T-3313-74
The Great Atlantic and Pacific Tea Company
Limited (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Collier J.—Toronto, May 6; Van-
couver, June 19, 1975.
Income tax—Plaintiff, with fiscal period ending February
26, 1972, having taxable income of $3,160,057.29—Tax of
$474,008.59 levied—Plaintiff calculating allowable refund
equal to tax payable, not remitting payment—Minister con
tending refund nil and that tax must be remitted even if full
amount ultimately refunded—Plaintiff paying tax and inter-
est—Plaintiff paying $4,700,000 in dividends, subject to with
holding tax prior to fiscal year-end—Whether plaintiff had
taxable income—Income Tax Act, S.C. 1970-71-72, c. 63, s.
133.
Plaintiff, a non-resident owned investment company with a
February 28 to February 26 fiscal period, had taxable income
of $3,160,057.29 for the period ending February 26, 1972; tax
amounting to $474,008.59 was levied. Plaintiff, calculating its
allowable refund as equal to the tax, did not remit payment.
The Minister contended that the refund was nil and that, in any
event, the taxpayer had to remit the tax, and charged interest
of $14,193.61. Prior to the end of its fiscal year, plaintiff had
paid taxable dividends of $4,700,000, subject to withholding
tax. Plaintiff claims an "allowable refund" of $474,008.59 and
other relief under section 133(6) of the Act. Defendant argued
that, while plaintiff is entitled to a refund, the issue is whether
this amount is to be refunded in respect of dividends paid in
1972, or whether the right will arise when taxable dividends are
paid at a time subsequent to the end of the 1972 taxation year.
Defendant contends that plaintiff did not, at the material dates,
have taxable income, and its cumulative taxable income, for
purposes of the formula, is nil.
Held, the main part of the claim is allowed. Defendant shall
refund $474,008.59, but the Court can not require the repay
ment of the interest of $14,193.61, though demanded by equity
and justice; plaintiff's claim for interest, which is really a
pre-judgment interest, is rejected. The Court agrees with
defendant that, generally, in order to calculate income or
taxable income for a year, one can not normally arithmetically
do so until the end of that particular period. The legislators had
this in mind in respect of all fiscal periods commencing after
1971. Those fiscal periods must end before the time of dividend
payment, and, therefore, taxable income, and tax payable are
either ascertained at the date of the dividend payment or are
capable of precise ascertainment. However, in respect of the
straddle year provisions, under sections 133(9)(a)(ii) and
133(9)(b)(ii), there is no stipulation that the fiscal period must
have ended before the dividend payment date, nor that the
taxable income and amounts payable be, at that precise time
ascertained or capable of ascertainment. Taxable income in the
one case, and the tax, in the other, are to be included in those
particular calculations, even though the precise amounts may
not have been arrived at until after payment of the dividends.
INCOME tax appeal.
COUNSEL:
J. A. F. Miller, Q.C., and M. A. Mogan for
plaintiff.
G. W. Ainslie, Q.C., for defendant.
SOLICITORS:
Miller, Thomson, Sedgewick, Lewis & Healy,
Toronto, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
COLLIER J.: The plaintiff is claiming from the
defendant an "allowable refund" of $474,008.59
and certain other relief. The claim is founded on
subsection 133(6) of the Income Tax Act.'
The facts are not in dispute. The plaintiff is a
non-resident owned investment company (para-
graph 133(8)(d)). Its fiscal period at the material
times was from February 28 to February 26. The
calendar year relevant for tax purposes was 1972.
For its fiscal period ending February 26, 1972, its
taxable income was $3,160,057.29. Tax of $474,-
008.59 was leviable. The plaintiff calculated its
allowable refund was equal to the tax payable and
did not remit payment. The Minister of National
Revenue contended the allowable refund was nil
and, that in any event the taxpayer had to remit
the tax, even though there might ultimately be a
refund of the full amount. The taxpayer was then
charged interest of $14,193.61. The tax and inter
est were paid on January 22, 1973.
R.S.C. 1952, c. 148 as amended by section 1 of c. 63, S.C.
1970-71-72. The amending provisions are commonly referred to
as the new Income Tax Act or the new Act. I shall adopt that
description.
Prior to the end of its fiscal year, the plaintiff
paid to its shareholders taxable dividends, as
follows:
June 1, 1971 $ 750,000
December 29, 1971 $2,000,000
February 24, 1972 $1,950,000
$4,700,000
Those dividends, of course, had been subject to
withholding tax. As I understand it, one of the
purposes of section 133 is to return to non-resident
owned investment companies some part of the tax
paid by them on their taxable income, when some
portion of that taxable income has been distributed
in the form of taxable dividends. The formula for
calculating the amount of the refund is set out in
the section.
The special problem presented in this case arises
by reason of the particular fiscal year of the
plaintiff (partly in 1971 and 1972), and what I
might term the "transitional" provisions in section
133 relating to those years. Counsel for the
defendant stated in argument:
... the plaintiff is entitled to a refund in respect of the tax ... it
has paid .... The only issue is whether this amount is to be
refunded, in respect of dividends paid in 1972, or whether the
right to refund will arise, when taxable dividends are paid at a
time subsequent to the end of its 1972 taxation year. 2
The defendant's position is, that on the correct
construction of the statutory provisions, the plain
tiff did not (at the material dates) have any tax
able income, and its cumulative taxable income,
for the purposes of the formula, is therefore nil.
The plaintiff disagrees.
To understand the intricacies of the problem it
is necessary to set out the applicable provisions of
the statute. To attempt a solution to the problem, I
am faced with the scary task of trying, for my first
time, to penetrate a portion of the jungle of
unpruned verbiage found in the new Act:
133. (8) In this section
(a) "allowable refund" of a non-resident-owned investment
corporation for a taxation year means the aggregate of
2 If the plaintiff has not paid, or does not pay, any dividends
after the end of its 1972 taxation year, then, on the defendant's
interpretation of the section in question, the plaintiff will never
receive an allowable refund in respect of the tax levied.
amounts each of which is an amount in respect of a taxable
dividend paid by the corporation in the year on a share of its
capital stock, equal to that proportion of the dividend that
(i) the corporation's allowable refundable tax on hand
immediately before the dividend was paid
is of
(ii) the greater of the amount of the dividend so paid and
the corporation's cumulative taxable income immediately
before the dividend was paid;
(9) In paragraph (8)(a),
(a) "allowable refundable tax on hand" of a corporation at
any particular time means the amount, if any, by which the
aggregate of
(i) all amounts each of which is an amount in respect of
any taxation year commencing after 1971 and ending
before the particular time, equal to the tax under this Part
payable by the corporation for the year, and
(ii) 15% of the amount determined under subparagraph
(b)(ii) in respect of the corporation
exceeds the aggregate of amounts each of which is
(iii) an amount in respect of the 1972 taxation year or any
taxation year referred to in subparagraph (i), equal to 25%
of the amount, if any, by which the aggregate of the
corporation's taxable capital gains for the year from dispo
sitions after 1971 of property described in paragraph
(1)(c) exceeds the aggregate of
(A) its allowable capital losses for the year from dispo
sitions after 1971 of property described in that para
graph, and
(B) the amount deductible from its income for the year
by virtue of paragraph (2)(c)
(such gains and losses being computed in accordance with
the assumption set forth in paragraph (1)(d)),
(iv) 1/3 of any amount paid or credited by the corporation
after the commencement of its 1972 taxation year and
before the particular time, as, on account or in lieu of
payment of, or in satisfaction of interest, or
(v) an amount in respect of any taxable dividend paid by
the corporation on a share of its capital stock before the
particular time and after the commencement of its first
taxation year commencing after 1971, equal to the amount
in respect of the dividend determined under paragraph
(8)(a); and
(b) "cumulative taxable income" of a corporation at any
particular time means the amount, if any, by which the
aggregate of
(i) its taxable incomes for taxation years commencing
after 1971 and ending before the particular time, and
(ii) where the corporation's 1972 taxation year com
menced before 1972, the amount, if any, by which its
taxable income for that year exceeds the aggregate of
(A) all amounts received by the corporation as
described in paragraph 196(4)(b), and
(B) the lesser of the amount determined under para
graph 196(4)(e) in respect of the corporation and the
amount, if any, by which the aggregate of amounts
determined under paragraphs 196(4)(d) to (/) in respect
of the corporation exceeds the aggregate of amounts
determined under paragraphs 196(4)(a) to (c) in respect
of the corporation,
exceeds the aggregate of amounts each of which is
(iii) an amount in respect of the 1972 taxation year or any
taxation year referred to in subparagraph (i), equal to the
amount, if any, by which the aggregate of the corpora
tion's taxable capital gains for the year from dispositions
after 1971 of property described in paragraph (1)(c)
exceeds the aggregate of
(A) its allowable capital losses for the year from dispo
sitions after 1971 of property described in that para
graph and
(B) the amount deductible from its income for the year
by virtue of paragraph (2)(c)
(such gains and losses being computed in accordance with
the assumption set forth in paragraph (1)(d)),
(iv) 4/3 of any amount paid or credited by the corpora
tion, after the commencement of its 1972 taxation year
and before the particular time, as, on account or in lieu of
payment of, or in satisfaction of interest, or
(v) the amount of any taxable dividend paid by the corpo
ration on a share of its capital stock before the particular
time and after the commencement of its first taxation year
commencing after 1971.
The formula, or equation, for calculating the
allowable refund appears to be reducible to the
following (I have substituted A.R. for allowable
refund, A.R.T. for allowable refundable tax on
hand, C.T.I. for cumulative taxable income, and
D. for dividend):
A.R. = A.R.T. X D.
C.T.I. or D.
It is then necessary to determine A.R.T. and
C.T.I. The "particular time" referred to in the
definitions is, in this case, immediately before the
payment of the three amounts of dividends (June
1, 1971, December 29, 1971, and February 24,
1972).
Fortunately for me, counsel advised the defini
tions of allowable refundable tax on hand and
cumulative taxable income can be restricted (for
the purposes of the facts and issue in this action)
to the following:
133. (9)(a)...
"allowable refundable tax on hand" ... at any particular
time means the ... aggregate of
(i) all amounts ... in respect of any taxation year com
mencing after 1971 and ending before the particular time,
equal to the tax under this Part payable by the corporation
for the year, and
(ii) 15% of the amount determined under subparagraph
(b)(ii) in respect of the corporation. [The amount referred
to is its taxable income for 1972.]
133. (9)(b) ...
"cumulative taxable income" ... at any particular time
means the aggregate of
(i) its taxable incomes for taxation years commencing
after 1971 and ending before the particular time, and
(ii) where the corporation's 1972 taxation year com
menced before 1972, the amount, ... by which its taxable
income for that year ....
Counsel for the plaintiff turns first to cumula
tive taxable income and subparagraph
133(9)(b)(ii). Subparagraph (i) is not applicable
to this case but counsel stresses the taxation years
there referred to must not only have commenced
after the calendar year 1971 but have ended before
the date of each payment of dividends. Subpara-
graph (ii), it is pointed out, does not state the
taxation year there referred to (the straddle year) 3
must have ended before the "particular time". It
follows then, argues the plaintiff, the company's
taxable income for 1972 is to be included in this
calculation, even though it was not or could not be
computed until after the date of payment of the
dividends, and indeed, until after the completion of
its fiscal year (February 26, 1972). The language
of subparagraph (ii) is, counsel submits, clear and
unambiguous; there is no requirement stated that
the taxable income must in fact have been ascer
tained before the date of dividend payments; the
legislators intended, in respect of those non-resi
dent owned investment corporations whose fiscal
period overlapped both sides of January 1, 1972
and who, in the straddle year, paid as this plaintiff
did, dividends before the commencement of the
new Act (not knowing what its terms might be)
should be able to take advantage of the refund
provision.
3 Counsel for the plaintiff used this convenient term to
describe the fiscal period in question: it straddled the two
calendar years 1971 and 1972, as well as the expiry of the old
Act and the commencement of the new.
The plaintiff submits a similar interpretation
should be put on subparagraph 133(9)(a)(ii) in
respect of allowable refundable tax on hand.
Counsel put it this way: "As in the case of cumula
tive taxable income, when one is calculating allow
able refundable tax on hand at any particular
time, one includes tax payable for taxation years
other than the straddle year, only if those years
have ended before the particular time; but one
includes, in any event, the amount specified in
respect of the straddle year, whether or not it has
ended before the particular time."
The defendant fastens on the words in subpara-
graph 133(9)(b)(ii) " ... its [the plaintiffs] ...
taxable income for that year ... " ["that year"
meaning the corporation's 1972 taxation year].
Counsel for the defendant says the plaintiffs taxa
tion year in question ended February 26, 1972; at
any date before then it had no taxable income
because taxable income can only be ascertained at
or after the close of the fiscal period; at the date of
each payment of dividends taxable income had
not, and could not, be ascertained; it was therefore
zero or nil; when one then goes to the formula set
out in subsection 133(8), the allowable refund
becomes nil.
I do not dissent from the defendant's- submis
sions that, generally speaking, in order to calculate
income or taxable income for a year, one cannot
normally arithmetically do so until after the end of
that particular business period. In my view, the
legislators had that general proposition in mind in
respect of all taxation years (fiscal periods) com
mencing after 1971; those fiscal periods must end
before the time or times of the dividend payments;
it follows (not by express statutory words, but only
by logic) that the taxable income, 4 and therefore
the amounts of tax payable' are either ascertained
at the date of dividend payment, or capable of
precise ascertainment.
4 Subparagraph 139(9)(6)(i).
5 Subparagraph 133 (9) (a) (i).
In respect of the straddle year provisions,
however,—subparagraphs 133 (9) (b) (ii) and
133(9)(a)(ii)—there is no stipulation that the
fiscal period must have ended before the dividend
payment date. Nor is there any stipulation (or
language requiring that interpretation) that the
taxable income, and therefore the amounts of tax
payable, be, at that precise time, ascertained or
capable of precise ascertainment. In my view those
subparagraphs mean that the taxable income in
the one case, and the tax in the other, are to be
included in those particular calculations even
though the precise amounts may not be arrived at
until some time after the dividends were in fact
paid.
The plaintiff is, in my opinion, entitled to suc
ceed on the main branch of its claim. The defend
ant shall therefore make a refund to the plaintiff
of the sum of $474,008.59.
The plaintiff claims repayment of the interest
charged of $14,193.61 and for interest on the two
sums set out above. In my opinion there is no
power to grant the relief sought. The assessment
by the Minister, which levied a tax of $474,008.59
and the interest, is itself not before the Court.
There was not here an appeal by the taxpayer
from an assessment. The relief powers of the court
applicable to actions of that nature are not avail
able in this case. 6 I cannot therefore require the
defendant to make a refund in the sum of
$14,963.61.
To my mind, equity and justice demand, in view
of the result reached in this action, the plaintiff
should be refunded the interest paid. The tax
collector has had, for a period of time, the use of
what is in effect double tax monies. The plaintiff,
in its calculations, felt there was, for practical
purposes, a set-off. It did not remit tax, as techni
cally required, and then wait for a refund. It seems
unjust the revenue department should, in addition
to the use of the $474,008.59, keep the interest
charged on that now refundable sum. As I have
stated, I have not the power to make the direction
sought. The power to do what appears in the
6 See section 177 and subsection 178(1).
circumstances to be right may lie elsewhere.'
Finally, the plaintiff seeks interest from the date
of payment of the refundable tax and interest
(January 22, 1973) to the date of judgment. The
plaintiff is really asking for pre-judgment
interest. 8 It is said authority to make this type of
award can be found in subsections 164(3) and (4).
In my view, those provisions are applicable to the
type of refunds or overpayments specified in that
section. No such provisions are found in respect of
the refunding authorizations of section 133. The
claim for interest is therefore rejected.
In the result there will be judgment that the
defendant make a refund of $474,008.59. The
plaintiff is entitled to its costs.
7 See the Financial Administration Act, R.S.C. 1970, c.
F-10.
8 In some jurisdictions pre-judgment interest, in proper cases,
can be given. See, in England, Law Reform (Miscellaneous
Provisions) Act, 1934, section 3 and Administration of Justice
Act 1969, section 22; in British Columbia, S.B.C. 1974, c. 65.
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.