Perkins v. The Queen, 80 DTC 6154, [1980] CTC 199 (FCA)

The Court:—This is an appeal from a judgment of the Trial Division dismissing the appellant’s appeal from income tax assessments for the 1968 and 1970 tax years. That appeal was heard in the Trial Division on common evidence with the appeal by this appellant’s brother, Harry J Perkins, in respect of the tax year 1970. Likewise, in this Court this appeal and the appeal of Harry J Perkins (A-232-78) were heard together since the issues are identical. The Minister of National Revenue added into the income of this appellant for each of the tax years 1968 and 1970, the sum of $1,560 and a similar amount of $1,560 for the year 1970 to the income of Harry J Perkins.

The issue in the Trial Division and on this appeal is whether the amounts received supra by the appellant are to be treated, for income tax purposes, as a capital gain or as profit realized from an adventure in the nature of trade.

The pertinent facts are set out extensively in the reasons for judgment of the learned trial judge. For our purposes, we propose to summarize them as follows: The appellant was one of the beneficiaries of a trust which indirectly owned a corporation named Taggart Service Limited. Taggart Service Limited, in 1964, purchased from third party owners for one dollar, plus the assumption of certain liabilities, all of the outstanding shares of two other companies, Jones Transport Company Limited and Jones American Transport Inc (hereafter the Jones companies). At the same time in 1964, another trust in which the appellant was also one of the beneficiaries, purchased for $47,000 from certain shareholder-creditors of the Jones companies, certain book debts (not trade accounts) owing by these companies. For many years prior to 1964, the Jones companies had been operating at a loss. However, under the new ownership and due largely to the efforts of this appellant, his brother and his father, the fortunes of the Jones companies turned around. By 1967, their financial statements showed a profit which increased in subsequent years. The learned trial judge found that: “There is little doubt the turn-around was attributable primarily to better management provided by the new owners.” In our view, this finding was certainly open to him on the evidence. By 1968, the trust had recovered its $47,000 purchase price and furthermore, in 1968 and 1970, the payments in issue in this appeal in the sum of $1,560 each were made to this appellant and the 1970 payment in the sum of $1,560 was made to his brother Harry J Perkins.

The balance owing on the book debts by the Jones companies to the trust is approximately $190,000. Because of their success, the Jones companies have, for some time, been in a position to retire this indebtedness in full. The learned trial judge found as a fact that when the Jones companies were purchased, the reason for purchase was the fact that in the opinion of Perkins Jr, the father of this appellant, (who was the guiding hand behind Taggart Service Limited, and after their purchase in 1964, the Jones companies) there was a good chance they could be made successful and if so, the full value of the book debts might ultimately be reaped.

The learned trial judge also found another essential fact, namely, that the book debts did not bear interest and that there had been no re-negotiation for interest between the trust and the Jones companies.

On the evidence before him, the learned trial judge held that the payments in question fell into the category of an adventure in the nature of trade and were accordingly, taxable as income. In so finding, he did not accept the taxpayers’ submission that since this was the first time they had dealt in book debts, they could not be said to be traders in that commodity, relying on the H J Freud v MNR case, [1969] SCR 75; [1968] CTC 438; 69 DTC 5279 and the MNR v J N Sissons case, [1969] SCR 507; [1969] CTC 184; 69 DTC 5152 for the principle that a single transaction, not in the ordinary course of a taxpayers’ calling or business, can be an adventure in the nature of trade and the gain therefrom taxable as income. He then went on to conclude, on the facts of this case, that the purchase of the book debts was not a true investment.

Counsel for the appellant, as we understood the submission, argued that Perkins Jr was acting in two capacities in the transaction. First, he was the controlling shareholder, and president of the purchasing company. Second, he was a trustee of a trust, the res of which consisted of the book debts referred to earlier herein and of which the appellant, his brother and sister were beneficiaries. The effect of the creation of the trust*, [1] it was said, was to provide a vehicle into which the book debts were placed as a capital asset thereof, to be held for a long term and not for the earlier realization of a profit. It was this feature that distinguished it from the S S Steeves v The Queen, [1976] CTC 450; [1977] CTC 325; 76 DTC 5230; 77 DTC 6269, he said, principally because in the latter case the Steeves brothers were the shareholders of the operating company, its guiding force and directly engaged in its business activities. By contrast in this case, counsel argued, the eventual successful operations of the Jones companies occurred not as a result of Perkins Jr’s or the appellant’s efforts to turn the fortunes of the company around, but that of others.

We cannot agree with these submissions. The evidence clearly discloses that Perkins Jr viewed the acquisition of the shares of the Jones companies, of its motor vehicles and of its book debts as part and parcel of the same transaction, although they were the subject matter of three separate agreements. That being so, in respect of the acquisition of the book debts the learned trial judge had evidence upon which to conclude that:

I am unable to characterize the purchase of these book debts as a true investment. While they were unpaid they produced nothing for their buyers. They had, however, a latent potential for a profit. That, I find, is why they were singled out and specially dealt with in the overall transaction, (emphasis ours). They fall into the category of adventure in the nature of trade.

Counsel submitted other arguments based on the proposition that the existence of the trusteeship provides the basis for finding that the book debts were Capital in nature in the trust, but since we all agree that they have no merit, it is unnecessary to deal with them here.

In their memorandum, counsel for the appellant listed a number of objections to the reasons for judgment of the learned trial judge. We are not persuaded, however, that the learned trial judge committed any error in law or that this court would be justified in reversing the learned trial judge on his findings of fact. Although findings of fact made at trial are not immutable, they are not to be reversed by an appellate court unless it can be established that the trial judge made some palpable and overriding error which affected his assessment of the facts*. [2] In the case at bar, we do not agree that such an error has been shown. In our view, all of the relevant findings of fact made by the learned trial judge were open to him on the evidence adduced; the conclusions and inferences which he drew from the proven facts were not erroneous and were drawn by him only after an extensive consideration and review of the evidence. We are, therefore, not able to conclude that he was plainly wrong in these findings and conclusions.

In coming to this decision, we have also had regard to the following well accepted rules which should be observed by an appellate court of first instance:

1. where the credibility of witnesses is involved, except in extraordinary cases, the finding of the trial judge must not be set aside;

2. the interpretation of the evidence is left to the discretion of the judge who sees and hears the witnesses, and it is the duty of a court of appeal to respect the judgment of the judge who has these privileges unless it is satisfied that the latter was plainly wrong*. [1]

Accordingly, and for the foregoing reasons, we are all of the view that this appeal must be dismissed with costs.