Russel P. Leveque v. Minister of National Revenue, [1968] CTC 179, 68 DTC 5116

CATTANACH, J.:—This is an appeal from a decision of the Tax Appeal Board ( (1959), 23 Tax A.B.C. 33) dated October 6, 1959, whereby the appellant’s appeals against his assessments to income tax for his 1949, 1950 and 1951 taxation years were dismissed.

At the commencement of this trial, a Notice of Admission was filed on behalf of the Minister which had the effect of correcting certain errors in the assessments.

The following is a corrected statement. of the assessments of revised taxable income together with the tax to be levied in respect to each of the years under appeal:

1949

The assessment for the 1949 taxation year involves two items :

No adjustments have been made in the above amounts since the original assessment.

1950

The assessment for the 1950 taxation year involves the following items:

As a result of the adjustments made by the Minister since the original assessment, the above amounts for 1950 have been changed as follows :

1951

The assessment for the 1951 taxation year involves the following items:

Amount added

to Income

(a) Profit on oil rights	,	$12,152.95
(b) Profit on sale of Redwater shares		57,326.92
(c) Profit on sale of Roxboro shares		87,122.35
(d) Profit on sale of Trans-Empire Oils Ltd. (here-
inafter called “Trans-Empire”)		24,479.43
Total	$181,081.65

As a result of adjustments made by the Minister since the original assessment the above amounts for 1951 have now been changed as follows:

It follows that as a result of the foregoing adjustments that the appeal must be allowed and referred back to the Minister in order that he might make the necessary modifications to the assessments regardless of the ultimate disposition of the matters in controversy.

The principal question for determination is whether profits realized upon transactions in the shares of Redwater, Roxboro, and Trans-Empire were profits of the appellant and whether profits realized upon transactions involving certain securities in the form of royalty trust units or in the form of royalty and leasehold interests in petroleum and natural gas lands were profits of the appellant.

The appellant’s contention is set out in his Notices of Appeal. For purposes of convenience and to avoid repetition, I shall reproduce only once those paragraphs from Heading “B” entitled ‘‘Statutory Provisions upon which the Appellant Relies and the reasons which he intends to Submit’’ of the Notices of Appeal which are common to all three Notices and I shall combine the references to the shares of Redwater and Roxboro.

1. The Appellant submits that throughout the years 1949, 1950 and 1951 the market support transactions in the shares of Redwater Leaseholds Ltd., (and Roxboro Oils Ltd.) the profits of which have been assessed to him by the Minister, were the transactions of Leveque Investments Ltd. and not those of the Appellant. Furthermore, all of the trading profits were reflected directly or indirectly in the accounts of Leveque Investments Ltd., where they were taxed.

(Common to the 1949, 1950 and 1951 Notices of Appeal. By inserting the words “and Roxboro Oils Ltd.”, I have combined paragraphs 1 and 5 of 1950 and 1951 notices with paragraph 1 of the 1949 notice.)

2. The Appellant submits that throughout the years 1949, 1950 and 1951 Leveque Investments Ltd. repeatedly borrowed from him and returned to him shares of Redwater Leaseholds Ltd., (and Roxboro Oils Ltd.) and the Appellant derived no benefit or profit whatsoever from such transactions.

(By inserting the words “and Roxboro Oils Ltd.” I have combined with paragraph 2 of the 1949 notice, paragraphs 2 and 6 of the 1950 and 1951 notices.)

3. At the end of each tax period the Appellant held, or was owed by Leveque Investments Ltd., the same aggregate number of shares of Redwater Leaseholds Ltd. (and Roxboro Oils Ltd.) as he had held at the commencement of such period.

(By inserting the words “and Roxboro Oils Ltd.” I have combined with paragraph 3 of the 1949 notice paragraphs 3 and 7 of the 1950 and 1951 notices.)

4, In the alternative, the value of the shares of Redwater Leaseholds Ltd. (and Roxboro Oils Ltd.) held by the Appellant at the end of any year should be determined at the lower of cost or market which figure, for the shares involved, did not change from year to year but remained constant. The Appellant will rely upon Section 14 of the Income Tax Act and upon regulations enacted thereunder.

(Again I have inserted the words “and Roxboro Oils Ltd.” thereby combining with paragraph 4 of the 1949 notice paragraphs 4 and 8 of the 1950 and 1951 notices.)

5. The Appellant submits that the sum of $3,000.00 assessed to him as income by the Minister in the year 1949 being profits on the sale of Sun Alta. No. 1 Gross royalty trust has already been reflected directly or indirectly in the accounts of Leveque Investments Ltd., and there taxed.

6. The Appellant submits that the sum of $8,942.50, being profits on royalty and lease interests sold, assessed to him as income in the year 1950 has already been reflected directly or indirectly in the accounts of Leveque Investments Ltd. where they were taxed.

(The Minister has agreed that the amount of $8,942.50 which has been added to the appellant’s income should be reduced to $4,762.50.)

The Notice of Appeal with respect to the 1951 taxation year makes no submission as to any profit on the sale of oil properties, nor does this notice make any submission in regard to profit arising from transactions in Trans-Empire shares with respect to which the Minister added to the appellant’s income $24,479,43 and reduced that amount to $862.50 at the outset of the trial.

In assessing the appellant as he did, the Minister acted upon the assumptions set out in his three Replies to the Notices of Appeal which are combined and summarized as follows:

(a) that during the 1949, 1950 and 1951 taxation years the appellant acquired by purchase or otherwise shares in Redwater, Roxboro and Trans-Empire and through a series of transactions sold all or part of such shares realizing therefrom a profit of $61,831.80 in the 1949 taxation year, $46,649.45 in the 1950 taxation year (which amount was subsequently increased to $58,126.96) and $168,928.70 in the 1951 taxation year (which amount was subsequently decreased to $133,482.94).

(b) that profits in the amount of $3,000 realized upon the sale of Sun Alta #1 in the 1949 taxation year and in the amount of $8,942.50 (later reduced to $4,762.50) in the 1950 taxation year on the sale of royalty and lease in interests were income in the appellant’s hands and not in the hands of Leveque Investments Ltd.

From a Notice to Admit Facts dated October 3, 1967 served on the appellant by the Minister on that same day and from the appellant’s reply thereto dated October 20, 1967 the following facts relating to the business of the appellant, R. P. Leveque Investments Ltd., and Edmonton Leaseholds Limited are established.

The appellant has been engaged in the business of selling securities in some form or other since 1935. From 1935 to 1939 he acted as a broker’s salesman. From 1939 to 1942 he operated as a broker. From 1942 to 1948 he returned to working as a security salesman. In 1948 the appellant again began to operate as a broker. He became the sole proprietor of a securities business known as R. P. Leveque Investments with an office in Edmonton, Alberta, opened in early October 1948. An office was opened in Calgary, Alberta in March 1949. The appellant obtained a seat on the Calgary Stock Exchange in his personal name and has retained that seat to date. The sole proprietorship was operated from 1948 until the period July-September 1949. In October 1948 the appellant instructed his solicitors to incorporate a limited joint stock company to carry on the securities brokerage business. This company was incorporated on June 21, 1949 under the name of ‘‘R. P. Leveque Investments, Ltd.’’ (hereinafter sometimes referred to as the ‘‘Company’’). This Company took over the appellant’s proprietorship business in several stages beginning on July 1, 1949. The appellant owned all the shares in the Company, excepting qualifying shares and became its president and managing director. Throughout the period under review the Company carried on a securities brokerage business with offices in both Edmonton and Calgary.

There was an agreement of sale between the appellant and the Company dated June 30, 1949 whereby the assets of the appellant’s proprietorship were acquired by the Company.

In order to close out the proprietorship books and to establish the amount which should be credited to the appellant as a result of the assumption of the liabilities of and the purchase of assets from him by the Company a series of journal entries were made in the books of the appellant’s brokerage business. These steps were taken by the auditors until as late as November 30, 1950.

After taking into account certain adjustments, the excess of the value of the assets over liabilities was $13,137.96. Journal entries in an account in the books of the Company entitled “Shareholder’s Loan Account — KR. P. Leveque’’ resulted in a net credit of $13,137.96. Entries were made as at September 30, 1949 in the books of the Company to reflect the assumption of liabilities and the purchase of assets by the Company from the appellant. By virtue of entries in the General Ledger (Exhibit II) of the Company dated September 30, 1949 the transfer of clients accounts (either as assets or liabilities of the proprietorship) is recorded. An examination of the clients ledger of the Company indicates that the clients ledger of the proprietorship continued in use as part of the records of the Company without closing or opening entries being made in the individual clients’ accounts.

However, a new account in the name of the appellant in the clients ledger of the Company was opened on July 8, 1949 (see Exhibit 10, page 13) but the recording of the transfer was not made until September 30, 1949 as mentioned above. Further the account in the name of the appellant which had been opened in the clients ledger of the proprietorship continued in use as another part of the records of the Company (see Exhibit 10, pages 6 and 7).

The appellant had maintained offices of his sole proprietorship in both Edmonton and Calgary and transactions took place between those offices. The Company, after its incorporation, also maintained offices in Calgary and Edmonton. Since the accounting to reflect the taking over of the appellant’s brokerage business (the proprietorship) was not completed until September 30, 1949 (with some subsequent adjusting entries) transactions took place between (1) the Company’s various offices, (2) the appellant’s brokerage business various offices and (3) the appellant’s brokerage business various offices and the Company’s various offices.

As at September 30, 1949 the accounts as between the appellant’s offices and the Company’s offices in their various relationships should have offset and no entries should have been necessary to close out such accounts. However the accounts did not, in fact, offset due to the improper recording of certain transactions. Journal entries were later made in an attempt to close out the proprietorship account and to correct the discrepencies in the Company’s account. There is substantial agreement between the parties as to these particular entries which I do not propose to outline in detail.

The appellant also caused to be incorporated a company under the name of Edmonton Leasehold Limited of which he became the principal shareholder, president and managing director. This company traded in oil equities, royalties, leases and stock and was involved in certain of the transactions here under review.

As indicated above the appellant had been engaged in the securities business as a salesman from 1942 to 1948. In 1948, because of the great activity in oil and gas, he saw the opportunity to and decided to participate in that activity on his own behalf as a broker. To do so he had to have something to sell and accordingly he acquired and assembled a number of oil and gas properties from various sources.

Amongst the properties so acquired by the appellant were 40 units of Sun-Alta #1. As indicated, the Minister added to the appellant’s income for the year 1949 an amount of $3,000 as taxable profit as a result of transactions in this property.

The entries in the records of the proprietorship clearly have the effect of showing and recording a purchase of 40 units of Sun-Alta #1 by the proprietorship (R. P. Leveque Investments) from the proprietor (R. P. Levesque) as owner and vendor, in 1949.

The Minister’s position is that this purchase had the effect of inflating the cost of sales of the proprietorship by $3,000 and reducing the appellant’s income for the 1949 taxation year by a like amount. The assessment is based on adding back that amount to the appellant’s income for that year.

The appellant’s explanation and position is that the Calgary office of the proprietorship was short 40 units of Sun-Alta #1 for delivery to customers in Calgary and obtained the required units from the Edmonton office. For the purpose of recording the receipt of the units in the Calgary office it was entered as a sale. The appellant contends that he never received the $3,000 and that by reason of adjusting entries made by the auditors on October 31, 1949 there was an overstatement of profit in the books of the limited company (R. P. Leveque Investments Ltd.). It is contended that the net effect is that the $3.000 was in fact taxed in the hands of the limited company and therefore should not be taxed in the appellant’s hands.

With respect to the acquisition and sale of properties in 1950 which may be referred to as Sun-Alta #2 the properties, the purchase prices (one of which was revised) and the sale prices are all admitted and the resultant profit of $4,762.50 (as revised) is also admitted. However the appellant contends that these particular properties were gathered by him for and on behalf of Edmonton Leaseholds Limited and that the profit of $4,762.50 was that of Edmonton Leaseholds Limited and R. P. Leveque Investments Ltd., and not his personal profit. I might mention that the foregoing contention is somewhat at variance with that set forth in the appellant’s Notice of Appeal which was to the effect that the profit realized had already been reflected directly or indirectly in the accounts of KR. P. Leveque Investments Ltd. where they were taxed rather than that the profit was that of Edmonton Leaseholds Limited and R. P. Leveque Investments Ltd.

The property involved in the 1951 assessment is a 7% interest in River lots 2, 10, 11 and A in St. Albert Settlement. The total acreage purchased by the appellant from the vendor, Pacific Petroleum, was in fact 424 acres rather than 425 acres as was the Minister’s first information.

The purchase price from Pacific Petroleum was $27,500. The assessment was based on a profit from the sale of lots 10 and 11, being 44 acres out of a total of 424 acres, from the appellant to Edmonton Leaseholds Limited at $15,000. The Minister calculated the cost of lots 10 and 11 at 44/424 of $27,500 being $2,853.77. By deducting that amount from the sale price of $15,000 he arrived at a profit of $12,146.23 which was added to the appellant’s income for the 1951 taxation year.

Here the appellant again takes the position that he was acting for and on behalf of his companies and that any profit realized was not a personal profit but that of his companies.

The remaining items of the assessments are based on profits alleged to have been realized by the appellant from the sale or disposition of shares of Redwater and Roxboro received by him in exchange for leasehold interests or other interests in petroleum and natural gas lands together with profits alleged to have been realized by him from trading in shares of Redwater, Roxboro and Trans-Empire.

The appellant had acquired oil properties and interests prior to 1948 and on January 15, 1949 at a total cost of $7,375.00 as well as other properties at no cost. There is no dispute between the parties in these respects.

The appellant transferred the foregoing properties to Redwater Leaseholds Ltd. a publie company which has was instrumental in having incorporated on January 6, 1949. The consideration received therefor by the appellant was 1,200,000 fully paid up and non-assessable shares of Redwater without nominal or par value which were held in escrow and of which 200,000 were released from escrow on June 22, 1949, 600,000 on August 10, 1949, 175,450 on December 6, 1949 and 224,550 on May 2, 1950.

The underwriting of these 1,200,000 shares of Redwater was undertaken by R. P. Leveque Investments (the proprietorship) to the extent of 600,000 shares to be sold in the Province of Alberta. The proprietorship’s underwriting obligation was assumed by R. P. Leveque Investments Ltd. (the Company) upon its incorporation. Clifton C. Cross & Company Limited underwrote the sale of the remaining 600,000 shares to be sold outside the Province.

The appellant submits that of these 1,200,000 shares, 525,000 shares were disposed of for no value, being bonus shares and the like, 275,000 were disposed of for a total of $18,783.30 and the remaining 400,000 shares were retained by the appellant throughout the period under review and were eventually used to exchange for Trans-Empire shares.

Since the total cash sales in 1949 amounted to $18,783.30 the cost of which was $7,375.00 the appellant therefore contends that the profit to him on the transactions in Redwater shares was $11,008.30 rather than an amount of $61,831.80.

The appellant contends that all other transactions in Redwater shares which appeared in information available to the Minister were in the nature of market support transactions, loan transactions or errors.

Similarly the appellant contends that the profit realized by him in transactions involving Redwater shares in his 1950 taxation year was $400.00 rather than the amount of $42,761.78 which the Minister added to his income in that year and for like reasons as were applicable to the transactions in Redwater shares in his 1949 taxation year.

The assessments under appeal also include additions to profits in the taxation years 1950 and 1951 in respect to trading in oil properties and interests therein and shares in Roxboro. The additions to profits were for 1950, $15,365.18 and for 1951, $87,122.35.

The appellant explained that in 1948 he had negotiated a farmout agreement with Imperial Oil Limited. In order to handle this farm-out Redwater was incorporated to which company the farm-out agreement was transferred. Wells were drilled on the property which had been transferred to Redwater. The first well drilled became a producing well. The appellant explained that after this well began producing the oil market went into a temporary slump. The appellant made arrangements with Regent Drilling Limited to take over the obligation of Redwater in the Imperial farm-out. It was agreed with Regent that Redwater would have the first opportunity to repurchase its interest. Regent received an offer of $200,000 plus their drilling costs of $141,000. The appellant therefore had to raise $341,000 in a short space of time to meet this bid. He felt he could not do this with Redwater and accordingly formed Roxboro. The holdings of R. P. Leveque Investments, Ltd. were thus safeguarded and within the short space of 30 days sufficient shares of Roxboro were sold to realize the amount of $341,000.

Roxboro Oils Limited was incorporated in October, 1950 as a public company. The appellant was instrumental in incorporating and promoting Roxboro under the circumstances mentioned above.

As previously indicated the appellant had acquired an interest in River lots in St. Albert Settlement on August 28, 1950 and certain interests in another oil property at a cost of $25,000 on October 2, 1950 and an obligation in respect to a payment of $145,000. This latter property was transferred to Roxboro and Roxboro repaid the appellant $25,000 and assumed his other obligations with respect to payment.

The principal property transferred to Roxboro was River Lot A, a portion of the St. Albert Settlement properties. The Minister computed the proportionate cost of River Lot A out of the total cost of $27,500 to be $13,782.35 (i.e. 212/424ths of $27,500). The transfers of the two foregoing properties took place on October 2, 1950. The appellant’s position is that the value of River Lot A when transferred to Roxboro was $63,- 095.40. The appellant bases this computation on a. sale of 168 acres to Ledue Consolidated Oils Ltd. on September 7, 1950 for $50,000. On an acreage basis the Minister’s valuation works out to $64.85 per acre and the appellant’s to $297.60 per acre.

The consideration for the transfer of the foregoing properties by the appellant to Roxboro was 1,400,000 fully paid up and non-assessable shares of Roxboro without nominal or par value. Again these shares were held in escrow and released to the appellant as follows, 100,000 shares on November 8, 1950 ; 700,000 shares on January 18, 1951 and 600,000 shares on March 12, 1951.

The appellant contends that of these 1,400, 000 shares, 670,000 were disposed of for no value by way of bonuses and the like, 530,000 were disposed of for $61,492.90 in 1951 at various prices ranging between 114 cents and 18% cents per share, and the appellant retained 200,000 shares which were eventually used to exchange for Trans-Empire shares. The appellant’s position is that the cost of the shares to him was $63,095.40, that he received $61,492.90 therefor and that, accordingly, he suffered a loss of $1,602.50 rather than a gain of $87,122.35 that was added by the Minister to the appellant’s income for his 1951 taxation year.

Obviously the appellant’s contention is that with respect to his 1950 taxation year there were no sales of Roxboro shares by him and accordingly the amount of $15,365.18 added to his income in respect of that year by the Minister was 80 added without justification.

The appellant’s explanation is that all transactions in Roxboro shares in the taxation years 1950 and 1951, (other than the disposition of 530,000 shares for $61,492.90 in 1951) which appeared in information available to the Minister were in the nature of either market support transactions, loan transactions or errors.

The appellant advances an alternative contention with respect to the cost of the Roxboro shares to him. If the cost of those shares is determined to have been $13,782.35 as contended by the Minister, then the appellant’s profit on the sale of 530,000 of those shares in 1951 for $61,492.90 would be $47,710.55.

The appellant’s contention in this respect is that by an entry dated January 23, 1951 in the appellant’s account in the books of the Company (R. P. Leveque Investments Ltd.) all share transactions in Roxboro were removed from that account. The entry is recorded as a sale of 148,098 Roxboro shares for a credit to the appellant of $43,289.05. Eventually there was a transfer of earnings of a profit of $13,785.37 from a special Roxboro account in the general ledger of the Company in which Roxboro transactions were recorded after January 23, 1951. It is, therefore, contended by the appellant that the transactions in Roxboro shares giving rise to a profit, end up in the profits of the Company.

The Minister disputes this alternative contention of the appellant and contends that on the accounting record any profits in Roxboro shares in transactions in them by the appellant are not transferred to the earnings of the Company (R. P. Leveque Investments Ltd.).

The sole remaining item involved in this appeal is one respecting an addition to the taxable income of the appellant for his 1951 taxation year in the amount of $862.50 as a profit from trading in oil properties and interest therein and shares received therefor being shares in Trans-Empire.

Trans-Empire is a company controlled by Clifton C. Cross who was also a broker and who had employed the appellant as a salesman. It was apparent that Cross and the appellant had worked in close collaboration in the promotion of various companies to their mutual advantage. By virtue of arrangements between Cross and the appellant an exchange of Redwater and Roxboro shares was arranged for so that in effect Redwater and Roxboro would eventually become absorbed in Trans-Empire. The values fixed for the purposes of the exchange were as to Redwater shares 40 cents, Roxboro shares 25 cents and Trans- Empire shares $4.00, or 10 Redwater shares for one Trans- Empire and 16 Roxboro for one Trans-Empire. The transaction is summarized in a letter dated December 10, 1951 from Petroleum Incomes (Clifton C. Cross) Ltd. to the appellant, (Exhibit 301). It was agreed that Petroleum Incomes would :

(1) purchase 600,000 Redwater Shares from the appellant at 40¢ per share,

(2) purchase 600,000 Roxboro shares from the appellant at 25¢ per share,

(3) pay the appellant $230,000 in cash and deliver to the appellant 40,000 Trans-Empire shares at $4.00 per share,

(4) repurchase from the appellant all or any of Trans-Empire shares at $4.00 per share up to June 30, 1952,

(5) sell the appellant an additional 25,000 Trans-Empire shares at $4.00 prior to February 15, 1952 if the appellant requested,

and

(6) the appellant agreed to assist Pacific Petroleum and Trans- Empire to effect the exchange of shares of Redwater and Roxboro of other holders thereof for Trans-Empire shares.

The Minister based his assessment in this respect on profits or losses from the disposal of Trans-Empire shares received in exchange for Redwater and Roxboro shares at the values mentioned above together with other transactions involving purchases and sales of Trans-Empire shares. The Minister based his assessment on information received from the appellant.

As previously intimated the amount added to the appellant’s income was $24,479.43 in respect of Trans-Empire shares in his 1951 taxation year. As a result of errors and adjustments outlined in paragraphs 93 to 96 of the Notice to Admit Facts (which paragraphs were not admitted by the appellant because he disputes the assumptions on which the computation was made) the addition to profit in the amount of $24,479.47 was reduced by the Minister to $862.50.

The appellant contends that he used the balance of his escrow shares in Redwater and Roxboro in exchange for Trans-Empire shares as well as Redwater and Roxboro shares remaining in the hands of R. P. Leveque Investments, Ltd. as a result of market support transactions and as a result of bonus shares for underwriting still on hand. In addition the appellant contends that he assembled Redwater and Roxboro shares from other holders thereof for Trans-Empire shares, the cash equivalent thereof or partly in Trans-Empire shares and partly in cash and as a consequence merely acted as a conduit for other shareholders from which no profit accrued to him.

The Minister’s position is simply that the records indicate the sale of Redwater and Roxboro shares from R. P. Leveque Investments, Ltd. (the Company) to the appellant and that the appellant’s transactions with other brokers and clients for the purpose of gathering Redwater and Roxboro shares to be exchanged for Trans-Empire shares are recorded as sold to the appellant. It is his contention that any difference in the purchase price by the appellant and the price fixed for the purpose of exchange would accrue to the appellant.

It was my distinct impression from the evidence given by Mr. Leveque and from his manner in giving that evidence that his prime motivation in all transactions here under review was to make as much money as was possible within the shortest possible time. It is not my intention to make such remark in any derogatory sense and in fact the motive of the appellant may well be most commendable. However, I do not think that the appellant was concerned where the money was made, that is in the proprietorship, the Company, Edmonton Leaseholds Ltd., Redwater, or Roxboro or personally so long as it was made and it was to this end that he directed his attention and energy.

When the appellant embarked upon his securities brokerage business in 1948 he required office staff. He employed Mrs. Russell who began her duties about March, 1949. She continued in that employment, first as an employee of the appellant and then as an employee of R. P. Leveque Investments, Ltd. until about June, 1953. Mrs. Russell had been employed by C. C. Cross (Alberta) Ltd. for about 15 years as a secretary. Her duties there included the posting of books and looking after deliveries of stock. I assume that the appellant knew Mrs. Russell during the period he was a securities salesman with Cross, that he had some knowledge of her duties there, that he was impressed with the efficiency with which she performed those duties and accordingly concluded that she would be a valuable employee for him to have.

Mrs. Russell testified that she had no formal training in accountancy. Her initial duties with the appellant were as a secretary and as in charge of the management of the office.

The appellant had implicit trust in Mrs. Russell’s capability and left the office management to her while he devoted his efforts to arranging the deals which have been outlined and directing the disposition of securities. In any event the appellant vested Mrs. Russell with wide authority and responsibility with little or no direction from him. She held a power of attorney from him, was a signing officer at the bank, and frequently acted as the appellant’s nominee for the purpose of holding shares. She also held a qualifying share in the Company when incorporated and was a director thereof.

Mr. Russell started the bookkeeping system for the proprietorship and adapted that system for the Company and was in sole and complete charge of the books until July 1, 1950 when Mr. Stuart Aitken was employed initially as an accountant. He then took over the daily posting of ledgers and the general supervision of accounting and eventually became the office manager.

It appears odd to me that the auditors employed by the Company did not direct the setting up of the books required or that Mrs. Russell did not seek their direction and assistance particularly since she testified that she relied upon the auditors to rectify anything that she was doing incorrectly.

In any event Mrs. Russell set up a personal account for “R. P. Leveque’’ in the books of the proprietorship and later continued that account in the books of the Company. This account clearly appears to indicate that it is the personal account of the appellant, first as a client of the proprietorship and then as a client of the Company. These accounts were introduced in evidence as Exhibit 10.

After the employment of Aitken in July of 1950, Mrs. Russell had less to do with the posting of the books but continued to keep track of the stock positions.

Her evidence was to the effect that when orders for shares in an underwriting could not be filled because no shares were available for delivery or there were not funds readily available to draw down shares from the Treasury, that she would then “borrow” shares of Redwater or Roxboro, as required, from the appellant’s personal escrow position and replace them later from time to time as shares became available either from the Treasury or off the market. These transactions were entered as sales and purchases by the appellant and for which she inserted a money value. Mrs. Russell’s explanation was that these entries were made for the purpose of keeping track of the stock positions and that she entered a money value because she thought it to be necessary and obligatory to do so. The accounts in the clients ledger (i.e. Exhibit 10, being the account of the appellant) had stock position columns. At this point I should mention that Mrs. Russell also maintained Exhibit 466 a stock position book for the purpose of keeping track of the stock position with respect to shares of Redwater and Exhibit 467 a stock position book for keeping track of all other stock positions. Further in the general ledger (Exhibit 11) individual accounts respecting acquisition and disposition of securities contain entries reflecting the stock position. Mrs. Russell also prepared confirmation slips, receipts, delivery slips, made manual notations on such documents and typed letters with respect thereto on her own initiative, all as would be done in an ordinary sale or purchase.

Mrs. Russell also testified that she put entries respecting various royalties and leases through the clients’ account entitled R. P. Leveque, in the proprietorship and the Company (Exhibit 10) because there was no other account in the books which seemed appropriate and in any event she considered this to be a Company account.

These transactions respecting the appellant’s escrow stock to make deliveries to customers are what are referred to as loan transactions.

An expert witness, Mr. John Bowles, was called to explain loan transactions when a broker does not have stock available to make deliveries. He explained that it was customary in the trade for a broker requiring shares to meet deliveries to make arrangements with (1) another broker, (2) a client, or (3) one of the principals of the company, to provide shares as an accommodation on the basis that the shares will be returned, normally accompanied by a goodfaith cheque in payment which would not be negotiated. He added that the proper accounting method for recording such a transaction is to record only stock positions either as long or short but without attaching a dollar value to them. However, Mr. Bowles did concede that there is a fourth way in which shares required by a broker to meet deliveries could be obtained by him and that is for the broker to purchase them. It is the Minister’s contention, that R. P. Leveque Investments, Ltd., as underwriter, purchased shares from the appellant from time to time.

The appellant also contends that many of the transactions in Redwater and Roxboro shares recorded in his name were in fact market support transactions of the underwriter, in the first instance the proprietorship and then the Company, R. P. Leveque Investments, Ltd. The arrangements between the Company and Roxboro and Redwater negotiated by the appellant was a ‘‘best efforts’’ underwriting rather than a firm underwriting. It is my understanding of a “best efforts” underwriting, that the underwriter does not purchase an inventory of shares, but exercises his ‘‘best efforts’’ to place as many shares as possible and when sufficient money is available to draw down shares from the Treasury to satisfy orders. Therefore, the underwriter, in this instance, the Company, has no large inventory of shares ‘ on the shelf’’. However the promoter, and I believe, the appellant is the promoter in these instances, has his escrow stock positions. I should have thought that the promoter’s interest lies in selling his escrow or vendor’s shares at a profit and accordingly it would be to his advantage to support the market.

While it is to the underwriter’s advantage to support the market so as to be able to sell the shares at the agreed price, nevertheless, for the reasons I have indicated, it is also to the advantage of a promoter to support the market. Accordingly it cannot be said that it is to the underwriter’s exclusive advantage to support the market.

The reason for an underwriter to support the market is straight-forward and simple. The underwriter agrees to sell shares at a fixed price, but he has no control over what the public will do with the shares it has acquired. If the public is willing to offer its shares for sale on the market at less than the agreed price, it is difficult, if not impossible, for the underwriter to sell shares at the higher agreed price. Therefore the underwriter will ‘‘take off the board’’ all shares which are offered by the public at less than the agreed underwriting price. Having acquired these shares the underwriter will feed the shares back into the market when the market is able to absorb them without affecting the underwriting price.

These market support transactions may result in either a profit or loss. After the primary distribution of shares the market will tend to seek its own level. If that level is higher than the cost at which the supporter acquired the shares, then he reaps a profit. It is less then he absorbs a loss. It is to compensate for this possible loss in market support operations that bonus shares are given to the underwriter as was done in the case of Redwater and Roxboro.

The appellant’s contention is that market support transactions were in actuality those of the underwriter (the Company) and he also contends that these transactions were improperly recorded in Exhibit 10 (the appellant’s account as a client, in the books of the Company), rather than properly in a Company trading account relating to market support transactions and that, therefore, these market support transactions should be removed from Exhibit 10.

In support of this contention he refers to the evidence of Mrs. Russell, Mr. Aitken, Mr. Mathieson and Mr. Luzi.

Mr. Aitken took over the daily posting of ledgers and the supervision of accounting from Mrs. Russell on July 1, 1950 and later took over the market support of Redwater and Roxboro. He testified that certain shares were purchased from clients who would not take them or would not pay for them. As a result the Company took them into account and for this purpose recorded such transactions in the appellant’s account with the Company as a client (Exhibit 10).

Mr. Mathieson was employed by the Company from January 1951 until December 1951. He stated in his testimony that he was most surprised to find that the Company had no house account”? or firm trading account with respect to the Company’s trading activities. Mr. Mathieson discussed with the appellant the account entitled ‘‘R. P. Leveque” in the clients ledger of the Company (Exhibit 10). He asked the appellant if it was the ‘‘firm account” to which the appellant replied it was his personal account. However the appellant did qualify that unequivocal statement to some extent. I gathered from Mr. Mathieson’s testimony that the appellant told him the account was his personal account for some purposes, but not for others. However Mr. Mathieson did remove the market support transactions in Roxboro from the R. P. Leveque account and set up separate securities account for Roxboro and Redwater in the Clients Ledger section of the Company, but they remained in the clients ledger.

Mr. Luzi is a chartered account who was engaged by the appellant following the decision of the Tax Appeal Board in 1959 which is presently being appealed from. One of the reasons for the appellant doing so is because the failure of the appellant to call independent evidence in support of his own evidence at the hearing before the Board. The Chairman said this at page 39:

In coming to a determination of what should be done with this appeal it must be kept in mind that the only evidence brought in support of the appeal was the evidence of the appellant himself. This, of course, leads to the observation that the presentation of this appeal rests solely on the evidence of the appellant—the person most interested in the outcome of the appeal and hence the matter of credibility must be weighed in the light of this interest. Surely in an appeal characterized by so many involved and complicated features it would have been the course of wisdom to have called a competent independent witness, well versed in accountancy and auditing principles, to give evidence covering the complex circumstances of the many deals described by the appellant and from what was strictly his point of view. No such independent evidence was forthcoming at the hearing of the appeal and this was the subject of comment at that time.

Mr. Luzi expended great effort and time in reconstructing the accounts of the Company and in analyzing the nature of various transactions which occurred and produced a series of sheets which might be referred to as the Luzi Sheets. He characterized many of these transactions recorded in the R. P. Leveque account (Exhibit 10) as (1) Firm trading or market support account,

(2) Shares borrowed from and returned to the appellant, (3) Shareholders’ loan account R. P. Leveque, (4) Errors and omissions, (5) An account for gathering securities and (6) An account for putting out securities. However, I cannot escape the conclusion that Mr. Luzi, of necessity, must have based his evidence primarily upon an acceptance of what the appellant told him and to have made his calculations and characterizations on that basic assumption.

To me, even accepting that some of the transactions in question were market support transactions and I have no doubt that they were, the question is not whether they were market support transactions, but who was supporting the market. Was it the Company or was it the appellant? Was it the Company’s market, as underwriter, that was being supported by the Company or was it the appellant’s market as promoter being supported by him and to whom did any resultant profits belong?

The assessments under appeal were the subject matter of prolonged and intensive investigation which resulted in the exchange of correspondence.

The financial statements of the proprietorship, (Exhibit 1) the Company (R. P. Leveque Investments, Ltd.) (Exhibit 95) and Edmonton Leaseholds Ltd., (Exhibit 141) and Redwater (Exhibit 179) were filed with the Minister. These gave rise to requests by the Minister for further information by letters dated November 8, 1952 addressed to appellant (Exhibit 351) and to the Company (Exhibit 352). A similar letter dated November 7, 1952 was addressed to Edmonton Leaseholds, Ltd. (Exhibit 358).

These letters were acknowledged by the appellant by letter dated November 26, 1952 (Exhibit 470) indicating that the questionnaires were being discussed with the appellant’s and companies’ auditors but because of the wide territory involved and the advent of the year end considerable time would be required to supply the information requested.

Approximately a year later information was supplied by the appellant, the Company and by Edmonton Leaseholds in Exhibits 14, 16 and 21 respectively.

In addition further information was made available to the Minister respecting transactions in shares of Redwater, Roxboro and Trans-Empire. These sheets were entitled “R. P. Leveque — Transaction in Shares of Redwater Leaseholds, Ltd.”, “R. P. Leveque — Transactions in Shares of Roxboro Oils, Ltd.” and “R. P. Leveque — Transactions in Trans-Empire Oils, Ltd.” These sheets are collectively referred to as the ‘Muir Sheets’’ and for convenience were segregated into Exhibit 62 with respect to Redwater, Exhibit 212 with respect to Roxboro and Exhibit 302 with respect to Trans-Empire.

It is common ground between the parties that, in the main, it is on the information furnished in the Muir Sheets that the assessments are based respecting transactions in Redwater, Roxboro and Trans-Empire.

James Muir who is deceased, did not give evidence at the trial. Mr. Muir was engaged by the appellant sometime after 1951 to reconstruct the position of the Company with respect to its share positions in Redwater, Roxboro and Trans-Empire. It had become apparent that the stock positions did not balance. It was Mr. Muir’s primary task to trace through the books, find areas of error and reconcile actual positions of stock with the apparent positions. Although he was directing his attention to stock positions, nevertheless, in preparing his share reconciliations he used dollar values with respect to the shares which he found in the books and records of Edmonton Leaseholds, Ltd. and the Company.

The appellant by letter dated December 14, 1953 (Exhibit 14) replied to the Minister’s request for information as follows:

It is difficult to segregate the dispositions of 1,200,000 shares of “Redwater” received by me in consideration of the transfer of my leases to the company, but as far as I can ascertain a detailed list of all my transactions in “Redwater” stock is shown in Exhibit 1 attached.

Exhibit 1 to that letter had various schedules attached thereto as follows:

(1) Exhibit 1 is entitled “Summary of Transactions of ‘Redwater’ stock by R. P. Leveque”.

(2) Schedule 1 contains a table entitled “Releases of ‘Redwater’ Escrow Stock to R. P. Leveque” and includes a further table entitled “Properties Assigned to ‘Redwater’ by R. P. Leveque for Escrow Stock”.

(3) Schedule 2 is entitled “Buys and Sells ‘Redwater’ Stock not through Leveque Investments”.

(4) Schedule 3 is entitled “Buys and Sells ‘Redwater’ Stock by R. P. Leveque through R. P. Leveque Investments and R. P. Leveque Investments, Ltd.”.

(5) A further sheet is entitled “Buys and Sells ‘Redwater’ Stock by R. P. Leveque through R. P. Leveque Investments”.

(6) A still further sheet is entitled “Buys and Sells ‘Redwater’ Stock by R. P. Leveque through R. P. Leveque Investments Ltd.”.

(7) Schedule 4 is entitled “Transfers of ‘Redwater’ Stock into ‘Trans Empire’ Stock by R. P. Leveque”.

By letter dated November 8, 1952 addressed to the appellant (Exhibit 353) the Minister asked the appellant for further information as follows :

The R. P. Leveque Investments, Ltd. is being requested to supply information relative to the transactions of shareholders on their own account, but will you please advise whether or not stock transactions were undertaken by yourself through any other investment dealer or brokerage house in the years, 1948, 1949, 1950 and 1951. If such transactions were undertaken, will you please provide particulars of any stock in which the stock of Redwater Leaseholds, Ltd., Edmonton Leaseholds, Limited or Roxboro Oils Ltd., were traded.

The appellant replied thereto by letter dated December 14, 1955 (Exhibit 14) stating:

As far as I can recall my personal trading was carried on through R. P. Leveque Investments and R. P. Leveque Investments, Ltd. in the years 1948 to 1951 inclusive, except for the items shown on Schedule 2 of Exhibit 1 attached.

The foregoing information is supplemented respecting the disposition of shares of Redwater and Roxboro by Exhibits 62 and 212 (the Muir Sheets), and by Exhibit 21 supplied by KR. P. Leveque Investments, Ltd.

Exhibit 21 is a letter dated December 14, 1953 signed by the appellant as president of the Company (R. P. Leveque Investments Ltd.) in reply to the Minister’s letter dated November 8, 1952 (Exhibit 353). It stated that stock transactions undertaken by the Company on behalf of the appellant were listed in Exhibit 2 to that letter. The transactions listed in the exhibit supplementary to the letter are reflected in the account entiled “R. P. Leveque’’ mainained in the books of the Company in the clients ledger (Exhibit 10 pages 13 to 39) together with transactions beginning July 8, 1949 and continuing into 1952.

By the Minister’s letter dated November 8, 1952 (Exhibit 352) the Company was also asked to confirm that the amount of $51,435.91 in its balance sheet as at November 30, 1950 as ‘‘ Due from shareholders’’ represented the balances in the trading accounts of shareholders in its entirety and requested particulars of the securities held for shareholders and the market value thereof.

The reply to this query is in the letter dated December 14,1953 (Exhibit 21) to the effect that ‘‘the amount of $51,435.91 recorded in the balance sheet as at November 30, 1950 as ‘Due from Shareholders’ was the balance in R. P. Leveque’s trading account as at November 30, 1950. The total market value of the securities: held: by the firm against this account was $246,317.21 as follows : ’ ’. There then follows a list of the securities held for shareholders. In the same letter the Minister also asked for information respecting the Company’s 1951 financial statements. Shareholders’ free securities with a market value of $141,041.30 were shown on the 1951 Balance Sheet (Exhibit 179).

By the reply dated December 14, 1953 (Exhibit 21) the Company confirmed that Shareholders’ free securities with a market value of $141,041.30 shown on the 1951 Balance Sheet were ‘‘securities held in R. P. Leveque’s account’’.

It is not disputed that amounts outstanding as a debit or credit balance in the R. P. Leveque account in the clients ledger (Exhibit 10) are reflected in the balance sheets of the Company for 1949, 1950 and 1951 and are reconcilable therewith and I think it is also agreed that the share position, as long or short as the case might be, in that same account at the fiscal year ends agree with the information supplied to the Minister as to the number and kind of shares.

Mr. Morton, the senior partner in the firm of chartered accountants who prepared the financial statements of the Company testified that the financial statements were prepared in accordance with the requirements of the Calgary Stock Exchange.

As I understand the appellant’s position, it is that he does not dispute that the method of recording transactions in Red water and Roxboro in the books of the Company was a recording of sales and purchases by the appellant to or from the Company, but he does dispute that such was the true nature of the transactions. Further, he suggests that it was natural for the auditors to simply transfer the year end balances to the balance sheets without explanation from the appellant or his employees and even if such explanation were requested it would not be forthcoming from the appellant because he did not understand the bookkeeping at that time and possibly not from the employees. It is also suggested that the auditors did not have a true understanding of Mrs. Russell’s purpose in so recording the transactions.

I should also mention that further information was also requested and received from Edmonton Leaseholds, Limited by letter from the Minister dated November 7, 1952 (Exhibit 351) and by a reply dated December 14, 1953 (Exhibit 16) respecting a number of transactions in Redwater and Roxboro shares.

It was not until about October 1955 that the appellant was advised by the Minister of his liability to personal income tax assessments in respect of the transactions in shares and properties He then corresponded with the Minister by letter dated November 2, 1955 (Exhibit 18). In that letter he stated, in part, ‘‘that there were many times that I used my own shares only with the though of using the money value temporarily for some other purpose and then replacing the shares so that my stock position for control of the company would not be impaired . . . in order to provide . . . cash it became necessary for me to sell Redwater’ shares, which I did, with the full intention of restoring my stock position from the underwriting when it was granted through the Stock Exchange. ’ ’

To the extent that the appellant succeeded in restoring his stock position the cost of doing so is reflected in the Muir Sheets.

The letter of November 2, 1955 (Exhibit 18) continued:

During 1951 and 1952 I discussed the possible confusion of this account (Exhibit 10—the account entitled “R. P. Leveque” in the clients ledger of the Company) with our auditors and the suggestion was made that perhaps it would be better to open a firm trading account and keep the firms actual trading in the stock out of my personal account. This could have been done just as well commencing in 1949 had I loaned to the investment company 100,000 to 200,000 shares at a time for them to overcome their problems and they could then return these shares to me when they were able.

The suggestion inherent in the above quoted extract is that the transactions might have taken another form. The position now taken by the appellant is that the transactions were not his, but those of the Company.

Statements in summary form of the information before the Minister on which the assessments are based, the calculations by the Minister of the profits of the appellant for each taxation year and the Minister’s explanatory notes relating to his method of assessment with respect to Redwater, Roxboro and Trans-Empire, together with the respective corrections and adjustments thereto are set forth in the Minister’s Notice to Admit Facts. While the appellant does not accept the results, nevertheless, these statements, do indicate how the Minister reached those results.

In summary there are nine items involved in the assessments for 1949, 1950 and 1951 which are in dispute and I feel that the most expedient way to deal with the issues so raised is to consider each item separately.

A summary of the issues involved and the appellant’s position with respect thereto is as follows:

1949

(1) The appellant submits that the amount of $3,000 with respect to 40 units of Sun Alta #1 was in effect taxed in the hands of the Company (R. P. Leveque Investments Ltd.) and should not now be taxed in his hands.

(2) The appellant submits that his profit with respect to the disposal of Redwater shares is only $11,008.30.

1950

(3) The appellant submits that any profit on oil rights in 1950 in the amount of $4,762.50 was a profit of R. P. Leveque Investments Ltd., and in effect has been taxed in the hands of this Company.

(4) The appellant submits that his profit with respect to Redwater shares in 1950 was only $400.

(5) The appellant submits that no profit was received by him in respect of the disposal of Roxboro shares in 1950.

1951

(6) The appellant submits that the profit on the sale of oil rights in 1951 in the amount of $12,146.23 was a profit of R. P. Leveque Investments Ltd. and in effect has been taxed in the hands of this Company.

(7) The appellant submits that no profit was received by him in respect of Redwater shares in 1951.

(8) The appellant submits that no profit was received by him in respect to the disposal of Roxboro shares in 1951 but that there was a loss based on the valuation of River Lot A at fair market value rather than at cost.

(9) The appelant submits that no profit was received by him with respect to the disposal of Trans-Empire shares in 1951.

The first item in dispute between the parties is an amount of $3,000 in the appellant’s 1949 taxation year in respect of 40 units of Sun Alta #1.

The entries in the books and records of the proprietorship show the purchase of these 40 units of Sun Alta #1 for $3,000 by the proprietorship from the proprietor. This is not disputed by the appellant.

However the Minister’s contention is that the purchase has the effect of inflating the cost of sales by the proprietorship by $3,000 and reducing the appellant’s income for his 1949 taxation year by the same amount.

The appellant’s position is that the $3,000 was transferred to the Company’s accounts as at October 31, 1949 as a result of errors in the auditors’ journal entries. I am unable to follow the appellant’s contention in this respect.

It will be recalled that. the Company (R. P. Leveque Investments Ltd.) took over the proprietorship business effective July 1, 1949 but that the Auditors did not complete the entries necessary to close out the proprietorship books at that time. Such steps were taken in stages until as late as November 30 1950. The appellant’s position is that later auditors’ entries had the effect of transferring all of the balance of the assets and liabilities of the proprietorship to the Comapny as at June 30, 1949.

By virtue of entries in the General Ledger of the Company (Exhibit 11) the transfer of Clients Accounts is recorded under date of September 30, 1949. The clients ledger of the proprietorship contineud in use as part of the records of the Company without closing or opening entries being made in the individual clients accounts.

A new account in the name of the appellant in the clients ledger of the Company was opened as at July 8, 1949 (see Exhibit 10 page 13).

The account in the name of the appellant which had been opened in the clients ledger of the proprietorship continued in use as another part of the records of the Company (see Exhibit 10 pages 6 and 7).

As at October 31, 1949 the credit balance of $5,752.24 in the old account in the clients ledger in the name of the appellant (Exhibit 10 page 7), which was taken over by the Company as a liability, was moved to a new account in the appellant’s name in the clients ledger of the Company. An effect was that the credit given to the appellant in the clients ledger of the proprietorship, because of the purchase from him of 40 units of Sun Alta #1, was moved from one account to another in the books of the Company. The $3,000 had become a part of the credit balance in the account in the appellant’s name in the clients ledger of the proprietorship. All of the credit balances in the clients’ names in the clients ledger of the proprietorship had been assumed as liabilities of the Company as at June 30, 1949. I. therefore, fail to follow the appellant’s contention that the $3,000 was transferred to the Company’s accounts as at October 31, 1949, or that the transfer was as a result of errors in auditors’ journal entries. As I appreciate the situation any error arose only by reason of the fact that certain accounts between the offices of the proprietorship for which accounts had been opened in the old clients ledger, and offices of the Company for which accounts had been opened in the new clients ledger, did not balance as a result of errors. The differences were not reconciled but were charged to the appellant’s name in the clients ledger of the Company.

Accordingly, the Minister’s contention appears to me to be the correct one and I fail to follow how the amount of $3,000 was taxed in the hands of the Company. It follows, therefore, that the Minister’s assessment of $3,000 with respect to 40 units of Sun Alta #1 in the appellant’s 1949 taxation year must be confirmed.

It is convenient to consider items 3 and 6 in the foregoing summary together. Item 3 relates to a profit on oil rights in the amount of $4,762.50 which was the subject of assessment in the appellant’s hands in his 1950 taxation year and item 6 relates to a profit in the amount of $12,146.23 which was the subject of assessment in the appellant’s hands in his 1951 taxation year.

In both instances the appellant contends that the respective amounts were profits of R. P. Leveque Investments Ltd. (the Company) and in effect had been taxed on its hands.

The properties on which the profit of $4,762.50 was made in 1950 are those sometimes herein referred to as Sun Alta #2 and are included in a transaction with Edmonton Leaseholds Limited which is described in a letter dated July 24, 1950 (Exhibit 35) from that Company to the appellant. There is no dispute between the parties as to the amount of the profit being $4,762.50 but the dispute arises as to whose profit it is.

The above letter (Exhibit 35) begins, We today confirm the purchase from you of the following royalties’’, followed by a list of royalty interests opposite to each is set the purchase price which prices total $55,050.

The appellant takes the position that the evaluations for the purpose of the royalty trust being formed were imposed by the Alberta Securities Commission as the result of an independent geological assessment, As I understood the evidence on this matter, it was that the independent geological assessment established values which the Alberta Securities Commission would accept as the maximum values at which the properties might be charged to the trust being formed.

The selling price of the properties, being the sum of $55,050 is credited to an account entitled ‘‘R. P. Leveque’’ in the books of Edmonton Leaseholds Limited (Exhibit 468).

The monies so standing to the credit of the appellant are recorded in Exhibit 468 as being paid to the appellant or to others for the benefit. of the appellant from time to time. An entry dated October. 13, 1950 reads:

“Cheque R. P. Leveque Inv. for R. P. Leveque”

and a debit of $11,000 is recorded.

In the account in the name of the appellant in the clients ledger of the Company (Exhibit 10 at page 27, line 16) a credit of $11,000 is recorded by an entry reading October 18, Deposit re Ed. L. Ltd.”

Therefore Edmonton Leaseholds Limited treats the properties as those of the appellant. It writes the letter dated July 24, 1950 (Exhibit 85) and credits the appellant’s account in its books with $55,050 (Exhibit 468).

At the same time R. P. Leveque Investments Ltd. (the Company) treats the properties as those of the appellant. The Company charges the cost of the properties to an account in the clients ledger in the name of the appellant (Exhibit 10) and it delivers the properties to the appellant through that account. So far as I can see the Company does not receive from the appellant an accounting for the monies accruing due from the sale of the properties to Edmonton Leaseholds Limited.

While it might have been the appellant’s intention when he acquired the properties to sell them either to Edmonton Leaseholds Limited or R. P. Leveque Investments Ltd., nevertheless, the difference between the cost of the acquisition of the properties and the price at which they were sold accrued to the appellant’s personal benefit. Further that difference, so far as I can follow, is not included in the earnings of either Edmonton Leaseholds Limited or R. P. Leveque Investments Ltd.

Therefore I am unable to accede to the appellant’s contention that neither the properties, nor the monies received therefor were not his or that the profits arising from the disposition of these properties were directly or indirectly reflected in the accounts of the Company (R. P. Leveque Investments Ltd.).

It therefore follows that the Minister’s assessment, as it relates to the profit on the sale of oil rights, in the amount of $4,762.50 in the 1950 taxation year must be confirmed.

The property giving rise to the addition of $12,146.23 to assessment of the appellant’s income as profit on the sale of oil rights in the appellant’ s 1951 taxation year (Item 6 in the above summary) is the interest referred to as /8 of River Lots 10 and 11, in the St. Albert Settlement.

There is no dispute between the parties as to the cost, the selling price or the amount of the profit. The appellant contends that the profit of $12,146.23 was the profit of R. P. Leveque Investments Ltd. and was, in effect, taxed in its hands.

This particular item was not the subject of a specific plea in the appellant’s Notice of Appeal and for that reason the Minister’s assessment with respect to this item might be confirmed without further consideration. The appellant takes the position that all matters which were the subject of assessment in the years 1949, 1950 and 1951 are put in issue by the Notices of Appeal whether specifically pleaded or not and that the Minister made an adjustment to this item thereby admitting the relevancy of the appellant’s submission. While I do not agree with the appellant’s submission in this respect, evidence was adduced and the trial was conducted as though the matter were in issue.

In the letter dated December 14, 1953 (Exhibit 16) Edmonton Leaseholds Limited, which was signed by the appellant as president, advised the Minister that this property had been purchased by Edmonton Leaseholds Limited from R. P. Leveque.

In Exhibit 468 (the account maintained in the appellant’s name in the books of Edmonton Leaseholds Limited) the following entry appears under date of February 17, 1951, ‘‘% of /8 River Lots 10 and 11 R.P.L.’’. A credit to the appellant in the amount of $15,000 is recorded.

The appellant points out that River Lots 10 and 11 became the property of Edmonton Leaseholds Limited at a valuation of $15,000 and eventually became a part of the property which went into Redwater.

An account was opened in the books of Edmonton Leaseholds Limited (Exhibit 468) under the title ‘‘River Lots 10 and 11, St. Albert Settlement’’. Under date of February 17, 1951 this entry appears, ‘Buy /8 of /8 int—R. P. Leveque” followed by a debit of $15,000.

Further entries in this account record the sale of River Lots 10 and 11 to Roxboro, the purchase back from Roxboro and the sale to Redwater.

From such entries I can only logically conclude that the appellant sold /8 of 7% interest in River Lots 10 and 11 to Edmonton Leaseholds Limited and that the profit resulting from that transaction is that of the appellant and properly taxable in his hands. I cannot follow how that profit became a profit of R. P. Leveque Investments Limited and was, in effect, taxed in its hands.

Therefore, in my view, the Minister’s addition of $12,146.23 as a profit in the sale of oil rights to the appellant’s income in his 1951 taxation year must be confirmed.

The remaining items in dispute between the parties result from profits on transactions in shares of Redwater, Roxboro and Trans-Empire.

With respect to transactions in shares of Redwater, the appellant admits that in 1949 he realized a profit of $11,008.30 (Item 2 of the Summary of Issues in Dispute). This computation is arrived at by deducting the cost of the shares to the appellant of $7,375 (being the cost of the properties transferred therefor and with respect to which there is no dispute between the parties) from cash sales of $18,383.30 which the appellant acknowledges to be his personal transactions.

Similarily in his 1950 taxation year, the appellant acknowledges a personal profit of $400 resulting from cash sales in that year (Item 4) of Redwater shares.

In 1951 (Item 7) the appellant denies realizing any profit from sales of Redwater shares.

The Minister has added to the appellant’s income in the 1950 and 1951 the amounts of $61,831.80, $42,761.78 and $47,508.33 respectively as profit on the sale of Redwater shares.

The appellant attributes the differences in the respective taxation years to the transactions giving rise to profits as being those of R. P. Leveque Investments Ltd. for the purpose of supporting or stabilizing the underwriting market by reason of the fact that the Company was the principal underwriter of Redwater shares and as being loans of the appellant’s Redwater shares to the Company and their eventual return to him. To the extent that these transactions gave rise to profits the appellant contends that they are reflected directly or indirectly in the books of R. P. Leveque Investments Ltd. where they were taxed.

It is common ground between the parties that the main basis of the assessments by the Minister is information supplied by the appellant in the Muir Sheets (Exhibit 62 as to Redwater, Exhibit 212 as to Roxboro and Exhibit 302 as to Trans-Empire).

Transactions set out in the Muir Sheets between the appellant and Edmonton Leaseholds Limited are found with two exceptions, in an account maintained in the appellant’s name in the books of that Company (Exhibit 468). These transactions are not recorded in the books of R. P. Leveque Investments Ltd. either in the name of “R. P. Leveque’’ in the clients ledger or elsewhere from which circumstance it is logical to conclude that these were not Company transactions. It follows that the profits therefrom are not reflected in the books of that Company and accordingly would not be taxed there.

Certain transactions listed in the Muir Sheets are purchases from other brokers, (e.g. Carlile & McCarthy Exhibit 62, page 6, line 19) amongst others. Such purchases are not recorded in the books of R. P. Leveque Investments Ltd., in the account in the name of R. P. Leveque, in the clients ledger or elsewhere, nor are the subsequent sales or dispositions. Again it is logical to conclude that these were transactions personal to the appellant and not Company transactions. Therefore, any resultant profit cannot be said to be reflected in the books of R. P. Leveque Investments Ltd. and taxed there.

Most of the transactions listed in the Muir Sheets are recorded as purchases and sales by the appellant in the account maintained in his name in the clients ledger of the Company (Exhibit 10). At the trial these transactions were examined in detail and traced through the various books and records of KR. P. Leveque Investments Ltd.

In the synoptic journal, in the stock position book, in the general ledger and in the clients ledger by reason of entries in the account entitled ‘‘R. P. Leveque’’ sales by the appellant to R. P. Leveque Investments Ltd. are recorded and on the other side of the coin purchases by the appellant from that Company are also recorded.

By confirmation slips, sales by the appellant to R. P. Leveque Investments Ltd. and purchases by the appellant from that Company are confirmed.

Receipts were issued by KR. P. Leveque Investments Ltd. acknowledging that the appellant delivered to it share certificates described in the receipt as to certificate numbers and registered owner. These receipts evidence the completion of sale transactions by change of possession of the certificates for the shares involved in the sale transactions from the appellant, or his attorney, Mrs. Russell, to R. P. Leveque Investments Ltd. An appropriate entry was made in Exhibit 10 (the account entitled “R. P. Leveque’’ in the clients ledger) to deliver to R. P. Leveque Investments Ltd., the shares that had been recorded as sold by him to that Company and for which a money credit was given by the Company.

On the other side of the coin, delivery slips were issued by the Company advising the appellant that share certificates as described therein were delivered to the appellant. Appropriate entries were made in Exhibit 10 (R. P. Leveque account in the clients ledger) to indicate that the Company had delivered the shares and a money charge was made against the appellant.

In several instances receipts were issued by the Company clearly indicating that shares had been received by it on loan from the appellant. In these cases the only entry in the ‘‘R. P. Leveque’’ account (Exhibit 10) is one indicating a receipt by the Company of shares and a credit therefor. No money credit was made. As illustrative thereof see:

(1) Exhibit 96, 500 shares borrowed from the appellant noted “borrowed for delivery to Reimer’’—entry in Exhibit 10, page 20, line 4.

(2) Exhibit 120, 100,000 Redwater shares with notations, ‘‘on loan for office deliveries’’ ‘‘this was not sold and is to be replaced’’—entry in Exhibit 10, page 23, line 20.

(3) Exhibit 121, 10,000 Redwater shares from the appellant noted ‘‘on loan only. This is for Mac. Winnipeg—draft. 10,000 out of first 100,000 we borrowed from him”.

(4) Exhibit 122, 200,000 Redwater shares from appellant noted “received by us to hypothecate at bank’’.

Delivery slips were issued from time to time by R. P. Leveque Investments Ltd. to advise the appellant that it had returned to him shares previously borrowed. The entries in Exhibit 10 record a delivery and indicate a debit in shares. No money charge is made against the account.

It therefore appears that in some instances, where shares are loaned by the appellant, the records clearly indicate such circumstance and no money values are inserted in the records.

The evidence with respect to those transactions which were undoubtedly loan transactions, is clear. The other transactions were recorded as sales.

With respect to market support transactions, I have previously intimated that while it is to the underwriter’s advantage to support the market, it is also to the promoter’s advantage to do so.

Most of the entries as sales in Exhibit 10 for Redwater are at 1834 cents per share, whereas under the underwriting agreement these shares were being sold at 25 cents per share. From this circumstance the appellant points out that he would not sell his shares at 1834 cents when a higher price was obtainable and this gives support to his contention that the transactions were in the nature of a loan. The appellant’s contention is that all such transactions were, in fact, ‘“wash transactions’’—that the shares loaned and received back cancel each other and no money values should have been attached thereto. On the other hand, if R. P. Leveque Investments Ltd. were buying shares from the appel- lant, it would not pay 25 cents per share when such shares were available from the Treasury of Redwater at 1834 cents.

As to the ‘‘washing’’ nature of the transactions, the shares which replaced the ‘‘loan’’ were acquired at less than 1834 cents by KR. P. Leveque Investments Ltd. and sold at less than 1834 cents to the appellant. The cost to R. P. Leveque Investments Ltd. between the shares which might have been borrowed and the cost to it of the shares purchased to replace those shares is reflected to the balance standing to the credit of the appellant in the account in his name in the clients ledger (Exhibit 10). It appears from the evidence that such credit was available to the appellant and was in many instances, used by him for his own purposes.

As to the market support transactions, shares were acquired and charged to the appellant in his name in the clients ledger (Exhibit 10) and in most instances were charged at less than 18% cents per share. When such shares were put back on the market there was a resultant credit to the appellant in the clients ledger. That credit was available to the appellant. It is difficult to conceive how that credit can be considered as anything other than a profit to the appellant.

Therefore, I am unable to accept the appellant’s contention that all transactions other than those acknowledged to have been his personal transactions may be loans, although recorded as purchases or sales with money values attached thereto, in the face of other entries and notations in other instances which clearly indicate that the transaction was a loan without money valuations attached.

The appellant pointed out that by auditor’s journal entry on November 30, 1950 (Exhibit 10 page 29) all of the Redwater underwriting accounts of the Company was transferred. to the R. P. Leveque account. The Company’s Redwater underwriting account had a loss in it of $42,383.17. The R. P. Leveque account had in it a profit of $16,564.18 with respect to Redwater shares. As a result of the consolidation of these accounts, a net loss of $25,818.99 resulted to the appellant at that time.

The entry of November 80, 1950 is recorded as a purchase of 189,950 shares of Redwater by the appellant from R. P. Leyeque Investments Ltd. for the sum of $125,961.17.

In accordance with the requirements of the Calgary Stock Exchange in respect of member brokers year-end audits the 183.950 Redwater shares were valued at the lower of cost or market, which was 44 cents per share, being the market value at that time, the value of those 189,950 shares would have been $83,578.

If such an evaluation has been placed on the shares in the hands of R. P. Leveque Investments Ltd. a loss of $42,383.17 would have been transferred to earnings in accordance with the requirements of the Calgary Stock Exchange, instructions to brokers ’ auditors, (Exhibit 474).

What was done was to sell the shares to the appellant.

Mr. Bunnin, who was the assessor in the Department of National Revenue, Calgary office, responsible for the appellant’s assessment to income tax, gave evidence as to the reason for the sale of $189,950 Redwater shares as recorded in the auditor’s journal entry of November 30, 1950. The explanation given to him by the appellant, and the auditor, Mr. Morton, was that if the 189,950 Redwater shares had continued to be held as an asset of R. P. Leveque Investments Ltd. and had the consequent loss been transferred to earnings, the Financial Statement of R. P. Leveque Investments Ltd. would have shown a deficiency in working capital of about $30,000 which the Calgary Stock. Exchange would have insisted to be made up to a working capital position of $10,000.

This particular transaction was a source of concern to Mr. Bunnin. In a meeting on February 22, 1956 with the appellant and Mr. Morton, Mr. Bunnin asked why the entry was not reversed in the following fiscal period. He was advised by the appellant that he, the appellant, wished to sustain the loss out of his profits.

The appellant’s position is that the effect of this entry is to transfer the loss to the R. P. Leveque account and to overstate the profits of the Company by this amount.

The entry reflected the sale of 189,950 Redwater shares by the Company to the appellant and the effect of the entry is to record the transaction.

The profit or loss determined in respect to the business of the Company as at November 30, 1950 is neither overstated nor understated. The balance sheet of the Company after the transaction indicates the amount due from shareholders as $51,435.91 (which is reconcilable with the amounts shown as a debit balance in the “R. P. Leveque’’ accounts in the clients ledger (Exhibit 10, page 29, line 32)). This is also confirmed by the letter dated December 14, 1953 from the Company, signed by the appellant, to the Department (Exhibit. 21).

The total market value of securities held by the Company against this account was $246,317.21 and the share positions in the KR. P. Leveque account in the clients ledger (Exhibit 10) agreed with the information supplied as to the number and kind of shares in the letter of December 14, 1953 (Exhibit 21).

In the Muir Sheets (Exhibit 62) the cost of the 189,950 Redwater shares to the appellant is shown as being $125,961.17.

In computing the profits assessed to the appellant from trading in Redwater shares, the cost of $125,961.17 for 189,950 shares was taken into account by the Minister in the appellant’s 1950 taxation year and in my opinion the Minister was correct in so doing.

I am invited to look behind the entries indicating purchases and sales by the appellant and to conclude that, despite such entries, the transactions are, in reality, those of R. P. Leveque Investments Ltd. This I find myself unable to do and accordingly I would confirm the Minister’s assessments with respect to the additions to the appellant’s income consequent upon transactions in Redwater shares in his 1949, 1950 and 1951 taxation year.

Basically similar considerations apply to the transactions in Roxboro shares as do to the transactions in Redwater shares.

In the appellant’s 1950 taxation year the Minister added to the appellant’s income a profit from the sale of Roxboro shares an amount of $15,365.18 and in the appellant’s 1951 taxation year an amount of $87,122.35.

The appellant’s position, as outlined before, is that he received 1,400,000 Roxboro shares in exchange for property transferred to Roxboro, being River Lot A, St. Albert Settlement. The Minister placed a valuation for $13,782.35 on that property which is the consideration for the 1,400,000 Roxboro shares. The appellant’s contention is that the value of the property when transferred to Roxboro was $63,095.40.

The appellant acknowledges that 530,000 shares of Roxboro were disposed of by him in 1951 for $61,492.90. Accepting the appellant’s conclusion as to the value of the property transferred of $63,095.40 rather than the Minister’s valuation of $13,782.35 it would follow that the appellant sustained a loss of $1,602.50 in 1951.

The appellant contends that all transactions recorded in the Muir Sheets (Exhibit 212) other than in the above mentioned 530,000 Roxboro shares, were in the nature of market support transactions or loan transactions. This would include all transactions in Roxboro shares in the appellant’s 1950 taxation year.

For the reasons applicable to the transactions in Redwater shares above outlined, I would reject the appellant’s contention in this respect and confirm the Minister’s assessment of the appellant’s income resulting from transactions in Roxboro shares in the appellant’s 1950 taxation year.

With respect to the assessment of the appellant’s income for 1951, the appellant’s alternative argument is that the true cost of the 1,400,000 Roxboro shares received by the appellant is the value of the property transferred to Roxboro which he contends was $63,095.40 at the time of its transfer. The transfer to Roxboro was subsequent to a sale of 168 acres of River Lot A on September 7, 1950 for $50,000 or $297.60 per acre. On the other hand, the Minister’s computation of the value of the 1,400,000 Roxboro shares received by the appellant is based on the cost of the property to the appellant, transferred by him to Roxboro in consideration for those shares. The original cost to the appellant of the entire 414 acres is admitted to have been $27,500 and the proportionate cost of the acreage transferred to Roxboro was $13,782.35 as computed by the Minister.

In my view the cost of the shares to the appellant was the cost of the property which he exchanged for them and the cost of that property was $13,782.35. If Roxboro had issued its shares without nominal or par value for a cash consideration (as it must) which its directors considered to be the fair equivalent of the cash consideration of the property in excess of $13,782.35, then the difference would be income to the appellant, but the cost of the property, and accordingly the shares of the appellant, would remain the same. Therefore I conclude that the Minister’s computation of the cost of the shares is the correct one.

The appellant placed reliance on the decision of the Supreme Court of Canada in W. L. Falconer v. M.N.R., [1962] C.T.C. 426. In that case the Supreme Court held that the total value of shares issued by a company to syndicate members was no more or no less than the value of a farm-out agreement turned over to the company pursuant to an oral agreement as of June 15, 1951.

The Minister had assessed the shares in the hands of the appellant as at September 1951 when a written agreement was signed between the parties. The Supreme Court found that the written agreement of September 1951 did no more than evidence the oral agreement of June 1951 and that as at June 1951 the value of the shares represented no profit to the appellant.

In the Falconer case the Minister’s assessment was based on the proposition that the appellant did not acquire a right to his shares until after the successful completion of a well on Septem- ber 3, 1951 and at a time when, as a result of that successful completion, the value of the shares had increased.

In the present case the Minister has made no assessment for income on the Roxboro shares when they were received by the appellant, but only upon income alleged to accrue to the appellant when the shares were disposed of by him.

In the alternative, if the Minister’s position, with respect, to the cost of the shares to the appellant being $13,782.35 is correct, as I have found it to be, the appellant then submits that he received a profit of $47 710.55 being the difference between sales at $61,492.90 and the cost of $13,782.35. He submits that a transaction recorded as a sale of 148,098 Roxboro shares for a credit of $43,289.05 is entered in the account entitled ‘‘R. P. Leveque” in the clients ledger (Exhibit 10, page 32) on January 23, 1951 and had the effect of removing all share transactions which had gone into that account prior to that date. Thereafter, transactions in Roxboro shares were carried in a special account in the general ledger of R.P. Leveque Investments Ltd. From this account there is ultimately a transfer of earnings on November 30, 1951 of a profit of $13,785.37. From this the appellant contends that transactions in Roxboro shares, giving rise to a profit, properly end up in the profits of R. P. Leveque Investments Ltd.

In the general ledger of R. P. Leveque Investments Ltd. an account entitled ‘‘Roxboro Oils Ltd. — Stock Purchased on the Market and Sold to R. P. Leveque’’ was opened on November 30, 1950. It was established in evidence that the total purchase on the market was posted at month ends in the General Ledger account. In so far as sales to R. P. Leveque are concerned, they were posted daily to his account in the clients ledger.

Thus, while the appellant contends that after January 23, 1951, transactions in Roxboro were carried in a special Roxboro account in the General Ledger of the Company, an examination of the General Ledger shows that transactions in Roxboro had been recorded in the General Ledger of R. P. Leveque Investments Ltd. from November 30, 1950 to January 23, 1950 and continued to be so recorded.

Further the account in the name of the appellant in the clients ledger continues to record sales and purchases of Roxboro shares (see Exhibit 10, page 32, lines 16 to 19 and page 33, line 19).

Therefore, there is no clear and decisive cut-off as alleged by the appellant.

As intimated above the appellant contends that from this special Roxboro account there is ultimately a transfer of earnings on November 30, 1951 of a profit of $18,785.37 and that profits arising from transactions in Roxboro shares end up in the profits of the Company.

The balance standing in the account entitled ‘‘Roxboro Oils Ltd. — Stock Purchased and Sold to R. P. Leveque’’ both as to shares and the amount of the debit, is transferred as at February 1, 1951 to an account entitled ‘‘Securities Account — Roxboro Oils” (Exhibit 10 additional sheets). From the account entitled “Securities Account — Roxboro Oils’’ (Exhibit 10 additional sheets) as at November 29, 1951 the bulk of the shares shown as then owned by R. P. Leveque Investment Ltd. (the Company) are sold to the appellant for 17 cents per share giving rise to a credit in the above mentioned Securities Account of $16,320 and leaving standing to the credit of the Securities Account the sum of $13,641.89.

As a result of the last sale and the credit appearing in the Securities Account, a transfer of $13,785.37 is made to earnings since at the year end and there remained on hand only 844 Roxboro shares which were valued at the lower of cost or market by the auditor. The market was then 17 cents and the amount standing to the debit of the account as being the cost of the remaining 844 Roxboro shares owned by R. P. Leveque Investments Ltd. is $143.48.

The entry recording the transactions which is the sale of 96,000 Roxboro shares at 17 cents per share is in the handwriting of Mr. Mathieson, both in the account ‘‘ Securities Account Roxboro Oils” (Exhibit 10 additional sheets) and in the account in the appellant’s name in the clients ledger (also Exhibit 10, page 39, line 7). Mr. Mathieson testified that:

There was a confirmation made out at that time so its both a buy and sell. That is what it really was, a buy and sell of that particular stock.

Mr. Mathieson also started that an entry involving 16 cents appearing in the account in the name of the appellant in the clients ledger dated November 30, 1951, was a transfer from the appellant’s personal account in the clients ledger (Exhibit 10, page 35, line 9).

While it may be that any profit in transactions in Roxboro shares which accrued to the account ‘‘Securities Account Roxboro” is transferred to the earnings of R. P. Leveque Investments Ltd. no entry transferring moneys from the appellant’s account in the clients ledger to the earnings of R. P. Leveque Investments Ltd. ean be found. Therefore it follows that any profits or losses in respect of transactions in Roxboro shares entered into by the appellant and which are reflected in the account in his name in the clients ledger are not transferred to the earnings of R. P. Leveque Investments Ltd.

Therefore, I cannot agree the appellant’s submission that the transactions are reflected directly or indirectly in the accounts of R. P. Leveque Investments Ltd. where they were taxed. It follows that I must confirm the Minister’s assessment with respect to the addition to the appellant’s income consequent upon his transactions in Roxboro shares in the appellant’s 1951 taxation year.

The concluding item in dispute between the parties is with respect to transactions in Trans-Empire shares in the appellant’s 1951 taxation year.

The appellant’s submission is that no profit was received by him from a disposal of these shares in the 1951 taxation year.

In the year 1951 an opportunity arose whereby Redwater and Roxboro shares could be exchanged for Trans-Empire shares in the circumstances previously outlined.

The appellant’s position is, as I understood it, that he merely assembled Redwater and Roxboro shares and acted as a conduit pipe through which other parties received either cash or shares but no profit or loss accrued to him personally.

The agreement between Petroleum Incomes (Clifton C. Cross) Ltd. and the appellant was summarized in Exhibit 301 under which the appellant was to be paid the sum of $230,000 in cash and he also undertook to facilitate the exchange for Trans- Empire shares by other shareholders of Redwater and Roxboro. The Minister’s position is that any difference between the cost of acquisition of shares and their selling exchange price in the transaction would accrue to the appellant.

The question therefore is did any such difference so accrue?

While shares are purchased from other brokers at market price and from certain clients at a figure established for the purposes of the exchange, the shares which are recorded as sold to the appellant in the account in his name in the clients ledger of the Company (Exhibit 10), are recorded as sold at a price less than the price fixed for the purposes of exchange. Therefore that difference would accrue to the appellant, assuming that Exhibit 10 is the appellant’s personal account and that the transactions were truly sales and purchases which question has been the subject of controversy throughout. In previous instances I have concluded that the entries must be concluded to have been what they purported to be, that is purchases by the appellant from R. P. Leveque Investments Ltd. and it follows that I must reach the same conclusion in the present instance.

The cost of the Redwater and Roxboro shares gathered by the appellant to be exchanged for Trans-Empire shares from R. P. Leveque Investments Ltd. is charged to the account in his name in the clients ledger of the Company (Exhibit 10) and those shares obtained from Edmonton Leaseholds Limited are charged to an account in the appellant’s name in the books of that company. All such shares, as well as those obtained from other brokers or clients, were delivered to the appellant. In the Muir Sheets (Exhibits 62 and 212) the cost of Redwater shares is, in some instances less than 40 cents, and similarly the cost of Roxboro shares is, in some instances less than 25 cents, the respective prices fixed as the basis of exchange for Trans-Empire shares. The difference between the cost and price of those shares is not reflected in the books of R. P. Leveque Investments Ltd. and accordingly does not accrue to that Company, nor is it taxed in its hands.

The entries of November 30, 1951 reflected sales of Redwater and Roxboro shares by R. P. Leveque Investments Ltd. to the appellant. Mr. Mathieson, who made the entries, described them as purchases by the appellant and stated on this occasion there was a buy and sell of this particular stock.

The profit on the sale of Trans-Empire shares in the year 1951 was originally assessed and added to the appellant’s income for that taxation year in the amount of $24,479.43. This computation was predicated upon a value of $3.29 per share for 31,149 shares. Subsequently this value was found to be incorrect by reason of an adjustment to be made in the value of Redwater shares exchanged for Trans-Empire shares. The effect of the errors and adjustments is to change the addition to profit in the appellant’s income for his 1951 taxation year from trading in Trans-Empire shares to $862.50.

For the reasons above outlined, I would confirm the Minister’s assessment of the appellant’s income in the 1951 taxation year in respect of trading in Trans-Empire shares as has been subsequently revised by the Minister.

In assessing the appellant as he did, to arrive at a calculation of the value of the inventory at each taxation year end, the Minister calculated the value of the shares in the inventory at the lower of cost or market. The value of the last shares acquired in each taxation year, as determined by such calculation, was used in determining the value of the closing inventory. The accounting principle of first in, first out (FIFO) was applied.

The appellant concedes that the FIFO method of inventory valuation might well have been proper if the appellant were a “trader” in Redwater, Roxboro and Trans-Empire shares, but submits that the appellant was not such a trader. However, I think that the evidence is overwhelmingly conclusive that the appellant traded in shares.

Mr. Bunnin, who was the assessor of the Department of National Revenue primarily concerned with assessments under review, was called as a witness by the Minitser and readily agreed in cross-examination that the FIFO method of calculation of inventory affected the calculation of any profit and that a cash in, cash out method of inventory valuation would have produced a different result. While I have difficulty in appreciating what is implied by such method, there is no evidence that a cash in, cash out basis of inventory evaluation was used in keeping accounts. Most certainly there is no evidence adduced which would indicate with any degree of precision that the shares which were traded in could be specifically identified. Accordingly the cost thereof would have to be fixed on one of the assumptions. There was no evidence adduced or argument advanced to the effect that the FIFO method of inventory evaluation adopted by the Minister was not in fact or in law the appropriate or proper method. The furthest extent to which the evidence goes, as I appreciate it, is that a different method of inventory evaluation, which would not appear to have been used by the appellant in keeping his accounts or preparing his tax returns, nor by the Minister in making his assessments, would have produced a different result. I am, therefore, left with the Minister’s method. No evidence was given that would lead to the conclusion that a method other than that adopted by the Minister would be closer to reality.

As I view the underlying basis of the dispute it amounts simply to this. Am I to accept the bookkeeping entries with respect to the multitudinous transactions in the shares of Redwater, Roxboro and Trans-Empire and properties which indicate that these transactions are the personal transactions of the appellant as contended to be the case by the Minister, or am I to accept the appellant’s contention that the transactions in shares and properties are the transactions of R. P. Leveque Investments Ltd ?

I quite agree with the contention of counsel for the appellant that mere bookkeeping entries are, in themselves, not sufficient to determine tax liability, but in the present case there is much more than mere bookkeeping entries. In addition to the recording of sales and purchases in the account in the appellant’s name in the clients ledger (Exhibit 10) there are numerous supplementary documents such as the stock position books, confirmations of transactions, receipts, delivery slips and correspondence from the appellant which was placed in evidence. The financial statements of the proprietorship, R. P. Leveque Investments Ltd., Edmonton Leaseholds Limited and Redwater are in evidence together with their income tax returns. Further the appellant supplied information to the Minister in response to requests therefor included in which was the Muir Sheets (Exhibits 62, 212 and 302) which formed the underlying basis of the Minister’s assessments and particularly the appellant’s letter dated November 2, 1955 (Exhibit 18).

While I agree that the appellant did not actively supervise the detailed keeping of accounts, nor give specific instructions with respect thereto, nevertheless the ultimate responsibility was his and he approved the financial statements prepared by the auditors. Therefore it cannot be said that he was not in a position to control or direct the keeping of those accounts.

As I have mentioned before, the appellant’s energies were directed to making money. He was not concerned with the details of office routine. However when he was informed by the Minister in 1955- that he was being assessed a substantial amount as personal income tax he began an intensive and comprehensive review of these matters and his interest therein became much more intensive subsequent to 1959.

Counsel for the appellant quite correctly points out that the substance of a transaction must be determined rather than its mere form, but the substance of a transaction must be determined from the legal rights which flow therefrom ascertained upon ordinary legal principles (see Duke of Westminster v. C.I.R., [1936] A.C. 1).

In Zavadiuk v. M.N.R., [1967] C.T.C. 447 at 450, the President of this Court, in commenting on the phenomenon of the evidence of witnesses with an obvious interest, had this to say:

I did not find the appellant’s evidence persuasive. He was obviously doing his best to put forward a view of the facts that would support his appeal. His evidence seemed to me to be an example of how a person trying to recall events of the past can persuade himself that he actually remembers facts favourable to himself that did not actually occur. This is not an uncommon phenomenon in the courts and, when it occurs, the person involved has frequently brought himself to the point where he honestly believes what he says.

I am positive that the appellant has been living with this matter for over a decade and I am convinced that he has per- suaded himself that the transactions in question have changed their form.

In his letter of November 2, 1955 (Exhibit 18) he suggests in an extract quoted above that it might have been better to have opened a firm trading account and kept the firm trading out of his personal account (Exhibit 10). He then suggested that this could have been done just as well in 1949 if he had loaned to the investment company 100,000 to 200,000 shares at a time. This suggestion is to the effect that no tax is exigible against him because the transactions might have taken another form. At the present trial the submission is that the transactions were not those of the appellant, but those of R. P. Leveque Investments Ltd. The appellant has, therefore, persuaded himself that the transactions have changed their form.

In my view the evidence discloses that the appellant took or could have taken advantage of the legal rights flowing from the transactions in shares and properties and used certain of the monies for his own purposes. It cannot now be said that the transactions were other than what they appear to be as ascertained upon ordinary legal principles.

At the outset of the trial I intimated to counsel that, as I then understood the issues, if the appellant satisfied me that the transactions were in fact those of R. P. Leveque Investments Ltd. and any resultant profits were taxed in its hands, then the appellant would be successful. If the appellant did not so establish, then his appeal would fail and I added that the onus of establishing that the assumptions of the Minister in assessing the appellant as he did were ill-founded and erroneous, falls on the appellant.

In my view the appellant has failed to discharge that onus.

I would dismiss the appeal were it not for the fact that the Minister made adjustments in the assessments as originally made which are outlined at the beginning of these reasons. Therefore, the appeal is allowed and referred back to the Minister in order that he may make those adjustments to the appellant’s assessments. As the appellant was unsuccessful on the issues in dispute the Minister is entitled to his costs.