Bonner
J.T.C.C.:
—
This
is
an
appeal
from
assessments
under
the
Income
Tax
Act
(“Act”)
for
the
1987
and
1988
taxation
years.
At
issue
is
the
deductibility
under
either
paragraph
20(1
)(c)
or
paragraph
20(1
)(e)
of
the
Act
of
payments
described
in
an
issue
of
bonds
as
“Participating
Interest”.
In
1971
the
appellant
completed
the
building
of
a
large
shopping
centre
called
Sherway
Gardens.
The
shopping
centre
was
intended
for
use
and
was
in
fact
used
and
operated
by
the
appellant
for
the
purpose
of
earning
income
from
its
business.
During
construction
financing
was
by
way
of
bank
loans.
Those
loans
were
of
an
interim
nature
and
had
to
be
replaced
by
borrowings
arranged
on
a
long-term
basis.
The
appellant
obtained
that
long-term
financing
by
issuing
$21.5
million
in
bonds.
An
offering
circular
prepared
for
purposes
of
marketing
the
bonds
briefly
describes
the
participating
interest
feature
of
them
as
follows:
In
addition
to
interest
at
the
fixed
rate
of
9
3/4
per
cent
per
annum
payable
half-yearly
(October
1
and
April
1)
the
Series
A
Bonds
will
be
entitled
to
Participating
Interest
each
year
equal
to
15
per
cent
of
Operating
Surplus
(as
hereinafter
defined)
in
excess
of
$2,900,000
all
as
set
out
under
the
heading
‘Interest
Rate’
on
page
12
of
this
Circular.
The
Series
A
Bonds
will
not
be
redeemable
prior
to
October
1,
1991
...
The
definition
of
“Operating
Surplus”
was:
“Operating
Surplus”
for
a
specified
period
means
the
gross
earnings
and
income
of
the
Company
from
all
sources
less
all
administrative,
selling,
renting
and
operating
charges
and
expenses
of
every
character
and
all
fixed
charges
of
the
Company
other
than
taxes
on
income,
interest
on
indebtedness,
rent
payable
under
the
Ground
Lease,
depreciation,
amortization
and
capital
cost
allowances
for
such
period.
The
appellant
was
not
to
engage
in
any
business
other
than
the
development
and
operation
of
the
shopping
centre
and
expansions
thereof.
The
Minister
of
National
Revenue
(“Minister”),
in
making
the
assessments
in
issue
permitted
the
deduction
of
payments
of
conventional
interest
but
disallowed
the
deduction
of
participating
interest.
The
position
taken
by
the
Minister
was
that
participating
interest
qualified
neither
as
“interest”
within
the
meaning
of
paragraph
20(1
)(c)
of
the
Act
nor
as
an
“expense
incurred
in
the
year
...
in
the
course
of
borrowing
money
used
by
the
taxpayer
for
the
purpose
of
earning
income
from
a
business
...”
within
the
meaning
of
paragraph
20(1
)(e)
of
the
Act.
It
was
the
Minister’s
view
that
paragraph
20(1
)(e)
does
not
authorize
a
deduction
in
respect
of
payments
made
as
compensation
for
the
use
of
borrowed
money.
Three
witnesses
gave
evidence
at
the
hearing
of
the
appeals.
Michael
Peter
Prescott
was
in
October
of
1969
an
officer
of
Sun
Life
Assurance
Company
of
Canada
(“Sun”).
Sun
intended
to
make
a
major
investment
in
the
issue
of
bonds
proposed
by
the
appellant
and
therefore
was
regarded
as
the
“lead
lender”
upon
which
smaller
investors
tend
to
rely
in
relation
to
the
adequacy
of
the
security.
Mr.
Prescott
prepared
a
memorandum
for
the
investment
committee
of
Sun
analysing
the
features
offered
by
the
bonds
and
setting
out
his
recommendations
regarding
the
purchase
of
them.
According
to
Mr.
Prescott
the
ability
of
the
borrower
to
service
the
debt,
was
a
matter
of
considerable
concern.
At
an
interest
rate
of
9.75
per
cent
it
was
projected
that
the
money
available
for
debt
service
would
exceed
debt
service
costs
by
an
adequate
margin.
However,
given
prevailing
rates
of
interest,
a
return
to
the
bond
holders
higher
than
9.75
per
cent
was
justified.
Interest
rates
were
at
historically
high
levels
and
were
continuing
to
rise.
The
arrangement
for
participating
interest
was
made
in
order
to
offer
bond
holders
a
return
over
the
life
of
the
bonds
in
excess
of
9.75
per
cent
by
securing
for
the
bond
holders
a
portion
of
future
growth
in
rents
paid
by
the
tenants
of
Sherway
Gardens.
Various
projections
were
made
of
the
potential
total
returns
to
the
bond
holders
with
results
ranging
from
10.06
per
cent
to
10.61
per
cent.
It
was
Mr.
Prescott’s
view
that
Sun,
if
lucky,
would
earn
about
10.24
per
cent
overall.
In
order
to
ensure
that
the
participating
interest
feature
of
the
bond
would
have
time
to
operate,
Sun
indicated
to
the
appellant
that
it
wanted
the
non-callable
feature
of
the
bonds
extended
from
the
15
year
period
initially
offered
to
20
years.
Agreement
was
reached
on
that
point.
It
is
clear
from
the
testimony
of
Mr.
Prescott
that
the
participating
interest
feature
of
the
bonds
was
negotiated
between
informed
parties
dealing
with
each
other
at
arm’s
length
and
was
intended
to
increase
the
overall
yield
to
the
bond
holders
from
9.75
per
cent
to
a
projected
level
of
10.25
per
cent,
more
or
less.
William
MacKenzie
who,
at
the
relevant
time,
was
an
official
of
Canada
Life
Assurance
Company
(“Canada
Life”)
also
testified.
Canada
Life
was
the
second
largest
investor
in
the
appellant’s
bonds.
It
purchased
$3,000,000
worth.
Mr.
MacKenzie
confirmed
that
debt
service
was
a
major
concern
to
Canada
Life.
Prevailing
market
conditions
suggested
that
an
appropriate
yield
on
the
appellant’s
bonds
would
be
10.25
per
cent.
Mr.
MacKenzie
indicated
that
a
$20,000,000
issue
at
10.25
per
cent
would
impose
a
debt
service
obligation
so
onerous
that
default
would
loom
as
a
possibility.
In
order
to
avoid
the
“nastiness”
of
default,
Canada
Life
was
prepared
to
accept
a
lower
fixed
rate
coupled
with
a
level
of
participation
expected
to
make
up
the
deficiency
in
later
years.
Mr.
MacKenzie
emphasized
that
Canada
Life
treated
the
participating
bonds
not
as
equity
instruments
but
as
fixed
income
securities
that
could
be
matched
against
fixed
long-term
annuity
liabilities
of
Canada
Life.
Mr.
MacKenzie
noted
that
Canada
Life
owned
much
of
the
land
upon
which
the
appellant’s
shopping
centre
was
built.
That
land
however
was
subject
to
a
very
longterm
lease
in
favour
of
the
appellant
and
the
appellant’s
reversionary
interest
was
subordinated
to
the
bonds.
Finally,
evidence
was
given
by
Daniel
F.
Sullivan,
deputy
chairman
of
Scotia
McLeod
Inc.,
a
major
Canadian
investment
dealer.
Mr.
Sullivan
testified
as
an
expert
in
real
estate
finance.
He
expressed
the
opinion
that
participation
payments
in
the
latter
years
of
a
loan
such
as
that
in
issue
represent,
in
effect,
delayed
interest.
They
compensate
for
interest
forgone
in
earlier
years.
He
stated
that
lenders
do
a
discounted
cash-flow
calcula-
tion
of
both
fixed
interest
and
projected
participation
payments
over
the
term
of
the
loan
in
order
to
ascertain
whether
the
combined
income
streams
would
approximate
the
yield
required
by
lenders
under
prevailing
market
conditions.
While
there
is
no
doubt
whatever
regarding
the
credibility
of
the
evidence
given
by
Mr.
Prescott
and
Mr.
MacKenzie,
Mr.
Sullivan’s
evidence
serves
to
confirm
what
was
said
by
them
regarding
the
process
of
arriving
at
the
terms
of
the
bonds
and
the
role
of
participating
interest
from
the
viewpoint
of
the
investor.
It
is
clear
that,
whether
the
participating
interest
payments
are
interest
within
the
meaning
of
paragraph
20(1
)(c)
or
not,
they
are
a
cost
incurred
in
borrowing
money
used
to
acquire
and
hold
a
capital
asset
and
for
that
reason
they
constitute
a
“payment
on
account
of
capital”
within
paragraph
18(1
)(b)
of
the
Act.
Thus
the
payments
are
deductible,
if
at
all,
under
either
paragraph
20(l)(c)
or
20(l)(e).
The
relevant
portions
of
paragraph
20(l)(c)
now
follow:
20(1)
Notwithstanding
paragraphs
18(l)(a),
(b)
and
(h),
in
computing
a
taxpayer’s
income
for
a
taxation
year
from
a
business
or
property,
there
may
be
deducted
such
of
the
following
amounts
as
are
wholly
applicable
to
that
source
or
such
part
of
the
following
amounts
as
may
reasonably
be
regarded
as
applicable
thereto:
(c)
an
amount
paid
in
the
year
or
payable
in
respect
of
the
year
depending
upon
the
method
regularly
followed
by
the
taxpayer
in
computing
his
income),
pursuant
to
a
legal
obligation
to
pay
interest
on
(i)
borrowed
money
used
for
the
purpose
of
earning
income
from
a
business
or
property
(other
than
borrowed
money
used
to
acquire
property
the
income
from
which
would
be
exempt
or
to
acquire
a
life
insurance
policy),
…
or
a
reasonable
amount
in
respect
thereof,
whichever
is
the
lesser;
Counsel
for
the
appellant
argued
that
the
payments
in
issue
are
interest.
His
argument
had
two
main
bases:
a)
Interest
is
compensation
for
the
use
or
retention
of
money
over
a
period
of
time;
and
b)
the
legislature
in
the
closing
words
of
paragraph
212(l)(b)
of
the
Act
contemplates
that
interest
may
be
computed
“...
by
reference
to
revenue,
profit,
cash-flow,
commodity
price
or
any
other
similar
criterion
...”
and
thus
has
indicated
that
the
word
interest
as
used
in
the
Act
is
used
in
the
broad
sense
and
is
not
necessarily
limited
to
amounts
accrued
on
a
day
to
day
basis.
The
decisions
of
the
courts
in
Canada
regarding
the
meaning
of
the
word
interest
are
difficult
to
reconcile.
Some
define
the
word
broadly
to
include
any
form
of
compensation
for
the
use
of
money
owed
to
another
person.
For
example
in
Satinder
v.
Minister
of
National
Revenue,
this
definition
was
adopted
by
the
Federal
Court
of
Appeal
when
dealing
with
the
question
whether
a
discount
on
a
treasury
bill
was
interest
and
therefore
properly
included
in
the
income
of
the
holder
of
the
bill.
The
Court
however
was
dealing
with
paragraph
12(1)(c)
of
the
Act,
a
provision
which
uses
such
sweeping
language
that
a
precise
delineation
of
the
meaning
of
the
word
interest
was
not
required.
Where
the
Courts
have
defined
“interest”
broadly
they
have
in
most
cases
relied
on
the
following
statement
made
by
Rand
J.
in
Reference
validity
of
section
6
of
Reference
re
validity
of
s.6
of
Farm
Security
Act,
1944
(Saskatchewan)}
Interest
is,
in
general
terms,
the
return
or
consideration
or
compensation
for
the
use
or
retention
by
one
person
of
a
sum
of
money,
belonging
to,
in
a
colloquial
sense,
or
owed
to,
another.
In
R.
v.
Melford
Developments
Inc.,*
the
Supreme
Court
of
Canada
pointed
out
that
this
statement
is
not
to
be
read
literally.
At
page
509
(C.T.C.
333,
D.T.C.
6283)
Estey
J.
speaking
for
the
Court
stated:
Read
literally,
this
statement
would
not
require
the
payment
of
interest
to
be
made
to
the
owner
of
the
capital
advanced
to
the
borrower.
Indeed,
it
may
be
broad
enough
to
embrace
the
very
transaction
now
before
the
Court,
namely
a
guaranty
fee
for
the
procurement
of
the
money
of
another.
If
this
indeed
was
the
meaning
in
1956
in
the
law
of
Canada
of
the
term
“interest”,
then
it
can
be
argued
that
the
1974
Tax
Act
amendments
are
not
in
conflict
with
the
1956
statute.
However,
when
the
observation
of
Rand
J.,
supra,
is
read
in
the
context
of
the
issue
then
before
the
Court
it
becomes
apparent
that
no
attempt
was
there
being
made
to
determine
the
extent
of
the
definition
of
the
term
“interest”
and
I
do
not
believe
the
comment
should
be
taken
as
meaning
that
interest
relates
to
anything
other
than
the
payment
for
the
use
of
the
principal
advanced
to
the
payor
by
the
payee.
The
Farm
Security
Act
case
is
usually
cited
in
support
of
broad
definitions
of
the
word
interest.
However
in
the
reasons
of
Rand
J.
the
following
sentence
serves
to
warn
those
who
would
adopt
the
broad
definition
too
literally
:
There
may
be
other
essential
characteristics
but
they
are
not
material
here.
One
such
essential
characteristic
was
identified
by
the
Supreme
Court
of
Canada
in
Ontario
(Attorney
General)
v.
Barfried
Enterprises
Ltd.^.
In
that
case
the
issue
was
whether
the
Unconscionable
Transactions
Relief
Act
was
intra
vires
the
Legislature
of
Ontario.
The
legislation
enabled
the
courts
to
grant
relief
“in
respect
of
money
lent”
“where
the
cost
of
the
loan
is
excessive”
and
“the
transaction
is
harsh
and
unconscionable
...”.
The
term
“cost
of
the
loan”
was
defined
to
include,
among
other
things,
interest,
discounts,
bonuses,
commissions
and
premiums.
The
Ontario
Court
of
Appeal
had
held
that
the
statute
dealt
with
interest,
a
subject
matter
within
Parliament’s
exclusive
jurisdiction.
In
reversing
the
decision
of
the
Court
of
Appeal,
Judson
J.,
speaking
for
the
majority
of
the
Supreme
Court,
held
that
the
legislation
had
as
its
object
the
modification
of
contracts
and
only
incidentally
affected
interest.
His
Lordship
held
that
ordinarily
the
unconscionable
aspect
of
a
money-lending
contract
was
in
the
bonus,
not
in
the
interest
rate
charged
and
that
bonuses
were
not
interest.
Referring
to
the
previously
cited
passage
from
the
reasons
of
Rand
J.
in
the
Farm
Security
Act
case
he
stated:
This
is
substantially
the
definition
running
through
the
three
editions
of
Halsbury.
However,
in
the
third
edition
(27
Hals.,
3rd.
ed.,
page
7)
the
text
continues:
Interest
accrues
de
die
in
diem
even
if
payable
only
at
intervals,
and
is,
therefore,
apportionable
in
point
of
time
between
persons
entitled
in
succession
to
the
principal.
The
day-to-day
accrual
of
interest
seems
to
me
to
be
an
essential
characteristic.
Nothing
in
the
evidence
suggests
that
“Operating
Surplus”
as
defined
for
purposes
of
computing
the
payments
now
in
issue
does
or
could
accrue
from
day
to
day.
A
third
characteristic
of
interest
is
absent
in
this
case.
The
participating
interest
payments
are
not
computed
as
a
percentage
of,
nor
otherwise
related
to
the
principal
sum
outstanding
from
time
to
time
on
the
bonds.
In
Balaji
Apartments
Ltd.
v.
Manufacturers
Life
Insurance
Co.%
the
High
Court
of
Justice
of
Ontario
considered
whether
a
provision
in
a
mortgage
calling
for
payment
of
a
percentage
of
the
gross
rent
of
the
mortgaged
premises
in
addition
to
principal
and
interest
payable
in
blended
instalments
was
unenforceable
by
virtue
of
section
7
of
the
Interest
Act
.
Anderson
J.
held
that
the
payment
was
not
interest.
At
page
697
(O.R.
277)
he
said:
The
payment
is
not
a
percentage
of,
or
in
any
way
related
to,
the
principal
sum.
I
would
not
construe
the
stipulation
for
such
payment
or
payments
to
be
“..
interest
...
chargeable
by
virtue
of
any
other
provision,
calculation,
or
stipulation
in
the
mortgage
...”
An
arrangement
remarkably
similar
to
that
in
question
was
considered
and
the
argument
that
the
payment
was
interest
was
rejected
in
an
English
case,
Walker
&
Co.
v.
Commissioners
of
Inland
Revenue)®
At
page
653
Rowlatt
J.
said:
I
have
come
quite
clearly
to
the
conclusion
that
the
decision
of
the
Commissioners
in
this
case
is
right.
They
have
allowed
as
a
deduction
the
200Z.
a
year
which
is
the
fixed
interest
in
the
money
borrowed
by
the
appellants
for
the
purposes
of
their
trade
or
business,
but
they
have
disallowed
as
a
deduction
the
other
sum
of
300/.
which
seems
to
be
nothing
but
a
share
of
the
profits
of
the
business
given
to
the
lenders
eo
nomine.
Of
course
both
sums
are
paid
as
a
consideration
for
the
loan,
that
is
why
they
are
paid,
but
the
two
sums
stand
on
entirely
different
footings.
The
persons
who
lent
this
money
receive
interest
on
the
money
lent
which
is
payable
to
them
as
a
debt,
and
for
that
purpose
it
is
immaterial
whether
the
business
prospers
or
languishes,
they
also
receive
a
share
of
what
the
business
earns.
That
is
not
interest;
it
is
simply
a
share
of
the
profits.
If
there
are
profits
they
receive
a
share
of
them,
if
there
are
no
profits
they
do
not
receive
anything.
The
sum
of
300/.
is
simply
what
it
is
called
in
the
agreement
—
a
share
of
the
profits.
The
amount
of
the
payments
now
in
issue
is
based
not
on
the
principal
outstanding
at
any
time
but
on
the
operating
surplus
of
the
shopping
centre.
Furthermore
provision
is
made
for
the
annual
redemption
of
part
of
the
bond
issue.
Despite
the
reduction
of
the
principal
by
way
of
redemption
of
some
of
the
bonds,
the
payments
continue
to
be
computed
each
year
according
to
the
same
formula.
They
are
simply
divided
among
fewer
bond
holders.
Thus,
there
is
no
linkage
whatever
between
the
amount
of
the
debt
outstanding
at
any
time
and
the
participating
interest
payable
to
the
holders
of
the
debt.
It
is
my
opinion
that
the
payments
in
issue
are
not
interest.
They
can
more
accurately
be
regarded
as
a
cost
of
the
borrowing
itself
than
as
a
form
of
compensation
for
the
use
of
the
borrowed
money.
Counsel
for
the
appellant
sought
to
draw
an
inference
based
on
the
use
of
the
word
“interest”
in
paragraph
212(
l)(b)
of
the
Act
and
the
rule
that:
Unless
the
contrary
is
clearly
indicated
by
the
context,
a
word
should
be
given
the
same
interpretation
or
meaning
whenever
it
appears
in
an
act.!!
As
previously
indicated
counsel
asserted
that
interest
must
be
taken
to
be
used
throughout
the
Act
to
mean
any
compensation
for
the
use
of
money.
[192O]
3
K.B.
648.
That,
he
said,
was
the
sense
in
which
the
word
was
used
in
paragraph
212(
1
)(b)
and
in
particular
in
the
closing
words
of
the
paragraph:
...
and
for
purpose
of
this
paragraph,
where
interest
...
is
computed
by
reference
to
revenue,
profit,
cash
flow,
commodity
price
or
any
other
similar
criterion
...
the
interest
shall
be
deemed
not
to
be
interest
described
in
subparagraph
(ii)
to
(vii)
and
(ix)
In
my
view
the
rule
on
which
counsel
relies
is
of
limited
assistance.
In
a
1959
decision
of
the
Supreme
Court
of
Canada,
Fauteux
J.,
speaking
for
the
court,
said:
...
This
rule
of
interpretation
is
only
tantamount
to
a
presumption,
and
furthermore,
a
presumption
which
is
not
of
much
weight.
The
presumption
is,
I
should
think,
especially
weak
where,
as
here,
no
unifying
theme
or
subject
matter
links
paragraphs
20(l)(c)
and
212(l)(b).
The
rules
are
not
necessarily
all
tied
together
by
one
unifying
theme.
I
am
not
prepared
to
assume
that
the
word
“interest”
is
used
in
Part
XIII
of
the
Act
in
the
same
way
as
in
Part
I.
Before
1986
there
was
nothing
in
the
Act
which
would
warrant
defining
the
word
interest
as
used
in
paragraph
20(1
)(c)
in
an
extended
way
to
include
payments
computed
by
reference
to
profit.
It
is
inconceivable
that
the
addition
in
1986
of
language
deeming
such
a
payment
not
to
be
interest
for
some
purposes
under
Part
XIII
should
be
construed
as
suddenly
extending
the
scope
of
paragraph
20(1)(c).
I
turn
next
to
the
question
whether
the
participating
interest
payments
are
deductible
under
paragraph
20(1
)(e)
of
the
Act.
To
qualify
under
that
provision
the
payments
must
each
constitute
“...
an
expense
incurred
in
the
year
...
in
the
course
of
borrowing
money
used
by
the
taxpayer
for
the
purpose
of
earning
income
from
a
business
...”.
In
my
view
it
is
clear
that
the
obligation
to
pay
participating
interest
was
incurred
by
the
appellant
in
order
to
borrow
the
money.
In
the
market
which
prevailed
at
the
time
the
bonds
could
not
have
been
sold
had
the
only
reward
to
the
lender
been
the
fixed
or
conventional
interest.
Prior
to
the
amendment
effected
by
S.C.
1988
C.
55
subsection
12(2),
paragraph
20(1
)(e)
read:
20(1)
Notwithstanding
paragraphs
18(l)(a),
(b)
and
(h),
in
computing
a
taxpayer’s
income
for
a
taxation
year
from
a
business
or
property,
there
may
be
deducted
such
of
the
following
amounts
as
are
wholly
applicable
to
that
source
or
such
part
of
the
following
amounts
as
may
reasonably
be
regarded
as
applicable
thereto:
(e)
...
an
expense
incurred
in
the
year
...
(ii)
in
the
course
of
borrowing
money
used
by
the
taxpayer
for
the
purpose
of
earning
income
from
a
business
or
property
(other
than
money
used
by
the
taxpayer
for
the
purpose
of
acquiring
property
the
income
from
which
would
be
exempt),
including
a
commission,
fee
or
other
amount
paid
or
payable
for
or
on
account
of
services
rendered
by
a
person
as
a
salesman,
agent
or
dealer
in
securities
in
the
course
of
issuing
or
selling
the
units,
interests
or
shares
or
borrowing
the
money,
but
not
including
any
amount
paid
or
payable
as
or
on
account
of
the
principal
amount
of
the
indebtedness
or
as
or
on
account
of
interest;
This
provision
evolved
from
paragraph
1
l(l)(cb)
of
the
former
Act.
The
meaning
of
the
predecessor
was
considered
by
the
Federal
Court
of
Appeal
in
Minister
of
National
Revenue
v.
Yonge-Eglinton
Building
Ltd.'*.
In
that
case
the
taxpayer
secured
a
commitment
for
interim
financing
of
its
building
by
agreeing
to
pay
to
the
lender
(in
addition
to
conventional
interest
at
the
rate
of
9
per
cent
per
annum
on
the
amount
owing
from
time
to
time)
1
per
cent
of
the
gross
rental
revenue
from
the
building
in
each
profitable
year
for
25
years.
The
obligation
to
make
the
1
per
cent
payments
continued
in
effect
after
the
repayment
of
all
monies
which
had
been
advanced
by
the
lender.
At
issue
was
the
deductibility
under
paragraph
I
l(l)(cb)
of
payments
made
under
the
1
per
cent
provision
in
years
subsequent
to
repayment
of
the
loan.
The
relevant
language
of
paragraph
II
(
1
)(cb)
was
identical
to
that
of
paragraph
20(1)(e):
11(1)
Notwithstanding
paragraphs
(a),
(b)
and
(h)
of
subsection
(1)
of
section
12,
the
following
amounts
may
be
deducted
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
(cb)
an
expense
incurred
in
the
year,
(ii)
in
the
course
of
borrowing
money
used
by
the
taxpayer
for
the
purpose
of
earning
income
from
a
business
or
property.
The
Court
rejected
the
contention
that
deductible
expenses
of
borrowing
money
are
limited
to
expenses
incurred
when
the
borrowing
takes
place.
Thurlow
J.
speaking
for
the
majority
of
the
Court
stated,
at
page
213:
_,..
It
does
not
seem
to
me
to
be
a
sensible
or
practical
interpretation
(and
counsel
for
the
Minister
did
not
so
contend)
to
hold
that
the
deduction
can
only
be
made
when
the
taxation
year
in
which
shares
are
issued
or
sold
or
money
is
borrowed
is
the
same
as
that
in
which
the
expense
is
incurred
because
such
a
construction
[1974]
C.T.C.
209,
74
D.T.C.
6180.
would
arbitrarily
exclude
the
deduction,
for
example,
of
professional
fees
incurred
in
connection
with
a
share
issue
or
a
borrowing
in
a
taxation
year
prior
to
the
share
issue
or
borrowing.
It
would
also
exclude
the
deduction,
again
for
example,
of
expenses
for
formal
documentation
contemplated
by
the
arrangements
but
incurred
in
a
taxation
year
after
that
in
which
money
has
been
borrowed
on
the
strength
of
temporary
or
informal
arrangements....
Later
His
Lordship
addressed
the
question
whether
the
costs
in
question,
a
form
of
commitment
fee
rather
similar
to
the
amounts
in
issue
in
this
appeal,
were
“an
expense
incurred...in
the
course
of
borrowing
money...”.
He
said,
at
page
214:
It
may
not
always
be
easy
to
decide
whether
an
expense
has
so
arisen
but
it
seems
to
me
that
the
words
“in
the
course
of”
in
section
1
l(l)(cb)
are
not
a
reference
to
the
time
when
the
expenses
are
incurred
but
are
used
in
the
sense
of
“in
connection
with”
or
“incidental
to”
or
“arising
from”
and
refer
to
the
process
of
carrying
out
or
the
things
which
must
be
undertaken
to
carry
out
the
issuing
or
selling
or
borrowing
for
or
in
connection
with
which
the
expenses
are
incurred.
In
my
opinion
therefore
since
the
amounts
here
in
question
arose
from
and
were
incidental
to
the
borrowing
of
money
required
to
finance
the
construction
of
the
respondent’s
building
they
fall
within
section
I
l(l)(cb)(ii).
In
my
view
this
decision
governs.
The
appeals
will
therefore
be
allowed
with
costs
and
the
assessments
referred
back
to
the
Minister
for
reassessment
on
the
basis
that
the
appellant
is
entitled
to
deduct
the
amounts
in
issue.
Appeal
allowed.