A-498-78
Continental Stores Ltd. (Appellant)
v.
The Queen (Respondent)
Court of Appeal, Pratte and Ryan JJ. and Lalande
D.J.—Montreal, June 15, 16 and 19, 1981.
Income tax — Income calculation — Associated companies
— Appellant's 1967, 1968 and 1969 assessments were based on
the assumption that the appellant was associated with other
companies — Trial Judge dismissed appellant's challenge of
these assessments — Whether the directions ordering that the
companies be deemed to be associated were invalid Whether
the Trial Judge should have set aside the directions because
the evidence indicated that none of the principal reasons for
the existence of the corporations was to reduce the amount of
tax which would otherwise have been payable — Appeal
dismissed — Income Tax Act, R.S.C. 1952, c. 148, s. 13842),
(3) — Income Tax Regulations, SOR/54-682, s. 900(1).
APPEAL.
COUNSEL:
J. C. Couture, Q.C. for appellant.
R. Roy for respondent.
SOLICITORS:
Ogilvy, Montgomery, Renault, Clarke, Kirk-
patrick, Hannon & Howard, Montreal, for
appellant.
Deputy Attorney General of Canada for
respondent.
The following is the English version of the
reasons for judgment delivered orally by
PRATTE J.: Appellant is appealing from a judg
ment of Marceau J. of the Trial Division [not
reported, T-1848-75, judgment dated 21/8/78],
which dismissed the action brought by it to chal
lenge its income tax assessments for the taxation
years 1967, 1968 and 1969.
These assessments were made on the assumption
that, during these three years, appellant and nearly
thirty other companies were associated. This was
done because directions had been issued pursuant
to subsection 138A(2) of the Income Tax Act,
R.S.C. 1952, c. 148,' ordering that all these com
panies be deemed to be associated with each other
during the years in question.
Appellant argued, as it did unsuccessfully at the
trial level, that the Department was wrong to
assess it as if it had been associated with the other
companies covered in the directions issued pursu
ant to subsection 138A(2). Its argument was two
fold: first, it maintained that the directions were
invalid, and because of that could not be a basis
for valid assessments; then, it argued that the
directions were in fact unjustified and should be
vacated in accordance with subparagraph
138A(3)(b)(ii):
138A. ...
(3) On an appeal from an assessment made pursuant to a
direction under this section, the Tax Appeal Board or the
Exchequer Court may
(b) vacate the direction if
(ii) in the case of a direction under subsection (2), it
determines that none of the main reasons for the
separate existence of the two or more corporations
is to reduce the amount of tax that would otherwise
be payable under this Act; ...
Appellant's first argument, therefore, was that
the directions issued pursuant to subsection
138A(2) were invalid, and accordingly could not be
a basis for valid assessments. In support of this
first argument, counsel for the appellant made
three arguments, of which it appears only the first
was submitted to the Trial Judge.
' The wording of this provision is as follows:
138A. ...
(2) Where, in the case of two or more corporations, the
Minister is satisfied
(a) that the separate existence of those corporations in a
taxation year is not solely for the purpose of carrying
out the business of those corporations in the most effec
tive manner, and
(b) that one of the main reasons for such separate exist
ence in the year is to reduce the amount of taxes that
would otherwise be payable under this Act
the two or more corporations shall, if the Minister so directs,
be deemed to be associated with each other in the year.
This first argument is that the directions were
wrong in that they were based on an error of law.
In the submission of counsel for the appellant, it
appears from the evidence that the directions were
made because their writer misinterpreted the deci
sion of the Exchequer Court in Holt Metal Sales
of Manitoba Ltd v. M.N.R. [1970] Ex.C.R. 612.
This misinterpretation allegedly consisted in
believing that the Court, in that case, had held
that under the Act the Minister, before issuing a
direction under subsection 138A(2), must examine
the reasons for the separate existence of the corpo
rations in question during the taxation year at
issue, not the reasons why those corporations had
been created. There is a simple answer to this
argument. Even if the writer of the directions was
mistaken in citing Holt Metal Sales in support of
his interpretation of the Act, the fact remains that,
as counsel for the appellant indeed recognized,
that interpretation is legally correct. It certainly is
not possible to vacate for illegality a direction
based on a correct interpretation of the Act.
The second argument made by counsel for the
appellant in support of the view that the directions
are invalid is that there is nothing in the documen
tary evidence presented which establishes that the
writer of the directions was satisfied, as he had to
be under subsection 138A(2), of the existence of
the facts mentioned in paragraphs (a) and (b) of
that provision. This argument seems to me devoid
of any basis. Subsection 138A(2) clearly requires
that, before making a direction, the Minister
should be satisfied of the existence of certain facts;
however, it does not require that he shall indicate
that belief in writing or include it in the direction
issued by him.
The third argument made in support of the first
ground of appeal emphasized the fact that the
directions in question here were made not by the
Minister himself, but by an Assistant Deputy Min
ister of National Revenue for Taxation, without
any intervention by the Minister. Counsel for the
appellant did not dispute that the Assistant
Deputy Minister had been empowered to make the
directions in question. It was common ground that
subsection 900(1) of the Income Tax Regulations,
SOR/54-682, issued pursuant to paragraph
117(1)(f) of the Act, authorized the Assistant
Deputy Minister of National Revenue for Taxa
tion to "exercise all the powers and perform all the
duties of the Minister under the Act." 2 Appel
lant's argument was that though the Assistant
Deputy Minister was authorized to exercise the
power conferred on the Minister by subsection
138A(2) to issue a direction, he was not authorized
to arrive at a conclusion in place of the Minister on
the matters referred to in paragraphs (a) and (b)
of that subsection. Under subsection 138A(2),
counsel for the appellant maintained, before the
power to issue a direction can be authorized by the
Minister himself or by some person authorized to
act for him, the Minister must first be personally
satisfied of the existence of the facts mentioned in
paragraphs (a) and (b). As it was admitted that, in
the case at bar, the Minister was not even aware of
the facts on which the directions were based, it
follows in the submission of counsel for the appel
lant that the directions issued by the Assistant
Deputy Minister are void. Reference was made in
support of this argument to the decision of the
Court of Appeal of Quebec in Procureur général
du Canada v. Marcotte [1975] C.A. 570, and of
the Court of Appeal of Alberta in Medicine Hat
Greenhouses Ltd. v. The Queen 79 DTC 5091,
regarding the interpretation of subsection 244(4)
of the Income Tax Act.
In my view, these decisions have no application
to the case at bar. Subsection 138A(2) provides
that before issuing a direction, the Minister must
be satisfied of the existence of certain facts. In
other words, even as it confers a power on the
Minister, this provision imposes on him a duty,
and the existence of the power is conditional on
performance of the duty. The problem is whether
2 The French text of subsection 900(1) of the Regulations is
as follows:
900. (1) Un fonctionnaire qui occupe le poste de "sous -
ministre adjoint du Revenu national pour l'impôt" peut
exercer tous les pouvoirs et remplir toutes les fonctions que
la Loi attribue au Ministre.
The English text of the same provision reads as follows:
900. (1) An official holding a position of "Assistant
Deputy Minister of National Revenue for Taxation" may
exercise all the powers and perform all the duties of the
Minister under the Act.
subsection 900(1) of the Regulations authorizes
the Assistant Deputy Minister only to exercise the
power that subsection 138A(2) confers on the Min
ister, or whether it authorizes him also to perform
in place of the Minister the preliminary duty
imposed by that subsection. I have no difficulty in
answering this question. Under subsection 900(1)
of the Regulations, the Assistant Deputy Minister
is authorized to "exercer tous les pouvoirs et
remplir toutes les fonctions que la Loi attribue au
Ministre". This provision should be interpreted in
light of its English version: "may exercise all the
powers and perform all the duties of the Minister
under the Act." In my view, this Regulation
authorizes the Assistant Deputy Minister not only
to exercise the powers of the Minister but also, in
place of the Minister, to perform the duties
imposed on the latter by the Act. In my opinion,
subsection 900(1) of the Regulations permits the
Assistant Deputy Minister not only to exercise the
power of the Minister to issue a direction but also
to perform the preliminary duty which the Act
imposes on the Minister to be satisfied of the facts
mentioned in paragraphs 138A(2)(a) and (b). In
other words, in order to fully perform "les fonc-
tions" of the Minister, as authorized by the French
version of the Regulation, it seems to me that the
Assistant Deputy Minister must be able not only
to issue a direction under subsection 138A(2), but
also to arrive at the conclusion referred to in that
subsection in place of the Minister. I would not
conclude differently if subsection 900(1) only
allowed the Assistant Deputy Minister to exercise
the powers of the Minister, without mentioning his
"fonctions" or his "duties". In that case I would
refer to the decision of the Privy Council in Mun-
goni v. Attorney-General of Northern Rhodesia
[1960] A.C. 336, and say that the duty at issue
here is in reality a limit or condition imposed by
the Act on the power to issue a direction, and that
this limit or condition is to be observed by anyone
who exercises the power, whether the Minister
himself or his representative.
Appellant's first argument must therefore be
dismissed: the directions on which the assessments
are based are not invalid.
It now remains to consider the second head of
appeal, namely that the Trial Judge should have
set aside the directions because the evidence
indicated that none of the principal reasons for the
existence of the corporations in question here was
to reduce the amount of tax which would otherwise
have been payable under the Act. In this regard,
counsel for the appellant admitted that he could
find no significant error in the findings of fact
contained in the judgment of Marceau J. He fur
ther admitted that he could identify no error of
law in that part of the judgment. However, he
contended that the Judge ought to have taken a
different view of the evidence than he did, and that
in particular, he ought to have attached more
importance to the fact that most of the companies
in question here were created a long time ago for a
purpose other than the gaining of a tax advantage.
This complaint seems to me to be without founda
tion. As to this it will suffice to say that the
decision a quo appears to be based on a judicious
assessment of the evidence.
I would therefore dismiss the appeal with costs.
* * *
RYAN J. concurred.
* * *
LALANDE D.J. concurred.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.