Maurice Boisvert:—This is an appeal from assessments dated August 27, 1968 in respect of the taxation years 1964, 1965 and 1966.
The appeal was heard in Montreal, Province of Quebec on November 19, 1970 by the Tax Appeal Board as it was then constituted.
The appellant’s contention appears in the first two paragraphs of the Notices of Appeal which read as follows:
1. The principal item at issue in the assessment relates to a classification for capital cost allowance purposes of the building owned by the Appellant in Class 13 rather than Class 3 as contended for by the Appellant.
2. The Appellant acquired an emphyteutic lease right in and to a building located at the corner of Guy and St Catherine Streets, Montreal.
The respondent’s contention is to be found in paragraphs 9 and 10 of the Reply to Notice of Appeal which read thus:
9. The respondent relies on Section 11(1)(a) of the income Tax Act and on Section 1100 of the Income Tax Regulations;
10. The respondent submits that the interest acquired by the appellant iS a leasehold interest and therefore is a property of class 13 of Schedule “B”’ of the Income Tax Regulations.
The matter raised in the present appeal was discussed at great length in the appeal of Moses Rosenstone v MNR, [1971] Tax ABC 1029. The reasons for judgment given in the Rosenstone case apply to this appeal.
Another issue is expounded in paragraph 11 of the Notices of Appeal which reads as follows:
11. A second issue relates to costs incurred by the Appellant in an amount of $141,496.18 for improvements effected by the Appellant itself subsequent to the acquisition. By any interpretation of the basic issue in the present case such an expenditure would come within Class 3 of the capita! cost allowance and by decision rendered on October 16th, 1969, the Department of National Revenue has so acknowledged and has revised the assessment downward accordingly. However, in effecting such a revision and allowance against what would have otherwise been recaptured, the Department of National Revenue’s decision only took account of expenditures in the amount of $99,403.26 representing the actual cash outlay for these improvements up to the end of the Company’s fiscal year in the year of acquisition. The Company is on an accrual basis of accounting, as indeed it must be, by virtue of the Department’s requirements, and the actual outlay incurred on an accrual basis was the said sum of $141,496.18. Hence the recapture provisions should have been extended to this latter sum instead of to the lesser sum of $99,403.26.
The issue was settled by the admission made by the respondent which is to be found in paragraph 6 of the Reply to Notice of Appeal:
6. With respect to the allegations contained in paragraph 11, the respondent admits that an amount of $141,050.18 expended by Fanaberia Investments Inc for improvements to the elevators, after it had acquired the right of emphyteusis with respect to the said building is subject to Section 1102(5)(b) of the Regulations and therefore the appellant is entitled to capital cost allowances under Class 3 at 5% on the $141,050.18.
As to the first issue, the appeal is to be dismissed. As to the second issue the appeal is allowed and the assessments are referred back to the Minister for reconsideration and reassessments to meet the respondent’s admission.
Appeal allowed in part.
ROSS P ALGER and PAUL A FERNER, Trustees,