October 07, 2011

Interprovincial Steel and Pipe Corporation Ltd. (Plaintiff) v. Her Majesty The Queen (Defendant)

85 DTC 5099
Federal Court-Trial Division
February 6, 1985

Refunds — Interest on overpayments — Taxpayer not permitted to keep interest on overpayment of tax where later determined was not entitled to refund — Income Tax Act, S.C. 1970-71-72, c. 63, ss. 164(3).

For several years the taxpayer included spare parts and other supplies in its inventory. In 1979, the taxpayer refiled returns indicating that it did not treat these expenses as inventory but deductible expenses. The taxpayer applied for refunds of the tax it had allegedly overpaid. At first the Minister allowed the deductions and refunded the amounts of overpaid tax together with interest thereon. However, upon reassessment the Minister disallowed the deductions, reassessed the taxpayer for the tax and claimed back the interest that it had paid to the taxpayer. The taxpayer abandoned its claim that the spare parts and other supplies were inventory but appealed to the Federal Court-Trial Division with respect to the recovery of interest by the Minister.

Held: The taxpayer’s appeal was dismissed. The Court found that, since the taxpayer had abandoned its tax claim, the interest that resulted from the alleged overpayment could not be lawfully retained by the taxpayer. The statute, which did not contain any provisions requiring the taxpayer to give up the interest, did not empower the Minister to make a gift of the unearned interest to the taxpayer.