A holder of preferred shares of the taxpayer was entitled to fixed dividends and to have the shares redeemed 15 years after the date of their issuance if they had not previously been redeemed by the taxpayer out of a sinking fund that was protected from the taxpayer and its creditors. Before finding that the dividend paid by the taxpayer on the preferred shares did not qualify as interest on "borrowed capital" for purposes of s. 3(4) of the Income War Tax Act, Audette J. noted that the preferred shares were part of the authorized capital of the company, the dividends were payable out of profits only and could be passed (whereas a bond holder always had the privilege to receive the interest), in the case of the taxpayer making default in paying dividends, the preferred shareholders could not wind-up the company without the common shareholders joining in such resolution, and on a winding-up the preferred shareholders would be liable to pay the balance of any unsubscribed capital.
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