D R FRASER AND CO LTD Vs. MINISTER OF NATIONAL REVENUE

JUDGEMENT

(1.) 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.