The Assistant Chairman:—This is an appeal of Waldorf Hotel (1958) Lid from a reassessment for its 1968 taxation year by which the Minister reassessed the assets of the Bell Hotel in which the appellant had acquired 50% interest and readjusted accordingly the capital cost allowance claimed by the appellant subsequent to the purchase of the Bell Hotel.
It was agreed that the evidence adduced in the appeal of the Waldorf Hotel and the arguments made therein would apply to the appeals of Mr Sam Shok, Mr Ben Luffman and Mr Benjamin Stone who had acquired a /s, /4 and /e interest respectively in the Bell Hotel at the time of purchase.
The point to be determined in this appeal is whether the reassessment made by the respondent of the values of the land, the building and the contents of the Bell Hotel and the inclusion by the Minister of a value of $96,000 for goodwill in the selling price of the hotel are well founded.
The Bell Hotel was purchased by the appellant, in effect, for $405,000 — a reduction of $10,000 on the original selling price of $415,000 having been subsequently granted to the appellant by the vendor for current repairs and maintenance of the building.
In the offer to purchase of the Bell Hotel (Exhibit A-1) was included a breakdown of the selling price which fixed the values as follows: land $15,000, contents of hotel $90,000, building $310,000. Taking into account the reduction of $10,000 on the original selling price of the building mentioned above, the appellant considered the value of the building to be $300,000.
The pertinent question is whether the breakdown of the selling price of the Bell Hotel having been agreed upon by the parties in the transaction, and included in the agreement of sale, the respondent could legally reassess the values of the land, the contents and the hotel building and include an evaluation for goodwill which had not been mentioned by the parties in the agreement of sale.
From evidence adduced, the negotiations leading to the sale of the Bell Hotel were at arm’s length and the respondent did not produce any evidence of sham or subterfuge on the part of the appellant in his negotiations on the purchase price or the breakdown of the value of the assets of the Bell Hotel.
The respondent submitted that pursuant to paragraph 20(6)(g) of the Income Tax Act it was unreasonable to consider that the purchase price of a hotel which was operating, which held a liquor licence and had outlets for the sale of liquor, did not include an amount for goodwill.
Although paragraph 20(6)(g) of the Income Tax Act provides that the Minister can make necessary adjustments where an amount can reasonably be regarded as being in part the consideration for disposition of depreciable property and part for something else, case law has been consistently to the effect that unless sham or subterfuge in a given transaction is proven, the terms of the agreement decided upon by the parties is final and decisive.
In my opinion, the appellant has established that the purchase price and the breakdown of the value of the assets of the Bell Hotel included in the agreement of sale were the result of hard bargaining between the parties and the respondent did not satisfy the onus that was on him of proving the existence of sham or subterfuge on the part of the appellant in these negotiations.
I conclude, therefore, that the agreement signed by the purchaser and vendor, containing the breakdown of the value of the assets of the Bell Hotel in the absence of any evidence of sham or subterfuge, is decisive and binding on all third parties and that the respondent is not justified in the circumstances in reassessing any of the values of the said assets formally agreed upon by the parties in the sale of the Bell Hotel.
The appeal is therefore allowed.
Appeal allowed.