A Canadian subsidiary ("Nassau") of a Bermudan company that did not carry on business in Canada was leasing an aircraft to the appellant, which was another Canadian subsidiary of the Bermudan company. Nassau sold the aircraft to the Bermudan company for a sale price that was lower than the aircraft's fair market value and took the position that s. 17(2) of the pre-1972 Act which applied to a taxpayer carrying on business in Canada who sold anything to a person with whom he was not dealing at arm's length) did not apply to deem Nassau to have received fair market value proceeds on the basis that s. 17(2) was deemed by s. 17(7) not to apply where s. 20(4) was applicable. The latter provision maintained historical capital cost and undepreciated capital cost where a depreciable property "has, by one or more transactions between persons not dealing at arm's length, become vested in a taxpayer".
In rejecting this position Hall J. stated (at p. 6274):
"It is clear that s. 20(4) is concerned with taxpayers entitled to a deduction, not with persons who are not subject to assessment under Part I. A non-resident not carrying on business in Canada is not a person entitled to such a deduction and therefore s. 20(4) cannot be properly be said to be 'applicable' to him."
Furthermore, the exigibility of withholding tax on rents paid to the Bermudan company did not make the Bermudan company a taxpayer as such withholding tax was "a tax on gross receipts in Canada by a resident for a non-resident."