Tax Court of Canada Judgments

Docket: 2003-3612(IT)I

BETWEEN:

Syed Yousuf Ahmad,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard on January 16, 2004 at Edmonton, Alberta.

Before: The Honourable Justice Brent Paris
Appearances:
Representing the Appellant:	The Appellant himself
Counsel for the Respondent:	Julie Rogers-Glabush

____________________________________________________________________

JUDGMENT

Upon motion by the Respondent for an Order quashing the Appellant's appeal in respect of the 1997 taxation year on the grounds that the issue raised in the Notice of Appeal is res judicata, and that the Appellant is precluded from objecting or appealing the reassessments in issue;

Upon reading the affidavit of Brent Aylesworth filed;

And upon hearing what was alleged by the parties;

The Respondent's motion is granted and the purported appeal is hereby quashed.

Signed at Ottawa, Canada, on the 20th day of February 2004.

"Brent Paris"

Paris, J.

Citation:2004TCC149

Date: 20040220

Docket: 2003-3612(IT)I

BETWEEN:

Syed Yousuf Ahmad,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Paris, J.

[1]      The Respondent has applied for an Order quashing the Appellant's appeal. In the alternative, the Respondent seeks an Order granting the Respondent an extension of time of 30 days to file a Reply to the Notice of Appeal.

[2]      Prior to filing this appeal, the Appellant had successfully appealed a reassessment for the same taxation year to this Court. The Appellant is now appealing the reassessment that was issued by the Minister of National Revenue as the result of the judgment of this Court in that earlier appeal. The Respondent is seeking to quash the Appellant's appeal this time around on the grounds that the Court, in its judgment on the first appeal, conclusively dealt with the issues that are now being raised.

[3]      In order to understand the positions of the parties on this application, it is necessary to set out in some detail the background to, and history of, the Appellant's first appeal.[1]

[4]      The Appellant worked for Atomic Energy Canada Limited ("AECL") from 1967 to 1987. In 1984, he was demoted by AECL due to certain actions taken by AECL's major customer, Ontario Hydro. In August 1986, the Appellant brought an action in the Ontario Superior Court against Ontario Hydro for inducing AECL to breach his employment contract.

[5]      On December 24, 1993, the Appellant won his suit against Ontario Hydro and was awarded general damages of $488,525.00, damages for libel of $40,000.00 and interest on those amounts by the Ontario Superior Court.

[6]      On July 22, 1997, the Ontario Court of Appeal affirmed the trial judgment and award. The Appellant received the damages as set out above, and interest thereon as follows:

Pre-judgment interest [2] $388,212.00

Post-judgment interest [3]            $199,371.00

Per diem interest [4]                          $6,329.00

[7]      The total amount of the pre-judgment and post-judgment interest that related to the award of general damages (as opposed to the award of damages for libel) was $548,965.00.

[8]      The Minister of National Revenue reassessed the Appellant on March 16, 2001 to include the general damages of $488,525.50 and interest of $548,965.00 in his income for 1997.

[9]      The Appellant objected to that reassessment. In his Notice of Objection, the Appellant stated the issues to be:

(a) whether a receipt of damages for the tort of inducement to breach a contract is income;

(b) whether an amount described as interest awarded in respect of a judgment for damages is income; and

(c) whether the legal costs incurred in bringing a suit for inducement to breach of a contract are deductible in computing income. [5]

[10]     The Minister subsequently confirmed the reassessment and the Appellant appealed to this Court.

[11]     In his Notice of Appeal, the Appellant set out the issues as:

(a) whether the damages awarded for the tort of inducement to breach a contract is income; and

(b) whether the amount described as interest in respect of the period prior to the determination of an award of damages is income. [6]

[12]     At the opening of the hearing of the appeal, the Appellant's counsel made the following statement to the Court:

"For the record, we are claiming that the pre-judgment interest is simply a part of the damage award and is not interest and subject to tax. We are not making the same claim with respect to the post-judgment interest, because the post-judgment interest arose out of an award that was made by Williams, J. at the trial." [7]

[13]     Miller, J. rendered his judgment and reasons in the appeal on September 11, 2002. In those reasons, he set out the issues as:

(a) [w]hether the general damages are income pursuant to subsection 56(1) of the Income Tax Act as a retiring allowance, being an amount received as damages in respect of a loss of an office or employment [and]

(b) [w]hether the amount described as pre-judgment interest is brought into income as interest pursuant to paragraph 12(1)(c) of the Income Tax Act.[8]

[14]     He found that the general damages did not fall within the definition of retiring allowance and that the interest was not covered by paragraph 12(1)(c). He therefore allowed the appeal and referred the matter back to the Minister of National Revenue for reassessment on the basis that the general damages and pre-judgment interest were not taxable receipts to the Appellant.

[15]     The Minister reassessed the Appellant for the 1997 taxation year on October 25, 2002 and deleted the general damages and pre-judgment interest from his income[9]. A subsequent reassessment was issued on December 18, 2002 to delete a penalty that had been missed in the prior reassessment[10].

[16]     On December 30, 2002 the Appellant purported to object to the October 25, 2002 and December 18, 2002 reassessments. The Minister did not act on those objections on the basis that the Appellant was precluded from objecting to the reassessments by virtue of subsection 165(1.1) of the Income Tax Act.

[17]     The Appellant has now appealed from those reassessments to this Court raising the issue of whether the post-judgment and per diem interest on the award of general damages should have been included in his income in his 1997 taxation year, and the Respondent has brought this Motion to quash the appeal.

[18]     The Respondent's grounds are as follows:

1.          The issue raised in the Notice of Appeal, the taxation of post-judgment interest, is res judicata, as the issue properly belonged to a cause of action between the same parties upon which the Tax Court of Canada pronounced a final judicial decision;

2.          Subsection 165(1.1) of the Income Tax Act prohibits the Appellant from objecting to a reassessment issued pursuant to an order of a court vacating, varying or restoring the assessment or referring the assessment back to the Minister for reconsideration and reassessment where the matter was conclusively determined by the Court;

3.          Subsection 169(2) prohibits the Appellant from appealing a reassessment issued pursuant to an order of a court vacating, varying or restoring the assessment or referring the assessment back to the Minister for reconsideration and reassessment where the matter was conclusively determined by the Court.

[19]     The Respondent's position is that the Appellant raised the question of taxability of the post-judgment interest and per diem interest in his Notice of Appeal in the earlier appeal, and that the Appellant's counsel conceded at the hearing of the appeal that it was taxable. Alternatively, the Respondent takes the position that, if I were to find that the matter was not raised in the appeal, it was an issue that was related to those in the appeal and one that could have been raised at that time. In either case the Appellant is precluded by the principle of res judicata and by subsection 165(1.1) of the Act from objecting to the reassessments and by subsection 169(2) from appealing from the reassessments. The relevant provisions read as follows:

165(1.1) Notwithstanding subsection (1), where at any time the Minister assesses tax, interest or penalties payable under this Part by, or makes a determination in respect of, a taxpayer

(a)         under subsection 67.5(2), subparagraph 152(4)(b)(i) or subsection 152(4.3) or (6) or 164(4.1), 220(3.4) or 245(8) or in accordance with an order of a court vacating, varying or restoring the assessment or referring the assessment back to the Minister for reconsideration and reassessment,

(b)         under subsection (3) where the underlying objection relates to an assessment or a determination made under any of the provisions or circumstances referred to in paragraph (a), or

(c)         under a provision of an Act of Parliament requiring an assessment to be made that, but for that provision, would not be made because of subsections 152(4) to (5),

the taxpayer may object to the assessment or determination within 90 days after the day of mailing of the notice of assessment or determination, but only to the extent that the reasons for the objection can reasonably be regarded as relating to a matter that gave rise to the assessment or determination and that was not conclusively determined by the court, and this subsection shall not be read or construed as limiting the right of the taxpayer to object to an assessment or a determination issued or made before that time.

169(2) Notwithstanding subsection (1), where at any time the Minister assesses tax, interest, penalties or other amounts payable under this Part by, or makes a determination in respect of, a taxpayer

(a)         under subsection 67.5(2) or 152(1.8), subparagraph 152(4)(b)(i) or subsection 152(4.3) or (6), 164(4.1), 220(3.4) or 245(8) or in accordance with an order of a court vacating, varying or restoring the assessment or referring the assessment back to the Minister for reconsideration and reassessment,

(b)         under subsection 165(3) where the underlying objection relates to an assessment or a determination made under any of the provisions or circumstances referred to in paragraph (a), or

(c)         under a provision of an Act of Parliament requiring an assessment to be made that, but for that provision, would not be made because of subsections 152(4) to (5),

the taxpayer may appeal to the Tax Court of Canada within the time limit specified in subsection (1), but only to the extent that the reasons for the appeal can reasonably be regarded

(d)         where the assessment or determination was made under subsection 152(1.8), as relating to any matter specified in paragraph 152(1.8)(a), (b) or (c), and

(e)         in any other case, as relating to any matter that gave rise to the assessment or determination

and that was not conclusively determined by the Court, and this subsection shall not be read or construed as limiting the right of the taxpayer to appeal from an assessment or a determination issued or made before that time.

[20]     It is the Appellant's position that the post-judgment and per diem interest issues were not matters that were conclusively dealt with by this Court in its judgment of September 11, 2002 because those issues were not and could not have been raised in that appeal.

[21]     The Federal Court of Appeal has reviewed the scope of the limitation in subsection 165(1.1) on a taxpayer's right to object to a reassessment in Chevron Canada Resources Ltd. v. The Queen[11]. In that case the taxpayer purported to file a Notice of Objection to a reassessment that was issued pursuant to a Consent Judgment of this Court. The Notice of Objection dealt with matters that were covered by the settlement between the parties, and with new matters that had not previously been objected to. The parties brought an application in this Court under section 173 of the Income Tax Act for a determination of whether the taxpayer was precluded from filing the Notices of Objection by the provisions of subsection 165(1.1).

[22]     Bowman, A.C.J. of this Court found that the new matters to which the taxpayer was objecting were reasonably related to the matters which gave rise to the reassessments and had not been conclusively decided by the Court. Therefore the taxpayer's right to object to those matters was not precluded by subsection 165(1.1).

[23]     On appeal, the Court upheld the finding that the new matters were reasonably related to the matters which gave rise to the reassessments but reversed the finding that these matters had not been conclusively determined by the Tax Court in its Consent Judgment. As such, the taxpayer was barred by subsection 165(1.1) from objecting to the reassessments in respect of those matters. The Court of Appeal rejected the taxpayer's argument that the Consent Judgment only disposed of the specific issues which it addressed and no more. It held that, by virtue of the doctrine of res judicata, a judgment of a Court conclusively determines all undecided but related matters to the subject of the litigation, including those that could have been raised at the time. The Court referred to the following comments of the Judicial Committee of the Privy Council in Thomas v. Trinidad & Tobago (Attorney General)[12]:

The principles applicable to a plea of res judicata are not in doubt and have been considered in detail in the judgment of the Court of Appeal. It is in the public interest that there should be finality to litigation and that no person should be subjected to action at the instance of the same individual more than once in relation to the same issue. The principle applies not only where the remedy sought and the grounds therefor are the same in the second action as in the first but also where, the subject matter of the two actions being the same, it is sought to raise in the second action matters of fact or law directly related to the subject matter which could have been but were not raised in the first action. The classic statement on the subject is contained in the following passage from the judgment of Wigram, V.C., in Henderson v. Henderson (1843), 3 Hare 100, at page 115:

"... where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."       (Emphasis added.)

[24]     The Court found that subsection 165(1.1) permitted further objections after reassessments made in accordance with a judgment of this Court "with respect to issues related to the matter that gave rise to [the reassessment], but which were not available at the time of the earlier litigation."

[25]     The Court held that the Consent Judgment had conclusively determined all the matters which had given rise to the reassessments including all undecided but related matters.

[26]     In this case I am satisfied that the issue of whether the post-judgment and per diem interest was taxable was not raised by the Appellant in his Notice of Appeal filed in his previous appeal. The reference in the Notice of Appeal to "interest in respect of the period prior to the determination of an award of damages"[13] is a reference to pre-judgment interest only. The comments made by the Appellant's counsel at the opening of the hearing before Miller, J. to the effect that the post-judgment interest was accepted as being taxable were to clarify that this particular matter was not in issue.

[27]     However, I am also satisfied that this question was related to the matter that was before the Court at that time. There, the Appellant was contesting the manner in which the Minister had taxed certain damages and interest he had been awarded in his lawsuit against Ontario Hydro. All of the interest the Appellant received flowed from the award made by the court against Ontario Hydro, and the issues of whether the component parts of the interest award were taxable were inter-related.

[28]     Even if I had found that the matter that the Appellant now seeks to raise was not related to any of the issues in his first appeal, it is an issue that he could have raised the issue in the first appeal. It appears to me that it was raised in his original objection. The description of the issues set out in the Appellant's original Notice of Objection included the following:

(b) whether an amount described as interest awarded in respect of a judgment for damages is income;[14]

[29]     This statement leads me to conclude that the Appellant, at that stage of the proceedings, had intended to put in issue the taxability of all of the interest that he had received as a result of his lawsuit, including the post-judgment and per diem interest. The comments made by his counsel at the hearing that I have cited above indicate that further consideration had been given to this post-judgment interest issue at that point, and that the Appellant had decided not to pursue it in his appeal.

[30]     There is nothing before me to indicate that it was not possible for the Appellant to raise the issue in his earlier appeal, had he wished to do so. I do not accept the Appellant's suggestion that the issue was too complex to raise in the original appeal because the taxability of the post-judgment and per diem interest depended on the outcome of other issues in the appeal, particularly whether the damage award given by the Ontario Superior Court was a retiring allowance. It is often the case in litigation that the determination of a particular issue in a particular way will influence the determination of related issues, but this does not relieve a party from the obligation of putting forward all of the foreseeable related issues at once. Otherwise, as it has already been observed, there might be no end to litigation.

[31]     Nor is there evidence before me of any special circumstances that would warrant me overlooking the rule of res judicata. The Appellant simply did not bring forward an issue that could and, had he so wished, should have been raised in the earlier litigation.

[32]     For these reasons, I find that the issues raised by the Appellant in his most recent Notice of Objection and Notice of Appeal were conclusively determined by the judgment of Miller, J. dated September 11, 2002. Therefore he is prohibited by subsection 165(1.1)(e) from objecting to the October 25, 2002 reassessment and he is prohibited by paragraph 169(2)(e) from bringing an appeal on these issues. The Respondent's motion is granted and the appeal is hereby quashed.

Signed at Ottawa, Canada, on this 20th day of February 2004.

"Brent Paris"

Paris, J.

CITATION:

2004TCC149

COURT FILE NO.:

2003-3612(IT)I

STYLE OF CAUSE:

Syed Yousuf Ahmad v. The Queen

PLACE OF HEARING:

Edmonton, Alberta

DATE OF HEARING:

January 16, 2004

REASONS FOR JUDGMENT BY:

The Honourable Justice Brent Paris

DATE OF JUDGMENT:

February 20, 2004

APPEARANCES:

Representing the Appellant:

The Appellant himself

Counsel for the Respondent:

Julie Rogers-Glabush

COUNSEL OF RECORD:

For the Appellant:

Name:

Firm:

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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