Le Soleil Limitée (Appellant)
v.
Minister of National Revenue (Respondent)
Court of Appeal, Jackett C.J., Thurlow J. and
Choquette D.J.—Quebec, January 11; Ottawa,
February 9, 1973.
Income tax—Claim for deduction for production incen-
tives—Newspaper—Advertising revenue more than half of
net sales—Income Tax Act (1963), section 40A—Deduction
not within section.
Appellant company, publisher of a daily newspaper, had
gross sales of over 8 million dollars in 1963, of which more
than half was received from advertisers for space in the
newspaper.
Held, the appeal is allowed and the assessment is referred
back for re-assessment on the basis that the appellant is
entitled to the deduction allowed by section 40A for the
1963 taxation year. Section 40A should be specially inter
preted, not following traditional commercial terminology.
The term used in section 40A(2)(b) is not "the proceeds .. .
of sales" but rather "the gross revenues ... from sales" and
is wide enough to include, in the case of a daily newspaper,
not only the amounts received from purchasers of the
newspapers but also the amounts received from advertisers
which amounts are earned only when the newspapers con
taining the advertisements are sold.
APPEAL from Noël A.C.J. [1972] F.C. 423.
COUNSEL:
Maurice Jacques for appellant.
Alban Garon, Q.C. for respondent.
SOLICITORS:
Flynn, Rivard, Jacques, Cimon, Lessard
and Lemay, Quebec, for appellant.
Deputy Attorney General of Canada,
Ottawa, for respondent.
The judgment of the Court was delivered by
JACKETT C.J.—For only two or three taxation
years, the Income Tax Act, by section 40A
thereof, (see 1962-63, c. 8, s. 10) provided a
special deduction as a "Production Incentive"
for manufacturing and processing corporations.
In this appeal in respect of the appellant's
assessment under Part I of the Income Tax Act
for the 1963 taxation year, the question at issue
is whether the appellant qualified for that
deduction. If it did, there is agreement between
the parties as to the amount of the deduction.
To be more precise the question is whether
the appellant was, for the 1963 taxation year, "a
manufacturing and processing corporation"
within the very arbitrary and complicated defi
nition of that term to be derived from subsec
tion (2) of section 40A, which provision reads,
in so far as relevant, as follows:
(2) In this section,
(a) "manufacturing and processing corporation" means a
corporation that had net sales for the taxation year in
respect of which the expression is being applied from the
sale of goods processed or manufactured in Canada by the
corporation the amount of which was at least 50% of its
gross revenue for the year, but does not include a corpo
ration whose principal business for the year was
(i) operating a gas or oil well,
(ii) logging,
(iii) mining,
(iv) shipbuilding,
(v) construction, or
(vi) a combination of two or more of the classes set out
in subparagraphs (i) to (v) inclusive;
(b) "net sales" of a corporation for a taxation year means
an amount equal to
(i) the gross revenue of the corporation for the year
from sales,
minus
(ii) the aggregate of each amount paid or credited in the
year to a customer of the corporation as a bonus, rebate
or discount or for returned or damaged goods;
The facts are relatively simple.
The appellant, during the year in question,
carried on the business of producing and distrib
uting a daily newspaper. In so far as that busi
ness was concerned, the appellant had two
types of revenue. It had revenue from advertis
ers for advertisements placed in the paper and it
had revenues from the purchasers of the paper.
Both types of revenue arose from the sale of the
paper. Not only would there have been no reve-
nue from purchasers, unless papers were sold,
but revenues from advertisers were not earned
unless the papers in which the advertisements
were placed were actually distributed to the
public.
During the taxation year in question, the reve
nues from advertisers exceeded the revenues
from purchasers.
The assessment appealed against was based
on the view that, on these facts, the appellant's
"net sales" for the 1963 taxation year "from the
sale of goods processed or manufactured in
Canada" was less than 50 per cent. of its gross
revenue for the year, so that it did not fall
within the definition of "manufacturing and
processing corporation" in section 40A(2)(a).
In the Trial Division, the matter was argued
on the assumption that the only amounts to be
included in "net sales" from the sale of goods
was the revenue from purchasers of the goods
sold. Continuing to make that assumption, the
appellant based its appeal, in the first instance,
on a contention that the revenue from advertis
ers was "net sales" from sales to the advertisers
of the portions of the newspapers on which the
advertisements were printed and that such reve
nue should, for that reason, be included in "net
sales ... from the sale of goods processed or
manufactured in Canada" in applying the defini
tion of "manufacturing and processing corpora
tion" in section 40A(2)(a). This is, in effect, the
argument that was rejected by the learned
Associate Chief Justice.
We are in complete agreement with the deci
sion of the Associate Chief Justice on the
appeal as it was argued before him and we
should be content to adopt his reasons. As it
seems to us, the appellant's argument was based
on a view of the contract with its advertisers for
which there is no support. The appellant dealt
with its advertisers as a person whose business
consisted in producing newspapers and selling
them to the public. As such a person, for a
consideration, it agreed to put an advertisement
on behalf of the advertiser in its (the appel
lant's) newspaper so that, when a member of the
public got the newspaper, the advertiser's mes
sage would, it might be hoped, be communicat
ed to him. In this contract, there is no sale of
anything to the advertiser. (If, in fact, there had
been a contract under which the appellant sold
things to an advertiser under terms that required
the appellant to distribute those things among
members of the public, we would have no doubt
that there was a sale of those things to the
advertiser even though there was no delivery to
the advertiser; but, as we have indicated, we
can find no such contract in the ordinary busi
ness relationship between a newspaper operator
and an advertiser.)
If the matter had rested simply on the basis
on which it was argued in the Trial Division, we
should have been for dismissing the appeal.
However, in this Court, another view of the
matter was put forward, which, counsel for the
Minister agrees, is open for consideration in this
Court on the basis on which the trial was con
ducted in the Trial Division. We turn to consid
ering the problem so raised.
To consider the problem that was raised for
the first time in this Court, one must re-examine
the very awkward provisions found in para
graphs (a) and (b) of section 40A(2). To come
within the definition of "manufacturing and
processing corporation" in paragraph (a), the
appellant must have had, for the year in ques
tion, "net sales ... from the sale of goods .. .
the amount of which was at least 50 per cent of
its gross revenue for the year". On the face of
it, this does not make sense. The words "net
sales ... from the sale of goods" do not mean
anything if one applies only the ordinary mean
ing of the word "sale". However, paragraph (b)
relieves us from trying to torture some meaning
out of the expression "net sales" because it
gives to that expression, for purposes of section
40A, an entirely arbitrary meaning. Section
40A(2)(b) provides that, for a taxation year, "net
sales" means "an amount" equal to "the gross
revenue of the corporation for the year from
sales" minus certain amounts with which we
need not concern ourselves for the purpose of
arpeulr
The sole question is, therefore, what was the
appellant's "gross revenue" from the sales of its
newspapers for the 1963 taxation year; or, to be
more specific, were the appellant's "gross reve
nues" from its sales only the amounts received
from the purchasers of the newspapers or did
they include also the amounts received from its
advertisers for advertisements placed in the
newspapers that were sold.
In our view, section 40A is a very special
provision for a very special purpose and uses
terminology that does not follow the traditional
commercial terminology. Such terminology
should, therefore, be interpreted without refer
ence to the meaning of other, more technical,
expressions.
The term used in section 40A(2)(b) was not
"the proceeds of ... sales". (See Ken Steeves
Sales Ltd. v. M.N.R. [1955] Ex.C.R. 108.) The
expression that was used instead was "the gross
revenues ... from sales". This expression con
veys to us the idea of the total revenues the
earning of which was dependent upon the sales
(compare Oxford Motors Ltd. v. M.N.R. [1959]
S.C.R. 548); and, in our view, it is quite wide
enough to include, in the case of a daily newspa
per, not only the amounts received from pur
chasers of the newspapers but also the amounts
received from advertisers, which amounts are
not earned by the appellant until it has sold the
newspapers in which the advertisers' advertise
ments have been placed.
We are fortified in this conclusion by the fact
that the result, in the case of a daily newspaper,
would seem to be more in accord with the
Parliamentary purpose of section 40A than the
result reflected by the assessment. We did not
understand counsel for the respondent to disa
gree with this view.
We are, therefore, of opinion that the appeal
should be allowed, with costs, and that there
should be a judgment referring the assessment
in question back to the respondent for re-assess
ment on the basis that the appellant is entitled to
the deduction allowed by section 40A for the
1963 taxation year.
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.