CATTANACH,
J.:—These
are
appeals
from
assessment
to
income
tax
levied
by
the
Minister
in
respect
of
the
appellant’s
income
for
its
1959
and
1960
taxation
years.
The
appellant
company,
the
head
office
of
which
is
in
Toronto,
Ontario,
operates
a
chain
of
retail
food
stores
throughout
Canada,
except
in
the
Province
of
Newfoundland,
the
Yukon
and
Northwest
Territories.
Approximately
62
per
cent
of
appellant’s
gross
revenue
is
derived
from
its
business
conducted
in
the
Province
of
Ontario
and
approximately
20
per
cent
is
derived
from
its
operations
in
the
Province
of
Quebec.
As
a
matter
of
policy
the
appellant
does
not
usually
resort
to
the
device
of
distributing
trading
stamps
to
attract
and
retain
customers
but,
as
an
executive
of
the
appellant
company
testified,
the
appellant
was
obliged
to
do
so
in
the
Province
of
Quebec
and
in
those
portions
of
Ontario
bordering
on
Quebee
in
order
to
compete
effectively
with
its
business
rivals.
I
would
assume
that
the
appellant
had
no
inherent
objection
to
the
adoption
of
such
trading
stamp
plans
if
it
were
demonstrated
to
it
that
such
a
plan
would
increase
its
trade.
The
method
of
operating
the
trading
stamp
plans
adopted
by
the
appellant
is
this:
The
appellant
conducts
its
business
on
a
cash
basis
exclusively.
A
customer
on
purchasing
merchandise
from
the
appellant
is
given
trading
stamps
to
the
value
of
114
per
cent
of
the
price
paid
for
the
merchandise
purchased.
For
example
if
the
price
of
the
merchandise
was
$10,
the
customer
would
be
given
100
stamps
having
a
redeemable
value
of
15
cents,
or
3/20
of
a
cent
each.
The
customer
is
also
supplied
with
a
small
booklet
in
which
the
stamps
are
to
be
pasted.
The
booklet,
when
completely
filled,
has
a
redeemable
value
of
$2.25.
When
a
customer
has
filled
booklets
of
these
stamps
he
may
them
present
them
at
the
appellant’s
retail
store
where
the
merchandise
was
purchased
where
he
is
given
a
choice
of
articles
illustrated
in
a
catalogue
which
may
have
been
given
to
him
previously
or
is
available
for
his
inspection.
The
appellant
then
exchanges
the
article
selected
by
the
customer
for
a
certain
number
of
completed
booklets,
the
number
of
booklets
required
being
listed
in
the
catalogue.
In
all
advertising
media,
and
upon
the
catalogues
and
booklets
the
trading
stamps
and
articles
received
by
a
customer
in
exchange
therefor
are
described
as
being
“free”—“gifts”
and
“free
gifts’’.
I
should
have
thought
that
the
appellant
would
recoup
itself
for
the
cost
of
printing
the
trading
stamps
and
the
redeemable
values
thereof
as
well
as
sundry
related
administrative
expenses,
by
appropriate
increases
in
the
prices
of
the
merchandise
sold
to
its
customers.
I
should
also
have
thought
that
the
appellant
would
realize
a
profit
by
supplying
articles
in
exchange
for
booklets
of
stamps.
However,
no
satisfactory
evidence
was
adduced
upon
either
of
the
above
points.
An
executive
of
the
appellant
company
who
was
called
as
a
witness
could
not
say
whether
prices
in
those
stores
of
the
appellant
in
which
a
trading
stamp
plan
was
in
vogue
were
increased
to
cover
the
cost
of
the
stamp
plan,
nor
did
he
know
whether
the
premium
articles
given
in
exchange
for
stamps
were
purchased
by
the
appellant
at
manufacturer’s
or
wholesale
cost
and
redeemed
by
it
at
the
retail
cost.
The
witness
did
say
that
prices
varied
from
store
to
store
in
the
appellant’s
chain
in
different
areas
and
from
store
to
store
in
the
same
areas,
but
that
such
variations
in
prices
were
attributable
to
so
many
factors
that
he
was
unable
to
attribute
any
part
of
the
prices
at
which
merchandise
was
sold
to
the
introduction
of
a
trading
stamp
plan.
Neither
could
this
witness
state
that
a
specific
part
of
each
sales
dollar
received
by
the
appellant
was
allocated
to
an
account
for
the
redemption
of
trading
stamps,
or
that
a
specific
part
of
each
sales
dollar
was
allocated
to
the
purchase
price
of
the
merchandise
sold
by
the
appellant.
No
such
system
of
bookkeeping
or
segregation
was
set
up
although
accounts
were
kept
of
the
numbers
and
amounts
of
trading
stamps
issued.
It
was
positively
established
by
evidence
that
when
a
customer
made
a
purchase
of
merchandise
in
one
of
the
appellant’s
stores
where
a
trading
stamp
plan
was
in
effect,
he
paid
the
asking
price
for
the
merchandise
he
received,
he
received
or
was
entitled
to
receive
trading
stamps
to
the
extent
of
114
per
cent
of
the
purchase
price
and
he
was
entitled
to
present
those
trading
stamps
for
redemption
by
the
appellant.
These
were
the
conditions
under
which
merchandise
was
sold
by
the
appellant.
If
a
customer
did
not
wish
to
take
the
stamps
he
could
not
thereby
obtain
any
reduction
in
the
price
of
the
merchandise
that
he
wished
to
purchase.
If
the
customer
did
not
wish
to
take
the
stamps
proffered
to
him,
and
did
not
take
them,
he
would,
in
effect,
be
making
a
gift
of
them
to
the
appellant.
It
was
a
condition
of
acquiring
trading
stamps
that
a
customer
must
purchase
merchandise
from
the
appellant.
A
person
could
no
acquire
stamps
from
the
appellant
except
in
connection
with
a
purchase
of
merchandise
in
the
manner
I
have
described.
In
addition
to
its
trading
stamp
plan,
the
appellant
also
had
in
effect
in
some
of
its
stores
in
some
areas
a
variation
thereof
which
was
described
as
a
‘‘save-a-tape’’
plan.
This
plan
worked
in
a
manner
identical
to
the
trading
stamp
plan
except
that
instead
of
trading
stamps
the
customer
was
given
cash
register
receipts
in
a
specified
colour
which
were
also
redeemable
in
the
same
manner
and
to
the
same
values
as
trading
stamps.
I
should
also
add
that
a
customer
was
given
a
further
option
by
the
appellant.
A
customer
could
exchange
the
trading
stamps
received
by
him
(or
the
cash
register
receipts
as
the
case
might
be)
for
the
premiums
listed
in
the
catalogue
or
if
the
customer
wished
he
might
redeem
the
trading
stamps
for
merchandise,
that
is
groceries,
sold
by
the
appellant.
The
appellant,
in
addition
to
distributing
trading
stamps
in
its
own
retail
stores,
also
sold
a
much
lesser
quantity
of
trading
stamps
than
it
distributed
itself
to
other
retail
merchants
to
disseminate
or
distribute
among
their
customers.
The
customers
of
those
other
retail
merchants
were
also
entitled
to
present
the
trading
stamps
so
received
by
them
to
the
appellant
to
be
exchanged
for
the
premiums
listed
in
the
appellant’s
catalogue
at
the
rates
therein
listed
and
the
appellant
also
undertook
to
redeem
those
stamps.
The
appellant
also
sold
‘‘gift
certificates’’.
These
certificates
were
purchased
from
the
appellant
at
a
price
equal
to
the
face
value
printed
thereon
and
were
redeemable
at
any
of
the
appellant’s
retail
stores
by
the
bearer
for
merchandise
only,
that
is
to
say,
the
merchandise
normally
sold
by
the
appellant
but
not
for
premiums
listed
in
the
gift
catalogue.
During
the
Christmas
season
the
appellant
also
offered
for
sale
turkey
gift
certificates
which
were
for
the
same
purpose
as
the
gift
certificates
except
that
the
merchandise
to
be
received
therefor
was
limited
to
turkeys.
Owing
to
the
operation
of
trading
stamp
plans
by
the
appellant
in
the
conduct
of
its
business,
a
problem
arises
in
dealing
with
what
are
known
as
‘‘unredeemed’’
stamps,
that
is
to
say,
stamps
that
were
distributed
in
the
current
accounting
year
or
carried
over
from
former
years
and
that
remain
unredeemed
at
the
end
of
the
year.
The
problem
is
what
account,
if
any,
should
be
taken
of
such
unredeemed
stamps
in
computing
the
profits
from
the
appellant’s
business
for
the
year.
During
the
taxation
years
1957
and
1958
the
appellant
operated
its
trading
stamp
plan
under
the
name
of
the
‘‘Blue
Chip
Premium
Stamp
Plan’’.
This
plan
was
discontinued
by
the
appellant
in
its
1958
taxation
year
and
in
its
income
tax
return
for
that
year
the
appellant
deducted
a
reserve
in
respect
of
Blue
Chip
stamps
then
outstanding
which
the
Minister
disallowed
as
a
deduction.
The
appellant,
in
its
1959
and
subsequent
taxation
years,
continued
to
operate
a
premium
trading
stamp
plan
designated
as
the
“Horizon
Stamp
Plan’’.
During
its
1958
and
subsequent
taxation
years
the
appellant
also
operated
the
‘‘Save-a-Tape
Plan’’
which
has
been
described
above.
In
the
appellant’s
1959
and
1960
taxation
years
now
under
review,
the
Minister
did
allow
claims
for
reserves
with
respect
to
trading
stamps
sold
by
the
appellant
to
other
retail
merchants,
and
the
issuance
of
gift
certificates
and
Christmas
turkey
certificates,
in
amounts
he
considered
to
be
reasonable,
but
he
dis-
allowed
the
claims
for
the
reserves
with
respect
to
the
‘‘Blue
Chip
Plan’’,
the
“Horizon
Stamp
Plan’’
and
the
‘‘Save-a-Tape
Plan’’
made
by
the
appellant
for
those
taxation
years
by
notification
under
Section
58
of
the
Income
Tax
Act,
dated
July
30,
1964,
on
the
particular
ground
that,
‘‘reserves
for
premium
stamps
and
tapes
supplied
to
customers
claimed
as
deductions
from
income
have
been
properly
disallowed
in
accordance
with
the
provisions
of
paragraph
(e)
of
subsection
(1)
of
Section
12
of
the
Act;
that
no
part
of
the
taxpayer’s
receipts
from
customers
represents
an
amount
received
in
the
year
in
the
course
of
business
that
is
on
account
of
goods
not
delivered
before
the
end
of
the
year
or
that,
for
any
other
reason,
may
be
regarded
as
not
having
been
earned
in
the
year
or
a
previous
year
within
the
meaning
of
subparagraph
(i)
of
paragraph
(a)
of
subsection
(1)
of
Section
85B
of
the
Act
and
accordingly
the
taxpayer
is
not
entitled
to
a
reserve
under
paragraph
(c)
of
the
said
subsection
(1)
of
Section
85B.”’
By
such
notification
the
Minister
confirmed
his
prior
assessments
to
which
objections
had
been
filed
by
the
appellant.
It
is
from
these
assessments
that
the
appeals
to
this
Court
result.
The
provisions
of
the
Income
Tax
Act
pertinent
to
the
present
appeals
read
as
follows:
“3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purposes
of
this
Part
is
his
income
for
the
year
from
all
sources
inside
or
outside
Canada
and,
without
restricting
the
generality
of
the
foregoing,
includes
income
for
the
year
from
all
(a)
businesses,
(b)
property,
and
(c)
offices
and
employments.
4.
Subject
to
the
other
provisions
of
this
Part,
income
for
a
taxation
year
from
a
business
or
property
is
the
profit
therefrom
for
the
year.
12.
(1)
In
computing
income,
no
deduction
shall
be
made
in
respect
of
(e)
an
amount
transferred
or
credited
to
a
reserve,
contingent
account
or
sinking
fund
except
as
expressly
permitted
by
this
Part,
85B.
(1)
In
computing
the
income
of
a
taxpayer
for
a
taxation
year,
(a)
every
amount
received
in
the
year
in
the
course
of
a
business
(i)
that
is
on
account
of
services
not
rendered
or
goods
not
delivered
before
the
end
of
the
year
or
that,
for
any
other
reason,
may
be
regarded
as
not
having
been
earned
in
the
year
or
a
previous
year,
shall
be
included
;
(c)
.
.
.
where
amounts
of
a
class
described
in
subparagraph
(i)
or
(ii)
of
paragraph
(a)
have
been
included
in
computing
the
taxpayers’
income
from
a
business
for
the
year
or
a
previous
year,
there
may
be
deducted
a
reasonable
amount
as
a
reserve
in
respect
of
(i)
goods
that
it
is
reasonably
anticipated
will
have
to
be
delivered
after
the
end
of
the
year,”
The
issue
is
whether
the
appellant
is
entitled
to
deduct
an
amount
as
a
reserve
in
respect
of
the
trading
stamps
and
cash
register
receipts
which
it
had
distributed
among
its
customers
and
which
had
not
been
redeemed
during
the
respective
taxation
years
in
question.
Upon
the
pleadings
a
further
issue
was
raised
as
to
whether,
assuming
the
appellant
is
entitled
to
deduct
an
amount
as
such
a
reserve
in
computing
its
incomes
for
its
1959
and
1960
taxation
years,
the
sums
of
$265,027.91
and
$784,765.89,
which
were
claimed
by
the
appellant
by
its
Notice
of
Appeal,
are
“reasonable”
amounts
as
contemplated
by
Section
85B(l)(c).
As
a
result
of
an
agreement
made
by
counsel
during
the
course
of
the
trial
the
parties
have
informed
the
Court
that
reasonable
amounts
for
the
two
taxation
years
under
appeal
are
as
follows:
1959
—
Horizon
and
Blue
Chip
Reserve:
|
$139,602.32
|
Save-a-Tape
Reserve:
|
25,570.28
|
Total
—
|
$165,172.60
|
1960
—
Horizon
Stamp
Reserve:
|
$509,987.64
|
The
appellant’s
principal
contention
is,
in
effect,
that
the
manner
in
which
the
appellant
conducted
its
business,
which
has
been
described
above,
falls
within
the
precise
terms
of
Section
85B
in
that
part
of
the
purchase
price
received
by
the
appellant
in
the
course
of
each
of
its
sales
at
a
store
where
such
a
plan
was
in
operation,
was
received
on
account
of
goods
not
delivered
before
the
end
of
the
year.
There
is
no
question
that
the
appellant
is
under
a
binding
legal
obligation
to
redeem
trading
stamps
which
it
has
issued
under
the
plans
that
I
have
described
when
those
stamps
are
presented
to
be
exchanged
for
premiums
in
accordance
with
the
terms
of
the
respective
plans
under
which
they
were
issued.
Counsel
for
the
Minister
readily
concedes
that
such
obligation
is
upon
the
appellant
to
redeem
the
trading
stamps.
However,
he
submits
that
this
obligation
was
voluntarily
assumed
by
the
appellant,
that
there
was
no
evidence
(as
there
was
not)
of
an
increase
in
price
of
the
merchandise
that
the
appellant
sold
in
the
normal
course
of
its
business
to
cover
the
cost
of
the
premium
plans
when
introduced
and
that
there
was
no
segregation
or
allocation
of
the
revenue
received
to
the
merchandise
sold,
on
the
one
hand,
and
to
the
trading
stamps
distributed
on
the
other.
He,
therefore,
suggests
that
the
trading
stamps
were
‘‘free’’
as
they
were
described
in
the
appellant’s
advertising.
On
these
grounds
he
submits
that
no
amounts
were
received
by
the
appellant
in
the
years
in
question
in
respect
of
the
trading
stamps
or
the
premiums
to
be
given
on
their
redemption.
It
would
follow,
therefore,
that
no
amounts
were
included
in
computing
the
appellant’s
income
and
that
a
reasonable
amount
as
a
reserve
was
not
permissible
as
a
deduction
under
paragraph
(c)
of
Section
85B.
In
short,
the
contention
on
behalf
of
the
Minister
is,
as
I
understand
it,
that
the
liability
of
the
appellant
to
redeem
the
trading
stamps
issued
by
it
cannot
be
related
back
to
the
period
in
which
that
liability
arose,
but
rather
any
deductions
should
be
brought
into
account
when
the
trading
stamps
were
actually
redeemed
and
not
before.
In
my
view
the
contention
of
the
Minister
cannot
prevail.
The
arrangement
between
the
appellant
and
its
customers
is
quite
clear
from
the
evidence.
A
customer
paid
the
price
demanded
by
the
appellant
when
he
purchased
merchandise
from
the
appellant.
For
this,
he
received
the
merchandise
and
in
addition
he
received
or
was
entitled
to
receive
trading
stamps
which
he
was
entitled
to
present
to
the
appellant
later
for
redemption
either
by
way
of
premiums
or
the
appellant’s
merchandise.
The
appellant
was
legally
obligated
to
make
this
redemption.
There
was
only
one
transaction
and
this
was
the
only
way
in
which
the
appellant
would
conduct
its
business
at
the
particular
stores.
It
does
not
follow
that,
because
no
specific
amount
is
identifiable
as
being
allocated
to
the
cost
of
distributing
and
redeeming
the
stamps,
the
total
amount
is
not
attributable
in
part
thereto.
When
two
articles
are
sold
together
for
one
price
without
a
price
being
put
upon
each
separately,
it
does
not
follow
that
one
article
is
free
and
that
the
price
is
attributable
exclusively
to
the
other
article.
In
my
opinion,
where
the
trading
stamps
and
save-a-tape
plans
were
in
effect
and
trading
stamps
or
premium
tapes
were
issued
to
the
appellant’s
customers,
a
portion
of
each
amount
received
by
the
appellant
from
its
customers
was
received
on
account
of
goods
to
be
delivered
on
presentation
of
the
trading
stamps
or
tapes
for
redemption.
All
amounts
received
by
the
appellant
in
respect
of
such
goods
were
included
in
the
appellant’s
income
in
the
year
of
receipt
whether
or
not
the
trading
stamps
or
tapes
were
redeemed
in
that
year.
Such
amounts,
with
respect
to
trading
stamps
which
remained
outstanding
at
the
end
of
each
taxation
year,
were
on
account
of
goods
not
delivered
before
the
end
of
the
year.
From
this
is
follows
that
by
virtue
of
Section
85B
the
appellant
is
entitled
to
deduct
a
reasonable
amount
for
each
of
the
two
years
in
question
as
a
reserve
in
respect
of
goods
that
it
is
reasonably
anticipated
will
have
to
be
delivered
upon
the
redemption
of
trading
stamps
or
premium
tapes
after
the
end
of
the
year.
The
parties
hereto
have
agreed
that
such
reasonable
amounts
are
as
set
out
above.
Having
regard
to
the
conclusion
I
have
reached
on
the
appellant’s
principal
contention
there
is
no
need
to
discuss
its
alternative
contentions.
The
appeals
are,
therefore,
allowed
with
costs
and
the
assessments
are
referred
back
to
the
Minister
for
re-assessment
so
as
to
allow
as
a
deduction,
(a)
for
the
appellant’s
1959
taxation
year
an
amount
of
$165,172.60,
and
(b)
for
the
appellant’s
1960
taxation
year
an
amount
of
$509,987.64,
as
reserves
in
those
respective
taxation
years
in
accordance
with
Section
85B
of
the
Income
Tax
Act.