Ingle Manor Farms Inc. v. The Queen, docket 2001-862-GST-I (TCC) (Informal Procedure)

Date: 20011005

Docket: 2001-862-GST-I

BETWEEN:

INGLE MANOR FARMS INC.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

O'Connor, J.T.C.C.

[1]            This appeal was heard at Kitchener, Ontario on August 7th, 2001 pursuant to the Informal Procedure of this Court. The Appellant filed Exhibit A-1 containing 42 tabs (after removal of Tab 17). At the hearing the Appellant submitted further Exhibits A-2 and A-3. Counsel for the Respondent filed 17 exhibits. Testimony was given by John Ingle as agent for the Appellant, by Steven Lorne Norris, an auditor with Canada Customs and Revenue Agency ("CCRA") and David Thorpe a Goods and Services Tax ("GST") Appeals Officer of CCRA. There are several issues namely,

(1)            Was the GST assessment in question statute-barred pursuant to subsection 298(1) and 298(4) of the Excise Tax Act ("Act")?

(2)            Was the transaction in question, which occurred in 1991, a financial service within the meaning of subsection 123(1) of the Act and therefore exempt from GST or zero-rated?

(3)            Was the transaction in question a supply to a non-resident within the meaning of section 123 of the Act such as to be exempt or zero-rated?

(4)            Should the Appellant, if GST was exigible on the transaction in question, be liable for GST in the amount of $21,000 as finally assessed or some lesser amount?

(5)            Should the Appellant pursuant to section 285 of the Act be obliged to pay penalties and interest in respect of what the final GST assessment should be?

Facts

[2]            The basic facts are as follows:

(1)            Chromalox Inc. was a subsidiary of Emerson Electric Company and was technically insolvent in 1991. The creditors arranged for the appointment of Coopers, Lybrand as receiver to dispose of the assets of Chromalox.

(2)            Glen Dimplex, an Irish company, ("Glen Dimplex") had approached Coopers and Lybrand and was prepared to pay $10,000,000 for the assets. The Appellant and a Mr. Steven Overgaard put together an investors syndicate comprised of six investors, including the Appellant, to bid on the shares/assets of Chromalox.

(3)            The bidding was reopened. Glen Dimplexfeared that the competing bid by the investment group might force the price up by as much as $3,000,000. Consequently, Glen Dimplex approached the investors group and agreed that if the group would walk away from the deal (i.e. not make a bid with respect to Chromalox) Glen Dimplex would pay the group $1,000,000.

(4)            Glen Dimplex feared that the $1,000,000 payment would attract GST and consequently raised the total to $1,070,000 to take into consideration the seven percent GST tax on the $1,000,000.

(5)            There was some discussion as to whether the $70,000 should be considered as interest as opposed to GST but, in my opinion, the evidence leads to the conclusion that the $70,000 represented GST.

(6)            Another fact is that the Appellant did not file a GST return in respect of the said transaction as it was the Appellant's conclusion that the transaction was exempt from GST as constituting either a financial service or a foreign transaction.

(7)            The last reassessment by the Respondent took place on October 26, 1998 which is approximately six years after the filing due date.

[3]            A Notice of Objection was filed with respect to the assessment of October 26, 1998.

[4]            Some of the most relevant documents are the agreement between Glen Dimplex and the investors group which was signed in Toronto and a related trust agreement appointing John Ingle and Steven Overgaard as trustees for the investment group also signed in Toronto (Tabs 2 and 3 of the Appellant's Documents).

               

[5]            The share of the Appellant in the investors group was ten percent of $1,070,000 which after expenses produced proceeds of $96,800.

Analysis

[6]            In my opinion, the assessment was not statute-barred within the meaning of subsection 298(1) of the Act. The Appellant did not file a return re this transaction and thus there was a misrepresentation due to carelessness as contemplated in subsection 298(4) of the Act.

[7]            Further, in my opinion, the transaction in question was not a financial service within the meaning of subsection 123(1) of the Act as it did not constitute a sale of rights nor did it fall within any of the operations contemplated in said subsection. In effect, what it was, was simply an agreement not to bid on the shares/assets of Chromalox.

[8]            Also, in my opinion, the transaction was not a foreign transaction as the agreements referred to above were signed in Toronto and the monies were processed through Toronto law firms.

[9]            Further, in my opinion, the amount that the Appellant actually received was $96,800 upon which GST at the rate of seven percent was exigible. Thus the amount of GST properly to be assessed is $6,766. If any input tax credits are available, they will go to reduce or eliminate that amount. Also because of the apparent good faith decision taken by the Appellant that there was no GST, there should be no penalties imposed. I refer to the reasoning of Bowman, A.C.J. in 897366 Ontario Limited v. Her Majesty The Queen, [2000] G.S.T.C. 13 (T.C.C.) With respect to interest, this Court has no jurisdiction to alter the proper amount of interest to be imposed.

[10]          Consequently, the appeal is allowed by reducing the GST exigible against the Appellant to the amount of $6,766 to be reduced by any available input tax credits.

[11]          Costs on a party to party basis are awarded to the Appellant. I do not believe this is a suitable case for awarding solicitor-client costs.

Signed at Ottawa, Canada this 5^th day of October, 2001.

"T. O'Connor"

J.T.C.C.

COURT FILE NO.:                                                 2001-862(GST)I

STYLE OF CAUSE:                                               Ingle Manor Farms Inc. v. The Queen

PLACE OF HEARING:                                         Kitchener, Ontario

DATE OF HEARING:                                           August 7, 2001

REASONS FOR JUDGMENT BY:      The Honourable Judge T. O'Connor

DATE OF REASONS:                                          October 5, 2001

APPEARANCES:

Agent for the Appellant:                     John D. Ingle

Counsel for the Respondent:              Ifeanyichukwu Nwachukwu

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2001-862(GST)I

BETWEEN:

INGLE MANOR FARMS INC.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on August 7, 2001, at Kitchener, Ontario

by the Honourable Judge Terrence O'Connor

Appearances

Agent for the Appellant:                       John D. Ingle         

Counsel for the Respondent:                Ifeanyichukwu Nwachukwu

JUDGMENT

          The appeal from the reassessment made under the Excise Tax Act, notice of which is dated July 21, 2000 and bears number 08EP116171455, is allowed, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.

          The Appellant is awarded party and party costs.

Signed at Ottawa, Canada this 5^th day of October, 2001.

"T. O'Connor"

J.T.C.C.