Taylor,
TCJ
[ORALLY]:—The
appeal
of
Lou
Lokash
&
Associates
Ltd
for
the
year
1976
was
withdrawn
by
counsel
for
the
appellant
at
the
commencement
of
the
hearing
and
is
dismissed
for
want
of
prosecution.
There
is
a
second
appeal
from
Lou
Lokash
Limited
for
the
years
1975
and
1977.
The
specifics
that
were
addressed
by
the
Minister
and
originally
addressed
by
the
appellant
are
contained
in
the
reply
to
notice
of
appeal
from
the
Minister
of
National
Revenue,
paragraphs
12
and
13.
Paragraph
12
refers
to
—
and
I
quote
—
Lou
Lokash
Limited
received
a
benefit
or
advantage
in
the
amount
of
$50,000
from
Lou
Lokash
&
Associates
Limited
which
amount
is
included
in
computing
the
income
of
Lou
Lokash
Limited,
a
shareholder,
pursuant
to
subsection
15.1
of
the
Income
Tax
Act.
At
the
commencement
of
the
proceedings,
it
was
agreed
between
counsel
that
because
of
a
reassessment
subsequent
to
that
which
is
at
issue
here
today
and
of
the
development
of
certain
events,
that
matter
was
no
longer
in
contention
and,
in
fact,
was
no
longer
part
of
the
appeal
at
all.
The
appeal
therefore
comes
down
to
—
and
I
quote
paragraph
13
from
the
reply
to
notice
of
appeal:
Lou
Lokash
Limited
directed
or
concurred
with
the
payment
or
transfer
of
property
by
Lou
Lokash
&
Associates
Limited
to
the
connected
or
related
persons
referred
to
in
paragraph
10(d)
above
(that
is
paragraph
10(d)
of
the
reply
to
notice
of
appeal,
which
is
a
list
of
several
people,
some
of
them
corporate,
some
of
them
individuals)
as
a
benefit
that
Lou
Lokash
Limited
desired
to
have
conferred
on
those
persons
in
the
total
amount
of
$269,000.00.
Lou
Lokash
Limited
held
40.5%
of
Lou
Lokash
&
Associates
Limited
and
$108,945.00,
being
40.5%
of
the
said
sum
of
$269,000.00,
is
included
in
computing
the
Appellant’s
income
pursuant
to
subsection
56(2)
of
the
Income
Tax
Act.
Counsel
for
the
appellant
has
noted
that
the
matter
rests
on
the
interpretation
and
application
of
subsection
56(2)
of
the
Income
Tax
Act,
and
I
would
read
therefrom:
Indirect
payments.
A
payment
or
transfer
of
property
made
pursuant
to
the
direction
of,
or
with
the
concurrence
of,
a
taxpayer
to
some
other
person
for
the
benefit
of
the
taxpayer
or
as
a
benefit
that
the
taxpayer
desired
to
have
conferred
on
the
other
person
shall
be
included
in
computing
the
taxpayer’s
income
to
the
extent
that
it
would
be
if
the
payment
or
transfer
had
been
made
to
him.
I
would
make
specific
reference
to
certain
jurisprudence,
commencing
with
Fraser
Companies,
Limited
v
Her
Majesty
The
Queen
which
is
to
be
found
at
[1981]
CTC
61;
81
DTC
5051,
in
which
the
learned
justice
details
the
ingredients
that
he
holds
to
be
necessary
for
the
proper
fulfilment
of
the
taxation
qualities
of
subsection
56(2)
of
the
Income
Tax
Act.
I
would
also
make
reference
to
the
case
of
George
A
Murphy
v
The
Queen,
[1980]
CTC
386;
80
DTC
6314,
in
which
those
requirements
are
repeated
by
Justice
Cattanach.
The
fourth
one
of
those
ingredients
(Murphy
(supra))
is
—
and
I
quote
—
(4)
that
the
payment
or
transfer
would
have
been
included
in
computing
the
taxpayer’s
income
if
it
had
been
received
by
him
instead
of
the
other
person.
First
of
all,
counsel
for
the
respondent
has
noted
and
emphasized
that
there
is
evidence
that
the
family
members
did
receive
some
preference
over
other
investors
in
this
matter,
including
repayment
or
exchange
provisions.
In
my
view,
that
is
not
relevant
to
a
determination
of
the
issue
before
us.
Counsel
for
the
respondent
also
noted
that
there
was
an
intent
to
shift
the
risk
or
burden
with
respect
to
the
mortgage
in
a
different
direction.
In
my
view,
this
again
is
not
relevant
to
the
determination
of
this
appeal.
However,
the
mortgage
itself
is
the
kernel
of
the
problem,
particularly
with
reference
to
the
value
of
a
fourth
mortgage
on
a
parcel
of
real
estate
which
was
allegedly
the
security
for
the
investors
with
Lou
Lokash
&
Associates,
which
mortgage
is
a
subject
of
the
“transfer”
in
this
appeal.
It
is
my
view,
from
the
evidence,
that
the
investors
never
did
actually
have
much
in
the
way
of
physical
security.
They
had
only
the
word
of
Lou
Lokash
that
they
held
a
proportionate
interest
in
such
a
mortgage
—
indirectly
through
the
corporation
Lou
Lokash
&
Associates,
but
they
held
nothing
directly
in
the
mortgage
as
such.
That
being
my
opinion,
I
have
the
greatest
of
difficulty
in
arriving
at
a
conclusion
that
whatever
alternate
security
might
have
been
provided
to
them
at
a
later
date
(and
certainly
at
the
critical
point
in
time
for
this
appeal),
it
would
have
been
any
different
or
better
than
that
which
they
originally
held.
What
they
had
was
simply
their
confidence
in
the
organization
“Lou
Lokash
&
Associates”
—
in
fact
in
Lou
Lakash
personally,
if
one
would
care
to
put
it
on
that
basis.
They
held
a
proportionate
interest
allegedly
in
a
mortgage,
and
we
were
given
some
indication
that
they
had
documents
to
support
that,
but
they
certainly
did
not
hold
any
security
enforceable
against
any
land
or
any
other
real
estate.
How
any
investor
could
legally
proceed
to
realize
on
his
security
(the
proportionate
interest
in
some
document)
was
not
made
clear
to
the
Court,
nor
do
I
consider
it
to
be
relevant.
Ultimately,
therefore,
we
realize
that
the
fourth
condition
in
the
Fraser
and
Murphy
judgments
which
I
have
quoted
is
critical.
In
any
review
of
subsec
tion
56(2),
the
Court
must
be
satisfied
that
there
was
a
benefit
conferred
upon
the
parties.
I
am
unable
to
find
that
there
was
any
benefit
whatsoever
conferred
as
a
result
of
the
alleged
exchange
of
mortgage
transactions
which
is
at
issue
in
this
appeal.
The
appellant
was
no
better
off
after
the
exchange
than
before.
And,
most
assuredly,
I
am
unable
to
determine
from
the
information
and
evidence
presented,
in
what
manner
the
amounts
at
issue
(which
formed
part
of
a
total
of
some
$465,500)
could
ever
have
been
considered
as
“income”
to
the
taxpayer,
Lou
Lokash
Limited.
If
that
total
amount
had
been
paid
to
the
appellant
under
the
circumstances
as
I
understand
them,
it
still
would
not
have
been
income.
How,
therefore,
could
a
portion
of
it
be
deemed
to
be
“income”
when
paid
to
other
parties?
In
my
view,
the
Minister’s
assessment
fails
on
those
two
grounds
and
the
appeal
is
allowed.
Appeal
allowed.
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