Approximately four months after the corporation of which the taxpayers (the "David group") were shareholders sold its principal business assets, the taxpayers sold their shares of the corporation to the corporation's pension plan (acting through the "Dunn group"), with the individuals associated with the pension plan then causing a distribution of the assets of the corporation.
Walsh J. concluded that although the payments made to the taxpayers were "made to them in an indirect manner as a result of actions taken by third parties over whom the David brothers had no control, the end result was nevertheless that it was the funds of the company, including its undistributed income, which were used to pay for their shares and that the words 'otherwise appropriated in any manner whatsoever to or for the benefit of one or more of its shareholders' are wide enough to cover what took place".
Respecting the issue as to whether this appropriation occurred 'on' a winding-up, discontinuance or reorganization of a business (which after the August sale was that of an investment company), Walsh J. stated (at p. 5148) "that if any meaning is to be given to the word 'on' it must at the very least mean at the 'same time as' or possibly 'as a result of' or 'consequential to', and went on to find that even though it was "not at the time of or 'on' the discontinuance of the commercial operations of the company in August that the funds were appropriated for the benefit of the David group but only five months later", it nonetheless was "evident that the Dunn group planned to wind-up not only the commercial but all business of the company immediately after they took over, so that a winding-up was part of the plan." Accordingly, s. 81(1)(b) of the pre-1972 Act (similar to what now is s. 84(2)) applied to the amounts received by the taxpayers.
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