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TMI Blog1932 (3) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... to be brought into account by them for assessment to income-tax. 3. This question has led, in these proceedings, to an acute difference of judicial opinion. The learned Judges of the Supreme Court unanimously favoured a negative answer to the question and their view had the support of Martin, J, in the Court of Appeal of the Province. On the other hand, the four remaining learned Judges of that Court, supporting the learned trial Judge, were all in favour of the view that the moneys in question must be brought into account by the respondents for taxation purposes. 4. The respondents are a company incorporated under the Companies Act of British Columbia. Since 1921 they have been carrying on business at the city of Vancouver as manufacturers of and dealers in lumber and lumber products. On 21st August 1923, their plant and premises were destroyed in a conflagration. These subjects were insured against, loss and damage by fire under annual policies, taken out or renewed in the previous March with some 17 insurance companies, The respondents were also insured by the same companies against the further loss or damage they might sustain in the event of their plant either in whole or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... $ 95,427.90 7. It is not disputed that as between the tax years, 1923 and 1924 this sum, if assessable to tax at all is properly apportionable as follows: 1923-113 business days: Net profits ... $ 22,600.00 Fixed charges 1924-102 business days; ... $ 27,555.05 Nat profits ... $ 20,100.00 Fixed charges ... $ 24,872. 85 8. The sum of $ 95,427.90 having been duly received, the respondents in their income tax returns to the Province for the year 1923 included the sum of $ 41,293.20 as an income receipt, and in their return for the year 1924 they included as a similar receipt the sum of $ 33,706,80. In the result, provincial income-tax for the years 1923 and 1924 was in fact paid in respect of those sums aggregating $ 75,000 out of the total sum of $ 95,427.90 received as already stated. 9. The respondents did not bring into account for either year the balance- $ 20,427.90. Their view even then was that that sum was exempt from liability to tax for the reason that it represented moneys received from the insurance companies in excess of She actual loss sustained, the rebuilding of the plant having in fact taken a less number of days than that estimated for and allowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on at the sum for which the respondents are assessable to Provincial income-tax must depend upon the provisions, properly construed, of the taxing statute of the Province. But it will be convenient before those provisions are applied to that receipt to ascertain, apart from any question as to income-tax its precise place and character in the economy of the respondents' business. And there is, it would appear, little difficulty in ascertaining this. 13. The main purpose of the respondents, as it is of all similar industrial units, is the acquisition of gain, such acquisition in the case of each unit being effected by the exercise of such of the powers conferred upon it by its constitution as it may determine to exercise. In the case of the respondent's acquisition of gain was primarily to result from their carrying on of the business of manufacturers of and dealers in lumber and lumber products. In the conduct of that business they were exposed to the grave risk of fire, and the insurance of their promises and plant was an insurance against a possible capital loss dictated by every consideration of prudence. If the risk wore not so guarded against, then by a fire sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to, them. As a result the respondents have secured for themselves a net receipt involving gain-an unusual mode of deriving gain from the business, it may be agreed,; but as Lord Warrington said in similar' circumstances in the Newcastle Breweries case 12 T.C. 927 (at p. 947), not so divorced from the business as to prevent it entering the accounts as a receipt arising; therefrom. And it was not a windfall. As observed by Sargant, L.J., in Gliksten's case [1929] A.C. 381 = 98 L.J.K.B. 363 = 140 L.T. 625 = 45 T.L.R. 274 = 14 Tax. Cas 364 affirming (1928) 2 K.B. 193, (at p. 203), it was an ordinary receipt in the sense, not that it would occur every year or regularly at stated intervals, but in the sense that in the case of a business prudently conducted it would ordinarily be received so often as the risk insured against materialized. This then as applied to the respondents business is the nature of the receipt with reference to which the inquiry must now be made, whether under the Taxation Act, 1924, it is of a character to be brought into charge. 17. That Act is very lengthy, it consists of 200 sections, but its provisions relevant to the inquiry in hand are not numer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be made by each taxpayer annually without any notice or demand and filed with the assessor of the assessment district in which the income is liable to taxation . . . * * * * (3) Where the return contains a statement of income derived from any business the taxpayer shall attach thereto a copy of his certified balance sheet and profit and loss account relating to that business for the period covered by the return. 51. The tax on income shall be assessed levied and paid annually upon the net income of the taxpayer during the last preceding calendar year. 20. A reference to S. 44 (1)(i) and S. 43 (3) shows very clearly why in this case the receipt by the respondents in respect of "fixed charges" disappeared from the discussion. In their accounts for the purpose of arriving at their "net income" the respondents wore entitled to the benefit of a deduction for fixed charges as an expense: they were however required by S. 44 (1)(i) as against those lost fixed charges to bring in the fixed charges insurance receipt. The effect (the account being otherwise in credit) was necessarily to increase by the amount of that receipt the ultimate neb income of the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s case [1929] A.C. 381 = 98 L.J.K.B. 363 = 140 L.T. 625 = 45 T.L.R. 274 = 14 Tax. Cas 364 affirming (1928) 2 K.B. 193, which would appear to be in conflict with their own. 25. But however the receipt he described, it is because it is truly "income" of the respondents that it must, be brought into charge in their revenue account for the purpose of 'arriving in respect of the year of charge at the respondents' not income. Whether the whole or any part of it is finally chargeable depends upon the result of the whole annual expenditure and revenue accounts of which it constitutes one item only. 26. For these reasons their Lordships find themselves in the result in agreement with the learned trial Judge. They are unable to concur in the conclusion of the Supreme Court. They think accordingly that this appeal should be allowed, and the judgment of the Court of appeal of British Columbia restored. This will automatically revive the judgment of the learned trial Judge. And their Lord-shins will humbly advise His Majesty accordingly. The Crown must have its costs before the Supreme Court, but in view of the observations of their Lordships upon this subject made on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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