Commonwealth Construction Co. Ltd. v. The Queen, 82 DTC 6152, [1982] CTC 167 (FCTD), aff'd 84 DTC 6420, [1984] CTC 338 (FCA)

Walsh, J:—The issue in the present case was whether the sum of $6,072,595 paid to the plaintiff in its 1974 taxation year and $725,221 paid in respect of costs in its 1975 taxation year, said amounts resulting from a judgment rendered in favour of plaintiff on November 24, 1974 in the County Court of the Pas by His Honour Judge Ferg, which was under appeal, should have been declared for income tax in those years as defendant contends rather than in the year 1977 as plaintiff contends, when pursuant to an agreement entered into between the Manitoba Development Corporation

(MDC) which had paid said amounts to plaintiff, the appeal was abandoned on agreement by plaintiff to return to the said MDC $455,000 of the moneys paid by it to the plaintiff in 1974 and 1975.

While the issue to be decided is comparatively simple the background is complex. The plaintiff, a construction company, entered into a series of contracts for construction at the Pas in Manitoba for Churchill Forest Industries

(CFI) of a pulp mill as well as eventually a paper mill, saw mill and machine shop. Financing was provided by the MDC. Payments were made as due to the end of 1970 when CFI defaulted in its payments to MDC as a result of which, on January 7, 1971, a receiver-manager was appointed for CFI. Not being satisfied with the manner in which the receiver was carrying out his duties, the creditors of CFI, including plaintiff, put CFI in bankruptcy on December 6, 1971. Meanwhile, on March 2, 1971, plaintiff commenced action in the County Court of the Pas to enforce its claim against the project under the provisions of the Mechanics Lien Act, RSM 1970, c M-80.

MDC took the position that plaintiff and other lien holders did not have priority over its interest and in 1971 two actions were commenced before the Court of Queen’s Bench in Manitoba to determine the issue of priorities. On August 16, 1972, Chief Justice Tritschler of the Court of Queen’s Bench, Manitoba, handed down judgments in which he found the interests of the lien holders took priority over those of MDC. These were appealed and the appeal was heard but by agreement of the parties, the receiver of M P Industrial Mills, Limited, one of the CFI group of companies, and MDC and the trustee in bankruptcy of the CFI group of companies, the Court of Appeal was requested to refrain from rendering reasons for judgment. However, in the spring of 1973 the Honourable Justice Dickson, one of the three judges who heard the appeal, was appointed to the Supreme Court of Canada and, as a result, was required to render all pending decisions, so he filed his reasons on June 15, 1973, and plaintiff's then counsel saw them. They were subsequently sealed by order of the Chief Justice of the Manitoba Court of Appeal, hence are not available and it must be stressed that no judgment was ever rendered by the Manitoba Court of Appeal from the judgment of Chief Justice Tritschler.

In his reasons for judgment on the mechanic’s lien action brought before the County Court of the Pas, on November 24, 1974, Judge Ferg relied upon the unreversed decision of Chief Justice Tritschler as binding upon him with respect to the relative priorities between the plaintiff and MDC. The other issues before him included the quantum of the various claims for extras and changes as is not unusual in contract actions, and he concluded by rendering judgment in favour of plaintiff for $4,573,601.55 with interest. No finding was made as to costs, the parties being invited to make submissioins at a later date and in the event of their failing to agree to speak to the Court. The judgment stated that no formal application for an order for sale of the property found subject to the lien had been made to the Court but that the Court would so order in the event that payment of the amount found due was not made within a reasonable time.

On December 24, 1974, MDC filed a notice of appeal from this judgment but meanwhile an agreement was entered into between plaintiff and MDC whereby MDC agreed to pay the amount found due by the judgment with interest making a total of $6,072,595 immediately in consideration of plaintiff agreeing to refrain from execution proceedings, to repay any amounts as might be deducted from the judgment by the Manitoba Court of Appeal, and a guarantee in the amount of $1,500,000 by Guy F Atkinson Company, an American corporation being the sole shareholder of the plaintiff.

On March 6, 1975 Judge Ferg gave judgment on the issue of costs of the mechanic’s lien action awarding costs to plaintiff against MDC in the amount of $725,221 which were paid during the 1975 fiscal year of the plaintiff.

In February 1976, MDC filed an amended notice of appeal from the decision of His Honour Judge Ferg, including an appeal on the issue of costs. In April 1977, an agreement was concluded between plaintiff and MDC by virtue of which MDC agreed to abandon its appeal from the said decision. Both parties agreed to execute a mutual release and the plaintiff agreed to return to MDC $455,000 from the moneys paid in 1974 and 1975.

Plaintiff did not report the amounts received in its 1974 and 1975 taxation year until its 1977 taxation year. The defendant reassessed plaintiff’s 1974 and 1975 tax returns so as to include these amounts. As a result of an amended 1977 return dated August 4, 1978, the plaintiff asked that the sum of $5,997,816 representing these amounts, after adjustments, be deleted from its income for 1977 and the Minister of National Revenue so assessed plaintiff on April 12, 1979 so that there would be no duplication should the defendant’s reassessments for 1974 and 1975 taxation years be upheld as a result of the present proceedings.

In its return for the 1974 taxation year, plaintiff deducted for financial statement purposes a reserve of $600,000 for appeal costs in relation to the Pas judgment and reserved an amount of $200,000 for legal costs and in reconciling income for financial statement purposes and income for tax purposes, deducted $5,472,595 shown as “the Pas judgment less provision for appeal’’ commenced by MDC. In its return for the 1975 taxation year and in purported reconciliation of income for financial statement purposes with income for tax purposes, plaintiff included in income the amount of $5,472,595 but deducted an amount of $5,997,816 for “the Pas judgment, less provision for appeal’’.

In its reassessment for the 1974 taxation year, defendant has added back said amounts claimed by plaintiff as a deduction from income and similarly in the 1975 taxation year added back the amount of $525,221 being the amount of the increased deduction claimed by plaintiff from 1974 to 1975 for the Pas judgment less provision for appeal.* [1] Contending that the amounts paid to the plaintiff in 1974 and 1975 should be properly included, the Minister also submits in the alternative that any reduction or deletion of any of the said amounts constitutes a deduction of an amount transferred or credited to a reserve or contingent account which is prohibited by paragraph 18(1 )(e) of the Income Tax Act.

There is no issue between the parties as to any of the figures and there is common ground that in the event that the Manitoba Court of Appeal should determine at any material time that the claim of MDC had priority over the Claim of the plaintiff, then there would have been no moneys available for distribution to the plaintiff or any other creditors since the amount owing to MDC was far in excess of what could be realized if the assets of the pulp and paper mill were sold. The issue of priority was, therefore, a very essential one and while a viewing by plaintiff’s counsel of reasons for judgment Submitted by the Honourable Mr Justice Dickson in connection with the appeal may have had some effect on the advice given to his client in connection with the agreement in 1977 to return some small part of the moneys paid in 1974 and 1975, hearsay evidence as to reasons for judgment by one of three judges hearing an appeal in which judgment was never rendered cannot be taken into consideration in deciding the present issue, even if they might have indicated that plaintiff was in some jeopardy of not being able to collect or repay amounts ordered by the judgment of Judge Ferg which judgment, not having been reversed in appeal, remained in effect until, as a result of the agreement in 1977, the appeal was abandoned.

It should be added that no application for a stay of execution pending appeal was ever made nor was the amount of the judgment deposited in Court but it was paid in full to the plaintiff with no restrictions as to its use. The agreement, prior to payment in 1974, to repay any amounts which might be deducted from it by the Manitoba Court of Appeal, represents no more than a statement of what would have had to be done in any event, and the security put up by plaintiff's parent company of $1,500,000, was of course in addition to the guarantee by the plaintiff itself of any repayment eventually required, but was merely a guarantee and did not in any way restrict the plaintiff’s use of the funds in the meanwhile.

Five witnesses testified for plaintiff, Mr Michael J Mercury, QC, Manitoba counsel for the periods in question, Mr Robert G Urquhart, current president and general manager, who has been with plaintiff since 1968 and was manager of its central operations in Canada at the time, becoming vice-president and director in 1972, Mr Ritchie McCloy, CA, a partner in the accounting firm of Peat, Marwick, Mitchell & Company, who testified as an expert witness, John Dawson, CA, of Coopers & Lybrand, who was the auditor of the plaintiff corporation in all pertinent years and Mr George Stekl, CA, also a partner of Coopers & Lybrand who was its tax specialist and advised with respect to the tax returns made for the years in question. The defendant called no witnesses.

Plaintiff contends that as long as the appeal was outstanding, the amount to which it was entitled could not be deemed to be finally determined, and in fact was reduced by $455,000 by the 1977 agreement. In addition, there was the risk that should the MDC appeal succeed on the issue of priorities, the guarantee of plaintiff's claim by its registration of a mechanic’s lien would be worthless. While it is of interest to note that plaintiff did not apparently consider the risk to be too great since in its financial returns it merely set aside an amount of $600,000 as a reserve for this, it is the manner in which plaintiff treated these receipts in 1974 and 1975 in its tax returns by failing to consider them as income in those years which is the issue here.

Mr Mercury testified that after the Tritschler judgment claims of most of the lien creditors were settled as a result of an agreement dated April 5, 1973, which resulted in payment of 90% of the claims plus interest and costs, or alternatively, 100% of the claims with costs but without interest. The plaintiff refused to accept this agreement and continued with its action which had commenced in February 1972 and was well advanced. It involved 266 days of hearing, terminating in May 1973, followed by two months of argument in July and August which accounts for the substantial costs which amounted to over $600,000. This offer was made after the appeal from Chief Justice Tritschler’s judgment had been heard but, as indicated, no judgment was ever entered on the appeal. According to Mr Mercury, the entire development had been most unfortunate, with serious political implications, involving three successive Manitoba governments and the Manitoba Development Corporation in the difficult position of explaining how some $145,000,000 had been advanced to companies incorporated by non-resident promoters and used in the development of property worth only some $60,000,000.

For purposes of settlement, MDC had evaluated plaintiff’s claim at some 4.2 million dollars. The action in the county court sought 5.6 million and judgment was eventually rendered for some 4.6 million plus interest, bringing the total to over 6 million as indicated. Various settlement discussions had taken place and at one stage MDC verbally offered 4.8 million in May 1972, which was rejected. Mr Mercury had some concern as to what might happen if the appeal proceeded, especially after he had seen Justice Dickson’s reasons in the appeal of the Tritschler judgment but the only person to whom he communicated this information was Mr Fenton, of the plaintiff company from whom he had received his instructions at the time, and who has since died. He testified that it was never necessary to register Judge Ferg’s judgment in the land registry. He was under the impression that the last thing the Manitoba Development Corporation would want was to have the property seized as a result of the judgment. That is why it was paid promptly although the judgment was appealed. Appeal factums were filed between June and December, 1976, and plaintiff finally agreed to the reduction of the total claim by $455,000 in 1977 in order to have the appeal withdrawn. He had made a calculation that in his view the client had a total of about 1.4 million, not counting interest, in jeopardy in the appeal, aside from the question of priority of claim.

Plaintiff’s expert witness, Mr McCloy, testified that there are two generally accepted methods of accounting for revenue in long term construction contracts, namely the completed contract method which required that any revenue, and therefore profit, from a contract not be recognized until the contract is substantially completed, and the percentage of completion method which requires that revenue, and therefore profit, on the contract be recognized on a pro rata basis, based on costs incurred to date as a percentage of total estimated contract costs. Losses are recognized as soon as they become evident. The latter method, however, which was used by plaintiff, requires the contractor be able to estimate with reasonable accuracy the total amount of costs to be incurred on the contract until completion, which total costs are subtracted from the total contract price to give a reasonable estimate of profit on the total contract. A percentage of the total contract equal to the percentage of completion of the contract is recognized in the revenue of the company in the fiscal year being reported upon. Accordingly, an equivalent portion of the contract profit is also recognized.

He testified further that one area in which judgment is utilized lies in a situation where the company is involved in litigation which might result in financial liability of the company. In such situations the auditor communicates with the company’s solicitor and carries out discussions with management to elicit the facts surrounding the litigation, and obtain management’s estimates of financial exposure of that litigation in order to assess the reasonableness of that estimate. Recognition of this possible liability is usually done either by means of a note to the financial statement disclosing the contingent liability (as was done on the company’s financial statements in this case) or when the anticipated liability is quantifiable and determinable as having a high degree of probability by making a provision for this amount. He concludes in his affidavit “where an amount is received by a company as a result of a judgment and the judgment is under appeal at the end of the fiscal year of the company, the usual treatment is not to recognize as revenue any part of the amount received from the judgment if management and the company’s solicitor are of the opinion that the judgment will be overturned on appeal". (Italics mine.)

It is clear from the evidence of Mr Urquhart and of the company’s solicitor, Mr Mercury, that some risk of reversal in appeal existed, and that on the worst possible view the mechanic’s lien claim might prove to be worthless, nevertheless it was felt that the sum of $600,000 was an adequate provision for the risk in the company’s financial statements, and it certainly cannot be said that “management and the company’s solicitor are of the opinion that the judgment will be overturned on appeal’’. In fact, as the evidence of Mr Mercury indicates, even after having seen the reasons for judgment of Justice Dickson rendered in June, 1973 in connection with the Tritschler appeal, which gave him some concern, he nevertheless refused to recommend a settlement of the proceedings before Judge Ferg even when defendant suggested a possible figure of 4.8 million dollars, and eventually in 1977 only reduced the plaintiff’s claim by $455,000 in return for the withdrawal of the appeal.

Mr McCloy’s evidence concerned primarily the financial statements of the company and concluded that the footnotes to the statements in 1974 and 1975 respecting the litigation under appeal represented a conservative manner of reporting from the auditing point of view. It certainly does not conclusively settle the question of whether the amounts received should have been declared for taxation purposes in those years.

Mr Dawson, plaintiff's auditor, stated that in showing the reserve of $600,000 in the assessment, the possible effect of the appeal was taken into account. In his acceptance of this, together with the footnotes, he did not take Justice Dickson’s reasons for judgment into consideration and, in fact, did not learn of them until later. After he had discussed the adequacy of the decision made with both management and the companys counsel in connection with the appeal situation he would only have commented on management’s appraisal of it as shown in the financial statements if he had thought they were flagrantly wrong.

Mr Stekl, who as the taxation partner of the company’s auditors approved the tax returns, testified that no certificates of the site engineers had ever been made to approve the amounts for which the mechanic’s lien claims had been made. This was one of the matters which was litigated before Judge Ferg, however, and can be considered as settled by his judgment. He testified that he considers that a judgment under appeal creates a situation which is less certain than an engineer’s certificate of approval, which binds the owner. He considers that the tax returns filed were in accordance with the case law and tax accounting practice.

The parties referred to extensive jurisprudence although there does not appear to be any case directly on point on the question of how to deal with payment made by virtue of a judgment under appeal. Although counsel for both plaintiff and defendant relied on the leading case of Kenneth B S Robertson Ltd v MNR, [1944] CTC 75; 2 DTC 655, a judgment of the late President Thorson, it appears to me on a close reading to be of little help to plaintiff. At page 88 the learned president referred to the United States Supreme Court case of Brown v Helvering, 291 US 193, and quoted from the opinion of Mr Justice Brandeis at 199:

The overriding commissions were gross income of the year in which they were receivable. As to each such commission there arose the obligation — a contingent liability — to return a proportionate part in case of cancellation. But the mere fact that some portion of it might have to be refunded in some future year in the event of cancellation or reinsurance did not affect its quality as income. . . . When received, the general agent’s right to it was absolute. It was under no restriction, contractual or otherwise, as to its disposition, use or enjoyment.

The learned president concluded that advance fees received by appellant on behalf of underwriters and remitted to them was not taxable when received as they were subject to future adjustment and might have to be refunded in part if they exceeded the earned fee based on the ascertained total payroll which could only be determined in the annual adjustment. He relies on the wording of the contract, however. At 91 he states:

The “advance fee” paid by the employer to the underwriters and received by the appellant on their behalf had, in my judgment, a different quality, for under the contract between the underwriters and the employer, as shown by the indemnification certificate, it was stipulated that the advance fee should be “held as a deposit”, and dealt with in a specified manner. It was to be applied against the audited fee in the annual adjustments that had to be made, and not before then.

At 92 he states that where an amount is paid as a deposit it is not for the use or enjoyment of the recipient.

The plaintiff contends that the payment of the amount ordered by the judgment in 1974 and the costs ordered by a subsequent judgment in 1975 were merely deposits. I do not agree. They were subject to repayment in whole or in part if an appeal reversed the initial judgment by virtue of which they were paid, but this does not make them a mere deposit. If the conditions by virtue of which the payment of the amounts ordered by the judgments was made created a contractual relationship between plaintiff and MDC as plaintiff contends, it was in any event no more than a contract subject to a resolutory condition which was uncertain and might never occur. Plaintiff was free to use the money as it chose in the interval while the appeal was still pending and was not, as plaintiff argued, in the position of a company borrowing from a bank and using the proceeds of the loan in its business in which event such proceeds would not be taxable, since in that case there is a clear obligation to repay the amount borrowed, which, therefore, although a receipt by the borrower does not constitute income in its hands. Plaintiff also raised a hypothetical argument as to what would happen if, having paid tax on the amounts received in 1974 and 1975, it were then found, as a result of an appeal, that the tax should not have been paid in those years but only in 1977, but it could only get relief in 1977 for the amounts paid in 1974 and 1975 if it had sufficient other income in 1977 from which the adjustment could be deducted. The converse of this argument is, of course, that if plaintiff should not pay tax on the amounts received in 1974 and 1975, it could, by 1977, when according to its contentions the tax would become due, have gone into bankruptcy, and having had the use of the funds from 1974 and 1975 to 1977 would never pay any tax on these amounts. These arguments are purely hypothetical contingencies and are without merit.

The case of MNR v Atlantic Engine Rebuilders, [1964] CTC 268; 64 DTC 5178; [1967] CTC 230; 67 DTC 5155, was also referred to by plaintiff but here again it dealt with taxation of a deposit which was made in connection with the rebuilding of car engines to be refunded to the dealer upon delivery of a used engine of the same model. The majority judgment of the Supreme Court maintaining the judgment of Cartwright, J, as he then was states at 231:

The question of substance in this case appears to me to be whether in stating what its profit was for the year the respondent could truthfully have included the sum in question. To me there seems to be only one answer, that it could not. It knew that it might not be able to retain any part of that sum and that the probabilities were 96% of it must be returned to the depositors in the near future. The circumstance that the respondent became the legal owner of the moneys deposited with it and that they did not constitute a trust fund in its hands appears to me to be irrelevant; the same may be said of moneys deposited by a customer in a Bank which form part of the Bank’s assets but not of its profits. To treat these deposits as if they were ordinary trading receipts of the respondent would be to disregard all the realities of the situation.

In the case of MNR v John Col ford Contracting Company Limited, [1960] CTC 178; 60 DTC 1131, Justice Kearney dealt with progress payments made to a contractor for which an engineering certificate had not yet been received. At 184 [1133] he states:

The issue in respect of progress payments turns on whether the taxpayer is justified in ignoring the payments actually received during 1953 until the architect or engineer has given the certificate referred to in the contract.

At 185 [1134] after referring to a section of the Income Tax Act and previous jurisprudence, he states:

I think the above reasoning is applicable mutatis mutandis in the present case and it is my view that progress payments, whether made on demand or otherwise during the course of any year in connection with the contracts in question, must be reckoned with in the year in which they are received and may not in effect be ignored by placing them in a suspension account as was done in the present case.

The defendant also relies on the case of Meteor Homes Ltd v MNR, [1960] CTC 419; 61 DTC 1001, in which the judgment at 1008 quotes from Mertens Law of Federal Income Tax, Vol 5, c 12, 132 to the effect that:

Not every contingency prevents the accrual of income; the contingency must be real and substantial. A condition precedent to the creation of a legal right to demand payment effectively bars the accrual of income until the condition is fulfilled, but the possible occurrence of a condition subsequent to the creation of a liability is not grounds for postponing the accrual.

On the same page the judgment reads:

In the present case there was no condition precedent to prevent the provincial authorities from preferring a claim against the appellant; and whether the law under which the claim was instituted might later be declared ultra vires constituted a condition subsequent. In my opinion the validity of a statutory law must be presumed until the contrary is proved, and until then any monetary obligation which it imposes should be treated as an outstanding liability.

I believe the same could be said with respect to the effect of a judgment which might later be reversed on appeal. In this connection reference was made to a criminal law case of R v Hess (No 2), [1949] 4 DLR 199:

The judgment of a competent Superior Court is a final adjudication in itself and Stands as such unless it is set aside on appeal. It is conclusive as to all relevant matters thereby decided.

This sets out a fundamental principle of law which is again emphatically stated in the case of Gustav Nouvion v Freeman et al, 15 HL 1 at 10-11:

Although an appeal may be pending, a Court of competent jurisdiction has finally and conclusively determined the existence of a debt, and it has none the less done so because the right of appeal has been given whereby a superior Court may overrule that decision. There exists at the time of the suit a judgment which must be assumed to be valid until interfered with by a higher tribunal, and which conclusively establishes the existence of the debt which is sought to be recovered in this country.

In the case of MNR v Pine Ridge Property Limited, [1971] CTC 752; 71 DTC 5392, dealing with an expropriation award which was appealed, the appeal subsequently being dismissed, Sheppard, DJ states at 765 [5399]:

In the present case, the finding of the arbitrators was on the 22nd day of September, 1966 and within the taxation year of the respondent company. The unsuccessful appeal to Verchere, J does not extend the date when the monies are receivable.

In the case of MNR v Benaby Realties Limited, [1967] CTC 418; 67 DTC 5275, another expropriation case, Judson, J stated at 420 [5276]:

In my opinion, the Minister’s submission is sound. It is true that at the moment of expropriation the taxpayer acquired a right to receive compensation in place of the land but in the absence of a binding agreement between the parties or of a judgment fixing the compensation, the owner had no more than a right to claim compensation and there is nothing which can be taken into account as an amount receivable due to the expropriation. (Italics mine.)

Later, in the same case, after referring to a British case which he doubts would be applicable in Canada, he states:

The application of this decision to the Canadian Income Tax Act is questionable. This decision implies that accounts can be left open until the profits resulting from a certain transaction have been ascertained and that accounts for a period during which a transaction took place can be re-opened once the profits have been ascertained.

There can be no objection to this on the properly framed legislation, but the Canadian Income Tax Act makes no provision for doing this. For income tax purposes accounts cannot be left open until the profits have been finally determined.

In the present case, unlike expropriation cases, the amount due was determined by the judgment of Judge Ferg. The subsequent refund in the amount of $455,000 in 1977 by plaintiff as a result of an agreement resulting in the withdrawal of the appeal would be properly deductible as an expense item by plaintiff in its 1977 taxation return, but this does not affect the taxability of the amounts actually received in 1974 and 1975.

In the case of Picadilly Hotels Limited v Her Majesty the Queen, [1978] CTC 658; 78 DTC 6444, Collier, J said at 661 [6446]:

Subsequent litigation, and the possibility of a contract involving sale being rescinded by court order, cannot, to my mind, change the nature of the original transaction at the time it was entered into.

Nor is the position changed, in my opinion, because the plaintiff was contingently liable, in respect of the transaction, for a potential damage award. Whether the damages could have been set off against the sale price is a moot question. Assuming that result, there was still, nevertheless, a disposition or sale in 1970. The actual selling price might, for other purposes including tax, have had to be subsequently adjusted.

The plaintiff referred to the Supreme Court judgment in the case of Dominion Taxicab Association v MNR, [1954] CTC 34; 54 DTC 1020, in which the question arose as to the treatment of the $500 deposit paid by each taxicab owner to the association which would be refundable when he withdrew from it. The Supreme Court held that this should not be treated as income. The judgment of the late Justice Cartwright stated at 39 [1022]:

I am of the opinion that in the case at bar the appellant rightly treated the $40,500 as a deferred liability to its members, and that unless and until the necessary conditions were fulfilled to give absolute ownership of a deposit to the appellant and to extinguish its liability therefor to the depositing member, such deposit could not properly be regarded as a profit from the appellant’s business.

Here again, this was a case of deposit, however, which I have found is not the nature of the payments received by the plaintiff in satisfaction of its judgment and costs. Moreover, later, on 39 [1022], the judgment continues

The case at bar is distinguished from Diamond Taxicab Association Ltd v MNR, [1952] Ex CR 331; [1952] CTC 229; 52 DTC 1100, affirmed in this Court without written reasons. In the circumstances of that case it was held that the sums there in question had been paid outright to the Association as part of the consideration for the services it rendered; no question of a deposit arose.

The defendant further contends that any treatment of the amounts received in 1974 and 1975, other than taking them into income, would have the indirect effect of creating a reserve as prohibited by paragraph 18(1 )(e) of the Income Tax Act. The defendant further contends that even if the amounts ordered to be paid by virtue of the judgment had not been paid, they would have constituted a receivable for the taxpayer, which, by paragraph 12(1 )(b) of the Act would have to be shown as such.

In conclusion, I find on the basis of the above jurisprudence and the facts of this case that the judgment of Judge Ferg constituted a determination of the amount payable, that the said amount was paid in 1974 and costs determined by a second judgment were paid in 1975, and that the mere possibility that these amounts would have to be refunded in whole or in part as, in fact, took place in 1977 to the extent of $445,000, would not have the effect of not requiring the amounts to be taken into income when received.

The plaintiff’s appeal against assessments for income tax for its 1974 and 1975 taxation years is dismissed with costs.