McNair,
J:—This
is
an
appeal
by
the
plaintiff
from
the
Minister’s
reassessment
of
income
tax
for
the
1977,
1978
and
1979
taxation
years.
The
issue
is
whether
the
sum
of
$592,000
paid
by
the
plaintiff
to
A-W
Brands,
Inc
and
the
expenditure
of
$76,559
for
related
legal
and
accounting
fees
were
payments
on
revenue
or
capital
account.
The
Minister
proceeded
on
the
basis
that
these
constituted
“payment
on
account
of
capital”
within
the
scheme
and
context
of
paragraph
18(1
)(b)
of
the
Income
Tax
Act.
The
plaintiff
was
federally
incorporated
in
Canada
in
1971
as
a
wholly-
owned
subsidiary
of
Angostura
Bitters
(Dr
J
G
B
Siegert
&
Sons)
Limited,
a
Trinidad
corporation
which
fell
heir
to
the
secret
formula
of
the
famed
aromatic
elixir
“Angostura
Bitters’’
discovered
in
1824
by
Dr
Siegert,
while
Surgeon-General
in
the
revolutionary
army
of
the
great
Venezuelan
liberator,
Simon
Bolivar.
Since
1830,
the
parent
company
and
its
predecessors
have
been
engaged
in
the
manufacture
of
bitters,
the
secret
of
which
has
been
kept
closely
guarded.
The
name
“Angostura"
is
protected
by
registered
trade
mark.
In
earlier
years,
the
parent
company
engaged
the
services
of
various
companies
and
individuals
around
the
world
in
order
to
market
its
bitters
and
other
products.
After
its
incorporation,
the
plaintiff
became
the
international
marketing
arm
for
the
parent
company
and
assumed
its
obligations
under
the
various
distribution
agreements
as
well
as
negotiating
new
contracts
with
companies,
firms
and
persons
throughout
the
world
for
the
bottling,
marketing
and
distribution
of
Angostura
Bitters.
The
parent
company
continued
to
manufacture
the
actual
product.
Commencing
in
1929,
the
parent
company
entered
into
a
series
of
distributorship
agreements
with
a
predecessor
corporation
of
the
company
now
known
as
A-W
Brands,
Inc
(“All
World"),
a
Delaware
corporation.
These
agreements
provided
that
All
World
was
to
be
the
exclusive
distributor
of
Angostura
Bitters
in
the
United
States
and
its
territories.
All
World
agreed
to
pay
fixed
prices
or
royalties
to
the
parent
company,
and
later
to
the
plaintiff.
On
December
31,
1976,
the
plaintiff
entered
into
two
agreements
with
All
World,
one
for
the
distribution
of
Angostura
Bitters,
and
the
other
for
the
manufacture
and
distribution
of
an
alcoholic
mixer
called
the
“Bloody
Mary
Maker”.
Both
agreements
were
for
a
term
of
five
years.
The
agreement
for
the
distribution
of
Angostura
Bitters
was
terminable
on
one
year’s
notice
and
the
agreement
relating
to
“Bloody
Mary
Maker"
was
terminable
on
three
months'
notice.
Paragraph
26
of
the
Angostura
agreement
provided:
26.
Nothing
herein
contained
shall
be
deemed
to
create
a
partnership
between
the
Company
and
the
Distributor
nor
to
constitute
the
distributor
the
agent
of
the
Company.
The
Bloody
Mary
agreement
contained
a
similar
provision.
Call
them
what
you
will,
the
essence
of
the
agreements
was
that
of
an
exclusive
sales
agency
or
licensed
distributorship
arrangement
for
the
bottling
and
sale
of
the
Angostura
products
and
over
which
Angostura
exercised
a
substantial
degree
of
control.
Since
1968,
Angostura
Bitters
(Dr
J
G
B
Siegert
&
Sons)
Limited
had
been
thinking
about
taking
over
the
distribution
and
marketing
of
Angostura
Bitters
in
the
United
States
and
had
made
its
intentions
known
to
All
World
and
its
parent
corporation,
Iroquois
Brands,
Ltd.
There
had
been
growing
disenchantment
ever
since
a
takeover
attempt
by
Iroquois
but
Angostura
resisted
the
temptation
to
terminate
the
distributorship
because
of
its
realization
of
the
crippling
effect
this
would
have
on
the
business
operations
and
profitability
of
All
World
and
its
parent,
Iroquois
Brands,
Ltd.
The
arrangement
thus
continued,
despite
the
rumblings
of
discontent.
Discussions
began
in
November
1977
which
were
carried
over
into
the
spring
of
1978,
aimed
at
cancelling
the
Angostura
and
Bloody
Mary
Maker
agreements
with
All
World.
The
earlier
discussions
mentioned
the
possibility
of
a
price
determinable
on
a
multiple
of
earnings
basis
but
this
was
only
one
facet
among
a
whole
range
of
negotiated
topics.
It
was
finally
agreed
that
the
plaintiff
would
pay
$500,000
(US)
to
All
World
for
the
cancellation
of
the
two
agreements.
A
meeting
of
the
directors
of
Angostura
International
Limited
was
held
in
Toronto
on
September
13,
1978
at
which
a
number
of
resolutions
were
passed
to
implement
and
effectuate
the
transaction.
A
cancellation
agreement
dated
September
28,
1978,
was
entered
into
between
the
plaintiff
and
A-W
Brands,
Inc.
This
was
followed
by
a
service
agreement
of
October
2,
1978
between
the
same
parties
whereby
All
World
agreed
to
mix,
bottle,
pack
and
ship
the
Angostura
products
and
provide
consulting,
billing
and
computer
services
in
connection
therewith
for
a
period
of
three
years,
and
for
which
it
was
to
be
separately
and
adequately
recompensed.
The
service
agreement
contained
mutual
non-competition
covenants
of
five
years
duration
limited
to
the
territory
of
the
agreement,
whereby
Angostura
would
not
deal
in
any
grenadine
or
lime
juice
and
All
World
would
similarly
not
produce,
bottle
or
market
any
aromatic
bitters.
It
is
unnecessary
to
elaborate
on
the
provisions
of
the
cancellation
agreement
because
the
issue
turns
on
the
deductibility
of
the
$500,000
payment,
or
its
Canadian
equivalent
of
$592,000.
Suffice
it
to
say,
that
the
agreement
recited
Angostura's
desire
to
cancel
the
two
distributorship
agreements
of
December
31,
1976,
and
went
on
in
paragraph
1
to
state
in
part
as
follows:
1.
Angostura
and
AWB
agree
that
both
Distributorship
Agreements
shall
be
cancelled
against
payment
of
$500,000
to
AWB
and
against
exchange
of
an
instrument
of
cancellation
at
a
closing
to
be
held
on
October
2,
1978
or
such
later
date
as
may
be
mutually
agreed
upon
by
the
parties
(which
date
is
referred
to
in
this
Agreement
as
the
“Closing
Date”)
.
..
There
were
provisions
for
the
sale
and
purchase
of
inventory,
supplies,
equipment
and
other
items
for
additional
monetary
consideration,
which
is
not
relevant
to
the
issue.
Subparagraph
5.1
of
the
agreement
provided:
5.1
for
cancellation
of
the
Distributorship
Agreements,
and
as
sole
and
complete
consideration
therefor,
the
sum
of
$500,000,
of
which
$250,000
shall
be
paid
at
the
closing
on
the
Closing
Date
and
the
balance
of
$250,000
shall
be
paid
without
interest
on
the
first
anniversary
of
the
Closing
Date;
The
closing
proceeded
as
scheduled
on
October
2,
1978
and
a
letter
went
out
on
the
same
date
from
the
plaintiff's
president
to
the
distributors
and
representatives
in
the
All
World
network
announcing
the
establishment
of
a
new
USA
division
of
Angostura
International
Limited
and
advising
that
its
function
would
be
to
act
as
sole
distributor
in
the
United
States
and
its
possessions
for
the
sales,
marketing
and
distribution
of
Angostura's
aromatic
bitters
and
Bloody
Mary
Maker.
The
letter
further
advised
that
Lewis
R
Perlman,
formerly
executive
vice-president
of
A-W
Brands,
Inc,
would
be
in
charge
of
the
American
operation.
This
had
been
decided
earlier
and
confirmed
by
resolution
of
the
directors
appointing
Perlman
as
executive
director
and
vice-president
of
the
plaintiff's
USA
division.
The
final
episode
in
the
factual
chapter
was
the
plaintiff's
deduction
of
the
cancellation
payment
of
$500,000
(US)
and
the
related
legal
and
accounting
fees
and
the
Minister’s
reassessment
of
the
same
as
capital
outlays.
Plaintiff's
counsel,
Mr
Bowman,
strongly
pressed
three
points
of
argument
to
support
the
proposition
that
the
cancellation
payment
was
a
revenue
expenditure
in
that
it
reflected
from
a
practical
and
business
point
of
view
the
plaintiff’s
deliberate
choice
to
henceforth
carry
on
the
distributorship
itself
with
a
view
to
improving
efficiency
and
making
more
money.
Firstly,
in
light
of
the
longstanding
relationship
and
the
importance
of
the
distribution
agreements
to
the
business
of
All
World,
it
was
felt
as
a
matter
of
fairness
that
the
agreements
should
not
be
cancelled
without
some
form
of
compensatory
payment.
While
the
distributorship
agreements
could
have
been
cancelled
legally
without
payment
upon
proper
notice,
Angostura
wanted
to
be
fair.
Secondly,
it
is
said
that
the
payment
was
intended
to
ensure
the
continuance
of
a
good
relationship
with
All
World
and
the
avoidance
of
ill-will
and
the
possibility
of
ultimate
litigation.
Thirdly,
the
plaintiff
deliberately
chose
not
to
rely
on
the
notice
of
termination
provisions
of
the
two
distributorship
agreements
for
fear
of
the
impact
this
might
have
on
All
World's
marketing
efforts
with
a
resultant
deterioration
of
customer
relations.
Mr
Lefebvre,
counsel
for
the
defendant,
forcibly
contended
that
the
commercial
reality
of
the
payment
reflected
the
plaintiff’s
desire
to
expand
its
business
by
launching
on
the
US
market
its
own
selling
and
distribution
organization.
By
making
the
payment
in
question,
the
plaintiff
achieved
the
following
results.
Firstly,
it
excluded
All
World
from
engaging
in
the
bottling,
sale
and
distribution
of
Angostura
products.
Secondly,
the
plaintiff
received
the
benefit
of
the
goodwill
of
All
World
in
the
sense
of
ensuring
that
it
could
launch
its
business
on
the
US
market
on
the
best
possible
footing.
Thirdly,
it
eliminated,
albeit
for
a
short
period,
a
competitor
which
had,
over
many
years,
established
a
distribution
network.
The
bottom
line
of
the
Crown's
submission
is
that
the
whole
cancellation
package
was
designed
to
establish
a
new
distribution
structure
for
increasing
profits
so
that
the
payment
must
be
characterized
as
a
capital
outlay
in
the
sense
that
it
was
Clearly
made
to
obtain
an
advantage
of
an
enduring
nature.
The
only
witness
called
was
the
plaintiff’s
president,
Thomas
A
Gatcliffe.
Essentially,
his
evidence
was
to
the
effect
that
the
$500,000
payment
was
not
made
to
purchase
a
business
but
only
to
expeditiously
cancel
a
distributorship
arrangement
that
had
been
considered
for
some
time
to
be
less
than
satisfactory
and
that
the
payment
was
made
as
a
matter
of
fairness
and
common
decency
to
cushion
All
World
against
the
impact
of
the
takeover
and
to
ensure
the
continuance
of
good
business
relations.
The
plaintiff
had
a
coporate
image
which
it
wanted
to
maintain.
Mr
Gatcliffe
testified
that
there
was
no
goodwill
involved,
the
only
goodwill
was
that
of
Angostura
which
flowed
the
other
way.
Mr
Gatcliffe
put
it
this
way:
"We
didn't
want
or
need
anything
they
had.”
He
further
testified
that
Angostura
had
exercised
a
strong
degree
of
control
over
All
World
for
a
number
of
years
and
was
fully
aware
of
who
the
distributors
and
customers
were
in
the
United
States.
The
provisions
of
the
Income
Tax
Act
which
are
particularly
applicable
are
contained
in
the
opening
paragraphs
of
section
18,
which
read:
18.(1)
In
computing
the
income
of
a
taxpayer
from
a
business
or
property
no
deduction
shall
be
made
in
respect
of
(a)
an
outlay
or
expense
except
to
the
extent
that
it
was
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
the
business
or
property;
(b)
an
outlay,
loss
or
replacement
of
capital,
a
payment
on
account
of
capital
or
an
allowance
in
respect
of
depreciation,
obsolescence
or
depletion
except
as
expressly
permitted
by
this
Part;
These
paragraphs
are
identical
to
paragraphs
12(1)(a)
and
12(1)(b)
of
the
former
Act,
RSC
1952,
c.
148.
The
proper
application
of
paragraphs
18(1)(a)
and
18(1)(b)
in
terms
of
their
effect
can
best
be
resolved
by
propounding
two
questions
in
identical
terminology
to
that
employed
by
the
court
in
BC
Electric
Railway
Co
Ltd
v
MNR,
[1958]
SCR
133;
[1958]
CTC
21;
58
DTC
1022
and
Johnston
Testers
Limited
v
MNR,
[1965]
CTC
116;
65
DTC
5069
(Ex
Ct)
which
can
be
paraphrased
as
follows:
(1)
were
the
expenditures
of
$592,000
and
$76,559
by
the
appellant
made
for
the
purpose
of
gaining
or
producing
income?
and
(2)
if
they
were
so
made,
were
such
payments
an
allowable
income
expense
or
were
they
a
capital
outlay?
In
BC
Electric
Railway
Co
Ltd,
supra,
Abbot,
J
addressed
the
questions
thus
at
CTC
31;
DTC
1027-28:
Since
the
main
purpose
of
every
business
undertaking
is
presumably
to
make
a
profit,
any
expenditure
made
"for
the
purpose
of
gaining
or
producing
income”
comes
within
the
terms
of
section
12(1)(a)
whether
it
be
classified
as
an
income
expense
or
as
a
Capital
outlay.
Once
it
is
determined
that
a
particular
expenditure
is
one
made
for
the
purpose
of
gaining
or
producing
income,
in
order
to
compute
income
tax
liability
it
must
next
be
ascertained
whether
such
disbursement
is
an
income
expense
or
a
Capital
outlay
.
.
.
Fauteux,
J,
speaking
for
the
Supreme
Court
of
Canada,
in
MNR
v
Algoma
Central
Railway,
[1968]
SCR
447;
[1968]
CTC
161;
68
DTC
5096
said
in
reference
to
section
12(1)(b)
at
CTC
162;
DTC
5097:
Parliament
did
not
define
the
expressions
“outlay
.
.
.
of
capital”
or
"payment
on
account
of
capital”.
There
being
no
statutory
criterion,
the
application
or
nonapplication
of
these
expressions
to
any
particular
expenditures
must
depend
upon
the
facts
of
the
particular
case.
We
do
not
think
that
any
single
test
applies
in
making
that
determination
and
agree
with
the
view
expressed,
in
a
recent
decision
of
the
Privy
Council,
BP
Australia
Ltd
v
Commissioner
of
Taxation
of
the
Commonwealth
of
Australia
(1966)
AC
224,
by
Lord
Pearce.
In
referring
to
the
matter
of
determining
whether
an
expenditure
was
of
a
captal
or
an
income
nature,
he
said,
at
p
264:
"The
solution
to
the
problem
is
not
to
be
found
by
any
rigid
test
or
description.
It
has
to
be
derived
from
many
aspects
of
the
whole
set
of
circumstances
some
of
which
may
point
in
one
direction,
some
in
the
other.
One
consideration
may
point
so
clearly
that
it
dominates
other
and
vaguer
indications
in
the
contrary
direction.
It
is
a
commonsense
appreciation
of
all
the
guiding
features
which
must
provide
the
ultimate
answer.
Urie,
J
summed
it
up
this
way
in
MNR
v
Import
Motors
Ltd,
[1973]
CTC
719;
73
DTC
5530,
where
he
said
at
724
(DTC
5533):
_..
As
has
been
said
in
a
number
of
cases,
the
question
is
largely
one
of
degree
and
depends
on
the
facts
of
the
particular
case
and
the
inferences
to
be
drawn
therefrom.
Another
oft-approved
guideline
in
the
quest
for
differentiating
an
income
expenditure
from
one
of
a
capital
nature,
where
the
line
of
distinction
is
difficult
to
draw,
is
the
statement
of
Dixon,
J
in
Hallstroms
Pty
Ltd
v
The
Federal
Commissioner
of
Taxation
(1946),
72
CLR
634
at
648:
.
.
.
What
is
an
outgoing
of
capital
and
what
is
an
outgoing
on
account
of
revenue
depends
on
what
the
expenditure
is
calculated
to
effect
from
a
practical
and
business
point
of
view,
rather
than
upon
the
juristic
classification
of
the
legal
rights,
if
any,
secured,
employed
or
exhausted
in
the
process
.
.
.
Counsel
were
assiduous
in
elucidating
and
distinguishing
the
many
authorities
bearing
on
the
point
at
issue
and
it
is
unnecessary
to
review
them
exhaustively.
Counsel
for
the
plaintiff
relied
principally
on
the
following
cases:
Aluminum
Co
of
Canada
v
The
Queen,
[1974]
CTC
471;
74
DTC
6408
(FCTD);
Pigott
Investments
Ltd
v
The
Queen,
[1973]
CTC
693;
73
DTC
5507
(FCTD);
Dymo
of
Canada
Ltd
v
MNR,
[1973]
CTC
205;
73
DTC
5171
(FCTD);
Oxford
Shopping
Centres
Ltd
v
The
Queen,
[1980]
CTC
7;
79
DTC
5458,
aff'd
[1981]
CTC
128;
81
DTC
5065
(FCA);
Johnston
Testers
Ltd
v
MNR,
[1965]
CTC
116;
65
DTC
5069
(Ex
Ct);
Bomag
(Canada)
Ltd
v
The
Queen,
[1984]
CTC
378;
84
DTC
6363
(FCA);
Anglo-Persian
Oil
Co
v
Dale,
[1932]
1
KB
124
(CA);
BP
Australia
v
Comr
of
Taxation,
[1966]
AC
224;
[1965]
3
All
ER
209
(PC);
Automatic
Toll
Systems
(Canada)
Ltd
v
MNR,
[1974]
CTC
330;
74
DTC
6060
(FCTD);
and
MNR
v
Algoma
Central
Ry,
[1968]
CTC
161
;
68
DTC
5096
(SCC).
Counsel
for
the
defendant
relied
on
the
following
cases
to
support
his
contra
submissions:
Cumberland
Investments
Ltd
v
The
Queen,
[1975]
CTC
439;
75
DTC
5309
(FCA);
Canada
Starch
Co
Ltd
v
MNR,
[1968]
CTC
466;
68
DTC
5320
(Ex
Ct);
MNR
v
Canadian
Glassine
Co
Ltd,
[1976]
CTC
141;
76
DTC
6083
(FCA);
Mandrel
Industries
Inc
v
MNR,
[1965]
CTC
233;
65
DTC
5142
(Ex
Ct);
Pepsi-Cola
Canada
Ltd
v
The
Queen,
[1979]
CTC
454;
79
DTC
5387
(FCA);
Canada
Forgings
Ltd
v
The
Queen,
[1983]
CTC
94;
83
DTC
5110
(FCTD);
Bomag
(Canada)
Ltd
v
The
Queen,
[1981]
CTC
156;
81
DTC
5085
(FCTD);
British
Insulated
and
Helsby
Cables
Ltd
v
Atherton,
[1926]
AC
205
(HL);
H
A
Roberts
Ltd
v
MNR,
[1969]
SCR
719;
[1969]
CTC
369;
69
DTC
5249.
The
broad
principle
or
what
has
sometimes
been
referred
to
as
the
“usual
test”
for
determining
whether
an
expenditure
is
on
account
of
capital
or
revenue
was
enunciated
by
Viscount
Cave,
LC,
in
British
Insulated
and
Helsby
Cables
v
Atherton,
supra,
when
he
said
at
213:
.
..
But
when
an
expenditure
is
made,
not
only
once
and
for
all,
but
with
a
view
to
bringing
into
existence
an
asset
or
an
advantage
for
the
enduring
benefit
of
a
trade,
I
think
that
there
is
very
good
reason
(in
the
absence
of
special
circumstances
leading
to
an
opposite
conclusion)
for
treating
such
an
expenditure
as
properly
attributable
not
to
revenue
but
to
capital
.
.
.
In
Anglo-Persian
Oil
Co
Ltd
v
Dale,
supra,
an
oil
company
paid
£300,000
to
terminate
an
agency
agreement
for
management
of
the
company's
business
in
Persia
and
the
East.
It
was
held
by
Rowlatt,
J
at
first
instance
that
this
was
a
lump
sum
payment
on
revenue
account
to
get
rid
of
an
expensive
contract
involving
no
trace
of
the
purchase
of
goodwill
or
the
starting
of
a
business
but
simply
the
termination
of
a
relationship.
Rowlatt,
J
pointed
to
the
fallacy
that
might
arise
from
the
use
of
the
word
“enduring”
in
Viscount
Cave's
principle
by
stating
very
positively:
.
.
.
What
Lord
Cave
is
quite
clearly
speaking
of
is
a
benefit
which
endures,
in
the
way
that
fixed
capital
endures;
not
a
benefit
that
endures
in
the
sense
that
for
a
good
number
of
years
it
relieves
you
of
a
revenue
payment.
It
means
a
thing
which
endures
in
the
way
that
fixed
capital
endures
.
..
The
Court
of
Appeal
affirmed
the
decision
of
Rowlatt,
J.
Lawrence
LJ
said
at
143:
..
The
change
in
the
method
of
carrying
on
the
Company’s
business
in
Persia
has,
in
fact,
resulted
in
a
more
economical
and
efficient
working
of
the
Company’s
trade,
and
in
that
sense
has
proved
to
be
advantageous
to
the
Company’s
business;
but
it
cannot
be
said
that
the
expenditure
in
bringing
about
such
a
change
has
created
an
advantage
for
the
enduring
benefit
of
the
Company’s
trade.
The
Company’s
contracts,
for
the
delivery
of
oil
forms
part
of
its
circulating
capital,
and
if
a
sum
were
paid
for
the
cancellation
of
such
a
contract,
it
would
no
doubt
be
a
payment
in
respect
of
its
circulating
capital,
and
properly
attributable
to
revenue.
The
contract
to
employ
an
agent
to
manage
the
Company’s
business
in
Persia,
however,
in
no
sense
forms
part
of
the
fixed
capital
of
the
Company,
but
is
a
contract
relating
entirely
to
the
working
of
the
Company's
business,
the
method
of
managing
which
may
be
changed
from
time
to
time.
Neither
the
contract
itself
nor
a
payment
to
cancel
it
would,
in
my
opinion,
find
any
place
in
the
capital
accounts
of
the
Company.
The
BP
Australia
case,
to
which
reference
has
been
made,
held
that
lump
sum
payments
made
by
a
petrol
supplier
to
secure
the
advantage
of
retail
outlets
for
a
period
of
time
were,
on
the
extension
of
the
principle
of
Anglo-Persian
and
the
application
of
other
cases,
revenue
expenditures
and
not
capital
outgoings
in
that
they
were
expended
as
part
of
the
moneyearning
process
and
not
on
the
structure
within
which
the
profits
were
to
be
earned.
This
case
has
received
much
vogue
in
Canada.
Mandrel
Industries
v
MNR,
supra,
held
that
a
lump
sum
payment
of
$150,000
made
in
consideration
of
the
assignment
of
an
exclusive
sales
contract,
which
still
had
three
years
to
run,
was
a
non-deductible
capital
outlay
made
once
and
for
all
with
a
view
to
bringing
into
being
an
advantage
for
the
enduring
benfit
of
the
trade
in
the
sense
that
the
payer
could
henceforth
operate
its
own
selling
operation
without
being
in
breach
of
its
previously
existing
exclusive
sales
contract.
Cattanach,
J
found
as
a
fact
that
the
payer
acquired
not
only
an
unfettered
right
to
sell
on
its
own
account
“but
also
acquired
an
existing
sales
and
servicing
organization
as
a
whole”.
The
case
of
Dymo
of
Canada
Ltd,
supra,
went
to
the
contrary.
Here
it
was
held
that
the
payment
of
some
$27,000
by
a
company
to
a
partnership,
pursuant
to
an
agreement
to
terminate
a
non-exclusive
distributorship
contract,
was
properly
deductible
as
a
revenue
expenditure
on
the
ground
that
the
agreement
in
question
did
not
give
the
company
any
rights
or
advantages
of
an
enduring
nature
which
it
did
not
already
possess
nor
did
it
benefit
from
the
elimination
of
a
competitor
since
it
had
at
all
times
the
right
to
cancel
the
agreement,
which
was
not
for
a
fixed
term.
Walsh,
J
drew
the
distinction
from
Mandrel,
where
he
said
at
214
(DTC
5177):
.
..
there
is
no
justification
for
the
assumption
that
the
partnership
at
any
time
had
an
exclusive
agency.
In
fact
this
was
denied
by
Mr
Staines
and
there
is
no
evidence
to
the
contrary.
The
present
case
can
therefore
clearly
be
distinguished
from
the
Mandrel
case
(supra)
in
which
the
taxpayer
could
only
enter
into
the
business
itself
by
terminating
the
exclusive
agency.
In
the
present
case
appellant
could
commence
direct
sales
or
appoint
other
distributors
or
agents
at
any
time
it
chose
to
do
so
.
.
.
Generally
speaking,
an
expenditure
for
the
acquisition
or
creation
of
a
business
entity,
structure
or
organization
for
the
earning
of
profit,
or
for
an
addition
thereto,
is
an
expenditure
on
capital
account.
On
the
other
hand,
an
expenditure
in
the
process
of
operation
of
a
profit-making
entity,
structure
or
organization
is
an
expenditure
on
revenue
account:
Canada
Starch
Co
Ltd
v
MNR,
supra.
Pepsi-Cola
Canada
Limited
v
The
Queen,
supra,
held
that
the
sum
of
$100,000
paid
for
the
termination
of
a
soft
drink
distributorship
was
capital
outlay
and
not
income
because
the
payment
was
clearly
for
goodwill
and
nothing
else.
Automatic
Toll
Systems
(Canada)
Ltd.
v
MNR,
supra,
held
that
a
payment
of
$60,000
paid
for
the
purpose
of
obtaining
the
cancellation
of
an
agency
agreement
for
the
negotiation
of
contracts
with
the
Quebec
Autoroute
Authority
was
an
income
expenditure
by
reason
that
it
was
paid
for
the
sole
purpose
of
getting
rid
of
an
onerous
contract
under
which
the
taxpayer
was
obliged
to
pay
commission,
which
brought
the
case
within
the
principle
of
Anglo-Persian
Oil
Co
v
Dale.
As
Thurlow,
AC]
so
clearly
pointed
out
in
Oxford
Shopping
Centres
Ltd
v
The
Queen,
[1980]
CTC
7
at
14;
79
DTC
5458
at
5463:
...
It
is
the
nature
of
the
advantage
to
be
gained
which
more
than
any
other
feature
of
the
particular
situation
will
point
to
the
proper
characterization
of
the
expenditure
as
one
of
capital
or
of
revenue
expense
.
.
.
I
am
satisfied
on
the
totality
of
evidence
that
the
nature
of
the
advantage
sought
to
be
gained
here
in
the
context
of
its
commercial
reality
from
a
practical
and
business
point
of
view
was
not
the
acquisition
of
all
the
business
of
A-W
Brands,
Inc
nor
the
outright
purchase
of
its
goodwill
nor
the
elimination
of
a
competitor
but
was
simply
the
termination
of
a
distributorship
that
had
come
to
be
regarded
as
unsatisfactory.
At
the
very
most,
it
can
be
plausibly
argued
that
the
advantage
gained
was
the
distribution
network
built
up
by
All
World
over
a
period
of
years.
It
follows
that
this
is
the
only
real
point
at
issue
and
one
which
must
be
resolved
by
endeavouring
to
trace
the
line
of
demarcation,
faint
or
clearly
defined
as
the
case
may
be,
between
an
expenditure
made
for
the
acquisition
of
the
structure
of
the
distribution
network
of
All
World
and
whatever
income-earning
potential
was
inherent
therein
and
an
expenditure
made
or
incurred
in
the
actual
process
of
Angostura’s
profit-making
operations
per
se.
The
evidence
indicates
quite
clearly
that
Angostura
always
regarded
A-W
Brands,
Inc
and
its
predecessors
as
the
exclusive
selling
agent
of
the
company
in
the
context
of
their
being
the
sole
distributor
of
its
products
in
the
United
States
market.
In
my
opinion,
the
“anti-deeming”
provision
of
the
distributorship
agreements
with
respect
to
the
creation
of
the
legal
relationship
of
partnership
or
agent
is
not
at
all
conclusive
of
the
matter.
Moreover,
it
is
my
view
that
the
established
pattern
of
commercial
usage
and
reality
serves
to
negate
the
possibility
of
drawing
any
assumptive
inference
with
respect
to
whatever
fine
line
of
distinction
may
exist
between
the
status
of
“agent”
and
“independent
contractor”
in
legal
terminology.
Mr
Gatcliffe’s
testimony
that
Angostura
was
only
one
line
among
a
number
of
other
products
and
distributorship
agencies
of
All
World
was
not
challenged.
More
significantly,
there
was
no
cogent
evidence
that
the
Angostura
agency
accounted
for
a
large
proportion
of
All
World’s
total
business
as
was
the
case
in
Parsons-Steiner
Ltd
v
MNR,
[1962]
CTC
231;
62
DTC
1148,
where
the
cancellation
payment
was
clearly
referable
to
the
distributor’s
goodwill
and
the
earning
power
of
the
agency
business
with
the
result
that
the
payment
in
question
was
necessarily
regarded
as
compensation
for
the
loss
of
‘‘a
capital
asset
of
an
enduring
nature”.
Nor
was
it
a
case
involving
the
closure
of
All
World’s
business
and
the
disbandment
of
staff
or
the
alternative
consequence
of
loss
of
mortgage
contracts
representing
capital
assets
of
enduring
nature
as
in
H
HA
Roberts
Limited
v
MNR,
[1969]
CTC
369;
69
DTC
5249
(SCC).
I
have
already
expressed
the
view
that
the
transaction
was
not
designedly
aimed
at
the
elimination
of
a
competitor,
but
I
would
add
this
further
comment.
To
my
way
of
thinking,
the
non-competition
covenants
in
the
service
agreement
were
mutually
exclusive
in
the
sense
that
one
was
the
quid
pro
quo
for
the
other
so
that
nothing
really
turns
on
them.
In
my
opinion,
the
case
of
Bomag
(Canada)
Ltd
v
The
Queen,
supra,
is
distinguishable
by
the
fact
that
the
$108,000
paid
to
procure
the
surrender
of
a
prior
franchise
cleared
the
way
for
obtaining
a
single,
exclusive
franchise
of
unlimited
duration
which,
coupled
with
the
franchisee’s
assumption
of
obligations
under
the
cancellation
agreement,
amounted
to
a
capital
outlay
for
the
acquisition
of
a
valuable
asset.
In
the
present
case,
the
evidence
fails
to
establish
convincingly
that
the
plaintiff
automatically
acquired
by
virtue
of
the
cancellation
agreement
all
of
All
World’s
existing
distributorship
network
for
the
Angostura
products
and
whatever
contractual
rights
or
obligations
were
associated
therewith
but
goes
to
show
instead
that
this
aspect
was
left
open
to
further
negotiation.
A
form
letter
agreement
of
October
4,
1978
from
the
plaintiff’s
Executive
Director,
Lewis
R
Perlman,
to
the
former
distributors
and
representatives
of
A-W
Brands,
Inc
asks
for
reconfirmation
of
the
appointment
of
such
representatives
for
the
marketing
area
and
the
acceptance
of
the
terms
of
agreement,
all
of
which
was
to
be
signified
by
the
execution
of
a
duplicate
original
of
the
form
letter.
These
terms
provided,
inter
alia,
for
a
commission
of
five
per
cent
on
the
Angostura
products,
cancellation
of
the
company’s
broker-business
relationship
on
30
days’
written
notice
by
either
party,
and
the
fact
that
the
business
relationship
thus
created
was
not
assignable
by
the
broker
except
by
written
consent
of
the
company.
Where
are
the
attributes
of
permanency
or
enduring
nature
in
this?
I
consider
that
the
evidence
in
its
entirety
weighs
in
favour
of
a
relatively
transitory
or
short-term
revenue
expenditure
made
in
the
ordinary
course
of
the
plaintiff’s
income-earning
enterprise
and
against
the
acquisition
of
a
profit-making
apparatus
or
structure
of
an
enduring
or
permanent
nature,
thereby
bringing
the
case
within
the
principle
of
Anglo-Persian
and
BP
Australia
and
the
Canadian
cases
which
followed
that
line
of
authority.
I
am
therefore
of
the
opinion
that
the
expenditures
of
$592,000
and
$76,559
were
payments
on
revenue
account
and
not
capital
outlays
within
the
meaning
of
paragraph
18(1)(b)
of
the
Income
Tax
Act.
There
is
a
further
point.
It
was
agreed
by
counsel
that
the
question
of
a
refundable
dividend
tax
credit
on
hand
of
$9,853
at
the
commencement
of
the
1977
taxation
year
and
the
matter
of
interest
on
the
Minister’s
reassessment
of
tax
for
the
1977,
1978
and
1979
taxation
years
should
be
referred
back
to
the
Minister
for
reassessment
in
any
event.
In
the
result,
the
plaintiff’s
appeal
is
allowed
with
costs
and
the
matter
is
referred
back
to
the
Minister
for
reassessment
in
accordance
with
these
reasons.
Appeal
allowed.
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