Dominion of Canada General Insurance Co. v. The Queen, 86 DTC 6154, [1986] 1 CTC 423 (FCA)

Stone, J.:—This appeal raises questions concerning the interpretation to be given certain provisions of the Income Tax Act (the “Act’’) as it stood both in 1968* [1] and 1969.t [2] It is brought from a decision of the Trial Division:): [3] rendered on March 20, 1984 in which it was held that the appellant had correctly included in its 1969 income for income tax purposes an amount of $10,454,396 which it had deducted from its 1968 income.

Background

The appellant was incorporated in 1887 by an Act of the Parliament of Canada with authority to carry on an accident insurance business. That business may be conveniently referred to as its “other-than-life" insurance business. It has engaged in that line of business throughout the entire period of its existence. In 1924 the appellant was authorized to underwrite life insurance risks and ever since it has engaged in that line of business simultaneously with its other-than-life insurance business. In point of fact, it has devoted substantial assets to both lines of business. In 1968, for example, the amounts were roughly equal and were very substantial, each being in the neighbourhood of $28,000,000.

The issues on this appeal arise out of assessments and reassessments by the Minister of National Revenue of the appellant’s income for the taxation years 1969, 1970, 1971 and 1972. It is agreed, however, that the pivotal year is 1969 and that the assessments and reassessments for the remaining years will stand or fall according to whether the assessment and reassessment for the 1969 taxation year were correct or incorrect.

Certain provisions of section 85B of the Act as it stood in the 1969 and subsequent taxation years are relevant. That section read in part:

SPECIAL RESERVES

85B. (1) In computing the income of a taxpayer for a taxation year,

(a) every amount received in the year in the course of a business

(i) that is on account of services not rendered or goods not delivered before the end of the year or that, for any other reason, may be regarded as not having been earned in the year or a previous year, or

(ii) under an arrangement or understanding that it is repayable in whole or in part on the return or resale to the taxpayer of articles in or by means of which goods were delivered to a customer,

shall be included;

(b)

(c) subject to subsection (3), where amounts of a class described in subparagraph (i) or (ii) of paragraph (a) have been included in computing the taxpayer's income from a business for the year or a previous year, there may be deducted a reasonable amount as a reserve . . .

(d)

(e) there shall be included the amounts deducted under paragraphs (c) . . . in

computing the income of the taxpayer for the immediately preceding year.

(5) Paragraph (c) of subsection (1) does not apply to allow a deduction as a reserve in respect of insurance, but an insurance corporation shall, in computing its income for a taxation year from an insurance business, other than a life insurance business, carried on by it, deduct as policy reserves such amounts as have been prescribed for the purposes of this subsection.

(7) For the purposes of paragraph (e) of subsection (1), an amount determined under subsection (3) or an amount deducted under subsection (5) or (6) shall be deemed to have been deducted under paragraph (c) of subsection (1).

In its 1968 taxation year, the appellant filed two separate income tax returns, one in respect of its life insurance business and the other in respect of its other-than-life insurance business. This was done in compliance with a long established practice which had been initiated by the Department of National Revenue. In calculating its income from its other-than-life insurance business for that year the appellant deducted the amount in issue as a policy reserve which it calculated according to the provisions of Regulation 1400 as “prescribed” for purposes of subsection 85B(5) as it then stood. Regulation 1400 read:

POLICY RESERVES OF INSURANCE CORPORATIONS

1400. For the purpose of subsection (5) of section 85B of the Act, the amounts prescribed are

(a) the total amount of the unearned premiums, on the 100% basis, at the end of the corporation’s taxation year, and

(b) such other amounts, if any, as are required to be shown as policy reserves at the end of the corporation’s taxation year

as computed for the purpose of financial statements required to be submitted to the Superintendant of Insurance for Canada, or if the corporation is not required to submit financial statements to the Superintendent of Insurance for Canada, the provincial authority under whose jurisdiction the corporation was incorporated.

By a combination of paragraph (1)(c) and subsections (5) and (7) thereof, section 85B of the Act as it stood in 1968, like its 1969 successor, provided for the deduction from income of a policy reserve. The relevant provisions read in part:

85B. (1) In computing the income of a taxpayer for a taxation year,

(a)

(b)

(c) . . . there may be deducted a reasonable amount as a reserve . . . (d)

(e) there shall be included the amounts deducted under paragraphs (c) . . . in

computing the income of the taxpayer for the immediately preceding year.

(5) Paragraph (c) of subsection (1) does not apply to allow a deduction as a reserve in respect of insurance, but an insurance corporation, other than a life insurance corporation, shall, in computing its income from its insurance business for a taxation year, deduct as policy reserves such amounts as have been pre- cribed for the purposes of this subsection.

(7) For the purposes of paragraph (e) of subsection (1), an amount determined under subsection (3) or an amount deducted under subsection (5) or (6) shall be deemed to have been deducted under paragraph (c) of subsection (1).

The Minister accepted the appellant's policy reserve calculation and assessed its 1968 other-than-life insurance income accordingly.

In 1969 the appellant again filed two income tax returns, one in respect of its life insurance business and the other in respect of its other-than-life insurance business. Consistent with the appellant’s return of income for that year, the Minister assessed income from its other-than-life insurance business on the basis that the amount in issue, having been deducted in 1968 as a policy reserve, was required by paragraph 85B(1)(e) to be brought into income in 1969. In confirming this action by way of reassessment the Minister rejected the appellant’s contention that paragraph 85B(1)(e) of the 1969 legislation, properly understood, did not require it to include the amount in issue in its 1969 return of other-than-life insurance income because such amount ought not to have been deducted in 1968.

That contention lies at the heart of this appeal. It is based upon the treatment accorded taxable income of a “life insurance corporation” under section 30 of the statute as it stood in 1968. That section, like section 85B, is found in Part 1 of the statute and reads in part:

30. Notwithstanding anything in this Part, the taxable income of a life insurance corporation for a taxation year is the aggregate of the amounts credited to shareholders' account or otherwise appropriated for or on account of shareholders during the year minus the aggregate of . . .

The appellant contends that as it did not in 1968 credit or otherwise appropriate any amount for or on account of the shareholders, as a “life insurance corporation" in that year it had no taxable income to compute; that being a “life insurance corporation" in that year it could have no other-than-life insurance income from which to deduct a policy reserve pursuant to subsection 85B(5) which, by its terms, applied only to the income of “an insurance corporation, other than a life insurance corporation;" that the fact that it did compute income from its other-than-life insurance business in 1968 and did deduct therefrom the amount in issue as a policy reserve in that year is of no consequence because it was not done according to law; that in view of the foregoing the above amount cannot be said to have been deducted from 1968 income “under” paragraph 85B(1)(c) of the 1968 legislation and therefore was beyond the reach of paragraph 85B(1)(e) of the 1969 legislation.

The phrase “an insurance corporation, other than a life insurance corporation” in subsection 85B(5) appeared as well in section 68A of the 1968 legislation in only a slightly different form (there being no comma after the third word). That section laid down rules for the computation of the income of an insurance corporation arising from what is referred to herein as an other-than-life insurance business and read in part as follows:

Mutual Insurance Corporations

68A. It is hereby declared that an insurance corporation other than a life insurance corporation, whether or not it is a mutual corporation, that has, in a taxation year, entered into insurance contracts or other arrangements or relationships whereby it can reasonably be regarded as undertaking to insure other persons, whether or not such persons are members or shareholders of the corporation, against loss, damage or expense of any kind, shall, regardless of the form or legal effect of those contracts, arrangements or relationships, be deemed, for the purposes of this Act, to have been carrying on an insurance business in the year for profit, and, in any such case, for the purpose of computing the income from the business so deemed to have been carried on, the following rules are applicable.

I have already quoted the text of paragraph 85B(1)(e) as it stood in 1969 but some of its language bears repeating. It directed a taxpayer, in computing income for a current taxation year, to include therein “the amounts deducted under paragraphs (c) . . .” in computing income “for the immediately preceding year.” By the legislation as it stood in 1968, a policy reserve required to be deducted by subsection 85B(5) was, by subsection (7), deemed for the purposes of paragraph (1)(e) to have been deducted “under” paragraph (1)(c). The form of paragraph (1)(e) of the 1969 legislation was substantially the same as that which had appeared in the 1968 legislation.

Trial Judgment

In deciding that the amount in issue was reached by paragraph (1)(e) as it stood in 1969 the learned trial judge stated:* [4]

Had the 1968 version of subsection 85B(5) been cast in the same mould as its 1969 counterpart there could have been no question about the deduction of the unearned premium reserve of $10,454,396. But the plaintiff says that as a life insurance corporation it was legally precluded from deducting this reserve, although it did in fact do so. It follows that the deduction of the unearned premium reserve must be treated as non-existent. In other words, the legal wand magically erases the factual occurrence. The result is that nothing happened in 1968 which could possibly trigger in 1969 the capturing mechanism of paragraph 85B(1)(e), assuming it applies. This is an able and ingenious argument but it belies the fact of what actually occurred. Moreover, it constitutes an outright attack on the 1968 assessment by asserting how the Minister should have assessed the plaintiff in that year and thus puts in issue an objection for which the time afforded by the statute to serve notice of objection and file appeal has long since expired. In my opinion, the argument does not avail with the result that the 1968 assessment must be deemed valid and binding. Consequently, the deduction by the plaintiff in that year of the unearned premium reserve of $10,454,396 is not obliterated but remains very much a fact. The focal point is thus constricted to the issue of what legal result obtained in 1969 from the fact of the 1968 deduction. This brings to mind the old saying of Bishop Butler:

things and actions are what they are and the consequences of them will be what they will be . . .

The final question is simply this — whether the words of paragraph 85(1 )(e) of the Income Tax Act interpreted in their plain, ordinary and grammatical sense in context of the statutory scheme of section 85B reach out to bring within the tax net in 1969 the unearned premium reserve of $10,454,396 deducted in 1968.

The basic rule for the interpretation of a taxing statute is to give effect to the meaning of the words used within their proper context and in light of the statute as a whole. There are two complementary subrules. If the words taken in context are precise then they must be interpreted in their plain, ordinary and grammatical sense. If the words are imprecise so as to give rise to the possibility of two constructions then they should be interpreted in the manner which will bring about the result which conforms to the apparent scheme of the legislation, rather than in a way which will obviously defeat it. (Tennant v. Smith, [1982] A.C. 150, Versailles Sweets, Limited v. The Attorney General of Canada, [1924] S.C.R. 466, 468, Highway Sawmills Ltd. v. M.N.R., [1966] S.C.R. 384, 393; [1966] C.T.C. 150; 66 D.T.C. 5116).

It is my opinion that the words of paragraph 85B(1)(e) of the Income Tax Act taken in proper context in light of the statutory scheme of section 85B and the other related provisions clearly require that the unearned premium reserve of $10,454,396 which the plaintiff deducted in 1968 for its other-than-life business must be included in its 1969 income from that source. I am satisfied that this was the obvious intent of Parliament, especially in the absence of any “notwithstanding” clause to nullify the interactive effect of the said paragraph. To quote Lord Halsbury in Tennant v. Smith .. the words of the Act have reached the alleged subject of taxation.”

For the foregoing reasons, I conclude that the Minister was correct in treating the 1968 unearned premium reserve deduction as income to the plaintiff in 1969 and his reassessments must stand. Accordingly, the plaintiffs appeal is dismissed with costs.

Arguments

I return to the appellant's contention as it was elaborated before us. The learned trial judge, it is said, erred by failing to decide whether in 1968 the appellant, as it claimed, was a "life insurance corporation" and, if it was, whether, for the purposes of paragraph 85B(1)(e) of the 1969 legislation, the policy reserve was deducted "under" paragraph 85B(1)(c) of the 1968 legislation. It is argued that had that been done and an affirmative conclusion arrived at, the learned trial judge would have been obliged to conclude, on the basis of the case law as it then stood, that all of the appellant’s income for that year was subject to taxation under section 30 alone. The appellant further submits that, as it had accepted its 1968 income tax assessment, the learned trial judge again erred in characterizing the above contention as an "outright attack" on that assessment. Rather, it says, only the legal effect in the 1969 taxation year of what it ought to have done in the 1968 taxation year is being raised and not the validity of the 1968 assessment as such.

The contention that the appellant was a “life insurance corporation" in its 1968 taxation year is supported in three ways. In the first place counsel relies upon a decision of the Exchequer Court of Canada in British Pacific Life Insurance Company v. M.N.R.t [5] The appellant in that case was incorporated in 1959 by an Act of the Parliament of Canada with power to "make contracts of life insurance, personal accident insurance and sickness insurance." In that year, as well as in 1960 and 1961, it engaged in those lines of the insurance business. It was clear that, relative to its accident and sickness insurance business, its life insurance business was rather minuscule. In those three years premium income from that source comprised, respectively, 16 per cent, 1.02 per cent and 1.68 per cent of total premium income from its entire insurance business. The appellant there contended that taxability of its income under the Act as it stood in those years was governed by section 30. In other words, it argued, as a "life insurance corporation'" all of its insurance income and not just that derived from its life insurance business was governed by the provisions of that section and not by any other provision of the Act. Section 30 was identical in the years there in question to that which was in force in the appellant’s 1968 taxation year.

The case was heard by Gibson, J. He accepted the taxpayer's contention, concluding, at 274 (C.T.C. 97), that "the taxable income of the appellant from all sources" and not just its income from the life insurance part of its business was to be computed "pursuant to section 30 of the Act and not pursuant to the provisions of the Act other than section 30." The learned judge gave the following reasons for so concluding:!: [6]

My reasons for coming to the conclusion that I do, may be put briefly: (1) the appellant is and was at all material times in the life insurance business in a bona fide manner and has expended most substantial effort and money from incorporation to date in getting into the life insurance business; (2) the 1948 Income Tax Act was an entirely new act, and the date of its enactment is the date which should be looked at in considering the meaning of a “life insurance corporation” in section 30 of the present Act; (3) section 30 of the Income Tax Act is not an exempting provision. It is a special provision prescribing the method to be employed in taxing the income of life insurance corporations, and is no different than, for example, section 69 of the Act which prescribes special provisions for the taxation of the income of investment companies; (4) the Act incorporating the appellant company at clause 6, authorized the appellant to be in the life insurance business; and the name granted in this Act by Parliament to the appellant, namely, British Pacific Life Insurance Company is some evidence of Parliament's intent; (5) the Certificate of Registry under the Canadian and British Insurance Companies Act, Statutes of Canada 1952, chapter 31, authorized the appellant to engage in the life insurance business; and Part IV of that Act applies to this appellant; (6) section 30 of the Income Tax Act is not an escape from taxation but merely a type of deferment, (See in this connection section 84 of the Canadian and British Insurance Companies Act.); (7) neither in section 30 nor in any other section of the Income Tax Act is there a definition of “a life insurance corporation”; (8) no regulations have been passed pursuant to the enabling provisions of section 117(b) of the Act “prescribing the evidence required to establish facts relevant to assessments under this Act” and the facts alleged and proved therefore are no guide as to what should be considered in coming to a conclusion as to what are the necessary constituent elements of a business of a corporation to qualify it as a “life insurance corporation” within the meaning of section 30 of the Act; (9) if Parliament had meant to qualify section 30 of the Act with either the word “sole” or “exclusive” or the word “predominant” or with equivalent words in relation to the business of a “life insurance corporation”, or to have it apply only to the life insurance part of the whole business of such a corporation as the appellant, it would have said so, as it did, for example, in section 13, section 83A(2), section 83A(3), section 83A(3a), section 83A(3b) and section 83A(3c) of the Income Tax Act; and finally (10) it is not the function of the Court to add words in interpreting the words of a statute. In this connection, the words of Lord Simonds in Magor and St. Mellons Rural District Council v. Newport Corporation, [1952] A.C. 189 at 191, in relation to what was suggested as the correct procedure for a Court to adopt in interpreting a statute, namely, “What the legislature has not written, the court must write”, are apposite here, namely:

It appears to me to be a naked usurpation of the legislative function under the thin disguise of interpretation. And it is the less justifiable when it is guesswork with what material the legislature would, if it had discovered the gap, have filled it in. If a gap is disclosed, the remedy lies in an amending Act.

For these said reasons, the conclusion that I have come to, is that on a true interpretation of Section 30 of the Income Tax Act in relation to the facts of this case, the appellant is “a life insurance corporation” within the meaning of those words in that section.

The appellant argues that its case, if anything, is even stronger here because a greater percentage of premium income derived from its life insurance business. Moreover, as it points out, very substantial assets were committed to its life insurance business as of the year 1968.

Secondly, the appellant relies on certain provisions of section 90A(1), (2) and (22) of the Canadian and British Insurance Companies Act, R.S.C. 1952

c. 31, as amended by S.C. 1957-58, c. 11 to support its contention. They read in part:

90A. (1) Notwithstanding anything in its Act of incorporation or in any Act amending such Act, or in this Act, a company that has a capital stock and that is registered under Part III to transact the business of life insurance, whether alone or in combination with any other class of insurance business, may, with the permission of the Minister establish and implement a plan for the conversion of the company into a mutual company by the purchase of shares of the capital stock of the company in accordance with the provisions of this section.

(2) The terms and provisions of any plan referred to in subsection (1) shall be set forth in detail in a by-law . . .

(22) Notwithstanding anything in this or any other Act, where an amount has been applied by a company in payment for shares purchased under the terms of a by-law of the company described in subsection (2),

(a) no part of that amount shall be deemed to be a distribution, allotment or division of profits of the company, and

(b) section 8 of the Income Tax Act does not apply to require the inclusion, in computing the income of any shareholder, of any part of that amount, nor shall any part thereof be deemed, for the purposes of section 30 of that Act, to have been credited to shareholders’ account or otherwise appropriated for or on account of shareholders, or, for the purposes of section 81 of that Act, to have been received as a dividend.

On the basis of these provisions counsel makes the following submission as set forth in the appellant’s memorandum of fact and law:

74. The said section 90A contains provisions governing the conversion of a capital stock insurance company registered to transact the business of life insurance, whether alone or in combination with any other class of insurance business, into a mutual company. Subsection 90A(22) provides that amounts applied by the company in payment for shares purchased in the course of such a conversion shall be deemed not to be amounts credited to the shareholders' account for the purposes of section 30 of the Income Tax Act. In effect, subsection 90A(22) provides that if a company such as the Appellant were to convert to a mutual company, section 30 will not apply in respect of amounts paid for the purchase of shares for cancellation. It is submitted that if companies such as the Appellant were not considered by Parliament to be life insurance corporations within the meaning of the 1968 Act, subsection 90A(22) would not have been enacted to apply to companies such as the Appellant.

Finally, section 68B of the Act as it stood in 1968, when read in the light of the above quoted provisions of section 90A of the Canadian and British Insurance Companies Act, is relied upon by the appellant to support its contention. That section of the Act recognized that a provincially incorpo- rated entity having authority to transact life insurance business could, under provincial laws, be converted into a mutual corporation by means of a purchase of shares made in accordance with those laws. It provided that no part of the amount paid for such shares “shall be deemed, for the purposes of section 30, to have been credited to shareholders’ account or otherwise appropriated for or on account of shareholders." On the basis of those provisions counsel makes the following additional submission as set forth in the appellant’s memorandum of fact and law:

75. It is submitted that the intention of Parliament as to the meaning of the term “life insurance corporation” in section 30 of the 1968 Act is indicated in section 68B which is entitled “PROVINCIAL LIFE INSURANCE CORPORATIONS.” Section 68B applies to a corporation that is incorporated under the laws of a province with authority to transact the business of life insurance and converts into a mutual company. It is submitted that section 68B, which was enacted by S.C. 1959, c. 45, s. 17 applicable to amounts applied after 1958, is in pari materia with and based on subsection 90A(22) of the Canadian and British Insurance Companies Act, which was enacted by S.C. 1957-58, c. 11, s. 4, assented to December 20, 1957.

The Crown's response to the appellant’s contention is set forth in its memorandum of fact and law:

7. The Deputy Attorney General of Canada submits that irrespective of whether or not the Appellant was or was not a life insurance corporation in the taxation year 1968 and prior thereto, the statutory scope of the words found in para. 85B(1)(e) of the Income Tax Act interpreted in their plain, ordinary and grammatical sense and read within the context and statutory purpose of section 85B, reach, in the Appellant's 1969 taxation year, the targeted amount of $10,454,396 that was factually deducted by the Appellant as an unearned premium reserve in its computation of income for its 1968 taxation year pursuant to the statutory scheme of section 85B and regulation 1400 of the 1968 Act.

Issues In Appeal

I am prepared to deal with this appeal on the basis of the issues as defined by the appellant. They are: whether the appellant was a “‘life insurance corporation” in 1968; secondly, whether, as a life insurance corporation, it was required or permitted under the Act to compute its income from any business or source for that year; and, finally, whether it was required to include the amount in issue in computing its 1969 income from its other-than-life insurance business. I adopt this approach despite the respondent's position that, by the Act, that amount had to be included in the 1969 income “irrespective of whether or not the appellant was or was not a life insurance corporation in the taxation year 1968 and prior thereto.” The appellant concedes that, if it should fail on the first question, there will be no need for the Court to go into the remaining questions for, then, the appeal must fail.

In presenting his case, counsel for the appellant took time to stress that, if this appeal succeeded, it would not result in tax avoidance in the 1969 taxation year but only in tax deferral. Section 30 of the Act was repealed by the legislative changes contained in S.C. 1968-1969, c. 44 which were applicable to the 1969 and subsequent taxation years. Section 68A was also amended and, in consequence, the income of a life insurance corporation for the 1969 and subsequent taxation years fell to be taxed, generally speaking, in the same way as other insurance corporations. The amended legislation provided transitional rules whereby a life insurance corporation was required to establish an amount as a policy reserve as if it were deducted in 1968 and to bring that amount into 1969 income.

The position taken by the appellant after its income for 1969 had been assessed was that the amount in issue should have been omitted from its other-than-life insurance income for that year. Instead, as is pleaded in paragraph 18 of the statement of claim, it should have filed only one tax return for 1969 reporting the consolidated net income from all of its insurance business. It claims that, as it was under the amended legislation a life insurance corporation in that year, it could have computed its income by, inter alia, omitting the amount in issue under “opening reserves (policy and other)” from its other-than-life insurance income. The overall effect of that omission would have been as explained in paragraph 8 of the affidavit of an expert witness, Robert C. Knechtel, C.A., filed on behalf of the appellant:

The effect of allowing the Plaintiff to omit the amount of $10,454,396 from its “opening reserves (policy and other)” for 1969 as shown in paragraph 18 of the Statement of Claim herein would be to permit the Plaintiff to deduct less than its maximum allowable policy reserves in 1969 to the extent of $9,228,486, thereby permitting the Plaintiff to claim such reserves in subsequent years.

Immediately following this evidence, in the same paragraph the following additional statement appears:

As against that, the Plaintiff has prepaid tax in the amount of approximately $1,900,000 during the years 1950 to 1968 inclusive as shown in Schedule I attached hereto.

At the trial it became apparent that this evidence was based upon the assumption that the appellant was a “life insurance corporation” under the legislation in effect for each of the years mentioned by the witness. The Minister’s assessments of the appellant’s income for those years are also closed and, like that of 1968, their validity is not questioned on this appeal.

Discussion of Issues

I will now deal with the above-mentioned issues in turn.

Was the appellant a "life insurance corporation" in 1968?

The appellant’s argument that being a “life insurance corporation” in 1968 it ought not to have included the above amount in its 1969 other-than- life insurance income was emphatically rejected by the learned trial judge who characterized it as an "outright attack on the 1968 assessment” from which no objection had been taken. I shall deal with that point momentarily. In the meantime, I think it legitimate to ask at this stage whether, by the statute as it stood in 1968, the appellant was compelled or even permitted to deduct the amount in question as a policy reserve against other-than-life insurance income for that year. The fact that it did so, it seems to me, will have to be considered independently in disposing of the ultimate question raised by this appeal, namely, whether or not that amount was correctly included in the appellant’s 1969 other-than-life insurance income.

I have already set out the appellant’s arguments under this head. As was made clear by the learned trial judge in his reasons for judgment, the British Pacific case did not deal with the fundamental question raised by this appeal. On the other hand, it seems to me to have dealt with the particular question now under consideration: i.e., whether an entity that transacted the business of life insurance in a taxation year is to be regarded as a “life insurance corporation” for the purposes of section 30 of the Act notwithstanding that it transacted other-than-life insurance business in the same year. I am quite unable to distinguish the facts of that case from those of the present case so far as that question is concerned. The Trial Division there decided that the British Pacific Life Insurance Company was “a life insurance corporation” within the meaning of section 30 and no appeal was taken from its decision.

Prior to 1969 no definition of the term “life insurance corporation” appeared in the Act. The meaning of those words must primarily be ascertained by reference to the legislation itself. As we have already seen the same words appeared elsewhere in Part I of the Act. In section 68A they appeared in the phrase ‘‘an insurance corporation other than a life insurance corporation” and in subsection 85B(5) that phrase was repeated, this time with the addition of a comma after the third word. It is apparent that Parliament, by using this formulation of words, directed itself to the tax treatment to be accorded either a "life insurance corporation” or an "insurance corporation” as such rather than the tax treatment to be accorded an insurance business. In my view, on the basis of the language used by Parliament, the appellant could have been fairly regarded in 1968 as being a "life insurance corporation” for the purposes of section 30 of the Act rendering its insurance income, if any, subject to the provisions of that section had it chosen to file its tax return on that basis.

The respondent sought to counter the appellant's argument by contending that it was not in 1968 a life insurance corporation because in that year it also transacted an other-than-life insurance business. That, of course, is the very argument that was addressed to and rejected by the trial division in the British Pacific case. I can find nothing in the Act as it stood in 1968 that requires a different conclusion only because the appellant also transacted in that year other forms of insurance business. In my view, that circumstance did not alter the appellant’s essential nature under the Act as a “‘life insurance corporation.”

I am assisted on this point by the provisions of the Canadian and British Insurance Companies Act relied upon by the appellant. The appellant was subject to the regulatory scheme laid down by that statute and, indeed, derived its authority to transact its insurance business in 1968 from a licence issued pursuant to its provisions. It is not contended, of course, that the provisions of subsection 90A(22) of that statute here relied upon represented, in effect, taxation legislation as such. They are intended to remove from the operation of section 30 of the Act one of the consequences flowing from the conversion of a life insurance corporation into a mutual company pursuant to subsection 90A(1) of the above statute. Parliament accomplished that by not treating an amount paid by a life insurance corporation under a conversion plan to a shareholder for an outstanding share of its capital stock as an "amount . . . credited to shareholders’ account or otherwise appropriated for or on account of shareholders” for the purposes of section 30 of the Act. That language is also the language of section 30 of the Act. In so providing Parliament plainly had in mind not just a company registered under it to transact exclusively the business of life insurance but, as is stated explicitly in subsection 90A(1), it also had in mind a company registered to transact the business of life insurance "whether alone or in combination with any other class of insurance business.” I agree with the appellant that the language used by Parliament in subsections 90A(1) and

(22) points to an intention on its part that a company engaged in the life insurance business is to be regarded as a “life insurance corporation” for the purposes of section 30 of the Act notwithstanding that it transacted simultaneously some other class of insurance business.

The appellant also relies on the provisions of section 68B of the Act read in the light of section 90A of the Canadian and British Insurance Companies Act in further support of its contention that it was a “life insurance corporation" in 1968. In view of the conclusion I have already reached it is not necessary to examine this argument.

Was the appellant required or permitted to compute its income in 1968?

The next question is whether the appellant was required or permitted by the Act to compute income in 1968 in view of my conclusion that it was in that year a “life insurance corporation.” The evidence at trial established that no amounts were in fact “credited to shareholders’ account or otherwise appropriated for or on account of shareholders" during 1968. In view of that circumstance, the appellant had no “taxable income" for that year under section 30 of the Act and, accordingly, as a life insurance corporation, it was not required or permitted to compute income in 1968. The fact that it did so and in doing so that it deducted the amount in issue as a policy reserve against other-than-life insurance income is an entirely different matter to which I now turn.

Was the appellant required to include in 1969 income the policy reserve amount deducted in 1968?

I agree with the respondent that this is the “fundamental question” to be determined on this appeal. Though the appellant was not obliged by the Act to compute 1968 income, in fact it did so and in doing so it deducted from other-than-life insurance income the above amount as a policy reserve. That reserve was calculated by the appellant in accordance with regulation 1400 as prescribed by subsection 85B(5) of the Act as it stood in 1968. The respondent submits that it matters not that this deduction was or was not required or permitted to be made in 1968 according to whether or not the appellant was or was not a “life insurance corporation" in that year. What is important, it contends, is that in point of fact the amount in issue was deducted as a policy reserve in 1968 and having been deducted that the appellant was required to include it in computing its other-than-life insurance income in 1969 in accordance with the provisions of paragraph 85B(1)(e) of the Act as it stood in that year.

The appellant stresses the presence of the word “under" in that paragraph. It will be convenient at this juncture to repeat its relevant language. In computing income:

(e) there shall be included the amounts deducted under paragraphs (c) . . . in computing the income of the taxpayer for the immediately preceding year.

The appellant puts its argument in this way. As it was not required or permitted by the Act as it stood in 1968 to do so, the policy reserve against other-than-life insurance income for that year was not “deducted under paragraph (c)" of subsection 85B(1) so as to require its inclusion in 1969 income pursuant to paragraph 85B(1)(e). Although, says the appellant, as a matter of fact an amount was deducted as a policy reserve in 1968 it was not deducted as a matter of law and therefore there was no need to include it in 1969 income. This submission has the attraction of simplicity. The appellant further argues that the learned trial judge erred in not considering whether that amount “could as a matter of law be "deducted under paragraph (c)' in computing" income for 1968.

As I see it, this argument is not so much a direct challenge to the validity of the 1968 assessment (which was not appealed and is long since closed) as it is an attempt to argue a legal effect in computing 1969 income from what the appellant says ought to have been done in reporting 1968 income. I think it may be legitimately advanced notwithstanding that the 1968 taxation year of the appellant is plainly a closed book. The Court must thus consider whether there is merit to the argument in light of the provisions of paragraph 85B(1)(e) as it stood in 1969 and also in light of what the appellant actually did in computing other-than-life insurance income in 1968.

The appellant relies on a judgment of this Court in Bensol Customs Brokers Ltd. et al v. Air Canada* [7] to support its argument that the policy reserve for 1968 was not deducted "under” paragraph 85B(1)(c). The question in that case was whether the Court had been invested by Parliament by virtue of section 23 of the Federal Court Act, R.S.C. 1970, c. 10 (2nd Supp.), with power to hear and determine a claim for goods allegedly lost while being transported by air from London to Montreal. By that section the Trial Division was invested with jurisdiction "in all cases in which a claim for relief is made or a remedy is sought under an Act of the Parliament of Canada or otherwise.” It was argued that the claim there was in fact founded upon the Carriage by Air Act, R.S.C. 1970, c. C-14, and therefore that it was made "under an Act of the Parliament of Canada.” In dealing with this question Mr. Justice Pratte had this to say:t [8]

A claim is made under a statute, in my view, when that statute is the law which, assuming the claim to be well founded, would be the source of the plaintiff’s right.

From those words it is argued that the amount in issue here was not deducted "under” paragraph 85B(1)(c) because the appellant had no right in law to deduct it as a policy reserve in 1968.

The words of paragraph 85B(1)(e) are directed toward the inclusion in income of an "amount” that was "deducted” in the previous year and not toward an amount that was "deductible”^: [9] in that year. Had that word been used by Parliament it might have added some force to the appellant’s contention that, to be recapturable as income in 1969, the amount in issue had to have been properly deducted in 1968.

I find the respondent's argument compelling. In its 1968 taxation year the appellant deducted the amount in issue as a policy reserve (calculated according to regulation 1400) on the basis that it was entitled to do so and its income was assessed accordingly. To be claimable in 1969 a new policy reserve had to be calculated in that year and not simply brought forward from the preceding year. Although, on my analysis, the foregoing amount was not required to be deducted in 1968, that circumstance cannot alter the fact that it was deducted as a policy reserve in that year. This is particularly so when the appellant made no attempt to challenge the correctness of the 1968 assessment which it could have done by taking appeal proceedings against it in a timely fashion. It accepts that assessment as binding and has never questioned its validity.

In my view, it would require an unduly narrow construction of paragraph 85B(1)(e) to say that its language did not require inclusion of the amount deducted in 1968 in the appellant's 1969 income. Though, undoubtedly, it applies to an amount that is properly deducted, I can see no reason for restricting its application to that circumstance alone. On the contrary, its language seems sufficiently wide to bring within its reach an “amount” that was in fact "deducted" in a previous year by a taxpayer complying or purporting to comply with the provisions of paragraph 85B(1)(c). This is particularly so where, as here, the assessment of that income has been made and accepted and cannot now be challenged by the appellant but, rather, must be taken as valid and binding. I am unable to conceive that Parliament intended anything more by this paragraph than that a taxpayer must bring into income in its current taxation year that which it had deducted as a policy reserve in its immediately preceding taxation year.

Conclusion

In conclusion, I would respectively agree with the learned trial judge that the amount deducted as a policy reserve in 1968 was properly included in the appellant's 1969 other-than-life insurance income. For the foregoing reasons, I would dismiss this appeal with costs.

Appeal dismissed.