Sogemines Development Company Limited
(Appellant)
v.
The Queen (Respondent)
Court of Appeal, Jackett C.J., St.-Germain and
Bastin D.JJ.—Ottawa, May 30 and 31, 1973.
Income tax—Mining company—Computation of income—
Exploration expenses of parent company mistakenly deduct
ed in computing subsidiary's income for 1955, 1956 and
1957—Whether deductible by subsidiary in 1958 et seq.—
Income Tax Act, s. 83A(3).
Appellant, a mining company, was not assessed to any tax
for 1955, 1956 and 1957 as a result of the assessor's
mistaken view that certain exploration and development
expenses incurred by its parent were deductible by appellant
in computing its income under section 83A(8a). In assessing
appellant for 1958, 1959, 1960 and 1961 no deduction from
income was allowed under section 83A(3) for those
expenses. Appellant appealed.
Held, the appeal must be dismissed.
INCOME tax appeal.
COUNSEL:
J. C. Couture, Q.C., for appellant.
F. J. Dubrule, Q.C., for respondent.
SOLICITORS:
Ogilvy, Cope, Porteous, Hansard, Marler,
Montgomery and Renault, Montreal, for
appellant.
Deputy Attorney General of Canada for
respondent.
JACKETT CJ. (orally)—This is an appeal from
a judgment of the Trial Division dismissing an
appeal from a judgment of the Tax Appeal
Board that dismissed an appeal from the appel
lant's assessments under Part I of the Income
Tax Act for its 1958, 1959, 1960 and 1961
taxation years.
In this Court, the only question that has been
raised by the appellant is whether the tax fixed
by each of the aforesaid assessments was exces
sive because it was based on a computation of
the appellant's income for the year in the calcu
lation of which there was deducted a smaller
amount than that to which the appellant was
entitled under section 83A(3) of the Income Tax
Act, which reads in part as follows:
83A. (3) A corporation whose principal business is
(a) production, refining or marketing of petroleum,
petroleum products or natural gas, or exploring or drilling
for petroleum or natural gas, or
(b) mining or exploring for minerals,
may deduct, in computing its income under this Part for a
taxation year, the lesser of
(c) the aggregate of such of
(i) the drilling and exploration expenses, including all
general geological and geophysical expenses, incurred
by it on or in respect of exploring or drilling for
petroleum or natural gas in Canada, and
(ii) the prospecting, exploration and development
expenses incurred by it in searching for minerals in
Canada,
as were incurred after the calendar year 1952 and before
April 11, 1962, to the extent that they were not deductible
in computing income for a previous taxation year, or
(d) of that aggregate, an amount equal to its income for
the taxation year
(i) if no deduction were allowed under paragraph (b) of
subsection (1) of section 11, and
(ii) if no deduction were allowed under this section,
minus the deductions allowed for the year by subsections
(1), (2), (8a) and (8d) of this section and by section 28.
In applying this provision, a question arises
between the parties concerning the determina
tion of the amount that has to be calculated
under paragraph (c). To be specific, there is a
question as to how much of the expenses of the
kind described in subparagraph (ii) that were
incurred by the appellant in earlier years were
"deductible in computing income for a previous
year" within the meaning of those words in that
paragraph. This is relevant, as a reading of the
concluding words of paragraph (c) shows,
because the expenses incurred by the appellant
in previous years are only deductible by virtue
of section 83A(3) for one of the taxation years
now under consideration "to the extent that
they were not deductible in computing income
for a previous taxation year".
The factual background to the dispute is that,
in , its return for each of the taxation years 1955,
19a6 and 1957, the appellant claimed deduc
tions under section 83A(8a) in respect of
expenses incurred by its parent company. It is,
at this stage, common ground that those
expenses were not legally deductible but, at the
assessment stage, the assessors appear to have
mistakenly regarded them as deductible and, in
consequence, issued, for each of those years,
what is commonly called a "nil assessment",
which document is more accurately described as
a notification that no tax is payable.
It is, I think, common ground that, if the
expenses incurred by the parent company had
been disallowed for the 1955, 1956 and 1957
taxation years, as they should have been, the
amounts now in issue in respect of the 1958,
1959, 1960 and 1961 taxation years would have
been "deductible" under section 83A(3) in
respect of the 1955, 1956 and 1957 taxation
years and, in that event, would not be deduct
ible under section 83A(3) in respect of the 1958,
1959, 1960 and 1961 taxation years.
In this Court, the appellant limited his argu
ment in support of the appeal to a single point,
which point was not taken in the Trial Division.
The point is that the parent company's expen
ditures were in fact "allowed" by the assess
ments in the earlier years and that that factual
allowance was sufficient, having regard to the
concluding words of paragraph (d) of section
83A(3), to make the appellant's own disburse
ments (or at least the parts of them that are now
in dispute) not "deductible" in computing
income for those earlier years so that they are
deductible under section 83A(3) in the computa
tion of the appellant's income for the taxation
years now under consideration.
This point in my view fails. The words upon
which the appellant relies are
the deductions allowed ... by subsections (1), (2), (8a)
and (8d) ... .
These words do not, in my view, refer to
amounts that are in fact allowed by the Minister
because he rightly or wrongly thinks that they
fall under subsection (1), (2), (8a) or (8d). They
refer to amounts the deduction of which is
permitted by one or other of those subsections,
rightly understood. It is simply another way of
saying "the amounts that are deductible by
virtue of subsections (1), (2), (8a) and (8d)."
As that was the only point relied on by the
appellant and as, in my view, it fails, it follows
that I am of opinion that the appeal should be
dismissed with costs.
* * *
ST. -GERMAIN, and BASTIN D.JJ. concurred.
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