1. Dispute over the entitlement to a depletion allowance for timber limits under the Dominion Income War Tax Act following a disallowance by the Minister. (Para 1 , 2 , 3 )
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1948 Supreme(SC) 71
Privy Council At Canada
Macderrmott, Oaksey, Simonds, Lords Macmillan, Justice Viscount Simon, JJ.
D.R. Fraser and Co. Ltd. -Appellant
Versus
Minister of National Revenue. -Resopndent
Privy Council Appeal No. 51 of 1947
Decided On : 13-10-1948
Advocates Appeared:
Charles Russell and Co., Redden, Blake, B. Mackenna, R.P. Morison, Frank Gahan, S. Bruce Smith
Charles Russell and Co., Redden, Blake, B. Mackenna, R.P. Morison, Frank Gahan, S. Bruce Smith
The word "may" in a statutory provision granting an allowance confers a permissive, double discretion upon the authority to determine both whether an allowance should be made and the amount of such allowance, provided the decision is made bona fide and without irrelevant considerations.
Headnote:(A) Dominion Income War Tax Act - Section 5(1)(a) - Allowance for exhaustion of timber limits - Interpretation of "may" - Discretionary power of the tax authority - Whether the authority is bound in law to make a deduction for depletion or has discretion to refuse any allowance - The word "may" is permissive, not obligatory, conferring a double discretion to determine first whether the case is one for making any allowance at all and second, if so, the amount to be allowed (Paras 10, 11).
(B) Exercise of Statutory Discretion - Standard of review - If a statutory discretion has been exercised bona fide, uninfluenced by irrelevant considerations and not arbitrarily or illegally, the Court is not entitled to interfere even if the Court might have exercised the discretion otherwise (Para 15).
Facts of the case:
A company holding licenses to cut timber claimed a deduction as an allowance for depletion of the timber included in their licenses. The tax authority disallowed the deduction. The company contended they had a statutory right to the allowance and that the authority had a quasi-judicial duty to fix a just and reasonable amount. The authority affirmed the assessment, reasoning that the company held only licenses rather than proprietary interests and had already recovered the entire capital cost of the licenses through deductions in previous years.
Findings of Court:
The authority was entitled to proceed on the view that the only capital asset of the company in process of wasting was the cost of the licenses, and since the company had already received allowances for such depletion to the extent of 100 per cent, no further allowance was warranted.
Issues: Whether the statutory provision mandates a deduction for depletion (leaving only the amount to be determined) or allows the authority to refuse any allowance entirely, and whether the refusal in the present case was a valid exercise of discretion.
Ratio Decidendi: The use of the word "may" in the statute indicates a permissive power, granting the authority discretion both to decide if an allowance is due and to determine its amount. The decision to deny the allowance based on the prior recovery of capital costs was an intelligible, tenable, and admissible view, and thus within the bounds of statutory discretion.
Result: Appeal dismissed.
Legal Category Hierarchy
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tax law
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income tax
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deductions and allowances
- depletion allowance (Para 1)
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deductions and allowances
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income tax
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administrative law
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statutory interpretation
- permissive versus mandatory language
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judicial review
- exercise of statutory discretion
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statutory interpretation
Table of Contents
Lord Macmillan.-
In the fiscal year 1940-41 the appellant company, in pursuance of their business as lumbermen, held three Government licences under which they cut timber in three areas of Crown Land in the Province of Alberta. In making their income tax return for the year they deducted a sum which they claimed as an allowance for depletion of the timber included in their licences at the rate of $1.40 per thousand feet of timber cut. To this deduction they claimed that they were entitled under S. 5 (1) (a), Dominion Income War Tax Act, R.S.C. 1927 C. 97 which, as amended by S. 10 of 1940 C. 34, reads as follows:
"5 'Income' as hereinbefore defined shall for the purposes of this Act be subject to the following exemptions and deductions :
(a) The Minister in determining the income derived from mining and from oil and gas wells and timber limits may make such an allowance for the exhaustion of the mines, wells and timber limits as he may deem just and fair, and in the case of leases of mines, oil and gas wells and timber limits the lessor and lessee shall be entitled to deduct a part of the allowance for exhaustion as they agree, and in case the lessor and lessee do not agree the Minister shall have full power to apportion the deduction between them and his determination shall be conclusive."
[2] In the assessment subsequently made upon the appellant company the deduction which they claimed was disallowed. They thereupon served a notice of appeal upon the respondent, the Minister of National Revenue, in which they set out as the ground of their appeal that under the above quoted provision of the Income War Tax Act they had a "statutory right" and were "entitled to an allowance for the exhaustion of the said timber limits" being the areas included in their licences; and that the Minister had "a duty of a quasi-judicial character, to be exercised on proper legal principles, to fix a just, fair and reasonable amount as an allowance to the appellant for the exhaustion of the said timber limits", which duty the Minister had failed to perform.
[3] The Minister affirmed the assessment, stating his decision as follows:
"The Honourable the Minister of National Revenue, having duly considered the facts as set forth in the Notice of Appeal and matters thereto relating, hereby affirms the said Assessment on the ground that the taxpayer is not entitled to an allowance under the provisions of sub-s (a) of S. 5, Income War Tax Act, for the exhaustion of timber limits owned by the Grown in right of the Province of Alberta on which the taxpayer has been licensed to cut timbar : Therefore on three and related grounds and by reason of other provisions of the Income War Tax Act, and Excess Profits Tax Act the said Assessment is affirmed."
The appellant company gave notice to the Minister of their dissatisfaction with his decision and of their desire that their appeal be set down for trial. In an accompanying statement of particulars they repeated their contention that they had a statutory right to a deduction for depletion. The Minister replied denying the appellant company's allegations and re-affirming the assessment. The documents were thereupon transmitted to the Exchequer Court at Edmonton and the matter was under the Statute deemed to be an action in the Court ready for trial or hearing. An order for formal pleadings was pronounced. The appellant company lodged an amended statement of claim, in which they re-asserted their Statutory right to a deduction. The Minister lodged a statement of defence denying the right claimed and further submitting that the appellant company had no proprietary or other depletable interest in the timber limits that they were not lessees within the meaning of the Act but were simply purchasers of' the timber and that the cost of the timber in the year in question had been allowed as a deduction in determining the profits subject to tax.
[4] The case having come on for hearing before His Honour Judge Cameron both parties we
