Apparently in this case it was not considered as good. But it is rather strange that on a matter which was submitted to a higher court for decision and when that decision was rendered in favour of the government, the government should be the first body to question the wisdom of that decision. Apparently they were more inclined to agree with the income tax appeal board which ruled against the government, and whose decision became the subject of an appeal to a higher court, than they are to agree with the same higher court to which they appealed for a reversal of the decision.
It seems a strange position to take, particularly when the issue raised was so thoroughly considered and so explicitly stated in the judgment of the exchequer court. For example, on going through the judgment I find that Mr. Justice Cameron referred to the argument raised by the counsel for the companies concerned. Incidentally, the subject matter of this particular judgment had to do with the Shawinigan Water and Power Company, which was used as a test case, the facts being the same in relation to the companies we have been discussing.
To begin with, he pointed out that in one respect at least-and there were others-even the counsel for the various companies concerned did not agree among themselves. He pointed out that while some of the counsel argued that the Income War Tax Act-that is the section of the act we are discussing now, being section 6, subsection 1, paragraph (o)- was ultra vires of the Canadian parliament, counsel for two of the companies did not agree and did not question the validity of that legislation, a circumstance which makes it quite plain that even the counsel for the companies concerned were not in agreement as to the argument they were using in challenging the validity of the legislation.
He pointed out that counsel for the Ottawa Valley Power Company, for example, and for the MacLaren-Quebec Power Company did not join with the counsel for the other companies in arguing that this particular paragraph and section were ultra vires of the Canadian parliament. Further, he pointed out that at no point did counsel for any company successfully challenge, or even make any attempt to challenge, the contention that the governor in council did in fact have the
power and authority as granted to it in the Income War Tax Act to define the term "corporation tax". That term was an extremely important matter in this argument, because the whole argument was based on the question of what is a corporation tax and what is not. While counsel for these companies argued that the education act in the province of Quebec was not in fact a corporation tax, the Minister of National Revenue, through his counsel and his representatives, argued the very opposite, namely that it was a corporation tax because it was so designed by order in council-I believe it is No. 5948 of December 23, 1948-and in previous orders in council which the minister quoted in his statement.
Mr. Justice Cameron pointed out quite clearly that in no respect was the power challenged-that is the power of parliament to delegate authority to the governor in council-to define the term "corporation tax" as used in paragraph (o) of that section. Then he went further and pointed out that under section 91, subsection 3 of the British North America Act, it is explicitly stated that the parliament of Canada has power for-
3. The raising of money by any mode or system of taxation.
From that it certainly follows that if the parliament of Canada has that power to raise money by any mode of taxation, then this parliament has power to pass legislation which shall define what is deductible and what is not deductible under that form of taxation.
He also gave this as his opinion-and I should like to put it on record-that in spite of the constitutional argument that was raised as to the validity of, first of all, the legislation itself and then the order in council passed by virtue of that legislation:
I can find nothing to support the respondent's-
Being the Shawinigan Water and Power Company.
-submission that the purpose and object of enacting paragraph (o) in its final form was to prevent a province from exercising its constitutional powers of direct taxation by levying a corporation tax; or that it encroaches or trespasses upon the exclusive powers of the government of a province or a municipality to raise revenue by direct taxation for maintaining its schools. The constitutional powers of a non-agreeing province and of its municipalities were not affected in the slightest degree by the passage of paragraph (o).
The term "non-agreeing" of course refers to those provinces which had not yet entered into dominion-provincial agreements with the federal government. Then in summing up his decision and stating the decision of the court, he did so in these words:
In my opinion it was competent for parliament to enact paragraph (o) of section 6 (1) of the
Supply-National Revenue Income War Tax Act. and I must therefore reject the submission of counsel for the respondent that it is ultra vires.
Then further, on the specific argument as to whether the tax in question was in fact a corporation tax within the meaning of the legislation as defined by the governor in council, he states:
My opinion, therefore, is that the payments in question made by the respondent fall within the definition of "specific corporation tax" as found in the regulation and do not fall within any of the exceptions contained therein.
That establishes the fact that it was a corporation tax. Then going on further Mr. Justice Cameron gives the final decision in these words:
For the reasons given the appeal herein will be allowed, the decision of the income tax appeal board set aside, and the assessment made upon the respondent by the minister will be affirmed. The appellant is entitled to be paid its costs after taxation.
It will be interesting to learn whether the minister was successful in collecting his costs in that particular case in the exchequer court. But having stated the other half of the information as given by the minister, 1 should now like to refer to the reasons given by the minister for the action they took.
Let us get the picture clearly. Here was a situation in which certain legislation was passed by this parliament, and its constitutionality was challenged in the arguments before the exchequer court and before the income tax appeal board. A higher court, that is the exchequer court, ruled very clearly that there was no possibility of the legislation being invalid. It was quite within the power of this parliament to pass that legislation, and it was quite within the power of this parliament to grant authority to the governor in council to define the terms of the corporation tax. Therefore there seemed to be no reason at all for the Minister of National Revenue, who incidentally was the one who ordered the appeal to the exchequer court in the first place, to disregard the decision of the exchequer court.
In giving some of the reasons why the government reversed itself on this question, the minister stated that parliament repealed the particular paragraph to which I have referred in 1953. Let us go to the statutes, and see what actually was done when the government introduced this legislation in 1953 to repeal the paragraph in question. I do not want to confuse things by naming the old section because it began with the Income War Tax Act and then went over to the Income Tax Act and the sections are a little different, but the paragraph had to do with disallowance of the deductions of these companies.
That was deleted in 1953, and it stated very clearly in the amendment itself that it was to apply to 1953 and subsequent years. In other words the deletion of that particular section of the act had absolutely no influence and no bearing whatever on what took place in 1946 and in 1952. I am sure the minister would be the first to acknowledge that. From any point of view it would be impossible to argue that the deletion of that paragraph in 1953 could have any legal, or for that matter even any moral, effect on the case in dispute. The tax in dispute had to do with moneys paid over to the government of Quebec from 1946 to 1952, and the decisions made by the Department of National Revenue in this case in that same period; it had nothing to do with anything that took place after January 1, 1953. On the other hand, the minister gave that as one of the reasons the government decided to reverse itself and agree to the remission to these corporations of these sums of money.
While I am on that question, I think it might be interesting to note the total amount of these remissions. The minister gave some figures, but the total amount actually remitted covered a group of 14 companies, and was done by two orders in council. The first one is dated February 18, 1954, being order in council P.C. 1954-27/218, and that one covered 12 companies. The total amounted to $2,662,562.07. The second order in council was passed on March 10, 1954, and covered two companies, the total remission being $378,792.71. The grand total for these remissions amounts to $3,041,354.78.
The question that arises is this. Why should the government, after having taken the trouble to consolidate all the expenditures of the company, come to a decision to appeal the decision of the income tax appeal board to a higher court, and after having made that appeal successfully and received a judgment in its favour then turn around and remit over $3 million to these corporations? Now the minister tells us it was only half that amount.