T-644-77
The Queen (Plaintiff)
v.
Saint John Shipbuilding & Dry Dock Co. Ltd.
(Defendant)
Trial Division, Walsh J.—Saint John, June 26 and
27; Ottawa, July 24, 1979.
Income tax — Income calculation — Non-residents —
Payments made to foreign, non-resident corporation for right
to use computerized information in connection with its ship
building operation — Tax liability of those payments —
Whether or not defendant should have deducted and remitted
15% of the payments pursuant to s. 215(6) of the Income Tax
Act — Income Tax Act, S.C. 1970-71-72, c. 63, ss. 212(1)(d),
215(6) — Canada-United States of America Tax Convention
Act, 1943, S.C. 1943-44, c. 21, Articles I and II and the
Protocol, clause 6(a).
This is an appeal by plaintiff from a decision of the Tax
Review Board to the effect that three sums, payments resulting
from defendant's acquisition by agreement of the right to use a
foreign company's computerized information in connection with
defendant's shipbuilding operation, were not amounts in respect
of which non-resident tax was payable for the 1971, 1972, and
1973 taxation years. The issue is whether or not defendant
should have deducted 15% tax and remitted it to the Minister
of National Revenue pursuant to section 215(6) of the Income
Tax Act. Plaintiff contends that the payments were made for
the use of or the right to use in Canada property of a foreign
company within the meaning of section 212(1)(d)(i), or alter
natively, that defendant paid rents, royalties or similar pay
ments for its acquisition of those rights. Defendant admits that
the amounts paid were not rents, royalties or similar payments
within the provisions of section 212(1)(d) nor payments for the
use of property within the provisions of section 212(1)(d)(i),
and that while they were payments for information concerning
industrial, commercial or scientific experience within section
212(1)(d)(ii) they were not the type of payments subject to
income tax within the meaning of that subparagraph since they
were not dependent in whole or in part upon the use to be made
thereof, the benefit to be derived therefrom, the product or
sales of goods or services or profits. Alternatively, defendant
argues that the payments were industrial and commercial
profits and subject to the provisions of the Canada-U.S. Tax
Convention and Protocol.
Held, the action is dismissed. Even though payments made
by defendant to the foreign company may have been and
probably were income receipts for that company, they certainly
were not rental payments. It stretches the word "royalties" to
conclude that the lump sum payment, even if it is considered as
merely for the "right to use" the information, should be
considered as a royalty payment, even though it is in no way
attached to the use of or to the profits made by defendant as a
result of such use. There is no basis on which a royalty payment
could be calculated. What defendant acquired can be classified
under subparagraph 212(1) (d) (ii)—"information concerning
industrial, commercial or scientific experience." It is not tax
able under that subparagraph since it is neither dependent on
the use to be made thereof, the benefit to be derived therefrom,
the production or sales of goods or services, or profits within
(A), (B) or (C) thereof. If it comes within one of the subpara-
graphs under which it would not be taxable it is not justifiable
to attempt to classify under another subparagraph, by virtue of
which it might be taxable.
INCOME tax appeal.
COUNSEL:
L. P. Chambers and D. Friesen for plaintiff.
E. N. McKelvey, Q.C. and L. Burnham for
defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
McKelvey, Macaulay, Machum & Fair-
weather, Saint John, for defendant.
The following are the reasons for judgment
rendered in English by
WALSH J.: This is an appeal by plaintiff from a
decision of October 22, 1976 of the Tax Review
Board to the effect that the amounts of $25,375,
$50,000 and $81,875 were not amounts in respect
of which non-resident tax was payable for the
1971, 1972 and 1973 taxation years respectively.
These sums arose from payments made by
defendant in the respective years to Com/Code
Corporation, a United States company.
During the hearing in this Court the amount of
$50,000 on which non-resident tax is claimed for
the 1972 taxation year was corrected to read
$75,000 by amendment granted by consent, this
figure being the correct amount. These payments
resulted from the acquisition by defendant from
Com/Code by agreement entered into on or about
April 8, 1971, of the right to use in Canada that
company's Autokon-I System of computerized
information in connection with defendant's ship
building operation.
Plaintiff relies inter alia for the 1971 year on
the provisions of section 106(1)(d) of the Income
Tax Act, R.S.C. 1952, c. 148, as amended and for
the 1972 and 1973 taxation years upon sections
212(1)(d) and 215(6) of the new Income Tax Act,
S.C. 1970-71-72, c. 63, as amended. In addition to
disputing liability under the aforementioned sec
tions of the statute defendant relies on Articles I
and II of the Canada-U.S. Tax Convention and
clause 6(a) of the Protocol thereto and the Cana-
da-United States of America Tax Convention Act,
1943, S.C. 1943-44, c. 21. As the provisions of the
sections in question which are relied on are identi
cal in both taxation Acts it will be convenient in
these reasons for judgment to merely refer to the
sections of the new Act. Section 212(1)(d)(i) and
(ii) read as follows:
212. (1) Every non-resident person shall pay an income tax
of 25% on every amount that a person resident in Canada pays
or credits, or is deemed by Part I to pay or credit, to him as, on
account or in lieu of payment of, or in satisfaction of,
(d) rent, royalty or a similar payment, including, but not so
as to restrict the generality of the foregoing, any payment
(i) for the use of or for the right to use in Canada any
property, invention, trade name, patent, trade mark, design
or model, plan, secret formula, process or other thing
whatever,
(ii) for information concerning industrial, commercial or
scientific experience where the total amount payable as
consideration for such information is dependent in whole
or in part upon
(A) the use to be made thereof or the benefit to be
derived therefrom,
(B) production or sales of goods or services, or
(C) profits,
The amount of 25% is reduced to 15% with respect
to payments made to residents of the United States
by virtue of the provisions of the Canada-U.S. Tax
Convention, Section 215(6) reads:
215....
(6) Where a person has failed to deduct or withhold any
amount as required by this section from an amount paid or
credited or deemed to have been paid or credited to a non-resi
dent person, that person is liable to pay as tax under this Part
on behalf of the non-resident person the whole of the amount
that should have been deducted or withheld, and is entitled to
deduct or withhold from any amount paid or credited by him to
the non-resident person or otherwise recover from the non-resi
dent person any amount paid by him as tax under this Part on
behalf thereof.
Plaintiff contends that the payments were made
for the use of or right to use in Canada Com/Code
Corporation's property, invention, trade name,
patent, trade mark, design or model, plan, secret
formula, process or other thing whatsoever, within
the meaning of section 212(1) (d) (i). Plaintiff
claims that alternatively rents, royalties or similar
payments were paid by defendant for its acquisi
tion of rights to Com/Code Corporation's Auto-
kon-I System within the meaning of section
212(1)(d) of the Act and that it is therefore liable
to pay the 15% tax pursuant to section 215(6)
because it failed to deduct or withhold such tax
from a non-resident.
Defendant for its part contends that the agree
ment was to provide defendant with information
concerning industrial, commercial or scientific
experience and the total amount payable as con
sideration for such information was not dependent
in whole or in part upon the use to be made thereof
or the benefit to be derived therefrom, production
or sales of goods or services, or profits, within the
meaning of section 212(1)(d)(ii), and furthermore
that the payments were industrial and commercial
profits within the meaning of Articles I and II of
the Convention and clause 6(a) of the Protocol
thereto since Com/Code Corporation had no per
manent establishment in Canada within the mean
ing of Article I and clause 3(f) of the Protocol.
The aforementioned Articles I and II read respec
tively as follows:
ARTICLE I
An enterprise of one of the contracting States is not subject
to taxation by the other contracting State in respect of its
industrial and commercial profits except in respect of such
profits allocable in accordance with the Articles of this Conven
tion to its permanent establishment in the latter State.
No account shall be taken in determining the tax in one of
the contracting States, of the mere purchase of merchandise
effected therein by an enterprise of the other State.
ARTICLE II
For the purposes of this Convention, the term "industrial and
commercial profits" shall not include income in the form of
rentals and royalties, interest, dividends, management charges,
or gains derived from the sale or exchange of capital assets.
Subject to the provisions of this Convention such items of
income shall be taxed separately or together with industrial and
commercial profits in accordance with the laws of the contract
ing States.
and clause 6(a) of the Protocol defines the term
"rental and royalties" referred to in Article II of
the Convention in the following manner:
6. (a) The term "rental and royalties" referred to in Article
II of this Convention shall include rentals or royalties arising
from leasing real or immovable, or personal or movable prop
erty or from any interest in such property, including rentals or
royalties for the use of, or for the privilege of using, patents,
copyrights, secret processes and formulae, good will, trade
marks, trade brands, franchises and other like property:
Defendant further states that the amounts paid
were not rents, royalties or similar payments
within the provisions of section 212(1)(d) of the
Act nor payments for the use of said property
within the provisions of section 212(1)(d)(î) and
that while they were payments for information
concerning industrial, commercial or scientific
experience within the meaning of section
212(1)(d)(ii) they were not the type of payments
subject to income tax within the meaning of the
said subparagraph since they were not dependent
in whole or in part upon the use to be made
thereof, the benefit to be derived therefrom, the
production or sales of goods or services or profits.
In the alternative defendant pleads that they were
industrial and commercial profits payable to an
enterprise of the United States of America which
had no permanent establishment in Canada and
therefore not subject to taxation in Canada under
the provisions of the Tax Convention and Protocol
thereto.
Evidence of witnesses confirmed by the agree
ment between defendant and Com/Code dated
April 8, 1971 indicates that what defendant
acquired was the right to use a computerized
system which might perhaps be considered as a
bank of information relating to shipbuilding estab
lished by Com/Code. The use of this system elimi
nates a great many mathematical computations
and calculations required in the construction of a
ship. Before this system was adopted it was neces
sary in converting the plans of the naval architect
or designer into construction drawings to construct
each plate of the hull from the drawings reduced
to one-tenth in size laid out on the loft floor. These
drawings would then be photographed to 1-100
hundred size and from the negative the cutting
tools could be guided to cut the steel plates. The
plates of course had different shapes and curva
tures and the process was a laborious one. The
computer bank contains information based on the
collection of shipbuilding designs from all over the
world enabling, as one witness stated, detailed
information to be obtained by feeding proper input
data to the computer for the construction of any
thing from a row-boat to a warship. Moreover
information can be obtained not only with respect
to the hull plates but also cross girders and other
steel required and the optimum pattern for cutting
the hull plates from steel sheets on the loft floor so
as to minimize wastage of steel by inaccurate
layout of the plans on it. When the cutting tool is
directed by the computerized information received
the plates are also cut more accurately than under
the old system. By using this information the time
for this phase of the construction of a ship may be
reduced from say two months to two or three
weeks.
It is merely necessary to take the co-ordinates in
three dimensions off the line plans of the ship and
code them on a punch card which is then fed into
the computer as input. The output data can be
obtained in two forms, first a print-out giving in
great technical detail the measurement and fairing
of each plate and secondly on a punched tape
which can be fed into the cutting machines.
The bank of information is furnished confiden
tially by Com/Code to whatever computer system
is designated by the customer—in this case Com-
putel. The system was not furnished exclusively by
Com/Code to defendant, of course, but was also
available to other shipyards in the United States
and Canada who acquired the system. I have
expressly avoided the use of the word "bought" or
"leased" in connection with the acquisition of the
right to use the system by defendant and others
who obtained it from Com/Code since it is the key
to the whole problem. On the one hand defendant
cannot be considered as the purchaser of the
system since the contract specifically provides that
the information in it is solely for the use of defend
ant and cannot be passed on by it to any third
party. Defendant therefore cannot be considered
as having rights of ownership which would imply
the right to dispose of or use the information in
any legal manner it might choose. On the other
hand, having paid a lump sum for the use of the
system with options and revisions of the system as
provided in the agreement, over a period of three
years, defendant cannot be considered merely as
the lessee of the system, or as having acquired it on
a royalty payment basis, since the amount paid
remains the same whether defendant makes exten
sive use or no use whatsoever of the system and
there is no fixed period of time at which the right
to use the system terminates. Presumably defend
ant can continue to use it as long as the informa
tion in it is usable and has not become obsolete. It
was conceded that although Com/Code has
undoubtedly gone to the great expense of assem
bling and computerizing all this information and
by doing so provides an extremely useful service to
shipbuilding, the information itself is not protected
by patent or copyright and any shipbuilder could if
its operations were extensive enough to justify the
expense, assemble and computerize its own bank
of similar information. The issue is not whether
the payments made by defendant to Com/Code
were of a capital or income nature so far as
defendant is concerned, but merely whether 15%
should have been deducted from them and remit
ted to the Minister of National Revenue from
Com/Code pursuant to section 215(6) of the new
Act. Jurisprudence relating to the distinction be
tween income and capital expenses is not directly
pertinent. The agreement between defendant and
Computel called for the granting of "a non-exclu
sive licence" and the payment is referred to as
being "for licence to use the system". Plaintiff
contends that what was acquired was property
within the meaning of section 212(1)(4)(i) and in
this connection refers to the case of Rapistan
Canada Limited v. Minister of National Revenue'
which was, however, a case dealing with whether a
deed of gift whereby a U.S. company granted
appellant company its "know-how, techniques,
skills and experience" in order to enable it to carry
on in Canada the particular manufacturing opera
tion that was carried on in the U.S. by the U.S.
company was capital in nature subject to deduc
tion of capital cost allowance. In rendering judg
ment Chief Justice Jackett stated at pages
742-743:
While the "Deed of Gift" purports to be a gift, grant and
assignment of "know-how, techniques, skills and experience",
as far as I know, under no system of law in Canada, does
knowledge, skill or experience constitute "property" that can be
the subject matter of a gift, grant or assignment except to the
extent, if any, that it can be a right or a part of a right in
respect of which there is property of the kind classified as
industrial property. Therefore, as I understand the "gift" in this
case in the light of the evidence, it must be construed as a
promise by the donor that the appellant will be informed and
instructed by the "donor" as to how to commence and carry on
a certain manufacturing operation. Clearly, it is not based on
any of the industrial property rights such as patents for inven
tions, copyright, trade marks and industrial designs. As I
understand the law, knowledge or ideas, as such, do not consti
tute property.
Defendant contends however that the words in
subparagraph (i) must be read in the light of the
preamble to paragraph (d) "rent, royalty or a
similar payment, including but not so as to restrict
the generality of the foregoing, any payment" and
by applying the ejusdem generis rule, that all
payments referred to specifically must have char
acteristics similar to rents or royalties. According
to this argument the word "including" is not used
in its extensory sense for the purpose of enlarging
the meaning of the preceding words but rather for
the purpose of defining the types of rents, royalties
or similar payments to be taxed by the subpara-
graph. Reference was made to the case of Com
missioners of Customs and Excise v. Savoy Hotel,
Ltd. 2 in which, in reviewing the words "manufac-
tured beverages, including fruit juices" in
Schedule 1 to the Purchase Tax Act 1963, Sach J.
' [1974] 1 F.C. 739.
2 [1966] 2 All E.R. 299.
stated at page 302:
... there is nothing here in the use of the word "included" that
compels the court to say that "fruit juices" must be construed
without reference to the two words with which the sentence
begins and which should, where practicable, be given some
effect in relation to the words that follow.
In contending that the payments made were in
the nature of rent plaintiff referred to the case of
United Geophysical Company of Canada v. Min
ister of National Revenue 3 at pages 292-295
where Thurlow J. (as he then was) dealt with the
question under section 106(1)(d) of the old Act of
whether payments not having characteristics of
rent, in view of there being no certainty in the
agreement as to the amount to be paid or as to the
time when the payment must be made, neverthe
less came within the section. He stated [at pages
294-2951:
It is, I think, apparent from the use in the section of the
wording which follows the words "rent" and "royalty" that
Parliament did not intend to limit the type of income referred
to in the subsection to either what could strictly be called
"rent" or "royalty" or to payments which had all of the strict
legal characteristics of "rent" or "royalty". Nor does the scope
of the section appear to be restricted to payments of that nature
in respect of real property for the word "property" appears in
the section and that word is defined in very broad terms in s.
139(1)(ag) as including both real and personal property. It
seems to me, therefore, that s. 106(1)(d) includes any payment
which is similar to rent but which is payable in respect of
personal property,
He was, however, dealing with the argument that
rent must be limited to profits arising from real
property, and in summing up his reasoning he also
stated at page 295:
Without attempting to determine just how wide the net of s.
106(1)(d) may be, I am of the opinion that the subsection does
refer to and include a fixed amount paid as rental for the use of
personal property for a certain time. [Emphasis mine.]
Certainly in the present case there is no limitation
as to time. This distinction was referred to with
approval by Cattanach J. in C.I. Burland Proper
ties Limited v. Minister of National Revenue 4
where he stated at pages 342-343:
From my brother Thurlow's remarks I conclude that in his
opinion (assuming the amount was paid for the use of property)
there must be two attributes present to constitute a payment
similar to rent, although without all other strict legal require
ments thereof, (1) that it is a fixed amount and (2) that it is
3 [1961] Ex.C.R. 283.
4 [1968] 1 Ex.C.R. 337.
paid for a certain time. I would add that the amount is fixed if
it is stated so that it can be ascertained with certainty.
With respect to the word "royalties", Cameron
J. stated in the case of Ross v. M.N.R. 5 at page
418:
Royalties, in reference to mines or wells in all the definitions,
are periodical payments either in kind or money which depend
upon and vary in amount according to the production or use of
the mine or well, and are payable for the right to explore for,
bring into production and dispose of the oils or minerals yielded
up.
In M.N.R. v. Paris Canada Films Limited 6
Dumoulin J. stated at page 49:
Proceeding by elimination, I incline to believe that a lump
payment for rights irrevocably ceded, tantamount to an assign
ment in perpetuity, as in exhibit 11, can hardly be reconciled
with the customarily accepted notions attaching to "rents or
royalties", id est: limit of time, retention of a jus in re by the
lessor, and periodical rentals by the lessee, either for fixed sums
or an apportionment of receipts.
In the case of Vauban Productions v. The
Queen? Addy J. stated at pages 67-68:
The term "royalties" normally refers to a share in the profits
or a share or percentage of a profit based on user or on the
number of units, copies or articles sold, rented or used. When
referring to a right, the amount of the royalty is related in some
way to the degree of use of that right. This is evident from the
various dictionary definitions of the word "royalty" when used
in connection with a sum payable. Royalties, which are akin to
rental payments, have invariably been considered as income
since they are either based on the degree of use of the right or
on the duration of the use, while a lump sum payment for the
absolute transfer of a right, without regard to the use to be
made of it, is of its nature considered a capital payment,
although it may of course be taxable as income in the hands of
the recipient if it is part of that taxpayer's regular business.
Plaintiff contends however, that the word "roy-
alties" has not been restricted to payment for the
use of the information since subparagraph
212(1)(d)(i) in referring to payment "for the use
of" also adds the words "or for the right to use"
and that what defendant acquired was "the right
to use". In support of this argument plaintiff refers
inter alia to the British case of Rustproof Metal
Window Co., Ltd. v. Commissioners of Inland
5 [1950] Ex.C.R. 411.
6 [1963] Ex.C.R. 43.
7 [1976] 1 F.C. 65.
Revenue 8 where Lord Greene M.R. stated at page
267:
Returning to the argument of Counsel, I cannot understand
why it should be said, as the proposition implies and was
specifically argued, that a sum received in respect of the right
to use a patent which is payable whether or not the patent is in
fact used and without reference to any question of user must
necessarily be a capital receipt. A sum received in consideration
of the grant of the right to use a patent, whether user does or
does not take place, is surely just as capable of being an income
receipt as a sum received in consideration of the grant of the
right to use any other kind of property, for example, a motor
car. Whether or not it is an income or a capital receipt must, I
should have thought, be ascertained by reference to all the
relevant circumstances and not by some fixed rule of law such
as is suggested.
Reference was also made to the case of Murray
(Inspector of Taxes) v. Imperial Chemical Indus
tries, Ltd. ° in which at page 983 Lord Denning
M.R. stated:
Applying these criteria, in the present case it is quite clear
that the royalties for the master C.P.A. patent and the royalties
for the ancillary patents of the taxpayer company were revenue
receipts. That is admitted. So far as the lump sum is concerned,
I regard it as a capital receipt, even though it is payable by
instalments. I am influenced by the facts: (i) that it is part
payment for an exclusive licence, which is a capital asset; (ii)
that it is payable in any event irrespective of whether there is
any user under the licence; even if the licensees were not to use
the patents at all, this sum would still be payable; (iii) that it is
agreed to be a capital sum payable by instalments and not as an
annuity or a series of annual payments. In these circumstances
I am quite satisfied that the lump sum was a capital receipt and
the taxpayer company are [sic] not taxable on it.
In the case of Jeffrey (H.M. Inspector of Taxes) v.
Rolls-Royce, Ltd. 10 which dealt with an agree
ment between Rolls-Royce and the Republic of
China to license the Chinese to manufacture a
Rolls-Royce jet aero engine and supply the neces
sary information and drawings, to advise them
from time to time as to improvements and modifi
cations in manufacture and design, and to instruct
Chinese personnel of their works and to release
one or two members of their own staff to assist in
China with the manufacture of the engine in con
sideration of the payment of "a capital sum of fifty
thousand pounds" plus royalties, it was held that
the fifty thousand pounds was a revenue receipt
8 29 T.C. 243.
9 [1967] 2 All E.R. 980.
10 40 T.C. 443.
despite being designated as capital payment. As
previously indicated however these cases dealt with
the distinction between capital and revenue
receipts and the Court is not called upon to decide
in the present case whether the payments made by
defendant to Com/Code were revenue receipts for
Com/Code or whether they were capital or reve
nue payments by defendant in order to interpret
section 212(1)(d) of the Act. In the case of Farm-
parts Distributing Ltd. v. The Queen" (which I
am informed is now under appeal) my brother
Gibson J. decided that this distinction was neces
sary for the proper interpretation of section
212(1)(d). He stated at pages 513-514:
The words "rent, royalty or ... [other] similar payment"
used in paragraph 212(1)(d) of the Income Tax Act require a
determination categorizing the payments made in every case.
This is so because the basic scheme and concept of the present
Income Tax Act is that all categories of specific factual situa
tions are provided for in its charging provisions. In other words,
everything is considered to be covered.
This is a fundamental change from the basic scheme and
concept of the previous Act which employed general language
in its charging provisions. It dealt with principles and stand
ards. It left for judicial decision whether a particular factual
situation fell within or without such general language in the
charging provisions.
[Type of payments]
Therefore, in considering the categorization of the payments
made in this case, it appears that in all of the subparagraphs of
section 212(1)(d) of the Income Tax Act (except subparagraph
212(1)(d)(v)) what is contemplated is payments on income
account. It appears also that subparagraph 212(1)(d)(i) only
may be applicable in these appeals. It appears also that the
subject payments were lump sum payments, made once and for
all, but that feature in the subject cases is not of material
assistance in determining the categorization of such payments.
While the question is not an easy one I am inclined
to the view in the light of all the above jurispru
dence that, even though the payments made by
defendant to Com/Code may have been and prob
ably were, income receipts for that company, they
certainly were not rental payments and that it
stretches the word "royalties" to conclude that the
lump sum payment (the fact that it was in three
instalments does not alter this) even if it is con
sidered as merely for the "right to use" the infor
mation should be considered as a royalty payment,
although is in no way attached to the extent of use,
or to the profits made by defendant as a result of
11 [1979] 2 F.C. 506.
such use, and hence there is no basis on which a
royalty payment could be calculated.
I am strengthened in this conclusion by the
wording of subparagraph (ii) of section 212(1)(d).
It appears to me that what was acquired by
defendant can properly be classified under this
subparagraph as "information concerning industri
al, commercial or scientific experience". If this is
the case then it clearly is not taxable under sub-
paragraph (ii) since it is neither dependent on use
to be made thereof, the benefit to be derived
therefrom, the production or sales of goods or
services, or profits within (A), (B) or (C) thereof.
If it comes within one of the subparagraphs under
which it would not be taxable it is not justifiable to
attempt to classify under another subparagraph,
by virtue of which it might be taxable. Having
concluded that the tax is not required by virtue of
section 212(1)(d) of the Income Tax Act, nor
section 106(1)(d) of the former Act, this disposes
of the matter and it is not really necessary to deal
with defendant's argument based on the Canada-
U.S. Tax Convention. This second argument of
defendant was also thoroughly dealt with however
by counsel for both parties and I will therefore also
deal with it. This argument again raises the ques
tion of whether the payments made to Com/Code
were "income in the form of rentals and royalties"
or "industrial and commercial profits" in Canada.
The latter are not taxable in Canada but rentals
and royalties from the sale or exchange of capital
assets are excepted and therefore not exempt.
The words "rental and royalties" in the Protocol
apply to "the use of, or for the privilege of using"
which plaintiff points out differs from the words in
subparagraph 212(1) (d) (i) which read "use of or
for the right to use". I do not find any significant
difference in the wording. However, I find the
examples in the Protocol which refers to "patents,
copyrights, secret processes and formulae, good
will, trade marks, trade brands, franchises and
other like property" [emphasis mine] to be, if
anything, somewhat more restrictive than section
212(1)(d)(î) which uses the words "any property,
invention, trade name, patent, trade mark, design
or model, plan, secret formula, process or other
thing whatever" [emphasis mine] if one is to apply
the ejusdem generis rule since what was acquired
does not come within any of the items of property
specified in clause 6(a) of the Protocol nor is it
"other like property".
Plaintiff relies on the case of Western Electric
Company Incorporated v. Minister of National
Revenue [1969] 2 Ex.C.R. 175 affirmed in the
Supreme Court 71 D.T.C. 5068, under section
106(1)(d) of the former Income Tax Act which
held that confidential technical information sup
plied by an American company to a company in
Canada constituted trade secrets which bore a
close analogy to "secret processes . .. and other
like property" within the meaning of clause 6(a) of
the Protocol. The present case can be distinguished
however in that the information is in no way
secret, but merely a compilation in useful form of
information otherwise available. Furthermore in
the Western Electric case royalty payments were
definitely made, based on sales of goods manufac
tured by use of the information received. I also
conclude therefore that under the provisions of the
Canada-U.S. Tax Convention the payments made
were not subject to the deduction of withholding
tax as required by section 215(6) of the Act.
Plaintiff's action is therefore dismissed with
costs.
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