Wm. Wrigley Jr. Co. Ltd. v. Provincial Treasurer of Manitoba

Wm. Wrigley Jr. Co. Ltd. v. Provincial Treasurer of Manitoba
Collection
Supreme Court Judgments
Date
1947-06-18
Report
[1947] SCR 431
Judges
Hudson, Albert Blellock; Taschereau, Robert; Rand, Ivan Cleveland; Kellock, Roy Lindsay; Estey, James Wilfred; Rinfret, Thibaudeau
On appeal from
Manitoba
Subjects
Taxation
Decision Content
Supreme Court of Canada
Wm. Wrigley Jr. Co. Ltd. v. Provincial Treasurer of Manitoba, [1947] S.C.R. 431
Date: 1947-06-18
WM. Wrigley Jr. Company limited Appellant;
and
The Provincial Treasurer of Manitoba Respondent,
1946: November 6, 7; 1947: February 4; 1947: April 22, 23; 1947: June 18.
Present at hearing on Nov. 6, 7, 1946, were Hudson, Taschereau, Rand, Kellock and Estey JJ. Subsequently Hudson J. died, and on Feb. 4, 1947, the Court required a reargument, which took place on April 22, 23, 1947, before Rinfret C.J. and Taschereau, Rand, Kellock and Estey JJ. On June 18, 1947, judgment was delivered.
ON APPEAL FROM THE COURT OF APPEAL FOR MANITOBA
Income tax—Company, with head office and manufacturing plant in Ontario, selling in Manitoba—Assessed for income tax in Manitoba—Question whether, from profits assessed, company entitled to deduction of allowance for profits on its operations in Ontario—The Income Taxation Act, R.S.M. 1940, c. 209, s. 24—“Net profit or gain arising from the business” of the Company in Manitoba. By s. 24 (1) of The Income Taxation Act, Man., R.S.M. 1940, c. 209, “the income liable to taxation under this Part of every person residing outside of Manitoba, Who is carrying on business in Manitoba, * * * shall be the net profit or gain arising from the business of such person in Manitoba”. By s. 24 (2), the section applies to a joint stock company carrying on business in Manitoba and which has not its head office in Manitoba.
Appellant, a joint stock company manufacturing and selling chewing gum, had its head office and manufacturing plant in Ontario. It had a warehouse and office in Manitoba. Manufactured goods were shipped to the warehouse in Manitoba where they were stored and, on orders received and accepted there, were distributed to appellant’s customers in Manitoba and certain other provinces. The selection and the credit rating of the jobbers to whom the Manitoba office might make sales, the book-keeping, collecting of accounts, and the general direction and control of the business were all dealt with exclusively at the head office in Ontario.
Appellant was assessed for income tax for the years 1936, 1937, 1938 and 1939, under Manitoba statutary provisions not materially different from provisions now contained in said Act, on all the net profits from sales made from appellant’s Manitoba office. Appellant claimed a deduction of an allowance for profits on its operations in Ontario, as not being profits on gain arising from its business in Manitoba.
Held (Rand and Kellock JJ. dissenting): Appellant was entitled to deduction of an allowance for profit on the cost of manufacture in Ontario. (Judgment of the Court of Appeal for Manitoba, 53 Man. R. 213, reversed, and judgment of Major J., ibid, restored).
Per the Chief Justice and Taschereau J.: The manufacturing profits were made in Ontario and cannot be said to have arisen from appellant’s business in Manitoba. The selling in Manitoba cannot have the effect of imparting, for taxing purposes in Manitoba, profits earned in the initial operations in Ontario which made the goods ready for sale. “Arising from the business * * * in Manitoba” in s. 24 means “what is attributable to the business in Manitoba” or “profits derived from sources in Manitoba”; and the manufacturing profits made in Ontario are not so attributable or so derived. (Cases reviewed).
Per Estey J.: In the light of the authorities (discussed) and the taxing power of Manitoba, s. 24 must be construed that the tax is imposed only on the net profit arising out of that portion of the business which a non-resident carries on in Manitoba. Activities and operations other than contracts for sale constitute a carrying on of business and produce or earn income, and therefore, while the income may be realized through the sale, it does not entirely arise from the sale. In the present case, the manufacturing operations in Ontario are a carrying on of business which contributes to appellant’s income and the income should be apportioned accordingly. (Other sections of the Act discussed as to their bearing on the construction of s. 24).
Per Rand J., dissenting: Construing s. 24 with other sections of the Act, the net profit or gain “arising from” the business in Manitoba is the entire profit; “arising from” is not intended to be the equivalent of “earned”; the legislative assumption is a business embracing the necessary elements to a profit and the whole profit realized upon the sale is the profit dealt with.
Per Kellock J., dissenting: Construing s. 24 with other sections of the Act, the legislative intent is that in any case where there is a carrying on of business within the Province by reason of the habitual making of contracts of sale therein, s. 24 applies to make taxable the entire profit arising from such sales, without any apportionment, (16 & 17, Vict. (Imp.), c. 34, and decision thereunder, discussed; those decisions are pertinent and the principle of them is applicable).
APPEAL by Wm. Wrigley Jr. Company Limited (a company, incorporated under the Dominion Companies Act, with head office and manufacturing plant in Ontario and licensed to do, and doing, business in Manitoba) from the judgment of the Court of Appeal for Manitoba[1] which, reversing the judgment of Major J.[2], affirmed (Trueman J.A., and Dysart J.A. (ad hoc), dissenting) the assessments made against the appellant for income tax for the years 1936, 1937, 1938 and 1939, under Manitoba statutory provisions not materially different from provisions now found in The Income Taxation Act, R.S.M. 1940, c. 209. The main question in the appeal had to do with the interpretation of s. 24 of said Act.
The material facts of the case and the question in dispute are stated in the reasons for judgment in this Court now reported and are indicated in the above headnote.
Everett Bristol K.C. for the appellant.
G. L. Causley K.C. for the respondent.
The judgment of the Chief Justice and Taschereau J. was delivered by:
Taschereau J.—This litigation arises out of the interpretation of section 24 (1) of The Income Taxation Act of the province of Manitoba.
This section reads as follows:—
The income liable to taxation under this Part of every person residing outside of Manitoba, who is carrying on business in Manitoba, either directly or through or in the name of any other person, shall be the net profit or gain arising from the business of such person in Manitoba. The appellant company has its head office in the city of Toronto, Ontario, and carries on business in the province of Manitoba. For the purpose of the Act, the appellant company is deemed to be residing outside of Manitoba, in view of subsection 2 of section 24, which enacts that a joint stock company not having its head office in Manitoba, will be subject to subsection 1 of section 24.
The appellant company manufactures chewing gum, and while the manufacturing plant is located in Ontario, it has a warehouse and a distributing organization in the city of Winnipeg, Manitoba. After the goods have gone through the manufacturing processes in Ontario, they are shipped to the Winnipeg warehouse where they are stored and distributed to the appellant’s customers in Manitoba, Saskatchewan and Alberta. All orders from those three provinces are received in Winnipeg, and are filled by that office out of that stock.
For the fiscal years 1936, 1937, 1938, 1939, the Provincial Treasurer of Manitoba has assessed the appellant for income tax purposes, on all the net profits from the sales of gum, made from the Winnipeg office, in the three above mentioned provinces. The company claims that it is entitled to an allowance as profit on the actual cost of manufacture; in other words, that factory profits are deductible because they are not profits or gain arising from the company’s operations in Manitoba.
The matter was heard before Mr. Justice Major in the Court of King’s Bench in Manitoba, who ruled that these manufacturing profits were deductible, but the Court of Appeal (Messrs. Justices Trueman and Dysart (ad hoc) dissenting) allowed the appeal and affirmed the decision of the Minister.
The contention of the respondent is briefly that the profits or gain of the company arise from the sales, and as the sales were made in Manitoba, within the time provided in the Act, the assessments are properly made.
A preliminary observation, as to sections 3 and 24 of the taxing statute, is essential. Section 3 is drafted in the following terms:—
For the purposes ‘of this Part, “income” means the annual net profit or gain or gratuity, whether ascertained and capable of computation as being wages, salary, or other fixed amount, or unascertained as being fees or emoluments, or as being profits from a trade or commercial or financial or other business or calling, directly or indirectly received by a person from any office or employment, or from any profession or calling, or from any trade, manufacture or business, as the case may be whether derived from sources within Manitoba or elsewhere; and includes the interest, dividends or profits directly or indirectly received from money at interest upon any security or without security, or from stocks, or from any other investment, and, whether such gains or profits are divided or distributed or not, and also the annual profit or gain from any other source including * * *
In view of this language, it would seem that the legislature intended to tax profits whether derived from sources within Manitoba or elsewhere, but section 24 deals particularly with persons residing outside of Manitoba carrying on business in Manitoba, and says that the income liable to taxation shall be the net profit or gain arising from the business of such person in Manitoba.
I have no doubt that the definition of the word “income” in section 3, and which includes profits derived from sources outside of Manitoba, does not apply to section 24, where the tax is limited on the net profit or gain arising from the business in Manitoba.
The same point arose in International Harvester Co. of Canada, Ltd. v. The Provincial Tax Commission[3] and in that case Sir Lyman Duff, dealing with a similar statute, said at page 331:—
It is clear, I think, that the effect of the words “net profit or gain arising from the business of such person in Saskatchewan” in section 21a is, for the purpose of that section, to delete from the definition of income in section 3 the words “or elsewhere”.
It is, therefore, section 24, taken independently of section 3 that must be examined for the purpose of determining this case. If the profits arise where the sales are made then the assessments are valid, but if the manufacturing profits are deductible in computing the gain made in Manitoba, and on which the tax is imposed, this appeal must succeed.
This question of allowances of manufacturing profits for provincial income tax purposes is by no means a new one. In International Harvester Co. of Canada, Ltd. v. The Provincial Tax Commission[4] the same argument made by the present respondent was also considered by this Court. The International Harvester Company carried on the business of manufacturing and selling agricultural machinery, and had its head office at Hamilton, Ontario, where the manufacturing business was carried on. The company sold its products in Saskatchewan as well as in other parts in Canada, and it was admitted by all parties that the central management and control of the company, as in the present case, were at the head office in Ontario.
The Commissioner of Income Tax for Saskatchewan made assessments upon the company in respect of its income for each of the years 1934 to 1936 inclusive, without allowing for manufacturing profits. The charging section in Saskatchewan was similar to the one enacted by the legislature of Manitoba, and which we have now to consider.
The business of the company in Saskatchewan was the making of contracts of sale by its agents, and the International Harvester Company therefore claimed that it was entitled to an allowance for manufacturing profits, which did not arise from the business of the company in Saskatchewan. The then Chief Justice of Canada, Sir Lyman Duff, with whom concurred Davis and Taschereau JJ. said:
It is nat the profits received in Saskatchewan that are taxable; it is the profits arising from its business in Saskatchewan, not the profits arising from the company’s manufacturing business in Ontario and from the company’s operations in Saskatchewan taken together, but the profits arising from the company’s operations in Saskatchewan.
The judgment of Sir Lyman Duff was a dissenting judgment, but Rinfret, Crocket, Kerwin and Hudson, JJ., who took an opposite view on some other points of the case, did not in any way contradict the opinion of Chief Justice Duff on that particular point. Although not a binding pronouncement, this expression of opinion is, I believe, the logical interpretation to be given to that part of the Saskatchewan statute, which is identical to section 24 of the Manitoba Act. The respondent has cited the following passage of Mr. Justice Kerwin in the case of Firestone Tire and Rubber Co. of Canada, Ltd. v. Commissioner of Income Tax[5].
The manufacture in Ontario of the appellants’ goods, however necessary to the existence of its business, does not earn income. The goods are manufactured for the purpose of sale and the income is earned when the goods are sold and. all the income, therefore, was earned within British Columbia.
In that case, the Firestone Tire and Rubber Co. of Canada, Ltd., having its head office at the city of Hamilton, had no office or any employees in the province of British Columbia. Its sales, in that province, were made through an independent firm, and the majority of this Court held that the contract between the parties was not one of agency, but one of sale, and, therefore, it was held that the Firestone Tire and Rubber Co. Ltd. was not liable to income tax in British Columbia.
The Income Tax Act of British Columbia, R.S.B.C. 1936, Chap. 280, provides:—
3. (1) To the extent and in the manner provided in the Act and for the raising of a revenue for Provincial purposes:
(a) All income of every person resident in the Province and the income earned within the Province of persons not resident within the Province shall be liable to taxation.
It may be first of all pointed out that the judgment of Mr. Justice Kerwin, with whom Mr. Justice Hudson concurred, was a minority judgment, but moreover, Mr. Justice Kerwin in his reasons said that the entire scope of the British Columbia Act is quite different from that of the Saskatchewan Act, and that, therefore, the decision in International Harvester Co. of Canada Ltd. v. The Provincial Tax Commission[6] did not apply in the Firestone case. In Saskatchewan a tax is imposed on “the net profit or gain arising from the business of such person in Saskatchewan”, while in the British Columbia Act a tax is imposed on “all income of every person resident in the Province and the income earned within the Province of persons not resident within the Province”. In his reasons for judgment in the International Harvester case[7], Sir Lyman Duff further says at page 331:—
The profits of the Company are derived from a series of operations, including the purchase of raw material or partly manufactured articles, completely manufacturing its products and transporting and selling them, and receiving the proceeds of such sales. The essence of its profit making business is a series of operations as a whole. That part of the proceeds of sales in Saskatchewan which is profits is received in Saskatchewan, but it does not follow, of course, that the whole of such profits “arises from” that part of the Company’s business which is carried on there within the contemplation of section 21 a; and I think such a conclusion is negatived when the language of this section is contrasted with that of other sections of the Act.
Sir Lyman Duff cites the case of Commissioners of Taxation v. Kirk[8]. In that case the income tax statute of New South Wales charged within income tax, income “derived from lands of the Crown held under lease or licence” in New South Wales, and income “arising or accruing” from “any other source in New South Wales”. The statute provided that “no tax shall be payable in respect of income earned” outside New South Wales. The company whose income came into question in that case was a mining company owning and working mines in New South Wales, the crude ore being there converted for the most part into concentrates. Almost the whole of the ore so treated was sold and the contracts for sale were made outside New South Wales. The Supreme Court of New South Wales held, following a previous decision in In re Tindal[9], that the whole of the income included in the proceeds of sales was earned and arose at the place where the sales were made and the proceeds of the sales received, and that, consequently, no part of such proceeds was taxable as income in New South Wales. The Judicial Committee reversed this judgment and, at pages 592 and 593 (2), their Lordships said:
Their Lordships attach no special meaning to the word “derived”, which they treat as synonymous with arising or accruing. It appears to their Lordships that there are four processes in the earning or production of this income: (1) the extraction of the ore from the soil; (2) the conversion of the crude ore into a merchantable product, which is a manufacturing process; (3) the sale of the merchantable product; (4) the receipt of the moneys arising from the sale. All these processes are necessary stages which terminate in money, and the income is the money resulting less the expenses attendant on all the stages. The first process seems to their Lordships clearly within sub-s. 3, and the second or manufacturing process, if not within the meaning of “trade” in sub-s. 1, is certainly included in the words “any other source whatever” in sub-s. 4.
So far as relates to these two processes, therefore, their Lordships think that the income was earned and arising and accruing in New South Wales * * * This point was, if possible, more plainly brought out in Tindal’s case[10] * * * The question in that case, as here, should have been what income was arising or accruing to Tindal from the business operations carried on by him in the Colony.
The fallacy of the judgment of the Supreme Court in this and in Tindal’s case (1) is in leaving out of sight the initial stages, and fastening their attention exclusively on the final stage in the production of the income.
This reasoning, I think, applies in the present case. When the goods of the appellant company reach Winnipeg, they have also gone through a series of processes or operations which make them ready for consumption. It is in these first stages that the manufacturing profits are made, and I fail to see how it can be said that they have “arisen from the business of the appellant in Manitoba”. It is quite true that the goods are sold in Manitoba, but the business of selling and collecting the sales price in Manitoba, which is the final stage of a series of operations, cannot have the effect of importing for taxing purposes in Manitoba, profits earned in the initial stages in the province of Ontario, as a result of manufacturing operations.
I fully agree with Mr. Bristol when he suggested that “arising from the business” means “what is attributable to the business in Manitoba” or “profits derived from sources in Manitoba”. The manufacturing profits made in Ontario are surely not attributable to the operations in Manitoba, and they are not derived from sources in Manitoba.
In order to accept the conclusions of the respondent, it would be necessary to say that the law taxes profits “derived from contracts entered in Manitoba” and I find myself unable to so construe section 24.
I, therefore, come to the conclusion that the appellant is entitled to an allowance as profit on the actual cost of manufacture and I would, therefore, allow the appeal and restore the judgment of Mr. Justice Major, with costs throughout. Rand J. (dissenting)—The transactions in Manitoba, constituting admittedly a business carried on there, were these: the receipt and warehousing at Winnipeg of merchandise, the acceptance and fulfilment of orders received from approved jobbers in the three prairie provinces through distribution by shipment or delivering of the goods called for; general superintendence of the business in those provinces, including coordinate direction over the field representatives canvassing the prairies; and the keeping of all proper records of the business so done. The expenses at Winnipeg were met by cash received from the head office at Toronto. The price for the goods was remitted by the purchasers direct or through the Winnipeg office to Toronto where all commercial accounts were kept. The travelling representatives were under general instruction from headquarters and paid direct from there. The question is what was the net profit or gain “arising from” the business so conducted?
The relevant provisions of the taxing Act are as follows:
3. For the purposes of this Part, “income” means the annual net profit or gain or gratuity, whether ascertained and capable of computation, as being wages, salary, or other fixed amount, or unascertained as being fees or emoluments, or as being profits from a trade or commercial or financial or other business or calling, directly or indirectly received by a person from any office or employment, or from any profession or calling, or from any trade, manufacture or business, as the case may be whether derived from sources within Manitoba or elsewhere; * * *
4. The following incomes shall not be liable to taxation hereunder:
(v) Income earned by a corporation or joint stock company with its head office in Manitoba (other than a personal corporation) in that part of its business carried on outside of Manitoba.
(1) In computing the amount of the profits or gains to be assessed, a deduction shall not be allowed in respect of * * *
(4) Where a corporation or joint stock company with its head office in Manitoba, other than a personal corporation, carries on business outside of Manitoba, no losses incurred in respect to that part of its business shall be deducted or taken into account in calculating the amount of income earned in Manitoba.
9. (1) There shall be assessed, levied and paid upon the income during the preceding year of every person * * *
(d) who, not being resident in Manitoba, is carrying on business in Manitoba during such year;
24. (1) The income liable to taxation under this Part of every person residing outside of Manitoba, who is carrying on business in Manitoba, either directly or through or in the name of any other person, shall be the net profit or gain arising from the business of such person in Manitoba. (2) This section shall apply to a taxpayer which is a corporation or joint stock company carrying on business in Manitoba and which has not its head office in Manitoba.
25. The income liable to taxation under this Part of every person residing outside of Manitoba, who derives income for services rendered in Manitoba, otherwise than in the course of regular or continuous employment, for any person resident or carrying on business in Manitoba, shall be the income so earned by such person in Manitoba.
26 (1) Where a non-resident person produces, grows, mines, creates, manufactures, fabricates, improves, packs, preserves or constructs, in whole or in part, anything within Manitoba and exports the same without sale prior to the export thereof, he shall be deemed to be carrying on business in Manitoba and to earn within Manitoba a proportionate part of any profit ultimately derived from the sale thereof outside of Manitoba.
(2) The minister shall have full discretion as to the manner of determining such proportionate part.
27A. (1) Any non-resident person soliciting orders or offering anything for sale in Manitoba through an agent or employee, and whether any contract or transaction which may result therefrom is completed within Manitoba or without Manitoba, or party within and partly without Manitoba, shall be deemed to foe carrying on business in Manitoba and to earn a proportionate part of the income derived therefrom in Manitoba.
(2) The minister shall have full discretion as to the manner of determining such proportionate part.
It is agreed that section 24 is the applicable provision, but it can be seen at once that the first consideration raised is that of the meaning of certain words and expressions used both in that and the other provisions. We have “arising from”, “derived from”, “earned”. Others of analogous import appear in the cases cited to us: “accruing from”, “accruing from any source”, “produced in”. Primarily, to “earn” income or profit is, I should say, to expend the effort or exertion which creates the value to be exchanged; profit is “realized” if and when that value is converted into money or, in a practical business sense, into debt, in an amount greater than the cost of producing it. “Arising from”, “derived from” and “accruing from” I take to be equivalents; they are applicable to a defined source; and in the case of a business, where used without more, it is on the assumption that the “business” includes factors essential in substance to producing profit. In the present case, the sales in. Manitoba are obviously the final step in an overall business embracing manufacture and sale; but for the purposes of Manitoba, they and their clustered elements are a segregated and distinct business of themselves. The only difference between them and ordinary commercial trading is that in the latter case the goods are bought and they enter thé business with their value therein so created; the essential factors are purchase, possession and sale; here, value is produced instead of purchased out of Manitoba, brought there and localized for the same purpose. In the statutory conception, ownership, possession, and disposal of the goods in Manitoba furnish the foundation of the taxable business there conducted. Not every “business” can be said to possess all factors required for the production of profit within the localization. It may, though self-contained, be but an intermediate process; for some, at least, of such cases section 26 makes provision; in them the legislature taxes either the process or a potential profit deemed annexed to it, on the basis of that portion of ultimate profit attributable to it. If, therefore, there is in a business from which profits must “arise”, a sufficient basis in fact for the legislative assumption, as I think the case here, jurisdiction to tax the entire profit, on that apart from any other ground, is established; in the absence of modifying language in the context, the profit “arising from” that business is the entire profit; and the cost to that point, even though a manufacturing cost, determines the amount of it.
But the question remains whether by the provisions of the statute as a whole such a meaning is modified to point clearly to another subject-matter of tax or basis of determining the taxable profit. Does it appear that the words “arising from” are intended to be the equivalent of “earned” and the basis of the tax, that share of the profits from the company’s entire operations—where, as here, they consist of a connected series—completed by the Manitoba transactions, which the value added to the goods by the operations in Manitoba bears to the total value produced? The different conceptions are sufficiently defined and the difficulty is one of legislative meaning only.
The provisions as a whole make it, I think, indisputable that the distinction suggested between “arising from” and “earned” was fully appreciated. Section 26,
to earn within Manitoba a proportionate part of any profit ultimately derived from the sale thereof outside of Manitoba, seems to put that beyond question. The contention is that the converse of the effect of this unambiguous language was intended in section 24, but I am unable to agree with it. The expression “arising from” in section 24 carries the same signification as “derived from” in 26; in each case there is assumed a business embracing the necessary elements to a profit and in each the whole profit realized upon the sale is the profit dealt with.
It is argued that Commissioners of Taxation v. Kirk[11] is against that view. There again the question was one of the particular language used, and, as put by Lord Davey, it was
whether any part of these profits were earned or (to use another word also used in the Act) produced in the Colony.
He treats “derived” as synonymous with “arising” or “accruing” but he does not extend that equivalence to “earned” or “produced”. It was the four processes there that earned or produced the income. Section 27 declared that no tax should be payable in respect of income earned outside the Colony, and what Lord Davey was concerned to ascertain was what income was earned within the Colony. In such a context “arising” or “accruing” was referrable to the distributed income attaching to the process of production carried out in New South Wales and his statement
Nor is it material whether the income is received in the Colony or not if it is earned outside
applies whether it is wholly or partly earned outside. The “earning”, the work resulting in the creation of value, is the proper measure of the share of total profit to be annexed to the particular process wherever it may be carried out.
The many other authorities brought to our attention are of value only in clarifying the subject-matter and the terms employed; to ascertain the intention of the legislature from the language used is in each case an individual problem for which we can generally look for but small assistance from principle or analogy.
I would, therefore, dismiss the appeal with costs. Kellock J. (dissenting)—The appellant Company has its head office and factory in Toronto and an office and warehouse in Winnipeg. Its business is the manufacture and sale of chewing gum. At the factory ingredients for the finished article are purchased and stored, manufactured and packaged ready for sale. Shipments are then made from Toronto to Winnipeg, where a stock is carried for distribution in Manitoba, Saskatchewan, Alberta and a part of Northwestern Ontario. The Winnipeg branch receives the orders taken by jobbers in these areas, accepts and fills them and bills the purchasers, copies of the invoices being forwarded to the head office. Payment is made, not to the Winnipeg branch, but directly to the head office.
The assessments in question on this appeal are in respect of the appellant’s fiscal periods ending in the years 1936 to 1939, inclusive. For the legislation governing, it is convenient to refer to R.S.M. 1940, cap. 209. It was not contended that there is any material difference between this and the earlier statutes which are applicable. Section 3, so far as material, defines “income” as
the annual net profit or gain * * * directly or indirectly received by a person from * * * any trade, manufacture or business * * * whether derived from sources within Manitoba or elsewhere * * *
The persons who are made liable to taxation on income thus defined are set out in section 9, the relevant part of which is as follows:
9. (1) There shall be assessed, levied and paid upon the income during the preceding year of every person * * *
(d) who, not being resident in Manitoba, is carrying on business in Manitoba during such year;
tax at certain rates.
The combined effect of these two provisions purport, in the case of a non-resident carrying on business in Manitoba, to make such person liable to taxation in Manitoba in respect of his whole income. However, special provision is made for the case of a non-resident who carries on business in Manitoba by section 24 (1), which reads as follows:
The income liable to taxation under this Part of every person residing outside of Manitoba, who is carrying on business in Manitoba, either directly or through or in the name of any other person, shall be the net profit or gain arising from the business of such person in Manitoba. This subsection is, by subsection 2, made applicable to a company whose head office is without the province. The question for determination on this appeal is the proper construction of the words “the net profit or gain arising from, the business of such person in Manitoba”.
Appellant submits that, while it has only one profit, that profit, to quote its factum, “must be deemed to have arisen in all stages of the company’s operations” and “must be apportioned on some basis to arrive at the taxable income in Manitoba”. Reliance is placed upon the decision of the Privy Council in Commissioners of Taxation v. Kirk[12] and the dissenting judgment in International Harvester v. The Provincial Tax Commission[13] (Sask.). It is said that the net profit or gain “arising from the business” in Manitoba means the net profit arising from the appellant company’s “operations” in Manitoba. Appellant also invokes sections 26, 27 and 27A, as showing a legislative intent to apportion profit on the basis contended for. For the respondent it is contended that the whole of the net profit arising from contracts of sale made in Manitoba are taxable, while profit arising from contracts made elsewhere are not taxable.
Before turning to a consideration of the authorities, it is essential first to consider the particular legislation which is here in question. In the statute one finds that section 24 is followed by a group of sections, 26 to 28, inclusive, grouped under the heading “Income from Operations in Manitoba”. These sections are as follows:
26. (1) Where a non-resident person produces, grows, mines, creates, manufactures, fabricates, improves, packs, preserves or constructs, in whole or in part, anything within Manitoba and exports the same without sale prior to the export thereof, he shall be deemed to be carrying on business in Manitoba and to earn within Manitoba a proportionate part of any profit ultimately derived from the sale thereof outside of Manitoba.
(2) The Minister shall have full discretion as to the manner of determining such proportionate part.
27. (1) Any non-resident person, who lets or leases anything used in Manitoba, or who receives a royalty or other similar payment for anything used or sold in Manitoba, shall be deemed to be carrying on business in Manitoba and to earn a proportionate part of the income derived therefrom in Manitoba.
(2) The Minister shall have full discretion as to the manner of determining such proportionate part.
27A. (1) Any non-resident person soliciting orders or offering anything for sale in Manitoba through an agent or employee, and whether any contract or transaction which may result therefrom is completed within Manitoba or without Manitoba, or partly within and partly without Manitoba, shall be deemed to be carrying on business in Manitoba and to earn a proportionate part of the income derived therefrom in Manitoba.
(2) The Minister shall have full discretion as to the manner of determining such proportionate part.
28. Nothing in the three last preceding sections shall in any way affect the generality of the term “carrying on business” used elsewhere in this Part.
It is admitted that appellant is carrying on business in Manitoba within the meaning of section 24. The question is, what is the “business” in Manitoba the net profit arising from which is taxable? Is the line to be drawn horizontally, as appellant contends, by apportioning some notional profit to all of the operations of the appellant which culminate in the sale of its product, the part apportioned to the later operations actually performed within the province alone being taxable, or does the statute indicate, as respondent submits, that the line is to be drawn vertically as between the profit arising from contracts of sale made within and those made without the province? It is quite clear from section 24 itself that the entire net profit arising from the business carried on in Manitoba is taxable. The only question is, what is “the business”? Under section 26 any one of a number of particular operations is made to constitute the carrying on of business and there is express provision for apportioning profit to such operations. It is also significant that the section expressly excludes sale, and it would seem that the intention of the legislature is thereby indicated that where sale takes place within the province, that is a carrying on of business within the meaning of the statute without the necessity for any express provision to that effect, as the legislature evidently thought was necessary in the case of operations which do not culminate in sale. The same theory is exhibited by section 27A. I think it follows, therefore, that in any case where there is a carrying on of business within the province by reason of the habitual making of contracts of sale therein, section 24 applies and the entire profit arising from such sales is taxable and there is no apportionment.
Were section 24 absent from the Act, section 27A would apply to the appellant in respect of orders solicited in Manitoba. That section isolates the solicitation of orders or the offering of anything for sale in Manitoba from other operations and constitutes this a carrying on of business in Manitoba for the purposes of the section. The greater, however, is made to include the less by the provisions of section 24, and, as the operations of the appellant go beyond what is described in section 27A, I think section 24 is the section which applies to the appellant. Counsel for the appellant agrees with this construction.
Turning to the English legislation, 16 and 17 Victoria, cap. 34, section 2, Schedule D, makes provision for taxation “for and in respect of the annual profits or gains arising or accruing to any person whatever, whether a subject of Her Majesty or not, although not resident within the United Kingdom, from * * * any * * * trade * * * exercised within the United Kingdom”.
For my part, I cannot follow counsel for the appellant in his argument that: “the annual profits or gains arising or accruing to any person * * * from any trade exercised within the United Kingdom” differs in meaning from “the annual profits or gains arising or accruing to any person from the trade (or business) of such person in the United Kingdom”, had the statute been so expressed as is the case with the Manitoba legislation here in question. To my mind, therefore, the decisions under the Imperial statute are pertinent. It is to be observed that that statute does not indicate what constitutes the exercise of a trade within the United Kingdom. Two questions therefore arise in any given case namely, (1) whether there is a trade exercised or carried on within the United Kingdom from which profits arise; and (2) what are the profits which are made subject to tax.
In Erichsen v. Last[14], the appellants were a foreign company domiciled in Copenhagen, having three marine cables connecting with the United Kingdom at different points. They accepted messages in the United Kingdom for transmission to various countries over their own cables and the cables of others. It was held that they were exercising a trade in the United Kingdom and chargeable to income tax on the profits arising from the contracts made within the United Kingdom. An