Decary,
J:—Three
causes
for
action
have
been
joined
in
this
matter:
Charles
and
David
Malka,
plaintiffs,
have
each
lodged
an
appeal
for
having
been
assessed
each
on
his
part
of
a
profit
derived
from
an
alleged
adventure
in
the
nature
of
trade
falling
within
the
meaning
of
business
at
paragraph
139(1)(e)
of
the
Income
Tax
Act,
RSC
1952
(hereinafter
called
“the
Act’’)
and
Charles
Malka
has
lodged
another
appeal
for
having
been
assessed
also
as
an
alleged
liquidator
under
the
authority
of
subsections
52(2)
and
52(3)
of
the
Act.
The
first
point
to
be
dealt
with
is
the
one
concerning
the
purported
adventure
in
the
nature
of
trade.
That
adventure
would
emerge
from
the
fact
that
the
two
plaintiffs,
Charles
and
David
Malka,
before
purchasing
the
400
issued
common
shares
of
a
loss
company,
Inesco
Intercontinental
Electronics
School
Canada
Ltd,
saw
to
it
that
the
share
capital
be
increased
by
the
creation
of
1,000
voting
preferred
shares
of
a
par
value
of
$1
each,
that
an
amount
of
500
preferred
shares
be
subscribed
and
paid
for
by
the
former
holders
of
the
400
common
shares
of
a
par
value
of
$10
each,
that
the
objects
and
powers
of
the
company
be
extended
to
include
the
operation
of
the
business
of
importing
shoes
and
that
the
name
be
changed
to
the
one
of
Valiant
Shoe
Import
Corp.
On
August
15,
1969
Valiant
Shoe
Manufacturing
Corp
sold
all
its
assets
to
Valiant
Shoe
Import
Corp
at
a
net
book
value
of
$87,013.49.
On
the
same
day,
each
plaintiff
paid
$9,950
for
199
common
shares
and
Haim
Malka
paid
$100
for
2
common.
shares
to
the
former
holder.
Vefo
Handelsanstalt,
a
Liechtenstein
corporation.
The
losses
sustained
by
the
company
when
known
as
Inesco
Intercontinental
Electronics
School
Canada
Ltd
amounted
to
$324,993.59
or
to
about
$800
per
common
share.
A
disbursement
of
$50
per
share
by
each
shareholder
were
to
allow
Valiant
Shoe
Import
Corp
to
deduct
$800
per
share
from
its
profits
and
to
benefit
its
shareholders
upon
liquidation
from
the
tax
avoided
and
from
the
profits.
The
deduction
is
16
times
and
the
tax
avoided
many
times
the
cost
of
the
shares.
As
per
defendant,
that
plan
was
to
make
up
to
an
adventure
in
the
nature
of
trade
and
fall
within
the
ambit
of
the
judgment
of
the
Supreme
Court
of
Canada
in
MNR
v
James
N
Sissons,
[1969]
SCR
507;
[1969]
CTC
184;
69
DTC
5152.
Counsel
for
plaintiffs
attempted
to
distinguish
the
present
instance
from
that
case
on
the
basis
that
the
Supreme
Court
had
to
deal
with
a
profit
arising
out
of
the
purchase
of
debentures
near
maturity
date
whereas
in
the
instant
case
the
Court
is
concerned
with
the
profit
from
the
purchase
of
shares
to
be
cancelled
upon
liquidation
of
Valiant
Shoe
Import
Corp
some
18
months
later,
when
the
shares
are
worth
much
more.
From
the
common
evidence
filed
it
is
found
that:
on
October
24,
1968
the
shareholders
approved
a
resolution
to
wind
up
Inesco
Intercontinental
Electronics
School
Canada
Ltd;
the
winding-up
and
discontinuance
were
undertaken
at
a
good
pace
as
less
than
three
months
later
we
read
that
letter
to
the
Department
of
National
Revenue,
dated
January
8,
1969,
written
by
a
director:
Dear
Sirs,
We
wish
to
inform
you
that
we
are
discontinuing
the
present
line
of
endeavour
of
our
company.
We
find
that
we
have
on
hand
an
inventory
of
printed
lessons,
unsaleable
parts
of
educational
kits
and
various
electronic
parts
damaged
or
obsolete.
The
original
value
on
the
above
inventory
amounts
to
approximately
$50,000.00
Since
this
inventory
is
of
no
further
use
to
us,
we
have
decided
to
sell
the
printed
lessons
to
a
waste
paper
dealer
for
$8.00
a
ton
and
to
discard
the
unsaleable
parts.
We
have
also
various
electronic
parts
of
educational
kits
purchased
in
Europe
4
or
5
years
ago
for
approximately
$10,000.00
We
have
sold
those
parts
to
parent
correspondance
schools
in
Italy
and
France
for
$2,000.00
and
will
be
schipping
them
to
Europe
within
the
next
10
days.
Should
your
Department
require
any
specific
proceedings
regarding
the
disposal
of
our
inventory,
please
contact
us
within
the
next
few
days.
Yours
sincerely.
F.
Potworowski
Director
(and
signed)
a
notice
to
the
Prothonotary
of
the
Superior
Court
is
dated
February
20,
1968,
a
clerical
error
as
it
was
registered
February
20,
1969;
the
one
to
the
Registrar
of
the
Registry
Office
is
dated
February
20,
1969
and
each
of
these
two
documents
refers
to
the
same
date
for
the
resolution
to
wind
up:
October
24,
1968;
on
June
7,
1969
a
resolution
of
the
shareholders
reads
in
part:
.
.
.
the
proceedings
in
the
voluntary
winding-up
of
INESCO
INTERCONTINENTAL
ELECTRONICS
SCHOOL
LTD.
be
discontinued
and
the
operations
of
the
Company
be
continued.
.
.
.
on
June
18,
1969
judgment
was
rendered
by
the
Superior
Court
to
the
effect
“that
this
company
continue
to
carry
on
as
if
the
winding-up
proceedings
had
not
been
instituted”;
a
letter
dated
June
25,
1969
reads:
Dear
Sir,
I
am
sending
you
a
number
of
documents
relative
to
the
process
of
transferring
INESCO
to
the
new
partners.
Please
have
all
documents
signed
by
the
person
indicated,
in
the
places
marked
with
a
“X”.
Do
not
sign
where
marked
with
a
circle,
these
will
be
signed
in
Montreal
(sic).
The
President
of
VEFO
must
sign
for
the.
company,
except
in
the
place
where
your
name
has
been
indicated.
Please
inform
me
of
the
exact
name
of
the
President
of
VEFO.
Please
do
not
put
the
date
on
any
of
the
documents.
They
must
be
placed
in
the
right
sequence
and
the
placing
of
a
wrong
date
could
damage
the
transaction.
Please
sign
personally
the
share
certificates
(on
the
green
paper)
of
the
first
page;
one
of
these
certificates
must
be
endorsed
by
the
President
of
VEFO.
The
second
one
should
not
be
endorsed.
Please
check
carefully
all
documents
before
sending
them,
see
if
all
the
signatures
are
there,
and
send
all
the
documents
by
air
mail
as
soon
as
possible,
addressed
to
me.
I
will
not
issue
these
documents
before
I'
get
$15,000
by
checks.
certified
by
the
bank.
Out
of
that
amount
we
have
to
pay
$500
for
the
preferred
shares,
which
will
be
given
back
after
the
dissolution
of
the
partnership.
I
remain
truly
yours
At
the
bottom
of
the
page
there
is
a
photocopy
of
a
Post
Office
Registration
Receipt.
This
is
an
exact
and
faithful
translation
from
the
Polish
original.
Translated
by
Elzbieta
Polocki
Montreal
April
29,
1977.
.3?»
supplementary
letters
patent,
dated
July
16,
1969,
read
in
part:
I
Changing
its
name
from
INESCO
INTERCONTINENTAL
ELECTRONICS
SCHOOL
CANADA
LTD.
to
“VALIANT
SHOE
IMPORT
CORP.”
II
Extending
the
powers
of
the
Company
as
set
forth
in
the
Letters
Patent
by
adding
the
following
powers:
(i)
To
manufacture,
import,
export
footwear,
clothing
and
other
related
objects;
(ii)
To
carry
on
the
business
of
general
manufacturers;
(iii)
To
establish
shops
and
stores
and
to
purchase,
sell
and
deal
in
all
kinds
of
goods,
wares
and
merchandise
in
connection
with
the
operations
of
the
Company.
III
That
the
authorized
capital
of
the
Company
be
and
is
hereby
increased
from
the
sum
of
Four
Thousand
Dollars
($4,000.00)
to
the
sum
of
Five
Thousand
Dollars
($5,000.00)
by
the
creation
of
One
Thousand
(1,000)
voting
non-redeemable
preferred
shares
of
the
par
value
of
One
Dollar
($1.00)
each,
each
having
’attached
thereto
the
following
rights;
privileges
and
restrictions:
a)
The
preferred
shares
shall
carry
the
right,
in
the
discretion
of
the
Directors,
to
a
fixed
non-cumulative
preferential
dividend
of
seven
per
cent
(7%)
per
annum,
payable
yearly,
and
the
right
in
the
liquidation
or
winding-
up
of
the
Company
to
the
repayment
of
capital
in
priority
to
the
common
shares,
but
they
shall
not
confer
a
right
to
any
further
participation
in
profits
or
assets.
b)
The
holders
of
the
preferred
shares
shall
be
entitled
to
receive
all
notices
of
and
to
attend
all
shareholders’
meetings
and
to
vote
thereat
in
the
same
manner
as
the
holders
of
the
common
shares
for
the
election
of
Directors
and
for
any
other
purposes.
c)
The
preferred
shares
shall
be
non-redeemable.
IV
That
the
authorized
capital
of
the
Company
shall
now
consist
of
Five
Thousand
Dollars
($5,000.00)
divided
into
Four
Hundred
(400)
common
shares
of
the
par
value
of
Ten
Dollars
($10.00)
each,
and
One
Thousand
(1,000)
voting
non-redeemable
preferred
shares
of
the
par
value
of
One
Dollar
($1.00)
each.
on
the
date
of
issue
of
the
supplementary
letters
patent,
July
16,
1969,
Veto
Handelsanstalt,
holder
of
all
the
common
shares
but
two,
subscribed
to
500
of
these
preferred
shares
of
a
par
value
of
$1
each
and
the
relevant
resolution
of
the
board
of.
directors
states
that
they
are
paid;
on
August
8,
1969
Veto
Handelsanstalt
forgave,
out
of
a
debt
of
$324,457.39
owed
by
the
company,
an
^amount
of
$324,000,
the
balance
of
$457.39
to
be
paid
later;
on
August
15,
1969
Valiant
Shoe
Manufacturing
Inc
transferred
all
its
assets
and
liabilities
to
Valiant
Shoe
Import
Corp
for
the
net
book
value
of
$87,013.49;
on
the
same
date,
10
months
after
the
resolution
to
wind
up
and
two
months
after
the
judgment
of
the
Superior
Court
confirming
the
discontinuance
of
the
proceedings
for
winding-up,
the
common
shares
of
Valiant
Shoe
Import
Corp
were
transferred
to
plaintiffs;
a
letter
dated
August
20,
1969
to
the
non-resident
former
common
shareholders
states
that
the
$500
paid
for
the
preferred
shares
will
be
repaid
in
about
one
year,
at
dissolution;
on
October
1,
1970,
14
months
after
the
purchase
of
the
common
shares
by
plaintiffs,
all
the
assets
and
liabilities
of
Valiant
Shoe
Import
Corp
are
transferred
to
a
new
company,
Valiant
Shoe
Inc,
for
the
net
book
value
of
$311,637.06;
that
same
day,
plaintiffs
subscribed
for
400
common
shares
of
Valiant
Shoe
Inc,
these
400
shares
being
the
only
ones
issued;
on
February
20,
1971
the
assets
of
the
company
were
distributed
and
each
plaintiff
received,
inter
alia,
an
amount
of
$161,190
which
was
added
to
their
income;
on
August
18,
1971,
there
was
a
petition
for
leave
to
surrender
charter.
c
p
.y
-
.
After
having
weighed
the
testimony
of
both
the
financial
adviser
of
plaintiffs
and
one
of
the
plaintiffs,
it
is
my
opinion
that
it
was
established
that
these
shares
were
purchased
for
no
other
reason
than
that
they
were
shares
of
a
loss
company;
the
said
loss
would
be
used
up
by
a
profitable
business
that
expected
not
to
have
to
pay
income
tax
as
long
as
there
would
be
a
loss
to
be
applied
against
its
income;
the
assets
of
Valiant
Shoe
Manufacturing
Inc
were
acquired
for
that
purpose
at
a
price
of
$87,013.49;
once
the
loss
would
have
been
used
up,
the
loss
company
would
sell
its
assets
to
another
company
for
the
net
book
value;
the
former
loss
company
would
then
be
liquidated;
the
shareholders,
that
is
the
plaintiffs,
would
make
a
profit
on
the
distribution
of
the
proceeds
of
sale
of
the
assets,
that
profit
being
the
difference
between
the
cost
of
the
shares
and
the
portion
of
these
proceeds
received.
That
was
the
plan
to
be
carried
out.
As
a
matter
of
fact,
the
share
of
each
plaintiff
in
the
proceeds
of
liquidation
after
the
sale
of
the
assets
of
Valiant
Shoe
Import
Corp
to
Valiant
Shoe
Inc
amounted,
on
February
1,
1971,
to
$161,190
or
about
$800
a
snare,
for
a
cost
to
each
of
them
of
$50
a
share
some
18
months
earlier,
on
August
15,
1969.
Each
plaintiff
was
assessed
upon
that
amount
of
$161,190
for
the
year
1971.
These
remarks
of
Pigeon,
J,
rendering
the
judgment
of
the
Court
in
Sissons
(Supra),
are
applicable
to
the
matter
under
scrutiny
(page
512
[187,
5154]):
For
the
respondent
to
escape
taxation
on
his
gain
from
the
operation
he
has
to
show
that
it
is
to
be
characterized
as
an
investment.
Otherwise,
the
conclusion
is
inescapable
that
it
is
an
adventure
in
the
nature
of
trade.
In
support
of
the
judgment
in
the
Court
below,
counsel
for
the
respondent
relied
essentially
on
the
decision
of
this
Court
in
Irrigation
Industries
Ltd
v
MNR,
[1962]
SCR
346;
[1962]
CTC
215
[62
DTC
1131].
In
that
case,
an
otherwise
inactive
company
had
purchased
from
a
mining
company
4,000
treasury
shares
of
an
initial
issue
of
500,000
shares.
The
majority
held
that
this
was
an
investment
and
that
the
gain
obtained
by
selling
the
shares
at
a
profit
a
few
weeks
later
was
not
income.
Martland,
J
said
(at
p
351
[p
219]):
“In
my
opinion,
a
person
who
puts
money
into
a
business
enterprise
by
the
purchase
of
the
shares
of
a
company
on
an
isolated
occasion,
and
not
as
a
part
of
his
regular
business,
cannot
be
said
to
have
engaged
in
an
adventure
in
the
nature
of
trade
merely
because
the
purchase
was
Speculative
in
that,
at
that
time,
he
did
not
intend
to
hold
the
shares
indefinitely,
but
intended,
if
possible,
to
sell
them
at
a
profit
as
soon
as
he
reasonably
could.
I
think
that
there
must
be
clearer
indications
of
‘trade’
than
this
before
it
can
be
said
that
there
has
been
an
adventure
in
the
nature
of
trade.’’
Here
the
clear
indication
of
“trade’’
is
found
in
the
fact
that
the
acquisition
of
the
securities
was
a
part
of
a
profit-making
scheme.
The
purpose
of
the
operation
was
not
to
earn
income
from
the
securities
but
to
make
a
profit
on
prompt
realization.
The
operation
has
therefore
none
of
the
essential
characteristics
of
an
investment,
it
is
essentially
a
speculation.
In
the
present
instance
also
it
was
manifestly
a
profit-making
scheme.
The
purpose
of
the
scheme
was
to
have
Valiant
Shoe
Import
Corp
make
a
profit
by
being
expected
not
to
have
to
pay
income
tax
on
account
of
the
losses
sustained
under
the
name
of
Inesco
Intercontinental
Electronics
School
Canada
Ltd,
and,
upon
liquidation,
to
have
the
shareholders
of
the
company
make
a
profit
from
their
shares
many
times
their
cost.
There
is
a
reference
at
page
513
[188,
5155]
of
the
Sissons
judgment
(supra)
to
the
matter
of
Learning
v
Jones,
[1930]
1
KB
279,
where
the
profit
from
selling
a
mill,
after
putting
it
back
into
operation,
was
held
to
be
assessable.
In
the
present
instance,
we
have
the
opposite:
the
shares
of
a
loss
company
are
acquired,
the
business
of
that
company
is
changed
from
that
of
a
school
to
that
of
an
importer,
a
shoe
jobber,
the
new
business
is
operated
and
the
losses
are
used
up
and
then
the
company
is
liquidated.
The
end
result
in
Looming
and
the
one
in
the
instant
case
are
the
same,
that
is,
a
profit
is
made,
though
the
way
of
arriving
at
that
profit
is
different.
In
each
instance
there
were
numerous
steps
before
realizing
the
rofit
that
was
foreseen.
The
profit
from
the
distribution
to
plaintiffs
by
the
company
is
found
to
be
arising
from
an
adventure
in
the
nature
of
trade
which
expression
is
included
in
the
definition
of
“business"
at
paragraph
139(1)(e)
of
the
Act
and
consequently
the
profit
being
from
a
business
Is
income
under
the
provisions
of
sections
3
and
4
of
the
Act
but
the
amount
of
said
profit
should
be
determined
after
having
taken
into
account
in
computing
the
income
the
cost
of
the
shares
which
disbursement
amounts
to
$9,950
for
199
shares
held
by
each
plaintiff
as
the
Court
was
told
that
this
cost
of
the
shares
had
been
overlooked
by
the
Minister
when
assessing
plaintiffs.
Counsel
for
defendant
used
an
alternative
argument
that
had
not
been
made
use
of
for
the
assessment
at
issue.
He
argued
that
the
profit
would
still
be
assessable
as
a
deemed
to
be
dividend
under
the
provisions
of
subsection
81(1)
of
the
Act.
I
believe
that
the
argumentation
should
pertain
to
facts
upon
which
the
assessment
is
based,
and
not
to
an
afterthought.
The
step
of
winding
up
or
liquidating
Valiant
Shoe
Import
Corp
or
distributing
its
assets
being
one
single
step
out
of
numerous
others
in
the
scheme,
I
cannot
believe
that
such
a
step
should
take
priority
over
the
total
of
all
the
steps:
purchase
of
shares,
change
of
name
and
objects,
transfer
of
assets,
using
up
of
losses,
winding-up
and
distribution
of
the
assets
of
Valiant
Shoe
Import
Corp.
These
steps,
taken
together
as
they
should,
amount
to
a
profit-making
scheme.
It
could
not
be
justified
to
give
such
an
importance
to
a
single
step
of
the
scheme
that
all
the
other
steps
taken
together
would
be
forgotten.
It
is
my
considered
opinion
that
I
have
to
look
at
all
the
elements
of
the
scheme.
The
assessment
was
not
made
on
account
of
a
distribution
of
the
funds
of
the
company
under
the
provisions
of
subsection
81(1)
but
on
account
of
an
adventure
in
the
nature
of
trade
which
expression
is
included
in
the
definition
of
“business"
at
paragraph
139(1
)(e)
of
the
Act.
The
Minister,
in
this
case,
had
forgotten
to
transmit
to
the
Registry
of
the
Court
copies
of
all
documents
relevant
to
the
assessments
and
it
was.
only
because
the
amounts
of
the
gross
profit
were
admitted
that
it
was
possible
to
hear
the
case.
There
is
an
undertaking
that
the
Minister
shall,
as
soon
as
possible,
comply
with
the
provisions
of
subsection
176(2)
of
the
Income
Tax
Act.
The
matter
of
the
adventure
in
the
nature
of
trade
having
disposed
of
the
issue
concerning
the
income
of
plaintiffs
as
members
of
the
adventure
or
scheme,
there
remains
the
question
of
the
profits
of
Valiant
Shoe
Import
Corp
assessed
on
the
head
of
Charles.
Malka
under
subsection
52(2)
and
subsection
52(3)
of
the
Act
because
as
liquidator
he
distributed
the
assets
of
the
company
on.
February
1,
1971.
The
profits
from
August
15,
1969
to
December
31,
1970
are
$355,887.53
and
the
taxes
are
for
1969,
$54,370.40
and
for
1970,
$56,177.84.
That
question
has
two
facets:
one,
to
determine
if
Charles
Malka
was
a
liquidator,
and
the
other,
if
he
was
a
liquidator,
to
ascertain
if
the
computation
of
the
amount
of
profits
of
the
company
he
has
been
assessed
upon
is
right.
There
are
two
computations:
plaintiff's
one
which
has
taken
into
account
the
losses
amounting
to
$324,993.59
and
thereby
has
greatly
reduced
the
income,
and
the
Minister’s
one
which,
not
having
recognized
that
the
control
was
the
same
before
and
after
the
purchase
of
the
common
shares
of
Valiant
Shoe
Import
Corp
did
not
take
into
account
the
said
loss
and
assessed
the
tax
upon
the
amount
of
income
stated
earlier.
The
provisions
of
subsections
52(2)
and
52(3)
read
as
follows:
52.
(2)
Every
assignee,
liquidator,
administrator,
executor
and
other
like
person,
other
than
a
trustee
in
bankruptcy,
before
distributing
any
property
under
his
control,
shall
obtain
a
certificate
from
the
Minister
certifying
that
taxes,
interest
or
penalties
that
have
been
assessed
under
this
Act
and
are
chargeable
against
or
payable
out
of
the
property
have
been
paid
or
that
security
for
the
payment
thereof
has,
in
accordance
with
subsection
(4)
of
section
116,
been
accepted
by
the
Minister.
(3)
Distribution
of
property
without
a
certificate
required
by
subsection
(2)
renders
the
person
required
to
obtain
the
certificate
personally
liable
for
the
unpaid
taxes,
interest
and
penalties.
In
my
view,
it
would
not
be
reasonable
not
to
consider
Charles
Malka
as
a
liquidator
because
he
has,
in
fact,
acted
like
a
liquidator.
To
interpret'subsection
52(2)
in
such
a
formalistic
way
that
it
would
not
encompass
a
de
facto
liquidator
would
be
contrary
to
the
provisions
of
subsection
52(2)
even
if
one
had
no
recourse
to
the
rule
of
ejusdem
generis.
Indeed,
it
would
give
rise
to
blatant
abuses
as
one
would
only
have
to
distribute
and
then
the
Minister
would
have
nobody
to
sue
for
the
taxes
of
the
company.
It
is
precisely
the
de
facto
liquidators
that
are
the
main
target
of
subsections
52(2)
and
52(3)
as
they
are
the
ones
that
can
be
the
less
prone
to
ask
for
a
certificate.
As
to
the
computation
of
the
income
of
Valiant
Shoe
Import
Corp
and
the
matter
of
the
loss
while
that
company
was
known
under
the
name
of
Inesco
Intercontinental
Electronics
School
Canada
Ltd,
the
Minister
alleges
that
the
control
of
the
company
has
been
acquired
by
plaintiffs
because
the
use
or
non-use
to
be
made
of
the
preferred
shares
was
a
sham
for
hiding
the
fact
that
plaintiffs
had
acquired
the
control.
That
sham
could
have
the
Minister
believe
that
the
loss
of
$324,993.59
should
be
applied
against
the
income
of
the
company
which
would
then
escape
tax
on
an
amount
of
income
reduced
by
the
amount
of
the
loss.
After
the
transfer
of
the
400
common
shares,
Valiant
Shoe
Import
Corp
had
an
issued
share
capital
of
400
voting
common
shares
of
$10
par
value,
held
by
the
Malka
family,
and
500
voting
preferred
shares
of
$1
par
value
held
by
Veto
Handelsanstalt,
a
Liechtenstein
company,
and
two
other
non-resident
individuals.
A
cost
of
$20,000
would
carry
only
400
votes
as
the
common
shares
have
a
par
value
of
$10,
whereas
a
cost
of
$500
would
carry
500
votes
as
the
preferred
shares
have
a
par
value
of
$1.
The
cost
of
the
common
shares
is
50
times
the
one
of
the
preferred
shares
and
still
the
preferred
shares
would
be
made
to
believe
they
are
the
controlling
ones
notwithstanding
such
a
disproportion
between
the
costs
and
such
a
difference
of
interest
in
the
company
as
the
preferred
holders
are
restricted
in
all
events
to
their
par
value.
A
definition
of
“sham”
is
found
in
the
matter
of
Snook
v
London
&
West
Riding
Investments
Ltd,
[1967]
1
All
ER
518,
where
Diplock,
LJ
at
page
528
says:
As
regards
the
contention
of
the
plaintiff
that
the
transactions
between
himself,
Auto-Finance
Ltd.
and
the
defendants
were
a
sham,
it
is,
I.
think,
necessary
to
consider
what,
if
any,
legal
concept
is
involved
in
the
use
of
this
popular
and
pejorative
word.
I
apprehend
that,
if
it
has
any
meaning
in
law,
it
means
acts
done
or
documents
executed
by
the
parties
to
the
“sham”
which
are
intended
by
them
to
give
to
third
parties
or
to
the
court
the
appearance
of
creating
between
the
parties
legal
rights
and
obligations
different
from
the
actual
legal
rights
and
obligations
(if
any)
which
the
parties
intend
to
create.
To
examine
the
purpose
for
which
the
500
$1
par
value
voting
preferred
shares
have
been
subscribed
and
the
use
they
have
been
put
to
or
not
put
to
is,
in
my
view,
the
only
way
to
ascertain
the
nature
of
the
whole
scheme
that
was
resorted
to.
It
is
not
because
it
looks
as
if
the
control
is
in
the
hands
of
non-residents
that
Valiant
Shoe
Import
Corp
is;
in
fact,
controlled
by
these
non-residents.
Indeed,
the
holding
of
500
preferred
$1
par
value
voting
shares
oût
of
a
total
issued
voting
capital
stock
of
900
shares
looks,
at
first
sight,
as
if
these
non-residents
are
the
controlling
shareholders
of
the
company.
In
Dominion
Taxicab
Association
v
MNR,
[1954]
SCR
82;
[1954]
CTC
34;
54
DTC
1020,
Cartwright,
J
said
at
page
85
[37,
1021]:
It
is
well.
settled
that
in
considering
whether
a
particular
transaction
brings
a
party
within
the
terms
of
the
Income
Tax
Acts
its
substance
rather
than
its
form
is
to
be
regarded.
The
features
of
the
two
classes
of
shares
should
be
compared:
the
common
share
has
a
par
value
of
$10,
the
preferred
share
has
a
par
value
of
$1;
the
common
shares
have
cost
$50
each,
the
preferred
shares
have
been
subscribed
at
par
value,
$1;
the
common
share
of
a
par
value
of
$10,
bought
at
$50,
carries
one
vote,
the
preferred
share
of
a
par
value
of
$1,
subscribed
at
par
value,
carries
one
vote;
there
were
400
$10
par
value
common
shares
issued
for
a
paid-up
capital
of
$4,000,
there
were
1,000
$1
par
value
preferred
shares
authorized,
500
of
which
issued
for
a
paid-up
capital
of
$500
and
a
total
paid-up
capital
for
both
classes
of
$4,500;
the
400
common
shares
purchased
at
$50
each
carried
400
votes
and
the
500
preferred
shares
paid
$1
each
carried
500
votes;
the
common
shareholders
representing
more
than
two-thirds
in
value
of
the
common
and
preferred
shares,
$4,000
out
of
$4,500
could
liquidate
the
company
at
will
under
the
provisions
of
section
3
of
the
Winding-up
Act
of
the
Province
of
Quebec.
It
is
my
opinion
that
such
preferred
shareholders,
that
can
be
discarded
that
easily,
cannot
seriously
be
said
to
have
a
controlling
interest.
They
may
appear
to
have
one
but
they
do
not
have
the
power
to
exercise
it
because
their
vote
can
always
be
nullified
by
proceedings
under
the
Winding-up
Act.
Resorting
to
such
preferred
shares
is
a
sham.
One
has
to
bear
in
mind
that
the
plaintiffs
were
instrumental
in
the
sale
of
assets
of
two
companies,
all
within
a
period
of
14
months:
on
August
15,
1969
the
assets
of
Valiant
Shoe
Manufacturing
are
sold
to
Valiant
Shoe
Import
Corp
for
$87,013.49
and
on
October
1,
1970,
once
the
loss
of
Valiant
Shoe
Import
Corp
has
been
used
up,
the
assets
are
sold
to
a
newly
formed
company,
Valiant
Shoe
Inc,
for
$311,637.06.
Selling
assets,
liquidating
or
discontinuing
the
business
of
companies
and
distributing
their
funds
seems
to
be
a
well-known
and
easily
resorted
to
process
for
the
plaintiffs.
It
should
also
be
noted
that
in
each
instance
plaintiffs
were
shareholders
before
the
purchase
of
assets.
For
Valiant
Shoe
Import
Corp
their
cost
was
$50
per
$10
par
value
common
share
or
$19,950
for
199
shares
each
and
14
months
later,
for
Valiant
Shoe
Inc,
their
cost
was
$1
per
$1
par
value
common
share
subscribed,
or
for
199
shares
each.
Valiant
Shoe
Import
Corp
paid
$87,013.49
for
its
assets
and
Valiant
Shoe
Inc,
14
months
later,
$311,637.06.
The
testimony
has
revealed
that
the
subscription
of
preferred
shares
Carrying
a
voting
right
was
nothing
but
a
prerequisite
of
the
purchase
of
the
common
shares,
a
condition
demanded
by
the
purchasers
of
the
common
shares
for
no
reason
other
than
tax
motives.
The
nonresidents
had
no
choice
but
to
comply
with
that
request
that
had
them
look
like
keeping
the
control,
otherwise
they
would
not
have
been
able
to
sell
their
shares
of
Valiant
Shoe
Import
Corp.
Their
cost
for
complying
was
minimal:
$500
for
500
preferred
shares
purported
to
carry
the
controlling
interest
compared
to
the
price
they
sold
the
common
shares:
$20,000
for
400
shares
carrying
400
votes.
There
is
authority
permitting
to
look
at
all
the
facts
and
at
the
circumstances
surrounding
the
implementation
and
the
carrying
out
of
the
scheme
or
adventure
in
order
to
ascertain
the
nature
of
the
plan.
In
that
regard,
we
find
these
remarks
by
Lord
Atkin
in
The
King
v
Canada
Rice
Mills,
Limited,
[1938-39]
CTC
328;
1
DTC
499-52;
[1939]
3
DLR
991
(PC),
at
page
330
[994]:
When
they
come
to
consider
whether
or
not
there
was
here
in
fact
a
sale
to
the
partners
as
an
independent
sale
upon
which
the
partners
became
personally
liable
to
the
Mills
Co,
on
the
one
hand
to
accept
delivery
and
become
personally
liable
to
the
purchasers
from
them,
on
the
other
hand,
to
give
delivery,
there
are
very
significant
facts
in
the
case.
Their
partnership
had
no
capital;
it
had
no
warehouse;
the
warehouse
was
the
warehouse
of
the
Mills
Co;
the
offices
were
the
offices
of
the
Mills
Co;
and,
what
is
rather
significant
for
a
company
that
on
this
footing
must
have
been
trading
on
a
very
large
scale,
it
had
no
banking
account,
the
only
banking
account
was
the
banking
account
of
the
Mills
Co.
The
servants
j..
who
attended
to
the
sales
part
of
the
business
were
in
fact
paid
by
the
Mills
Co,
whose
servants
they
had
been
before
the
partnership
came
into
existence.
And
ibid,
we
read
at
page
331
[995]:
The
sales
were,
therefore,
sales
by
the
Mills
Co
and
the
price
received
was
the
sale
price
of
the
goods
produced
or
manufactured
by
the
Mills
Co.
In
the
present
instance,
the
non-resident
preferred
shareholders
were
camouflaged
as
having
the
controlling
interest
for
the
benefit
of
the
holders
of
the
common
shares.
The
preferred
shareholders
might
look
like
controlling
Valiant
Shoe
Import
Corp,
but
they
could
never
have
been
able
to
control.
There
was
the
vote
of
two-thirds
in
value
for
a
liquidation.
That
nullifies,
at
the
will
of
the
common
shareholders,
the
exercise
of
control.
Their
interest
was
limited
at
$500.
For
these
reasons,
the
holding
of
such
preferred
shares
could
not
be
more
serious
than
the
partnership
in
the
Canada
Rice
Mills
case
discarded
by
the
Privy
Council.
That
holding
of
voting
preferred
shares
is
a
genuine
Sham.
Another
case
is
the
one
of
Colgate-Palmolive-Peet
Co
Ltd
v
The
King,
[1933]
SCR
131;
1
DTC
238,
where
the
Supreme
Court
decided
that
two
companies
were
one
and
the
same.
Cannon,
J,
delivering
judgment
of
the
Court
says,
at
page
139:
I
believe
that
the
character
and
substance
of
the
real
transaction
must,
for
taxation
purposes,
be
ascertained
and
the
tax
levied
on
that
basis.
In
the
case
of
Dominion
Bridge
Co
Ltd
v
The
Queen,
[1975]
CTC
263;
75
DTC
5150,
confirmed
by
the
Federal
Court
of
Appeal,
[1977]
CTC
554;
77
DTC
5367,
I
found
on
the
facts
that
a
Bermuda
company
was
a
sham
because
it
had
no
genuine
autonomous
existence
and
operation;
here
the
sham
is
the
holding
of
preferred
shares
by
the
non-residents
which
is
not
genuine
as
it
hides
the
common
shareholders.
In
the
Canada
Rice
Mills
case
(supra)
the
Supreme
Court
of
Canada
held
that
a
partnership
had
no
autonomous
existence
as
it
was
agent;
here
the
preferred
shareholders
do
not
have
a
genuine
holding
in
the
company
as
they
are
agents,
silent
puppets,
of
the
common
shareholders.
In
the
Colgate-Palmolive-Peet
case
(Supra)
one
company
is
discarded
as
tax
avoidance
was
the
reason
of
its
being;
here
the
control
has
to
be
discarded
as
tax
avoidance
is
the
sole
reason
of
the
whole
scheme.
It
is
impossible
for
me
to
escape
from
concluding
that
the
nonresident
holders
of
preferred
shares
could
not
care
less
about
Valiant
Shoe
Import
Corp
as
the
facts
show
that
their
main
worry
was
to
assure
themselves
to
get
back
the
$500
that
had
been
paid
for
the
shares.
I
am
convinced
that
the
non-resident
shareholders
held
the
preferred
shares
to
accommodate
the
purchasers
of
the
common
Shares
because
it
was
necessary
to
make
believe
that
the
same
shareholders
as
before,
the
sellers
of
the
common
shares
now
preferred
shareholders,
were
still
controlling
the
company.
One
has
to
remember
that
the
financial
adviser
admitted
that
he
had
always
present
in
his
mind
the
fact
that
the
control
had
to
look
as
belonging
to
the
preferred
shareholders
in
order
to
be
able
for
Valiant
Shoe
Import
Corp
to
use
up
the
loss
of
the
company
sustained
when
known
under
the
name
of
Inesco
Intercontinental
Electronics
School
Canada
Ltd.
That
indeed
is
a
sham
if
ever
there
was
one.
An
analysis
of
schemes
similar,
in
principle,
to
the
one
of
the
present
instance,
is
found
in
Lupton
v
FA
&
AB,
Ltd,
[1968]
2
All
ER
1042,
where
we
read,
at
page
1051,
these
remarks
of
Megarry,
J:
If
on
analysis
it
is
found
that
the
greater
part
of
the
transaction
consists
of
elements
for
which
there
is
some
trading
purpose
or
explanation
(whether
ordinary
or
extraordinary),
then
the
presence
of
what
I
may
call
“fiscal
elements’’,
inserted
solely
or
mainly
for
the
purpose
of
producing
a
fiscal
benefit,
may
not
suffice
to
deprive
the
transaction
of
its
trading
status.
The
question
is
whether,
viewed
as
a
whole,
the
transaction
is
one
which
can
fairly
be
regarded
as
a
trading
transaction.
If
it
is,
then
it
will
not
be
denatured
merely
because
it
was
entered
into
with
motives
of
reaping
a
fiscal
advantage.
Neither
fiscal
elements
nor
fiscal
motives
will
prevent
what
in
substance
is
a
trading
transaction
from
ranking
as
such.
On
the
other
hand,
if
the
greater
part
of
the
transaction
is
explicable
only
on
fiscal
grounds,
the
mere
presence
of
elements
of
trading
will
not
suffice
to
translate
the
transaction
into
the
realms
of
trading.
In
particular,
if
what
is
erected
is
predominantly
an
artificial
structure,
remote
from
trading
and
fashioned
so
as
to
secure
a
tax
advantage,
the
mere
presence
in
that
structure
of
certain
elements
which
by
themselves
could
fairly
be
described
as
trading
will
not
cast
the
cloak
of
trade
over
the
whole
structure.
It
being
admitted
in
evidence
that
the
only
reason
the
scheme
was
entered
into
was
to
gain
a
tax
advantage
it
is
normal
that
fiscal
elements
be
found
in
the
scheme.
In
fact
the
scheme
and
its
pivot,
the
holding
of
preferred
shares
by
the
former
holders
of
common
shares,
are
not
explainable
except
for
fiscal
reasons.
There
is
not
one
business
element
present
in
the
whole
scheme.
Valiant
Shoe
Import
Corp
would
not
have
sold
less
shoes
if
the
scheme
had
not
been
carried
out
because
that
scheme
had
nothing
to
do
with
the
business
as
its
only
goal
was
to
escape
from
income
tax
on
an
amount
equal
to
the
loss.
That
was
nothing
but
the
structure
of
a
sham.
In
the
House
of
Lords
([1971]
3
All
ER
948),
Lord
Morris
of
Borth-
y-Gest,
in
the
same
case,
says
at
page
955:
It
is
manifest
that
some
transaction
may
be
so
affected
or
inspired
by
fiscal
considerations
that
the
shape
and
character
of
the
transaction
is
no
longer
that
of
a
trading
transaction.
The
result
will
be
not
that
a
trading
transaction
with
unusual
features
is
revealed
but
that
there
is
an
arrangement
or
scheme
which
cannot
fairly
be
regarded
as
being
a
transaction
in
the
trade
of
dealing
in
shares.
I
do
believe
that
in
the
present
case
the
fact
that
the
preferred
shares
were
created
and
subscribed
for
before
the
purchase
of
the
common
shares,
that
the
preferred
shares
carried
a
right
to
vote
which,
if
it
had
been
possible
to
exercise
such
right
without
danger
of
liquidation,
would
have
outnumbered
the
vote
carried
by
the
common
shares
and
that
the
cost
of
the
common
shares
was
50
times
the
one
of
the
preferred
shares,
can
be
justified
only
by
the
purpose
of
making
believe
that
the
control
of
the
company
was
still
in
the
hands
of
the
former
holders
of
the
common
shares.
All
these
facts
and
those
mentioned
previously,
in
my
view,
show
that
the
whole
scheme
contains
nothing
but
fiscal
arrangements
that
are
the
central,
pivotal
and
only
features
as
there
is
not
a
single
arrangement
or
element
of
a
business
nature
present
therein.
I
have
no
choice
but
to
conclude
that
the
holding
of
preferred
shares
by
the
non-resident
holders,
who
had
sold
the
common
shares
of
Valiant
Shoe
Import
Corp
was
a
make-believe,
a
mask
to:
deceive,
and
consequently
such
a
holding
is
a
sham
that
has
been
resorted
to
by
plaintiffs
in
order
to
have
the
company
escape
from
the
ambit
of
the
Act
by
the
use
of
losses.
The
controlling
interest
looked
like
being
vested
in
the
preferred
shareholders
but,
in
fact,
was
vested
in
the
common
shareholders
since
August
15,
1969.
Having
found
that
the
holding
of
the
preferred
shares
by
the
nonresidents
was
a
sham
resorted
to
in
order
to
make
believe
that
the
controlling
interest
of
the
company
had
not
changed
hands
when,
in
fact,
it
had,
I
still
have
to
decide
if
the
other
conditions
of
the
provisions
of
subsection
27(5)
and
subsection
27(5a)
of
the
Act
prevent
the
application
of.
the
loss
sustained
by
the
company
when
it
was
known
under
the
name
of
Inesco
Intercontinental
Electronics.
School
Canada
Ltd.
The
provisions
of
paragraph
27(1
)(e),
subsection
27(5)
and
subsection
27(5a)
read
as
follows:
27.
(1)
.
.
.
(e)
business
losses
sustained
in
the
5
taxation
years
immediately
preceding
and
the
taxation
year
immediately
following
the
taxation
year,
but
(i)
an
amount
in
respect
of
a
loss
is
only
deductible
to
the
extent
that
it
exceeds
the
aggregate
of
amounts
previously
deductible
in
respect
of
that
loss
under
this
Act,
(ii)
no
amount
is
deductible
in
respect
of
the
loss
of
any
year
until
the
deductible
losses
of
previous
years
have
been
deducted,
and
(iii)
no
amount
is
deductible
in
respect
of
losses
from
the
income
of
any
year
except
to
the
extent
of
the
lesser
of
(A)
the
taxpayer’s
income
for
the
taxation
year
from
the
business
in
which
the
loss
was
sustained
and
his
income
for
the
taxation
year
from
any
other
business,
or
(B)
the
taxpayer’s
income
for
the
taxation
year
minus
all
deductions
permitted
by
the
provisions
of
this
Division
other
than
this
paragraph
or
section
26.
(5)
Paragraph
(e)
of
subsection
(1)
does
not
apply
to
permit
a
corporation
to
deduct,
for
the
purpose
of
computing
its
taxable
income
for
a
taxation
year,
a
business
loss
sustained
by
it
in
a
preceding
taxation
year,
.
in
any
case
where
(a)
between
the
end
of
that
preceding
year
and
the
end
of
the
taxation
year
(i)
more
than
50%
of
the
shares
in
the
capital
stock
of
the
corporation
have
been
acquired,
before
June
14,
1963,
by
a
person
or
persons
who
did
not,
at
the
end
of
that
preceding
year,
own
any
of
the
shares
in
the
capital
stock
of
the
corporation,
or
(ii)
control
of
the
corporation
has
been
acquired
after
June
13,
1963
by
a
person
or
persons
who
did
not,
at
the
end
of
that
preceding
year,
control
the
corporation;
and
(b)
the
corporation
was
not,
during
the
taxation
year,
carrying
on
the
business
in
which
the
loss
was
sustained.
(Sa)
Paragraph
(e)
of
Subsection
(1)
does
not
apply
to
permit
a
corporation
to
deduct,
for
the
purpose
of
computing
its
taxable
income
for
a
taxation
year,
a
business
loss
sustained
by
it
in
a
preceding
taxation
year
from
the
carrying
on
of
a
business
if
during
that
preceding
taxation
year
(a)
the
business
of
the
corporation
in
which
the
loss
was
sustained
was
wound
up
or
discontinued;
and
(b)
control
of
the
corporation
was
acquired
(i)
after
the
winding-up
or
discontinuance
of
the
business,
and
(ii)
after
June
13,
1963,
by
a
person
or
persons
who
did
not
control
tne
corporation
at
any
time
during
the
preceding
year
when
the
business
was
being
carried
on.
At
subsection
27(5)
the
additional
condition
is
that
‘‘the
corporation
was
not,
during
the
taxation
year,
carrying
on
the
business
in
which
the
loss
was
sustained’’,
and
at
subsection
27(5a)
the
additional
condition
is
that
“the
business
of
the
corporation
in
which
the
loss
was
sustained
was
wound
up
or
discontinued’’.
In
the
present
instance
the
losses
cannot
be
deducted
under
paragraph
27(1)(e)
on
account
of
both
the
provisions
of
subsection
27(5)
and
subsection
27(5a)
because
they
do
not
meet
the
cumulative
conditions
required
by
each
of
these
two
latter
subsections.
I
am
convinced
that
there
was
a
change
of
control
between
the
loss
year
and
the
year
the
loss
is
claimed
and
that
such
change
of
control
occurred
after
June
13,
1963.
Indeed,
because
the
sham
was
resorted
to
in
order
to
try
hiding
that
there
had
been
a
change
of
control.
As
said
earlier,
the
other
condition
of
subsection
27(5)
is
that
a
corporation
be
carrying
on
the
business
in
which
the
loss
was
sustained.
That
latter
condition
is
not
met
by
Valiant
Shoe
Import
Corp
because
the
loss
it
attempted
to
apply
against
its
income
was
sustained
while
the
legal
entity
was
carrying
on
the
business
of
a
correspondence
school
that
lasted
up
to
the
resolution
to
wind
up
on
February
24,
1968.
In
1969
there
was
no
school
business
carried
on.
Apart
from
the
provisions
of
the
Winding-up
Act,
there
is
the
letter
of
the
liquidator
of
January
8,
1969
evidencing
that
fact.
Such
a
correspondence
school
business
that
incurred
losses
up
to
February
24,
1968
had
nothing
to
do
with
the
one
of
importing
shoes
started
on
August
15,
1969.
Such
losses
cannot
be
used
up
by
Valiant
Shoe
Import
Corp
in
the
taxation
years
1969
and
1970.
The
remarks
as
to
the
control
for
the
purpose
of
the
provisions
of
subsection
27(5)
apply
as
well
for
the
purpose
of
the
provisions
of
subsection
27(5a).
The
other
condition
required
by
subsection
27(5a)
for
paragraph
27(1
)(e)
is
that
‘the
business
‘or
corporation
in
which
the
loss
was
sustained
was
wound
up
or
discontinued’’.
One
has
to
remember
that
Inesco
Intercontinental
Electronics
School
Canada
Ltd
started
proceedings
for
winding
up
its
business
under
the
provisions
of
the
Winding-up
Act
of
the
Province
of
Quebec.
These
proceedings
started
with
a
resolution
of
the
directors
and
shareholders
dated
February
24,
1968.
The
provisions
of
section
3
of
the
Winding-up
Act
show
the
conseouences
of
such
a
resolution:
3.
The
resolution
of
the
directors,
declaring
it
to
be
expedient
that
the
company
should
be
wound
up
voluntarily,
shall
be
submitted
to
the
general
meeting
of
the
shareholders,
and
if
such
meeting
pass,
by
the
vote
of
at
least
two-thirds
in
value
of
the
shares
represented
by
the
shareholders
present,
a
resolution
that
the
company
shall
be
wound
up
voluntarily
and
dissolved,
then
the
company
shall
subsist
and
carry
on
business
for
the
purpose
only
of
winding-up
its
affairs.
By
virtue
of
section
3
of
the
Winding-up
Act,
once
there
is
such
a
resolution
to
wind
up,
the
company
does
subsist
but
it
carries
on
business
only
for
the
purpose
of
winding
up
its
affairs.
Therefore,
it
iS
no
more
carrying
on
business
as
a
correspondence
school
nor,
18
months
later,
as
a
shoe
importing
concern
and
a
correspondence
school.
What
does
continue,
once
such
a
resolution
has
been
voted,
is
said
at
section
4
of
that
Act:
4.
The
corporate
state
and
corporate
powers
of
the
company
shall
con-
tinue
until
its
affairs
are
wound
up.
Thus,
the
same
legal
entity
continues
but
its
powers
are
restricted
by
the
provisions
of
section
3
of
the
Winding-up
Act
to
those
necessary
for
the
winding-
up.
The
discontinuance
of
the
proceedings
is
provided
for
at
section
18
of
the
Act
and
I
shall
quote
both
the
French
and
the
English
texts
of
paragraph
1
of
that
section:
18.
Dans
le
cours
de
la
liquidation,
mais
avant
la
vente
des
biens,
rassemblée
générale
des
actionnaires
peut
décider,
par
une
majorité
ne
représentant
pas
moins
des
deux
tiers
du
capital,
de
discontinuer
les
procédures
de
la
liquidation
et
de
reprendre
les
operations
de
la
compagnie.
18.
In
the
course
of
the
winding-up,
but
before
the
sale
of
the
property,
the
general
meeting
of
shareholders
may
decide,
by
a
majority
representing
not
less
than
two-thirds
of
the
capital,
to
discontinue
the
winding-up
proceedings
and
continue
the
operations
of
the
company.
I
do
not
believe
that
Valiant
Shoe
Import
Corp
has
met
a
preliminary
condition
to
the
effect
that
the
resolution
to
start
anew
be
made
“before
the
sale
of
the
property’’.
On
June
7,
1969
when
a
decision
was
made
to
start
anew
the
property
had
already
been
nearly
all
sold
at
the
end
of
1968
as
is
shown
by
the
letter
of:
Mr
Potworowski
of
January
9,
1969
where
it
is
mentioned
that
what
is
left
IS
a
quantity
of
paper
to
be
sold
by
the
ton.
The:sale.
of
the
property
was
nearly
all
completed
when
the
resolution
to
discontinue
the
proceedings
for
winding
up
was
voted.
It
was
then
too
late
because
it
has
to
be
voted
before
the
sale
of
the
property.
It
being
so,
the
resolution
is
null
and
that
affects
the
validity
of
the
resumption
of
the
business
which:
resumption
is
null
in
law
but
in
fact
the
legal
»entity
carried
on
the
business
of
shoe
importer.
It
can
be
deduced
that
the
Superior
Court
and
the
Department
of
Financial
Institutions,
Companies
and
Cooperatives
did
not
have
their
attention
called
to
the
sale
of
the
property
before
the
resolution
to
discontinue
the
proceedings
of
winding
up.
The
Court
and
the
Department
cannot
guess
facts.
Hiding
and
covering
facts
seems
to
have
been
the
only
concern
all
the
way
through
the
scheme.
The
resolution
being.
null,
there
is
no
resumption
of.
activities
in
law,
no
valid
supplementary
letters
patent
and
consequently
no
new
name,
no
preferred
shares,
no
new
powers;
there
being
no
preferred
shares
there
is
no
controlling
interest
looking
like
being
held
by
the
shareholders
as
the
controlling
interest
is
in
the
hands
of
the
common
shareholders
who
are
the
plaintiffs.
The
valid
existence
of
the
legal
entity
known
as
Inesco
Intercontinental
Electronics
School
Canada
Ltd
is
not
touched
by
the
character
of
the
resolution.
Its
name,
its
powers
and
its
capital
stock
have,
in
my
opinion,
remained
the
same.
The
profits
from
the
business
carried
on
by
the
legal
entity
are
liable
to
tax
even
if
these
powers
were
those
of
a
school
and
not
a
shoe
importer
because
profits,
lawful
or
unlawful,
are
subject
to
tax.
The
effective
consequence
of
the
nullity.
of
the
resolution
is.
that
the
scheme
falls
apart
as
the
plaintiffs
have
purchased
the
very
controlling
interest
that
was
hidden
behind
the
holding
of
the
preferred
shares
and
cannot
have
the
Company
deduct
the
losses.
Apart
from
the
validity
of
the
starting
anew
of
the
business,
I
think
that
both
texts,
of,
paragraph
1
of
section
18
do
not
have
the
same
meaning.
The
French
text
refers
to.
‘reprendre
les
opérations
de-
la
compagnie’’
which
has
to
imply
that
the
operations
had
ceased
because
it
is
impossible
to
start
anew
without
having
stopped.
The
English
text
refers
to
‘‘continue
the
opérations’’
which
may
imply
that
the
operations
have
never
really
stopped.
The
French
text
seems
more
apt.
to
express
exactly
what
is
meant
and
is
consequent,
with
the
provisions
of
section
3.
of
the
Winding-up
Act.
The
business
of
the
correspondence
school
having
been
discontinued
during
the
proceedings
of
the
nding-up
while
the
provisions
of
the
Winding-up
Act
were
applicable,
that
business
of
the
correspondence
school
being
the
one
where
the
loss
was
sustained
and
the
control
of
the
company
being
acquired
both
after
the
winding-up
or
discontinuance
and
after
June
13,
1968,
it
follows
that
the
loss
is
not
deductible
under
the
provisions
of
paragraph
27(1)(e)
of
the
Act
on
account
of
those
of
subsection
27(5a)
of
the
Act.
There
was
never
any
notice
of
assessment
issued
against
plaintiff
as
a
liquidator
of
Valiant
Shoe
Import
Corp
before
the
ones
of
October
22,
1975
and
therefore
the
Minister
was
not
precluded
from
issuing
these
notices
of
assessment,
these
being
in
fact
original
notices.
The
action
of
Charles
Malka
shall
be
allowed
in
part
and
the
matter
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
on
the
basis
that
the
amount
of
$9.950,
representing
plaintiff's
cost
in
acquiring
the
shares
of
Valiant
Shoe
Import
Corp,
be
deducted
in
computing
his
profit.
from
the
amount
of
$161,190
received
on
February
1,
1971.
The
action
of
David
Malka
shall
be
allowed
in
part
and
the
matter
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration*
and
reassessment
on
the
basis
that
the
amount
of
$9,950,
representing
plaintiff's
cost
in
acquiring
the
shares
of
Valiant
Shoe
Import
Corp,
-be
deducted
in
computing
his
profit
from
the
amount
of
$161,190
received
on
February
1,
1971.
The
action
of
Charles
Malka,
being
Court
No
T-174-76,
shall
be
dismissed.
At
the
request
of
counsel
for
plaintiffs,
the
matter
of
costs
in
each
case
may
be
spoken
to
at
a
date
to
be
fixed
by
the
Court
upon
request.
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