Théophile Mongrain, Appellant,, [1982] CTC 2530, 82 DTC 1545

D E Taylor (TRANSLATION): This decision, written on May 19, 1982, relates to an appeal heard at Quebec City, Quebec on February 4, 1982. This appeal was brought following a tax assessment for 1978. The appellant's argument, as set forth in his notice of appeal, is as follows:

1. He is one of the shareholders of Marché Théo Mongrain Ltée ( “Marché”)

2. Marché operates a grocery business in Trois-Rivières in a building belonging to Mr Ernest Mongrain (“Ernest”).

3. In 1977 and/or 1978 Marché proceeded to extend its store within Ernest's building.

4. The Minister of National Revenue determined that a sum of $18,658 72, representing part of the cost of the extension, should be included in computing the appellant’s income for 1978 under sections 15(1) and 56(2) of the Income Tax Act.

6. The appellant contends that the extension of the store confers no advantage whatsoever on him, since this extension was completed for the benefit of Marche, which incurred the expenses of the enlargement.

7. The appellant also contends that he did not wish to confer any benefit on Ernest, since it was Marché that obtained the benefit from the extension of its own business.

The presumptions of the respondent are as follows:

(a) During the taxation year in issue the appellant and his brother were shareholders of Marche;

(b) Marché carried on a retail food business in a building belonging to the father of the two principal shareholders (Ernest);

(c) Marché incurred expenditures of $37,317.44 for the purpose of extending the building in which it carried on its business, in accordance with the instructions of the appellant and his brother;

(d) As a result of the improvements the appellant’s father’s building increased in value by an amount at least equal to the cost of the extension;

(e) The appellant and his brother wished to confer a benefit on their father by recommending to their company Marché that the building belonging to their father be extended;

(f) Marché required nothing of the father of the shareholders in consideration for the improvements made to his building.

The principal factors mentioned above were reviewed by the appellant during his testimony. He also added that the company was the lessee of the Store, including the extension. There was only an oral and not a written lease.

The principal objective of the respondent was to show that a profit resulted to the appellant by reason of his ownership of shares in the company. The company had paid for the extension and eventually obtained clear title to the building. To my knowledge, the respondent’s argument is supported neither by the Civil Code of Quebec nor by the case law. The essential fact is that the appellant was never the owner of the extension. Reference to Mount Robson Motor Inn Ltd v MNR, [1980] CTC 31; 79 DTC 5479, and The Queen v Mount Robson Motor Inn Ltd v MNR, [1981] CTC 345; 81 DTC 5188, is sufficient to determine any issue relating to the extension of the property in question.

The cases cited below were referred to during the hearing:

Charles-Edouard Saint-Germain v MNR, [1969] CTC 194; 69 DTC 3086;

Fraser Companies Ltd v The Queen, [1981] CTC 61; 81 DTC 5051;

William Soyko v MNR, [1971] Tax ABC 140; 71 DTC 129;

Joseph Valevicius & Karl H Falk v MNR, [1972] CTC 2490; 72 DTC 1407;

The Queen v Peter Neudorf, [1975] CTC 192; 75 DTC 5213.

With the exception of Fraser, supra, all the cases deal with situations in which the taxpayer had a direct interest in the profit alleged, which is not the case here. The conditions listed in Fraser, supra at 71 [5058], as being necessary for tax to be paid under subsection 56(2) of the Income Tax Act were not proved in this appeal. To my mind, subsection 15(2) of the Act does not apply to this case and the respondent did not claim that subsection 245(2) was relevant.

The appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment accordingly.

Appeal allowed.