A-277-72
Frank H. Galway (Appellant) (Plaintiff)
v.
Minister of National Revenue (Respondent)
(Defendant)
Court of Appeal, Jackett C.J., Thurlow and
Pratte JJ.—Ottawa, April 22, 1974.
Income tax—Application by appellant for consent judg-
ment—Objections raised by Court of Appeal—Opportunity
for oral argument granted—Federal Court Rules 324, 1212—
Income Tax Act, R.S.C. 1952, c. 148, ss. 54(1), 100(4).
After payment of his 1961 income tax, the appellant was
re-assessed in 1966 for income not previously reported, in
the sum of $200,500, with resulting additional tax of $133,-
000 plus $32,000 for interest. The appeal was dismissed by
the Tax Review Board and the Trial Division.
On appeal to this Court, application was made for judg
ment, on consent, referring back to the respondent the
appellant's assessment, so as to re-assess his tax and interest
owing in the total sum of $100,000, a reduction from the
sum of $165,000 standing against the appellant for addition
al tax plus interest.
Held, the Court envisaged difficulties in the way of the
application, since (1) the consent judgment would fix a
single sum for both tax and interest; (2) the amount of a
fixed sum for interest before the tax has all been paid was
inconsistent with section 54(1) of the Income Tax Act; (3)
this was not a case where there should be a reduction of the
amount in dispute: (a) for the purpose of correcting the
amount; (b) under the Financial Administration Act, R.S.C.
1970, c. F-10, section 17; (c) under the Department of
Justice Act, R.S.C. 1970, c. J-2. On the contrary, this was a
case in which the whole sum of $200,500 was taxable or it
was not. The parties should be allowed 30 days to apply for
a date and place for oral argument of the application and, in
default, the application for consent judgment should be
dismissed.
Slaney v. Kean [1970] 1 All E.R. 434, considered.
APPLICATION in writing under Rule 324.
COUNSEL:
Richard R. Walker for appellant.
W. J. Hobson for respondent.
SOLICITORS:
Wilson, Barnes, Walker, Montello, Beach &
Perfect, Windsor, for appellant.
Deputy Attorney General of Canada for
respondent.
REASONS FOR JUDGMENT OF THE COURT—
This is an application in writing under Rule 324
for a consent judgment in an appeal from a
judgment of the Trial Division, the effect of
which consent judgment would be that the judg
ment of the Trial Division would be set aside
and there would be a judgment of this Court
whereby the appellant's assessment under the
Income Tax Act for the 1961 taxation year
would be referred back to the respondent "to
re-assess the appellant's tax and interest in the
total amount of $100,000 in accordance with
the Amended Minutes of Settlement filed".
As we have doubt as to whether the.applica-
tion should be granted, we are of opinion that
counsel should be given an opportunity to speak
thereto in open court. So that counsel will
understand what our difficulties are, we shall
set them out.
The relevant facts, as they appear from the
Trial Division file, are as follows:
1. In 1962, the appellant filed his income tax
return for the 1961 taxation year showing a
tax payable for the year of $16,178.00, of
which $4,950 had been paid by deduction at
the source and $11,288.08 remained unpaid.
2. The appellant was assessed for tax as
reported for the year and the balance was
apparently paid.
3. In 1966, the appellant was re-assessed for
$149,559.66 for the 1961 taxation year,
which amount was reached by adding to the
amount as originally assessed $133,381.58
being an amount of additional tax arising from
a "Commission" of $200,500 that the appel
lant had not reported as income. The re
assessment also fixed an amount of
$32,344.89 as "interest charged on tax
increase".
4. The appellant appealed first to the Tax
Review Board and then to the Trial Division.
In the Trial Division there was no dispute as
to amount; the sole question was whether the
amount of $200,500 had been received in
such circumstances as to require that it be
included in computing the appellant's income
for the 1961 taxation year for the purposes of
Part I of the Income Tax Act.
5. The appeal was dismissed by the Trial
Division and an appeal to this Court was
commenced.
The operative part of the proposed consent
judgment of this Court would read as follows:
THIS COURT DOTH ORDER AND ADJUDGE that the Appellant's
appeal from an assessment in respect of his 1961 taxation
year be and the same is hereby allowed in part, without
costs and the said assessment be referred back to the
Respondent to re-assess the Appellant's tax and interest in
the total amount of $100,000.00 in accordance with the
Amended Minutes of Settlement filed herein.
In the absence of special authority, there is
doubt as to whether a judgment should be set
aside on appeal unless the Court of Appeal has
dealt with the matter on the merits. Compare
Slaney v. Kean)
Authority to reverse or vary a judgment on
consent is to be found in Rule 1212, as amend
ed, which reads as follows:
Rule 1212. A respondent may consent to the reversal or
variation of the judgment appealed against by giving to the
appellant a notice stating that he consents to the reversal or
variation of the judgment in the manner therein indicated,
and thereupon the Court shall, upon the application of the
appellant, pronounce judgment in accordance with the
notice as a matter of course if the resultant judgment is one
that would have been given on consent.
Where the judgment given under this rule
reverses or varies the judgment of the Trial
Division, the resultant judgment must be one
that the Trial Division could have given on
consent. This flews from the fact that what this
Court can do, in such a case, when it allows an
appeal from the Trial Division, is to give the
judgment that the Trial Division should have
given (see section 52(b) of the Federal Court
Act).
What the Trial Division could do on an appeal
under the Income Tax Act, as it applied for the
' [1970] 1 All E.R. 434.
1961 taxation year, where the result of the
appeal was to vary the assessment, was to allow
the appeal and either vary the assessment or
refer the assessment back to the Minister for
"reconsideration and re-assessment" (see sec
tion 100(4)). It would not seem that the Court
can, by a reference of an assessment back for
re-assessment, require the Minister to do any
thing except what the statute requires him to do
on a re-assessment.
It seems obvious that the Minister cannot, on
a re-assessment, do anything other than assess
in accordance with the authority conferred on
him by the Income Tax Act. What the Minister
was required to do was to assess
(a) the tax for the taxation year, and
(b) the interest and penalties, if any, payable.
Compare section 46(1) of the aforesaid Income
Tax Act.
Our primary difficulty with the proposed con
sent judgment is that it proposes to fix one sum
for tax and interest whereas, superficially at
least, the Minister has authority to assess the
tax for the taxation year and a separate author
ity to assess interest and penalties.
Our second difficulty is with reference to
"interest". The interest in question is presum
ably payable under section 54(1) of the afore
said Income Tax Act, which reads as follows:
54. (1) Where the amount paid on account of tax payable
by a taxpayer under this Part for a taxation year before the
expiration of the time allowed for filing the return of the
taxpayer's income is less than the amount of tax payable for
the year under this Part, the person liable to pay the tax
shall pay interest on the difference between those two
amounts from the expiration of the time for filing the return
of income to the day of payment at the rate of 6% per
annum.
We do not read this provision as lending itself to
the assessment of a fixed amount for interest
before the tax has all been paid. The liability is
to pay interest at 6 per cent per annum on
unpaid tax (an amount that can be fixed) from a
certain time "to the day of payment" and, in our
view, it must be assessed accordingly. 2 If the
Minister cannot assess interest at a fixed
amount before payment of the tax, it would not
seem that the Court can direct him to.
A further difficulty is that, assuming the
assessment of interest can be made at a fixed
amount for the period to the time of assessment
(which the proposed assessment does not
expressly do), the result of the proposed lump
sum assessment would be that the amount
assessed as tax would diminish with a delay in
implementing the settlement and this, as it
seems to us, cannot be right in principle.
Finally, we must express a serious doubt as to
whether the settlement agreement is an appro
priate one for implementation by assessment at
all. There are three possibilities as to the reason
for the settlement, viz:
(a) the parties are in agreement that the cor
rect tax payable on the facts as proved at trial
is a certain amount, in which event, a judg
ment to implement the agreement by re
assessment would require the respondent to
do something that falls within his assessment
powers,
(b) the Minister in his wisdom is satisfied that
there are compassionate grounds for remis
sion, in which event, the Governor in Council
can remit under section 17 of the Financial
s The assessment might, for example, be to the effect that
interest is payable on the amount of $X (the unpaid tax) at 6
per cent per annum from April 30, 197- to the day of
payment of the aforesaid amount of $X. It cannot be that
interest is assessed at a fixed amount for a period that has
not been ascertained.
Administration Act, R.S.C. 1970, c. F-10, 3 or
(c) the legal advisors of the Minister are satis
fied that it is impractical to collect the amount
payable under the present assessment and
that more can be obtained under the compro
mise agreement than can be collected through
legal process, in which event, the compromise
is probably a proper subject matter for a
compromise agreement made, in the exercise
of the powers of the Attorney General of
Canada to regulate and conduct litigation on
behalf of the Crown, under the Department of
Justice Act, R.S.C. 1970, c. J-2.
This is clearly not a case where there should be
a reduction in the amount of the tax in dispute.
It is a case where the whole $200,500 was
taxable or it was not. In those circumstances,
we have grave doubt as to whether the Minister
is legally entitled to re-assess for a part of the
amount of tax in question. If he is not legally
entitled to do so, the Court cannot require him
to do so.
Reference might also be made to a question
that occurs to us as to whether the judgment as
consented to carries out the intention of the
17. (1) The Governor in Council, on the recommenda
tion of the Treasury Board, whenever he considers it in the
public interest, may remit any tax, fee or penalty.
(2) A remission pursuant to this section may be total or
partial, conditional or unconditional, and may be granted
(a) before, after or pending any suit or proceeding for the
recovery of the tax, fee or penalty in respect of which it is
granted;
(b) before or after any payment thereof has been made or
enforced by process or execution; and
(c) in the case of a tax or fee, in any particular case, or
class of case and before the liability therefor arises.
(3) A remission pursuant to this section may be granted
(a) by forbearing to institute a suit or proceeding for the
recovery of the tax, fee or penalty in respect of which the
remission is granted;
(b) by delaying, staying or discontinuing any suit or pro
ceeding already instituted;
(c) by forbearing to enforce, staying or abandoning any
execution or process upon any judgment;
(cl) by the entry of satisfaction upon any judgment; or
(e) by repaying any sum of money paid to or recovered by
the Receiver General for the tax, fee or penalty.
parties. We think that it is so worded as to fix
the tax for 1961 and interest at $100,000. This
would mean that the $16,178.08 already paid
would have to be deducted therefrom to ascer
tain the amount payable. The Minutes of Settle
ment, however, contemplate payment of the
whole amount.
The parties, or either of them, should be
allowed, within thirty days from the date of
these Reasons, to apply for a date and place for
oral argument of the application and, if no such
application is made, the application for consent
judgment should stand dismissed.
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.