J E Cranswick v. Her Majesty the Queen, [1980] CTC 93, 80 DTC 6057

Grant, DJ:—This is an appeal by the plaintiff from reassessments of his taxable income under the Income Tax Act in respect of the year 1977 by the Deputy Minister of National Revenue whereby the latter adjusted the same to include a special payment made by Westinghouse Electric Corporation to him in the total sum of $2,144. The appellant has chosen to appeal direct to the Federal Court pursuant to the provisions of subsection 172(2) of the Income Tax Act rather than to the Tax Review Board.

The parties have filed a statement of facts agreed upon by them (ex 1) which is in the following words and figures;

AGREED STATEMENT OF FACTS

With respect to the appeal from the reassessment of tax for the plaintiff’s 1977 taxation year, the plaintiff and the defendant, by their respective solicitors, for the purposes of this action only, admit the following facts:

1. The plaintiff is an individual who resides in the City of Burlington, in the Province of Ontario.

2. During 1977, the plaintiff beneficially owned 640 common shares in the capital stock of Westinghouse Canada Limited (hereinafter referred to as “WCL”), a publicly-traded Canadian corporation.

3. On February 8, 1977, Westinghouse Electric Corporation (“Westinghouse Electric”), a publicly-traded US corporation, extended to shareholders of WCL the alternatives of tendering their shares to Westinghouse Electric at $26 per share or of accepting a direct cash payment of $3.35 per share from Westinghouse Electric and keeping their shares.

4. The plaintiff did not tender any of his shares of WCL pursuant to the above- mentioned alternative offers. Therefore, in accordance with the second alternative referred to above, on or about March 18, 1977, the plaintiff received a direct cash payment from Westinghouse Electric in the amount of $2,144.

5. The plaintiff was not a shareholder of Westinghouse Electric nor had any connection with it at any material time.

6. At the time the alternative offers were made, Westinghouse Electric held approximately 75% of the shares of WCL.

7. By agreement with White Consolidated Industries Inc, a US corporation, Westinghouse Electric sold its appliance business and certain of its world-wide rights to White Consolidated Industries Inc as of December 31, 1974. WCL subsequently agreed to sell to WCI Canada Limited a subsidiary of White Consolidated Industries Inc, certain assets of its household appliance business. The consideration to be received by WCL for such assets was to have been equal to their net book value, to be paid by WCI Canada Limited, plus $8,000,000, to be paid by Westinghouse Electric.

8. The proposed sale to WCI Canada Limited was subject to the approval under the Foreign Investment Review Act, SC 73-74, c 46, and after two applications was subsequently not approved and the agreement between WCL and WCI Canada Limited was terminated.

9. As of December 31,1976, WCL agreed to sell its household appliance business to Canadian Appliance Manufacturing Company Limited (“CAMCO”). The price to be paid by CAMCO was approximately $6,000,000 less than the book value of the household applicance business as of December 31, 1976. The closing of the sale of CAMCO took place on June 30, 1977.

10. The alternative offers were made by Westinghouse Electric for its business purposes and in the hope of avoiding controversy or potential litigation on behalf of minority shareholders of WCL which may have arisen in respect of the sale of the household appliance division, particularly as a result of the disallowance of the original sale to WCI Canada Limited pursuant to the Foreign Investment Review Act. The respective offers were not made by reason of any enforceable claims by WCL shareholders against Westinghouse Electric.

11. In computing his income for the 1977 taxation year, the plaintiff did not include the direct cash payment received from Westinghouse Electric.

12. By his Notice of Reassessment No 604960 dated September 25, 1978, the Deputy Minister of National Revenue reassessed the plaintiff in respect of the 1977 taxation year and adjusted the plaintiff’s income to include the amount of $1,474,000. the Notice of Reassessment stated as follows:

“Your income has been adjusted to include a special payment of $1,474 received in 1977 from Westinghouse Electric Corporation as a shareholder of Westinghouse Canada Limited.”

This amount represents the direct cash payment in respect of the 440 shares registered in the plaintiff’s own name (the remaining 200 shares owned by the plaintiff are registered in the name of Wood Gundy Limited).

13. On October 4, 1978, the plaintiff duly filed a Notice of Objection with respect to the said reassessment.

14. By his Notice of Reassessment No 605202 dated October 31,1978, the Deputy Minister of National Revenue further reassessed the plaintiff in respect of the 1977 taxation year and adjusted the plaintiff’s income to include the amount of $670. The Notice of Reassesment stated as follows:

“Your return has been adjusted to include an additional payment from Westinghouse Electric Corporation of $670.”’

This additional amount represents the direct cash payment in respect of the 200 shares of the plaintiff registered in the name of Wood Gundy Limited.

DATED at Toronto this 10th day of January, 1980.

BLAKE, CASSELS & GRAYDON

Per: John B Tinker (signed)

Solicitors for the plaintiff

DATED at Toronto this 10th day of January, 1980.

R TASSE

Deputy Attorney General of Ontario

Per: N M Helfield (signed)

Solicitor for the defendant

The plaintiff also gave evidence to the effect that at all material times he was a Shareholder in Westinghouse Canada Limited but that he was never associated with Westinghouse Electric Limited and was never a shareholder in that company or employed by it. The only communication he ever had from such company was the offer of February 8, 1977 (ex 2). He retained his shares in Westinghouse Canada Limited and without any solicitation on his part received from Westinghouse Canada Limited the cheque for $2,144 which he cashed. He did not start litigation over the sale by Westinghouse Canada Limited of certain of its household appliance business nor did he communicate with other shareholders in respect of the matter.

The question to be decided is the nature of such payment. Was it a receipt of income within the provisions of the Income Tax Act? Counsel for the Minister acknowledges that if it is to be adjudged income it must be in relation to property. Section 9 of the Act reads:

(1) Subject to this part, a taxpayer’s income for a taxation year from a business or property is his profit therefrom for the year.

Subsection 248(1) of the Act states:

In this Act property means property of any kind whatever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes

(a) a right of any kind whatever, a share or a chose in action,

(b) unless a contrary intention is evident, money, and

(c) a timber resource property;

The payment does not come within the provisions of section 15 of the Act because the taxpayer was not a shareholder in the corporation which made the payment to him. It was made in such unusual circumstances that counsel advise me they have been unable to find a precedent. Most of the decisions which relate to the determination as to whether a payment should be classed as income for taxation purposes or otherwise are in relation to payments which bear some resemblance to remuneration for services rendered such as Seymour v Reed, [1927] AC 554; Hochstasser v Mayes, 38 TC 673; Curran v MNR, [1959] SCR 850; [1959] CTC 416; 59 DTC 1247; Moore v Griffiths, 48 TC 338; Domenic Cirella v The Queen, [1976] CTC 2292; 77 DTC 5442; Phaneuf v The Queen, [1978] 2 FC 564; [1978] CTC 21; 78 DTC 6001; The Queen v McLaughlin, [1979] 1 FC 470; [1978] CTC 602; 78 DTC 6406.

Moneys received by a taxpayer from his insurance company for stock destroyed or for stock-in-trade which has been expropriated is a trade receipt and is included in the taxpayers taxable income. The moneys so received were held to be part of the taxpayers trading receipts for taxation purposes since they were money into which the stock-in-trade was converted and was received in the course of their business. J Gliksten & Son Ltd v Green, [1929] AC 381; London Investment Co v IRC, [1957] 1 All ER 277; [1958] 2 All ER 230.

A case which bears closer resemblance is Federal Farms Limited v MNR, [1959] Ex CR 91; [1959] CTC 98; 59 DTC 1050. It arose from damage sustained by a market gardening corporation in the Holland Marsh area at the time that hurricane Hazel flooded lands and spoiled farm products in the fields. A company was incorporated to receive voluntary contributions to be distributed among the unfortunate farmers. The funds collected were not Sufficient to cover all damage and was divided proportionately among those who had suffered loss. The plaintiff was one who was a recipient of such fund in the amount of $10,000. The taxpayer carried no flood insurance and received nothing from any other source to cover such loss. The Minister in reassessing the taxpayer’s taxable income added such amounts thereto. He took the position that such amounts took the place of the vegetables and crops destroyed which had been the stock-in-trade of the plaintiff. Cameron, J, distinguished the case from Gliksten et al v Green (supra) on the basis that (a) the payment was entirely voluntary, (b) it was given by persons who had no business relations with the taxpayer, (c) it was unrelated to the taxpayer’s business activities, (d) the taxpayer had no legal right to demand any portion of the fund, (e) at the time of the loss he had no expectation of being so compensated, and (f) it was unlikely ever to happen again. He held that the payment was a gift and accordingly was not income or a revenue receipt taxable under the Income Tax Act.

The parties hereto by paragraph 10 of such Agreed Statement of Facts have agreed that the said offers of $3.35 per share to shareholders of Westinghouse Canada Limited were made by Westinghouse Electric for its business purposes and in the hope of avoiding controversy or potential litigation on behalf of minority shareholders of Westinghouse Canada Limited which may have arisen in respect of the sale of the household ap- plicance division, particularly as a result of the disallowance of the original sale to WCI Canada Limited pursuant to the Foreign Investment Review Act. The respective offers were not made by reason of any enforceable claim by WCL shareholders against Westinghouse Electric.

There was no evidence other than that contained in such paragraph 10, to indicate the nature of the controversy or litigation which Westinghouse Electric hoped to avoid by the payments made to the minority shareholders who retained their shares. If an action could have been brought against some of the parties involved as a result of the disallowance of such sale any recovery by the plaintiff would not ordinarily have the characteristics of income. In any event as far as the plaintiff was concerned the payment to him was voluntary and no relationship existed between the payor and the taxpayer who had no expectation of receiving the same until he received the offer (ex 2). It is most unlikely that a further payment will be made by him in respect of the transaction. The payment might be termed a windfall. I am convinced it was not a payment of income within the provisions of the Income Tax Act.

Judgment should therefor go declaring that the payment in question was not a receipt of income by the plaintiff and referring the assessment of the plaintiff’s taxable income for the year 1977 back to the Minister for reassessment on such basis.

The plaintiff should be allowed his costs of these proceedings against the defendant after taxation thereof.