The Queen v. Poulin, 76 DTC 6381, [1976] CTC 620 (FCTD)

Walsh, J:—By order of Associate Chief Justice Thuriow dated August 24, 1976, this action was heard jointly and on the same evidence as the cases of Henri-Paul Lemay v Her Majesty the Queen, No T-4131-74 and Maurice Paquin v Her Majesty the Queen, No T-4132-74. The appeal in the present case is brought by Her Majesty the Queen from a decision of February 7, 1973 of the Tax Review Board aliowing in part the appeal by defendant of an assessment by the Minister of National Revenue for his 1967 and 1968 taxation years in which the Minister had included in the taxable income of the defendant an amount of $5,000 for his 1967 taxation year and $10,000 for his 1968 taxation year.

Defendant ts an attorney who practised his profession in the Province of Quebec from 1959 to May 1, 1967 in association with Henri-Paul Lemay and Micheline Corbeil.

He withdrew from this partnership after an exchange of correspondence between them consisting of letters written by him on April 11 and April 17, 1967, suggesting the terms of this withdrawal which were accepted by a letter of April 20, 1967, addressed to him by the said Henri-Paul Lemay and Micheline Corbeil.

By virtue of this he was to receive $20,000 by 8 quarterly instalments of $2,500 each of which two were payable in 1967 amounting to $5,000 and four amounting to $10,000 in 1968 which he contended were capital receipts in his hands and hence not taxable as income. Before his withdrawal, and with his concurrence, one Louis Gilles Gagnon, whose taxation is not an issue in the present proceedings, had been added to the partnership as of January 1, 1967, and effective January 1, 1968, Mr Lemay had entered into partnership with Maurice Paquin and Miss Corbeil withdrew. The terms of her withdrawal are not an issue in the present proceedings nor is any further reference made to Mr Gagnon, and it appears that following January 1, 1968 Mr Lemay and Mr Paquin were the only two partners. The Statement of Revenue and Expenses as of December 31, 1967, headed Lemay, Poulin and Corbeil and, underneath, Lemay, Corbeil and Gagnon, shows as an expense item “distribution of fees on liquidation” in the amount of $5,000. A similar Statement of Revenue and Expenses for the year ending December 31, 1968, headed Lemay, Paquin and Corbeil, shows distribution of fees on liquidation of $15,335. Another statement for the year ending December 31, 1969, again headed Lemay, Paquin and Corbeil shows distribution of fees on liquidation in the amount of $8,960. Although Mr Lemay did not benefit by the entire net income of the partnership after Mr Poulin’s departure in May 1967, the reassessment of his income tax return for that year added the entire $5,000 paid to Mr Poulin as a disallowed expense. For his 1968 taxation year the sum of $5,760.45 was added as a disallowed expense representing his share of payments made to Mr Poulin in that year. His 1969 tax assessment is not before the Court in the present proceedings but it is of some interest to note that the same procedure was followed in that year and the amount $3,076.92 was added back as a disallowed expense representing his share of payments to Mr Poulin. There is no readily apparent explanation as to why the entire $5,000 disallowed as an expense of the partnership was added back to Mr Lemay’s income for 1967. Neither was any explanation given as to how the figures of $15,335 and $8,960 respectively were shown in the 1968 and 1969 Statement of Income and Expenses as distribution of fees on liquidation when the amounts paid to Mr Poulin in those years were respectively $10,000 and $5,000. Possibly the other items represent payments to Miss Corbeil who seems to have left the firm on Mr Paquin's entry since the sharing of income for the years 1968 and following was only made between Mr Lemay and him, despite Miss Corbeil’s name appearing on the head of the financial statement. Perhaps her name was still used in the firm name when she ceased to be a partner as would appear to be indicated by the partnership agreement between Messrs Lemay and Paquin entered into December 12, 1967 to take effect January 1, 1968 which refers to a sum of $20,000 payable to Miss Corbeil pursuant to an agreement between them and her which was not produced.

In the case of Mr Paquin, since he did not become a partner until 1968, it is his 1968 and 1969 income tax returns which have been reassessed rather than the 1967 and 1968 returns as in the cases of Mr Poulin and Mr Lemay. In Mr Paquin’s 1968 reassessment the sum $4,239.55 was added back as a disallowed expense representing his share of the payments made to Mr Poulin in that year and similarly an amount of $1,924.08 was added back to his income for the 1969 taxation period. If we add the amount added back for him in 1968 of $4,239.55 to the $5,760.45 added back to the income of Mr Lemay we reach the figure of $10,000, being the full amount of the payments to Mr Poulin in 1968, and similarly if we add the amount of $1,924.08 disallowed to Mr Paquin in 1969 to the amount of $3,076.92 disallowed to Mr Lemay, whose 1969 return is not however before the Court in the present proceedings, we arrive at the figure of $5,000 being the total of the payments made by Mr Poulin in 1969, so these figures reconcile, and it is clear that Miss Corbeil did not participate in any of these payments.

The Minister, no doubt for reasons of security, decided to make contradictory assessments. On the one hand he assessed Mr Poulin for the sums received as being on account of income, while on the other hand he disallowed these payments to Mr Lemay and Mr Paquin as having been made on account of capital. The finding of the Tax Review Board that they constituted capital payments when received by Mr Poulin would, if confirmed, of course have the result of preventing Messrs Lemay and Paquin from deducting their share of these payments from their taxable income for the years in question so their appeals would fail and the Minister’s reassessments of their returns be confirmed. The decision in the present case therefore will be applicable to the other two cases and counsel for the Minister was forced into the difficult position of attempting to sustain opposite and conflicting points of view in his cross-examination of the witnesses at the hearing, while at the same time being in an almost neutral position since if the Crown succeeds in the Poulin appeal it will follow that the taxpayers will succeed in the other two appeals, and conversely if the Grown loses the Poulin appeal then judgment will be rendered dismissing the other two appeals. There is one possible modification to this which should be dealt with. Counsel for the Paquin estate, Mr Paquin having died since proceedings were commenced, contends that no part of the payments to Mr Poulin in 1968 and 1969 should have been disallowed and added back to Mr Paquin’s income since he was not a partner or in any way involved in the agreement in May 1967 by virtue of which the payments became payable to Mr Poulin.

The partnership agreement between Mr Lemay and Mr Paquin signed on December 12, 1967, to take effect from January 1, 1968 contains a revised clause written in long hand and initialled by Messrs. Lemay and Paquin which reads as follows (translated):

When the auditors will have established the amounts foreseen in Annex A in accordance with its stipulations and the total value of the contributions of H P L shall have been established, the amount of $15,000.00 payable to J M Poulin by quarterly instalments of $2,500.00 of which the first will become due February 1st, 1968, and also the amount of $20,000.00 payable to Micheline Corbeil according to the terms of an agreement entered into this day between H P Lemay, Maurice Paquin and Micheline Corbeil shall be deducted, these said amounts of $15,000.00 and $20,000.00 shall be payable from the revenues of the present partnership.

While this makes it clear that Mr Paquin is not responsible for these payments which are to be deducted from Mr Lemay’s capital interest in the partnership, it stipulates that the source of the funds to make these payments shall be the income of the new partnership. Such an agreement cannot be binding on the Minister nor have the effect of converting capital payments, if that is what they are found to be, into payments deemed to be payments out of income for taxation purposes. See for example the principle laid down by Lord Chancellor Halsbury in Gresham Life Assurance Society Ltd v Styles, [1892] AC 309 at page 315:

The thing to be taxed is the amount of profits or gains. The word “profits” I think is to be understood in its natural and proper sense—in a. sense which no commercial man would misunderstand. But when once an individual or a company has in that proper sense ascertained what are the profits of his business or his trade, the destination of those profits or the charge which has been made on those profits by previous agreements or otherwise is perfectly immaterial. The tax is payable on the profits realized, and the meaning to my mind is rendered plain by the words “payable out of profits”.

The simple fact is that these payments to Mr Poulin were deducted as an expense item in statements of the Lemay and Paquin partnership in 1968 and 1969 and hence reduced the net income distributable to the partners in accordance with the terms of their partnership agreement. When the Minister disallowed these as expenditures deductible from income the proportion attributable to Mr Paquin was added back to his income, as in the case of Mr Lemay. The assessor could not have done otherwise and if the reassessment of Mr Lemay is sustained, the similar reassessment of Mr Paquin must also be sustained. The income of the partnership available for distribution was merely increased as a result of these reassessments, and if Mr Paquin became liable to additional taxation resulting from the payments out of partnership income to Mr Poulin, which payments were an obligation of Mr Lemay, this would result from the terms of their agreement, and it is not an issue before this Court to determine whether his estate has any claim against Mr Lemay. In so far as the reassessments are concerned I find the situation to be identical.

The feature which makes this case distinguishable from much of the previous jurisprudence on partnership dissolutions, and difficult to decide on the facts, is that there was no written partnership agreement at any time between the partners and their sharing of the profits was done on a somewhat complex basis. Each of them drew weekly predetermined amounts which were increased from time to time as the net income of the partnership justified, and it was only the excess over these amounts which was divided on a percentage basis, which in 1967 and the preceding year in any event, consisted of 55% for Mr Lemay, 35% for Mr Poulin and 10% for Miss Corbeil. Their weekly drawings, although unequal, were not distributed on the same percentage basis; in fact if they had been, Miss Corbeil’s share for example would have been unreasonably low. Mr Lemay already had his library and much of his office equipment when Mr Poulin joined the partnership and while additions and replacements were of course made from year to year and paid for out of the partnership account, Mr Lemay, according to his evidence, apparently considered that these expenditures should not be capitalized in any way but were normal current expenses, especially as many of the books purchased were the current issues of taxation and other services which became obsolete each year when replaced by the following year’s editions. The partnership never had any audited financial returns prepared, the accounting returns filed for income tax purposes being prepared internally, and these returns did not, until Mr Paquin entered into partnership with Mr Lemay after Mr Poulin’s departure, include any balance sheet, being confined merely to statements of income and expenses and various schedules supporting this. It is Mr Lemay’s contention that there was no true partnership between him and Mr Poulin and Miss Corbeil since there was never any contribution by them to the capital of it and that the percentages allocated to them over and above the basic. weekly drawings merely were a sharing of the profits and did not indicate a similar nor any percentage interest in the capital of the partnership. He contends that, on the other hand, following January 1, 1968, he and Mr Paquin had a true partnership as appears from the audited accounting statements drawn up for the years 1969 and 1970 including a balance sheet.

The terms on which Mr Poulin severed his association with Mr Lemay and Miss Corbeil are set out in his letters of April 11 and April 17, 1967 and their reply of April 20. These documents constitute the entire dissolution agreement between them. The significant portions of these documents read as follows (translated):

Letter of April 11

I do not intend at present to provoke a dissolution of the partnership because I foresee that such mode of proceeding could result in a number of problems which are not desirable.

He then makes the following suggestions:

1. Establishment of my interest in the partnership of Lemay, Poulin and Corbel!

Since we have never had a written partnership agreement and the interests of the three partners have varied since 1959, I would accept to establish my interest in the partnenship my percent of the net revenues of it as of December 31st, 1965, as appears from the financial statements.* [1]

It is to be noted that in the contract which we signed with Mr L Gilles Gagnon we foresaw this method to establish the number of shares belonging to each of the partners.! [2]

2. Balance due on 1965 and 1966 revenues

The balance for 1965 is established at $ . The balance for 1966 is not yet known since the figures for this year are not yet available.! [3]

3. Establishment of my capital in the partnership

Under this heading he states that they could have drawn up a balance sheet showing physical assets, accounts receivable less reserve for bad accounts, work in progress or for which they had been retained, but he concedes that this method would be inconvenient and prejudicial to the continuation of the firm and therefore instead of this and without any audit or liquidation of the assets he is prepared to transfer his shares on the conditions set out under

4. Conditions and amounts

Under this heading he refers to payment on acceptance of his offer of the balance due him as his share of the net income, and the sale of his share in the partnership for $20,000 to be paid in 12 months by four quarterly payments of $5,000 each, and various other conditions such as being relieved of any responsibility arising from the agreement with Mr Gagnon, not meddling in any way in the future conduct of the office, the right to withdraw if he desires his office furniture, the transfer of an Evinrude motor to him at its capital cost, and a final settlement of all claims.

In his letter of April 17 he merely establishes the amounts of the balances due to him for 1965 and 1966 as $665.94 and $4,060 respectively and states that for the portion of 1967 up to May 1, the date of his departure, instead of closing the books he agrees to accept as his income for that period his regular weekly drawings which he has received.

In the acceptance letter addressed to Mr Poulin by Mr Lemay and Miss Corbeil on April 20, 1967, reference is made to his two letters of April 11 and April 17 and the second paragraph reads (translated):

For the purposes of a friendly settlement of our business as partners we have verbally advised you that we have agreed to pay you $20,000 instead of proceeding to a dissolution which is neither practical nor advantageous for any of us and that in return we retain, as you told us, all the possessions and physical or other assets of whatsoever sort of the partnership which we have terminated by mutual agreement.

The next paragraph refers to payment of the $20,000 by notes for $2,500 each which would be payable each three months commencing August 1, 1967, until the final payment in May 1969 and also to two cheques payable May 1 and June 1, 1967, totalling $4,725.94 representing the balance of the annual profits which Mr Poulin had not yet received for the years 1965 and 1966.

While these three letters set out the terms of dissolution certain other documents are of interest in view of Mr Lemay’s contention that there was never a real partnership between the parties but merely an agreement as the basis for distribution of the profits over and above the agreed upon drawings. In making this argument he relies on the case of Bourboin v Savard, 40 Que KB 68, in which Rivard, J in the Quebec Court of Appeal points out that three elements are essential for a partnership, one being the creation of a common fund by contributions which each partner makes of his property, his credit, his skill or his industry.* [4] At page 72 he states (translated):

The fact that the remuneration is not a fixed sum but a share of the profits or a share of a special part of the profits does not signify that the parties had the intention of forming a partnership.

and again on the same page:

The mere participation in the benefits does not necessariiy create the existence of a partnership and the intention of forming such a contract must otherwise appear.

It is however evident that Mr Poulin, even if he did not buy into the partnership when he joined it, as Mr Gagnon was later required to do, nevertheless contributed his skill and industry to it and hence would not be excluded from the definition of partnership set out in the Quebec Civil Code on which Mr Justice Rivard’s statement is based. Moreover at the dissolution he left clients and files of work in progress with it. It is interesting to note that Pigeon, J in rendering the judgment of the Supreme Court in the case of MNR v lan G Wahn, [1969] CTC 61; 69 DTC 5075, found no difficulty in connection with the existence of a partnership in which the respondent had made no capital contribution for he states at page 77 [5085]:

It must also be noted that when respondent was admitted to the partnership, he was not required to make and did not make, at that time or at any other time, any contribution to capital account. Under such circumstances it is only natural that the agreement was not intended to compel the otner partners to pay a substantial capital sum for the privilege of retaining assets to which respondent had not contributed.

This judgment will be referred to later when I deal with the main issue in the present case as to whether the payments made to Mr Poulin were payments on account of capital or on account of income, but I refer to this statement at this time as an indication that the absence of capital contributions by Mr Poulin to the partnership does not mean that a full partnership did not exist, as Mr Lemay contends.

I have already made reference in a footnote to the agreement between Messrs Lemay, Poulin and Miss Corbeil and Mr Gagnon when he entered into the partnership on January 1, 1967, but further reference may be made to paragraph 12E of that agreement which (translated) reads:

For the purposes of transferring the partnership shares by the partners to the new partner the 100 shares are held by each partner in the same proportion as that in which they shared the net income for the year 1965.

While of course no shares were ever issued as such this agreement, which was signed by Mr Lemay, makes it abundantly clear that Mr Poulin who was a partner and party to the agreement at the time, was a full partner in the capital of the partnership for the same percentage as his share in the net income. Paragraph 2 of the partnership agreement between Mr Lemay and Mr Paquin signed on December 12, 1967, to take effect from January 1, 1968, sets out that the assets of the partnership will be composed of all those (translated):

constituting at present possessions of the partnership of advocates existing between Henri-Paul Lemay and Micheline Corbeil, comprising all the physical assets, the records, the accounts receivable, the value of work in progress established according to the billing methods presently in effect, the clients and all those which will be obtained in future.

The agreement provides for a balance sheet to be prepared as of December 31, 1967, as an annex to the agreement which would establish these amounts. While Mr Poulin was not of course a party to this agreement the reference to assets of the partnership of Mr Lemay and Miss Corbeil certainly confirms that she had a partnership interest in the capital assets. This would similarly have been the case with Mr Poulin prior to his departure since he had been a partner on the same basis as Miss Corbeil although for a higher percentage.

The handwritten clause in this agreement to which I have already referred (supra) would also make it appear that the payments to Mr Poulin were capital payments since Mr Lemay’s capital contribution to the partnership was to be reduced by the amount of them, even if they were to be paid out of income.

Another document of interest is a letter signed by Mr Poulin dated April 20, 1967, the same date as the Lemay-Corbeil letter to Mr Poulin accepting his terms for dissolution of the partnership, which authorizes his said former associates to sue in his name and theirs to recover all fees for professional services rendered while he was a member of the partnership. In it he recognizes that he has no right to the amounts which may be received as a result of this.* [5]

The balance sheet to be prepared as of December 31, 1967 to give effect to the partnership agreement between Messrs Lemay and Paquin was not completed by the auditors until June 10, 1971. For what it is worth it showed accounts receivable and work in progress less writeoffs as of January 1, 1968 in the very large sum of $293,797.45 all of which was attributed in the new partnership to Mr Lemay. The sums due under these headings as of December 31, 1970 are increased by $138,448.31, one-half of which or $69,224.15 is attributable to Mr Lemay and the other half to Mr Paquin, representing their partnership shares of the increases during the years 1968, 1969 and 1970. While, as already stated, no balance sheet had been prepared for the year ending December 31, 1967 until this statement prepared in 1971, there was an unaudited schedule attached to the partnership’s income and expense account filed with their 1967 tax returns showing the value of furniture and fixtures as $21,773.28 less depreciation of $12,035.04 resulting in a net value as of that date of $9,738.24.

The exchange of letters which formed the basis of the dissolution of the partnership and the evidence on discovery make it clear that the $20,000 figure was not based on any calculation of the value of accounts receivable, work in progress or furniture and fixtures and these figures were not available at the time. At most they give some indication as to what Mr Poulin might have received had the partnership been dissolved in this way, instead of a settlement having been made with him for the round figure of $20,000. Even if the figures were used to give some such indication they would have to be used with great caution. In the first place they are figures for January 1, 1968 and since Mr Poulin left the partnership on May 1, 1967, there might have ben a substantial difference in the figures in the interval. In the second place in so far as income is concerned it was not, by virtue of the partnership agreement, a flat 35% of the net income to which Mr Poulin was entitled, but only 35% of the residual amount over and above the fixed weekly drawings of the partners, which amounts were themselves increased from time to time by agreement and not on the basis of their percentage interests in the partnership. Had he remained therefore he would not have been entitled to a flat 35% of these accounts receivable and the accounts to be eventually rendered for the work in progress. All that these figures indicate therefore is that Mr Poulin may have sold out his interest in the partnership for a sum representing substantially less than what it would have been worth had he insisted on a balance sheet being prepared at the time.

When pressed in giving evidence for an indication as to how he reached the figure of $20,000 he was asking for he stated that this represented approximately what it cost him to live for a year according to his usual standards after taking into account the net amounts available to him in previous years after payment of income tax on same and that he wanted sufficient security to give him time to get reestablished in a law practice on his own.* [6] Mr Lemay, for his part, when testifying stated that although he did not wish to introduce any elements of personal animosity into the litigation he had considered at the time that it was worth $20,000 to him to be free of the troubles (which by implication his association with Mr Poulin were causing him). Certainly there is nothing in either version, nor in the round figure chosen, to indicate that this $20,000 was in any way connected with amounts which would have become payable in future as a share of the income of the partners resulting from services rendered up to the date of the dissolution on May 1, 1967. Clear distinction was made between this $20,000 and the sum of $4,725.94 representing Mr Poulin’s share of the income of the partnership which had already been received by it but not yet distributed for the years 1965 and 1966. The Supreme Court case of MNR v Joseph Sedgwick, [1963] CTC 571; 63 DTC 1378, can I believe be distinguished from the present action on the facts. Sedgwick and his associates had loaned money to one Purcell to purchase a seat on the Toronto Stock Exchange and for working capital and in return would receive a percentage of the profits. When it was found that this conflicted with the rules of the Stock Exchange a second agreement was reached that Purcell would pay them the sum of $550,000 for relinquishing all their rights under the previous agreement which included the sum of $300,000 as the share of the creditors in the net profits of the business for the year. In finding that this $300,000 was taxable in the hands of the recipients Martland, J rejected the argument of respondent that it was in the nature of a capital receipt. The learned judge states at pages 575-6 [1380-81]:

Counsel for the respondent contended that these profits were not taxable in the respondent’s hands, but in the hands of Purcell, because the respondent, by the agreement, sold his interest in the partnership business to Purcell and the whole of the payment to which the respondent became entitled would be a receipt of capital. He submitted that the fact that the price was determined, in part, by the share of the Lenders in the partnership profits for the fiscal year ending March 31, 1956, does not alter the quality of the payment to be made to them by Purcell. He cited the statement of Lord Macmillan in Van den Berghs, Limited v Clark, [1935] AC 431 at 442:

“But even if a payment is measured by annual receipts, it is not necessarily itself an item of income. As Lord Buckmaster pointed out in the case of Glenboig Union Fireclay Co v Commissioners of Inland Revenue ([1922] SC (HL) 112): ‘There is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the test.’ ”’

In my opinion this argument fails and 1 am unable, with respect, to agree with the conclusions reached by the learned trial judge because 1 cannot construe the agreement of February 1, 1956, as being one for the sale of interests in a partnership. It is rather an agreement for the winding up of the partnership, which had been necessitated by the decision of the Board of Governors of the Toronto Stock Exchange. As a result of that decision. the Lenders were thereafter precluded from sharing in the profits of the business. That right they gave up in the agreement because they had been compelled to do so.

lt is apparent that this finding was based on the dissolution of the partnership, not the sale of a partner’s rights in it, and the terms of the second agreement clearly determined the share of the net profits as $300,000 whereas no such determination has been made for the $20,000 in issue in the present case.

The Supreme Court case of MNR v lan G Wahn (supra) can also be distinguished since that case dealt with payments made over a period of four years to a partner who withdrew from a law firm pursuant to the provisions of a written partnership agreement, clause 14 of which clearly provided for the evaluation of the share of the withdrawing partner in the profits of the partnership. In rendering the judgment the Court finding this payment to be taxable income in the hands of the recipient, Pigeon, J stated at page 76 [5085]:

It is contended that what is said in the agreement respecting income tax cannot override the provisions of the Act. This is quite true but does not mean that what is said is not to be taken as expressing the intention of the parties. I find it obvious that the intention was that the payment to a withdrawing partner should be an allocation of profits. It is true that the fact that a payment is measured by reference to profits may not prevent it from being of a capital nature but there must be something to show that such is the true nature of a payment. In the present case, I can find nothing tending to indicate that it is so. On the contrary, clause 18 provides clearly that a withdrawing partner has no interest in the capital assets of the firm.

and again at page 77 [5085]:

The wording of the provision for the allowance to a withdrawing partner shows that it was not intended to be a capital payment for goodwill but an allocation of profits and this is conclusive evidence that it is income of the recipient as was held by this Court in MNR v Sedgwick, [1964] SCR 177; [1963] CTC 571.

in the present case in the absence of any partnership agreement there was no provision for allocation of profits on termination of it. The calculation of the sum payable was certainly not made on this basis.

The case of MNR v Robert P Ouellette and John E Brett, [1971] CTC 121; 71 DTC 5094, confirmed by the Supreme Court ([1975] CTC 111; 75 DTC 5075) dealt at some length with a situation somewhat similar to the present case and analyzed the jurisprudence on the subject. The issue there was whether a payment of $75,000 made to a partner named Blauer who was being forced out of the partnership by his former associates, Ouellette and Brett was in lieu of a distribution to him of his estimated share in anticipated profits on certain tunnel contracts as Brett and Ouellette contended and hence deductible by them and taxable in his hands or whether it represented the value of his goodwill in the partnership, this being the term used in the dissolution agreement. In that case litigation had ensued between the parties, Blauer suing his former associates both in the civil courts and also having laid charges against them for conspiracy and fraud. ‘These actions were withdrawn as a result of the settlement. It was conciuded that the settlement with Blauer was not made by Brett and Ouellette for the purpose of earning income in connection with the tunnel projects which they were already carrying out, and the fact that one of the results of the settlement would be that they would now share in the net profits of these two contracts in the proportion of one-half each instead of one-third each did not alter this. Instead it was found that the settlement was a form of transaction to dispose of all the litigation and claims which Blauer had against the partnership, and included his share in the goodwill of same. In distinguishing the Sedgwick case (supra) the judgment in the Ouellette and Brett case stated at page 150 [5111]:

In particular, the Sedgwick case held that the agreement could not be construed as being one for the sale of an interest in a partnership, but that it was rather an agreement for the winding-up of the partnership and that the respondent was liable to pay tax in respect of his share of the partnership income for the fiscal year ending when the partnership was wound up. In the present case, on the contrary, Brett and Ouellette contend that there never was a general partnership entitling Blauer to share in the fees earned in the Boucherville tunnel and Sherbrooke projects and while they, in their own minds, may have based the amount to be paid to him as a settlement on dissolution of the partnership and for withdrawal of the various proceedings he had laid, on an amount equal to what they considered his share of the profits on these two projects would amount to, it is clear that the settlement was not based on an accounting of the partnership, treating it as a general partnership, up to the date of the dissolution, resulting in a payment to Blauer of his share in the partnership income to this date, for