by the company.

The Special Commissioners under the Income Tax Act held that ‘‘in the year 1935-36 the respondents made one profit only, and that the profit could not for income tax purposes be divided into a manufacturing profit and a retail profit^ (pp. 3-4).

Sir Wilfrid Greene, M.R., who delivered the unanimous judg- ment of the Court of Appeal, affirming the judgment appealed from, says on this point, at p. 10 : ‘ ‘‘ Manufacture in these factories is being carried on, but the mere manufacturing is not the thing which produces the profit of the business.’’

It is of interest to note that it was the Crown that sought to split up the profit into two profits, the wholesaler’s profit and the retailer’s profit. In holding that this was "‘wholly illegitimate” the Court said, at p. 11:

<( These is no such thing in a case of this kind, for any income tax purpose, as a wholesaler’s profit; it is wholly non-existent. The expression is a convenient one from the point of view of accountants, whose task it is to dissect profits and attribute them in part to one aspect of their client’s activities, and in part to another aspect of their client’s activities. Obviously a wholesaler makes a wholesaler’s profit ; a retailer makes a retailer’s profit; but to say of a manufacturer who sells retail that he makes two profits, a wholesaler ’s profit and a retailer’s profit—although for accountancy purposes it may be very convenient and useful that the accounts should be kept on that basis—has no reality in fact, since no profit is realized until the goods are sold, and the profit that is realized is the profit realized by disposing of the goods by sale. It is quite impossible, in my judgment, to say that the present case ought to be treated as though there had taken place a notional sale by the factory to the warehouse upon some basis to be fixed by reference to some evidence as to what a wholesaler’s profit would be. I know of no such principle permissible under the Income Tax Act.’’

I would point out that what is referred to in the above passage as a "wholesaler's profit” and is condemned, is the same as that referred to in the case at bar as a ‘‘manufacturing profit. ’

12. Briton Ferry Steel Co. v. Barry, [1940] 1 K.B. 463 (C.A.). This is a a decision of the Court of Appeal in England. The unanimous judgment of the Court was delivered by Sir Wilfrid Greene, M.R., who explains his decision in the Laycock case. The facts of the two cases are similar. The Briton Ferry Steel Co. (hereinafter called "‘The company’’) carried on the business of making steel bars, which it sold partly to outside customers and partly to six subsidiary companies, which used them in the manufacture of tinplate. On April 7th, 1934, the subsidiary companies were wound up and their assets and undertakings transferred to the company. After that date the mills of the subsidiary companies became branch mills of, and were operated by, the company (p. 465). The question for decision, so far as material here, was how the amount of the company’s profits were to be ascertained. The particular problem was whether the company was entitled to charge the steel bars to the subsidiaries at a profit over the actual cost of production. It was held that this could not be done, as this method would be ‘‘ based on an imaginary sale price at a profit’’ (p. 484). It was further held that, these transactions being in their essence inter-departmental transactions, the steel bars must be charged up "‘at the actual cost of production’’ (p. 484), "‘without introducing at any stage any notional sale’’ (p. 482). The Court stresses this point by repeating that the method of computation of profits which it has laid down " " does not involve any notional sale at all or any notional profit realized inter-departmentally ” (p. 487). The Court further held that ‘‘the profits are ultimately made by the sale of the finished product’’ (p. 483). I call attention to the fact that the verb used is " ‘ made. ‘ ‘ The statement is that the profits are (( made by the sale.’’

Mr. Williams concedes that there is only one profit, but he says that it arises in part from the company’s manufacturing business in Ontario and only in part from the company’s business in Manitoba. He, therefore, argues that, having ascertained the amount of the profit, it is necessary to work back from there and to ascertain to what extent the operations in Ontario have contributed to the profit and then to apportion the profit accordingly between Manitoba and Ontario. To me this position is untenable. What is done in Ontario represents merely something which is part of the cost to the company of the finished product; it represents cost, not profit. If the manufacturing operations in Ontario are carried on efficiently and economically, they may, in the language of Erichsen v. Last, diminish the expense of earning the profit, but that is all.

Walter J. Macdonald, C.A., who was called as an expert by the company, defined profit in almost the identical language used in Erichsen v. Last, when he said (Ed., p. 112) :

"There are many factors which go to arrive at the final cost of the product delivered to a customer. The difference between that final cost and the selling price which is realized is the profit.^

In his reasons for judgment Major, J., followed the dissenting judgment of Duff, C.J., in the International Harvester Co. case. He gave effect to the manufacturing profit theory, and held that the ultimate profit should be apportioned on that footing between Ontario and Manitoba, and he directed that the apportionment be made in accordance with the formula put forward by Walter J. Macdonald, C.A. The formula so adopted is, of course, of no value, unless it is first established (1) that see. 24 of our Act provides for the apportionment and (2) that the formula suggested is that prescribed by the Act. It seems to me that the respondent has failed to establish either proposition. Mr. Williams, as already mentioned, admitted that "‘the law itself does not provide the formula’’ (Ev., p. 113).

In my opinion sec. 24 neither provides for nor contemplates an apportionment of the profit. I draw from the provisions for apportionment contained in sees. 23, 26, 27, and 27A exactly the opposite conclusion from that drawn by Major, J. To me they show that where the Legislature intended that there should be an apportionment it had no difficulty in expressing that intention in clear and unambiguous language. I am also very much impressed with the force of Mr. Cousley’s argument that in all cases where the Act provides for apportionment the Act gives the Minister full discretion as to the manner of determining the proportionate part of income or profit taxable in this province, and that it is inconceivable that any legislature would pass an Act providing for apportionment without giving the Minister arbitrary power to make the apportionment. I adopt that argument.

Having reached this conclusion, and having adopted the statement of the law in the judgment of Kerwin, J., in the Firestone case, at pp. 494-495, quoted supra, it follows that the judgment of Major, J., must be set aside.

I would allow the appeal with costs here and in the Court of King’s Bench and would restore the decision of the Minister which Major, J., set aside.

Dysart, J.A. (ad hoc) :—I have had the advantage of reading the reasons for judgment of the learned Chief Justice and Justice Bergman, but am unable to agree with the conclusions they have reached.

In their reasons, they set forth the statutory provisions governing this case, and the more important facts, with sufficient fullness to make it unnecessary for me to restate them at length. I shall only refer to such of them, and to such further details, as may be required for a proper exposition of my own views.

Several questions are presented for our decision. The first and main question is a double one—of the law and fact.

The question of law is: what is the meaning of the taxing provisions of our Income Taxation Act as applied to the facts of this case ? Those provisions impose an income tax upon that part of the ^income” of the respondent as a non-resident person or corporation, being "‘the net profit or gain arising from the business of such person in Manitoba.’’ ^Income” is defined in the Act (s. 3) as being "‘the annual net profit or gain . . . received by a person from any . . . business . . . whether derived from sources within Manitoba or elsewhere; . . .” (Italics are mine.)

By expressly confining the taxable income to the net profit arising from business carried on inside Manitoba by non-residents, the Act impliedly excludes from that taxation, any profits arising from the business of such persons carried on outside Manitoba. The express inclusion of the one sort of income as taxable, is the implied exclusion of the other. Some Income Taxation Acts go to the trouble of declaring expressly what the Manitoba Act so declares impliedly ; e.g., those of Saskatchewan (see International Harvester ease, infra.) and of New South Wales (see the Kirk case, infra.). But the meaning of all these Acts on this point is one and the same—namely, that profits arising from business carried on outside the taxing jurisdiction are not taxable by that jurisdiction.

The strength of this implied exclusion of extra-provincial income in our Act, is increased by other provisions of the Act. For instance: s. 23 empowers our Provincial Treasurer to ""determine the fair price’’ of goods bought in Manitoba by a resident company from a parent, subsidiary, or associated nonresident company. That provision recognizes that profits may be, and probably are, earned by the processes through which the goods so purchased in Manitoba passed before they came to Manitoba to be sold. And sec. 26 empowers the Minister to determine the proportionate part of the profit earned in Manitoba by the manufacture in Manitoba of goods subsequently exported and sold elsewhere. Unless profit can be earned by manufacturing process, this section is empty of meaning.

These provisions, it seems clear, recognize that profits on goods may be earned by processes or operations carried on outside Manitoba leading up to the sale of the goods in Manitoba, and that such profits are not properly taxable by Manitoba. They seem also to afford a complete answer to the contention of Mr. Cousley, acting for the Minister—that they declare that profits on the goods in this case arose only at the time and place of sale here. They support the view of Mr. Williams, for the respondent—that the provisions acknowledge that the profits arising from the sale of the goods in Manitoba may be and are less than the whole net profit arising from the combined operations of manufacture in Ontario and sale in Manitoba. They justify also the conclusion of the trial Judge—Justice Major—that only a portion of the net profits arising from all the operations can be said to arise from Manitoba business within the meaning of our Act. On this question of law, my view therefore is that our Act does not of itself impose taxation upon all the net profit received by the Wrigley Company on its goods so manufactured and sold—but on the contrary, quite clearly confines that taxation to such portion of the entire net profits as in fact arise from, or may reasonably be attributed to, the Manitoba share of the entire business of the Company.

The question of fact which is involved in our main question is—what profits actually arose from the business in Manitoba? That this is a question of fact, and not of law, seems to be not only inherently clear, but unequivocally declared by our highest Courts. For instance: our Supreme Court, in the case of International Harvester Co. v. Commissioner of Income Tax (of Sask.), [1941] S.C.R. 325, speaking through Rinfret, J., for the majority, at p. 341, says:

H the question whether profits or gains arose within or without Saskatchewan is really a question of fact.’’

And the Privy Council, in Commissioner of Taxation (N.S.W.) v. Kirk, [1900] A.C. 588, states, through Lord Davey, at p. 592:

" " The real question, therefore, seems to be whether any part of these profits were earned or (to use another word also used in the Act) produced in the Colony. This is a question of fact. ’ ‘

I am aware that many Judges—some of them of eminence— are on record as saying that profits on goods arise wholly and solely at the time and place of the sale of the goods. But those statements must be read in the light of the particular facts of the cases in which those statements were made. In all—or at least nearly all—those cases, the crucial facts were different from the facts in the present case; in them, the sale price was received at the time and place of sale; whereas, in this case the price was received in Ontario upon sales made in Manitoba—and received 30 days after the sales. In any event, the weight and authority of those statements must yield place to the deliberate and considered statements which I have quoted from our Supreme Court and the Privy Council.

The term profit” means money received as gain. ‘‘Net profit’’ on goods sold is the money received, as the price of the goods, in excess of all expenses incurred in all the operations connected with those goods up to the time of actual receipt of the money. A “sale” is not a transaction in money—it is the transfer and delivery of the ownership of the goods. Money is of course associated with sales, as being generally the considéra- tion paid, or to be paid, as the price of the goods so sold; but the sale is a matter distinctly separate and different from the receipt of the money. Thus a sale, once it is completed, remains effective even though the price is never paid. Moreover, the measure of "‘net profit’’ is not necessarily set by the contract price at which the goods are sold—that price may be wholly or partially uncollectible. The real measure or yardstick of profit, is the amount of money eventually received for the goods—less all expenses, including expenses and losses incurred in collecting it.

To say that the profits arose solely in Manitoba because the sales took place here, is to disregard receipt of price as the test of profit. The use of the term 4 "sale,” as meaning sale and receipt of price, is looseness of language—at least "‘terminological inexactitude.’’ If by "‘sale, ” the appellant includes the receipt of the price, then he confuses two distinct facts. If by it he means receipt of the money, he puts himself out of Court, because that took place outside Manitoba.

In order to show the sources of profits in this case, I shall briefly review the operations which, taken all together, yielded the profits. The company is a Dominion company, with its head office and plant and management maintained in the Province of Ontario. There, it acquired the ingredients for its chewing gum, stored them, processed them and made them ready for sale. From there, it shipped some of the product to Winnipeg in carload lots. In Ontario the company created or extended the Manitoba demand for the gum by advertising in various ways; there it selected the jobbers in Manitoba to whom, exclusively, the gum might be sold here, and set the prices for sales to the jobbers, and the terms of credit, as well as the price to the ultimate consumer. After each sale in Manitoba, the company in Ontario received a copy of the sale invoice, checked it, and did all things necessary or incidental to the collecting of the price—taking all the risk and loss of bad or doubtful debts. All these operations took place in Ontario.

The Manitoba branch received the goods; stored them in the warehouse; solicited orders from the designated jobbers, executed orders by shipping and delivering the gum and sending out invoices to the purchasers ; and then reported the sales, with duplicates of the invoices, to the head office. That is about all that was done in Manitoba.

For all these operations in both Provinces, adequate staffs, premises, and facilities, were maintained by the head office. By increasing public demand for the gum, the company was able to manutacture and ship in large quantities; by skill and planning, it otherwise reduced the unit cost of its product and so increased the profit on sale. In the same way, but in varying degrees, other operations affected the ultimate cost of the goods, and so were reflected in the net profits on sale. By care in selecting purchasers and allowing credit, the risk and loss on the collection of price were minimized and affected net profits.

To say that none of these operations are to be considered as yielding profit, except the actual sales or the transfer and delivery of the gum to jobbers in Manitoba, seems to be a denial of facts. The profits were the result of all these operations combined—and surely they can be said to have arisen not from any particular operation or operations, but rather from the whole series of operations. As Duff, C.J.C., in the International Harvester case (a ease stronger for the appellant that this present case, in that the profits were received in Saskatchewan where the sales were made) said, at p. 334:

" " It is not the profits received in Saskatchewan that are taxable; it is the profits arising from its business in Saskatchewan, not the profits arising from the company’s manufacturing business in Ontario and from company’s operations in Saskatchewan taken together, but the profits arising from the company’s operations in Saskatchewan.”

The actual distinction between the earning of profits and the realizing of profits must always be borne in mind. Profits that are eventually realized in cash have been earned, or have arisen, all along the way from every operation from the beginning to the end of the series.

The views which I have thus far expressed are supported by our highest authorities—the Supreme Court of Canada and the Privy Council. From the many eases cited to us, I select for particular consideration only two—believing that all the others turn upon their own statutes and facts, or at least add nothing of importance.

The first case I shall consider is Kirk f s case, [1900] A.C. 588, already mentioned. That was an appeal of two cases from the Supreme Court of New South Wales. The facts briefly are that a company of Victoria Colony, extracted ore from leased Crown land in the Colony of. New South Wales; processed it there; shipped the product to London, and there sold it and there received the price thereof. The Land and Income Tax Assessment Act of New South Wales, by s. 15, imposed a tax on the income ‘‘(1) Arising or accruing to any person wheresoever residing from any . . . trade . . . carried on in New South Wales;” 4 " (3) Derived from lands of the Crown held under lease . . . ;

(4) Arising or accruing . . . from any other sourse whatsoever in New South Wales .” By s. 27(3) it declared that "No tax shall be payable in respect of income earned outside the Colony of New South Wales.”

The Supreme Court of New South Wales, following its own previous decision in Tindal’s case (18 N.S.W.L.R. 378) held that profits arose only in London, where the goods were sold and price received. The Privy Council reversed that decision and held that some part of the profits arose in New South Wales. Analysing the sources of the income, Lord Davey said, at p. 592:

"‘It appears to their Lordships that there are four processes in the earning or production of this income—(1) the extraction of the ore from the soil; (2) the conversion of the crude ore into a merchantable product, which is a manufacturing process; (3) the sale of the merchantable product; (4) the receipt of the moneys arising from the sale. All these processes are necessary stages which terminate in money, and the income is the money resulting less the expenses attendant on all the stages.”

He then applied those principles and held that the first process (extraction of ore) gave rise to income ‘‘derived from land . . . , ” and that the second process—a manufacturing one— gave rise to income from " " trade” or certainly ‘‘any other source’’ within the meaning of the Act. He then reiterates that "‘so far as relates to these two processes . . . the income was earned and arising and accruing in New South Wales.’’ He says that their Lordships ‘‘attach no special meaning to the word ‘derived,’ which they treat as synonymous with arising or accruing.” It is clear from the judgment that they treat the word ‘‘earned’’ as but another synonym of ‘‘arise.’’ At p. 592 he says: “The Supreme Court have thought in Tindal’s case and in these cases that the Income was not earned in New South Wales because the finished products were sold exclusively outside the Colony. ’ ‘ And at p. 593 :

‘ The fallacy of the judgment of the Supreme Court in this and in T'indal’s case is in leaving out of sight the initial stages, and fastening their attention exclusively on the final stage in the production of the income.”

It is to be noted that the Kirk case (1) expressly declares what is impliedly recognized by the Manitoba Act; 1.e., that some part of such income may be ‘‘earned’’ outside the taxing jurisdiction; (2) that the mining of ore, and the manufacturing of it, can and do contribute to the earning of income; (3) that whole income arises from the whole series of operations; (4) that the New South Wales Act is very similar to our own; and (5) that the facts of that case, although reversed, are not only very similar, but are stronger for the taxing authority than the facts in the present case.

No ease cited in any degree destroys or weakens the applicability to the present case of the principles laid down in that case. It seems to me to answer completely the appellant’s argument.

The only other case I wish to consider at length is International Harvester Co. of Canada v. Provincial Tax Commissioner [1941] S.C.R. 325, to which I have already made reference. On its facts, that case was similar to the present case, in that an Ontario company manufactured in Ontario agricultural machinery which it then sold through its branch office in Saskatchewan; but is dissimilar in that it received the price of the machinery not in Ontario but in Saskatchewan. The relevant taxing provisions are virtually identical with ours—imposing a tax on the ‘‘net profit or gain arising from the business’? carried on by the company in Saskatchewan. Regulations passed under the Act, stipulate that income so taxable, apart from certain items, ‘‘shall be taken to be such percentage of the remainder of the income as the sales within the Province bear to total sales.” These Regulations had been passed to enable "‘the Minister . . . to fix or determine the tax to be paid . . . ’’ in cases where he is ‘‘ unable to determine, or to obtain information to ascertain the income within the province . . . .” Regulation No. 4 declares that the method prescribed is for the purpose of determining the income ‘‘reasonably attributable to business and sources within the Provinee.’’ The Act, sec. 4m, expressly exempts from taxation “profits earned by a corporation . . . in that part of its business carried on at a branch or agency outside of Saskatchewan.” Because the appellant Company did not and could not furnish the Minister with the required information, the taxable income was determined by the Minister under the Regulations.

The Supreme Court held by a majority of 4 to 3 that the Regulations were intended to confine taxation to income arising within the Province, and that they had been so applied; that they provided the best available method of determining that income; that their application was necessary if any assessment was to be made ; that they did not necessarily tax income arising outside the Province and consequently were valid and intra vires of the Act; and finally, that because the amount of the profits so arising in Saskatchewan had been found as a fact by the lower tribunals, that amount must be accepted as correct by the Supreme Court which had no jurisdiction to deal with the facts of the case.

That judgment impliedly recognizes—certainly does not deny—that part of the net profits of the company might arise outside Saskatchewan, but held that there was no intention to tax that part, and in fact no taxation of it.

Duff, C.J.C., for the minority, thought that if the Regulations when applied, might lead to taxation of income arising outside Saskatchewan, they were invalid. He sets forth this view with conviction and authority. He then goes on to declare, as I have already quoted, that the profits on the goods sold in Saskatchewan were earned by all the processes and operations which took place in Ontario and Saskatchewan taken together. He followed the Kirk case and quoted extensively from it.

It is to be noted that the majority Judges did not controvert the view expressed by the Chief Justice; all they did was to content themselves by saying that on the facts as found below, the tax had been imposed upon that part of the income which arose in Saskatchewan, and on nothing more. A year later, however, in the Firestone case, 1942 S.C.R. 476; [1942] C.T.C. 254, Kerwin and Hudson, J J., in dissent stated, in effect, that income arises not from manufacture, but from sale at the time and place of sale. This statement, as I have already shown, deals with facts—not with law, and as such must be confined to the facts in the Firestone case.

The remaining questions before us, can be disposed of without difficulty. The chief of these are: who should make the assessment ; how should it be made; and in what amount? The trial Judge referred the matter back to the Minister for those purposes. With that I agree. Section 47 of the Act provides that where ‘‘any return or information supplied by . . . a taxpayer” is inadequate or unsatisfactory to him, "‘the Minister may determine the amount of the tax to be paid by any person. ‘ ‘ There is no other person designated under the Act to determine the amount.

But the trial Judge himself made a finding of the amount of the tax, and in the formal judgment directs that the Minister adopt it. He exceeded his powers I think in so directing—invaded the field which the Act assigns exclusively to the Minister. Moreover, that amount was determined upon a formula prepared by an expert accountant and submitted at the trial. The formula may provide a way of determining the correct amount, or it may not. It will doubtless be a valuable guide to the Minister, but he is not bound to adopt it and the Court should not attempt to force it upon him. The judgment below should therefore be varied to that extent.

For the additional guidance of the Minister, I desire to say that the ‘‘manufacturer’s profit,’’ so-called, which the respondent included in its return, is unsound in principle as well as in terminology. The profit which arose from the company’s business in Ontario, and which ought to be excluded from taxation in Manitoba, was a profit on all operations—manufacturing and others—in Ontario; but the amount of these profits so to be excluded, and as declared in the return, was an arbitrary, stat- tionary amount fixed by the company for its own bookkeeping convenience, and bore no relationship to costs which varied from year to year. Those ‘‘manufacturing profits ’ ’ may serve as some guide, but they are not necessarily to be adopted by the Minister.

In order to clear two other points, I merely add that sales which have been dealt with here, include by consent, for the purposes of this appeal, all sales made in the territory lying between the Great Lakes and the Rocky Mountains; also, that it has been assumed tacitly, that this Court has jurisdiction to hear an appeal from a King’s Bench Judge, although the appeal provisions of the Act do not so declare. And finally, that costs, to or against the Crown, are left to the discretion of the Court by section 60(4).

I would therefore, vary the formal judgment below by withdrawing from it the amount of the tax, and the direction to the Minister to adopt that amount. I would, as the trial Judge does in his reasons, refer the matter back to the Minister to determine the amount of taxable income on the principle of apportionment as herein declared. In other matters I would dismiss the appeal. I would allow the respondent its costs here and below.

Appeal allowed.