T-877-81
T-883-81
Southside Car Market Ltd. (Plaintiff)
v.
The Queen (Defendant)
T-878-81
T-879-81
T-880-81
Coast Finance Ltd. (Plaintiff)
v.
The Queen (Defendant)
T-881-81
T-882-81
Southside Datsun Ltd. (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Cattanach J.—Vancouver, April 20
and 27, 1982.
Income tax — Income calculation — Associated companies
— Control in Southside Datsun Ltd. exercised by group of
persons, Warmington and Affettuso — Control in other plain
tiffs exercised by Warmington alone — S. 256(1)(b) of Income
Tax Act provides that corporation associated with another if
both controlled by same person or group — Whether group of
persons control corporation when in fact corporation controlled
by single person — Whether Southside Datsun associated with
other plaintiffs — Control means de jure control as expressed
in Buckerfield's Limited v. The Minister of National Revenue
— "Or" in s. 256(1)(b) used in disjunctive sense — Exp?}ssio
unius est exclusio alterius — If single person exercises de jure
control, resort to whether group of persons holds control
precluded — Southside Datsun not associated with other
plaintiffs — Income Tax Act, S.C. 1970-71-72, c. 63, ss.
/25(6)(a), 256(I)(6),(2).
Plaintiffs appeal from assessments for income tax. Share
holders Warmington and Affettuso each owned 50% of the
voting shares of Southside Datsun Ltd. Warmington owned
56% of the voting shares in plaintiff Southside Car Market Ltd.
and Affettuso owned 24%. Warmington was the sole sharehold
er of Coast Finance Ltd. Paragraph 256(1)(b) of the Income
Tax Act provides that a corporation is associated with another
if both are controlled by the same person or group of persons.
Car Market and Coast Finance are associated by virtue of
being controlled by the same person, Warmington. Plaintiffs
contend that because Southside Datsun is controlled by a group
of persons and the other two plaintiffs are controlled by the
same person, Southside Datsun is not associated with the other
two plaintiffs, notwithstanding that the person controlling the
other two plaintiffs is a member of the group controlling
Southside Datsun.
Held, the appeals are allowed. A group of persons cannot be
said to control a corporation when, in fact, it is controlled by a
single person. "Control" contemplates the right of control that
rests in ownership of such number of shares as carries with it
the right to a majority of the votes in the election of the Board
of Directors, as expressed by Jackett P. in Buckerfield's Lim
ited v. The Minister of National Revenue [1965] 1 Ex.C.R.
299. Paragraph 256(1)(b) contemplates two separate and dis
tinct circumstances. One corporation is associated with another
if both are controlled by (1) the same person, or (2) the same
group of persons. Further, subsection 256(1) purports to pro
vide for all the circumstances by virtue of which one corpora
tion is associated with another and to be associated the corpora
tion must fall precisely within one of the circumstances
provided therein. Since paragraph 256(1)(b) sets forth two
distinct circumstances in which two corporations are associated,
the two sets of circumstances are mutually exclusive. The word
"or" in the phrases of the paragraph reading "by the same
person or group of persons" is used in its disjunctive sense. If a
single person owns a sufficient number of shares in a company,
there is no necessity to consider the question of fact as to what
group of persons owns such a number of shares. Thus if a single
person owns sufficient shares to exercise control, resort to
whether a group of persons holds control, is precluded. The
condition precedent to the consideration of control in a group is
that no single person has control.
INCOME tax appeals.
COUNSEL:
David A. G. Birnie for plaintiffs.
Johannes A. Van 1peren for defendant.
SOLICITORS:
Birnie, Sturrock & Bowden, Vancouver, for
plaintiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
CATTANACH J.: These are seven appeals from
assessments to income tax by the Minister with
respect to the plaintiff, Southside Car Market
Ltd., (hereinafter sometimes referred to as "Car
Market" for purposes of convenience) for its 1976
and 1977 taxation years, with respect to the plain
tiff Coast Finance Ltd., (hereinafter sometimes
referred to for convenience as "Coast Finance")
for its 1976, 1977 and 1978 taxation years and
with respect to Southside Datsun Ltd., (for conve
nience sometimes referred to as "Datsun") for its
1977 and 1978 taxation years.
By the seven assessments from which the plain
tiffs appeal, the Minister assessed the plaintiffs on
the basis that Car Market was associated with
Coast Finance and Datsun during its 1976 and
1977 taxation years, that Coast Finance was
associated with Car Market and Datsun through
out its 1976, 1977 and 1978 taxation years and
Datsun was associated with Car Market through
out Datsun's 1977 and 1978 taxation years, within
the meaning of paragraph 256(1)(b) and subsec
tion 256(2) of the Income Tax Act, S.C. 1970-71-
72, c. 63.
Each of the plaintiffs is a Canadian-controlled
private corporation within the meaning of the defi
nition of that term in paragraph 125(6)(a) of the
Income Tax Act.
As such by virtue of section 125 of the Act each
plaintiff would be entitled to pay a tax at a lesser
rate on a business limit for a taxation year and a
total business limit "unless the corporation is
associated in the year with one or more other
Canadian-controlled private corporations in which
case, except as otherwise provided in this section,
its business limit for the year is nil and its total
business limit for the year is nil".
There is no dispute between the parties as to the
income of the respective plaintiffs. The dispute
between the parties is whether Datsun is associ
ated with Car Market and Coast Finance because
it is controlled by the same group of persons who
control Car Market and Coast Finance.
The plaintiffs readily concede that Car Market
and Coast Finance are controlled by the same
person but do not accept that Datsun is so con
trolled but rather that Datsun is controlled by a
group and is therefore not associated with the
other two plaintiffs.
I need not concern myself with the quantum of
the tax which will be exigible in the event that the
plaintiffs are associated or are not associated.
If the three plaintiffs are associated (it being
conceded that two are but not the three), then the
tax payable will be in larger amounts and at
higher rates than if Datsun were not associated
each with the other two. In the first instance the
advantage would be to the Treasury in that the
maximum tax would be exacted whereas in the
latter case the advantage would be to the plaintiffs
in that a lesser tax would be payable due to the
statutory concessions made to Canadian-controlled
private corporations if by virtue of not being
associated they are not excluded from those con
cessions.
By order dated February 12, 1982, pursuant to
application therefor, the seven appeals were to be
heard on common evidence.
Prior to trial the parties, by their respective
solicitors, agreed upon the following statement of
facts:
AGREED STATEMENT OF FACTS
The parties to this action, by their respective solicitors, admit
the facts specified herein provided that:
(a) such admissions are made for the purposes of the actions
filed in this Court by Southside Datsun Ltd., Coast Finance
Ltd., and Southside Car Market Ltd. (hereinafter collective
ly called the "Companies") under action numbers T-877-81,
T-878-81, T-879-81, T-880-81, T-881-81, T-882-81 and
T-883-81 (hereinafter called the "Actions") only and may
not be used against any party to the Actions on any other
occasion; and
(b) any such party may produce further evidence not incon
sistent with this agreement at the hearing of the Actions.
1. Each of the Companies is a company incorporated pursuant
to the Company Act of British Columbia.
2. At all times material to the Actions each of the Companies
was a Canadian-controlled private corporation as defined in
subsection 125(6) of the Income Tax Act.
3. In each taxation year referred to in the Actions, each of the
Companies claimed the small business deduction pursuant to
section 125(1) of the Income Tax Act with respect to a portion
of its income for that year. The amount of deduction so claimed
was calculated on the basis that, although Coast Finance Ltd.
and Southside Car Market Ltd. were associated with each
other, neither of them were associated with Southside Datsun
Ltd. at any time within the meaning of section 256 of the
Income Tax Act.
4. The Minister of National Revenue reassessed the Companies
to tax on income for each of the said years on the basis that the
amount of the small business deduction available to them was
less than the amount claimed.
5. In so reassessing the Companies, the Minister of National
Revenue assumed that Southside Datsun Ltd. was associated
with Southside Car Market Ltd. because both of those corpora
tions were controlled by the same group of persons namely John
Arthur Warmington and Frank Joseph Affettuso. The Minister
further assumed that Southside Datsun Ltd. and Coast Finance
Ltd. were associated pursuant to subsection 256(2) of the
Income Tax Act.
6. The Companies objected to the said reassessments by serving
Notices of Objection on the Minister of National Revenue on
August 6, 1980.
7. The Minister of National Revenue confirmed the said reas
sessments by notice in writing dated December 24, 1980.
8. At all times material to the Actions, the shares described in
the following table, below the name Southside Datsun Ltd. or
Southside Car Market Ltd. as the case may be, were the only
voting shares in the capital stock of that company which were
issued and outstanding and the individual named opposite the
description of those shares was both the beneficial owner of and
recorded in the share register of that company as the registered
owner of those shares:
Southside Southside Car
Shareholder Datsun Ltd. Market Ltd.
John A. Warmington 100 Class A 224 Common (56%)
Common (50%)
Irma L. Warmington 80 Common (20%)
Frank J. Affettuso 100 Class A 96 Common (24%)
Common (50%)
200 Class A 400 Common
Common
9. At all times material to the Actions, the said shares were the
only shares of Southside Datsun Ltd. or Southside Car Market
Ltd., as the case may be, which conferred upon the holder the
right to vote in the election of the directors of that company
and each such share entitled the holder thereof to cast one vote
in such an election.
10. At all times material to the Actions, Irma L. Warmington
was the wife of John A. Warmington and neither of them were
related to Frank J. Affettuso by blood, marriage or adoption
within the meaning of section 251 of the Income Tax Act.
11. None of the said shareholders were at any time material to
the Actions subject to any contract, trust or arrangement which
in any way restricted his or her right to vote the said shares in
such manner as he or she saw fit.
12. At all times material to the Actions the Memorandum of
Association and Articles of Association of Southside Datsun
Ltd. were in the forms annexed hereto as Schedules A and B
respectively and the Memorandum of Association and Articles
of Association of Southside Car Market Ltd. were in the forms
annexed hereto as Schedules C and D respectively.
The appendices, being the Memorandum of
Association, Articles of Association and Certifi
cate of Incorporation, are not reproduced.
In accordance with paragraph (b) of the mutual
admission of facts for the purpose of these appeals,
Mr. Warmington gave oral testimony.
Mr. Warmington and Mr. Phillips were asso
ciated together in Car Market as partners. In 1956
the Car Market entity was incorporated pursuant
to the laws of the Province of British Columbia
and went through name changes culminating in
Southside Car Market Ltd. The issued shares of
the capital stock were held as follows:
Mr. Warmington 120 shares
Mr. Phillips 120 shares
Mrs. Warmington 80 shares
Mrs. Phillips 80 shares
Upon Mr. Phillips' death Mr. Warmington pur
chased the shares held by Mr. and Mrs. Phillips so
that the shareholding was then:
Mr. Warmington 320 shares
Mrs. Warmington 80 shares
Mr. Warmington was the president and Mrs.
Warmington was the secretary of Car Market.
In 1958 Mr. Warmington sold 96 of his shares
to Mr. Affettuso. He did so because Mr. Affettuso
had been with him since the inception of Car
Market as a salesman and had become the sales
manager. Because of his dedication and faithful
service to the company and Mr. Warmington's
trust in him, he felt that such attributes warranted
participation in the ownership of the business.
Therefore he was afforded the opportunity to pur
chase 96 shares, which he exercised and thus
acquired 24%® of the issued share capital.
The shareholdings then became:
Mr. Warmington 224 shares
Mr. Affettuso 96 shares
Mrs. Warmington 80 shares
Mr. Warmington then considered it expedient to
sell shares to two other employees, so the share-
holding then became:
Mr. Warmington 157 shares
Mr. Affettuso 96 shares
Mrs. Warmington 80 shares
Ron Errett 40 shares
Hans Gruhn 27 shares
This persisted for three years when Messrs.
Errett and Gruhn expressed the desire for a great
er shareholding interest to the extent that Mr.
Warmington would lose his individual control.
He therefore bought back the shares that he had
sold to Errett and Gruhn, who then left the employ
of Car Market and the shareholding reverted to
Mr. Warmington 224, Mr. Affettuso 96, and Mrs.
Warmington 80. Mr. Affettuso did not become a
director until 1968, ten years after his acquisition
of 96 shares in 1958.
In 1968 he became the secretary in place of
Mrs. Warmington who was pleased to be relieved
of that nominal responsibility and it was more
convenient to Mr. Warmington to have Mr. Affet-
tuso present at the business premises in readiness
to sign any documents which required the signa
ture by one or two of the corporate officers.
Mr. Affettuso did not attend shareholder's
meetings or vote his shares thereat. Shareholder's
meetings, if that is what they were, were held by
Mr. Warmington attending at the solicitor's office
and signing the appropriate minutes prepared.
Thus the shareholding in Car Market at the ma
terial times became and remained as set forth in
paragraph 8 of the agreed statement of facts.
Coast Finance is a company incorporated pursu
ant to the laws of the Province of British Columbia
and carried on the business of automobile fi
nancing.
In 1951 Mr. Warmington and Mr. Phillips ac
quired the whole of the issued shares in the capital
stock of Coast Finance in equal proportions. On
Mr. Phillips' death Mr. Warmington acquired Mr.
Phillips' shares so that he became the sole share
holder of Coast Finance.
It is expedient at this point to reproduce para
graph 256(1)(b) of the Income Tax Act. It reads:
256. (1) For the purposes of this Act one corporation is
associated with another in a taxation year if at any time in the
year,
(b) both of the corporations were controlled by the same
person or group of persons ....
Since Mr. Warmington, by reason of his holding
of the majority of the voting shares in Car Market
and all the shares in Coast Finance, is the same
person who controls both those operations, it fol
lows that Car Market and Coast Finance are
associated in the taxation years under review and
that is readily conceded.
Now enters Datsun.
Mr. Warmington was offered a franchise by
Nissan, the Japanese manufacturer of the Datsun
automobile.
It was a condition exacted by Nissan that a new
and original corporation shall be incorporated to
exercise the franchise to be granted.
Accordingly, in the spring of 1972 Southside
Datsun Ltd. was incorporated under the laws of
the Province of British Columbia in which Mr.
Warmington and Mr. Affettuso each held 50% of
the issued capital stock. The franchise was granted
to this corporation by Nissan. The Articles of
Association deliberately make no provision for a
casting vote. Therefore, if Mr. Warmington and
Mr. Affettuso were at variance on a particular
issue, that could result in a deadlock which, if it
persisted, could only be resolved by a winding up
of the corporation.
Thus, Datsun is controlled by a group of persons
consisting of Warmington and Affettuso. It cannot
be otherwise. They are the only shareholders. They
each have the same number of shares. To accom
plish any corporate act they must vote in concert.
Therein lies the issue.
Datsun is controlled by a group of persons,
Warmington and Affettuso.
Car Market is controlled by Warmington.
Coast Finance is controlled by Warmington.
Thus, as previously stated, Car Market and
Coast Finance are associated by virtue of their
being controlled by the same person, Warmington.
But the question to be determined is whether
Datsun can be said to be associated with Car
Market by reason of the same group of persons,
that is, Warmington and Affettuso being the group
of persons that controls Datsun, can also be said to
be the same group of persons that controls Car
Market and this despite the fact that Warmington
alone holds the majority of shares in Car Market
to exercise control over Car Market.
The contention on behalf of the Minister, put
conversely, is that a group of persons may be
considered to control a corporation even though
one member of the group may own sufficient
shares to control the corporation.
If this be so, then by virtue of subsection 256(2)
of the Act, Car Market, Coast Finance and
Datsun would all be associated one with the other
no matter in what combination they are placed.
The contention on behalf of the plaintiffs is the
contrary. A group of persons cannot be said to
control a corporation when, in fact, it is controlled
by a single person.
Prior hereto I have categorically stated that
Datsun is "controlled" by the group of persons
consisting of Warmington and Affettuso and I
have said that Car Market and Coast Finance are
controlled by Warmington. In so stating I was
applying the meaning of the word "controlled"
used in subsection 39(4) of the Income Tax Act
ascribed by Jackett P., as he then was, in Bucker-
field's Limited v. The Minister of National Reve
nue [1965] 1 Ex.C.R. 299.
Paragraph 39(4)(b) was in the identical lan
guage used in paragraph 256(1)(b), the presently
applicable statutory provision, except in paragraph
39(4)(b) the initial words of the subsection were:
"For the purpose of this section", and in para
graph 256(1)(b) the initial words of the subsection
are: "For the purposes of this Act". That change
was dictated by the context of the rearrangement
of the provisions in the statute.
Jackett P. [as he then was], had this to say at
pages 302-303:
Many approaches might conceivably be adopted in applying
the word "control" in a statute such as the Income Tax Act to a
corporation. It might, for example, refer to control by "man-
agement", where management and the Board of Directors are
separate, or it might refer to control by the Board of Directors.
The kind of control exercised by management officials or the
Board of Directors is, however, clearly not intended by section
39 when it contemplates control of one corporation by another
as well as control of a corporation by individuals (see subsec
tion (6) of section 39). The word "control" might conceivably
refer to de facto control by one or more shareholders whether
or not they hold a majority of shares. I am of the view,
however, that, in section 39 of the Income Tax Act, the word
"controlled" contemplates the right of control that rests in
ownership of such a number of shares as carries with it the
right to a majority of the votes in the election of the Board of
Directors. See British American Tobacco Co. v. I. R. C.
([1943] 1 A.E.R. 13) where Viscount Simon L. C., at page 15,
says:
The owners of the majority of the voting power in a
company are the persons who are in effective control of its
affairs and fortunes.
See also Minister of National Revenue v. Wrights' Canadian
Ropes Ld. ([1947] A.C. 109) [2 DTC 927] per Lord Greene
M.R. at page 118, where it was held that the mere fact that one
corporation had less than 50 per cent of the shares of another
was "conclusive" that the one corporation was not "controlled"
by the other within section 6 of the Income War Tax Act.
This same passage was quoted with approval by
Hall J. speaking for the Supreme Court of Canada
in Minister of National Revenue v. Dworkin Furs
(Pembroke) Ltd. et al. [ 1967] S.C.R. 223 at pages
227-228, prefaced by the sentence on page 227:
The word controlled as used in this subsection [subsection
39(4) which he had reproduced immediately above—my inser
tion] was held by Jackett P. to mean de jure control and not de
facto control and with this I agree.
I repeat for emphasis the de jure right of control
as expressed by Jackett P. [as he then was] above;
the word "controlled" contemplates the right of
control that rests in ownership of such number of
shares as carries with it the right to a majority of
the votes in the election of the Board of Directors.
It is for this reason that I have said that Mr.
Warmington controlled Southside Car Market
Ltd. and Coast Finance Ltd. and he did so as a
person.
For the same reason I have said that Warming-
ton and Affettuso as a group of persons controlled
Southside Datsun Ltd.
With respect to Car Market, however, Mr.
Warmington by virtue of his ownership of the
majority of the shares in that corporation had the
right alone in his personal capacity as the owner of
the shares to exercise control within the definition
of control as expressed by Jackett P. [as he then
was]. Mr. Affettuso held no interest in that right
nor could he exercise any influence whatsoever
over the de jure right of control vested in Mr.
Warmington. Mr. Warmington had the exclusive
and unfettered right to cast the majority of votes
in the election of the Board of Directors.
Counsel for the Minister referred me to the
decision of Kerr J. in S. Madill Ltd. v. Minister of
National Revenue [[19721 1 F.C. 6], 72 DTC
6027.
A publicly owned manufacturing company was
controlled, directly and indirectly, by two Madill
brothers. A separate private sales company was
incorporated to conduct the sales of the manufac
turing company. As an incentive to Wilfert, the
sales manager, 450 shares of the sales company
were issued to Wilfert and the manufacturing
company held 450 shares. The remaining 100 of
the 1,000 shares in the capital stock were issued to
Smith to prevent a deadlock should such arise
between Wilfert and the manufacturing company
each holding the same number of shares.
Thus, the sales company was controlled by the
manufacturing company and Wilfert, by the
manufacturing company and Smith, by Wilfert
and Smith or by the manufacturing company,
Wilfert and Smith.
The Madill brothers were in the position to
control the manufacturing company as a group of
persons. Wilfert and Smith each held a very nomi
nal share interest in the manufacturing company.
The Minister assessed the manufacturing and
the sales companies on the basis that they were
associated each being controlled by the same
group of persons, namely, the Madill brothers,
Wilfert and Smith.
The sales company appealed from its assess
ments to income tax. Kerr J. dismissed the
appeals. He held that there was no evidence that
the four individuals acted in concert in either
company and he acknowledged that the Madill
brothers were in a position to control the manufac
turing company. However, he held that this did
not constitute an impediment to the existence of a
larger group of persons including Wilfert and
Smith to coincide with the group of the Madill
brothers and Wilfert and Smith who held all the
shares in the sales company and thus controlled it
although a lesser group could also exercise control
of the sales company so that the group of persons
in the manufacturing company were selected by
the Minister to coincide with the four persons who
constituted all the shareholders in the sales
company.
Superimposed upon this was the statement made
by Mr. Justice Kerr [at page 24] that over and
above their respective shareholdings, the group of
four, Norman Madill, Charles Madill, Wilfert and
Smith "had a community of interest and concern
in the operation or' the sales company and the
manufacturing company, and "that they can be
aptly described as a `group of persons' within the
meaning of section 39(4)(b) of the Income Tax
Act ...".
This "community of interest and concern" was
an evidentiary fact found by Kerr J., to exist and,
as he stated, was a consideration he took into
account in his determination as to whether any
group of persons exercises control.
Mr. Justice Kerr stated that because of the
community of interest and concern in the group of
four, and that by virtue of the ownership of voting
shares in each company, they, as a group of four
(although lesser and therefore different groups
could do the same) were in a position to control
both companies from which it followed that the
companies were associated by reason of being con
trolled by the same group of persons.
In Floor & Wall Covering Distributors Limited
v. The Minister of National Revenue [1967] 1
Ex.C.R. 390, Gibson J. said [at page 393] that
"control" in subsection 39(4):
... means the right to control by ownership of voting shares,
not de facto control. What is done at any time with such right
to control is therefore not necessarily material.
Mr. Justice Gibson accepted that whether or not
a particular group of persons controls a particular
company is a question of fact as is whether that
same particular group controls a different com
pany is also a question of fact.
He concluded that the assumption upon which
the Minister found the two appellant companies to
be associated, in that they were each controlled by
the same group of persons, had not been estab
lished to be wrong.
On appeal sub nom. Vina -Rug (Canada) Lim
ited v. The Minister of National Revenue [1968]
S.C.R. 193, the appeal was dismissed.
Abbott J. delivered the judgment of the
Supreme Court of Canada.
After first quoting the remarks of Hall J., con
cerning the concept of control in the Dworkin Furs
case (supra), in which the remarks of Jackett P.
[as he then was] in the Buckerfield's case (supra)
were repeated which have likewise been repro
duced herein, Mr. Justice Abbott then said at page
197:
Applying these principles, once it is established that a group
of shareholders owns a majority of the voting shares of a
company, and the same group a majority of the voting shares of
a second company, that fact is sufficient, in my opinion, to
constitute the two companies associated within the provisions of
s. 39 of the Income Tax Act. Moreover, in determining de jure
control more than one group of persons can be aptly described
as a "group of persons" within the meaning of s. 39(4)(b). In
my view, it is immaterial whether or not other combinations of
shareholders may own a majority of voting shares in either
company, provided each combination is in a position to control
at least a majority of votes to be cast at a general meeting of
shareholders.
The principle to which Mr. Justice Abbott
referred was that of de jure control but it is
abundantly clear from the quoted passage that if
there is a coincident group of shareholders in each
of two companies and that each group of share
holders owns the majority of shares to elect the
Board of Directors then the companies are
associated under paragraph 39(4)(b) and likewise
paragraph 256(1)(b) and the size of that majority
is immaterial.
Assuming that A and B own 52% of the voting
shares in X company and C holds but one share in
X company, and in Y company, A, B and C each
hold 17% of the voting shares or a 51% majority,
then there is no impediment to the Minister adding
C to A and B in X company to make the group A,
B and C, which is the group of persons controlling
Y company and having done that the same group
of persons, A, B and C, in X company coincides
with that group which controls Y company so that
the result is X and Y are associated and are not
entitled to the advantage of the lower tax rate
provided in the statute.
Reverting to paragraph 256(1)(b) quoted above,
two separate and distinct circumstances are con
templated thereby. One corporation is associated
with another if both corporations are controlled by
(1) the same person, or
(2) the same group of persons.
Further, it seems to me, that subsection 256(1)
purports to provide for all the circumstances by
virtue of which one corporation is associated with
another and to be associated the corporation must
fall precisely within one of the circumstances pro
vided therein.
Accordingly, since the language of paragraph
256(1)(b) sets forth two distinct circumstances
when two corporations are associated, namely,
when controlled by (1) the same person or (2) by
the same group of persons, the two sets of circum
stances are mutually exclusive. That, in my view,
is the precise meaning of the language of para
graph 256(1)(b). The word "or" in the phrases of
the paragraph reading "by the same person or
group of persons" is used in its disjunctive sense. It
cannot be otherwise in the context.
The conclusion that the two phrases are mutual
ly exclusive by their plain meaning is confirmed by
the cardinal rule in the interpretation of statutes, if
resort need be taken thereto, expressed in the
maxim expressio unius est exclusio alterius.
Notwithstanding the high and deserved approval
accorded to President Jackett's definition of con
trol in the Buckerfield's case for the purposes of
subsection 39(4) of the Income Tax Act then in
force, and with equal application to paragraph
256(1)(b) presently in force, which is that de jure
control that rests in the ownership of such a
number of shares as carries with it the right to a
majority of the votes in the election of the Board
of Directors, the next following paragraph in his
reasons for judgment has not achieved the same
prominence.
That this is so is that the cases that have come
to trial before judges in courts of co-ordinate
jurisdiction with me or in courts by the decisions of
which I am bound have been concerned with con
trol by the same groups of persons, and not cases
where control in one company is exercised by a
person and in another company by a group of
persons in which the single person who controls the
other company is a member of the group. That is
the fact in the present appeal.
After the frequently quoted definition of control
by Jackett P. [as he then was] in Buckerfield's, he
said in the very next paragraph [at p. 303]:
Where, in the application of section 39(4) a single person
does not own sufficient shares to have control in the sense to
which I have just referred, it becomes a question of fact as to
whether any "group of persons" does own such a number of
shares.
In my view it is implicit from the language
quoted that if a single person owns a sufficient
number of shares in a company, there is no neces
sity to consider the question of fact as to what
group of persons owns such a number of shares.
Thus, if a single person owns sufficient shares to
exercise control, resort to whether a group of
persons holds control, is precluded. The condition
precedent to the consideration of control in a
group is that no single person has control.
That, in my view, is the precise meaning of
paragraph 256(1)(b).
In the event, however, that the language of
paragraph 256(1)(b) is susceptible of the interpre
tation that a single person having control of a
company may be included in a group of persons
having control of the company for the purposes of
the paragraph, which I do not think to be the case,
then if a provision in a penal or taxing statute is
capable of two alternative meanings the courts will
defer to that meaning more favourable to the
taxpayer.
My attention has been directed to interpretation
bulletins issued by the Department of National
Revenue which express divergent views one with
the other.
Paragraph 18 of Bulletin IT-64, dated Septem-
ber 8, 1972, reads:
18. A `group of persons' cannot be said to control a corporation
when, in fact, it is controlled by a single person.
This statement was repeated in a revision dated
December 22, 1975. However, in the Index to
Interpretation Bulletins, published on September
30, 1976, paragraph 18 was repealed and replaced
by the following:
18. A `group of persons' may be considered to control a
corporation even though one member of the group may
own sufficient voting shares to be in a position to control it.
An interpretation bulletin is nothing more than
the Departmental interpretation of a provision in
the statute for Departmental purposes. Such an
interpretation is not law until so interpreted by a
court of competent jurisdiction. It is not the stat
ute. It is merely a direction to the employees of the
Department charged with that responsibility as to
the Departmental policy in assessing taxpayers.
These bulletins were not put before me as
authoritative interpretations of paragraph
256(1)(b) but merely to explain the dearth of
authorities upon the issue before me, accounted for
by the fact that the assessing policy of the Depart
ment was dictated by the earlier bulletin which
was replaced by the later bulletin dated December
22, 1975.
There is no judicial decision cited to me nor
have I been able to find any such decision binding
upon me, which would justify such a change in
assessing policy from the former to the latter.
The Madill case was decided on January 10,
1972. The Vina -Rug case was decided by the
Supreme Court on January 23, 1968, both long
before the change in policy.
Neither case is authority for the proposition that
a group of persons may include as a member of a
group one who himself owns sufficient shares to be
in a position to control the company.
For the reasons I have expressed, it is my view
that the former interpretation is the correct inter
pretation of paragraph 256(1)(b), that is that a
group of persons cannot be said to control a corpo
ration when, in fact, it is controlled by a single
person.
Accordingly, the seven appeals are allowed and
the assessments are referred back to the Minister
for reassessment in accordance with these reasons.
The plaintiffs shall be entitled to their taxable
costs.
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.