Lamarre
Proulx,
T.C.C.J.:—
The
appellant
has
instituted
an
appeal
from
the
assessments
made
by
the
respondent,
the
Minister
of
National
Revenue
(the
"Minister"),
for
1984
and
1985.
The
points
at
issue
concern
deductions
for
interest
expenses,
deductions
of
expenses
pertaining
to
professional
services,
travel
and
salary,
and
an
inventory
allowance.
Paragraph
8
of
the
reply
to
the
notice
of
appeal
describes
the
facts
on
which
the
respondent
relied
in
order
to
make
the
assessments
for
the
1984
and
1985
taxation
years:
8.
In
assessing
the
appellant
for
its
1984
and
1985
taxation
years,
the
respondent,
the
Minister
of
National
Revenue,
relied,
inter
alia,
on
the
following
presumptions
of
fact:
(a)
the
appellant
has
not
shown
that
the
interest
expenses
in
the
amount
of
$317,237
and
$179,750
in
1984
and
1985
respectively
were
amounts
payable
pursuant
to
a
legal
obligation
to
pay
interest
on
borrowed
money
used
for
the
purpose
of
earning
income
from
a
business
or
property
under
paragraph
20(1)(c)
of
the
Act;
(b)
the
appellant
did
not
show,
with
supporting
documents,
that
the
following
expenses
were
made
or
incurred
in
order
to
earn
income
from
a
business
or
property:
|
1984
|
1985
|
|
Professional
services
|
$9,015
|
$57,594
|
|
Travel
expenses
|
$47,253
|
$6,228
|
(c)
the
appellant
did
not
show
that
the
amount
of
$12,693
claimed
as
salary
expenses
during
the
1984
taxation
year
was
an
expense
made
or
incurred
by
it
in
order
to
earn
business
income;
(d)
the
appellant
was
not
entitled
to
deduct
the
sum
of
$29,816
as
an
inventory
allowance
in
the
computation
of
its
income
for
the
1985
taxation
year
since
the
tangible
property
in
respect
of
which
it
claimed
the
deduction
was
not
properly
described
in
the
inventory
of
the
appellant
as
part
of
the
business
operated
by
the
latter;
furthermore,
the
property
in
question
was
not
held
by
it
for
the
purpose
of
being
sold
in
the
normal
course
of
the
operation
of
its
business;
[Translation.]
The
appellant
was
represented
at
the
hearing
by
its
principal
shareholder
and
director,
Mr.
Lafreniére.
He
and
the
accountant
testified.
The
appellant
was
a
management
company
for
its
subsidiaries,
which
work
in
the
field
of
telecommunications
equipment.
It
allocated
the
administrative
costs
and
material
acquisition
costs
among
its
subsidiaries.
At
the
hearing,
Mr.
Lafreniére
submitted
evidence
of
the
loans
in
the
amount
of
$2,550,000
for
1983
and
1984
and
of
$400,000
for
1985.
As
regards
the
expenses
incurred
in
order
to
earn
business
income
which
the
respondent
disallowed
for
lack
of
supporting
documents,
the
appellant
submitted
supporting
documents
for
the
total
amount
of
the
disallowed
sums
at
the
hearing.
Those
documents
were
not,
properly
speaking,
disputed
by
the
respondent.
The
appellant
did
not
show
that
the
salary
expense
claimed
in
1984
had
been
incurred.
The
respondent
relied
on
the
salary
amounts
reported
by
the
appellant
as
the
employer,
and
that
amount
was
$12,693
less
than
that
claimed
by
the
appellant.
Neither
the
appellant's
representative
nor
its
accountant
were
able
to
provide
an
explanation
concerning
the
sum
of
$29,816
claimed
by
the
appellant
as
an
inventory
allowance.
The
appeals
are
therefore
allowed,
without
costs,
and
the
respondent
must
reassess
the
appellant
on
the
following
basis:
the
appellant
may
deduct
the
interest
expenses
claimed
as
well
as
the
expenses
for
professional
services
and
travel.
The
amounts
mentioned
in
paragraphs
(c)
and
(d)
of
the
reply
to
the
notice
of
appeal
can
not
be
deducted
in
the
computation
of
the
appellant's
income.
Appeal
allowed
in
part.
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