Roy J Perini v. Her Majesty the Queen, [1978] CTC 164, 78 DTC 6080

Walsh, J:—This case concerns the reassessment of plaintiff's taxes for the 1969 year. His appeal from same to the Tax Review Board was dismissed, notification of judgment being sent to him on September 23, 1976. Similar reassessments were made for his 1970 and 1971 taxation years and similar judgments were made by the Tax Review Board. Actions appealing same bear the Record Nos T-4571-76 and 4572-76 respectively of this Court and by order of Associate Chief Justice Thurlow dated December 2, 1977, the three actions were heard together on common evidence. The reasons for judgment in the present proceedings will therefore be applicable to the actions bearing Record Nos T-4571-76 and T-4572-76. On November 14, 1968 plaintiff sold all of the issued shares in the capital stock of All Records Supply Company of Canada Ltd (ARS) to Columbia Records of Canada Ltd for a price of $660,000 payable on closing together with additional payments to be made in each of the calendar years 1969, 1970 and 1971, the amounts of which were to be determined pursuant to the provisions of the agreement. Interest at the rate of 7% per annum was payable on these amounts from the date of the closing to the date of payment, and the notice of reassessment included the sum of $14,031.19 in respect of interest for the year 1969, $28,431.74 in respect to the year 1970, and $119,262.60 in respect to the year 1971. It is the assessment of these amounts as interest to which plaintiff objects the actual figures not being in dispute. It is plaintiff’s contention that the amounts were not received by him as interest or on account of or in lieu of payment of, or in satisfaction of interest, but rather as part of the purchase price payable by plaintiff in consideration of the sale of the said shares. Defendant contends that the said amounts constituted interest within the meaning of paragraph 6(1)(b) of the Income Tax Act in effect at the time.* [1] In the alternative defendant contends that the said payments constituted income from property and consequently were taxable by virtue of section 3 of the said Income Tax Act.

The sections in question read as follows:

6. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year

(b) amounts received in the year or receivable in the year (depending upon the method regularly followed by the taxpayer in computing his profit) as interest or on account or in lieu of payment of, or in satisfaction of interest;

3. The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year from all sources inside or outside Canada and, without restricting the generality of the foregoing, includes income for the year from all

(b) property, . . .

Section 1.3(v) of the sale agreement of the shares reads in part as follows:

To each payment of principal pursuant to clauses (ii), (iii) and (iv) above there shall be added interest thereon at the rate of 7% per year from the Closing Date to the date of payment. The right to receive payments pursuant to clauses. (ii), (iii) and (iv) of this paragraph shall be personal to Seller, may not be transferred by him and shall terminate upon his death and payments shall not be prorated for the period prior to his death.

Sections 1.3(ii), (iii) and (iv) of the agreement which established the basis of calculating the balance payable under the sale on which the interest was paid read as follows:

(ii) Following receipt of an audited financial statement for the year ended April 30, 1969—a payment equal to the lesser of (A) $400,000 and (B) the result obtained by dividing the post-tax net profits of ARS for such year by $186,000 and multiplying the result by $400,000.

(iii) Following receipt of an audited financial statement for the year ended April 30, 1970—a payment which shall cause the total payments under this clause (iii) and the preceding clause (ii) to equal the lesser of (A) $800,000 and (B) the result obtained by dividing the net aggregate of the post-tax net profits (after deducting losses) of ARS, as determined by said audited financial statement, for the two fiscal years ended April 30, 1969 and 1970 by $372,000 and multiplying the result by $800,000.

(iv) Following receipt of an audited financial statement for the year ended April 30, 1971—a payment which shall cause the total payments under this clause (iv) and the preceding clauses (ii) and (iii) to equal the lesser of

(A) $1,200,000 and (B) the result obtained by dividing the net aggregate of the post-tax net profits (after deducting losses) of ARS, as determined by said audited financial statement, for the three fiscal years ended April 30, 1969, 1970, and 1971 by $558,000 and multiplying the result by $1,200,000.

In addition to the Tax Review Board file a letter from Columbia Records of Canada Ltd addressed to the Department of National Revenue, Taxation, District Office, Toronto was filed as an exhibit which showed the schedule of payment under the agreement as follows:

Jurisprudence has made it clear that it is the true nature of a payment which matters rather than what it is called so that the fact that a payment is designated as being interest does not necessarily make it interest for legal purposes, and the converse is also true. One statement to this effect is found in the judgment of Thurlow, J, as he then was, in the Court of Appeal in the case of MNR v Yonge- Eglinton Building Limited, [1974] FC 637 at 653; [1974] CTC 209 at 219;* 74 DTC 6180 at 6187, where he states:

. . . It is a commonplace that merely calling payments interest does not make them interest. If the payments do not have the necessary characteristics properly to categorize them as interest the designating of them as interest does not make them such.

A statement to the same effect may be found in the House of Lords case of Commissioners of Inland Revenue v Wesleyan and General Assurance Society, 30 TC 11 at 25, where Viscount Simon stated:

It may be well to repeat two propositions which are well established in the application of the law relating to Income Tax. First, the name given to a transaction by the parties concerned does not necessarily decide the nature of the transaction. To call a payment a loan if it is really an annuity does not assist the taxpayer, any more than to call an item a capital payment would prevent it from being regarded as an income payment if that is its true nature. The question always is what is the real character of the payment, not what the parties call it.

In the case of Huston and Whitehead v MNR, [1962] Ex CR 69 at 74-5; [1961] CTC 414 at 419-20; 61 DTC 1233 at 1236-7, Thurlow, J, as he then was, had this to say:

In approaching this question, it may be observed that, if amounts can be or become interest within the meaning of Section 6(1)(b) merely by reason of what they are called, how they are computed and what they are intended tc represent, there is no difficulty here, for the amounts were called interest, they were calculated at a yearly rate on a “principal” sum for a particular period of time, and they were obviously intended by Chief Justice llsley, and I think by every subsequent authority who dealt with the matter, to compensate the appellants in respect of their not having had the “principal” amount from January 1, 1946 until October 10, 1958. Moreover, if the intention of the payer or even that of the payer and receiver were conclusive, I would have little difficulty in reaching the conclusion that the sums in question were paid and received as interest.

These features, however, to my mind are not only not conclusive but are liable to confuse and obscure the real issue. That issue is whether these amounts from the point of view of the appellants were “received as interest’ within the meaning of Section 6(1)(b). The name attached by the parties to payments, the way the amounts are calculated, and what they represent may often be of great importance in resolving such an issue, but the issue is one of substance and depends not on these features alone but on the other features of the case, as well. For just as a sum which is in truth interest, though called by some other name, will fall within the meaning of the section, so a sum which in truth is not. interest, in my opinion, will not be “received as interest” within the meaning of the section, even though it may have the name and some of the other attributes of interest. To take the example suggested by counsel, it is, I think, plain that a legacy would not be “received as interest” within the meaning of Section 6(1)(b) merely because the testator in his will had chosen to call it interest and had directed that its amount be computed by reference to a rate on a particular amount for the period between the making of the will and the testator’s death.

At pages 76 and 77 [420-21, 1237] of the said judgment two of the leading British cases are discussed. The judgment states:

In Simpson v Executors of Bonner Maurice, 14 TC 580, an amount described and calculated as interest was awarded by a tribunal which was authorized under the Treaty of Versailles to award “compensation in respect of damage or injury inflicted upon” the property of the deceased. It was held that the amount was not interest or income. Rowlatt, J, whose judgment was affirmed by the Court of Appeal, said at page 593:

“The Treaty gave compensation, and the tribunal which assessed the principal sum has assessed it as interest. I think this sum first came into existence by the award, and no previous history or anterior character can be attributed to it. It is exactly like damages for detention of a chattel, and unless it can be said that damages for detention of a chattel can be called rent or hire for the chattel during the period of detention, I do not think this compensation can be called interest.”

The situation in Riches v Westminster Bank was quite different from that in the example, as well as from those in the cases cited and that in the present case. In the Riches case, what was held taxable was an amount awarded by a court pursuant to a statute authorizing the award of interest. It was awarded in respect of a sum which the plaintiff had had a legal right to receive many years earlier, and it was awarded as interest in respect of the intervening period. That the amount so awarded was of an income nature was on the whole reasonably clear, and the main question decided was not whether it had such a character but whether the fact that an award of interest in such circumstances was an award in the nature of damages for the detention of the principal sum was not compatible with it being regarded as income exigible to tax. The House of Lords held that there was not necessarily any incompatibility between the two conceptions. Viscount Simon put the matter thus at page 187:

“The Appellant contends that the additional sum of £10,028, though awarded under a power to add interest to the amount of the debt, and though called interest in the judgment, is not really interest such as attracts Income Tax, but is damages. The short answer to this is that there is no essential incompatibility between the two conceptions. The real question, for the purpose of deciding whether the Income Tax Acts apply, is whether the added sum is capital or income, not whether the sum is damages or interest.”

Lord Simonds also said at page 194:

“Here the argument is that, call it interest or what you will, it is damages and, if it is damages, then it is not ‘interest in the proper sense’ or ‘interest proper’, expressions heard many times by your Lordships.

This argument appears to me fallacious. It assumes an incompatibility between the ideas of interest and damages for which I see no justification. It confuses the character of the sum paid with the authority under which it is paid. Its essential character may be the same, whether it is paid under the compulsion of a contract, a statute or a judgment of the Court. In the first case it may be called ‘interest’ and in the second and third cases ‘damages in the nature of interest’, or even ‘damages’. But the real question is still what is its intrinsic character, and in the consideration of this question a description due to the authority under which it is paid may well mislead.”

At page 78 [423, 1238] Justice Thurlow states:

No case of which I am aware goes so far as to hold such an amount, call it interest or damages or compensation or any other name, to be. interest or income when there was neither interest accruing in fact on the “principal” amount during the material period nor any right to the “principal” amount vested in the taxpayer during that period.

Plaintiff attaches some significance to the fact that the preamble to section 1.3 of the contract reads: “As full payment for the sale of shares CRC will pay seller as follows:” and that it is only in subparagraph (v) that the provision is made for payment of interest on each payment of principal pursuant to clauses (ii), (iii) and (iv). The fact that full payment would require the payment of interest as well as future instalments of principal, if in fact such payments became payable, does not in my view justify a conclusion that the interest portion of such full payment must be considered as a payment on account of capital, since it is merely one element which together with the payments of principal constitutes full payment.

Possibly the best definition of interest is found in the case of In the Matter of a Reference as to the Validity of Section 6 of the Farm Security Act, 1944 of the Province of Saskatchewan, [1947] SCR 394 at 411-12, in which Rand, J stated:

Interest is, in general terms, the return or consideration or compensation for the use or retention by one person of a sum of money, belonging to, in a colloquial sense, or owed to, another. There may be other essential characteristics but they are not material here. The relation of the obligation to pay interest to that of the principal sum has been dealt with in a number of cases including: Economic Life Assur Society v Usborne, [1902] AC 147, and of Duff, J in Union Investment Co v Wells (1929), 39 Can SCR at 645, from which it is clear that the former, depending on its terms, may be independent of the latter, or that both may be integral parts of a single obligation or that interest may be merely accessory to principal.

But the definition, as well as the obligation, assumes that interest is referable to a principal in money or an obligation to pay money. Without that relational structure in fact and whatever the basis of calculating or determining the amount, no obligation to pay money or property can be deemed an obligation to pay interest.

Adopting this definition of Justice Rand, Judson, J in the case of Attorney General for Ontario v Barfried Enterprises Ltd, [1963] SCR 570, stated at page 575:

The day-to-day accrual of interest seems to me to be an essential characteristic.

There was of course no day-to-day accrual in the present case nor any capital amount established on which the interest could be calculated until following the audit each year when the preceding year’s profit on which the amount of capital on which the interest was based could be calculated, and then only if the vendor was still alive at that time.

Reference was also made by plaintiff to Simon’s Taxes, 3rd ed, No 01.204, where it was stated:

Where, by a contract of sale and purchase, an undertaking owned by one person is transferred to another, it frequently happens that the date from which the sale is to take effect is previous to the date of the contract and that the purchase consideration is nominally fixed as at the earlier date, usually that of the last balance sheet of the undertaking. In such a case the contract often provides that, whilst the profits of the undertaking as from the date of the vendor’s last balance sheet shall belong to the purchaser, the latter shall pay “interest” on the purchase consideration as from the balance sheet date.

The Revenue have hitherto accepted that, in these circumstances, there is no sum of money lent and no debt carrying interest, and the characteristics of “interest of money” for the purpose of Schedule D Case III are not to be found. It is merely an adjustment of the nominal consideration for the transfer. On the other hand interest for delay in completion of a sale beyond the date fixed by the contract is chargeable.

A case which has a bearing on this type of calculation is Southport Corporation v Lancashire County Council, [1937] 2 KB 589. Here an authority transferred its functions to other authorities, together with its properties on the appointed day. The amount due between the parties was the subject of negotiation which took some time, and the sum fixed was eventually agreed and handed over with “interest” from the appointed day, but such “interest” was regarded only as an element in calculating what was due and was not interest as such. .

In the case of Re Euro Hotel (Belgravia) Ltd, [1975] 3 All ER 1075, reference was made at pages 1083-4 to both the Saskatchewan Farm Security Act case and Riches v Westminster Bank Ltd, [1947] 1 All ER 469, Megarry, J stating:

The Canadian case of Reference Re Saskatchewan Farm Security Act 1944, Section 6 is on a subject far removed from the present, but it is of value for some words that Rand and Kellock JJ uttered in the Supreme . Court of Canada. Rand J said:

“Interest is, in general terms, the return or consideration or compensation for the use or retention by one person of a sum of money, belonging to, in a colloquial sense, or owed to, another.”

The learned judge added:

(6 . . the definition, as well as the obligation, assumes that interest is referable to a principal in money or an obligation to pay money. Without that relational structure in fact and whatever the basis of calculating or determining the amount, no obligation to pay money or property can be deemed an obligation to pay interest.”

Kellock J said: “There can be no such thing as interest on principal which iS non-existent.” To these authorities, which were duly put before me, I would add a passage from the speech of Lord Wright in Riches v Westminster Bank Ltd, a case concerned with “interest of money” in the taxing Acts. He said:

. . . the essence of interest is that it is a payment which’ becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit. he might have made if he had had the use of the money, or, conversely the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation.”

It seems to me that running through the cases there is the concept that as a general rule two requirements must be satisfied for a payment to amount to interest, and a fortiori to amount to “interest of money”. First, there must be a sum of money by reference to which the payment which is said to be interest is to be ascertained. A payment cannot be “interest of money” unless there is the requisite “money” for the payment to be Said to be “interest of”. Plainly, there are sums of “money” in the present case. Second. those sums of money must be sums that are due to the person entitled to the alleged interest.

Finally plaintiff contended that reassessment in the present case is contrary to the practice of the Department of National Revenue as set out in its Interpretation Bulletin IT-396 dated October 17, 1977, paragraph 16 of which reads as follows:

16. Interest, while not defined in the Act, has been described in general terms in the Court as “the return or consideration or compensation for the use or retention by one person of a sum of money, belonging to, in a colloquial sense, or owed to, another.’’ From this description, it follows that interest does not arise unless there is an amount due to, or belonging to, another person at the beginning of the period for which the interest is calculated. Consequently, although an amount received as proceeds of sale of property, an award for damages or compensation for property expropriated may include an amount described as interest and computed in the same manner as interest, it does not constitute interest in the sense contemplated by the Income Tax Act where there is no principal amount due, even if it is intended to offset an income loss. The tax treatment applicable to the proceeds, award or compensation as a whole applies equally to this element. However, once a right to receive an amount has been established (even though the actual amount may not be determined or determinable until a later date), any interest paid in respect of a delay in payment is included in the recipient’s income in the ordinary manner. For example, an agreement for the purchase and sale of real property at a negotiated price of $100,000 is not finalized at the proposed closing date of January 1, 1976, because of a dispute between the parties. Sixteen months later, agreement is reached advancing the closing date to April 1, 1977, and adding $12,000 of “interest’’ to the selling price (9% of $100,000 for 16 months). The additional $12,000 received by the vendor is not included in the vendor’s income under paragraph 12(1)(c) but is treated, for tax purposes, as being included in the proceeds of disposition of $112,000. However, interest paid in respect of any balance of the proceeds unpaid after April 1, 1977. is included in the recipient’s income in the normal manner as interest income.

There is some authority for reference to such bulletins. The principle is well set out in the decision of the Tax Review Board in the case of Fred Padfield Limited v MNR, [1976] CTC 2249; 76 DTC 1195, in which the Chairman Lucien Cardin, QC stated at page 2250 [1196]:

In order to confirm the accepted principle that neither the courts nor the Board are bound or estopped by Interpretation Bulletins emanating from the Department of National Revenue, counsel for the respondent cited the case of Ernest G Stickel v MNR, [1972] CTC 210; 72 DTC 6178, in which Mr Justice Cattanach clearly established that an Information Bulletin is not a statute and cannot be substituted for the Act. In my opinion, the learned judge’s decision in respect of the Information Bulletin in the Stickel case is equally valid and applicable to any of the Interpretation Bulletins published periodically by the Department of National Revenue. There can be no question that the interpretation of statutes is the exclusive prerogative of the courts. Interpretations of certain sections of the Income Tax Act put forward by either party in an issue are for obvious reasons very closely scrutinized by the Board or the courts and, of course, are not binding on the tribunals. Accordingly, no matter how well-intentioned they may be, general Interpretation Bulletins of various sections of the Income Tax Act emanating from the Department of National Revenue, whether circulated by it or reproduced in other publications, cannot be, and indeed are not, binding on the courts. However, the corollary to that principle is, in my opinion, equally important, and that is that the tribunal is not precluded from applying what it contends to be a legally valid interpretation of a particular section of the Income Tax Act simply because it has also been put forward in a Department of National Revenue Interpretation Bulletin or in some other publication.

In the Supreme Court case of J Camille Hare/ v Deputy Minister of Revenue of the Province of Quebec, [1977] CTC 441; 77 DTC 5438, de Grandpré, J in rendering the judgment of the Supreme Court stated at page 447 [5441-2]:

If I had the slightest doubt on this subject, I would nevertheless conclude in favour of appellant on the basis of respondent’s administrative policy. Clearly, this policy could not be taken into consideration if it were contrary to the provisions of the Act. In the case at bar, however, taking into account the historical development that I will review rapidly, this administrative practice may validly be referred to since the best that can be said from respondent’s point of view is that the legislation is ambiguous.

and again at page 448 [5442]:

Once again, I am not saying that the administrative interpretation could contradict a clear legislative text, but in a situation such as I have just outlined, this interpretation has real weight and, in case of doubt about the meaning of the legislation, becomes an important factor.

I do not agree however with plaintiff’s argument that the Interpretation Bulletin has not been properly applied in the present case. Part of the quotation from paragraph 16 (supra) reads:

However, once a right to receive an amount has been established (even though -the actual amount may not be determined or determinable until a later date), any interest paid in respect of a delay in payment is included in the recipient’s income in the ordinary manner.

If it is concluded that the contract established the right to receive an amount which would however only be quantified in the three following years, then the interest paid on these capital payments once they were determined would be considered as income. The example given in paragraph 16 is of no help to plaintiff since the closing date was advanced by 16 months as a result of which the price was higher as a result of interest. The negotiated price had not been finalized earlier so that it would appear that there was no meeting of the minds until a later date. In the present case the contract was finalized when it was signed on November 14, 1968, but the amount of subsequent payments was left open, though determinable according to the formula in the agreement. Plaintiff states that it was evident that the vendor thought that the shares should be worth at least $1,860,000 and was prepared to take $660,000 as a down-payment with three future annual instalments of $400,000 each, but that the purchaser evidently had some doubt as to the future profitability of the business and was unwilling to make a firm commitment to pay this price unless the profits of the business held up as they had in the past. By taking a ratio of the profit for the year ending April 30, 1969, to the sum of $186,000 which was presumably the net profit for the year ending prior to the sale and applying this ratio to $400,000 the payment due in the year 1969 would be increased or decreased accordingly as the profits had gone up or down. The same would apply to the 2-year period ending April 30, 1970 and the 3-year period ending April 30, 1971. Actually on the profit of the 1969 year the amount payable as capital as a result of this application was less than $400,000 and the same applies to the year 1970. For the year 1971, however, it was substantially above $400,000. Plaintiff contends that if there had been no profit or a loss for the year 1969 and similarly for the 2-year period ending in 1970, or the 3-year period ending in 1971, no further payments would have been due under the sale agreement, as would also be the case if the vendor had died before the due date of any payment which would then be forgiven and that there was therefore no fixed sum on which interest could be calculated, so that when in due course the payments were required to be made pursuant to the contract the additional amounts, although called “interest”, were really further payments on account of capital, since it was only at the date of such payment that it could be determined whether in fact any sum at all was due.

Against these arguments defendant contends that plaintiff is making a distinction between the question of “whether” a payment is due and “when” it becomes due and that once it has been determined that an amount is owing, then in accordance with the contract they are deemed by the parties to have been owing from the date of the closing. Reference was made to the case of MNR v Mid-West Abrasive Company of Canada Limited, [1973] FC 911; [1973] CTC 548; 73 DTC 5429, in which a loan was covered by a promissory note which stated “Interest will be paid if requested”. The issue was that when the interest was eventually requested, whether it should be declared for income tax purposes in the year in which it was paid or for the period for which it was claimed. Sweet, DJ stated at page 920 [555, 5434]:

. . It is my opinion that following the request the respondent was obliged to pay interest for the use of the borrowed money during the year or years in which the borrowed money was used by the borrower, it being conceded that the demand for interest could be made retroactive to the dates of the loans.

Reference was also made to the case of Raja’s Commercial College v Gian Singh & Co Ltd, [1977] AC 312, in which the Simpson v Executors of Bonner Maurice and Riches v Westminster Bank Ltd cases (supra) were discussed in detail. The Simpson v Executors of Bonner Maurice case turned on a very similar point to that on which Thurlow, J, as he then was, decided the Huston and Whitehead case (supra), and both these cases can, I believe, be distinguished on the facts from the present case. Rowlatt, J stated at page 593 of the report of the Bonner Maurice case ((1929), 14 TC 580) the passage I have already quoted (supra):

. . . The Treaty gave compensation, and the tribunal which assessed the principal sum has assessed it on the basis of interest. I think this sum first came into existence by the award, and no previous history or anterior character can be attributed to it. It is exactly like damages for detention of a chattel, and unless it can be said that damages for detention of a chattel can be called rent or. hire for the chattel during the period of detention, I do not think this compensation can be called interest.

It cannot be said in the present case that no previous history or anterior character could be attributed to the payments due under the contract in 1969, 1970 and 1971. The liability here» although admittedly a contingent one, was incurred when the contract was signed and not when the demand for payment was made after the audit in each of the years in question. The facts of the present case more closely resemble those in the Riches case in which Viscount Simon stated at page 398:

. . . But I see no reason why when the judge orders payment of interest from a past date on the amount of the main sum awarded (or on a part of it) this supplemental payment, the size of which grows from day to day by taking a fraction of so much per cent per annum of the amount on which interest is ordered, and by the payment of which. further growth is stopped, should not be treated as interest attracting income tax. It is not capital. It is rather the accumulated fruit of a tree which the tree produces regularly until payment.

In the case of Terra Nova Properties Ltd v MNR, [1967] 2 Ex CR 46; [1967] CTC 82; 67 DTC 5064, a question arose as to whether interest paid to the taxpayer on an overpayment of income tax was taxable as interest within the meaning of paragraph 6(1)(b) of the Act. In finding that it was so taxable Jackett, P, as he then was, stated at page 51 [86, 5066]:

The fallacy that underlies the appellant’s contention, in my view, is the failure to distinguish between the actual amount of the taxpayer’s income tax liability for a particular year as imposed by the substantive: provisions of the Act, on the one hand, and, on the other hand, the determination of that amount by the Minister’s assessment thereof, while it remains in force, by the judgment of the Tax Appeal Board, while it remains in force, or by the judgment of this Court, while it remains in force, or, ultimately, by the Supreme Court of Canada. The actual liability is a constant amount that does not change as long as the facts and the substantive law remain unchanged. The assessed amount as varied by judicial decision, which is the amount which the Minister and all others concerned are bound to assume to be the actual amount of the liability, can change from time to time by virtue of new assessments or judicial decisions.

Once that distinction between the actual amount of the taxpayer’s liability and the current assessment of that liability is appreciated, in my view, the problem vanishes.

In the present case I think it can be said that the liability was created by the contract and merely had to be quantified subsequently.

Reference might also be made to the Privy Council case of Winter and Others v Inland Revenue Commissioners, [1963] AC 235, where on a question of contingent liability Lord Reid stated at page 247:

No doubt the words “liability” and “contingent liability” are more often used in connection with obligations arising from contract than with statutory obligations. But I cannot doubt that if a statute says that a person who has done something must pay tax, that tax is a “liability” of that person. If the amount of tax has been ascertained and it is immediately payable it is clearly a liability; if it is only payable on a certain future date it must be a liability which has “not matured: at the date of death” within the meaning of section 50(1). If it is not yet certain whether or when tax will be payable, or how much will be payable, why should it not be a contingent liability under the same section?

It is said that where there is a contract there is an existing obligation even if you must await events to see if anything ever becomes payable.

and again at page 248:

. . . if I agree by contract to accept allowances on the footing that I will pay a sum if I later sell something above a certain price I have committed myself and I come under a contingent liability to pay in that event.

Of some interest also is the discussion at pages 248-9 of this judgment of the Law of Scotland which derives substantially from Roman law. The learned Lord Reid states:

If English law is different—as to which I express no opinion—the difference is probably more in terminology than in substance.

Had the present case come for decision under the law of the Province of Quebec reference might have been made to Articles 1079 and 1085 of the Civil Code. Article 1079 reads in part:

1079. An obligation is conditional when it is made to depend upon an event future and uncertain, either by suspending it until the event happens, or by dissolving it accordingly as the event does or does not happen.

It is clear that in the present case the future payments are suspended until the amount of them can be calculated and dissolving it if no profits were made or the vendor had died before the deferred payments became due. Article 1085 states:

1085. The fulfilment of the condition has a retroactive effect from the day on which the obligation has been contracted. If the creditor be dead before the fulfilment of the condition, his rights pass to his heirs or legal representatives.

The second sentence would not be applicable in view of the terms of the contract that the right to future payments would not pass from the creditor to his heirs or legal representatives. The first sentence still has full effect.

Nothing to which I was referred indicates to me that the common law applicable in Ontario is different. Once it was ascertained that the profits had been made and could be calculated and that the vendor was still alive his obligation for the payments in each of the years 1969, 1970 and 1971 became due, and the condition having been fulfilled it had a retroactive effect to the date of the contract. Interest ran from that day on the payments due in accordance with the terms of the contract. I conclude that the amounts taxed by defendant as interest were in fact interest on the capital sums which became payable in the years in question and* not part of the said capital payments. In view of this finding it is not necessary to consider defendant’s alternative argument that the sums in question constituted “income from property’’ within the meaning of paragraph 3(b) of the Act, but if I had been called upon to do so I would have concluded that this argument cannot be sustained. Plaintiff had disposed of the property (his shares) at the date of the sale agreement so that there was no “property” on which income could be earned. What he had was rights to payment in accordance with the contract including undetermined amounts designated as interest therein which depended on the amounts of the capital payments to come due, and could not be considered as income from the property which had been sold. Defendant did not press this argument. Plaintiff’s actions are therefore dismissed with costs, only one set of costs for the trial of the three cases being allowed.