Sheppard, DJ:—The issue is the liability of the plaintiff to income tax on shares in his name under subparagraph 6(1)(a)(i) and subsection 16(1) of the Income Tax Act.
The plaintiff and his three sons, Alvin Glenn Nelson, Atle Noel Nelson and Richard Allen Nelson, had equal interests in a partnership carrying on a logging and sawmill operation near Trail, BC. In 1963 a company, Atco Lumber Ltd, was formed to carry on the partnership business, and Varcoe, then the solicitor, stated he was instructed by the plaintiff that all four were to be the shareholders and to have an equal interest, but the plaintiff was to have the power to vote so as to override the others. Accordingly, the company was incorporated with Class A shares, carrying the right to vote, and Class B shares, not having the right to vote. On incorporation, there was issued to each of the plaintiff and his three sons a certificate for one Class A share; therefore, all voted equally.
In December of 1964 Varcoe had the plaintiff sign and then had filed a petition to the effect that the Class A shares to the plaintiffs had been overlooked, and upon obtaining an order on January 5, 1965 he had issued 96 Class A shares to the plaintiff. Ninety-six Class B shares were to have been issued to each of the three sons to enable them to have an equal economic interest, but the Class B shares were overlooked, and shortly after July 31, 1965 Yolland, a chartered accountant, phoned Varcoe for the company, to have 96 Class B shares issued to each son being a shareholder. Those Class B shares were overlooked by Varcoe, and have not been issued.
Apparently, the fact that the plaintiff held an additional 96 Class A shares was overlooked by all the four shareholders, and in the meantime each proceeded as if their interest in the company was of equal value.
In 1969 the company declared a dividend and paid $1,000 to each of the four shareholders. The Minister assessed the plaintiff with the income having been received in proportion to his holding of shares; that is, as he held 97% of the shares, he was assessed with an income as dividends of $3,880, less the $1,000 reported by him, and upon appeal to the Tax Appeal Board, the appeal was dismissed.
The plaintiff contends that there is a resulting trust of % of the 96 Class A shares issued to the plaintiff. However, whether called a resulting or constructing trust (Hussey v Palmer, [1972] 3 All ER 744, for Lord Denning at 747(b)) that would be in error as the 96 Class A shares were not intended by any of the shareholders to be other than the plaintiff’s and no proceeding has been taken to divest the plaintiff of any of the shares. There is complete honesty in all the shareholders, and the proper remedy is for each of the three sons, being a shareholder, to have issued to him 96 Class B shares. Therefore, the remedy would be by specific performance. There is no circumstance to permit the plaintiff being declared a trustee. However, the company, in issuing dividends, must have regard to its register; that is, its recorded holdings of its shares without inquiring into any beneficial ownership against the registered shareholder. Hence the payment of dividends in equal amounts must be on the direction or concurrence of the plaintiff.
The onus is on the plaintiff and as he has not satisfied the Court of any error the appeal must be dismissed with costs.