THorson, P.:—This is an appeal from the decision of the Income Tax Appeal Board, sub nom. No. 661 v. M.N.R. (1959-60), 23 Tax A.B.C. 46, dated October 16, 1959, dismissing the appellant’s appeal against his income assessments for 1953, 1954 and 1955.
The issue in the appeal herein is whether certain sums of money and other valuable benefits which the appellant received in 1953, 1954 and 1955 from National Sea Products Limited, of which he had been the president, pursuant to an agreement between himself and the company, dated June 4, 1953, were items of taxable income to him for the said years, as assessed by the Minister, or capital payments to him as part of the consideration for the sale by him of more than 50 per cent of the shares of National Sea Products Limited to Clarence J. Morrow, W. Stanley Lee and. Ronald G. Smith, who were executive officers of the said company, pursuant to an agreement for the sale of the said shares between himself and the said persons.
The appellant was the only witness called at the hearing, so that the facts relating to the transaction from which the issue arises must be ascertained, so far as it is possible to do so, from his evidence and the documents produced on his behalf.
Objections were taken by counsel for the Minister to portions of the appellant’s evidence and many of the documents but it is desirable, in my opinion, to review his evidence as he gave it and then determine to what extent, if any, effect should be given to the objections.
The appellant, who resides at Murder Point, Mahone Bay, in Nova Scotia, was the president of National Sea Products Limited, hereinafter called the Company, since its formation by him in 1945. It was a combination of 18 to 20 companies in Nova Scotia operating fleets of fishing vessels and trawlers and was the largest fishing operation in the North Atlantic. After 1945, the Company acquired additional companies which enlarged the scope of its merchandising so that before 1951 it ended with a group of 22 or 23 companies, including the largest wholesale and distributing houses in Montreal and Toronto and one in New York. The Company had also added to its fleet of trawlers new trawlers built in Great Britain. It was, as the appellant said, phenomenally successful, it never had to borrow any money and it always had a large working capital.
The appellant had complete control of the Company by a voting control of 129,000 shares out of a total of 200,000. This resulted from the fact that he and members of his family and others had formed a pool of their shares under a pooling agreement, dated September 10, 1945, modified by a supplementary agreement, dated December 15, 1946, under which the appellant, as manager of the pool, had the right to vote all the pooled shares.
In 1953 a difference of opinion arose between Mr. Clarence J. Morrow, the vice-president and treasurer of the Company, and the appellant over a matter of policy relating to the price to be paid to fishermen and the reduction of inventory and in a letter to the appellant, dated April 9, 1953, Mr. Morrow offered to sell his shares in the Company, some 20,000, to the appellant at $12 per share or to buy the shares controlled by the appellant at the same price.
The appellant replied to Mr. Morrow by a letter, dated April 20, 1953, after they had had a conversation three days previously, in which he said that he would not be interested in buying Mr. Morrow’s shares at any price because he did not want the Company to lose his active interest and advice. He thought that a sale of the pooled shares belonging to members of his family could be arranged provided Mr. Morrow was prepared to pay a fair price for them, but he did not want to sell his own 32,900 shares or sever his connection with the Company. But the letter contained certain proposals on his part; if there was agreement relating to the shares held by the members of his family he would agree to sell his own shares on his death, and if Mr. Morrow would undertake to continue to elect him as a director he would vote his shares in support of any policy or object in which Mr. Morrow required their support. He also stated that if the proposals mentioned were acted on he would resign the presidency in favour of Mr. Morrow or his nominee and accept the chairmanship of the board of directors with an agreement from Mr. Morrow, confirmed by the Company, for the continuance of his present salary, car, chauffeur, secretary and office for five years— or until earlier retirement at his option—and two-thirds of his present salary thereafter for the balance of his life and his continuance as a director if he so requested. He added that he would like to continue ex-officio only as a member of the executive committee but would not participate in the active management of the business and he assured Mr. Morrow of his whole-hearted support as long as he remained actively associated with the Company. Finally, he said he was prepared to discuss the price of the shares at $18 per share.
After the appellant had written this letter he was absent from Halifax for about ten days and, on his return, he found a letter from Mr. Morrow, dated April 30, 1953, in which he said that Stan (Mr. W. Stanley Lee), Ronald (Mr. Ronald G. Smith) and he had discussed his proposal and would like to discuss it with him and asked him to name a time for a meeting. Mr. Lee was the general manager of the Company and Mr. Smith a director and member of the executive.
At a meeting at Halifax on Tuesday, May 12, 1953, Mr. Morrow proposed a price of $14 per share for all the appellant’s shares, his salary for three years, $15,000 per year for a further five years and $10,000 per year thereafter but no car, chauffeur or secretary. He and his associates proposed a syndicate based on a nucleus of Messrs. Morrow, Lee and Smith.
The appellant took time to consider this proposal. On the following day, May 13, 1953, he had a conversation with Messrs. Morrow, Lee and Smith and made a counter proposal of $17.50 per share for all the pooled shares with his existing salary for five years and a two-thirds salary thereafter for life, together with a chauffeur, car and secretary for three years. At this meeting Mr. Morrow asked for a further postponement until May 14, 1953.
The appellant stated that it was Mr. Morrow who suggested the side benefits at the meeting of May 12, 1953, but it will be recalled that the appellant had referred to them in his letter of April 20, 1953.
The appellant explained that he had two things to sell, one being the pooled shares and the other control of the Company, and that he would not sell the one without the other. When he wrote his letter of April 20, 1953, Mr. Morrow and he were still on an intimate basis but after that date it became clear that Mr. Morrow and the others did not want to continue him as a director or chairman. He was very resentful and hurt over this because he had agreed to vote his shares in support of Mr. Morrow’s policies and he took the cold position that if his associates wanted to buy the pooled shares they must also buy control of the Company and the question of what they had to pay for such control became a matter of negotiation for the so-called extras.
On the afternoon of Thursday, May 14, 1953, Messrs. Morrow. Lee and Smith, whom the appellant referred to as ‘‘they’’, invited him into Mr. Lee’s office for the specific purpose of making a final counter-offer to his counter-offer of the previous day. Up until then there had not been any discussion of the price to be paid for the Company’s car, a Cadillac. “They” spelled out their counter-offer to him, emphasizing that it was final from their point of view. It was $16 per share for all the pooled shares owned by the appellant and the members of his family, with the option that if the other members of the pooling agreement who were not members of his family wished to avail themselves of the opportunity of selling their shares at $16 per share they might do so. Then, as the appellant put it, ‘‘they’’ were to pay him $25,000 per year for three years and $15,000 per year thereafter for life, provide him with the services of a chauffeur free for one year, the services of a secretary free for one year and the use of the office he occupied free for one year. At the end of a year they would sell him the Cadillac car for $1 and release the chauffeur from their employ for him to employ him. After a short talk he said “I’ll accept that’’. Then they said that they would have the Company release him. This was the first time that the Company’s name was introduced as an employer. When the question of the chairmanship and directorship came up they said that they would carry him on as chairman for one year.
The meeting in Mr. Lee’s office lasted about an hour and on the same day the appellant gave Messrs. Morrow, Lee and Smith an option written in his own handwriting, which was filed as Exhibit 7. I set it out in full as follows:
“Page 1 (May 14th 53) My Dear CJ,
Subject to acceptance on or before June 1st I offer to sell to you and your associates for cash, all the shares refered to in my letter to you of April 20th; for $16.00 per share on condition that you arrange a contract of employment for me with National Sea Products Ltd. for three years at $25000.00 per year, with a retiring allowance of $15000.00 per year thereafter for life; that you continue to provide me with my present chauffeur for one year, my present car for one year, and at the expiration of that period the Company sells me the ear for $1.00 and I may engage the chauffeur personally thereafter. Meantime in the event the car should be lost, by fire or collision the proceeds of insurance would be paid to me ; and the services of a Secretary for one year.
If this offer is accepted you will pay a reasonable deposit— say 10% of the purchase price—to be forfeited in lieu of liquidated damages if for any reason you should fail to complete the purchase prior to Sept. 1st 53. All
page 2 of letter to C. J. Morrow et al.
undertakings with respect to salary and services to date from date of final payment.
Acceptance shall be in writing, accompanied by the deposit specified.
Very truly yours
Ralph P. Bell
Halifax
May 14/53
To Messrs. C. J. Morrow
W. Stanley Lee
Ronald G. Smith
P.S. In the event of death salary ceases at the end of the
month in which death occurs.
The offer of shares includes my personal shares (approximately 33000 shares)
RPB”’
On Friday, May 29, 1953, the appellant met Mr. Morrow and his associates in the Company’s office and they presented him with a draft agreement between the Company and himself, a copy of which was filed as Exhibit 9A. It contained a provision to employ the appellant ‘‘in an executive and/or consultive capacity” and a provision restricting the appellant from competition with the Company. He said that this agreement was not acceptable to him and they said that they could not continue him as chairman to which he replied that they would never get any document from him with the restrictive clauses they wanted and the meeting then broke up.
The appellant learned on Friday that he was not going to be kept on the board. On Sunday, May 31, 1953, Mr. Lee called him on the phone at his home and tried to patch things up but he replied ‘‘No! If you don’t want me as chairman friendship ceases. That’s all.”
On Monday, June 1, 1953, Messrs. Morrow, Lee and Smith exercised the option given by the appellant on May 14, 1953, by a letter addressed to the appellant, which was filed as Exhibit 8. I set out its terms in full as follows:
“June 1st, 1953
R. P. Bell, Esq.,
Murder Point,
Martin’s Point,
Lunenburg County, Nova Scotia.
Dear Mr. Bell :
Referring to your letter of May 14th, 1953, addressed to the undersigned and to your letter of April 20th, 1953, therein referred to, we hereby exercise the option therein contained to purchase for cash the common shares in the capital of National Sea Products Limited, a body corporate, with head office at Halifax, Nova Scotia, at $16.00 per share, such purchase to include your present holdings of approximately 33,000 shares as well as those shares referred to in the said letter of April 20th, 1958.
We submit herewith an undertaking on our part to arrange for the contract of employment referred to in your letter of May 14th, 1953, with said National Sea Products Limited. You will note that annexed as Schedule ‘A’ to our undertaking to that effect is a draft of the proposed contract between yourself and said National Sea Products Limited giving effect to our undertaking.
We wish to advise you that we are prepared to take up and pay for all of the shares covered by your option at once and are prepared to tender you a cheque for the purchase price against delivery of the relevant certificates endorsed in such manner as to enable us to procure registration thereof on the books of the company.
We enclose herewith certified cheques for a total of $2,156,- 400.00, which we calculate to be the purchase price for the shares involved.
Yours very truly,
C. J. Morrow
W.S. Lee
R. G. Smith’’
This letter carried the following notation in the appellant’s handwriting :
‘ * Completed
June 1st/53
R. P. B.
Present at transfer—which took place in room 401 Nova Scotia Hotel were
J. MeG. Stewart
Morrow
Lee
Ronald Smith
Ian Maclaren
and
myself’’
The appellant stated that he would not sign the draft agreement that was submitted at the June 1 meeting and that he tore it up. On his cross-examination he said that Mr. Morrow had presented the draft to him at the same time as the letter of June 1 and that it contained the same restrictions as the draft that he had seen on May 29. In any event, Messrs. Morrow, Lee and Smith as ‘‘Buyers’’ and the appellant as ‘‘Seller’’ did execute the undertaking referred to in Exhibit 8, dated June 1, 1953, and filed as Exhibit 9. This was in the following terms:
“This AGREEMENT made the 1st day of June, A.D. 1953, BETWEEN :
CLARENCE J. MORROW, of Lunenburg, in the County of Lunenburg, and W. STANLEY LEE, of Halifax, in the County of Halifax, and RONALD G. SMITH, of Halifax, in the County of Halifax, Corporation Executives, hereinafter called the ‘Buyers’,
Of The One Part,
— and —
RALPH P. BELL, of Murder Point, Martin’s Point, in the County of Lunenburg County, Corporation Executive, hereinafter called the ‘ Seller ’
Of The Other Part.
WHEREAS the Seller has given to the Buyers an option to purchase more than Fifty percent (50%) of the common shares in the capital of National Sea Products Limited (a body corporate with head office at Halifax aforesaid, hereinafter called the ‘Company’) ;
And WHEREAS the Buyers have agreed as a condition to the exercise of the said option that the Buyers agree to make arrangements for a contract of employment between the Company and the Seller on terms indicated in the said option;
Now This AGREEMENT WITNESSETH that the Buyers hereby covenant, promise and agree to and with the Seller to procure the execution and delivery by the Company of an agreement in the terms of the draft thereof hereunto annexed and marked ‘A’ and initialled by the Buyers, such agreement to be executed in several counterparts one of which, executed by the Company shall be delivered by the Company to the Seller not later than June 10th, 1953;
This AGREEMENT and everything herein contained shall be binding upon and enure to the benefit of the parties hereto and their respective heirs, executors, administrators and assigns ;
In Witness WHEREOF the parties hereto have hereunto affixed their hands and seals the day and year first hereinabove
written ; SIGNED, SEALED and Delivered' Clarence J. Morrow in the presence of: Clarence J. Morrow (Seal) W.S. Lee Witness as to all signatures W. Stanley Lee (Seal) signatures Ronald G. Smith Ronald G. Smith (Seal) J. I. Maclaren Ralph P. Bell Ralph P. Bell (Seal) ”’
On the same date, June 1, 1953, the appellant handed Messrs. Morrow, Lee and Smith his resignation as president and director of the Company and some time thereafter between June 1, and June 4, 1953, there was a meeting of the directors of the Company at which Mr. Morrow was elected president and Mr. Lee vice-president.
Then on June 4, 1953, the contract of employment between the Company and the appellant, which, in his option letter of May 14, 1953, he had made a condition of his offer to sell the Shares, was executed by the Company and the appellant. This was the contract referred to in Exhibit 9 as ‘‘A’’. It was filed as Exhibit 10. I set it out in full:
“This AGREEMENT made the 4th day of June, A.D. 1953, Between :
NATIONAL SEA PRODUCTS LIMITED, a body corporate, having its head office at Halifax, in the County of Halifax, hereinafter called the ‘Company’
Of The One Part
— and —
RALPH P. BELL, of Murder Point, Martin’s Point, in the County of Lunenburg, Corporation Executive, hereinafter called ‘the said Bell’
Of The Other Part. WHEREAS the said Bell has been the President of the Company since its inception in 1945 and during the intervening period has devoted his time and efforts to the service of the Company and now desires to be relieved in part of the obli- gations and responsibilities involved in occupying the chief executive position in the Company ;
Now THIS AGREEMENT WITNESSETH as follows:
The Company hereby covenants, promises and agrees to and with the said Bell to employ the said Bell in an advisory or consultive capacity for three (8) years commencing June 1st, 1958, at Twenty-five Thousand Dollars ($25,000.00) per year with a retiring allowance of Fifteen Thousand Dollars ($15,- 000.00) per year thereafter for life; AND to continue to provide the said Bell with his present chauffeur for one (1) year commencing June 1st, 1953, and to provide the said Bell with his present car for the said period of one (1) year, and at the expiration of one (1) year to sell the said car to the said Bell for One Dollar ($1.00) ; And to permit the said Bell to engage the said chauffeur personally at the expiration of the said year without let or hindrance from the Company; AND F'URTHER that in the event the said car should be lost by fire or collision during the said year the proceeds of insurance will be paid to the said Bell ; AND Further to provide the said Bell with the services of a secretary for one (1) year commencing June 1st, 1953;
In the event of the death of the said Bell the salary or retiring allowance herein provided for shall cease at the end of the month in which death occurs.
THESE PRESENTS and everything herein contained shall be binding upon and enure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns ;
In WITNESS WHEREOF the Company has caused its corporate seal to be hereunto affixed and These Presents to be executed in its name and on its behalf by its proper officers thereunto legally authorized and the said Bell has hereunto affixed his hand and seal the day and year first hereinabove written;
SIGNED, SEALED AND Delivered NATIONAL SEA
in the presence of: PRODUCTS LIMITED [per C. J. Morrow (Seal) J. H. Beleher Pres. and W. S. Lee J. I. Maclaren V. Pres. Ralph P. Bell 1 Ralph P. Bell (Seal) ’’
The appellant stated that prior to the sale of the shares he had discussed the price with the persons who had signed the pooling agreement and obtained their permission to negotiate for and procure for himself the extras referred to and that he would not have sold any of the shares without such permission.
The appellant’s remaining evidence may be stated briefly. After June 1, 1953, he had the free use of the same office as he had had previously but did not use it in the service of the Company. He was never asked by Mr. Morrow, Mr. lee or Mr. Smith to render any service to the Company under the agreement of June 4, 1953, and never rendered any. He used the ear, the chauffeur and his secretary for his private business and never in the service of the Company and was never asked to do so.
On his cross-examination he stated that his private secretary worked for him and not for the Company. He had exclusive use of the Cadillac car, which belonged to the Company, and used it only for his own purposes and never paid for any gas, maintenance or repairs or insurance premiums during the year commencing June 1, 1953.
The appellant received his salary payments by monthly cheques which he turned over to his accountant. The Company made the usual deductions from his salary for income tax, medical care and group insurance and continued to do so, except that some time after June 1, 1954, he cancelled his Blue Cross deductions.
The appellant admitted that he was not under any financial necessity to sell the shares, that he had been associated with business most of his life and that he had on numerous occasions drafted contracts for the acquisition of various things.
After this review of the appellant’s evidence I set out briefly the steps that led to the appeal herein. After June 1, 1953, the appellant received the payments of salary to which he was entitled under his contract of employment with the Company, dated June 4, 1953, namely, $12,500 in 1953 and $25,000 in each of the years 1954 and 1955. He also received the several benefits referred to in the contract. In assessing the appellant for the years under review the Minister included the amounts of salary which he had received as items of income to him and also included the value of the benefits which he had received and put such value at $1,983.25 for 1953 and $5,545.17 for 1954, the details of which are set out in the statements respectively accompanying the notices of re-assessment for 1953 and 1954, mailed to the appellant on April 18, 1956. Thus the amounts in dispute for the said years are $12,500 and $1,983.29 for 1953, $25,000 and $5,545.17 for 1954 and $25,000 for 1955. The correctness of the amounts referred to is not disputed.
The appellant gave notice of objection to each of the assessments levied against him but the Minister, subject to certain adjustments which do not affect the issue in the appeal herein, confirmed them and the appellant appealed against them to the Income Tax Appeal Board, which dismissed his appeal. It is from that decision that the appeal to this Court was brought.
I have no hesitation in finding that the appellant’s appeal against his income tax assessments for 1953, 1954 and 1955 is without merit and should be dismissed.
As I understand the argument advanced on his behalf, it is that the sums of money and benefits that he received in 1953, 1954 and 1955 from the Company under the agreement of June 4, 1953, were part of the consideration to him for the sale by him to Messrs. Morrow, Lee and Smith of the pooled shares and control of the Company and that, consequently, they were not items of income to him but were capital payments for the sale of a capital asset.
That being the position taken on behalf of the appellant, it was submitted, in support of it, that the agreement of June 4, 1958, filed as Exhibit 10, was not a contract of employment of the appellant in an advisory or consultive capacity’’, as it purported to be, but was, in fact, a device arranged by Messrs. Morrow, Lee and Smith whereby the amounts of salary and the value of the benefits received by the appellant under the contract were paid by the Company instead of by them as part of the consideration to the appellant for the sale by him to them of the pooled shares and control of the Company over and above the amount of $16 per share which they had paid themselves.
The submission thus put forward should be rejected out of hand. The contract for the sale of the shares and control of the Company was between the appellant on the one hand and Messrs. Morrow, Lee and Smith on the other and the Company was not a party to it in any sense, directly or indirectly. Yet the submission carries the implication that it was intended by Messrs. Morrow, Lee and Smith, with the concurrence of the appellant, that the agreement of June 4, 1953, should be a device whereby the Company would pay part of the consideration to the appellant for the sale by him to Messrs. Morrow, Lee and Smith of the pooled shares and control of the Company, notwithstanding the fact that the Company would thereby be using its funds in part payment of an obligation under a contract to which it was not, and could not be, a party and for a purpose for which they could not lawfully be used, namely, assisting in the purchase of its own shares by three of its shareholders, namely, Messrs. Morrow, Lee and Smith, from another shareholder, namely, the appellant.
No authority is required for rejecting a construction of the agreement of June 4, 1953, that carries such an implication.
Moreover, the terms of the agreement are clear and it is free from ambiguity. Consequently, it is not permissible to adduce evidence with a view to varying or contradicting its terms or showing that it was different from what it purported to be. The decision of Cameron, J., in Salter v. M.N.R., [1946] Ex. C.R. 634; [1947] C.T.C. 29, on which counsel for the appellant so strongly relied, cannot, therefore, be of any assistance to him, for it has no bearing on the facts of the present case.
In my opinion, the fallacy in the argument on the appellant’s behalf lies in the failure to distinguish between the contract of employment of the appellant by the Company on the one hand and the contract for the sale of the pooled shares and control of the Company between the appellant and Messrs. Morrow, Lee and Smith on the other.
I see no reason for excluding the evidence of the appellant relating to the events that led to his giving Messrs. Morrow, Lee and Smith an option to purchase the pooled shares and their exercise of it, but it is essential that the true nature of the transaction from which the issue in the appeal herein arises should be determined. That requires consideration of the appellant’s letter of May 14, 1953, Exhibit 7, in which he gave an option to Messrs. Morrow, Lee and Smith to purchase the pooled shares, their letter of reply of June 1, 1953, Exhibit 8, in which they exercised the option, the agreement between Messrs. Morrow, Lee and Smith and the appellant of June 1, 1953, Exhibit 9, whereby they undertook to procure a contract of employment of the appellant by the Company and the contract of employment of June 4, 1953, Exhibit 10. The appellant’s letter of April 20, 1953, Exhibit 4, must also be considered in view of the fact that it was referred to in the appellant’s letter of May 14, 1953, and the letter of reply to it of June 1, 1953.
These documents prove conclusively that the undertaking of Messrs. Morrow, Lee and Smith to procure a contract of employment of the appellant by the Company after he had ceased to be an officer and had sold all the shares under his control was a condition precedent to there being a contract for the sale of the shares at all.
The appellant’s letter of May 14, 1953, makes it clear that his offer to sell the pooled shares to Messrs. Morrow, Lee and Smith for $16 per share was made ‘‘on condition that you arrange a contract of employment for me with National Sea Products Lid.’’ and he specified the terms that such contract must contain.
Nor was there any doubt in the minds of Messrs. Morrow, Lee and Smith that their undertaking to arrange such a contract was a condition of the option which the appellant had given to them and of their exercise of it. In their agreement with the appellant of June 1, 1953, Exhibit 9, it was stated in the recitals that the appellant had given them an option to purchase more than 50 per cent of the shares of the Company and that they had agreed as a condition to the exercise of the said option to make arrangements for a contract of employment between the Company and the appellant on the terms indicated in the option and they covenanted, promised and agreed to and with the appellant to procure the execution and delivery by the Company of the contract of employment which he had insisted upon.
Moreover, their letter to the appellant of June 1, 1953, Exhibit 8, is clear. In it they exercised the option to purchase the shares at $16 per share which the appellant had given to them in his letter of May 14, 1953, and they met the condition to which his offer had been made subject by submitting their undertaking to arrange for the contract of employment referred to in his letter. They then closed the purchase of the shares by enclosing certified cheques for $2,156,400, in payment of the pooled shares. There is no doubt that they considered this to be the full amount of the consideration for the sale of the shares. The expression with which they ended their letter so indicates, namely, ‘‘which we calculate to be the purchase price for the shares involved’’, And it is clear that the appellant himself considered the sale of the shares complete, for he noted on the letter of June 1, 1953, in his own handwriting that the transaction was “Completed”. It also appears from his notation that the shares were transferred to Messrs. Morrow, Lee and Smith on June 1, 1953. There is also the fact, as stated by him, that he handed in his resignation as president and director of the Company.
I find, therefore, if any finding to that effect is really necessary, that the contract of employment of the appellant by the Company of June 4, 1953, was not a part of the contract for the sale by the appellant to Messrs. Morrow, Lee and Smith of the pooled shares and control of the Company. The fact that the appellant insisted on the arrangement of such a contract as a condition of his offer to sell the shares did not make it such. The contract of employment could not lawfully be a part of the contract of sale and it was not intended by the appellant or Messrs. Morrow, Lee and Smith that it should. The two contracts were separate contracts, although the making of the arrangement for the one was a condition of the other being made.
It follows, of course, that the payments and benefits received by the appellant under his contract of employment with the Company were not part of the consideration to him for his sale of the pooled shares to Messrs. Morrow, Lee and Smith. They could not lawfully be part of such consideration and it was never intended that they should be. They were not, therefore, capital payments to the appellant for the sale by him on a capital asset.
While this finding disposes of the argument advanced on the appellant’s behalf, I should also determine the nature of the sums of money and benefits that the appellant received from the Company.
In my opinion, there cannot be any doubt about their nature. They were received by the appellant pursuant to the terms of the agreement of June 4, 1953, whereby the Company agreed to employ the appellant in an advisory or consultive capacity and were clearly items of income to him from employment within the meaning of Sections 3 and 5 of the Income Tax Act, R.S.C. 1952, c. 148, and taxable accordingly. Section 3 provides as follows :
“3. The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year from all sources inside or outside Canada and, without restricting the generality of the foregoing, includes income from all
(a) businesses,
(b) property, and
(c) offices and employments.”
and Section 5 provides, in part:
“5. Income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year plus
(a) the value of board, lodging and other benefits (. . .) received or enjoyed by him in the year in respect of, in the course of or by virtue of the office or the employment ; ’ ’
I should also refer to the definition of the term ‘‘employment” in Section 139(1) (m) of the Act. It is as follows:
‘139. (1) In this Act,
(m) employment ’ means the position of an individual in the service of some other person (including Her Majesty or a foreign state or sovereign) and servant’ or ‘employee’ means a person holding such a position.”
It may be fairly deduced that the Company regarded the payments that it made under the contract of June 4, 1953, as payments of salary. There is no direct evidence of how it treated the payments, but it appears from the notices of re-assessment and assessment for the years under review that deductions at the source had been made by it from the amounts of salary payable to the appellant under the contract and it would be surprising, in view of such deductions, if it did not deduct the amounts as operating expenses.
And there is no doubt that the appellant himself considered the payments as items of taxable income, for he included them in his income tax returns for the years under review. In each of these returns he described the Company as his employer and certified that the information given in his return was true, correct and complete in every respect. It is not surprising, therefore, that in his notice of objection to the assessments levied against him for 1953 and 1954 there was no objection to the inclusion of his salary payments as items of taxable income, his only objection being to the inclusion of the amounts at which the Minister had valued the benefits that he received apart from his salary.
It is obvious, under the circumstances, that the argument advanced on the appellant’s behalf to which I have referred earlier in these reasons was an afterthought with a view to freeing him from an income tax liability to which he was plainly subject.
In my opinion, the contract of employment of June 4, 1953, between the Company and the appellant is exactly what it purports to be. There is no doubt that the appellant could have successfully sued the Company on it if it had refused to carry out its terms and it could not have defended the action on the ground that the contract was not what it purported to be.
Moreover, the contract contains the very terms that the appellant had insisted upon as a condition of his offer to sell the pooled shares to Messrs. Morrow, Lee and Smith. There is no doubt that he desired the contract of employment that they had arranged for him. I have already referred to the fact that the draft agreement that was submitted to him on May 29, 1953, filed as Exhibit 9A, contained a provision whereby the Company agreed to employ him ‘‘in an executive and/or consultive capacity”, for he knew that he was not going to be an officer of the Company. There is no doubt that he intended to put himself in the position of a person who was employed in the service of the Company and entitled to receive the salary, retiring allowance and benefits in respect of such employment that were specified in his contract of employment.
Moreover, the terms of the agreement are clear and free from ambiguity and neither the appellant nor the Company could be heard to deny them. The Company has not sought to do so and the appellant’s attempt to do so should not be allowed to succeed.
If the appellant had continued to be the president of the Company he would have received the salary of that position and been subject to income tax in respect of it. It would surely be absurd to say that his salary of the same amount for employment ‘‘in an advisory or consultive capacity” was free from income tax.
The fact that the appellant was never asked by Mr. Morrow, Mr. Lee or Mr. Smith to render any service to the Company under his contract of employment and that he never rendered any service is immaterial. If he had sued on the contract for failure on the part of the Company to comply with its terms it would not have been a valid defence on its part that it had never asked him for advice or consulted him. The Company could have called upon him if it had wished to do. The fact that it did not do so could not affect his rights under the contract or prevent the payments or benefits from being payments and benefits from employment.
For the reasons given I have no hesitation in finding that the sums of money and the value of the benefits received by the appellant from the Company in the years under review were items of income to him from employment within the meaning of the Act and taxable accordingly. The Minister was, therefore, right in assessing him as he did and his appeal herein must be dismissed with costs.
Judgment accordingly.