MacKay,
DJ:—The
issue
in
this
appeal
is
whether
a
payment
of
$100,000
made
by
Schwepps
Powell
Ltd
(the
successor
to
Schwepps
Canada
Ltd)
to
the
appellant
company
in
the
taxation
year
1970
was
an
income
or
a
capital
receipt
for
taxation
purposes
in
the
hands
of
the
appellant.
The
facts
giving
rise
to
the
payment
are
as
follows.
The
business
of
the
appellant
is
that
of
manufacturing,
bottling,
marketing
and
distributing
soft
drinks
throughout
Canada.
From
1952
to
1970
under
renewable
agreements
with
Schwepps
Canada
and
its
successor
Schwepps
Powell
the
appellant
was
appointed
exclusive
agent
for
the
bottling
and
sale
of
Schwepps
products
for
a
territory
that
included
greater
Montreal.
From
1952
to
the
end
of
1969
sales
of
Schwepps
products
in
the
Montreal
area
increased
from
100,000
to
400,000
cases.
Commencing
in
1968
negotiations
were
entered
into
with
a
view
to
terminating
the
agreement,
Schwepps
having
decided
to
establish
its
own
manufacturing
and
bottling
plant
in
Montreal
and
take
over
the
selling
and
distribution
of
its
products
in
the
Montreal
area.
For
this
reason
the
agreement
for
the
period
August
1,
1969
to
August
1,
1970
contained
a
provision
giving
Schwepps
the
right
to
terminate
the
agreement
on
30
days
notice.
Commencing
in
November
1968
a
series
of
letters
were
exchanged
between
the
appellant
and
Schwepps.
These
letters
all
referred
to
a
payment
to
be
made
by
Schwepps
to
the
appellant
of
$100,000
for
goodwill.
In
some
of
the
letters
there
was
also
reference
to
payment
of
$135,000
for
bottles.
There
is
no
suggestion
in
any
of
the
letters
that
the
payment
of
$100,000
was
to
be
for
any
other
purpose
than
payment
for
goodwill.
The
last
of
these
letters
dated
April
1,
1970
is
as
follows:
Mr
C
B
Powell
ril
1,
1970
President
Cadbury
Schwepps
Powell
Limited
1245
Sherbrooke
Street
West
MONTREAL
109,
PQ.
Dear
Mr
Powell:
I
thought
it
best
to
drop
you
a
note
confirming
our
agreement
of
this
morning.
As
part
of
our
agreement,
the
payment
for
goodwill
was
to
be
made
immediately
rather
than
a
portion
deferred
until
December
1970
and
you
indicated
your
cheque
in
the
full
amount
of
$235,000
would
be
available
in
the
next
few
days.
Due
to
poor
mail
situation,
I
would
appreciate
your
informing
me
when
the
cheque
is
ready
and
we
will
pick
it
up
by
messenger.
Goodwill
re
Montreal
territory
|
$100,000
|
Payment
for
Returnable
Glass
in
our
Montreal
Bottling
Plant
|
|
and
in
the
Montreal
territory
|
$135,000
|
I
certainly
enjoyed
meeting
with
you
this
morning
and
will
look
forward
to
seeing
you
again
in
the
near
future.
Sincerely,
On
April
8,
1970
the
following
document
(Ex
17)
was
signed
by
one
Butcher,
a
controller
and
a
vice
president
of
the
appellant,
and
a
cheque
for
$235,000,
which
included
the
$100,000
was
handed
to
him.
RECEIPT
AND
SATISFACTION
To:
Schwepps
Powell
Limited,
1245
Sherbrooke
Street
West,
Montreal
109,
Quebec
This
will
acknowledge
receipt
of
the
sum
of
$100,000
as
full
payment
and
satisfaction
for
all
costs,
expenses,
and
loss
of
income
incurred
or
to
be
incurred
by
us
as
a
result
of
the
termination
of
our
Sub-Bottler
Agreement
with
respect
to
the
Montreal
territory
entered
into
with
you.
Montreal,
this
|
day
of
|
1970.
(signed
April
8th)
|
|
PEPSI-COLA
CANADA
LIMITED
|
|
(Signed)
|
The
evidence
of
Butcher
in
reference
to
this
document
and
the
circumstances
leading
up
to
his
signing
it
was
as
follows:
MR
COUZIN:
Q.
The
next
one,
Item
17,
which
will
be
Exhibit
17,
is
a
document
entitled
“Receipt
and
satisfaction’’,
and
it
is
signed
by
Pepsi
Cola
Canada
Limited,
and
is
that
your
signature?
A.
That
is
my
signature.
Q.
Is
that
the
receipt?
A.
That
is
the
receipt.
HIS
LORDSHIP:
Exhibit
17.
—
EXHIBIT
NO
17:
Receipt
and
satisfaction
signed
by
Pepsi
Cola
Canada
Limited.
MR
COUZIN:
Q.
Was
this
receipt
prepared
by
you?
A.
No.
It
wasn’t
prepared
by
our
office,
or
myself.
Q.
Had
it
been
prepared
when
you
arrived
at
the
Schwepps
offices,
or
was
it
prepared
while
you
were
there?
A.
No,
it
had
been
prepared
when
I
arrived.
Q.
Do
you
know
who
prepared
it?
A.
No.
I
don’t
know
personally.
HIS
LORDSHIP:
It
was
ready
when
you
arrived,
or
was
it
prepared
while
you
were
there?
THE
WITNESS:
It
was
ready
when
I
arrived,
sorry.
MR
COUZIN:
Q.
Had
you
ever
discussed
the
language
of
any
such
receipt
with
anyone
at
the
Schwepps
organization?
A.
Prior
to
going
down
to
pick
up
the
cheque,
no,
never.
HIS
LORDSHIP:
Was
there
any
discussion
between
you
and
Mr
Powell
as
to
the
words
used
in
the
document?
THE
WITNESS:
Yes.
I
didn’t
particularly
like
them
at
all
and
didn’t,
in
fact,
agree
to
them
to
any
extent.
HIS
LORDSHIP:
Did
you
discuss
that
with
Mr
Powell?
THE
WITNESS:
Yes.
HIS
LORDSHIP:
What,
if
anything,
was
said
between
you?
THE
WITNESS:
Well,
during
the
course—it
was
a
very
brief
meeting.
It
became
apparent
to
me
that
unless
I
signed
this
document,
I
wasn't
going
to
get
my
money.
HIS
LORDSHIP:
Why
did
that
become
apparent
to
you?
THE
WITNESS:
From
the
tone
of
the
conversation.
HIS
LORDSHIP:
The
words
must
have
had
some
meaning
or
some
effect,
too.
Was
there
a
dispute
as
to
the
wording
of
the
document
or
disagreement?
THE
WITNESS:
Yes,
I
believe
there
was
a
dispute
as
such.
As
far
as
I
was
concerned,
the
$100,000
was
for
goodwill.
Nothing
else
had
ever
been
mentioned.
HIS
LORDSHIP:
Was
that
set?
Was
that
discussed?
THE
WITNESS:
Yes,
it
was.
HIS
LORDSHIP:
Tell
me
what
you
said
and
Mr
Powell
said.
You
don’t
see
any
objection
to
that?
MR
AINSLIE:
I’m
not
objecting,
My
Lord.
HIS
LORDSHIP:
I
agree
with
you
that
this
is
a
signed
document.
Tell
me
what
was
said
between
you
and
Mr
Powell.
THE
WITNESS:
As
I
recall,
I
mentioned
words
to
the
effect
that
it
was
goodwill.
We
had
previously
agreed
to
goodwill.
Nothing
else
had
been
mentioned
and
he
said,
“Well,
this
is
the
same
type
of
thing.
We
need
a
receipt.
We
would
like
you
to
sign
this
before
you
get
the
money.”
HIS
LORDSHIP:
I
take
it
from
what
you
said
that
there
must
have
been
some
words
in
here
that
you
didn't
like?
You
said,
“I
said
words
to
the
effect
that
it
was
goodwil
and
nothing
else”?
THE
WITNESS:
Yes.
HIS
LORDSHIP:
I
take
it
that
was
because
of
the
words
that
were
used
in
the
document?
Is
that
why
you
said
that?
THE
WITNESS:
That’s
right.
Goodwill
is
never
mentioned
in
this
document.
The
only
cross
examination
as
to
Exhibit
17
was
as
follows:
Q.
Now,
if
I
can
direct
your
attention
to
Exhibit
17,
this
is
the
receipt
and
satisfaction
and
as
I
understood
your
evidence,
you
indicated
you
were
unhappy
with
the
terms
of
the
recipt
and
satisfaction
as
drafted?
A.
That
is
correct.
Q.
Did
you
make
any
specific
suggestion
to
Mr
Powell
as
to
any
specific
change
that
could
be
made
to
that
receipt?
A.
I
think
the
comment
I
made
was
that
it
didn’t
contain
anything
to
do
with
goodwill
which
had
been
previously
agreed
to.
Q.
Did
you
specifically
ask
that
there
should
be
included
any
other
words?
Any
additional
words?
A.
I
asked
if
such
a
receipt
was
necessary
at
all,
as
I
recall.
Q.
Is
that
all
you
asked?
A.
Yes.
The
credibility
of
this
witness
not
having
been
questioned
I
am
of
the
opinion
that
his
evidence
taken
together
with
the
letters
to
which
I
have
referred
make
it
clear
that
the
terms
of
the
document
Ex
17
signed
by
Butcher
were
not
the
terms
of
the
agreement
that
the
parties
had
in
fact
made.
The
payment
of
$100,000
was
for
goodwill
and
nothing
else.
The
good
name
and
reputation
built
up
by
a
business
is
goodwill:
evidenced
in
this
case
by
the
increase
in
the
sales
of
Schwepps
products
between
1952
and
1969,
(Cumberland
Investments
Limited
v
The
Queen,
[1973]
CTC
821
at
829;
74
DTC
6001
at
6013).
For
the
purpose
of
effecting
the
transfer
of
its
established
good-will
to
Schwepps
the
appellant
gave
Schwepps
the
names
of
its
customers
of
Schwepps
products
whom
the
appellant
had
cultivated
and
notified
the
customers
by
letter
of
the
changeover.
In
concluding
his
reasons
the
trial
Judge
said:
The
Plaintiff
contends
the
words
in
Ex
17
should
be
disregarded;
they
do
not
represent
the
true
nature
of
the
transaction,
which
was
a
payment
for
goodwill
only.
I
cannot
accept
that
submission.
There
must
be,
in
my
view,
reasonable
evidence
from
which
the
court
can
conclude,
in
this
case,
the
payment
was
otherwise
than
on
account
of
income,
as
designated
in
Ex
17.
The
evidence
before
me
is
slim,
and,
indeed,
incomplete.
He
also
criticized
the
failure
of
the
appellant
to
call
as
a
witness
one
Emerson
who
was
the
president
of
the
appellant
and
who
had
written
some
of
the
letters
to
which
I
have
referred
but
who
before
the
case
came
on
for
trial
had
moved
to
the
United
States.
He
then
continued:
...
cases
of
this
kind
are
largely
dependent
on
their
own
particular
facts.
Here,
the
few
facts
before
me
are,
to
my
mind,
against
the
taxpayer’s
contention.
Mr
Butcher’s
evidence,
and
the
letters
of
November
29
and
December
6,
1968,
are
insufficient
to
warrant
the
conclusion
or
inference
that
the
$100,000
was
for
goodwill,
or,
at
least,
not
on
account
of
income.
The
plaintiff’s
further
contention
the
payment
was
an
ex
gratia
one,
and
therefore
not
taxable,
is
not,
on
the
pleadings,
open
to
it.
I
find
myself
unable
to
agree
with
the
conclusion
reached
by
the
trial
judge.
The
only
witness
called
at
the
hearing
was
Butcher
for
the
appellant.
His
evidence
was
not
contradicted
nor
was
his
credibility
called
into
question.
There
was
evidence
to
support
a
finding
that
there
was
goodwill
attaching
to
the
appellant’s
business
as
a
distributor
of
Schwepps
products
that
the
sufficient
to
provide
consideration
for
the
payment
of
the
$100,000.
In
my
view
the
only
reasonable
inference
to
be
drawn
from
the
evidence
is
that
the
terms
of
the
receipt
(Ex
17)
did
not
reflect
or
contain
the
terms
of
the
agreement
that
the
parties
had
made.
It
follows
in
my
view
that
the
proper
inference
to
be
drawn
is
that
the
payment
of
$100,000
was
for
goodwill
and
the
appellant
was
entitled
to
treat
it
as
capital
and
not
income.
As
to
the
appellants
alternative
submission
that
it
was
an
ex
gratia
payment
I
agree
with
the
trial
judge
that
on
the
pleadings
this
argument
is
not
open
to
the
appellant.
I
would
allow
the
appeal,
set
aside
the
judgment
of
the
trial
Court
and
direct
that
the
notice
of
reassessment
be
vacated.
The
appellant
to
have
its
costs
in
this
Court
and
in
the
trial
division.