Maison De Choix Inc v. Minister of National Revenue, [1983] CTC 2241, 83 DTC 204

Guy Tremblay:—The evidence of this case was heard in Montreal, Quebec, on January 14 and 15, 1982. The argumentation was heard in Ottawa, Ontario, on February 11, 1982.

1. The Point at Issue

The point at issue is whether the appellant is correct in:

(a) not considering as taxable income the amount of $62,500 received by the appellant in 1976 and paid by Place Versailles Inc, arising from a breach of contract;

(b) considering as not received in view of reducing rental expenses, allowances totalling $70,400, received from landlords of shopping centres to incite the appellant to open a store in their shopping centres.

The allowances, after apportionment over the duration of each leasing agreement, were deducted by the respondent from the rental expenses as follows: $6,816.52 (1976); $9,783.52 (1977); and, $11,583.52 (1978).

2. The Burden of Proof

2.01 The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof results especially from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In the same judgment the Court decided that the assumptions of fact on which the respondent based the assessments are also deemed to be correct. In the present case, in paragraph 6(a) to (n) of the amended reply to the notice of appeal, the respondent described the facts on which he based his assessments:

6. In reassessing the Appellant for its 1976 and 1977 taxation years and in assessing the Appellant for its 1978 taxation year, the Minister of National Revenue assumed, inter alia, the following facts:

(a) On November 15th, 1963, the Appellant entered into a leasing agreement with Place Versailles Inc providing for the rental of space by the Appellant in the Centre d’Achats Place Versailles;

(b) The said lease contained an exclusivity clause in favour of the Appellant, which stipulated that no other retailers specializing in ladies corsetry and undergarments would be rented space in the Centre d’Achats Place Versailles;

(c) On October 13th, 1965, Place Versailles Inc offered to lease space to Lingerie

Brière, a retailer specializing in the sale of corsetry and undergarments;

(d) On December 14th, 1970, the Appellant brought an action before the Superior court against Place Versailles Inc for the amount of $152,250 represent- ing lost revenues to that date and interest thereon, arising out of the breach by Place Versailles Inc of the exclusivity clause granted to the Appellant in the leasing agreement;

(e) By judgment rendered December 12th, 1974, Place Versailles Inc was ordered to pay the Appellant $42,000;

(f) Place Versailles Inc appealed the decision of the Superior Court. However, an out-of-Court settlement was agreed upon by the parties on October 21st, 1975;

(g) In November 1975, pursuant to the out-of-Court settlement, Place Versailles Inc paid the Appellant the sum of $62,500, which left the Appellant with a net sum of $50,000, after payment of legal fees amounting to $12,500;

(h) The Appellant did not dispose of its leasehold interest or any part thereof, or otherwise experience a loss of a capital asset with respect to its leasing agreement with Place Versailles Inc;

(i) The Appellant continued operating its store in Centre d’Achats Place Versailles despite the presence of Lingerie Brière and voluntarily renewed its original leasing agreement at least once;

(j) The sum of $50,000 which the Appellant received from Place Versailles Inc is compensation for loss of income;

(k) By agreement dated April 5th, 1974, the Appellant leased space from Westcliff Development Ltd and Westcliff agreed to pay the Appellant an allowance of $15,000 thirty days after it opened for business;

(l) By agreement dated September 2nd, 1975, the Appellant leased space from Centre Commercial Terrebonne Ltée and the latter agreed to pay the Appellant an allowance of $35,000 thirty days after it opened for business;

(m) On October 26th, 1976, the Appellant leased space from Centre Commercial de l’Autoroute Ltée, and the latter agreed to pay the Appellant an allowance of $20,400 thirty days after it opened for business;

(n) The allowances referred to in the preceding subparagraphs have been paid to the Appellant in order to reduce its rental expenses and induce it to open a shop in each of those shopping centres.

Alternatively, the respondent also assumed that:

. . . if the payments referred to in the immediately proceeding paragraph are not found to be a reduction of the Appellant’s rental expenses, he submits that such payments were aimed at reducing the Appellant’s construction costs and should therefore be applied in reduction of its depreciable leasehold improvements;

3. The Facts

Most of the facts of the notice of appeal are admitted by the respondent. The facts are also well described in the appellant’s written submissions.

3.01 The appellant was incorporated on or around 1957 and took over a business operated by the Nussbaum family (Testimony of A Nussbaum, p 13).

3.02 At all relevant times, the appellant was controlled by Messrs David and Arnold Nussbaum, sons of the founder of the business.

3.03 The appellant’s business was the retail sale and distribution of ladies’ corsetry, lingerie, sportswear, dresses and coats (Testimony of A Nussbaum, pp 14-16, Advertisement, Exhibit A-1-5).

Corsetry refers to all foundation garments such as brassieres, girdles, corsets, panty girdles and corselettes.

The appellant’s original business comprised the full line of men’s, children’s and ladies’ wear. As years went by, the men’s and children’s line of goods were dropped. The appellant became a specialty store, its lifeline being corsetry and other ladies’ intimate apparel and foundation garments. It also offered a wide variety of other products, but ladies’ foundation garments represented its specialty.

A. Breach of Contract

3.04. Sometime in 1963, a new shopping centre being built on Sherbrooke Street in the east end of the city of Montreal attracted the appellant’s attention. This shopping centre was owned and operated by Place Versailles Inc

(PVI) (Testimony of A Nussbaum, p 17).

3.05 The shopping centre was well located, in a populated area of Montreal, well serviced by public transportation and by major highways and an autoroute (Testimony of A Nussbaum, p 18).

3.06 PVI comprised at the outset thirty stores and grew to over one hundred stores (Testimony of A Nussbaum, p 19).

3.07 The shopping centre’s potential was accurately described by Mr A Nussbaum as follows:

Q How did you evaluate those possibilities of growth, Mr Nussbaum?

A Experience told us that establishing oneself in a shopping centre that had the possibility of the eventual growth of what it is today, being located at crossroads, easy transportation, almost a guaranteed population, guaranteed customers — oh, well, I shouldn’t say customers but guaranteed people to come and visit the shopping centre, it gave us a very good location to establish oneself.

Q Did history prove you right or wrong, Sir, on what you found to be in that shopping centre’s potential?

A History proved us very right.

Q In what respect?

A It has grown from a small centre of thirty (30) stores to over a hundred (100) stores. It's a very major shopping centre as far as shopping centres go. (Testimony of A Nussbaum, p 21)

3.08 The appellant’s objectives in entering the shopping centre were to create a very unique store which was to become the cornerstone of the appellant’s business:

Q And what was MAISON DE CHOIX’s objective when it opened the shop there vis-a-vis its overall business?

A The objective was to establish oneself to create a good rapport between the customers and MAISON DE CHOIX to be a pillar where the customer would come and say, look, I like to shop there. We wanted to convey to our customers that we had an image. That we were out to serve the customer both in a specialized sideline or specialized line of merchandise which would give it an almost a one-stop shop.

Q But, Mr Nussbaum, vis-a-vis your other stores, would this PLACE VERSAILLES store just be another store or would it be something different for your organization?

A This store would be an important store for us. We put in a smart installation. We made it a very attractive store. It was an expensive store for us and it was something that would be our jewel actually.

Q In what way, Mr Nussbaum?

A Well, we wanted to portray to our consumers that in shopping in an attractive store; in shopping where merchandise was fashion; where quantity of inventory was more-than sufficient; where the reputation was that if you weren’t satisfied, you could come back and nobody would say anything.

Q This would become your showcase?

A That’s correct. (Testimony of A Nussbaum, p 22-23).

3.09 Entering into a lease with PVI also carried its share of disadvantages, the main one being competition. The main disadvantage was closer and more fierce competition for the captive market. The appellant’s previous experience in St Martin Shopping Centre in Laval had proven that such competition could be deadly. It had to close its store (Testimony of A Nussbaum, pp 23-25).

3.10 On or around November 15, 1963, the appellant entered into a five-year lease with an option to renew for an additional five years with PVI (Lease between PVI and the appellant — Exhibit A-1-4).

3.11 The lease was for a store in the PVI shopping centre. The lease provided in part:

The store selling ladies and teen-age dry goods, etc including brassieres and foundation garments, corsetry etc (Exhibit A-1-4 — Clause III, Use of the Premises)

There shall not be another store in the Shopping Centre of which the leased premises forms a part specializing in corsetry or foundation garments. There shall be a maximum of three (3) stores specializing in the sale of lingerie in the said Shopping Centre of which one is the premises leased hereunder; however, if the Shopping Centre is expanded to thirty-three (33) stores or more, then the Lessor shall have the right to lease one additional lingerie store. (Exhibit A-1-4 — Clause XXIV, Special Conditions)

This clause restricted the competition against the appellant’s lifeline, foundation garments, and gave it a considerable edge and advantage within the shopping centre.

3.12 The importance of the clause was highlighted by Mr Nussbaum in his testimony where he said:

Q Was this provision or clause very, or important to MAISON DE CHOIX, Mr Nussbaum?

A It was very important to us.

Q Would you go as far as to say it was essential?

A I would go as far as saying that if we would not have had that clause we wouldn't have rented that store.

Q What was the practical effect of the clause for you, in your mind?

A In our mind it restricted competition and guaranteed us sales and it guaranteed us customers.

Q Did that restriction, Mr Nussbaum, increase the value of your lease?

A A lease with a restrictive clause is very, very valuable.

Q Would it be more valuable than without that clause?

A It would be more valuable than without the clause, definitely.

Q The lease would be more valuable [than] without that clause?

A With the restrictive clause the lease is much more valuable than a lease without a restrictive clause. (Testimony of A Nussbaum, p 27-28)

3.13 Mr Roland Briere operated a chain of retail stores specializing in the sale of foundation garments, a direct competitor to the appellant and its business (Advertisement — Exhibit A-1-6).

Sometime in the course of the 1965 taxation year, Mr Briere was offered by PVI a lease in the shopping centre where the appellant had its store. PVI had expanded its leasing space and had made the offer to Mr Briere in the new area (Testimony of A Nussbaum, p 29).

3.14 Mr Briere accepted the lease and advertised his new store within the shopping centre. The lease had been granted by PVI in violation of the agreement between PVI and the appellant and more particularly by the restrictive clause which PVI had agreed to and which is cited above (Testimony of A Nussbaum, p 32).

3.15 When discussions failed to resolve the situation, legal action was initiated. In 1965, the appellant instituted against PVI and Roland Brière injunction proceedings which resulted on January 5, 1966, in an order from the Superior Court, Mr Justice André Demers presiding, whereby:

LE TRIBUNAL REJETTE avec dépens la demande d’injonction contre l’intimé ROLAND BRIERE;

ACCORDE la présente injonction interlocutoire et FIXE à $500.00 le cautionnement qui devra être fourni par la présente requérante, dès notification du présent jugement;

ORDONNE qu’une injonction interlocutoire émane contre l’intimée PLACE VERSAILLES INC, l’empêchant de permettre à qui que ce soit qu’aucun immeuble faisant partie du centre d’achat connu sous le nom de PLACE VERSAILLES INC, ne soit employé par quelques personnes, compagnies ou corporations que ce soient, autres que la requérante, dans la spécialisation des corsets et vêtements de base. (Exhibit A-1-7, p 3 — Judgment of the Superior Court)

3.16 The injunction proceedings against Mr Brière were dismissed on the grounds that there were no “lien de droit” between the appellant and Mr Brière, the lease not having been registered (Exhibit A-1-7, p 3).

3.17 The judgment of Mr Justice Demers was appealed to the Court of Queen’s Bench (appeal side) by PVI. On September 23, 1966, the Chief Justice of Quebec, Messrs Justices Casey and Choquette, dismissed PVI’s appeal and affirmed the judgment (Exhibit A-1-8, Judgment of the Quebec Court of Queen’s Bench).

3.18 In order to compel PVI to respect the restrictive clause, the appellant instituted contempt proceedings as a proper sanction of its rights which had been acknowledged by the Quebec Court of Queen’s Bench and the Quebec Superior Court in the previous judgments (Exhibit A-1-9, Judgment of the Quebec Superior Court, May 14, 1968).

3.19 On May 14, 1968, Mr Justice Paré dismissed the appellant’s application for a decree nisi (Exhibit A-1-9).

3.20 That judgment was appealed by the appellant to the Quebec Court of Appeal where the appeal was dismissed (Exhibit A-1-10, Judgment of Quebec Court of Appeal).

3.21 Everything else failing, the appellant, on December 14 of the 1970 taxation year, launched damage proceedings in Quebec Superior Court against PVI. In the said proceedings, the appellant made the following claim:

(a) pour perte de revenu net, consécutivement à la perte de ventes de

corsets et de vêtements de soutien, depuis le 15 décembre 1965 au 1er

décembre 1970	$125,000
(b) perte de revenu net sur les ventes de robes, vêtements de sport et autres
articles de son fonds de commerce, aux clients des rayons de vêtements de
soutien durant la même période	12,500
(c) perte de l’intérêt que ces revenus additionnnels auraient produit ...	14,750
	$152,250
(Exhibit A-1-11, p 7 — Judgment of Quebec Superior Court)

3.22 On or around December 12, 1974, Mr Justice Jacques Dugas of the Quebec Superior Court rendered judgment in favour of the appellant and awarded it $42,000 in damages (Exhibit A-1-11 ). In his reasons for judgment, the Superior Court held:

ll est raisonnable de croire que Maison de Choix Inc aurait accueilli chacune des clientes de Brière qui s’adressait à cette maison à cause de sa qualité de spécialiste, soit que cette cliente avait besoin d’un vêtement qu’elle ne pouvait trouver ailleurs, soit que cette cliente préférait s’adresser là où elle était assurée d’un choix plus vaste.

Je tiens particulièrement compte du fait qu’un Centre d’Achat est un milieu ferme, en ce sens que la personne qui s’y présente dans le but d’effectuer un achat le fera à l’intérieur du Centre, si les magasins du Centre offrent un éventail complet du produit recherché. Or c’est précisément pour assurer à un marchand le contrôle de la clientèle qui se présente au Centre d’Achat que cette clause d’exclusivité a été demandée par la demanderesse et qu’elle lui fut accordée. (Exhibit A-1-11, p 9)

Further explaining the $42,000, Mr Justice Dugas said:

Je ne tiens donc pas compte des frais généraux pour calculer le profit additionnel qu’aurait entraîné l’augmentation des ventes.

Le profit brut de $63,600.00 réduit des dépenses additionnelles de $21,487.34 donne en chiffres ronds la somme de $42,000.00 montant pour lequel il y aura jugement. (Exhibit A-1-11, p 17)

At pages 17 and 18 of the judgment, the Court concluded:

CONSIDERANT que la clause XXIV du contrat intervenu le 15 novembre 1963, entre la demanderesse et la défenderesse, a pour effet et avait pour but d’assurer à la demanderesse qu'elle serait le seul magasin spécialisé en corseterie et en vêtements de soutien, au Centre d’Achat Place Versailles.

CONSIDERANT que le bail accordé à Lingerie Briere, au Centre d’Achat Place Versailles, constitue une violation de la clause XXIV du contrat de bail entre la demanderesse et la défenderesse;

CONSIDERANT que la demanderesse a été privée de ce pourquoi elle avait sollicité et obtenu la clause d’exclusivité et qu’elle a subi des dommages-intérêts en raison de la non-exécution par la défenderesse de son obligation contractuelle; (Exhibit A-1-11, p 17-18)

3.23 PVI appealed the judgment of Mr Justice Dugas before the Quebec Court of Appeal. On or around October 21, 1975, a declaration of settlement out-of-court was reached between the appellant and PVI whereby an amount of $62,500 was paid to the appellant (Exhibit A-1-12, Declaration of Out-of-Court Settlement).

3.24 The out-of-court declaration provided:

WHEREAS the parties now wish to settle and transact all issues between them including the Action and the judgment rendered thereon;

NOW THEREFORE IT IS AGREED AS FOLLOWS:

1. THAT PLACE VERSAILLES hereby remits to MAISON DE CHOIX the total sum of Sixty-Two Thousand Five Hundred Dollars ($62,500.00) whereof quit;

2. THAT in consideration of the said payment, MAISON DE CHOIX hereby releases PLACE VERSAILLES, its officers, directors and/or affiliates, from any and all claims of any kind or nature whatsoever, and more particularly but without limitation, from any claim arising from the Lease, from any claim urged in the Action or arising from the judgment rendered thereon, in debt, interests and costs, as well as from any claim for alleged damages suffered as a result of any alleged contravention of the Lease during any period subsequent to that claimed for in the Action; (Exhibit A-1-12)

3.25 The damages caused to the appellant by PVI’s breach were described by Mr A Nussbaum in his testimony:

Q What damage was being caused to MAISON DE CHOIX, Mr Nussbaum, by PLACE VERSAILLES’ breach?

A We were being damaged, our lease was damaged. The value of our lease was dropped the minute the restrictive clause was infringed on, it didn't have the same value. That was our main damage that we had.

Q What about your business, Sir?

A Our business was affected by the competition or arrival of a strict specialist. Our business was being eroded continuously and seriously. (Testimony of A Nussbaum, p 41)

3.26 The loss of the appellant suffered by the hands of PVI was explained by Mr A Nussbaum in his testimony:

Q Mr Nussbaum, why would you be so tenacious, so persistent in your pleadings or proceedings against PLACE VERSAILLES? Why did MAISON DE CHOIX go through all these proceedings against PLACE VERSAILLES?

A It represented a loss of a capital asset to us. It represented a loss of a lease. It represented training that we did to our personnel. It represented advertising that we did in the area. It represented goodwill that we had created in the area. It represented time and energy that I put in and my brother put in. It represented the eventual break-up of a store which was lost.

Q Do you consider, Sir, that your store was lost as a direct result of your proceedings?

A That’s correct. Had there been no proceedings, no Court action taken by us we would still be a tenant there and would be operating in a very profitable shopping centre.

Q What makes, or what was the drive behind MAISON DE CHOIX in proceeding with all these pleadings against PLACE VERSAILLES? You indicated it was to protect your business but protecting against what, Mr Nussbaum?

A Protection against competition. Protection to maintain a good standing in the business community for what would be a viable operation. (Testimony of A Nussbaum, p 53-54)

3.27 The increase between the amount awarded to the appellant by the judgment of the Superior Court, and as a result of the out-of-court settlement was explained as follows by Mr A Nussbaum:

Q Now, Mr Nussbaum, did you or how did MAISON DE CHOIX evaluate its damages?

A Well, we had lost a capital asset. We had lost our lease. We had lost our store. We lost the furniture and fixtures. Whenever we break up a store there is always loss of equipment. We can’t reuse it. What is in place today is not usable tomorrow. We lost our clientele. We lost all the years of training that we put in there, the advertising that we put in there, the goodwill that we put in there and our sweat and labour.

Q Is that how you arrived at the amount of sixty-two thousand five hundred dollars ($62,500.00) by taking all these factors into consideration?

A We arrived at that amount through negotiations.

Q But in taking into consideration —

A We took all these things into consideration and we asked for a higher amount and that’s where we settled. (Testimony of A Nussbaum, p 64-65)

3.28 As a result of this litigation, or around November 1973, the lease, after the expiration of its ten-year duration, was not renewed (Testimony of A Nussbaum, p 64).

3.29 From the amount of $62,500 received by the appellant, $12,500 was paid and deducted as legal fees (Testimony of A Nussbaum, p 63).

3.30 The net amount of $50,000 was added back to the appellant’s declared income for its 1976 taxation year by notice of reassessment issued by the respondent on December 24, 1979 (Exhibit A-1-1).

B. “Inducement” Payments

3.31 In the course of its 1974 taxation year, the appellant entered into a lease with Westcliff Development Ltd (herein called “Westcliff”), a corporation which owned and built a shopping centre in Granby (Exhibit A-1-13 — Offer to lease; Exhibit A-1-14 — Lease; and, Testimony of Irwin Adelson, p 92).

3.32 The shopping centre in Granby was opened in 1974 and comprised fifty-five stores (Testimony of I Adelson, p 94).

3.33 The lease and offer to lease referred to above were signed by one Mr Irwin Adelson for Westcliff. The lease was signed on April 5, 1974, and registered on December 5, 1974. The offer to lease had been signed on July 20, 1973 (Exhibits A-1-13 and A-1-14).

The lease was for five years with an option to renew for two further terms of five years (Exhibits A-1-13 and A-1-14).

The lease also provided for the following:

An allowance of $15,000.00 will be given to tenant by Landlord 30 days after tenant has opened for business. (Exhibit A-1-14)

3.34 A lease dated September 2, 1975, between the appellant and Centre Commercial Terrebonne Ltée was entered into. The lease was for five years plus two five-year options (Exhibit A-1-16 — Lease).

The lease also provided:

An allowance of $35,000 will be given to tenant by Landlord 30 days after tenant has opened for business. Said store to have exit calemine covered door. (Exhibit A-1-16)

3.35 A lease dated October 26, 1976, was entered into between appellant and the Centre Commercial de l’Autoroute Ltée whereby premises in the St Jerome-Carrefour du Nord Shopping Centre were leased by the appellant. The lease was to be terminated on April 30, 1982. The appellant had two five-year options to renew the lease (Exhibit A-1-18 — Lease).

The said lease also provided:

The Landlord shall pay the sum of $20,000.00 to the Tenant as an allowance, 30 days after the Tenant has opened its store for business. (Exhibit A-1-18)

3.36 These payments were defined by Mr I Adelson, President of Westcliff, as representing:

Q Now, Mr Adelson, what does this payment represent?

A This payment represents an allowance, which is the way it is marked, to the tenant for coming into the shopping centre. It is an inducement that we give certain tenants to get them to come into the shopping centre.

Q Well, how would you define “inducement”, Mr Adelson?

A How would I define “inducement”?

Q Well?

A If you want somebody to do something you have to sometimes induce them to do it. So, by inducing them to do it we give them some money and this puts them in a better frame of mind to sign the lease. I don’t know how else to say it. (Testimony of I Adelson, p 100)

Speaking of the type of store for which a landlord of a shopping centre is ready to give an “inducement” payment, Mr Adelson said:

. . . We know what kind of clientele they are going to attract and this is part of our consideration in getting them to come into our shopping centre. We want them because they are going to attract a certain type of clientele which we want to have in our shopping centre. That’s called the mix of the shopping centre. It’s very important.

Q Would I be misquoting you, Sir, in saying that the fifteen thousand dollars ($15,000.00) therefore is paid for that variety of factors?

A That's correct.

Q Does the payment of the allowance, Mr Adelson, relate strictly to the quality of the fixtures?

A Not strictly to the quality of the fixtures, no. It relates to the overall tenant. The need that we have for that tenant in the shopping centre. If I have ten (10) stores similar to MAISON DE CHOIX who will go into the shopping centre and we have one store available, I am not going to give anybody any money. I am going to raise the rent but if I have only one MAISON DE CHOIX and I have four (4) stores then I have a problem. (Testimony of I Adelson, p 105-106)

3.37 These “inducement” payments had no relation whatsoever to the rent the appellant was paying for the lease of the various stores. Moreover, the rent was charged at the low end rate to induce them to open a store in the shopping centre:

Q When you discuss the amount of rent payable by MAISON DE CHOIX, did that include or did that take into consideration the amount or the allowance paid to MAISON DE CHOIX?

A No. The rent has nothing to do with the allowance. The rental that they pay is the rental that they pay. It has nothing to do with the allowance.

Q Mr Adelson, is the fifteen thousand dollars ($15,000.00) a way of disguising a reduction of rent?

A No.

Q I’ll refer again to Clause, section 4.01 and I see that the basic rate is six percent (6%). How would that relate or equate to the market for space in the Granby Shopping Centre?

A It is at the low end. Normally we would charge anywhere from six (6) to seven

(7) to eight percent (8%). This is at the low end because, again, they are considered a very good tenant and they do sell a lot of merchandise and we wanted to have them in our centre so they do get a very favourable deal. (Testimony of I Adelson, pp 100, 101 and 102)

3.38 Pursuant to Mr Adelson’s testimony, the use of the funds given to induce the lessee to enter into the lease was in no way controlled by the payer:

Q Does MAISON DE CHOIX have to account for the use of the money.

A No, they do not have to account for the use of the money. They can do with the money whatever they please.

Q Are there any strings attached to the payment of that money, Mr Adelson?

A As a rule the only strings attached are that we want to see the lease signed and the store in occupation, that the tenant is in occupation of the store open for business.

Q And that’s why this amount is payable thirty (30) days after opening?

A Exactly.

Q Now, Mr Adelson, is there any form of set-off in establishing the fifteen thousand dollars ($15,000.00). Must the tenant provide you with an account, a statement or some form where he breaks down his cost of his leasehold improvements?

A None whatsoever.

Q There is no relationship between the amount and the amount of money that the tenant will be investing in the shop?

A Not as far as we are concerned. (Testimony of I Adelson, p 102-103)

3.39 By admission from counsel for the respondent, Mr Adelson’s testimony with respect to the first payment, ie, $15,000 for Granby, was made equally applicable to the other two payments and his testimony was corroborated by Mr David Nussbaum (Testimony of I Adelson, p 107 and testimony of D Nussbaum, p 116).

3.40 By notices of reassessment for its 1976 and 1977 taxation years and by notice of assessment for its 1978 taxation year, the payments were allocated by the respondent in the following manner:

Amounts received from the Shopping Centres to be used to reduce rental expenses as follows:

Year	Granby Granby	Terrebonne	St-Jérôme	Total Total
	(1)	(2)	(3)

d)

3.41 The basis for the respondent’s treatment of these payments is explained by Mr Roy in his testimony where he states:

Q Pourriez-vous expliquer à la Commission sur quels faits le Ministère s’est fondé pour arriver à la conclusion que ces montants étaient en fait une réduction de loyer?

A Je me réfère à la page 12 du T-20, on dit, le vérificateur écrit qu'il n’y a aucune entente verbale ni écrite, ni implicite ni explicite qui montre pourquoi exactement ce montant fut versé. (Testimony of Michael Roy, p 28)

3.42 Mr Roy went on to state:

Q Au meilleur de votre connaissance, M Roy, il y a eu entente concernant les montants pour le paiement des montants?

A Au meilleur de ma connaissance, oui.

Q II y a eu également paiement des montants pour les trois (3) années en cause?

A Je ne suis pas en mesure de dire le contraire.

Q Maintenant, pouvez-vous expliquer à la Commission pourquoi est-ce que le Ministère du Revenu est arrivé à cette conclusion que c'était une réduction de loyers?

A Je me réfère à la page 14 du même T-20, je m’excuse, à la page 18. Le paragraphe 2.a, le seule relation entre un propriétaire et un locataire est le bail ou le loyer, donc ceci pourrait expliquer pourquoi ceci est une diminution de loyer qui avait pour but de rentabiliser les opérations, donc réduire les facteurs comme les dépenses substantielles de la première année d’opération, ce ne sont que des éléments dont on a tenu compte dans la négociation et qui n’altérent pas cette relations propriétaire/locataire.

Q Mais ça c’est une opinion qu’on donne, M Roy?

A C’est un argument. (Testimony of M Roy, p 29-30)

3.43 Mr Roy did admit not knowing of any agreement whereby the inducement payments were in substance or otherwise a disguised form of rent reduction:

Q Est-ce que M Laventure était au courant d’entente quelconque qui modifierait cette clause du bail que l’on retrouve à l’onglet 14, concernant le loyer payable par l’appelante, Maison de Choix Inc a Westcliff Development?

A Entente precise, non.

Q Ou entente floue?

A Ou même entente imprécise.

Q Alors, il n’y a pas à la connaissance de M Laventure, d’entente concernant le quinze mille dollars ($15,000.00) par rapport aux loyers payables?

A Non. (Testimony of M Roy, p 39)

3.44 The same admission was made with respect to the other leases:

Q Est-ce que vous avez une référence quelconque dans le bail, M Roy, qui vous autorise ou qui pourrait suggérer que le trente-cinq mille dollars ($35,000.00) constitue en fait une forme déguisée de réduction de loyer?

A Aucune mention expresse à cet effet.

Q Est-ce qu’il y a une mention implicite, M Roy?

A Non plus.

Q Est-ce que M Laventure dans son enquête a découvert une entente verbale ou autre quelconque qui pourrait permettre de croire que le trente-cinq mille dollars ($35,000.00) versé par Westcliff pour le Centre d’Achat Terrebonne représentait une forme d’escompte ou de réduction de loyer déguisée?

A Non.

Q Aucune entente verbale.

Maintenant, j’attire votre attention à l’exhibit numéro 17.

Me ALAIN MÉNARD: Pour sauver du temps, Monsieur le Président, si Me Du Pont pose les mêmes questions concernant l’offre de bail pour St-Jérome, je suis prêt à admettre que M Roy va répondre la même chose.

Me GUY DU PONT: Est-ce que M Roy est prêt à admettre ça aussi?

LE TÉMOIN: Sûrement. (Testimony of M Roy, p 42-43)

3.45 It is common ground between the parties that the said payments were not refunds disguised, or otherwise, of the capital cost of the fixtures or leasehold improvements made by the appellant:

Q N'est-il pas exact, M Roy, que le Ministère était d’avis que ces paiements n’avaient pas traits aux améliorations locatives comme telles?

A D'avis, oui.

Q N’est-il pas exact que d’après l’analyse qu’a fait M Laventure des faits qui ont été portés a sa connaissance, qu’il est arrivé à la conclusion que ces montants-là n'avaient pas été payés en remboursement ou en tout ou en partie des améliorations locatives qu’aurait faites Maison de Choix?

A C’est une conclusion que M Laventure a tiré. Par contre, il y a un fait qui indiquerait qu'il y aurait, il y a un élément qui aurait pu indiquer que ça aurait pu être le cas

Q .Mais la conclusion de M Laventure était à l’effet que ce n’était pas le cas?

A Oui. (Testimony of M Roy, p 51-52)

3.46 Mr Saul Greenfield, CA, auditor of the appellant, testified that he treated the inducement payments as capital payments and explained why:

A To begin with, the allowance received contained no clause outlining the nature of the allowance received, contained no restrictions as to its use. The company was free to utilize the amount involved not even in relation to the particular store in which, for which that particular lease applied. The principals were free if they chose to even utilize these funds simply to declare a dividend to themselves. There were no restrictions imposed whatsoever as to the use of these funds and, therefore, we couldn’t in that sense restrict it as either as a rent reduction or something that applied to leasehold improvements of that particular store or any capital expenditure.

Q As a form of reduction, Mr Greenfield?

A As a form of reduction.

Q Just going back one step, Mr Greenfield. The contributed surplus account, is that an income account?

A No, it is not an income account. It is in the nature of a capital account. A surplus account.

Q Does that mean, Mr Greenfield, if I prepare my financial statements, my profit and loss that that amount would not appear in the profit and loss?

A That is correct. (Testimony of Mr Saul Greenfield, p 26-27)

4. Law—Cases at Law—Analysis

4.01 Law

The main provisions of the Income Tax Act, SC 1970-71-72, c 63, as amended, involved in the present case are sections 3, 9, 18 and 248. They shall be quoted in the analysis, if necessary.

4.02 Cases at law

The cases at law referred to the Board are:

A. By the appellant

1. Barr, Crombie & Co Ltd v CIR, 26 TC 406;

2. Courrier M H Inc v The Queen, [1976] CTC 567; 76 DTC 6331;

3. The Queen v Télesphore Demers, [1981] CTC 282; 81 DTC 5256;

4. Edgerton Fuels Limited v MNR, [1970] CTC 202; 70 DTC 6158;

5. CIR v Fleming & Co (Machinery) Ltd, 33 TC 57;

6. The G le n bo ig Union Fireclay Co Ltd v CIR, 12 TC 427;

7. Tucker (Inspector of Taxes) v Granada Motorway Services Ltd, [1979] 2 All ER 801;

8. MNR v Import Motors Limited, [1973] CTC 719; 73 DTC 5530;

9. Kit-Win Holdings (1973) Limited v The Queen, [1981] CTC 43; 81 DTC 5030;

10. LaSalle Factories Ltd v MNR, [1979] CTC 2098; 79 DTC 91;

11. Léopold Lague Inc v MNR, [1980] CTC 2451; 80 DTC 1384;

12. The Queen v Léopold Lague Inc, [1981] CTC 348; 81 DTC 5254;

13. Parsons-Steiner Limited v MNR, [1962] CTC 231; 62 DTC 1148;

14. H 71 Roberts Ltd v MNR, [1969] CTC 369; 69 DTC 5249;

15. Van Den Berghs, Limited v Clark, 19 TC 390;

16. Vaughan-Neil v IRC, [1979] 3 All ER 481;

17. Higgs v Olivier, [1952] 33 TC 136;

18. IRC v Newcastle Breweries Ltd, [1927] 12 TC 927;

19. Short Bros Ltd v IRC, [1927] 12 TC 955;

20. IRC v Northfleet Coal & Ballast Co Ltd, [1927] 12 TC 1102;

21. The Queen v Leclerc et al, [1979] CTC 527; 79 DTC 5440;

22. Chester G Harris v MNR, [1974] CTC 801; 74 DTC 6623;

23. Associated Investors of Canada Limited v MNR, [1967] CTC 138; 67 DTC 5096;

24. David Tobias v The Queen, [1978] CTC 113; 78 DTC 6028;

25. MNR v Pillsbury Holdings Limited, [1964] CTC 294; 64 DTC 5184;

26. Nathaniel C Brewster v The Queen, [1976] CTC 107; 76 DTC 6046;

27. Consumers’ Gas Company Ltd v The Queen, [1982] CTC 339; 82 DTC 6300;

28. British Insulated & Helsby Cables Ltd v Atherton, [1926] AC 205;

29. Joseph Adamson & Co v Collins, 21 TC 400;

30. The Queen v John Stuart Sales Ltd, [1956] CTC 64;

31. Pepsi-Cola Canada Ltd v The Queen, [1979] CTC 454; 79 DTC 5387;

32. Canadian Automobile Equipment Ltd v MNR, 13 Tax ABC 449; 55 DTC 539;

33. J P M Holdings Ltd v MNR, [1976] CTC 2338; 76 DTC 1269;

B. By the respondent

34. Border Fertilizer (1972) Ltd v MNR, [1981] CTC 2780; 81 DTC 778;

35. Boréal Express Ltée v MNR, [1979] CTC 2985; 79 DTC 791;

36. Burmah Steam Ship Company Limited v CIR, 16 TC 67;

37. J E Cranswick v The Queen, [1980] CTC 93; 80 DTC 6057;

38. Donald Hart Limited v MNR, [1959] CTC 268; 59 DTC 1134;

39. Kelsall Parsons & Co v CIR, 21 TC 608;

40. Nicholas IV Mathey v CIR, 49-2 USTC 861;

41. Oxford Motors Limited v MNR, [1959] CTC 195; 59 DTC 1119;

42. Packer Floor Coverings Ltd v The Queen, [1981] CTC 506; 82 DTC 6027;

43. The Royal Trust Company v MNR, [1957] CTC 32; 57 DTC 1055;

44. Saint John Dry Dock & Shipbuilding Company, Limited v MNR, [1944] CTC 106; 2 DTC 663;

45. No 734 v MNR, 27 Tax ABC 163; 61 DTC 418;

46. Transcontinental Timber Company Limited v The Queen, [1981] CTC 152; 81 DTC 5043;

47. Triplex Safety Glass Company of North America v James H Latchum, 42-1 USTC 395;

48. Valley Camp Ltd v MNR, [1974] CTC 418; 74 DTC 6337;

49. Wiseburgh v Domville, [1956] 1 All ER 754;

50. The Queen v J E Cranswick, [1982] CTC 69; 82 DTC 6073. 4.03 Analysis

A. Breach of Contract

4.03.1 The uncontradicted evidence clearly shows that the exclusivity clause was an essential, highly valuable and integral part of the lease and of the appellant’s business. With the appellant’s previous experience in the St Martin Shopping Centre in Laval (para 3.09), the appellant was well advised to request the insertion of an exclusivity clause for its store in the PVI Shopping Centre (para 3.11), especially with a five-year lease and with an option to renew for an additional five years (para 3.10). The exclusivity clause was in fact a sine qua non condition to rent the store (para 3.12).

4.03.2 Moreover, the exclusivity clause was the basis of the different legal proceedings initiated and pursued by the appellant (paras 3.14 to 3.22).

4.03.3 The exclusivity clause guaranteed and ensured the appellant’s clientele within the shopping centre as explained by Mr Justice Jacques Dugas of the Quebec Superior Court in his judgment (para 3.22).

PVI, by its deliberate violation of the provisions of the exclusivity clause, damaged irreparably the appellant’s business structure by destroying its clientele, its goodwill and its profit-making structure.

4.03.4 The goodwill of a business is of a capital nature. The Federal Court of Appeal, in the Pepsi-Cola Canada Ltd case (Supra), gave a decision in that sense.

4.03.5 It is also a well established principle that the nature of the payment, for tax purposes, is determined by the nature of the property in respect of which the payment is made. If the payment is made to replace a capital asset of the taxpayer or to compensate the taxpayer for the loss of a capital asset, then the payment is itself a capital receipt (Van Den Berghs Ltd v Clark, (supra), Canadian Automobile Equipment Ltd v MNR, (supra), Parsons-Steiner Ltd v MNR, (supra), H A Roberts Ltd v MNR, (supra), MNR v Import Motors Ltd, (supra), Courrier M H Inc v The Queen, (supra)’, and J P M Holdings Ltd v MNR, (supra).

4.03.6 The courts have stated that the test to be applied, in determining the nature of the asset in respect of which the compensation is being paid, is whether the money is received to compensate the taxpayer for the loss of the profit-making structure of the taxpayer.

In Van Den Berghs Ltd v Clark, (supra), Lord Macmillan stated at 431 and 432:

. . . On the contrary, the cancelled agreements related to the whole structure of the Appellants’ profit-making apparatus. They regulated the Appellants’ activities, defined what they might and what they might not do, and affected the whole conduct of their business. I have difficulty in seeing how money laid out to secure, or money received for the cancellation of, so fundamental an organization of a trader’s activities can be regarded as an income disbursement or an income receipt.

4.03.7 In determining the nature of the payment received as compensation for cancellation of a contract, the Exchequer Court of Canada in Parsons- Steiner Ltd v MNR, (supra), examined several criteria such as the duration of the contract being cancelled, the ability of the taxpayer to replace it, the nature of the taxpayer’s claim and the uniqueness of the product sold:

On the whole therefore having regard to the importance of the Doulton agency in the appellant’s business, the length of time the relationship had subsisted, the extent to which the appellant’s business was affected by its loss both in decreased sales and by reason of its inability to replace it with anything equivalent, to the fact that two of the appellant’s employees became employees of the Doulton subsid- iary on the termination of the relationship and the fact that from time to time the appellant was in fact out of that part of its business, both as an agent and as a wholesale dealer, and particularly to the nature of the claim asserted in respect of which the payment was made, I am of the opinion that. . . the payment in question was not income from the appellant’s business, but was referable to the appellant’s claim for loss of what it and Doulton Co Limited as well considered to be the appellant’s interest in the goodwill and business in Doulton products in Canada. In my view this was, to use Lord Evershed’s expression, “a capital asset of an enduring nature”.

(See also: H A Roberts Ltd v MNR, (supra); MNR v Import Motors Ltd, (supra)', and Courrier M H Inc v The Queen, (supra).)

4.03.8 Many British and Canadian cases give the image that the monetary compensation received for the loss or sale of a contract can be of a capital nature only where the contract in question is the very foundation of a business, and its loss would ruin the business. In the Léopold Lague Inc case, (supra), it was stated that what constitutes or creates permanence in a business is not necessarily the business as a whole. Even if in the present case, as the respondent contends, it is not the whole business of the appellant which was destroyed, the Board thinks it is an important one. Even if it is true that the appellant had, in fact, no legal right to renew its lease in 1976 (year of settlement) because the five-year lease and the five-year option were completed, it remains, however, that during the said ten years an important part of the structure of the appellant’s store was affected by the existence of the competitor, Briere.

4.03.9 In fact, it is obvious to the Board that the violation of the provisions of the exclusivity clause by PVI and all the legal proceedings which are the consequence of this violation, are the actual cause of the non-renewal of the lease. Indeed, it is common ground in business that when two parties are making money together, they continue to make business together, unless an exceptional reason arises. The reasons in this case are the violation by PVI and the legal proceedings.

The Board shares the testimony of Mr A Nussbaum when he said that the loss:

. . . represented a loss of a lease. It represented training that we did to our personnel. It represented advertising that we did in the area. It represented goodwill that we had created in the area. It represented time and energy that I put in and my brother put in. It represented the eventual break-up of a store which was lost. (para 3.26)

Also explaining the increase of the damages between the $42,000 of the judgment and the $62,000 of the out-of-court settlement, Mr Nussbaum testified in the same sense (para 3.27).

4.03.10 Counsel for the appellant pointed out the fact that in the pleadings against PVI in 1970, the appellant claimed for the loss of the net income (para 3.21). Moreover, Mr Justice Jacques Dugas in his judgment in computing the quantum, based h is final decision on gross income of $63,600, less $21,600 of expenses, giving loss of net income of $42,000 (para 3.22). Therefore, the payment being made for loss of income must be considered as income.

4.03.11 It is a well established principle of law that the method of computation of damages is no criterion of their character as capital or income.

In the Glenboig Union Fireclay Co Ltd case, (supra), Lord Buckmaster stated at 463 and 464:

It is unsound to consider the fact that the measure, adopted for the purpose of seeing what the total amount should be, was based on considering what are the profits that would have been earned . . . there is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the application of that test.

In the Van Den Berghs case, (Supra), Lord Macmillan, at 431, stated:

But even if a payment is measured by annual receipts, it is not necessarily in itself an item of income.

4.03.12 The Board concludes that the damages received by the appellant on the breach of contract was not income. It was a non-taxable capital payment.

B. "Inducement” Payments

4.03.13 The evidence concerning the nature of the allocations given by the landlords of shopping centres to the appellant was mostly given by Mr I Adelson, President of Westcliff Development Ltd, and by Mr M Roy of the Income Tax Department.

Mr Adelson said: “It is an inducement that we give certain tenants to get them to come into the shopping centre.” (paras 3.36 and 3.37). The money was in no way controlled by the payer (para 3.38). The allowance had nothing to do with the rent; it was not given to reduce the rent, but “to induce them to come to the shopping centre”. The appellant paid the low end rent (para 3.37).

4.03.14 Mr M Roy said that the decision of the respondent to tax the allocation as income, was based on the following considerations:

(a) there was no verbal or written agreement between the parties giving the reason why the payments were made (para 3.41); and

(b) the only relation between a landlord of a shopping centre and a tenant is the lease (paras 3.42 to 3.44).

Therefore, the only explanation was that the allocation was paid to reduce the rent (para 3.42). Mr M Roy said that the respondent’s position was that there was no relation between the allocation and capital cost of the fixtures or leasehold improvements (para 3.45), or construction cost as alternatively contended by the respondent in the amended reply to notice of appeal (see para 2.02).

4.03.15 In sum, the uncontradicted evidence adduced before the Board, given by witnesses whose credibility was not in any way impeached, and there is no suggestion to that effect, clearly and unequivocally proves that not only were these payments not disguised forms of rent reduction but that, on the contrary, the appellant was already paying bottom rent.

Moreover, the allocations were not given to reduce the construction cost. The Board must conclude that two among three of the respondent’s assumptions of fact, which are the basis of the reassessments, are reversed. The preponderance of the evidence is in favour of the appellant’s thesis: the allocations were given by the landlords of the shopping centres only to induce the appellant to rent a location in the shopping centres, but in fact this is the third assumption of fact of the respondent (para 2.02-6(n)).

4.03.16 The appellant contends that the “inducement” payments must be considered as windfall payments because they were made without any relationship whatsoever with the various financial considerations of the lease. Is it sufficient to conclude a windfall payment?

4.03.17 In subsection 6(3) of the Income Tax Act, an “inducement” payment is provided as taxable in the case of an individual as “consideration for accepting the office or entering into the contract of employment”. This provision reads as follows:

6 (3) An amount received by one person from another

(a) during a period while the payee was an officer of, or in the employment of, the payer, or

(b) on account or in lieu of payment of, or in satisfaction of, an obligation arising out of an agreement made by the payer with the payee immediately prior to, during or immediately after a period that the payee was an officer of, or in the employment of, the payer,

shall be deemed, for the purposes of section 5, to be remuneration for the payee’s services rendered as an officer or during the period of employment, unless it is established that, irrespective of when the agreement, if any, under which the amount was received was made or the form or legal effect thereof, it cannot reasonably be regarded as having been received

(c) as consideration or partial consideration for accepting the office or entering into the contract of employment,

(d) as remuneration or partial remuneration for services as an officer or under the contract of employment, or

(e) in consideration or partial consideration for a covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment.

The principles involved in subsection 6(3) of the Act are also provided for in paragraph 87(2)(k) of the Act, which reads as follows:

87 (2) Where there has been an amalgamation of two or more corporations after 1971 the following rules apply:

(k) for the purposes of subsection 6(3), any amount received by a person from the new corporation that would, if received by him from a predecessor corporation, be deemed for the purpose of section 5 to be remuneration for that person’s services rendered as an officer or during a period of employment, shall be deemed for the purposes of section 5 to be remuneration for services so rendered by him.

It seems that the same fundamental principle is involved in the present case. A payment is made by a company, the landlord of a shopping centre, to induce the appellant to do business with it.

In both cases, the basis of the principle is the same: it is because of the capital asset that a party owns (capacity to attract clientele in one case, know-how in the other case) that an inducement payment is made to him.

However, the difference is that in the employer-employee relationship the taxation of the “inducement” payment is specifically provided for in the Act as part of the remuneration. In the landlord-tenant relationship, however, the taxation of the inducement payment is not provided for in the Act. Pursuant to fundamental business principles, can it be said that such payment is income? The one who receives the payment gives nothing in return except, in the one case to accept work for which he shall be paid, and in the other case to agree to rent a location for which he will have to pay. Can it be said that it is an intangible asset? The Board is inclined to answer in the affirmative.

4.03.18 In the John Stuart Sales Ltd case (supra), there is a similarity with the present case, despite the fact that it concerns custom duties and not income tax. The facts are summarized as follows:

The Crown claimed the sum of $30,616.33 from the defendant as dumping duty on the importation of goods known as “Smith Brothers Cough Drops” from the United States during the period September 1, 1948, to June 1, 1951. The defendant purchased these goods from Smith Brothers, Inc, in New York who sent the defendant invoices showing the amount of the fair market value of the goods and the selling price. The selling price of the goods was shown at the same amount as that of their fair market value, except for the last three shipments, and the defendant paid an ad valorem customs duty of 20% under the Customs Tariff. On examination of the defendant’s books it became apparent to an investigator of customs and excise in the Department of National Revenue that the company had been receiving from Smith Brothers, Inc amounts equal to 5% of the selling price of the goods as set out in the invoices. The total percentage payments amounted to $30,616.33 which the Crown claimed as special or dumping duty under Section 6(1) of the Customs Tariff. Evidence was adduced for the defendant to the effect that the payments were made by Smith Brothers, Inc voluntarily and to encourage Mr Stuart, the defendant’s president, to give priority to the company’s product. The payments were at first paid to Mr Stuart personally, but were subsequently paid to the defendant on the instructions of its president.

In the said case, the Exchequer Court held:

(i) That the question to be determined is not whether the 5% payments had the effect of reducing the selling price of the goods to the defendant but rather what their true nature was;

(ii) That the payments were not commissions or rebates of the selling price;

(iii) That the payments were made to the defendant’s president for his special efforts in pushing the sale of Smith Brothers, Inc cough drops and keeping its name in the forefront of the defendant’s activities;

(iv) That the selling price of the goods to the defendant was not rendered less than their fair market value;

(v) That the action must be dismissed.

and, on appeal by the Crown to the Supreme Court of Canada, it was held:

(i) That the payments in question did not form part of the actual selling price by Smith Brothers, Inc to John Stuart Sales Limited (Kerwin, CJ);

(ii) That the payments were not partial rebates of price but collateral items

referable to something other than price (Rand, Taschereau, Cartwright, JJ);

(iii) That the actual selling price or cost to the importer was the net amount

after deducting the 5% rebate or repayment (Kellock, J) (assenting);

(iv) That the appeal should be dismissed (Kerwin, CJ, Taschereau, Rand and Cartwright, JJ).

Mr Justice Rand also said:

It is a matter of fact. It is not a question of another relation than that of seller and purchaser; it is whether, in respect of price, such a payment could be a collateral and wholly unrelated element in the total transactions. The answer to that seems to me to be clear that it could be. The payment probably excites suspicion and the burden of proof of its detachment will be correspondingly heavier. But once the fact is found, as it was here, and there was ample evidence on which it could have been found, the conclusion necessary to Mr Jackett’s contention is excluded.

4.03.19 In the present case, it is not a question of another relationship than that of landlord and tenant. The payments were not partial diminution of the rent, nor of construction costs; they were “inducement” payments which are of a capital nature.

Are there other facts that the respondent failed to allege as a basis of the reassessments?

Mr Justice Cattanach responded to that question in the Kit-Win Holdings (1973) Limited case, (Supra):

If the Minister has failed to allege as a fact an essential ingredient to the validity of the assessment under the applicable statutory provision there is no onus on the taxpayer to disprove that fact for the assumptions which were made do not of themselves support the assessment.

4.03.20 The allocation paid to the appellant is not income.

5. Conclusion

The appeal is allowed and the matter referred back to the respondent for reassessment in accordance with the above reasons for judgment.

Appeal allowed.