SUPREME COURT OF CANADA

The Queen (Man.) v. Air Canada, [1980] 2 S.C.R. 303

Date: 1980-07-18

Her Majesty The Queen in The Right of the Province of Manitoba Appellant;

and

Air Canada Respondent;

and

The Attorney General of Canada, The Attorney General of Quebec, The Attorney General of Nova Scotia, The Attorney General of New Brunswick, The Attorney General of British Columbia, The Attorney General of Saskatchewan, and The Attorney General of Alberta Interveners.

1980: January 23; 1980: July 18.

Present: Laskin C.J. and Martland, Ritchie, Pigeon, Dickson, Beetz, Estey, McIntyre and Chouinard JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR MANITOBA

Constitutional law — Taxation — Personal tax — Airspace over land territory of Province — Use of aircraft — Indirect taxation — Taxation within the Province — The Retail Sales Tax Act, R.S.M. 1970, c. R150 — British North America Act, s. 92(2).

The appeal in this Court concerns the liability of Air Canada, under The Retail Sales Tax Act of Manitoba, for tax in respect of through-flights over the air space above Manitoba and in respect of liquor service to first class and economy passengers during such flights, and in respect of flights that land in Manitoba from outside points on temporary stopovers pending their continuation to destination outside the Province. There was no suggestion of tax liability in respect of flights which take off from, i.e., originate in Manitoba, for points beyond, nor was any issue raised as to Air Canada operations that begin and end in Manitoba; no such operations were put in issue. Air Canada had been assessed in the amount of $1,375,387, including interest and penalties. It challenged the assessment and was largely successful in the Manitoba Courts. The Court of Queen's Bench assessed the tax at a mere $1,856 and ordered a refund of $1,432,181 with interest after judgment. The Court of Appeal varied the judgment by ordering the Government of Manitoba to pay interest before judgment and increased the refund to $1,708,282.63. On appeal to this Court, two constitutional questions were fixed as follows:

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1. Is airspace over land territory of the Province of Manitoba "within the Province" so as to permit the Province to tax a corporation in respect of its use of aircraft in such airspace under The Retail Sales Tax Act?

2. Is it otherwise intra vires the Province so to tax a business within the Province?

A rehearing was subsequently ordered with particular reference to the question whether the taxes assessed against the respondent constitute indirect taxation and therefore were beyond the power of the Legislature of the Province of Manitoba to impose.

Held: The appeal should be dismissed.

Prior to May 1, 1972, aircraft in interprovincial and foreign flights through the air space over Manitoba and repair parts for such aircraft were exempted from tax. A certain taxing formula was then introduced in The Retail Sales Tax Act in respect of aircraft engaged in such flights. Section 3(1) of the Act imposed upon "every purchaser of tangible personal property or a service" a tax "in respect of the consumption thereof", and s. 4(6) provided that "where an aircraft is, in the opinion of the minister, operated both within and without the province for the purpose of trade, the minister ... may, for the purposes of this Act, fix the value of the aircraft, and the repair parts and services therefor ...".

Air Canada has offices in Manitoba and also has maintenance and service facilities for its aircraft which land there or take off from there, and it was contended that, if the tax is a tax in personam, then Air Canada is liable to pay it, in respect of overflights and in respect of aircraft that land in Manitoba, and also in respect of aircraft parts which are found in Air Canada's facilities in Manitoba, unless the tax is indirect.

It is unnecessary for the purposes of this case to explore the extent to which a Province has legislative jurisdiction in the air space per se: Assuming that the Province has some legislative jurisdiction in the air space above it, the pivotal question is whether Air Canada aircraft engaged in overflights are "within the Province" as this phrase is used in s. 92(2) of the B.N.A. Act. Merely going through the air space over Manitoba does not give the aircraft a situs there to support a tax which constitutionally must be "within the Province". In the

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case of aircraft operations, there must be a substantial, at least more than a nominal, presence in the Province to provide a basis for imposing a tax in respect of the entry of aircraft into the Province.

With respect to the submission that, regardless of whether the air space above Manitoba is within the Province, the appellant was entitled to tax Air Canada in respect of its airplanes, parts and services on over-flights by regarding these facilities as merely the means of measuring a tax in personam, there are two answers to this contention. First, this is not the way in which the tax has been imposed. Although the tax is in personam, it is exacted upon the bringing of tangible personal property into the Province and as this has not been shown, then the statute itself precludes the exaction of the tax, even if Air Canada has a presence in Manitoba. Second, the principle expressed in Bank of Toronto v. Lambe cannot be extended to make interprovincial and transnational aircraft operations as measuring standards to determine the amount of a tax imposed upon an air carrier which has a business office in the taxing province.

With respect to flights that originate outside Manito­ba but which land in the Province temporarily and then proceed out of Manitoba, they cannot be distinguished, on principle, from overflights.

Apart from constitutional considerations, there is no acquisition or consumption involved within the meaning of the Act. There is, at best, merely a notional drawing into the taxation net of interprovincial and extraprovin­cial operations, and constitutional authority, which is limited to direct taxation within the Province, cannot be extended by self-serving definitions.

Hence, the Act does not impose a tax that can be said to be "within the Province" under s. 92(2) of the B.N.A. Act, in so far as it purports to tax Air Canada on overflights of its aircraft through the air space over Manitoba and on flights which land temporarily in Manitoba from outside points before proceeding onward. It is therefore unnecessary to deal with the question whether the tax (even on the assumption that it is within the Province) is a direct tax. Equally, it is unnecessary to consider taxability in respect of the consumption of liquor by passengers since it follows from the main conclusion that any liquor sales to passengers cannot be said to be sales in Manitoba.

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Bank of Toronto v. Lambe (1887), 12 App. Cas. 575; Northwest Airlines, Inc. v. Minnesota (1943), 322 U.S. 292; Braniff Airways Inc. v. Nebraska State Board of Equalization and Assessment (1953), 347 U.S. 590; Atlantic Smoke Shops Ltd. v. Conlon, 1943 CanLII 372 (UK JCPC), [1943] A.C. 550, referred to.

APPEAL from a judgment of the Court of Appeal for Manitoba[^1], affirming with a variation a judgment of the Manitoba Queen's Bench. Appeal dismissed.

Wolfe D. Goodman, Q.C., and D. D. Blevins, for the appellant.

H. B. Monk, Q.C., Ian McPherson, Q.C., and Charles Phelan, for the respondent.

T. B. Smith, Q.C., and M. L. Basta, for the intervener, the Attorney General of Canada.

Henri Brun and Jean-François Jobin, for the intervener, the Attorney General of Quebec.

W. Kavanagh, Q.C. and Mollie Gallagher, for the intervener, the Attorney General of Nova-Scotia.

Alan D. Reid and A. Anne McLellan, for the intervener, the Attorney General of New Bruns-wick.

Lysyk, Q.C., for the intervener, the Attorney General of British Columbia.

D. A. McKillop, for the intervener, the Attorney General of Saskatchewan.

William Henkel, Q. C., for the intervener, the Attorney General of Alberta.

The judgment of the Court was delivered by

THE CHIEF JUSTICE—This case concerns the construction and application of The Retail Sales Tax Act, R.S.M. 1970, c. R150 (originally entitled The Revenue Tax Act), as amended by 1972 (Man.), c. 6 and by 1974 (Man.), c. 57, Part 1, to Air Canada operations and services in through-flights which do not touch down in Manitoba and in flights which land in Manitoba or which take off in that Province. It arose under an amended

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assessment of tax under the Act, confirmed by the Manitoba Minister of Finance in the amount of $1,375,387, including interest and penalties, and covering in its various aspects the period of July 1, 1971 to June 30, 1974. Air Canada challenged the assessment and was largely successful in that challenge in litigation in the Manitoba Courts.

Morse J. of the Manitoba Queen's Bench, after lengthy reasons, came to the following conclusion:

To summarize, it is my opinion that Air Canada was not liable to tax under the Manitoba Retail Sales Tax Act in respect of aircraft, aircraft engines and parts consumed, and services, meals and liquor consumed or supplied in aircraft while in the airspace over the Province of Manitoba, and, accordingly, the decision of the Minister in this case is varied to that extent.

The formal judgment which carried out this con­clusion contains the following relevant provisions:

1. THIS COURT DOTH ORDER AND ADJUDGE that the assessment which is the subject of this appeal be reduced and varied—

a) by removing from the assessment all tax purported to be assessed and levied in respect of aircraft, aircraft engines and aircraft parts consumed, and services, meals and liquor consumed or supplied in aircraft while in the airspace over the Province of Manitoba;

b) by computing the value of the portion of any aircraft consumed in Manitoba, and subject to tax in the assessment period, as being the depreciation of that aircraft during that period computed on a straight line basis and— multiplied by the proportion that the miles operated by the aircraft in Manitoba in that period bear to the total miles operated by the aircraft in the same period;

c) by removing from the assessment all tax purporting to be assessed and levied in respect of inventory, except that levied in respect of inventory owned by Air Canada in Manitoba after May 1, 1972, after deducting from the amount of the last mentioned inventory the amount of the inventory owned by Air Canada in Manitoba immediately prior to the 1st day of May, 1972;

d) by removing from the assessment all tax purporting to be assessed and levied in respect of the service

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of meals or liquor alleged to have been served or supplied on aircraft which landed or took off from the Airport at the City of Winnipeg during the assessment period;

e) by removing from the assessment all tax purporting to be assessed and levied in relation to the time tables of Air Canada;

f) by removing from the assessment all tax purporting to be assessed and levied in relation to services, cleaning and maintenance of aircraft, janitorial services or laundry services performed outside the Province of Manitoba.

2. AND THIS COURT DOTH FURTHER ORDER AND ADJUDGE that after reducing and varying the assessment in accordance with the terms of this judgment, and computing the tax levied payable by the Appellant in respect of the assessment as varied the Respondent do refund to the Appellant without interest the amount by which the monies paid by the Appellant to the Respondent in relation to the assessment and not repaid to the Appellant exceed the tax payable under the assessment as varied in accordance with this judgment.

By an order of April 1, 1977, Morse J. assessed the tax against Air Canada at a mere $1,856 and ordered a refund as indicated below. It is not clear what the small tax represented, but it did signify Air Canada's substantial immunity from liability under the Manitoba Retail Sales Tax Act. The judgment and order of Morse J. were affirmed by the Manitoba Court of Appeal in reasons delivered by Monnin J.A., but with a variation by ordering the Government of Manitoba to pay interest to Air Canada on a refund of part of the tax which it had paid under protest. By reason of this variation, the refund of $1,432,181 with interest after judgment, directed by Morse J., was increased by the Court of Appeal to $1,708,282.63.

On appeal by leave to this Court, two constitutional questions were fixed by an order of Pigeon J. of August 18, 1978, as follows:

1. Is airspace over land territory of the Province of Manitoba "within the Province" so as to permit the Province to tax a corporation in respect of its use of aircraft in such airspace under The Retail Sales Tax Act, R.S.M. 1970, Ch. R150.

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2. Is it otherwise intra vires the Province to so tax a business within the Province.

The Attorney General of Canada intervened as did the Attorneys General of Quebec, Nova Scotia, New Brunswick, British Columbia, Alberta and Saskatchewan. The appeal was heard in this Court by a Bench of seven Judges on November 7 and 8, 1979, but on December 21, 1979 the Court ordered a rehearing in the following terms:

A rehearing of this appeal is directed before the full Court [of nine] with particular reference to the question as to whether the taxes assessed against the respondent pursuant to the provisions of The Retail Tax Act, R.S.M. 1970, c. R150, and in issue in this appeal, constitute indirect taxation and therefore was beyond the power of the Legislature of the Province of Manitoba to impose.

The rehearing took place on January 23, 1980, and the same interveners participated.

Counsel for the appellant Government of Manitoba dropped any challenge to the award of interest by the Manitoba Court of Appeal and, similarly, abandoned any claim to tax in respect of Air Canada time-tables. At the rehearing, no issue was taken by the appellant with respect to the affirmed order of Morse J. as to meal service. The appeal in this Court was thus reduced to a consideration of the liability of Air Canada for tax in respect of through-flights over the air space above Manitoba and in respect of liquor service to first class and economy passengers during such flights, and in respect of flights that land in Manitoba. Those that land in Manitoba from outside points are flights that involve temporary stopovers pending their continuation to destinations outside the Province. There was no suggestion of tax liability in respect of flights which take off from, i.e. originate in Manitoba, for points beyond. Nor are we concerned in this case with Air Canada operations that begin and end in Manitoba; no such operations were put in issue. I would note here that, as stated by the appellant in its factum of the first hearing in this Court, "the tax is imposed only once during the lifetime of an aircraft, or other

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items of property at the time of purchase", this last word taking its meaning as defined in the Act.

Counsel for the appellant conceded that the title, "Retail Sales Tax Act" was a misnomer because the Act is not limited to the levy of taxes on retail sales but purports to encompass, in defined circumstances, consumption and use of tangible personal property, whether or not there is an actual retail sale. It also embraces the enjoyment or advantage of services. Prior to May 1, 1972, aircraft in interprovincial and foreign flights through the air space over Manitoba and repair parts for such aircraft were exempted from tax but the exemption was removed by the 1972 amendment and a certain taxing formula was introduced in respect of aircraft engaged in such flights, and I shall come to it shortly.

The general charging section of the Act is s. 3(1) which reads:

3(1) Every purchaser of tangible personal property or a service, except tangible personal property in respect of which tax is payable under subsection (13), shall pay to Her Majesty in right of Manitoba, for the public use of the government, a tax in respect of the consumption thereof, computed at the rate of five per cent of the fair value thereof.

I reproduce also the supporting provisions of s. 3(5) and s. 3(6) which read:

3(5) Every person who consumes within the province tangible personal property acquired by him for resale, or who consumes within the province tangible personal property manufactured, processed, produced, or purchased by him within or without the province shall, for the purpose of this Act be conclusively deemed to have purchased that property at a retail sale in the province.

3(6) Every retail sale to a purchaser in the province by a person who is not resident within the province, or carrying on business within the province, shall be deemed to be a retail sale in the province for the purposes of applying the tax under this section.

It was the contention of the appellant that s. 3(1) is the only charging section and that the provisions respecting the taxing formula applicable to aircraft,

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found in s. 4(6), do not amount to a separate charging section. I shall come back to this later, but it will be convenient to reproduce s. 4(6) at this point and, as well, s. 4(7):

4(6) Notwithstanding section 3, where an aircraft is, in the opinion of the minister, operated both within and without the province for the purposes of trade, the minister may estimate the proportion that the number of miles the aircraft is operated in Manitoba bears to the total number of miles the aircraft is operated and may, for the purposes of this Act, fix the value of the aircraft, and the repair parts and services therefor, as that part of the value thereof that bears the same proportion to the total value thereof as the proportion estimated above; and tax is payable on that part of the value of the aircraft and the repair parts and services therefor so fixed.

4(7) Notwithstanding section 3, no tax is payable on the purchase of used tangible personal property other than

(a) a snowmobile; or

(b) an aircraft; or

(c) a vehicle required to be registered under The Highway Traffic Act;

purchased by one individual from another individual where the transaction is not, in the opinion of the minister, a commercial transaction.

What gives substance to s. 3(1) is a complex of definitions. "Purchaser" is defined in s. 2(1)(i) in these terms:

2(1)(i) "purchaser" means any person who

(i) purchases, acquires, or leases tangible personal property at a retail sale in the province; or

(ii) commands or receives a service at a retail sale in the province; or

(iii) in the case of a person residing or ordinarily resident or carrying on business or intending to carry on business in the province, brings into the province, or causes to be brought into the province, or receives delivery in the province, of tangible personal property acquired by him outside the province; or

(iv) uses tangible personal property manufactured by him inside or outside the province;

for his own consumption or for consumption by other persons at his expense or on behalf of, or as agent for a principal who desires to purchase, acquire, or lease such property, or command or receive such service,

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for consumption by such principal or by other persons at his expense;

The definition of "consumption" is in s. 2(1)(6) and it reads:

2(1)(b) "consumption" includes

(i) the consumption or use of tangible personal property;

(ii) the incorporation of tangible personal property into real property including tangible personal property manufactured by the purchaser or further processed or otherwise improved by him for the purpose of incorporating it into real property; and

(iii) the receiving of the benefit, enjoyment, assistance or advantage of a service;

"Tangible personal property" is defined in s. 2(1)(p) and "use" is defined in s. 2(1)(r). The definitions are as follows:

2(1)(p) "tangible personal property" means personal property that can be seen, weighed, measured, felt, or touched, or that is in any other way perceptible to the senses;

(r) "use" includes storage and the exercise of any right or power over tangible personal property incidental to the ownership of that property;

Also relevant is the definition of "service" in s. 2(1)(n) and it reads:

2(1)(n) "service" means the provision of an accommodation or a facility, or the discharge of a function, falling within any of the classes of accommodation, facilities, or functions, mentioned in section 5, where they are provided or discharged by a seller for the benefit, enjoyment, assistance, or advantage of a person other than the seller on the order and at the expense of a purchaser;

It will be noticed that s. 3(1) excepts the tax payble under s. 3(13), and it appears to me that it is difficult to escape the conclusion that s. 3(13), dealing with a tax on liquor, is a special charging section in respect of that commodity. Section 3(13) reads:

3(13) Every purchaser of liquor, as defined in The Liquor Control Act, other than beer, as defined in that

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Act and manufactured in Canada, shall pay to Her Majesty in right of Manitoba for the public use of the government a tax in respect of the consumption thereof, computed at the rate of ten per cent of the fair value thereof.

Air Canada has offices in Manitoba and also has maintenance and service facilities for its aircraft which land there or take off from there, and it was contended that, if the tax that is imposed is a tax in personam, then Air Canada is liable to pay it, in respect of overflights and in respect of aircraft that land in Manitoba, and also in respect of aircraft parts which are found in Air Canada's facilities in Manitoba, unless the tax is indirect.

This submission involves, initially, the construction of Manitoba's taxing statute as it applies to Air Canada and, indeed, to other air carriers, foreign and domestic which have places of business in Manitoba and which fly through or into and then out of the Province. There is involved, second­ly, the constitutional question, posed by the order of Pigeon J., in the light of Manitoba's assertion that it has, in any event, legislative jurisdiction over the air space above the Province and may thus tax upon the entry of aircraft into that air space. The evidence discloses that Air Canada aircraft on overflights fly at an altitude of at least 31,000 feet, that liquor is served on such over-flights but not when aircraft land in Manitoba, and not when taking off until cruising altitude is reached.

Construction of the Taxing Statute

In my opinion, s. 4(6) of The Retail Sales Tax Act is as much a charging section, relating particularly to aircraft, repair parts and services therefor, as is s. 3(1) in its generality; but, it is obvious that if the calculation of the tax on the formula prescribed by s. 4(6) is merely the measure applied to quantify a tax in personam, then s. 4(6) must draw in the reference in s. 3(1) to the words "every purchaser of tangible personal property or a service ... shall pay a tax in respect of the consumption thereof ...". If this were not so, we would be dealing generally with a personal tax but in the case of aircraft, repair parts and services therefor with a tax on property and services. I do not think,

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having regard to the terms of the Act, that such a distinction should be made, and hence I proceed on the basis of the tax being a personal tax under both the general charging s. 3(1) and under the particular related charging s. 4(6). This, however, raises the question whether the provincial tax, if a direct tax, may be imposed upon a "person" like Air Canada (which carries on business in many places in Canada and abroad) and whether in this case the tax is simply measured by extraprovincial considerations. Bank of Toronto v. Lambe[^2] is said to support this and I shall return to that case later.

Whether the taxing statute has proceeded on this basis depends, of course, on its terms and on their construction. In the present case, the Government of Manitoba purports to treat Air Canada as a "purchaser" by reason of being an entity engaged in business in the Province. The only definition provisions relied on by the appellant and, indeed, the only ones that could be relied on are those found in subclause (iii) of s. 2(1)(i) and s. 3(5) and it will be useful to reproduce them again:

2(1)(i) "purchaser" means any person who

(iii) in the case of a person residing or ordinarily resident or carrying on business or intending to carry on business in the province, brings into the province, or causes to be brought into the province, or receives delivery in the province, of tangible personal property acquired by him outside the province;

for his own consumption or for consumption by other persons at his expense or on behalf of, or as agent for a principal who desires to purchase, acquire, or lease such property, or command or receive such service, for consumption by such principal or by other persons at his expense;

3(5) Every person who consumes within the province tangible personal property acquired by him for resale, or who consumes within the province tangible personal property manufactured, processed, produced, or purchased

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by him within or without the province shall, for the purpose of this Act be conclusively deemed to have purchased that property at a retail sale in the province.

I question whether, under these provisions, the statute captures overflights. There is no express language in them that does so, and their entire tenor suggests that they envisage that tangible personal property and services under subclause (iii) of s. 2 (1)(i) and ss. 3(1) and 4(6) will come to rest or be performed, as the case may be, on Manitoba terra firma. Moreover, I cannot appreciate how Air Canada, as a person in Manitoba, can be said to bring into the Province or cause to be brought into the Province any aircraft, repair parts and services on overflights which originate outside of Manitoba, either in another part of Canada or in a foreign country and which do not depend on any action of Air Canada in Manitoba but rather on action taken by it as a resident or person doing business elsewhere. It may be that if an aircraft and aircraft parts are landed in Manitoba, Air Canada may be said to have "received delivery" in the Province, within subclause (iii) of s. 2(1)(i), but this is a matter to which I will come later in these reasons.

In my view of Manitoba's taxing statute, although the tax that it imposes is in personam, it is exacted upon the bringing of tangible personal property into the Province. If this is not shown, then the statute itself precludes the exaction of the tax even if Air Canada has a presence in Manitoba. The question whether overflights fall within the statute was, however, contested not on the issue of construction which I have just canvassed, but on the larger question whether the mere entry into the air space over Manitoba was enough to bring Air Canada under tax liability in respect of aircraft, repair parts and services used and given on such overflights.

Overflights: The Claim of Jurisdiction in the Air Space

Manitoba's claim to tax under its statute is, as I have already noted, based on the contentions that (1) it has legislative jurisdiction in the air space

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above it and (2) upon entry of Air Canada aircraft into that air space, that tangible personalty is sufficiently within the Province for tax purposes. In the view that I take of this case, I find it unnecessary to explore the extent to which a Province has legislative jurisdiction in the air space per se. Here the claim to jurisdiction is made without limitation, but that is not the reason for not embarking upon an inquiry into the extent and nature of the jurisdiction under s. 92 of the British North America Act. Such an inquiry would lead much beyond the compass of the facts in the present case and would necessarily involve considerations of federal authority if the air space ad infinitum is to be the focus of inquiry. It is enough here to limit an issue arising in such an uncharted field to the facts out of which it arises and to the statute under which it is pursued.

I am prepared, on this view, to assume that the Province has some legislative jurisdiction in the air space above it so that the pivotal question is whether Air Canada aircraft, engaged in over-flights are "within the Province", as this quoted phrase is used in s. 92(2) which empowers a Province to impose "direct taxation within the Province in order to the raising of a revenue for provincial purposes".

Merely going through the air space over Manitoba does not give the aircraft a situs there to support a tax which constitutionally must be "within the Province". In the case of aircraft operations, there must be a substantial, at least more than a nominal, presence in the Province to provide a basis for imposing a tax in respect of the entry of aircraft into the Province.

There is a pertinent observation by Jackson J. in a concurring judgment in Northwest Airlines, Inc. v. Minnesota[^3] to which I wish to refer. He said this, at p. 304:

Certainly today flight over a state either casually or on regular routes and schedules confers no jurisdiction to tax. Earlier ideas of a state's sovereignty over the air above it might argue for such a right to tax, but it is one

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of those cases where legal philosophy has to take account of the fact that the world does move.

Does the act of landing within a state, even regularly and on schedule, confer jurisdiction to tax? Undoubtedly a plane, like any other article of personal property, could land or remain within a state in such a way as to become a part of the property within the state. But when a plane lands to receive and discharge passengers, to undergo servicing or repairs, or to await a convenient departing schedule, it does not in my opinion lose its character as a plane in transit. Long ago this Court held that the landing of a ship within the ports of a state for similar purposes did not confer jurisdiction to tax. Hays v. Pacific Mail S. S. Co., 17 How. 596; St. Louis v. Ferry Co., 11 Wall. 423; Morgan v. Parham, 16 Wall. 471; cf. Ayer & Lord Tie Co. v. Kentucky, 202 U.S. 409. I cannot consider that to alight out of the skies onto a landing field and take off again into the air confers any greater taxing jurisdiction on a state than for a ship for the same purposes to come alongside a wharf on the water and get under way again.

The appellant relied on this case and also on Braniff Airways Inc. v. Nebraska State Board of Equalization and Assessment[^4] in support of its contentions that it may properly tax aircraft which enter air space above it. In my opinion, these cases do not assist the appellant's contention. They turn on considerations that are not relevant to the present case and on constitutional provisions that have no application to the position asserted by Manitoba. The Northwest Airlines case concerned a Minnesota personal property tax which was held to be leviable against a Minnesota corporation having its principal place of business in that State, in respect of its entire fleet of airplanes, all of which were registered with the federal Civil Aeronautics Authority in a city in the State as the home port. Although the fleet operated in interstate commerce, none of the airplanes was continuously out of the State during the taxation year, and it was held that, absent restricting federal legislation, it was open to the State of the domicile, the home State, to impose the tax without violating either the federal commerce clause or the due process clause of the Constitution. No question of

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legislative jurisdiction over air space was involved. In the Braniff case, an apportioned ad valorem tax by the State of Nebraska levied on the flight equipment of an interstate air carrier was sustained where it was shown that the carrier regularly made eighteen stops a day in Nebraska, although it was not incorporated there nor was its home port there. This was held to be a sufficient contact with Nebraska to support the apportioned tax. Again, no question arose as to legislative jurisdiction over the air space and certainly none in respect of overflights.

What remains for consideration on this aspect of the case is a submission based on Bank of Toronto v. Lambe, supra. The submission is that, regardless of whether the air space above Manitoba is within the Province, the appellant was entitled to tax Air Canada in respect of its airplanes, parts and services on overflights by regarding these facilities as merely the means of measuring a tax in personam. There are two answers to this contention. First, this is not the way in which the tax has been imposed. I have already adverted to the issue of construction and it is clear from the statute that, although I accept the tax as in personam, it is exacted upon the bringing of tangible personal property into the Province. That was not done in this case. Second, I do not agree that Bank of Toronto v. Lambe, supra, supports the contention. Although that case was concerned with an activity which, like the one here, is within exclusive federal regulatory authority and a provincial tax upon the bank as carrying on business in the Province and measured by extraprovincial considerations was sustained, its principle cannot, in my view, be extended to make interprovincial and transnational aircraft operations as measuring standards to determine the amount of a tax imposed upon an air carrier which has a business office in the taxing Province.

Flights that Land in Manitoba

I need not dwell on this aspect of the case which concerns flights that originate outside Manitoba

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but which land in the Province temporarily and then proceed out of Manitoba. It is governed by my reasons in respect of overflights, being based on the same principles, but there are a few additional observations that I wish to make.

I emphasize again that the momentary transitory presence of agencies of transportation in the Province cannot bring them under The Retail Sales Tax Act any more than they could be brought under it if they did not enter the Province or were overflying the Province, although the oper­ators of such services had places of business in the Province. Apart from constitutional considerations, I do not see how such operators can be said to be "purchasers", as defined in subpara. (iii) of s. 2(1)(i), which alone of the four definitions of "purchaser" in 2(1)(i) has any possible application. This is not a case of anyone in the Province bringing in or receiving delivery in the Province of tangible personal property "acquired by him outside the Province". There is no acquisition involved, however broadly the word is defined. I doubt, as well, whether there is any "consumption" involved in temporary stopovers, although that word is defined in s. 2(1) (6) to include "the consumption or use of tangible personal property". Moreover, there is, at best, merely a notional drawing into the taxation net of interprovincial and extraprovincial operations, and constitutional authority, which is limited to direct taxation within the Province, cannot be extended by self-serving definitions.

The present case, in so far as it concerns the attempted imposition of a tax in respect of personal property brought into the province, finds no support in Atlantic Smoke Shops Ltd. v. Conlon[^5]. That case, dealing with a tax in respect of tobacco, either purchased in the Province or brought in from outside for consumption in the Province, was based on retail sale transactions, unlike the present case. Moreover, there was reality in its consumption aspect which was its essential feature.

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Conclusion

For the reasons given above, I hold that the Manitoba Retail Sales Tax Act is ultra vires in so far as it purports to tax Air Canada on overflights of its aircraft through the air space over Manitoba and on flights which land temporarily in Manitoba from outside points before proceeding onward. The Act does not impose a tax that can be said to be "within the Province" under s. 92(2) of the British North America Act. In addition, I do not think that in its own terms it is applicable to Air Canada in respect of such flights.

In view of this conclusion, I find it unnecessary to deal with the question whether the tax (even on the assumption that it is within the Province) is a direct tax. Although the Court ordered a rehearing with particular reference to this question, I think it preferable to avoid dealing with it, in conformity with the general rule in constitutional cases not to engage issues which do not squarely arise for decision.

I am relieved by my holding from examining a number of issues touching the method of assessment under the Act and the propriety of some of the paragraphs of the formal order of Morse J., such as paras. (b) and (c). Equally, it is unnecessary to consider taxability in respect of the consumption of liquor by both first class and economy passengers since it follows from my main conclusion that any liquor sales to passengers cannot be said to be sales in Manitoba.

The appeal is, accordingly, dismissed with costs. There was no cross-appeal with respect to the assessment of tax against Air Canada in the sum of $1,856 and that liability therefore stands. There will be no costs to or against any of the interveners.

Appeal dismissed with costs.

Solicitors for the appellant: Goodman & Carr, Toronto.

Solicitors for the respondent: Monk, Goodwin & Company, Winnipeg.

[Page 321]

Solicitor for the Attorney General of Canada: R. Tassé, Ottawa.

Solicitor for the Attorney General of Nova Scotia: Gordon F. Coles, Halifax.

Solicitor for the Attorney General of Alberta: Ross W. Paisley, Edmonton.

Solicitor for the Attorney General of Saskatchewan: Richard Gosse, Regina.

Solicitors for the Attorney General of Québec: Henri Brun, Jean-François Jobin and Odette Larivière, Québec.

Solicitor for the Attorney General of British Columbia: R. Vogel, Victoria.

[^1]: 1978 CanLII 2210 (MB CA), [1978] 2 W.W.R. 694, 86 D.L.R. (3d) 631, [1978] C.T.C. 812.

[^2]: (1887), 12 App. Cas. 575.

[^3]: (1943), 322 U.S. 292.

[^4]: (1953), 347 U.S. 590.

[^5]: 1943 CanLII 372 (UK JCPC), [1943] A. C. 550.