Couture,
T.C.J.:—The
appellant,
who
acted
for
himself,
challenged
the
validity
of
an
assessment
made
by
the
respondent
on
January
13,
1988
for
the
1981
taxation
year.
The
relevant
facts
which
were
the
basis
for
this
assessment
and
which
were
not
in
dispute
are
set
out
in
part
in
the
amended
reply
to
the
notice
of
appeal,
and
this
evidence
was
added
to
by
the
appellant
at
the
hearing.
These
facts
were
summarized
as
follows:
9.
In
assessing
the
appellant
as
he
did
for
the
1981
taxation
year,
the
Minister
of
National
Revenue
relied
inter
alia
on
the
following
facts:
(a)
during
the
1981
taxation
year
the
appellant
was
a
shareholder
in
the
company
Brasserie
Broue
Lib
(Shawinigan)
Inc.,
holding
25
percent
of
the
voting
capital
stock
in
this
company;
(b)
during
the
same
year
the
appellant's
brother,
Mr.
Camil
Béliveau,
also
held
25
percent
of
the
capital
stock
of
the
said
company;
(c)
during
the
same
year
the
two
Béliveau
brothers
also
each
held
50
percent
of
the
voting
capital
stock
in
Pavillon
Mauricien
(1981)
Inc.;
(d)
during
1978
and
1981
Brasserie
Broue
Lib
(Shawinigan)
Inc.
obtained
two
loans
from
the
Canadian
Imperial
Bank
of
Commerce,
for
which
Messrs.
Pierre
et
Camil
Béliveau
personally
stood
surety;
(e)
during
1981
the
said
Bank,
in
view
of
the
fact
that
the
said
company
was
no
longer
operating
its
business,
called
in
its
two
loans
and
required
the
said
company
to
make
immediate
payment;
(f)
on
or
about
September
15,
1981
Pavillon
Mauricien
Inc.
issued
a
cheque
for
$40,541.40
in
payment
of
the
amount
owed
by
Brasserie
Broue
Lib
(Shawinigan)
Inc.
to
the
said
Bank;
(g)
as
the
two
companies
were
not
connected
and
Pavillon
Mauricien
Inc.
owed
Brasserie
Broue
Lib
(Shawinigan)
Inc.
the
sum
of
$5,541.40,
Pavillon
Mauricien
Inc.
thus
reimbursed
the
loans
secured
by
Messrs.
Pierre
et
Camil
Béliveau,
totalling
$35,000;
(h)
by
proceeding
in
this
way
and
paying
the
said
Bank
on
behalf
of
the
Béliveau
brothers,
Pavillon
Mauricien
Inc.
conferred
a
$17,500
benefit
on
each
of
the
Béliveau
brothers
.
.
.
The
appellant
added
that
Brasserie
Broue
Lib
(Shawinigan)
Inc.
(
Brasserie")
started
operations
in
around
1979,
and
that
the
purchase
of
equipment
to
operate
the
business
was
financed
by
a
bank
loan
for
which
he
and
his
brother
stood
surety.
In
1981,
the
company's
operating
permit
was
cancelled
by
an
ordinance
of
the
municipality
of
Shawinigan
and
it
had
to
cease
operations.
On
learning
that
the
company
had
a
remedy
against
the
municipality
because
the
cancellation
of
the
permit
was
not
valid
under
the
law,
an
action
was
brought
against
the
municipality
claiming
$300,000
damages
from
it.
When
Brasserie
ceased
operations
the
Bank
sent
it
a
notice
requiring
it
to
repay
its
loan.
According
to
the
appellant,
counsel
for
the
company
was
confident
it
would
win
its
action
against
the
municipality,
and
instead
of
disposing
of
its
assets
to
reimburse
the
Bank,
Pavillon
Mauricien
(1981)
Inc.
(”
Pavillon")
made
it
a
net
loan
of
$35,000
which
was
used
to
repay
the
Bank.
The
documentary
evidence
showed
that
Pavillon
issued
a
cheque
for
$40,541.40
to
Brasserie
on
September
15,
1981,
and
as
Pavillon
owed
Brasserie
about
$5,000
it
was
admitted
by
the
parties
that
the
amount
was
$35,000
for
purposes
of
the
assessment.
The
action
against
the
municipality
ended
in
1985
by
a
judgment
confirming
the
municipality's
right
to
cancel
Brasserie's
permit.
After
this
the
company
was
wound
up,
but
Pavillon
was
never
repaid
for
the
aforementioned
loan
of
$35,000.
On
November
19,
1986,
the
respondent
issued
a
reassessment
of
the
appellant
and
added
the
sum
of
$17,500
to
his
reported
income
for
the
1981
taxation
year,
being
half
the
amount
of
the
loan
by
Pavillon
to
Brasserie,
apparently
in
reliance
on
the
provisions
of
paragraph
15(1)(c)
and
of
subsection
56(2)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
The
notice
of
reassessment
contained
no
information
in
this
regard.
On
February
2,
1987
the
appellant
filed
a
notice
of
objection
to
the
assessment
of
November
19,
1986,
alleging
the
following:
In
its
assessment
the
Department
added
to
the
taxpayer's
income
a
benefit
conferred
of
$17,500.
The
taxpayer
has
never
received
benefits
of
this
kind
and
the
Department
was
in
error
in
adding
this
income
to
the
taxpayer's
income.
Further,
there
was
at
no
time
any
negligence
or
attempt
to
conceal
or
deduct
any
income.
The
imposition
of
the
subsection
163(2)
penalty
is
therefore
unjustified.
The
assessment
is
wrong
in
fact
and
in
law
in
all
respects.
The
appellant
explained
that
after
receiving
the
notice
of
reassessment
he
discussed
its
validity
with
the
auditors
for
the
group
of
companies
with
which
he
was
concerned,
and
as
they
recommended
a
settlement
with
the
Department
for
his
brother
and
himself
on
the
basis
that
the
penalties
imposed
on
them
would
be
cancelled,
he
rejected
such
a
suggestion
and
placed
his
case
in
the
hands
of
one
Rastoul,
an
alleged
expert
on
tax
matters.
The
appellant
further
said
that
the
latter
confirmed
that
it
was
simply
a
question
of
an
error
by
the
Department,
and
that
based
on
this
statement
he
signed
the
notice
of
objection
form.
On
the
objection
form,
which
is
authorized
and
prescribed
by
the
Minister
of
National
Revenue,
there
is
a
space
which
the
taxpayer
can
fill
in
to
give
the
name
and
address
of
an
authorized
agent,
if
any.
In
the
appellant's
case
the
form
shows
the
name
of
Jean
Rastoul,
C.A.,
50
Place
Crémazie
ouest,
No.
721,
Montreal,
Quebec
H2P
2T4,
and
the
form
is
signed
and
dated
by
him.
The
appellant
testified
that
after
signing
the
notice
of
objection
he
heard
nothing
from
Rastoul
and
it
was
not
until
the
Revenue
Canada
collection
agent
contacted
him
to
ask
for
payment
of
an
assessment
for
the
1981
taxation
year
that
he
learned
Rastoul
had
negotiated
a
settlement
with
a
Revenue
Canada
appeals
officer
and
that
a
reassessment
had
been
issued
by
the
respondent
on
January
13,
1988
to
give
effect
to
this
settlement.
He
learned
that
Rastoul
had
signed
a
letter
withdrawing
the
notice
of
objection
on
his
behalf
and
had
given
it
to
the
appeals
officer
handling
the
appellant's
file.
This
letter,
dated
October
16,
1987,
to
Sylvie
Houde,
Appeals
Division,
St-
Hubert
District
Tax
Office,
reads
as
follows:
Re:
Mr.
Pierre
Béliveau
Notice
of
Objection
1981
Taxation
Year
Dear
Madam:
It
is
hereby
proposed
to
withdraw
the
aforementioned
Notice
of
Objection.
This
proposal
is
conditional
on
the
Department's
consent
to
making
the
following
corrections.
Cancellation
of
the
penalty
imposed
under
subsection
163(2):
$908.46.
and
it
is
signed
”
Jean
Rastoul,
Agent".
The
appellant
stated
that
he
never
authorized
Rastoul
to
sign
such
a
document
and
what
he
expected
from
his
representations
to
Revenue
Canada
was
that
the
assessment
would
be
cancelled.
Counsel
for
the
respondent
argued
in
his
reply:
11.
The
respondent
contends
that
the
appellant
is
barred
from
appealing
the
assessment
made
on
January
13,
1988,
since
this
was
made
pursuant
to
an
agreement
between
the
parties,
and
the
parties
accordingly
concluded
a
transaction
within
the
meaning
of
the
provisions
of
arts.
1918
et
seq.
of
the
Quebec
Civil
Code;
12.
Alternatively,
he
argues
that
Pavillon
Mauricien
Inc.
conferred
a
taxable
benefit
of
$17,500
on
the
appellant
in
1981
by
repaying
a
loan
guaranteed
by
him,
in
accordance
with
the
provisions
of
subsections
15(1)
and
56(2)
of
the
Income
Tax
Act
His
argument
is
that
by
giving
Rastoul’s
name
on
the
notice
of
objection
form
the
appellant
made
him
his
agent,
and
as
such
he
was
entitled
and
had
legal
authority
to
enter
into
a
transaction
on
the
appellant's
behalf
and
so
bring
to
an
end
the
problem
which
had
arisen
from
the
assessment
of
November
19,
1986.
I
would
have
thought
that
it
was
obvious
that
such
an
argument
could
not
stand
in
law.
Counsel
for
the
respondent
called
one
Méville
Marois,
a
Revenue
Canada
appeals
officer
in
the
Sherbrooke
tax
office,
as
a
witness.
The
latter
explained
that
he
was
responsible
for
the
Pavillon
and
Camil
Béliveau
files
following
the
notices
of
objection
filed
by
the
latter
against
the
assessments
based
on
the
loan
by
Pavillon
to
Brasserie.
He
admitted
that
as
regards
the
penalty
imposed
on
Camil
Béliveau,
under
the
provisions
of
subsection
163(2)
of
the
Act,
the
Department
did
not
have
sufficient
evidence
to
support
the
imposition
of
such
a
penalty
and
that
Camil
Béliveau's
case
had
been
settled
on
the
basis
that
the
penalty
would
be
cancelled.
A
second
witness
named
Sylvie
Houde,
an
auditor
with
Revenue
Canada
in
the
St-Hubert
tax
office
who
handled
Pierre
Beliveau's
file
when
she
was
an
appeals
officer,
also
testified.
She
explained
that
according
to
the
Department's
policy,
when
there
was
a
”
mandated
agent
in
the
notice
of
objection”
the
appeals
officer
contacted
that
person,
and
that
is
what
she
did.
She
added
that
since
the
file
was
part
of
a
group
of
related
files,
she
contacted
the
Sherbrooke
district
office
and
that
office
eventually
informed
her
of
its
decision
on
the
file
of
the
appellant's
brother,
Camil
Béliveau.
She
subsequently
met
with
Rastoul
to
offer
him
the
same
settlement
and
sent
him
a
draft
letter
withdrawing
the
notice
of
objection
for
signature.
She
admitted
that
in
the
course
of
her
work
on
the
appellant's
file
she
never
met
him
or
discussed
the
file
with
him.
She
assumed
from
the
fact
that
Rastoul's
name
was
given
on
the
notice
of
objection
that
he
possessed
the
authority
necessary
to
settle
the
problem
by
withdrawing
the
notice
of
objection
on
the
appellant's
behalf.
According
to
the
witness,
two
weeks
after
she
sent
the
draft
withdrawal
letter
to
Rastoul
the
latter
contacted
her
to
tell
her
he
had
spoken
to
the
appellant
and
the
latter
would
be
signing
the
withdrawal
letter
during
the
week
in
question;
Rastoul
would
send
it
to
her.
Eventually
Rastoul
sent
her
the
alleged
letter
of
withdrawal
which
he
had
signed
himself
on
the
appellant's
behalf.
The
assessment
of
January
13,
1988
was
issued
on
the
basis
of
this
letter.
The
appellant
maintained
that
Rastoul
never
contacted
him
in
connection
with
this
alleged
letter
of
withdrawal.
According
to
this
evidence
it
appears
that
Rastoul's
actions
in
connection
with
this
matter
were
not
those
of
a
prudent
and
responsible
professional.
Counsel
for
the
respondent
submitted
in
argument
that
it
was
reasonable
for
the
appeals
officer
to
assume
that
Rastoul
had
a
legal
mandate
from
the
appellant
to
negotiate
the
settlement
of
his
objection.
He
based
this
argument,
first,
on
the
fact
that
his
name
appeared
on
the
notice
of
objection
form,
and
second,
that
by
his
actions
he
had
clearly
given
the
appeals
officer
the
impression
that
he
was
duly
authorized
to
act
on
the
appellant's
behalf.
Counsel
argued
that
this
was
accordingly
an
apparent
mandate
under
article
1730
of
the
Quebec
Civil
Code
('the
Code"),
which
reads:
1730.—The
mandator
is
liable
to
third
parties
who
in
good
faith
contract
with
a
person
not
his
mandatary,
under
the
belief
that
he
is
so,
when
the
mandator
has
given
reasonable
cause
for
such
belief.
[Emphasis
added.]
Neither
the
evidence
nor
scholarly
analysis
of
the
scope
of
a
mandate
seem
to
me
to
be
as
conclusive
as
counsel
suggests
in
support
of
his
argument.
The
mere
fact
of
putting
an
individual’s
name
on
a
notice
of
objection
form
as
an
authorized
agent
of
the
signatory
does
not,
in
my
opinion,
make
that
individual
a
mandatary
clothed
with
the
necessary
authority
to
negotiate
the
settlement
of
an
assessment
for
the
signatory.
The
legal
formalities
needed
to
make
someone
a
mandatary
clothed
with
the
authority
necessary
to
act
in
this
way
are
much
stricter
than
merely
putting
his
name
on
a
form.
Further,
the
wording
of
the
notice
of
objection
itself
leaves
no
doubt
as
to
the
appellant's
contentions
regarding
the
assessment:
it"is
wrong
in
fact
and
in
law
in
all
respects”.
It
is
clear
from
this
wording
that
the
appellant's
"authorized
agent”
was
mandated
simply
to
get
the
assessment
cancelled.
Trying
to
extract
any
other
interpretation
from
this
document
does
not
seem
possible
in
view
of
the
way
it
is
worded.
As
to
Rastoul's
actions,
if
he
had
been
duly
mandated
to
act
for
and
on
behalf
of
the
appellant,
why
did
he
contact
the
appeals
officer
to
tell
her
he
was
expecting
a
visit
from
the
appellant
and
would
have
the
withdrawal
letter
signed
and
forward
it
to
her
later?
In
my
view,
this
was
an
admission
by
him,
or
at
least
a
warning,
that
he
did
not
have
the
authority
alleged
by
the
respondent.
Such
a
message
should
have
alerted
the
appeals
officer
as
to
the
limits
of
his
mandate,
and
for
reasons
of
caution
at
least
she
should
have
required
the
appellant
to
sign
the
withdrawal
letter.
Without
such
a
signature,
I
do
not
see
how
it
is
possible
to
conclude
that
the
appellant's
notice
of
objection
was
withdrawn.
I
expressed
the
opinion
earlier
that
the
legal
requirements
for
a
mandator
to
create
a
mandatary
are
much
stricter
than
those
suggested
by
counsel
for
the
respondent.
The
definition
of
the
contract
of
mandate
is
contained
in
art.
1701
of
the
Code,
and
reads
as
follows:
1701.—Mandate
is
a
contract
by
which
a
person
called
the
mandator
commits
a
lawful
business
to
the
management
of
another,
called
the
mandatary,
who
by
his
acceptance
obliged
himself
to
perform
it.
The
acceptance
may
be
implied
from
the
acts
of
the
mandatary
and
in
some
cases
from
his
silence.
Article
1703
states:
1703.—The
mandate
may
be
either
special
for
a
particular
business,
or
general,
for
all
the
affairs
of
the
mandator.
When
general
it
includes
only
acts
of
administration.
For
the
purpose
of
alienation
or
hypothecation,
and
for
all
acts
of
ownership
other
than
acts
of
administration,
the
mandate
must
be
express.
[Emphasis
added.]
Henri
Roch
and
Rodolphe
Paré,
in
their
Traité
de
Droit
Civil
du
Québec,
vol.
13,
at
p.
28,
tell
us:
If
the
mandate
is
general,
the
mandatary's
powers
are
limited
to
acts
of
administration
as
stated
in
the
second
paragraph
of
our
article,
and
these
acts
of
administration
are
all
acts
necessary
to
administer
effectively;
however,
and
this
is
the
third
rule
laid
down
by
our
article,
alienation
or
hypothecation
and
any
act
of
ownership
whatever,
other
than
acts
of
administration,
must
be
the
subject
of
an
express
mandate.
In
the
next
paragraph,
they
say:
In
all
cases
it
is
fundamental
that
a
mandate
must
be
given
a
limiting
interpretation.
If
the
mandator
wishes
to
confer
on
the
mandatary
the
power
to
do
acts
other
than
administrative
ones,
he
must
say
so
expressly,
and
then
the
mandatary
cannot
do
any
acts
other
than
those
mentioned
in
the
mandate.
[Emphasis
added.]
I
have
no
hesitation
in
admitting
that
the
signature
of
a
letter
withdrawing
a
notice
of
objection
constitutes
an
alienation.
It
is
the
alienation
of
the
objector's
right
to
have
the
validity
of
his
arguments
regarding
an
assessment
determined
by
a
court
of
law.
Accordingly,
under
this
provision
of
the
Code,
Rastoul
should
have
been
expressly
authorized
to
sign
such
a
letter.
In
addition,
the
argument
of
counsel
for
the
respondent
that
the
exercise
of
the
alleged
mandate
by
Rastoul
created
a
transaction
within
the
meaning
of
the
Code
between
the
Minister
and
the
appellant,
and
that
the
latter
no
longer
had
any
remedy
at
law
since
the
transaction
had
the
authority
of
res
judicata,
as
indicated
by
article
1920,
is
not
in
accordance
with
the
principles
laid
down
by
the
courts
regarding
the
nature
of
a
mandate.
The
writers
referred
to
above,
in
the
same
text
at
page
104,
indicate
in
paragraph
2,
headed
"Constitution
and
Scope
of
Mandate"
On
the
other
hand,
a
lawyer
cannot
conclude
a
transaction
for
his
client
without
special
authorization.”
[Emphasis
added.]
In
support
of
this
opinion
they
refer
to
the
decision
of
the
Privy
Council
in
Henry
John
Sty
ri
ng
King
v.
Alfred
Pinsonneault,
6
L.R.
P.C.A.
245,
and
at
263
there
are
the
following
observations:
In
their
Lordships’
opinion
these
allegations
are
consistent
with
a
belief
which
Mr.
Laflamme
may
have
bona
fide
entertained,
that
his
character
of
"avoué"
gave
him
authority
to
conclude
the
"transaction".
Mr.
Laflamme
must
have
been
aware
of
the
importance
to
his
client
of
proving
a
special
authorization,
and
if
such
had
been
given,
he
might
and
probably
would
have
been
called
by
the
plaintiff
to
prove
it.
Called
by
the
defendant,
he
might
still
have
proved
it
by
putting
in
the
written
authority,
if
the
authority
were
in
writing,
or,
if
it
were
given
by
a
verbal
communication,
by
stating
the
effect
of
that
communication,
and
where
and
when
it
was
made.
But
Mr.
Laflamme
makes
no
mention
of
any
special
authority,
and
in
the
absence
of
such
a
mention
their
Lordships
cannot
assume
it.
French
writers
are
of
the
same
view.
In
the
Dalloz
Répertoire
de
Jurisprudence
("transaction",
article
4,
page
57),
it
states
the
following:
Does
a
mandatary
have
the
right
to
enter
into
a
transaction
on
behalf
of
his
mandator?
Article
1988
Code
Napoléon
clearly
indicates
that
he
does
not,
unless
the
authority
given
expressly
confers
this
power
on
the
mandatary.
A
mandatary
given
the
power
to
act
in
a
single
matter
cannot
enter
into
a
transaction
without
express
authority.
Article
1988
of
the
Code
Napoleon
is
almost
identical
with
article
1703
of
the
Code.
In
his
Répertoire
de
Jurisprudence
(vol.
17,
"transaction",
page
235),
Guyot
says:
Can
a
lawyer
or
mandatary
enter
into
a
transaction
on
behalf
of
his
principal?
He
may
do
so
without
difficulty
if
the
power
of
attorney
expressly
gives
him
this
authority
but
if
it
does
not,
he
is
barred
from
entering
into
any
kind
of
transaction.
If
a
lawyer
who
is
made
a
mandatary
must
be
specifically
authorized
in
order
to
be
able
to
enter
into
a
transaction
for
his
mandator,
then
it
is
all
the
more
necessary
for
an
accountant
to
be
at
least
specifically
authorized
to
enter
into
a
transaction
within
the
meaning
of
article
1918
of
the
Code
for
and
on
behalf
of
his
client.
It
should
further
be
noted
that
the
burden
of
proof
lies
on
the
appellant
to
show
that
the
assessment
is
wrong
in
fact
and
in
law.
Additionally,
if
the
respondent
[sic]
is
alleging
certain
facts
in
his
written
or
oral
argument
that
were
not
considered
by
the
respondent
in
making
or
preparing
the
assessment,
but
which
may
have
an
effect
on
the
outcome
of
the
proceeding,
he
must
present
evidence
of
them
as
in
any
other
civil
action.
Since
the
respondent
argued
that
Rastoul
had
been
duly
mandated,
it
was
for
him
to
present
evidence
of
this
and
to
prove
in
accordance
with
the
standard
required
by
the
courts
that
he
had
an
express
mandate
enabling
him
to
enter
into
a
transaction
for
his
mandator.
Additionally,
article
1918
of
the
Code
defines
a
transaction
as
follows:
Transaction
is
a
contract
by
which
the
parties
terminate
a
lawsuit
already
begun,
or
prevent
future
litigation
by
means
of
concessions
or
reservations
made
by
one
or
both
of
them.
[Emphasis
added.]
Since
a
transaction
is
a
contract,
it
is
subject
to
the
conditions
required
for
a
contract
to
be
valid.
Article
984
of
the
Code
states:
There
are
four
requisites
to
the
validity
of
acontract:
Parties
legally
capable
of
contracting;
Their
consent
legally
given;
Something
which
forms
the
object
of
the
contract;
A
lawful
cause
or
consideration.
[Emphasis
added.]
The
Court
has
no
evidence
that
through
her
position
the
appeals
officer
was
legally
capable
of
contracting
for
and
on
behalf
of
the
respondent
and
that
she
had
received
an
express
mandate
to
enter
into
a
transaction
on
his
behalf.
I
would
add
that
I
strongly
doubt
that
the
respondent
himself
had
authority
to
enter
into
a
transaction
under
the
provisions
of
the
Code.
His
authority
to
administer
the
Act
is
statutory
and
is
conferred
on’him
by
the
Parliament
of
Canada,
and
I
have
serious
doubts
in
the
absence
of
evidence
that
he
could
contract
in
this
way
on
behalf
of
the
Government
of
Canada.
For
him,
transacting
would
mean
that
he
could
confer
the
status
of
res
judicata,
as
required
by
the
Code,
on
the
negotiated
settlement
of
an
assessment.
Giving
him
such
authority
would
give
him
judicial
power
in
respect
of
an
assessment.
The
Court
has
no
evidence
that
the
Parliament
of
Canada
has
conferred
any
such
power
upon
him.
For
these
reasons,
I
am
persuaded
that
the
appellant
was
entitled
to
appeal
from
the
assessment
of
January
13,
1988.
It
must
now
be
determined
whether
the
assessment
was
made
in
accordance
with
the
provisions
of
the
Act.
The
reasoning
on
which
the
respondent
appeared
to
rely
in
making
the
assessment
of
November
19,
1986
for
the
1981
taxation
year,
which
was
confirmed
by
the
assessment
of
January
13,
1988,
may
be
summarized
as
follows.
The
appellant
and
his
brother
were
both
equal
shareholders
in
Pavillon,
and
in
the
circumstances
Pavillon
advancing
money
to
Brasserie
which
was
used
to
pay
a
bank
loan
obtained
by
Brasserie,
and
guaranteed
by
the
two
brothers,
had
the
effect
of
conferring
a
benefit
on
the
latter
since
they
were
released
from
their
obligation
as
sureties
to
the
Bank,
in
accordance
with
the
provisions
of
paragraph
15(1)(c)
of
the
Act
and
as
a
consequence
of
the
provisions
of
subsection
56(2).
Section
15(1)(c)
reads:
15.
(1)
Appropriation
or
property
to
shareholder.—Where
in
a
taxation
year
(c)
a
benefit
or
advantage
has
been
conferred
on
a
shareholder
by
a
corporation,
otherwise
than
(d)
on
the
reduction
of
capital,
the
redemption,
cancellation
or
acquisition
by
the
corporation
of
shares
of
its
capital
stock
or
the
winding-up,
discontinuance
or
reorganization
of
its
business,
or
otherwise
by
way
of
a
transaction
to
which
section
88
applies,
(e)
by
the
payment
of
a
dividend
or
a
stock
dividend,
(f)
by
conferring
on
all
holders
of
common
shares
of
the
capital
stock
of
the
corporation
a
right
to
buy
additional
common
shares
thereof,
or
(g)
by
an
action
described
in
paragraph
84(1)(c.1)
or
(c.2),
the
amount
or
value
thereof
shall,
except
to
the
extent
that
it
is
deemed
to
be
a
dividend
by
section
84,
be
included
in
computing
the
income
of
the
shareholder
for
the
year.
Section
56(2)
reads:
56.
(2)
Indirect
payments.
A
payment
or
transfer
of
property
made
pursuant
to
the
direction
of,
or
with
the
concurrence
of,
a
taxpayer
to
some
other
person
for
the
benefit
of
the
taxpayer
or
as
a
benefit
that
the
taxpayer,
desired
to
have
conferred
on
the
other
person
shall
be
included
in
computing
the
taxpayer's
income
to
the
extent
that
it
would
be
if
the
payment
or
transfer
had
been
made
to
him.
In
paragraph
12
of
the
amended
reply
to
the
notice
of
appeal,
counsel
for
the
respondent
said:
12.
Alternatively,
he
argues
that
Pavillon
Mauricien
Inc.
conferred
a
taxable
benefit
of
$17,500
on
the
appellant
in
1981
by
repaying
a
loan
guaranteed
by
him,
in
accordance
with
the
provisions
of
subsections
15(1)
and
56(2)
of
the
Income
Tax
Act.
.
.
I
should
first
note
that
this
allegation
is
not
in
accordance
with
the
evidence.
According
to
the
photocopy
of
the
cheque
dated
September
15,
1981,
filed
as
an
exhibit
by
the
respondent,
it
is
clear
that
Pavillon
did
not
in
fact
repay
the
Bank
as
alleged
by
counsel,
since
the
cheque
in
question
was
issued
by
Pavillon
to
Brasserie.
The
appellant
mentioned
in
his
testimony
that
Pavillon
had
made
a
loan
to
Brasserie
which
is
confirmed
by
this
cheque.
This
accordingly
means,
on
this
evidence,
that
Pavillon
had
loaned
Brasserie
$35,000
and
that
the
latter
repaid
the
Bank
itself
with
the
proceeds
of
this
loan.
This
also
means
that
the
provisions
of
subsection
56(2)
of
the
Act,
on
which
the
respondent
based
its
arguments
for
making
the
assessment
of
the
appellant,
were
not
applicable
in
the
circumstances.
A
loan
cannot
legally
be
a
"transfer
of
property"
as
required
by
the
provisions
of
56(2),
still
less
a
payment,
and
the
courts
have
clearly
confirmed
this
interpretation.
What
the
Act
means
by
a“
"transfer
of
property”
is
not
simply
a
physical
transfer
but
a
transfer
of
the
right
of
ownership
attached
to
the
property.
The
decisions
on
this
interpretation
could
hardly
be
more
specific.
In
Joseph
B.
Dunkelman
v.
M.N.R.,
[1959]
C.T.C.
375;
59
D.T.C.
1242,
the
Court
had
to
interpret
the
provisions
of
subsection
22(1)
of
the
Act
in
effect
at
the
time.
That
subsection
read:
22.(1)
Where
a
taxpayer
has,
since
1930,
transferred
property
to
a
person
who
was
under
nineteen
years
of
age,
either
directly
or
indirectly,
by
means
of
a
trust
or
by
any
other
means
whatsoever,
the
income
for
a
taxation
year
from
the
property
or
from
property
substituted
therefor
shall,
during
the
lifetime
of
the
taxpayer
while
he
is
resident
in
Canada,
be
deemed
to
be
income
of
the
taxpayer
and
not
of
the
transferee
unless
the
transferee
has
before
the
end
of
the
year
attained
the
age
of
nineteen
years.
The
relevant
facts
of
this
case
are
summarized
as
follows:
In
1945
the
appellant
and
a
trust
company,
as
trustees,
purchased
a
building
to
be
held
in
trust
for
the
appellant's
minor
children.
All
the
money
required
for
the
purchase
was
lent
by
the
appellant
to
the
trustees,
the
loan
being
secured
by
a
mortgage
on
the
property.
The
Minister
ruled
that
the
rental
income
from
the
building
was
taxable
as
income
in
the
appellant's
hands
under
the
provisions
of
section
22(1).
The
Minister's
principal
argument
was
that
the
appellant
had
transferred
money
to
the
trustees
for
his
minor
children,
that
the
building
had
been
purchased
with
that
money
and
was,
therefore,
property
substituted
for
the
property
transferred,
and
that
the
income
from
such
property
was
deemed
by
section
22(1)
to
be
income
of
the
appellant.
The
appeal
was
allowed
and,
at
383-84
(D.T.C.
1246),
Thurlow,
J.
said
the
following
as
to
the
application
of
subsection
22(1)
in
connection
with
a
loan:
I
do
not
think
it
can
be
denied
that,
by
loaning
money
to
the
trustees,
the
appellant,
in
the
technical
sense,
transferred
money
to
them,
even
though
he
acquired
in
return
a
right
to
repayment
of
a
like
sum
with
interest
and
a
mortgage
on
the
Butterfield
Block
as
security,
or
even
though
he
has
since
then
been
repaid
with
interest.
But,
in
my
opinion,
it
requires
an
unusual
and
unnatural
use
of
the
words
”
has
transferred
property"
to
include
the
making
of
this
loan.
I
also
think
that,
if
Parliament
had
intended
to
include
a
loan
transaction
such
as
the
present
one,
the
words
necessary
to
make
that
intention
clear
would
have
been
added,
and
it
would
not
have
been
left
to
an
expression
which
in
its
usual
and
natural
meaning,
does
not
clearly
include
such
a
transaction.
(French
version
of
these
reasons
not
available.
See
also
Fraser
Companies
Ltd.
v.
The
Queen,
[1981]
C.T.C.
61;
81
D.T.C.
5051.)
If
the
provisions
of
paragraph
15(1)(c)
and
subsection
56(2)
relied
on
by
the
respondent
were
applicable,
they
would
have
applied
for
a
subsequent
taxation
year
on
the
evidence,
that
is,
for
the
taxation
year
during
which
Brasserie
was
wound
up
and
as
a
consequence
of
that
winding-up
did
not
repay
Pavillon.
At
that
time
the
appellant
and
his
brother
did
receive
a
benefit,
since
it
was
established
that
Brasserie
never
repaid
Pavillon
for
the
bank
loan
for
which
the
brothers
stood
surety,
and
that
in
the
circumstances
Pavillon
in
fact
repaid
the
loan
instead
of
them.
As
long
as
Brasserie
was
not
wound
up,
had
assets
which
it
could
dispose
of
and
its
action
for
damages
had
not
been
settled
in
one
way
or
another,
its
loan
from
Pavillon
was
part
of
its
liabilities.
The
loan
would
have
been
repaid
by
it
if
it
had
won
its
action
against
the
municipality.
In
that
case
the
Béliveau
brothers
would
never
have
received
a
benefit
within
the
meaning
of
the
Act
from
this
transaction.
The
situation
became
fixed
when
Brasserie
was
wound
up
without
having
repaid
its
loan
to
Pavillon.
On
account
of
that
situation,
the
appellant
and
his
brother
would
appear
to
have
received
a
benefit
falling
within
paragraph
15(1)(c)
and
subsection
56(2)
for
the
taxation
year
in
which
they
were
placed
in
that
situation,
but
not
for
the
1981
taxation
year
as
suggested
by
the
respondent.
For
these
reasons,
the
appeal
is
allowed
and
the
appellant
will
be
entitled
to
his
party
and
party
costs.
Appeal
allowed.
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