Roland O. Bartlett v. Minister of National Revenue, [1971] CTC 477, 71 DTC 5263

WALsH, J.:—The facts in this case are not in dispute. On February 1, 1958 appellant acquired, as a result of his efforts as a prospector with one Hutchison, a mining property known as the mining titles and interests in a miner’s certificate and development licence number 135725, claim number Two (2), granted by the Department of Natural Resources of the Province of Quebec, for gold and silver only in and on the Northwest half of lot number Five (5), Range Six (6), Southwest, Stratford Township, in the County of Wolfe, Province of Quebec (hereinafter referred to as ‘‘the mining property’’). Appellant and Hutchison had agreed that any consideration received on the sale of the mining property was to be shared between them on the basis of an 80/20 ratio respectively. By an agreement dated October 6, 1966, Hutchison, acting on behalf of appellant and himself, entered into an agreement with Cupra Mines Limited by virtue of which the mining property was sold to it in consideration of 30% of the average net smelter returns per ton for gold and silver for each ton of ore extracted from the claim, the term ‘‘net smelter returns’’ being defined in the agreement. As a result of this, appellant received the sums of $33,266.27 and $29,249.06 in 1967 and 1968 respectively from Cupra as consideration for the mining property which had been sold, these amounts representing 80% of the sums paid by Cupra in 1967 and 1968. Appellant did not include these amounts in his 1967 and 1968 income for the reason that he regarded them as being received by him as consideration for the sale of his interest in the mining property and therefore excluded from income by virtue of Section 83(2) of the Income Tax Act. Respondent re-assessed and included the amounts on the basis that they were received as or on account of royalties or similar payments depending upon use of or production from property within the meaning of Section 6(1)(j) and Section 83(2) of the Income Tax Act.

The only issue between the parties is the interpretation of the agreement in the light of these provisions of the Income Tax Act, which read as follows:

6. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year

(j) amounts received by the taxpayer in the year that were dependent upon use of or production from property whether or not they were instalments of the sale price of the property, but instalments of the sale price of agricultural land shall not be included by virtue of this paragraph;

83. (2) An amount that would otherwise be included in computing the income of an individual for a taxation year shall not be included in computing his income for the year if it is the consideration for

(a) a mining property or interest therein acquired by him as a result of his efforts as a prospector either alone or with others, or

(b) shares of the capital stock of a corporation received by him in consideration for property described in paragraph

(a) that he has disposed of to the corporation,

unless it is an amount received by him in the year as or on account of a rent, royalty or similar payment.

This is, as far as can be ascertained, the first case which has arisen requiring an interpretation of Section 83(2) of the Act since it was amended in 1965 so as to add the concluding clause “unless it is an amount received by him in the year as or on account of a rent, royalty or similar payment” (8.C. 1965, c. 18, Section 19(1)). All previous jurisprudence therefore, while of some help in its discussion of the meaning of ‘‘rent, royalty or similar payment’’, is not directly in point. In order to appreciate the background of this section, however, and its place in the scheme of the Act and, in particular, its relationship to Section 6(1) (j), it is of interest to go into the historical origin of these sections. The Supreme Court case of Catherine Spooner v. M.N.R., [1928-34] C.T.C. 171, dealt with the sale of property and mines or mineral rights in it to an oil company for a cash consideration upon execution of the agreement, together with 25,000 shares of the capital stock of the purchaser, and as further consideration 10% of all petroleum, natural gas and oil produced by the property. This case had to decide whether these royalty payments came within the meaning of the term ‘‘income’’ as defined in Section 3(1) of the Income War Tax Act, 1917, which section no longer exists in the present Income Tax Act. In rendering the judgment of the Court deciding that these payments did not constitute income within the meaning of Section 3(1), Newcombe, J. stated at pages 181-82 :

. . . It is by the agreement, for the lack of an apt definition, termed a “royalty”; but, whether or not it may appropriately be named a royalty or an annuity, the statute does not, in terms, charge either royalties or annuities, as such; and here the appellant has converted the land, which is capital, into money, shares and ten per cent of the stipulated minerals which the company may win. What the appellant will realize, under the covenant, is, of course, uncertain; although it may be ascertained in the event.

On the other hand, it may be assumed that if the project prove unprofitable, the minerals will not be raised and that circumstance, as well as the uncertainty of the extent of minerals available, contributes to the speculative character of the appellant’s interest; but, nevertheless, the appellant’s receipts come from a potential source of capital. The taxable commodity is “income”, which means, by the definition, annual profit or gain; and for the appellant, there is no question of profit or gain, unless it be as to whether she has made an advantageous sale of her property.

In the Privy Council judgment in the same case ([1928-34] C.T.C. 184) Lord Macmillan said (at page 186) :

The question whether a particular sum received is of the nature of an annual profit or gain or is of a capital nature does not depend upon the language in which the parties have chosen to describe it. It is necessary in each case to examine the circumstances and see what the sum really is, bearing in mind the presumption that “it cannot be taken that the Legislature meant to impose a duty on that which is not profit derived from property, but the price of it” (per Hanworth, M.R., in Perrin v. Dickson, [1930] 1 K.B. 107 at p. 119, quoting previous authorities).

And again, at page 187 :

. . . But the share which the respondent became entitled to receive of the oil from the land which she had sold to the company was not a royalty in the sense of s. 27,* [1] or in the ordinary sense familiar in the case of mining leases where the lessor stipulates for payment by his lessee of a fixed rate per ton of the mineral won. Here there is no relation of lessor and lessee. The transaction was one of sale and purchase. It may have taken the form which it did because of the uncertainty whether oil would be found by the purchaser or not; as the value of the land depended on this contingency the price, not unnaturally, was made to depend in part on the event.

As a result of this judgment, Section 3(1) (f) of the Income War Tax Act was enacted by S.C. 1934, c. 55, Section 1 to read as follows:

3. (1) For the purposes of this Act, “income” . . . shall include . ..

(f) rents, royalties, annuities or other like periodical receipts which depend upon the production or use of any real or personal property, notwithstanding that the same are payable on account of the use or sale of any such property.

The wording of this section is not identical to that of Section 6(1) (j) in the current Income Tax Act but is analogous to it and serves the same purpose.

The interpretation to be given to Section 3(1) (f) was dealt with at length by Cameron, J. in the case of May McDougall Ross v. M.N.R., [1950] C.T.C. 169. That case dealt with a lease agreement for mineral rights including oil and gas with the option to buy for a fixed sum plus a further amount of $60,000 payable out of 10% of the production of oil and gas, the said payments in respect of production being referred to in the lease as ‘‘royalties’’. The learned trial judge carefully considered the meaning to be given to the word ‘‘royalty’’ which is not defined in the Act after first stating, at page 174:

. . . I take it to be well settled that the name given to a transaction by the parties concerned does not necessarily decide the nature of the transaction (I.R.C'. v. Wesleyan Assurance Society, [1948] 1 All E.R. 555 and 557) x

The dictionary definitions referred to by him, as well as some of the previous jurisprudence and his conclusions, appear on pages 175-76 of his judgment as follows:

In the Shorter Oxford English Dictionary, Third Edition, “royalty” is defined in various ways. Excluding those which have reference to the Sovereign, these definitions include the following : “denoting chiefly rights over minerals”; “A payment made to the landowner by the lessee of a mine in return for the privilege of working it”; “A sum paid to the proprietor of a patented invention for the use of it”; “A payment made to an author, editor, or composer for each copy of a book, piece of music, etc., sold by the publisher, or for the representation of a play”.

Other definitions of the word as used in reference to oil, gas and minerals are found in Words and Phrases, Permanent Edition, Vol. 37, at p. 811, including the following:

(a) “As relates to mining, ‘royalty’ is a share of the product or profits reserved by the owner for permitting another to use the property.”

(b) ‘Royalty’ in connection with gas and oil leases is a certain percentage of the oil after it is found or so much per gas well developed.”

Again, in Webster’s New International Dictionary, Second Edition, it is described as “a share of the product or profit (as of a mine, forest, etc.) reserved by the owner for permitting another to use the property.”

Some of these definitions would appear to give some support to appellant’s argument that a royalty can only be created where there is something reserved out of a demise or grant and payable to an owner. I have, however, been unable to find any decision which says that such is the case, and in one of the definitions which I have given above the meaning is given as a percentage of the oil or gas after it is found, without any reference to any reservation by an owner.

In Mercer v. Attorney General for Ontario (1882), 5 S.C.R. 538, Henry, J., at p. 66 said: ‘Royalties’ is of very general import and very comprehensive . . . ‘Royalties’ as to mines is well understood in England to be the sums paid to the Sovereign for the right to work the Royal mines of gold and silver; and to the owner of private lands for the right to work mines of the inferior metals, coal, etc.” Assuming, however, (but without deciding) and for the purposes of this case only, that to constitute a royalty there must have been some reservation of that royalty in the grant or demise, and assuming also that in this case there was not in form any such reservation (although I am of the opinion that in both form and substance there was such a reservation in the documents read as a whole), that does not conclude the matter. It is sufficient to bring the receipts into tax if they are “like” rents, royalties or annuities, provided, of course, they fulfil the other requirements of the subsection. Royalties, in reference to mines or wells in all the definitions, are periodical payments either in kind or money which depend upon and vary in amount according to the production or use of the mine or well, and are payable for the right to explore for, bring into production and dispose of the oils or minerals yielded up. All these conditions exist in the present case. Another matter which may not exist is the reservation of rights at the time of the grant and the consequent payment to the appellant as owner of such reserved rights. But even assuming that to be the case it is not sufficient, in my opinion, to prevent the “receipts” here being like or similar to royalties, all other essential requirements being fulfilled. It may well be that the concluding words of the subsection “notwithstanding that the same are payable on account of the use or sale of such property” are sufficient in themselves to do away with any requirement that the receipts must be paid to an owner. At least the appellant was a former owner.

I find, therefore, that the receipts here were like royalties, if not royalties themselves, and therefore they come within the meaning of that part of the subsection.

Dealing with the question that a fixed price was specified in the agreement, following which the payments would cease, he states, at page 179:

. . . It is submitted that as payments to her were limited to the sum of $60,000.00, that by itself establishes that her receipts were part of the purchase price and therefore capital in her hands. That fact might have been of some importance prior to the enactment of subsection (f). But having found that the receipts were either royalties or like royalties, I am unable to find that they ceased to be such merely because they stopped when an agreed maximum amount had been paid.

It must be noted, however, that in this judgment he does not actually make a finding that the payments were royalties despite the fact that this was the term used but rests his judgment finding the payments taxable on the fact that they were, in any event, ‘‘like royalties”.

This question was again considered in the Supreme Court in M.N.R. v. Wain-Town Gas and Oil Company, Limited, [1952] C.T.C. 147. That case dealt with the sale of a franchise to supply gas to a municipality, the sale price agreed on being a percentage of the gross sales of gas by the purchaser set out in the agreement, such payments to be made ‘‘by way of royalty’’. It was held, reversing the judgment of the Exchequer Court, with Mr. Justice Locke dissenting, that the payments received were royalties or like periodical receipts depending upon the use of the property within the meaning of Section 3(1)(f). Rand, J. in his judgment, after stating that it seemed to be beyond serious doubt that the payments came within the expression ‘‘royalties or other like periodical receipts’’ within the meaning of Section 3(1) (f) of the Act and that they depended upon the production or use of the property, concluded at pages 154-55:

Are the payments, then, constituting as they do part of the consideration for the sale of the franchise, to be excluded from tax as being capital in their nature? In Wilder v. The Minister, a decision of this Court, as yet reported only in [1952] 1 D.L.R. 401; [1951] C.T.C. 304, it was held that an annuity of $1,000.00 a month for the life of the annuitant, which was part of the price for the transfer of a business from an individual to a company, was of a capital nature and not within the definition of “income” in Section 3(1) (b) ; but under paragraph (f) of the section that ground seems to be expressly met by the language “notwithstanding that the same are payable on account of the use or sale of any such property”. Now, the property is the franchise; the royalty is payable on account of the sale of it; and the payment depends upon its exercise. The paragraph seems to me to be satisfied completely by the terms of the transaction, and I must hold the respondent to come within it.

It must be noted that Section 3(1) (f) and subsequently Section 6(1) (j) both refer to property generally, and, at the time the above-quoted judgments were rendered, Section 83(2) was not part of the Act. This section, which first appeared in the Income Tax Act in 1952 (R.S.C. 1952, ce. 148), made an exception for an amount that would otherwise have been included if it was the consideration for a mining property or interest therein acquired by the taxpayer as a result of his efforts as a prospector. The section did not at this time have the concluding clause “unless it is an amount received by him in the year as or on account of a rent, royalty or similar payment” and without this concluding clause it is clear that for mining property it was intended to, and did, create an exception to the general rule of Section 6(1) (j). This section, as it originally read, was dealt with by the Tax Appeal Board in the case of Bertrand Bolduc v. M.N.R., 30 Tax A.B.C. 392. In that case the taxpayer entered into an agreement giving an option on his mining property in return for $5,000 on execution of the agreement, $5,000 every six months until $40,000 had been paid at which time he would transfer the title, and a royalty of 50^ per pound on ore extracted when the property was brought into production. In rendering judgment, rejecting the Minister’s contention that it was Section 6(1) (j) that applied, the Chairman, Cecil L. Snyder, Q.C. stated at page 396 :

Since the Parliament of Canada saw fit to include Section 83(2) in the Income Tax Act it would seem, particularly from a study of the wording of that section, that payments, received by persons engaged in prospecting for minerals who are successful in staking claims to properties which yield marketable volumes of ore, are not to be included as taxable income to those persons. The section states “amounts that would otherwise be included in computing the income of an individual shall not be included . . .”.

Had these provisions not been inserted in the Act the argument advanced on behalf of the Minister would no doubt prevail. However, since Section 83(2) specifically exempts from taxation an amount which is the consideration for a taxpayer’s interest in a mining property it should be found that the payments received in 1957 and 1958 in consideration of the interest which the appellant retained in the mineral claims are not subject to income tax.

This decision was not appealed and I would agree with, it and readily make the same finding in the present case were it not for the subsequent addition to Section 83(2) in 1965 of the concluding clause ‘ ‘ unless it is an amount received by him in the year as or on account of a rent, royalty or similar payment’’. It would appear that this amendment was made as a result of the Bolduc decision.

If Section 83(2) is an exception to Section 6(1) (j) for the benefit of mining property, the question which must now be decided is whether this concluding clause accomplishes the purpose which apparently it was intended to, and itself constitutes an exception to Section 83(2) when the amounts paid as consideration are received as or on account of a rent, royalty or similar payment, so as to bring such payments back within the provisoins of the taxing Section 6(1) (j).

It should be noted that Section 6(1) (j) does not use the terms ‘ rents, royalties, annuities or other like periodical receipts’’ used in Section 3(1) (f) of the Income War Tax Act but instead uses the single word ‘‘amounts’’. Similarly, Section 83(2) uses the words ‘‘an amount’’. However, the 1965 amendment in excepting from Section 83(2) ‘‘an amount’’ received ‘Cas or on account of a rent, royalty or similar payment” brings us back again to the problem considered in the earlier jurisprudence of whether an amount paid on account of the purchase price of a property should nevertheless be considered as “ a rent, royalty or similar payment’’ when the calculation and payment of it is dependent on the use or production of the property. It is conceded by respondent that in the present case there is no question of the payments made being in the nature of a rent, so unless they are a ‘‘royalty or similar payment’’ they would not fall within the exception in the concluding clause of Section 83(2). In addition to the definitions of ‘‘royalty’’ in the dictionaries and jurisprudence quoted (supra) some consideration should be given to the manner in which it is used in the Income Tax Act. Although it is not defined therein, the word “royalty” is used in several sections. Subsections (3) and (4) of Section 17, dealing with non-arm’s length payments between residents and non-residents, refer to the payment of a ‘price, rental, royalty or other payment for use or reproduction of any property’’. This section certainly implies that the property is retained by the person receiving the payment, since the payment is made for the use of or the reproduction of the property. Section 106(1) (d) (v) reads as follows:

106. (1) Every non-resident person shall pay an income tax of 15% on every amount that a person resident in Canada pays or credits, or is deemed by Part I to pay or credit, to him as, on account or in lieu of payment of, or in satisfaction of,

(d) rent, royalty or a similar payment, including, but not so as to restrict the generality of the foregoing, any payment

(v) that was dependent upon the use of or production from property in Canada whether or not in was an instalment

on the sale price of the property, but not including an instalment on the sale price of agricultural land,

This section, which makes taxable such income in Canada of non-resident persons, clearly corresponds to Section 6(1) (j) and makes all such royalty payments taxable whether or not they were instalments on the sale price of the property. It is evident that, in order to make an instalment payment on the sale price of a property taxable as income in the hands of the recipient, when such payments would not normally be taxable, special sections of the Act, such as 6(1) (j) or 106(1) (d) (v), are required.

An examination of the wording of Section 83(2) discloses that it refers to ‘‘an amount’’ that is ‘‘the consideration for’’ but it does not specify whether the amount is the consideration for the sale of, rental of, or simply use of the mining property in question. Appellant contends that when the payment is consideration for the sale of the property then the concluding clause does not apply since the amount is not received ‘‘as or on account of a rent, royalty or similar payment’’ but rather on account of instalments of the purchase price. The fact that no specific amount was fixed for the purchase price but that annual payments will carry on indefinitely and that they are based on the production of the property does not alter this (see quotation from judgment of Cameron, J. in the Ross case (supra) at page 179). He contends therefore that the concluding clause applies only when the amounts are received as a consideration for the rental or use of property in which the taxpayer still retains title, in which event the payments are then ‘‘as or on account of a rent, royalty or similar payment’’. In that event he remains the owner of the property and the payments he is receiving are clearly income and should be taxed as such. However, in the event of the sale of mining property acquired by the taxpayer as a result of his efforts as a prospector either alone or with others he would be exempt from taxation on the payments, which for other types of property would be taxed under Section 6(1) (j), even if these payments were deemed to be royalties or similar payments dependent upon the use of or production from the property.

In my view, while the concluding clause of Section 83(2) takes out of this exception amounts paid which are received as royalties or similar payments, it does not go so far as to bring back into full application Section 6(1) (j) since it does not make such amounts taxable ‘ whether or not they were instalments of the sale price of the property’’. We are thus, for this particular type of sale, put back in the position which existed before Section 6(1) (j) and its predecessor 3(1) (f) were passed and the Spooner case (supra) would apply.

This would seem to be a more reasonable interpretation of Section 83(2) than it would be to conclude that because the amounts of the annual payments were based on production from the property they must be considered as a ‘ ‘ royalty or similar payment’’ even though the taxpayer had divested himself of all proprietary interests in the property. It also avoids what would otherwise be an apparent injustice to the prospector whom Section 83(2) is intended to favour in that if he hold his property on the basis that he would receive annual payments of a fixed amount (even though the purchaser might well have estimated the amount of these annual payments on the basis of what he anticipated the annual production of the property would be) he would be exempt from taxation on such payments, whereas, on the other hand, if, instead of the annual payments being fixed in amounts they were based on a percentage of the actual production of the property, which is a reasonable way of making such an agreement as was pointed out by Lord Macmillan in the passage cited from page 187 of the case of M.N.R. v. Catherine Spooner (supra), the prospector would be obliged to pay tax on the sum so received. I find, therefore, that, while the amounts received by the taxpayer in the present case may have been in the nature of ‘‘royalties or similar payments’’ they were not received by him as such, but rather as instalments on account of the purchase price of the property, though calculated on the basis of production from the property, and that the concluding clause of Section 83(2) does not take him out of the exemption provided in that section of the Act or have the result of making him taxable under Section 6(1) (j) since the amounts were received as consideration for the sale of mining property acquired by him as a result of his efforts as a prospector, and not as royalties or similar payments for the use of same.

The appeal is therefore maintained with costs and the reassessments of appellant’s income with respect to his 1967 and 1968 taxation years are referred back to the Minister for reassessment in order to delete therefrom the sums of $33,266.27 and $29,249.06 added to his income for those years respectively. MONTREAL TRUST COMPANY, EXECUTOR UNDER THE LAST WILL AND Codicil OF JOHN STEWART DONALD TORY, Appellant,

and

MINISTER OF NATIONAL REVENUE, Respondent.

Federal Court—Trial Division (Walsh, J.), June 25, 1971, on appeal from an asssesment of the Minister of National Revenue.

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148—Section 64(2), (3)—Deceased taxpayer—Value of rights or things on death— Transfer or distribution of rights or things to beneficiary—Rights or things acquired by beneficiary as purchaser for value rather than qua beneficiary.

On the death of the deceased, a solicitor, amounts totalling $483,350 were owing to him by clients and it was common ground that these represented “rights or things” the value of which would ordinarily be required by Section 64(2) to be included in computing his income for the year of death. However, within the time allowed by Section 64(3) for so doing, the executors purported to transfer these accounts receivable to the deceased’s daughter, who was one of the beneficiaries. This transfer was effected in part as on account of a $90,000 specific legacy in favour of the daughter and in part by an undertaking by the daughter to pay $380,000 in cash to the executors within one year. It was conceded that this arrangement was designed to avoid tax on the value of the rights or things, inasmuch as the daughter, being non-resident at the time of realization, was not liable to tax in Canada. The Minister accepted this arrangement only to the extent of the $90,000 owing to the daughter as a specific legacy and contended that to the extent of the remainder the rights or things so acquired by the daughter were acquired by her merely as a purchaser for value and not in her capacity as beneficiary, and were therefore outside the ambit of Section 64(3).

HELD:

Section 64(3) could not be interpreted as applying to all rights or things which might be transferred or distributed by way of a sale for value to a purchaser who also happened to be a beneficiary or other person beneficially interested in an estate or trust irrespective of how small his benefit or beneficial interest might be. To the extent that the value of rights so transferred or distributed to a beneficiary exceeded the value of his beneficial interest, the beneficiary was simply a purchaser for value and the estate or trust was taxable under Section 64(2) on such excess. Appeal dismissed.

F, W. Callaghan, Q.C. and R. J. Gathercole for the Appellant.

G. W. Ainslie, Q.C. and M. J. Bonner for the Respondent.

CASES REFERRED to :

David Fasken Estate v. M.N.R., [1948] Ex. C.R. 580; [1948]

C.T.C. 265;

Roy Otto German v. M.N.R., [1957] C.T.C. 291;

Donald F. Campbell v. M.N.R. (1963), 32 Tax A.B.C. 203:

Joseph B. Dunkelman v. M.N.R., [1960] Ex. C.R. 73; [1959]

C.T.C. 375;

Hugh Hawk Estate:v. M.N.R. (1957), 17 Tax A.B.C. 71;

Gathercole v. Smith (1880-81), 17 Ch. D. 1;

Ernest George Willis Estate v. M.N.R., [1968] Tax A.B.C. 177 ;

Commissioner of Stamp Duties (Queensland) v. Hugh Duncas

Livingston, [1965] A.C. 694;

M.N.R. v. Fitzgerald (George V. Steed Estate), [1949] S.C.R.

453; [1949] C.T.C. 101;

Bennett v. Ogston (1930), 15 Tax Cas. 374;

Gospel v. Purchase, [1951] 2 All E.R. 1071;

Frankel Corporation Limited v. M.N.R., [1959] S.C.R. 713;

[1959] C.T.C. 244;

Crompton (Inspector of Taxes) v. Reynolds and Gibson, [1952]

1 All E.R. 888;

Highway Sawmills Limited v. M.N.R., [1966] S.C.R. 384; [1966]

C.T.C. 150;

M.N.R. v, Pillsbury Holdings Limited, [1965] 1 Ex. C.R. 676;

[1964] C.T.C. 294.

WALSH, J.:—This is an appeal from a notice of re-assessment in respect of the 1965 taxation year of the taxpayer wherein $380,000 was included in his income for that year. The taxpayer died on August 27, 1965 in Ontario where he had formerly carried on the practice of law in the City of Toronto and at the date of his death amounts totalling $483,350 were owed to him by various clients: His daughter, Mrs. Mary Virginia Denton, was a beneficiary under the terms of his last will and codicil, and on or about February 11, 1966 the right to receive these amounts was transferred to her under an arrangement whereby she released the estate of the taxpayer from its liability to pay her the $90,000 balance of a legacy payable to her under his last will and codicil and agreed to pay the estate the sum of $380,000 Canadian funds within one year from the date of the transfer.

The appellant did not include in the income of the taxpayer the amount so transferred to Mrs. Denton on the basis that the right to receive same had been transferred to a beneficiary of the estate of the taxpayer within the time prescribed by Section 64(3) of the Income Tax Act.

In making the re-assessment, the Minister did so on the basis that the amounts totalling $483,350 owed to the taxpayer by his clients at the date of his death were rights or things, the amount whereof when realized would have been included in computing his income, that of this amount an amount of $103,350 was transferred or distributed to Mrs. Mary Virginia Denton, a beneficiary of his estate prior to the time for making an election under the provisions of Section 64(2) of the Income Tax Act, leaving a balance of $380,000 of rights or things not so transferred or distributed.

In the agreed statement of facts the parties admit, inter alia, that the appellant is executor of the last will and testament of the taxpayer and codicil thereto for which letters probate were duly granted and a true copy filed as an exhibit; that on or about November 10, 1965 appellant paid the sum of $10,000 to Mary Virginia Denton, one of the three children of the deceased taxpayer, representing part payment of the legacy of $100,000 made to her in paragraph 3(h) of the will; and that the value of the accounts receivable to the taxpayer at the date of his death as reported in his estate tax return was $483,350. On February 4, 1966 appellant sent the said Mary Virginia Denton a letter offering to transfer the accounts to her, which concluded :

This transfer would be made to you in consideration of your releasing the Estate from its liability to pay you the $90,000 balance of the legacy payable to you under your late father’s Will and in consideration of your agreement to pay the Estate the sum of $380,000 (Canadian funds), such payment to be made within one year from the effective date of the transfer of the foregoing amounts to you.

Would you kindly confirm the foregoing arrangement by signing and returning to us the enclosed copy of this letter.

Mrs. Denton did so on February 5, 1966. She then, on February 7, 1966, sent letters to the debtors of the said accounts advising them of the transfer and requesting that the settlement cheque be sent to her at the Lucayan Beach Hotel in Freeport, Bahamas. On February 11, 1966 appellant sent letters to each of the debtors advising them of the transfer, enclosing copies of the probate and Ontario and federal succession duty and estate tax releases and authorizing them to make the payments to Mrs. Denton in Freeport as requested.

It is further agreed that on February 11, 1966 Mrs. Denton left Canada with her children to join her husband who had accepted employment in the United States of America and that she has remained a non-resident of Canada since that date, and that the appellant, in an endeavour to realize the assets of the estate in a manner most beneficial thereto, discussed with Mrs. Denton a proposal that the said arrangement be entered into, the intention being to utilize the provisions of Section 64(3) of the Income Tax Act and to preclude the inclusion under Section 64(2) in the computation of the taxpayer’s income for the taxation year in which he died of the value of the said accounts receivable at the time of his death. Mrs. Denton sought the advice of counsel as to the effect of the said arrangement on her United States income tax liability and it was as a result of such advice that, upon leaving Canada, she went to Freeport, Bahamas where, between February 18, 1966 and February 21, 1966, she received payment in full of the said accounts receivable. On February 16, 1967, pursuant to the arrangement made, Mrs. Denton paid appellant the sum of $380,000. This payment was included in the capital account of the estate, the entry being as follows :

Payment for purchase of $483,350 legal fees receivable

by deceased at date of death—$470,000 less $90,000—

balance of cash legacy payable as per Clause 3(h)
of The Will	$380,000.00

On June 1, 1966 respondent assessed tax for the 1965 taxation year of the taxpayer on the basis that the amount properly included, pursuant to the provisions of Section 64(2) of the Income Tax Act, in computing the taxpayer’s income for 1965 in respect of the accounts receivable was $483,350. Appellant duly objected to the assessment and served on the respondent a notice of objection dated August 23, 1966, as a result of which, on August 7, 1968, pursuant to Section 58(3) of the Income Tax Act, respondent re-assessed tax for the 1965 taxation year of the taxpayer on the basis that the amount properly included pursuant to the provisions of Section 64(2) of the Income Tax Act in computing the taxpayer’s income for 1965 in respect of the accounts receivable was $380,000. Appellant then commenced this appeal.

N 0 witnesses were called by either party and no explanation was given as to the discrepancy of $13,350 between the amount of the accounts collected by Mrs. Denton in the amount of $483,350 and the amount of $470,000 which she paid for them, partly by accepting same in lieu of the balance of $90,000 owing her under the $100,000 legacy to which she was entitled, and partly by the cash payment by her of the sum of $380,000, which is the amount for which the taxpayer has now been re-assessed, and counsel for the parties conceded that this was not an issue in the present appeal.

Three options were open to appellant for dealing with the deceased taxpayer’s income tax liability in the year 1965 with respect to these accounts receivable and to avoid having them included in his taxable income for that year in which he died :

(a) it could have, within one year from the date of his death or within 90. days after the mailing of a notice of assess- ment in respect of his tax for the year of his death, whichever was later, availed itself of the provisions of Section 64(2) (a) of the Income Tax Act and included one-fifth of the value of said accounts in computing his income for each of his last five taxation years including the year of death, and paid the resulting additional tax for any year other than the year in which he died within thirty days from the day of mailing of the notice of assessment for the year in which he died; or

(b) it could have filed a separate return of the value of these accounts and paid tax thereon for the taxation year in which he died as if he had been another person entitled to the same deductions to which he was entitled under Section 26 of the Act for that year (that is to say his deductions for dependants) ;

(c) the third option and that which it adopted forms the subject of the present appeal and results from the wording of Section 64(3) of the Act, which reads as follows:

64. (3) Where before the time for making an election under subsection (2) has expired, a right or thing to which that subsection would otherwise apply has been transferred or distributed to beneficiaries or other persons beneficially interested in the estate or trust,

(a) subsection (2) is not applicable to that right or thing, and

(b) an amount received by one of the beneficiaries or other such persons upon the realization or disposition of the right or thing shall be included in computing his income for the taxation year in which he received it.

By transferring’ the accounts receivable to a beneficiary who was not herself taxable for income in Canada on the realization by her of these accounts, the appellant was able to receive from her an amount representing nearly the full value of them without the estate paying income tax on behalf of the deceased in the year 1965 for the amounts received in payment for this transfer. The fact that Mrs. Denton did not have to pay income tax on the amount of the accounts so purchased when she received payment of them, since she was not at that time a beneficiary resident in Canada and taxable therein when these accounts were realized’is not, of course, relevant to the present issue which merely concerns: the applicability of Section 64(3) to the determination of the deceased’s income tax liability.

The whole case turns on the interpretation to be given to the words: “transferred or distributed to beneficiaries or other persons beneficially interested in the estate or trust’’. The word “transferred” used by itself has been dealt with in several previous: decisions. In rendering judgment in the case of David Fasken Estate v. M.N.R., [1948] Ex. C.R. 580; [1948] C.T.C. 265, Thorson, P. referred to two dictionary definitions of the word ‘‘transfer’’. The New English Dictionary gives the meaning

2. Law. To convey or make over (title, right or property) by deed or legal process.

Webster’s New International Dictionary, 2nd ed., says:

2. To make over the possession or control of, to make transfer of; to pass; to convey, as a right, from one person to another; as, title to land is transferred by deed.

At page 592 [279] he states:

In Gathercole v. Smith (1880-81), 17 Ch. D. 1 at 7, James, L.J., spoke of the word “transfer” as ‘‘one of the widest terms that can be used” and Lush, L.J., said, at page 9:

“The word ‘transferable,’ I agree with Lord Justice James, is a word of the widest import and includes every means: by which the property may be passed from one person to another.”

The word “transfer” is not a term of art and has not a technical meaning. It is not necessary to a transfer of property from a husband’ to his wife that it should be made in any particular form or that it should be made directly. All that. is required is that the husband should so deal with the property as to divest himself of it and vest it in his wife, that is to say, pass the property from himself to her. The means by which he accomplishes this result, whether direct or circuitous, may properly be called a transfer.

He was dealing with Section 32(2) of the Income War Tax Act and its predecessor Section 7 of the 1926 Act which were somewhat analogous to Section 21(1) of the present Act dealing with transfers of property between husband and wife. Further on he states, at pages 595-96 [282] :

If then it was not a condition of liability under section 7 of the 1926 Act that the transfer therein referred to was made for the purpose of evading taxation there can be no such condition in section 32(2) of the 1927 Revision. Moreover, quite apart from any statutory provisions relating to the Revised Statutes, it is not permissible, where the words in a taxing Act are clear, to read into it either conditions of liability thereunder or exemptions therefrom other than those that are within its express terms. Full effect must be given to its words without additions or subtractions. In my opinion, the words section 32(2) of the 1927 Revision, and the corresponding part of its predecessor, section 7 of the 1926 Act, are free from any ambiguity and liability thereunder is not confined to cases where the transfer of property was made for the purpose of evading taxation, nor does the fact that the transfer was made in good faith or for valuable consideration place it outside the scope of the sections.

This judgment was referred to and followed in the case of Roy Otto German v. M.N.R., [1957] C.T.C. 291, by Mr. Justice Thurlow who stated at page 295 :

In my opinion, the expression “has transferred” in Section 21(1) of the Income Tax Act has a similar meaning. I read that expression as referring to an act whereby the husband has divested himself of property and vested it in his wife; that is to say, has passed the property from himself to her. Had the appellant in this case deeded a share of his homestead property to his wife, whether for consideration or not, there would undoubtedly have been a transfer of such share to her. Had he deeded his property to a purchaser and directed the purchaser to pay the price to his wife, again in my opinion there would have been a transfer. In such a transaction, the property having been his, the price paid for it would also have been his, but for the transfer of it to his wife accomplished by his direction to the purchaser to pay it to her.

The word ‘‘transfer’’ was also discussed in the Tax Appeal Board case of Donald F. Campbell v. M.N.R. (1963), 32 Tax A.B.C. 208, where, at page 204, the Assistant Chairman, after referring to the exhaustive examination of the meaning of ‘‘transfer’’ by Thorson, P. in the Fasken Estate case (supra) stated: ‘‘That term embraces any passing of ownership.’’ In the case of Joseph B. Dunkelman v. M.N.R., [1960] Ex. C.R. 73; [1959] C.T.C. 375, Thurlow, J., considering the taxability of income from property transferred or from property substituted for property transferred by the appellant to a person under 19 years of age within the meaning of Section 22(1) of the Act again referred to the Fasken Estate case (supra) and then went on to say at page 78 [380] :

And in St. Aubyn v. Attorney-General, [1952] A.C. 15, Lord Radcliffe put the matter in almost the same way when he said at p. 53 :

“If the word ‘transfer’ is taken in its primary sense, a person makes a transfer of property to another person if he does the act or executes the instrument which divests him of the property and at the same time vests it in that other person.”

The expression “has transferred” in Section 22(1) has, in my opinion, a similar meaning. All that is necessary is that the taxpayer shall have so dealt with property belonging to him as to divest himself of it and vest it in a person under 19 years of age. The means adopted in any particular case to transfer property are of no importance, as it seems clear that the intention of the subsection is to hold the transferor liable for tax on income from property transferred or on property substituted therefor, no matter what means may have been adopted to accomplish the transfer.

He concludes that the making of a loan is not a transaction within the meaning of the expression “has transferred prop- erty’’. With regard to the question of taxation of income of one person in the hands of another, he says, at page 77 [379] :

. . . It goes without saying that, if the rule set out in Section 22(1) applies, the appellant will be liable for tax on the income in question, regardless of how harsh or unjust the result may appear to be. But, as it is not within the purview of the general taxing provisions of the statute to tax one person in respect of the income of another, the subsection must, in my opinion, be regarded as an exception to the general rule, and while it must be given its full effect so far as it goes, it is to be strictly construed and not extended to anything beyond the scope of the natural meaning of the language used, regardless again of how much a particular case may seem to fall within its supposed spirit or intendment.

All of the above cases dealt with a different section of the Act where the words ‘‘has transferred’’ were used alone and not in conjunction with the words ‘‘or distributed’’, but in the case of the Hugh Hawk Estate v. M.N.R. (1957), 17 Tax A.B.C. 71, it was Section 64(3) itself which was considered. In that case the deceased and his three sons operated their own farms under an arrangement whereby grain and livestock were sold under a partnership name and the proceeds divided amongst them in certain proportions. After the deceased’s death an agreement was reached by his widow and sons, although never put in writing, whereby all the interests of the deceased in grain or livestock became the property of the sons in return for which certain payments were to be made to the widow. It was held that the cattle and grain which formed part of the deceased’s estate were ‘‘transferred or distributed’’ to his sons as beneficiaries, within the meaning of Section 64(3), and therefore their value was not taxable in the hands of the executors under Section 64(2). In his judgment, W. S. Fisher, Q.C., after referring to the meaning of the word ‘‘transfer’’ as defined in the case of Gathercole v. Smith {supra) and the quotation from the judgment of Thorson, P. in the Fasken Estate case (supra), concluded that as the three sons were beneficiaries of their father’s estate, together with their mother, transfer, even though de facto in nature, was sufficient to bring it within the provisions of Section 64(3) of the Act. In another Tax Appeal Board case dealing with Section 64(3), namely that of Ernest George Willis Estate v. M.N.R., [1968] Tax A.B.C. 177, a contrary conclusion was reached. In that case the finding was based on the fact, however, that the company which had acquired assets of the deceased in exchange for paid up shares pursuant to a court order following his death to give effect to an arrangement he had made during his lifetime but had not carried into effect, was not a person beneficially interested in the estate merely because it had paid the estate tax assessed against the estate, but was merely a creditor of the estate. The decision of W. O. Davis, Q.C. refers, at page 185, to the argument of counsel for the Minister, which is similar to the argument made in the present case, as follows:

Counsel for the respondent urged that, inasmuch as the word “transfer” is used in conjunction with the word “distributed” in Section 64(3), it was evidently intended to connote something in the nature of a bequest as opposed to a sale such as had occurred in the instant matter, the word “distributed” carrying with it no element of payment for value received but suggesting a distribution of something to someone who was already entitled to that something as, for example, a beneficiary under a will.

It also refers, at page 184, to a definition of “beneficial interest’’ taken from Black’s Law Dictionary as ‘‘profit, benefit, or advantage resulting from a contract’’, pointing out, however, that the definition goes on to say:

When considered as designation of character of an estate, is such an interest as a devisee, legatee, or donee takes solely for his own use or benefit, and not as holder of title for use and benefit of another. People v. Northern Trust Co., 330 111. 238, 161 N.E. 525, 528.

In conclusion, at page 187, he states:

Having given careful consideration to all the facts and circumstances involved herein and to the authorities referred to by counsel, I have reached the conclusion that the said rights and things were not transferred or distributed within the terms of Section 64(3) but were sold by the executor of the estate to Princeton Stock Ranch Ltd. for good and valuable consideration, namely, 98 shares of the company stock.

Respondent’s contention in the present case is that the transaction in form and substance really breaks down into two separate transactions:

(a) a transfer by consent of book debts having a value of at least $90,000 in satisfaction of the balance of the legacy payable to Mrs. Denton under the will of her late father ;

and

(b) a sale of book debts having a value of at least $380,000 for full and valuable consideration made by the executor in the course of the administration of the estate to Mrs. Denton, whose title thereto was acquired not as a legatee or beneficiary under the will of her father but rather as a purchaser for value.

Respondent’s counsel argued that the use of the word “distributed” in connection with the word ‘‘transferred’’ in Section 64(3) in a cognate sense has the effect of narrowing the meaning of the word ‘‘transferred’’, quoting as authority for this Maxwell on Statutes, 12th ed., at page 289:

When two or more words which are susceptible of analogous meaning are coupled together, noscuntur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.

He contended that both words had to be used because, while the word ‘‘transfer’’ would apply to the distribution of a specific asset to a beneficiary who had an equitable interest in the asset transferred, ‘‘distributed’’ has reference to a distribution of the assets of the estate of the deceased to those who are entitled thereto but who during the course of the administration thereof do not have any equitable interest in any specific asset. In this connection he referred to the case of Commissioner of Stamp Duties (Queensland) v. Hugh Duncas Livingston, [1965] A.C. 694, which held that in the case of an unadministered estate the assets as a whole were in the hands of the executor, his property, and until administration was completed, it could not be said of what the residue, when ascertained, would consist or what its value would be. It was further held that what the widow was entitled to in respect of her rights under the testator’s will was a chose in action, capable of being invoked for any purpose connected with the proper administration of her husband’s estate. A similar finding was made by the Supreme Court in the case of M.N.R. v. Fitzgerald (George V. Steed Estate), [1949] 8.C.R. 453; [1949] C.T.C. 101, in which Kerwin, J. at page 460 [125] refers to a proprietary interest either legal or such an equitable interest as is recognized by our courts, which Steed did not have, stating:

. . . All that devolved upon his death was a right to have the estate of Bonnie Steed administered; and that right was a chose in action properly enforceable . . .

In the present case, while Mrs. Denton had an equitable interest in the legacy left her in her father’s will, she only had an eventual interest in her share of the residue of the estate when same would be distributed on the death or remarriage of certain of the income beneficiaries. He contended, therefore, that Mrs. Denton was not ‘‘a beneficiary or other person beneficially interested’’ in the estate or trust save to the extent of the balance due her under the legacy, and that beyond this her right only consisted in a right to have the estate administered so ultimately she would obtain her proper share in the residue when same was distributed. With respect to the sum of $380,000, therefore, she was simply a purchaser for value from the trustees of the accounts due to the estate, and to this extent the accounts could not be considered as having been transferred to: her qua beneficiary or person beneficially interested.

He contended that this interpretation conforms to the apparent scheme of Parliament in enacting Section 64(3). Section 85F gives a special privilege to taxpayers who carry on a profession or the business of farming by permitting them to compute their income on a Cash basis rather than a current earnings basis. As a consequence of this, if there had not been any specific statutory provision, then on the cessation of business, the amounts subsequently received would not be subject to tax since they would no longer be income from a source. In support of his contention he quoted the British case of Bennett v. O g st on (1930), 15 Tax Cas. 374 at 378, approved by Lord Simonds, L.C. in Gospel v. Purchase, [1951] 2 All E.R. 1071 at 1074D, in which Rowlatt, J. stated :

When a trader or a follower of a profession or vocation dies or goes out of business . . . and there remain to be collected sums owing for goods supplied during the existence of the business or for services rendered by the professional man during the course of his life or his business, there is no question of assessing those receipts to income tax; they are the receipts of the business while it lasted, they are arrears of that business, they represent money which was earned during the life of the business and are taken to be covered by the assessment made during the life of the business, whether that assessment was made on the basis of bookings or on the basis of receipts.

Similarly, in the case of Frankel Corporation Limited v. M.N.R., [1959] S.C.R. 713; [1959] C.T.C. 244, where a profit made on the sale of a business operation, including inventory, was held to be not taxable, it was found that the sale of the inventory was not a sale in the business of the appellant but was made as a part of a sale of a business of the appellant and consequently the proceeds of the sale were not income from a business within the meaning of Section 4 of the Income Tax Act. A similar finding was made in the case of Crompton (Inspector of Taxes) v. Reynolds and Gibson, [1952] 1 All E.R. 888, where a firm purchased a business, including a book debt which was acquired at a written-down figure but which was later collected in full and a profit of £50,000 thereby being made by the new firm. It was held that although the debt was a trading debt in the hands of the old firm its acquisition by the new firm and its subsequent collection was not a transaction within the scope of its business but produced an accretion of value analogous to the profit made by the sale of a fixed asset and this was therefore not taxable. In line with this reasoning he argued, therefore, that Section 64 was necessary to provide for the taxation of income from book debts which, on the death of the deceased, had never entered into his computation of profit. The scheme of the legislation is that these debts are then to be taxed either in the hands of the deceased or of the beneficiary. If they have been transferred or distributed to a beneficiary in this quality then they will be included in the beneficiary’s income if and when realized. If the extent to which the purchaser for value is also beneficiary is not to be taken into consideration in the interpretation of Section 64(3), this would lead to some peculiar results. F'or example, a professional man might leave a substantial sum of accounts receivable, as in the present case, and a token legacy of perhaps only $1,000 to a trusted servant or friend who would then be a beneficiary, although only to this extent. By arranging for the sale of the receivables to such a beneficiary (which sale could readily be financed by a short term loan when the accounts are as readily collectable as in the present case) then even if the sale were made at a discount, taking into consideration the taxation which the purchaser would have to pay on collection of these accounts, the estate might nevertheless save substantial sums if the recipient were in a much lower tax bracket than the deceased. The appellant’s attorney was very frank in the present case in admitting that after payment of 50% estate tax on these accounts and income tax at the rate of approximately 70% on the balance, the total sum paid in taxation would have amounted to 85% of the value of the accounts and arrangement worked out with Mrs. Denton was an attempt to avoid this. Avoidance of taxation that can be done within the provisions of the governing statute is perfectly permissible and respectable as has frequently been stated by courts both in England and Canada. However, when the interpretation of the meaning of the words used in a section of the Income Tax Act is in doubt, it is preferable to adopt an interpretation which brings a result which conforms to the apparent scheme of the legislation, rather than one which will defeat it. In the case of Highway Sawmills Limited v. M.N.R., [1966] 8.C.R. 384; [1966] C.T.C. 150, Cartwright, J. stated at page 393 [157-158] :

The answer to the question what tax is payable in any given circumstances depends, of course, upon the words of the legislation imposing it. Where the meannig of those words is difficult to ascertain it may be of assistance to consider which of two constructions contended for brings about a result which conforms to the apparent scheme of the legislation.

The case of M.N.R.. v. Pillsbury Holdings Limited, [1965] 1 Ex. C.R. 676 ; [1964] C.T.C. 294, in interpreting Section 8(1) (c) of the Act, held that it was intended to sweep into income, payments, distributions, benefits and advantages that flow from a corporation to a shareholder by some route other than the dividend route, which payments might be expected to reach the shareholder by the more orthodox dividend route if the cor- poration and the shareholder were dealing at arm’s length, but that there could be no question of conferring a benefit or advantage within the meaning of Section 8(l)(c) on a shareholder where a corporation enters into a bona fide transaction with him. In rendering judgment, Cattanach, J. stated at page 687 [303] :

. To come within that paragraph, it must be an arrangement or device whereby a corporation confers a benefit or advantage on a shareholder qua. shareholder.

I believe a similar distinction should be made in the present case. Section 64(3) applies to transfers or distributions of the right or thing to a beneficiary or other person beneficially interested in the estate or trust only when such transfer or distribution has been made to him qua beneficiary, and not to the extent that he has acquired it as a purchaser for value. Therefore, had Mrs. Denton been a legatee of an amount equal to or in excess of $483,350 and had accepted the accounts in satisfaction of this legacy, no tax would have been collectable from the estate of the deceased when these accounts were paid, and since Mrs. Denton herself was not taxable in Canada, the accounts would have been collected without payment of income tax on them by anyone, and this would have been a perfectly proper and legitimate application of Section 64(3) of the Act. I cannot interpret this section, however, as applying to all rights or things which may be transferred or distributed by way of a sale for value to a purchaser who also happens to be a beneficiary or other person beneficially interested in an estate or trust irrespective of how small his benefit or beneficial interest in same may be. I therefore find that with respect to the rights or things so transferred which are in excess of the amount for which the purchaser is a beneficiary or person beneficially interested in the estate he is simply VINELAND QUARRIES & CRUSHED STONE LIMITED, Appellant,

and

MINISTER OF NATIONAL REVENUE, Respondent.

Federal Court—Trial Division (Noël, A.C.J.), June 29, 1971, in a motion by the Minister for an order quashing appellant’s appeal.

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148—Section 46(7)—Federal Court Act, S.C. 1970-71, c. 1—Section 11(3)—Appeals

—Purported appeal proceedings not authorized by appellant—Motion to quash.

Control of the appellant changed hands in 1967 and a few months later the re-assessment appealed from was made by the Minister. A purported notice of objection was filed by the former officers of the appellant while the shares representing the controlling interest were still being held in escrow pending payment therefor. These shares were in due course released from escrow and on the basis of an affidavit of the new president of the appellant that the appellant had never authorized the purported appeal proceedings nor filed a notice of objection or notice of appeal the Minister applied for an order quashing the appeal. The counsel of record for the appellant, though officers of the court by virtue of Section 11(3) of the Federal Court Act, failed to appear at the hearing.

HELD:

Application to quash granted.

J. D. Cromarty, Q.C. for the Appellant.

M. J. Bonner for the Respondent.

Noël, A.C.J.:—By notice of motion, the Minister of National Revenue applies for an order quashing the appeal of the appellant herein, Vineland Quarries & Crushed Stone Limited (hereinafter sometimes called ‘‘Vineland’’) from an income tax assessment dated September 15, 1967, wherein tax in the sum of $2,268.43 was levied in respect of income for the taxation year 1965, on the basis that:

(a) Since Vineland Quarries & Crushed Stone Limited has not served a notice of objection to the assessment, the latter is by virtue of Section 46(7) of the Income Tax Act valid and binding and no appeal lies therefrom;

(b) the purported appeal herein was instituted or attempted to be instituted without the authority of Vineland Quarries & Crushed Stone Limited and is not the appeal of Vineland Quarries & Crushed Stone Limited, the purported appellant herein.

With this application was filed an affidavit of Norris Walker who has been, since January 24, 1967, the president and director of Vineland Quarries Stone Limited, and who states therein that the notice of objection of Vineland, signed by one Ben Sauder, to the re-assessment of September 15, 1967 was never authorized as Vineland did not object to the said re-assessment nor did it authorize any person to do so on its behalf, nor did, according to Walker, Vineland authorize the appeal to this Court, nor did it authorize any person to do so on its behalf or to sign the notice of appeal, dated July 23, 1968, which is signed ‘‘ Vineland Quarries & Crushed Stone Limited’’ by its solicitors, Goodman & Carr. Walker indeed states in his affidavit that, in particular, Vineland did not authorize Messrs. Goodman & Carr, counsel of record in these proceedings, to institute the purported appeal herein.

From Walker’s affidavit it appears that St. Catharines Crushed Stone Limited purchased all of the shares of the capital stock of Vineland pursuant to an agreement in writing dated January 5, 1967, and on January 24, 1967 the agreement of purchase and sale was closed. The four persons who had previously been directors and officers of Vineland resigned, Norris Walker, the affiant, was elected president of Vineland, a number of shares were transferred to the new directors and the remainder of these shares were lodged with Canada Trust in escrow pending payment of the purchase price under the agreement. In January 1970 the shares were released from escrow and St. Catharines Crushed Stone Limited was registered in the books of Vineland as owners thereof. The names of four persons who, on January 24, 1967, resigned as officers and directors of Vineland and the positions which they held with Vineland at the time of their resignations were as follows:

From January 24, 1967 to December 31, 1967 there were four directors of Vineland, namely, Norris Walker, John G. Walker, John G. Walker II and Mamie Z. Klein. Norris Walker, the affiant, states that he has shown Exhibit C (the notice of objection signed by Ben Sauder) to each of the above persons who all say that the signature thereon is not theirs.

The Court sat in Welland, Ontario, where both counsel for the Minister, Mr. J. Bonner, and counsel for Vineland, Mr. J. D. Cromarty, Q.C., attended but where no one appeared for or on behalf of counsel of record for the appellant, Messrs. Goodman & Carr. Mr. Franklyn E. Cappell of this firm had, however, written to Mr. M. J. Bonner, counsel for the Minister, on June 22, 1971, as follows:

Re: Vineland Quarries & Crushed Stone Limited v. M.N.R.

I have now received copies of the Notice of Motion and supporting Affidavit returnable on Friday, June 25, 1971 before the presiding Judge at Welland. We do not propose to appear for the Motion.

I must say that having regard to the very serious and extraordinary situation and averments mentioned in Walker’s affidavit, and the fact that Messrs. Goodman & Carr are the solicitors of record in this appeal, their absence from the hearing on June 25, 1971 is hard to explain particularly if one considers that under the Federal Court Act (Section 11(3)) they are officers of this Court. Representations were made at this hearing on behalf of the Minister by Mr. Bonner and they were endorsed entirely by the alleged appellant, Vineland, through its counsel, Mr. Cromarty. There was, however, in view of the absence of anyone representing Messrs. Goodman & Carr, no explanation given the Court as to how this appeal could have been taken and pursued without the authorization of the appellant. The sale document of January 5, 1967 contains a clause (U), at page 6, where it is stated that the vendors shall have the responsibility of pursuing an appeal, in the Supreme Court, whereby the appellant was held to be a company related to another company in which the vendors had an interest which, of course, is not the appeal dealt with in the present proceedings. In the light of the allegations recited in Mr. Walker’s affidavit, which were fully supported by counsel for Vineland, and on the basis of the representations made before me at Welland on June 25, 1971 by both counsel for the Minister and counsel for Vineland, this application to quash should be granted and in view of the unexplained unauthorized proceedings launched by Messrs. Goodman & Carr, the costs of the respondent as well as the costs of the counsel for Vineland on the present motion, should be charged to Messrs. Goodman & Carr.

I intend to grant the present application and to hold Messrs. Goodman & Carr liable for costs. I will, however, refrain from doing so until July 8, 1971 in order to give Messrs. Goodman & Carr the possibility of objecting to the present application in writing, with copies to be sent to counsel for the Minister and of Vineland and of showing cause why they should not, in the circumstances, be condemned to pay the costs occasioned by these unauthorized proceedings.