The
Chief
Justice
(judgment
delivered
from
the
Bench)
(all
concur):—
This
is
an
appeal
from
a
judgment
of
the
Trial
Division
dismissing
with
costs
an
appeal
from
reassessments
of
the
appellant,
who
is
a
building
contractor,
under
Part
I
of
the
Income
Tax
Act
for
the
1967,
1968
and
1969
taxation
years.
It
is
common
ground
that
whether
or
not
the
appeal
is
to
succeed
depends
upon
the
proper
treatment
for
tax
purposes
of
certain
payments
under
transactions
between
the
appellant
and
its
customers
which,
it
is
agreed,
are
typified
by
the
documents
that
evidence
an
arrangement
between
the
appellant
and
the
Quebec
Autoroute
Authority.
In
the
normal
course
of
its
business,
amounts
payable
to
the
contractor
are
withheld
by
its
customers
(pursuant
to
the
construction
contracts)
as
“holdbacks”
for
a
certain
period
of
time
after
completion
of
the
work
and
are
then
payable
subject
to
specified
conditions
—
eg
certification
of
the
work
as
satisfactory.
lt
is
common
ground
that,
at
least
for
tax
purposes,
holdbacks
are
not,
in
the
case
of
the
appellant,
brought
into
the
computation
of
its
income
for
any
year
until
they
are
received
or
receivable.
The
reassessments
in
question
were
made
on
the
assumption
that,
although
not
payable
until
a
subsequent
year,
the
holdbacks
in
question
“were
nevertheless
paid
by
the
customers
and
received
by
the
contractor
in
the
years
1968
and
1969”
and
on
the
further
assumption
that
“for
the
release
or
payment
of
the
holdbacks,
securities
were
given
to
the
customers
by
the
appellant
to
guarantee
the
work
done”.
The
holdbacks
in
question
apparently
do
not
carry
adequate
interest.
In
order
to
obtain
adequate
interest
income
on
holdbacks
payable
to
it
in
the
future,
the
appellant
made
the
arrangements
with
its
customers
that
give
rise
to
the
problem
in
this
case.
That
arrangement
was,
in
each
case,
to
the
following
effect:
(1)
the
appellant
would
purchase
a
term
note
of
a
third
person
made
payable
to
the
customer
in
an
amount
equal
to
the
holdback
and
maturing
on
the
date
when
it
was
expected
that
the
holdback
would
become
payable;
(2)
the
term
note
would
be
placed
“in
escrow”
with
a
bank
and
would
not
be
released
except
on
the
written
authority
of
the
customer;
(3)
the
customer
would
then
“release”
the
holdback
to
the
appellant;
(4)
the
interest
on
the
term
note
would
“accrue”
for
the
appellant’s
benefit
and,
when
received
by
the
customer
from
the
maker
of
the
note,
would
be
paid
by
the
customer
to
the
appellant;
and
(5)
at
the
maturity
date
of
the
term
note,
the
face
value
would
be
paid
to
the
customer,
who
would
in
turn
“release”
the
money
to
the
appellant
“under
the
same
terms
that
would
have
applied”
to
the
holdback.
The
position
taken
by
the
appellant
in
the
Trial
Division
was
that
the
holdbacks
were
not
in
fact
paid
under
the
construction
contracts
in
1968
and
1969
and
should
not,
therefore,
be
included
in
computing
the
appellant’s
incomes
from
its
business
for
those
years.
The
learned
trial
judge
rejected
this
contention
and,
on
my
first
reading
of
the
matter,
I
agree
with
him.
I
cannot
think
of
any
interpretation
to
give
to
the
provision
in
the
arrangement
that
the
customer
“will
then
immediately
release
.
.
.
the
holdbacks”
other
than
that
it
is
a
requirement
that
the
customer
will
pay
the
holdbacks
immediately
notwithstanding
that
it
is
otherwise
entitled
to
hold
back
payment
for
a
period
of
years.
However,
it
is
not
necessary
to
express
any
firm
opinion
on
this
question
as,
in
my
opinion,
the
appeal
must
be
allowed
even
if
the
holdbacks
were
paid
in
1968
and
1969.
In
this
Court
the
argument
of
the
appellant,
as
set
out
in
its
Memorandum
of
Fact
and
Law,
suggests
a
new
approach
to
the
problem.
I
refer
to
the
following
paragraphs
of
the
Memorandum:
5.
Upon
entering
into
a
special
arrangement
with
a
customer,
the
Appellant
did
not
receive
payment
of
the
holdback
but
only
received
an
amount
equal
to
that
of
the
holdback.
6.
Upon
entering
into
a
special
arrangement
with
a
customer,
the
respective
obligations
and
rights
deriving
from
the
initial
construction
contract
of
both
involved
parties
remained
intact
except
that,
thereafter,
the
holdback
instead
of
being
held
in
the
form
of
cash
was
held
in
the
form
of
a
suitable
security.
7.
The
substance
rather
than
the
form
of
the
special
arrangements
must
be
seeked
in
order
to
ascertain
the
tax
consequences,
if
any,
deriving
from
such
special
arrangements.
8.
By
concluding
that
the
amount
of
a
holdback
was
received
by
the
Appellant
upon
entering
into
a
special
arrangement,
one
must
also
conclude
that
the
Appellant
became
enriched
after
it
entered
into
such
a
special
arrangement.
9.
According
to
the
facts,
the
Appellant
immediately
after
having
entered
into
a
special
arrangement
was
neither
richer
nor
poorer
than
it
was
immediately
before.
The
Appellant
remained
after
entering
into
such
special
arrangements
a
contingent
creditor
for
amounts
equal
to
that
of
the
holdbacks.
10.
According
to
the
facts,
if
the
amount
of
the
holdbacks
are
held
to
have
been
paid
to
the
Appellant
at
the
time
it
entered
into
special
arrangements,
the
Appellant’s
cash
flow
should
necessarily
at
the
same
time
be
increased
by
a
similar
amount
whereby
the
Appellant
would
have
been
in
a
position
to
pay
any
taxes
on
account
of
such
receipts
of
moneys.
On
the
contrary,
according
to
the
facts
of
this
case,
the
Appellant,
in
order
to
pay
the
income
taxes
as
per
the
re-assessments,
would
have
to
borrow
in
order
to
meet
this
tax
liability.
11.
If
one
was
to
accept
that
the
Appellant
was
in
fact
paid
the
amount
of
the
holdbacks
upon
entering
the
special
arrangements,
one
would
also
have
to
accept
that
the
Appellant
was
not
thereafter
entitled
to
any
further
payments
from
its
customers.
Under
such
an
assumption,
the
Appellant’s
status
would
have
changed
from
a
contingent
creditor
to
a
fully
paid
creditor.
12.
Under
the
assumption
specified
in
the
above
paragraph,
how
can
we
explain
the
amounts
to
which
the
Appellant,
after
having
entered
into
special
arrangements,
was
still
entitled
to
receive
at
the
time
the
holdbacks
become
due
and
payable
except
by
accepting
that
the
suitable
securities
given
constituted
a
deposit
made
by
the
Appellant
in
guarantee
of
its
obligation
under
the
initial
construction
contracts.
In
my
view
the
appellant
has
misdirected
its
attempts
to
obtain
proper
tax
treatment.
In
order
to
obtain
payment
of
a
holdback
in
the
year
when
the
work
was
completed,
it
entered
into
an
arrangement
under
which
it
had
to
disburse,
in
that
year,
an
amount
equal
to
the
holdback
and
obtained
a
right
to
payment
of
an
amount
equal
to
the
holdback
at
the
time
when,
and
subject
to
the
conditions
upon
which,
the
holdback
would
have
been
payable
if
its
payment
were
not
advanced
under
the
arrangement.
Instead
of
claiming,
in
the
year
when
the
holdback
was
received
as
part
of
its
income,
deduction
of
an
amount
disbursed
in
the
same
year
to
obtain
such
income
payment,
the
appellant
has
been
wrongly
contending
that
it
did
not
receive
the
income
payment
at
all.
In
my
view,
the
arrangement
made
by
the
appellant
with
its
customer
in
respect
of
the
holdbacks
was
one
of
the
transactions
of
its
construction
business
and,
as
it
was
carried
out
in
the
process
of
earning
the
profit
of
the
business,
it
was
a
transaction
on
revenue
account
and
not
on
capital
account.
It
follows
that,
not
only
must
the
appellant
take
into
its
profit
and
loss
account,
for
the
year
when
it
was
received,
the
holdback
immediate
payment
of
which
was
received
as
a
result
of
that
transaction,
but
it
is
entitled
to
include,
as
a
debit
in
its
profit
and
loss
account
for
that
year,
what
it
had
to
pay
out
in
the
year
to
obtain
immediate
payment
of
the
holdback.
It
follows,
also,
that
it
must
take
into
profit
and
loss
account
for
some
subsequent
year
an
amount
received
under
such
revenue
transaction
(ie
when
the
holdback
would
be
payable
under
the
construction
contract).
The
result,
as
I
see
it,
is
that,
apart
from
the
special
transaction,
the
effect
of
the
amount
held
back
on
the
appellant’s
profit
and
loss
accounts
would
have
been
(1)
Year
of
completion
—
nil
(2)
Year
of
certification
—
holdback
payment
on
revenue
side
whereas,
as
a
result
of
the
arrangement
with
the
customer,
the
result
is
(1)
Year
of
completion
—
holdback
on
revenue
side
—
amount
equal
to
holdback
on
debit
side
(2)
Year
of
certification
(if
certified)
—
amount
equal
to
holdback
on
revenue
side.
(Interest
payments
would
also
receive
their
appropriate
treatment
in
the
accounts.)
It
follows
that,
in
my
view,
the
appeal
should
be
allowed,
the
judgment
of
the
Trial
Division
should
be
set
aside,
and
the
assessments
referred
to
in
the
notice
of
appeal
should
be
referred
back
to
the
respondent
for
reassessment
on
the
basis
that
the
amounts
paid
by
the
appellant
for
the
“securities”
referred
to
in
paragraph
5
of
the
notice
of
appeal
were
disbursements
on
revenue
account
that
should
be
taken
into
account
in
computing
its
profits
or
losses.
I
am
of
Opinion
that
we
should
hear
counsel
on
the
question
of
costs.