Surinder K Tandon, Sudesh Tandon v. Minister of National Revenue, [1985] 1 CTC 2335, 85 DTC 332

Rip, TCJ:—The appeals of Surinder K Tandon and Sudesh Tandon were heard on common evidence. The appellants appeal against reassessments issued by the respondent on the assumption that an operating motivation for the purchase of a two-unit residential property in Calgary, Alberta in 1980 was an intention to turn it to account and to sell it for profit.

From the evidence adduced at trial it is my view that the respondent’s assumption was wrong.

The appellants resided in an area close to downtown Calgary for two years prior to making an offer to purchase a bungalow consisting of two suites. The oungalow was situated at 1824 17th Avenue SW and was located in the neigh- bourhood where the appellants resided and was in the immediate vicinity of where is now located the Calgary Saddledome. The property was listed for sale on August 18, 1980. The appellants acquired the property on October 30, 1980 but because the vendors wished to purchase another home the appellants agreed to allow them to remain in possession until June 1, 1981. The appellants registered a caveat on the property. The purchase price of the bungalow was $100,000, payable $10,000 on acceptance of the offer, $15,000 on the purchasers obtaining possession and the balance by mortgage back to the vendor.

Mr Tandon was the only witness. He testified the sole purpose in acquiring the property was to derive income therefrom from rentals. He said the property was in a good condition when he acquired it.

Near the end of January 1981, Mr Tandon received a telephone call from an employee of a realtor, Newport Industries Ltd (“Newport”), advising him they were assembling properties on the block where the bungalow was located and wished to acquire his property. Mr Tandon said he refused to consider Newport’s proposal. A second approach to purchase the property was made by Newport to Mr Tandon on February 7 and again he refused to consider the proposal. Mr Tandon then went to a real estate agent, a Mr Jeerh, who acted on his behalf on the purchase of the property to inquire why he was being bothered notwithstanding he wished to retain the property. He was advised of the land assembly by Newport. In mid February Newport offered to purchase the property for $155,000. The appellant’s reaction was that he did not want to sell, and although he “checked” the price with his agent, he did inform his agent to advise Newport that he was not interested in selling.

It would appear Newport went to the appellants’ agent and told him that except for the appellants’ property, the whole block had been assembled and if the appellants did not sell they would demolish the existing buildings on the block and would make life difficult for Mr Tandon and his tenants. That is what the appellant says his agent told him; the fact Newport advised the appellants’ agent of the assembly and made the threat is hearsay. Whether the information was true or not is not before the Court. What is before the Court is how Mr Tandon reacted to the information. Mr Tandon testified that from what his agent informed him he concluded he had no choice but to sell.

However Mr Tandon’s agent advised him the price being offered by Newport was below market. Newport had indicated it would not increase the price. Mr Tandon, at his agent’s behest, entered into a negotiating ploy whereby, in order to get the best price, the property was listed for sale on February 24, 1981 and they conveyed to a third party, although the Tandons retained beneficial ownership of the property. Newport then offered $200,000 to the Tandons and eventually the parties settled at $217,000 by counter offer dated March 9, 1981. The counter offer contained a further condition that a property owned by Mr Jeerh also be purchased by Newport, which it did. Mr Tandon paid his agent a $40,000 commission on the sale; apparently once the appellant had decided he must sell, he and his agent agreed to such a fee if the agent was successful in selling the property at a high price.

The transaction for the purchase and sale of the bungalow closed on June 10, 1981, ten days after the appellants entered into possession of the property.

The appellants have since acquired two other rental properties, the first in April, 1981 and the second in October, 1981. They still own these properties. Mr Tandon testified that prior to acquiring the property subject to this appeal neither he nor his wife had acquired any other rental property.

There is no evidence that in October 1980 the appellants were aware that a land assembly was — or would be — taking place on the block where the bungalow was located. Mr Tandon was consistent in his evidence that he purchased the property for investment, notwithstanding suggestions by counsel for the respondent in cross-examination to the contrary.

In argument counsel for the respondent argued that Mr Tandon, in driving up the sale price of the property, dealt with the property as would a dealer in real estate; therefore in his view the transaction was an adventure in the nature of trade and the profits are to be included in income.

I find nothing sinister in a person attempting to get the best possible deal, even if he engages a knowledgeable person to assist him in negotiations. That he does strike a good bargain does not change the nature of the transaction from capital to income account. I cannot agree that the appellants’ profits from the sale of the bungalow were from an adventure or concern in the nature of trade.

The evidence is clear the appellants’ motivating factor in acquiring the property was for income purposes and the proceeds from the sale of the property is on account of income and that in 1981 Mr and Mrs Tandon disposed of a capital asset. The respondent’s assumption, in my view, has been successfully rebutted.

The appeals will therefore be allowed with costs, if any.

Appeals allowed.