The
Chief
Justice
(concurred
in
by
Le
Dain,
J
and
Hyde,
DJ)
(judgment
delivered
from
the
Bench):—This
is
an
appeal
from
a
decision
of
the
Trial
Division
dismissing
with
costs
an
appeal
by
the
appellant
from
a
decision
of
the
Tax
Review
Board
allowing
an
appeal
by
the
respondent
from
its
assessment
under
Part
I
of
the
Income
Tax
Act
for
the
1968
taxation
year.
The
sole
question
in
issue
is
whether
the
taxpayer
was
entitled
to
a
deduction
in
computing
its
income
for
that
taxation
year,
by
virtue
of
paragraph
11
(1)(e)
of
the
Income
Tax
Act,
of
$30,000
in
respect
of
an
indebtedness
of
$50,000.*
As
I
have
concluded
that
the
appeal
must
be
allowed,
I
must
indicate
how
I
differ
from
the
conclusions
of
the
lower
courts.
In
the
first
place,
in
my
view,
no
case
has
been
made
out
for
deducting
the
amount
in
question
in
computing
the
profit
for
the
year
in
accordance
with
ordinary
business
and
commercial
principles.
That
amount
does
not,
in
my
view,
represent
a
cost
of
the
respondent’s
business
on
current
account.
In
effect,
it
represents
a
diminution
in
the
value
of
property
that
had
been
transferred
to
the
respondent
as
part
of
an
exchange
of
assets
with
a
related
company,
which
exchange
was
effected
with
the
sole
objective
of
improving
the
tax
position
under
provincial
tax
laws.
The
resulting
loss
did
not,
in
my
view,
arise
Out
of
Current
operations
of
the
respondent’s
business.
The
remaining
question
is
whether
the
amount
in
question
is
deductible
under
paragraph
11(1)(e)
of
the
Income
Tax
Act,
which
reads
as
follows:
11.
(1)
Notwithstanding
paragraphs
(a),
(b)
and
(h)
of
subsection
(1)
of
section
12,
the
following
amounts
may
be
deducted
in
computing
the
income
of
a
taxpayer
for
a
taxation
year:
(e)
a
reasonable
amount
as
a
reserve
for
(i)
doubtful
debts
that
have
been
included
in
computing
the
income
of
the
taxpayer
for
that
year
or
a
previous
year,
and
(ii)
doubtful
debts
arising
from
loans
made
in
the
ordinary
course
of
business
by
a
taxpayer
part
of
whose
ordinary
business
was
the
lending
of
money;
The
relevant
facts,
in
so
far
as
they
must
be
considered
for
my
conclusion,
are
that
(a)
the
related
company
made
the
loans
in
question,
(b)
the
related
company
subsequently
transferred
the
resulting
debts
to
the
respondent
while
they
were
still
worth
their
face
value,
and
(c)
subsequently,
the
debts
became
of
doubtful
value.
In
my
view,
paragraph
11
(1)(e)
does
not
authorize
the
respondent
to
make
a
deduction
of
a
reserve
in
respect
of
such
debts
because
they
did
not
arise
from
“loans
made”
by
the
respondent.
The
sub-
mission
of
counsel
for
the
respondent
thai,
in
the
context
of
paragraph
11(1)(e),
the
words
“made
by
a
taxpayer”
include
loans
made
by
a
third
party
and
subsequently
transferred
to
a
taxpayer
does
not
require,
in
my
view,
any
answer
except
that
the
word
“made”
used
in
relation
to
the
word
“loans”
does
not
have
any
such
sense.
This
is
even
clearer,
in
my
view,
when
the
French
version
of
the
provision
is
read
with
the
English
version.
The
submission
of
counsel
that
the
use
in
subparagraph
11
(1)(e)(ii)
of
the
expression
“a
taxpayer”
instead
of
“the
taxpayer”
extends
the
operation
of
the
provision
to
permit
the
deduction
of
a
“reserve”
for
“doubtful
debts”
arising
from
loans
made
by
“a
taxpayer”
other
than
the
taxpayer
whose
income
is
being
computed
is,
superficially,
more
persuasive.
However,
while
subparagraph
11
(1)(e)(ii)
is
not
worded
as
explicitly
as
it
might
have
been,
I
have
concluded
that
it
extends
only
to
granting
a
“reserve”
in
respect
of
debts
arising
from
loans
made
by
the
taxpayer
whose
income
is
being
computed.
In
other
words
they
must
have
been
made
by
the
taxpayer
part
of
whose
ordinary
business
must
have
been
the
lending
of
money.
In
any
event,
even
if
the
words
were
open
to
the
other
interpretation,
the
respondent
cannot
succeed
in
this
submission
unless
the
ordinary
business
of
the
lender
was
‘‘the
lending
of
money”
and,
in
my
view,
in
this
case,
the
evidence
would
not
support
such
a
finding
of
fact.
I
am
of
the
view
that
the
appeai
should
be
allowed,
that
the
judgments
of
the
Tax
Review
Board
and
the
Trial
Division
should
be
set
aside,
that
the
assessment
appealed
against
should
be
restored
and
that
the
respondent
should
pay
the
costs
of
the
appellant
in
the
Trial
Division
as
well
as
in
this
Court.
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