MCA Television Ltd. v. Minister of National Revenue, (1994) 79 F.T.R. 81 (TD)

• Judge: MacKay, J.
• Court: Federal Court (Canada)
• Case Date: June 02, 1994
• Jurisdiction: Canada (Federal)
• Citations: (1994), 79 F.T.R. 81 (TD)

MCA TV Ltd. v. MNR (1994), 79 F.T.R. 81 (TD)

MLB headnote and full text

MCA Television Limited (plaintiff) v. Her Majesty The Queen (defendant)

(T-2607-87; T-2608-87; T-2609-87; T-2610-87)

Indexed As: MCA Television Ltd. v. Minister of National Revenue

Federal Court of Canada

Trial Division

MacKay, J.

June 2, 1994.

Summary:

MCA Television Ltd. (MCA) commenced four actions to appeal assessments of income tax for the taxation years from 1978 to 1981. The actions were consolidated for trial together on similar facts and raising the same issue. MCA claimed that it was not subject to tax under s. 212(5) of the Income Tax Act.

The Federal Court of Canada, Trial Division, awarded judgment to MCA.

Agency - Topic 323

Creation of relations - Parties - Who constitutes an agent - [See Income Tax - Topic 8707 ].

Contracts - Topic 7407

Interpretation - General principles - Whole contract to be considered - [See Income Tax - Topic 8707 ].

Income Tax - Topic 8707

Special taxes - Nonresident withholding tax - Rentals or royalties - MCA Television (MCA), a U.S. corporation, had a contract with MCA International, B.V. (BV), a Netherlands company with a branch office in Canada, to distribute its television product in Canada - MCA was assessed a nonresident withholding tax on royalties earned by BV - The Crown argued that MCA was liable for tax under s. 212(5) of the Income Tax Act, subject to the Canada-United States Income Tax Convention (1942), because BV collected the royalties as an agent of MCA - The Federal Court of Canada, Trial Division, awarded judgment to MCA - The court interpreted the contract as a whole and held that the arrangements agreed upon in the contract did not support an agency relationship - Further, the evidence of BV's operations in Canada did not support an agency relationship between the companies - See paragraphs 1 to 58.

Income Tax - Topic 8719

Special taxes - Nonresident withholding tax - By convention or treaty - A U.S. company was assessed a nonresident withholding tax on royalties paid on the distribution of its television product - The company argued that under the Canada-United States Tax Convention, Article XIIIC, the royalties were not "rents or royalties in respect of motion picture films" and therefore exempt from tax - The Federal Court of Canada, Trial Division, interpreted the phrase "motion picture films" to determine if royalties were taxable - See paragraphs 60 to 87.

Statutes - Topic 1450

Interpretation - Construction where meaning is not plain - Aids or methods to determine meaning - Legislative history - Reference to prior versions or amendments - A U.S. company was assessed a nonresident withholding tax on royalties paid on the distribution of its television product - The company argued that under the Canada-United States Tax Convention, Article XIIIC, the royalties were not "rents or royalties in respect of motion picture films" and therefore exempt from tax - The Federal Court of Canada, Trial Division, considered the history of Canadian income tax legislation providing for tax on nonresidents for use of theatrical product - See paragraphs 72 and 73.

Statutes - Topic 1703

Interpretation - Extrinsic aids - Books and comment - Dictionaries - A U.S. company was assessed a nonresident withholding tax on royalties paid on the distribution of its television product - The company argued that under the Canada-United States Tax Convention, Article XIIIC, the royalties were not "rents or royalties in respect of motion picture films" and therefore exempt from tax - The Federal Court of Canada, Trial Division, interpreted the phrase "motion picture films" to determine if royalties were taxable - The court looked to dictionary definitions as an aid in interpreting the words "motion picture" and "film" - See paragraph 78.

Statutes - Topic 1741

Interpretation - Extrinsic aids - Usage - A U.S. company was assessed a nonresident withholding tax on royalties paid on the distribution of its television product - The company argued that under the Canada-United States Tax Convention, Article XIIIC, the royalties were not "rents or royalties in respect of motion picture films" and therefore exempt from tax - The Federal Court of Canada, Trial Division, interpreted the phrase "motion picture films" to determine if royalties were taxable - The court considered expert testimony on the meaning of the words as they were used in the industry - See paragraphs 69 and 70.

Words and Phrases

Motion picture films - The Federal Court of Canada, Trial Division, interpreted the words "motion picture films" as they were used in the Canada-United States Income Tax Convention, 1942, art XIIIC.

Cases Noticed:

North Eastern Railway Co. v. Hastings (Lord), [1900] A.C. 260 (H.L.), refd to. [para. 32].

Perrault v. Minister of National Revenue (1978), 21 N.R. 530; 78 D.T.C. 6272 (F.C.A.), refd to. [para. 32].

Friedberg v. Minister of National Revenue (1991), 135 N.R. 61; 92 D.T.C. 6031 (F.C.A.), refd to. [para. 33].

Inshore Investments Ltd. v. Minister of National Revenue (1992), 52 F.T.R. 122; 92 D.T.C. 6162 (T.D.), refd to. [para. 34].

Morch v. Minister of National Revenue (1949), 49 D.T.C. 649 (Ex. Ct.), refd to. [para. 76].

R. v. Continental Air Photo Ltd. (1962), 62 D.T.C. 1306 (Ex. Ct.), refd to. [para. 76].

French Shoes Ltd. v. Minister of National Revenue (1986), 4 F.T.R. 140; 86 D.T.C. 6359 (T.D.), refd to. [para. 76].

Woodward Stores Ltd. v. Minister of National Revenue (1991), 40 F.T.R. 241; 91 D.T.C. 5090 (T.D.), refd to. [para. 76].

British Columbia Telephone Co. v. Minister of National Revenue (1992), 139 N.R. 211; 92 D.T.C. 6129 (F.C.A.), refd to. [para. 84].

Apple Computer Inc. et al. v. Mackintosh Computers Ltd. et al. (No. 1) (1986), 3 F.T.R. 118 (T.D.), refd to. [para. 84].

Nowegijick v. Minister of National Revenue et al., [1983] 1 S.C.R. 29; 46 N.R. 41; 83 D.T.C. 5041; 144 D.L.R.(3d) 193, refd to. [para. 84].

Melford Developments Inc. v. Minister of National Revenue (1982), 44 N.R. 62; 82 D.T.C. 6281 (S.C.C.), refd to. [para. 85].

Statutes Noticed:

Canada-United States of America Tax Convention Act, 1942, S.C. 1943, c. 21, sect. 3 [para. 85]; art. XIIIC [para. 9].

Canada-United States of America Tax Convention Act, 1943, Amendment Act, S.C. 1951 (2nd Sess.), c. 5, generally [para. 3].

Canada-Netherlands Income Tax Agreement (1957), art. IX [para. 10].

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 175(1) [para. 2]; sect. 212(5), sect. 215(3) [para. 7].

Income Tax Conventions Interpretation Act, R.S.C. 1985, c. I-4, generally [para. 85, footnote 4].

Interpretation Act, R.S.C. 1985, c. I-21, sect. 10 [para. 84]; sect. 45(2) [para. 76].

Authors and Works Noticed:

Massey Commission Report - see Royal Commission Report on National Development in the Arts, Letters and Sciences.

Random House Dictionary of the English Language: The Unabridged Edition (1983) [para. 78].

Royal Commission Report on National Development in the Arts, Letters and Sciences (1951), generally [para. 81].

Shorter Oxford English Dictionary (1973) [para. 78].

Webster's New International Dictionary of the English Language (2nd Ed. 1959) [para. 78].

Counsel:

J.W. Adams and S.E. Edwards, for the plaintiff;

H. Erlichman and D. Spiro, for the defendant.

Solicitors of Record:

Fraser & Beatty, Toronto, Ontario, for the plaintiff;

John C. Tait, Q.C., Deputy Attorney General of Canada, Ottawa, Ontario, for the defendant.

This action was heard May 3 to 7, 1994, in Toronto, Ontario, before MacKay, J., of the Federal Court of Canada, Trial Division, who delivered the following judgment on June 2, 1994.