THURLOW,
J.:—These
appeals
are
from
assessments
of
nonresident
income
tax
levied
in
respect
of
amounts
of
interest
remitted
by
City
Park
Apartments
Limited,
a
resident
Canadian
corporation
to
each
of
the
appellants
in
each
of
the
years
1966,
1967
and
1968.
In
each
case
City
Park
Apartments
Limited
(which
is
referred
to
hereafter
as
City
Park)
deducted
15%
of
the
amount
to
be
paid
and
remitted
it
to
the
Receiver
General
of
Canada
and
the
Minister
subsequently,
on
application
being
made
by
the
appellants
for
refunds,
assessed
the
appellants
in
the
amounts
so
remitted.
The
issue
in
each
of
the
appeals
is
the
same,
that
is
to
say,
whether
non-resident
income
tax
was
payable
in
respect
of
the
interest
payments
in
question.
Liability
for
the
tax
turns
on
whether
or
not
the
interest
payments
fall
within
the
exception
provided
for
in
Section
106(1)
(b)
(iii)
(A)
of
the
Income
Tax
Act.
The
section
provides
that:
106.
(1)
Every
non-resident
person
shall
pay
an
income
tax
of
15%
on
every
amount
that
a
person
resident
in
Canada
pays
or
credits,
or
is
deemed
by
Part
I
to
pay
or
credit
to
him
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
(b)
interest
except
(iii)
interest
payable
in
a
currency
other
than
Canadian
currency
to
a
person
with
whom
the
payer
is
dealing
at
arm’s
length,
on
(A)
any
obligation
where
the
evidence
of
indebtedness
was
issued
on
or
before
December
20,
1960.
Here,
under
the
relevant
contracts
the
interest
was
payable
in
Swiss
francs
and
no
question
is
raised
as
to
the
evidence
of
indebtedness
having
been
issued
prior
to
December
1960.
What
is
in
question
is
whether
the
payments
made
by
City
Park
were
made
to
a
party
with
whom
it
was
dealing
at
arm’s
length.
The
loans
on
which
the
interest
in
question
accrued
were
made
to
City
Park
at
various
times
commencing
in
1954
and
ending
in
1958
by
each
of
the
two
appellants
in
equal
amounts
from
moneys
which
they
had
raised,
through
public
subscriptions
in
Switzerland,
where
they
reside
and
carry
on
their
business,
to
a
fund
known
as
Canada-Immobil
Investment
Fund
for
real
estate
in
Canada,
of
which
the
appellants
were
the
trustees.
At
the
times
material
to
the
appeals
there
were
about
2,000
persons
holding
certificates
for
investments
in
the
fund
all
of
which
certificates
were
in
bearer
form.
It
does
not
appear
from
the
evidence
and
was
not
suggested
that
any
of
the
certificate
holders
were
resident
in
Canada.
Following
the
raising
of
the
money
City
Park
had
been
incorporated
in
Ontario,
had
been
loaned
the
principal
amounts
in
question
and
had
constructed
two
apartment
buildings
in
Toronto.
The
moneys
used
by
City
Park
to
make
the
interest
payments
in
question
resulted
from
its
operations
of
these
apartment
buildings.
At
all
material
times
all
the
issued
shares
of
City
Park
were
registered
in
the
name
of
Société
Internationale
de
Placements
(hereafter
referred
to
as
SIP),
and
the
certificates
therefor
were
in
the
custody
of
the
appellants.
S
I
P
is
a
Swiss
corporation
engaged
in
the
management
of
investment
funds
and
is
the
manager
of
the
Canada-Immobil
Investment
Fund.
The
shares
of
City
Park
have
been
and
are
assets
of
that
fund.
The
share
capital
of
SIP
itself
was
and
is
held
by
the
two
appellants
and
another
corporation
in
the
proportions
of
40%,
40%
and
20%
respectively.
The
appellants
together
have
thus
been
at
all
material
times
in
a
position
to
control
SIP
but
their
capital
stock
is
publicly
held
and
they
themselves
are
not
related
to
each
other.
The
situation,
as
it
appears
to
me,
is
thus
one
in
which
the
assets
of
the
Canada-Immobil
fund
included
both
the
loans,
which
were
made
separately
and
were
repayable
with
interest
separately
to
the
appellant
banks,
and
all
the
capital
stock
of
the
debtor
company.
The
certificates
for
shares
in
the
Canada-Immobil
fund
bore
the
signature
of
S
SI
P
and
read
as
follows:
Each
share
entitles
the
holder
thereof
to
a
proportionate
right
of
co-ownership
in
the
assets
of
the
Fund
according
to
article
1
of
the
Regulations
reproduced
overleaf./
Each
share’s
participation
in
the
co-ownership
corresponds
to
the
assets
of
the
Fund
divided
by
the
number
of
shares
outstanding./
The
determination
of
value
of
each
share
as
well
as
the
rights
and
obligations
of
the
certificate
holders
are
governed
by
the
Regulations
(articles
7
and
4).
Each
holder
accepts
these
Regulations
and
any
subsequent
amendment
thereof
as
binding
(article
27).
Below
the
signature
of
S
SI
P
appeared
the
following
which
was
signed
by
the
appellants:
The
undersigned
trustees
confirm
that
an
amount
corresponding
to
the
current
value
of
the
proportionate
share
in
the
assets
of
the
Investment
Fund
represented
by
this
certificate
has
been
paid
into
the
Fund.
They
assume
the
obligation
to
exercise
the
functions
of
trustees
as
provided
for
by
the
Regulations.
The
Trustees
Among
the
provisions
of
the
regulations,
which
were
printed
on
the
back
of
the
certificate
and
bore
the
signatures
of
S
SIP
and
of
the
appellants,
were
the
following
:
In
order
to
facilitate
investments
in
real
estate
in
Canada,
the
undersigned
have
agreed
to
issue
certificates
in
bearer
form
evidencing
co-ownership
in
Canadian
real
estate.
These
values
and
assets
and
the
income
derived
therefrom
shall
constitute
a
fund
for
the
benefit
of
the
certificate
holders
which,
together
with
the
organization
created
for
its
administration,
shall
be
known
as
CANADA-IMMOBIL
Investment
Fund
for
real
estate
in
Canada
(abbreviation:
Fund).
The
contractual
relations
and
rights
between
the
holders
of
Certificates
and
the
Management
of
the
Investment
Fund
shall
be
governed
by
the
following
regulations:
1.
Each
Certificate
of
CANADA-IMMOBIL
Investment
Fund
for
real
estate
in
Canada
entitles
the
owner
thereof
:
(a)
to
proportionate
rights
of
Co-Ownership
in
the
assets
of
the
Fund,
within
the
meaning
of
Article
646
of
the
Swiss
Civil
Code
and
to
the
extent
of
the
number
of
shares
represented
by
said
Certificate.
(b)
to
the
rights
specified
in
these
Regulations
in
respect
of
income
and
of
realized
capital
gains,
if
any;
(c)
to
any
other
rights
arising
under
these
Regulations.
2.
All
rights
and
benefits
evidenced
by
the
Certificates
may
be
transferred
by
delivery
of
such
Certificates.
The
Managers
and
Trustees
of
the
Fund
may
treat
the
bearer
of
any
Certificate
and
the
bearer
of
any
dividend
coupon
as
the
owner
of
such
Certificate
or
coupon,
as
the
case
may
be,
for
all
purposes.
3.
These
Regulations
govern
the
legal
rights
of
Co-Ownership
with
regard
to
the
administration,
the
representation,
the
acquisition
and
sale
of
the
assets,
the
dissolution
of
the
relation
of
Co-Ownership,
the
method
of
liquidation
and
distribution
of
assets
and
all
rights
and
relationships
whatsoever
relating
to
the
Co-
Ownership
Fund.
Owners
of
Certificates
who
wish
to
withdraw
from
the
Co-Ownership
shall
not
be
entitled
to
claim
either
the
complete
dissolution
of
the
Fund,
or
a
physical
distribution
of
assets,
but
can
only
demand
the
repurchase
of
their
Certificates
by
the
Managers
or
Trustees
in
accordance
with
Article
9.
4.
By
acquiring
such
Certificates
each
owner
agrees
to
and
accepts
these
Regulations
and
any
amendments
thereof
as
binding
upon
him,
and
accepts
and
agrees,
to
be
bound
by
all
decisions
made
and
actions
taken
by
the
Managers,
the
Trustees
and
the
Committee
of
Experts
pursuant
thereto.
Such
owner,
however,
does.
not
assume
or
incur
any
liability
beyond
the
payment
of
the
purchase
price
of
such
Certificate.
5.
The
duration
of
the
Fund
is
unlimited.
The
Managers
have,
however,
the
right
at
any
time
upon
six
months’
notice
to
liquidate
the
Fund
as
provided
for
in
Article
18.
(B)
Form
and
Denomination
of
Co-Ownership
Shares
6.
Certificates
shall
be
issued
in
bearer
form
for
one
share
and
five
shares
with
yearly
coupons
attached.
The
text
of
these
Regulations
shall
be
printed
on
each
Certificate.
Certificates
shall
be
signed,
by
hand
or
by
facsimile,
by
the
Managers
and
the
Trustees.
(C)
Net
Asset
Value,
Issue
and
Repurchase
of
Co-Ownership
Shares
7.
The
net
asset
value
of
each
share
in
the
Fund
shall
be
determined
from
the
balance
of
all
assets
and
liabilities
of
the
Fund
divided
by
the
number
of
shares
outstanding.
In
the
case
of
value
of
shares,
the
net
asset
value
of
each
share,
after
allowance
for
all
expenses,
shall
be
adjusted
to
the
next
highest
mutiple
of
five
Swiss
Francs,
or
in
the
case
of
repurchase
of
shares
or
liquidation
of
the
Fund,
to
the
next
lower
multiple
of
five
Swiss
Francs.
8.
Until
further
notice,
Certificates
of
shares
in
the
Fund
will
be
issued
by
the
Managers
or
their
agents
in
accordance
with
the
possibilities
of
investment.
The
issue
price
for
each
share
shall
be
determined
on
the
basis
of
the
net
asset
value
(Art.
7)
plus
all
expenses
and
taxes
in
connection
with
the
issue.
This
price
also
includes
a
commission
of
244%
to
cover
issuing
expenses.
9.
Owners
of
Certificates
shall
at
any
time
have
the
right
to
require
the
repurchase
of
shares,
represented
by
such
Certificates,
out
of
the
assets
of
the
Fund,
on
presentation
thereof,
at
their
choice,
to
the
Managers,
or
the
Trustees,
or
their
Substitutes.
The
repurchase
price
of
a
share
shall
be
based
on
its
estimated
net
asset
value
(Art.
7)
by
deducting
expenses
which
would
be
incurred
in
effecting
a
sale
of
the
investments
at
that
time
and
any
taxes
which
would
become
exigible
as
a
result
of
such
a
sale
or
of
a
distribution
at
that
time
of
the
proceeds
of
such
a
sale.
Whenever
it
shall
become
necessary
to
sell
real
estate
in
order
to
meet
such
demands
for
repurchase
of
shares,
the
repurchase
price
shall
be
determined
and
payment
effected
after
the
receipt
of
proceeds
of
such
real
estate
sales.
11.
CO-OWNERSHIP
FUND
10.
The
values
and
moneys
belonging
to
the
owners
of
Certificates
constitute,
in
their
totality,
the
Co-Ownership
Fund.
According
to
these
Regulations
the
holders
of
Certificates
entrust
the
Managers
and
the
Trustees
respectively
with
the
safe-custody,
administration
and
representation
of
the
Co-Ownership
Fund.
11.
The
investments
in
real
estate
to
be
made
for
account
of
the
Fund
shall
be
effected
in
accordance
with
the
following
principles:
(a)
Real
estates,
from
which
a
regular
annual
revenue
may
be
expected,
.
..
(b)
Vacant
lots,
if
their
purchase
is
made
with
a
view
to
realize
building
projects
of
the
Fund.
(c)
Exceptionally,
vacant
land
on
which
no
buildings
will
be
erected
within
a
measurable
space
of
time
.
.
.
If
by
any
reason
the
Managers
consider
an
investment
in
real
estate
not
advisable,
they
may
at
their
discretion
invest
available
cash
balances
in
the
manner
they
deem
appropriate.
12.
All
investments
shall
be
acquired
with
moneys
of
the
Fund,
these
acquisitions
being
normally
effected
by
taking
over
or
founding
and
financing
real
estate
companies.
16.
The
revenues
from
the
investments,
diminished
by
the
expenditures
and
by
any
allowance
pursuant
to
Article
15,
shall
be
distributed
after
deduction
of
all
expenses
and
taxes
on
July
1st
every
year,
for
the
first
time
on
July
1st,
1955.
Payments
shall
be
made
without
deduction
of
a
commission.
The
Co-Ownership
Fund
shall
however
be
charged
with
an
annual
commission
of
3%
calculated
on
the
aggregate
value
of
the
real
estates
and
other
investments,
to
cover
safe-custody
fees
and
as
remuneration
of
the
Managers
for
their
services.
18.
In
case
the
Managers
decide
to
liquidate
the
Co-Ownership
Fund,
all
investments
shall
be
sold
on
the
best
possible
terms
by
the
Managers
within
such
time
as
they,
at
their
discretion,
deem
necessary.
The
net
proceeds
and
cash
amounts
available,
after
deduction
of
all
expenses
and
taxes
and
a
handling
fee
of
44%
shall
be
paid
out
by
the
Trustees
and
other
designated
paying
agents
(if
any)
against
surrender
of
the
certificates.
As
far
as
practicable,
payments
shall
be
made
in
yearly
instalments
if
the
liquidation
is
not
completed
within
one
year.
111.
ADMINISTRATION
19.
The
administrative
functions
of
the
Fund
shall
be
assigned:
(a)
The
Management:
to
the
Société
Internationale
de
Placements,
(SIP),
Basle,
Switzerland,
or
its
Substitutes
appointed
as
hereinafter
provided.
(b)
The
Trusteeship:
to
the
Swiss
Bank
Corporation,
Basle,
Switzerland,
and
the
Credit
Suisse,
Zurich,
Switzerland,
or
their
Substitute
appointed
as
hereinafter
provided.
(c)
The
Examination
and
Valuation
of
real
estates:
to
the
Committee
of
Experts.
20.
The
Managers
shall
exercise
the
functions
of
a
common
contractual
representative
of
the
Co-Owners
of
the
Fund.
They
shall
have
full
power
and
discretion
in
regard
to
the
investment
and
reinvestment
of
the
assets
of
the
Fund.
They
shall
arrange
for
the
purchase
and
sale
of
real
estates
and,
if
the
occasion
arises,
for
the
construction
of
buildings,
by
effecting
the
formation
or
taking
over
of
companies,
which
on
the
Managers’
instructions
undertake
the
necessary
steps.
As
regards
the
real
estate
companies
and
their
commissioners
in
Canada,
the
Managers
shall
give
instructions
for
the
execution
of
the
administrative
affairs,
shall
see
to
a
relevant
and
competent
management
of
the
real
estates
and
shall
supervise
the
administration.
21.
The
Trustees,
on
behalf
of
the
Certificate
holders,
shall
perform
the
following
functions:
To
receive
as
custodians
an
administrators
the
payments
of
subscribers
of
shares
and
the
proceeds
of
the
sale
of
real
estate
and
other
investments
as
well
as
the
amounts
for
the
payment
of
the
coupons
maturing
each
year.
To
act
as
custodians
and
administrators
for
moneys,
shares
of
companies
owned
by
the
Fund,
securities
and
other
documents
representing
claims,
as
well
as
for
values
assigned
to
the
Renewal-
and
Amortization
Fund.
Each
Trustee
shall
have
the
right
to
deposit
securities
and
other
assets
of
the
Fund
in
the
name
of
such
Trustee,
.
.
.
The
Trustees
shall
represent
the
Certificate
holders
in
their
relation
to
the
Managers,
With
regard
to
the
companies
belonging
to
the
Fund,
the
Trustees
shall
only
be
bound
to
ascertain
that
the
shares
and
other
documents
evidencing
ownership,
as
well
as
the
real
estate
properties
owned
by
such
companies,
are
not
sold
or
pledged
without
the
equivalent
being
utilized
for
the
benefit
of
the
Certificate
holders.
23.
All
expenses
for
steps
taken
or
caused
to
be
taken
by
the
Managers,
the
Trustees
or
the
Committee
of
Experts
in
the
fulfillment
of
their
respective
functions
shall
be
charged
against
the
investments
or
the
income
derived
therefrom.
The
same
applies
to
any
fees
for
management
of
real
estate
and
administrative
work
(Article
20
par.
4)
payable
to
commissioned
firms
in
Canada
at
the
rates
prevailing
there.
24.
The
Managers,
the
Trustees
and
the
Committee
of
Experts
shall
perform
their
duties
with
every
care,
without,
however,
assuming
any
liability.
27.
Any
matters
relating
to
the
administration
of
the
Fund
not
specifically
covered
by
these
Regulations
shall
be
settled
and
determined
or
provided
for
by
unanimous
action
of
the
Managers
and
the
Trustees,
and
published
in
the
manner
provided
in
Article
29
hereafter,
and
upon
such
publication
such
amendments
shall
be
binding
on
the
Certificate
holders,
their
successors
and
assigns,
to
the
same
extent
as
if
incorporated
in
these
Regulations.
In
case
of
disagreement
between
the
Managers
and
the
Trustees,
the
matter
shall
be
determined
in
accordance
with
Article
28.
28.
Any
disagreement
between
the
Managers
and
the
Trustees
and
any
disputes
between
the
Managers,
Trustees
and
the
Certificate
holders
shall,
except
in
the
case
hereinafter
provided
for,
be
settled
by
arbitration
without
recourse
to
the
Courts.
Notwithstanding
the
use
in
these
regulations
of
the
expression
“co-ownership”
and
other
like
expressions
to
characterize
the
nature
of
the
certificate
holders’
rights
and
the
constitution
of
the
managers
under
regulations
10
and
20
as
contractual
representatives
of
the
co-owners
of
the
fund
the
evidence
indicates
that
the
preponderance
of
legal
opinion
in
Switzerland
favoured
the
view
that
the
certificate
holders
were
not
in
fact
owners
of
the
fund
or
any
of
its
assets
and
had
no
rights
in
rem
in
respect
of
them
but
simply
had
rights
enforceable
in
personam
against
the
managers
and
the
trustees
to
compel
performance
of
the
obligations
undertaken
by
them
under
the
contract.
An
act
of
the
Swiss
Parliament
which
came
into
force
on
February
1,
1967
and
applied
to
existing
funds,
as
well
as
to
those
organized
thereafter,
set
at
rest
any
doubt
that
may
theretofore
have
existed
on
the
question
by
making
it
clear
that
the
rights
of
the
certificate
holders
were
simply
rights
to
claim
against
the
managers
and
trustees
of
the
fund.
Thereafter
certificates
issued
for
shares
in
the
Canada-Immobil
fund
bore
a
surcharged
stamp
stating
in
German
and
in
French:
Conformément
à
la
loi
sur
les
fonds
de
placement,
les
porteurs
de
parts
n’ont
aucun
droit
de
co-propriété,
mais
seulement
des
droits
de
créance.
The
funds
raised
by
the
sale
of
these
certificates
were
credited
first
to
the
ordinary
account
of
SIP
in
each
of
the
appellant
banks
and
thereafter
on
S
I
P’s
instructions
they
were
trans-
fered
to
a
S
I
P
Canada-Immobil
capital
account
from
which
funds
to
be
loaned
to
City
Park
were
transfered,
on
S
I
P's
instructions,
to
a
S
SIP
advance
account
for
real
estate
companies
and
from
that
account
to
an
advance
account
in
the
name
of
City
Park
on
which
that
company
could
then
draw
to
pay
for
its
land
and
the
construction
of
its
buildings.
Money
subsequently
remitted
by
City
Park
to
the
appellants
as
interest
on
the
loans
was
converted
by
them
to
Swiss
franes
on
a
date
fixed
by
S
SIP
and
thereupon
deposited
to
a
SIP
Canada-Immobil
income
account.
When
the
annual
coupons
of
the
certificate
holders
fell
due
a
sum
sufficient
to
pay
the
amount
fixed
by
SIP
P
to
be
paid
out
to
them
was
transferred
from
the
income
account
to
a
distribution
account
from
which
the
coupon
payments
would
be
made.
Before
transferring
funds
from
income
to
distribution
account
it
was
necessary
to
have
regard
for
amounts
to
be
paid
for
expenses
and
commission
to
S
SI
P
and
the
appellants
and
to
amounts
to
be
held
as
reserves
but
subject
to
such
items
the
amount
transferred
to
distribution
account
was
in
practice
substantially
the
whole
of
the
funds
in
the
income
account.
The
contracts
under
which
moneys
of
the
fund
were
loaned
to
City
Park
were
separate
contracts
for
each
of
the
appellants
but
were
in
similar
terms.
They
recited
the
acquisition
by
City
Park
of
an
apartment
site
in
Toronto
and
the
making
by
City
Park
of
a
contract
for
the
construction
of
an
apartment
building
thereon
and
they
went
on
to
say
that
in
consideration
thereof
the
bank
granted
the
loan
and
that
a
similar
loan
would
be
made
by
the
other
bank.
Interest
was
then
provided
for
at
the
rate
of
714%
per
annum
and
for
an
increase
to
814%
in
case
of
default
in
its
payment.
The
borrower
agreed
to
raise
all
funds
needed
to
finance
the
bonds
and
projected
building
from
the
appellants,
not
to
borrow
from
any
other
money
lender
and
not
to
encumber
the
property
save
that
the
banks
were
entitled,
if
they
saw
fit,
to
demand
security
by
way
of
mortgage
on
the
property
for
the
loans.
The
duration
of
the
loans
was
unlimited
but
either
party
had
the
right
to
terminate
them
on
six
weeks’
notice.
City
Park
further
gave
the
appellant
in
each
case
the
right
“to
examine
at
any
time
upon
request
by
the
latter,
their
bookkeeping
and
administration
and
to
effect
undisturbedly
any
control
of
the
real
estate
property
and
its
management”
all
at
the
cost
of
City
Park.
The
contracts
were
declared
to
be
governed
by
Swiss
law
and
City
Park
elected
domicile
in
Switzerland.
In
each
of
the
years
here
in
question
the
profits
of
City
Park
were
not
sufficient
to
permit
it
to
pay
the
whole
of
the
interest
which
accrued
on
the
loans
and
on
S
I
P’s
instructions
substantial
amounts
of
accrued
interest
were
waived.
The
appellants’
case
for
regarding
the
appellants
as
parties
with
whom
City
Park
dealt
at
arm’s
length,
as
I
understood
it,
was
that
the
transactions
to
be
considered
were
simply
those
of
the
payments
of
interest
made
in
the
years
in
question
pursuant
to
the
loan
contracts
made
in
1954,
that
if
the
appellants
are
considered,
as
a
strict
reading
of
the
statute
would
indicate
they
should
be
considered,
as
the
payees
of
the
interest
there
was
no
ease
for
holding
that
either
appellant
had
control
of
City
Park,
since
it
held
no
shares
therein,
or
that
it
had
control
of
SIP,
since
it
held
but
40%
of
the
shares
therein,
and
that
on
the
facts
the
appellants
had
an
obligation
to
receive
the
interest
and
distribute
it
in
accordance
with
the
fund
regulations
and
in
so
doing
exercised
no
influence
or
control
over
City
Park
and
could
not
properly
be
said
to
deal
with
that
company
otherwise
than
at
arm’s
length.
On
the
other
hand,
in
counsel’s
submission,
if,
for
the
purposes
of
Section
106,
the
certificate
holders
were
to
be
regarded
as
the
recipients
of
the
interest,
as
a
broad
readings
of
the
statute
indicated
they
should,
it
could
not
be
said
that
they
had
any
shareholding
in
or
control
or
power
to
exercise
control
over
City
Park
and
that
they
could
not
properly
be
regarded
otherwise
than
as
persons
with
whom
that
company
dealt
at
arm’s
length.
The
position
of
counsel
for
the
Minister
on
the
other
hand
was
that
City
Park
was
at
all
material
times
under
the
control
of
S
SIP
and
that
the
appellants
as
well,
in
matters
pertaining
to
the
Canada-Immobil
fund,
were
subject
to
the
control
of
SIP,
from
which
it
followed
that
the
appellants
and
City
Park
could
not
be
said
to
deal
at
arm’s
length.
Further
in
his
submission
if
the
certificate
holders
were
regarded
as
the
receivers
of
the
interest
S
I
P
was
their
representative
in
matters
pertaining
to
the
fund
and
since
it
also
controlled
City
Park
on
their
behalf
they
were
not
parties
with
whom
City
Park
could
be
said
to
deal
at
arm’s
length.
Alternatively
it
was
submitted
that
the
interest
in
question
was
subject
to
tax
as
income
of
a
trust
under
Section
106(1)
(c)
of
the
Income
Tax
Act.
I
should
add
at
this
point
that
counsel
for
all
parties
indicated
that
what
was
desired
was
a
determination
of
the
question
whether
the
interest
payments
in
question
were
subject
to
tax
under
Section
106
of
the
Act,
rather
than
of
the
narrower
question
whether
the
assessments
in
respect
thereof
were
properly
made
against
the
appellants.
A
useful
discussion
of
the
concept
involved
in
the
expression
dealing
at
arm’s
length’’
and
similarly
worded
expressions
in
the
Income
Tax
Act
and
the
Estate
Tax
Act
is
found
in
the
judgment
of
my
brother
Cattanach,
J.
in
M.N.R.
v.
T.
R.
Merritt
Estate,
[1969]
2
Ex.
C.R.
51;
[1969]
C.T.C.
207,
where
at
page
61
[216]
he
said:
In
M.N.R.
v.
Sheldon’s
Engineering
Ltd.,
[1955]
S.C.R.
637;
[1955]
C.T.C.
174,
Locke,
J.,
delivering
the
judgment
of
the
Supreme
Court
of
Canada,
had
occasion
to
comment
upon
the
expression
“dealing
at
arm’s
length”
as
it
appeared
in
a
provision
in
the
Income
Tax
Act.
He
said
at
page
643
[p.
179]
:
The
expression
is
one
which
is
usually
employed
in
cases
in
which
transactions
between
trustees
and
cestuis
que
trust,
guardians
and
cestuis
que
trust,
guardians
and
wards,
principals
and
agents
or
solicitors
and
clients
are
called
into
question.
The
reasons
why
transactions
between
persons
standing
in
these
relations
to
each
other
may
be
impeached
are
pointed
out
in
the
judgments
of
the
Lord
Chancellor
and
of
Lord
Blackburn
in
McPherson
v.
Watts
(1877),
3
App.
Cas.
254.
He
went
on
to
say,
however,
that
“These
considerations”—i.e.,
the
reasons
why
transactions
between
persons
standing
in
such
relations
as
trustee
and
cestuis
que
trust
may
be
impeached—
“have
no
application
in
considering
the
meaning
to
be
assigned
to
the
expression
in
Section
20(2)”.
Having
thus
put
aside
the
principles
that
had
been
developed
concerning
transactions
between
persons
standing
in
the
relationship
of
trustee
and
cestuis
que
trust
and
other
relationships
giving
rise
to
an
implication
of
undue
influence,
Locke
J.
went
on
to
reject
the
argument
that
the
provision
in
the
Income
Tax
Act
at
that
time
whereby
certain
defined
classes
of
persons
were
deemed
not
to
deal
with
each
other
at
arm’s
length
was
exhaustive
of
the
classes
of
persons
who
could
be
regarded
as
not
dealing
with
each
other
at
arm’s
length
for
the
purposes
of
that
Act.
He
said:
I
think
the
language
of
Section
127(5)
[now
139(5)],
though
in
some
respects
obscure,
is
intended
to
indicate
that,
in
dealings
between
corporations,
the
meaning
to
be
assigned
to
the
expression
elsewhere
in
the
statute
is
not
confined
to
that
expressed
in
that
section.
While,
therefore,
the
facts
in
the
Sheldon’s
Engineering
(supra)
ease
did
not
fall
within
any
of
the
specially
enumerated
classes
of
cases
where
persons
were
deemed
not
to
deal
with
each
other
at
arm’s
length,
Locke;
J.
concluded
that
it
was
still
necessary
to
consider
whether,
as
a
matter
of
fact,
the
circumstances
of
the
case
fell
within
the
meaning
of
the
expression
“not
dealing
at
arm’s
length”
within
whatever
meaning
those
words
have
apart
from
any
special
deeming
provision.
In
this
appeal,
the
question
is
whether
the
circumstances
are
such
as
to
fall
within
the
words
“persons
dealing
with
each
other
at
arm’s
length”
in
Section
29(1)
of
the
Estate
Tax
Act.
In
my
view,
these
words
in
the
Estate
Tax
Act
have
the
same
meaning
as
they
had
in
the
income
tax
provision
with
which
Locke,
J.
was
dealing
in
Sheldon’s
Engineering
when
those
words
were
considered,
as
Locke,
J.
had
to
do,
apart
from
any
special
“deeming”
provision.
It
becomes
important,
therefore,
to
consider
what
help
can
be
obtained
from
the
judgment
in
Sheldon’s
Engineering
as
to
the
meaning
of
the
words
“persons
dealing
at
arm’s
length”
when
taken
by
themselves.
The
passage
in
that
judgment
from
which,
in
my
view,
such
help
can
be
obtained,
is
that
reading
as
follows:
Where
corporations
are
controlled
directly
or
indirectly
by
the
same
person,
whether
that
person
be
an
individual
or
a
-corporation,
they
are
not
by
virtue
of
that
section
deemed
to
be
dealing
with
each
other
at
arm’s
length.
Apart
altogether
from
the
provisions
of
that
section,
it
could
not,
in
my
opinion,
be
fairly
contended
that,
where
depreciable
assets
were
sold
by
a
taxpayer
to
an
entity
wholly
controlled
by
him
or
by
a
corporation
controlled
by
the
taxpayer
to
another
corporation
controlled
by
him,
the
taxpayer
as
the
controlling
shareholder
dictating
the
terms
of
the
bargain,
the
parties
were
dealing
with
each
other
at
arm’s
length
and
that
Section
20(2)
was
inapplicable.
In
my
view,
the
basic
premise
on
which
this
analysis
is
based
is
that,
where
the
“mind”
by
which
the
bargaining
is
directed
on
behalf
of
one
party
to
a
contract
is
the
same
“mind”
that
directs
the
bargaining
on
behalf
of
the
other
party,
it
cannot
be
said
that
the
parties
are
dealing
at
arm’s
length.
In
other
words
where
the
evidence
reveals
that
the
same
person
was
“dictating”
the
“terms
of
the
bargain”
on
behalf
of
both
parties,
it
cannot
be
said
that
the
parties
were
dealing
at
arm’s
length.
To
this
I
would
add
that
where
several
parties—whether
natural
persons
or
corporations
or
a
combination
of
the
two—
act
in
concert,
and
in
the
same
interest,
to
direct
or
dictate
the
conduct
of
another,
in
my
opinion
the
‘‘mind’’
that
directs
may
be
that
of
the
combination
as
a
whole
acting
in
concert
or
that
of
any
one
of
them
in
carrying
out
particular
parts
or
functions
of
what
the
common
object
involves.
Moreover
as
I
see
it
no
distinction
is
to
be
made
for
this
purpose
between
persons
who
act
for
themselves
in
exercising
control
over
another
and
those
who,
however
numerous,
act
through
a
representative.
On
the
other
hand
if
one
of
several
parties
involved
in
a
transaction
acts
in
or
represents
a
different
interest
from
the
others
the
fact
that
the
common
purpose
may
be
to
so
direct
the
acts
of
another
as
to
achieve
a
particular
result
will
not
by
itself
serve
to
disqualify
the
transaction
as
one
between
parties
dealing
at
arm’s
length.
The
Sheldon’s
Engineering
case
(supra),
as
I
see
it,
is
an
instance
of
this.
Reference
may
also
be
made
to
the
judgments
of
Cameron,
J.
in
M.N.R.
v.
Kirby
Maurice
Company
Limited,
[1958]
Ex.
C.R.
77;
[1958]
C.T.C.
41,
and
Ancaster
Development
Company
Limited
v.
M.N.R.,
[1961]
Ex.
C.R.
201;
[1961]
C.T.C.
91,
as
well
as
the
judgment
of
my
brother,
Noel,
J.,
in
Pender
Enterprises
Limited
v.
M.N.R.,
[1966]
Ex.
C.R.
180;
[1965]
C.T.C.
343.
Turning
now
to
the
various
submissions
put
forward
on
behalf
of
the
appellants,
I
agree
with
the
submission
that
the
material
times
at
which
the
situation
must
be
considered
are
the
times
when
the
interest
payments
were
made
by
City
Park.
I
also
agree
with
counsel’s
submission
that
it
is
difficult
to
apply
the
concept
in
a
situation
where
the
transaction
is
simply
one
of
payment
of
the
whole
or
part
of
an
existing
obligation.
On
the
other
hand
it
appears
to
me
that
the
fairness
of
the
particular
transaction
is
not
the
point,
though
its
apparent
unfairness,
if
that
were
the
case,
might
constitute
some
evidence
to
characterize
it
as
not
being
at
arm’s
length.
Nor
is
the
question
to
be
decided
by
the
test
of
whether
the
same
transaction
could
be
expected
to
take
place
between
parties
dealing
at
arm’s
length,
for
it
is
the
fact
of
the
power
of
one
party
to
influence
or
control
another
which,
as
I
see
it,
determines
the
matter
rather
than
either
the
effect
of
such
influence
or
control
or
the
fact
of
its
exercise.
It
also
appears
to
me
that
while
the
transactions
here
in
question
are
the
payments
of
interest
and
the
times
at
which
they
were
made
are
the
times
when
the
power
to
influence
or
control
must
be
considered,
evidence
of
a
situation
that
was
initiated
and
existed
before
the
material
times
and
continued
through
and
after
them
may
be
considered
in
determining
whether
the
parties
dealt
at
arm’s
length
at
the
material
times.
Moreover,
if
a
transaction,
such
as
the
payment
of
an
existing
obligation,
is
in
reality
nothing
more
than
the
transferring
of
money
by
a
person—or
a
group,
or
an
organization—from
one
of
his
or
its
pockets
to
another
the
transaction
in
my
opinion
is
I
not
one
between
parties
who
deal
at
arm’s
length
regardless
of
what
reasons
prompt
it
and
regardless
of
how
closely
or
in
how
many
respects
it
may
resemble
similar
transactions
between
strangers.
In
the
present
case
on
reading
the
documents
already
referred
to
I
find
myself
much
inclined
to
regard
the
certificate
holders
as
the
recipients
of
the
interest
paid
by
City
Park
and
I
might
well
conclude
that
they
were
the
recipients
if
their
rights
were
what
the
construction
of
the
certificates
by
the
application
of
common
law
and
equity
principles
would
seem
to
indicate
they
were.
However,
I
find
it
difficult
to
treat
them
as
the
recipients
for
the
purposes
of
Section
106,
in
view
of
the
nature
of
their
rights
under
Swiss
law
both
before
and
after
the
coming
into
force
of
the
Act
passed
in
1966.
As
I
see
it,
none
of
the
certificate
holders
ever
did
have
any
right
to
interest,
or
to
recover
any
sum
as
interest,
whether
from
City
Park,
or
from
either
of
the
appellants,
or
from
SIP.
They
did
have
a
right
to
claim
against
the
appellants
and
S
I
P
a
distribution
of
income
of
the
fund
but
it
seems
to
me
that
their
right,
rather
than
being
a
right
to
the
income
itself
of
the
fund,
was
a
right
to
claim
and
compel
the
payment
of
an
amount,
the
quantum
of
which,
and
nothing
else,
was
related
to
and
governed
by
the
amount
of
distributable
income
of
the
fund.
However
if,
contrary
to
this
view,
the
certificate
holders
are
regarded
as
the
recipients
of
the
interest
for
the
purposes
of
Section
106,
it
seems
to
me
that
this
can
only
be
because
they
are
to
be
regarded
as
owners
of
the
fund
assets,
and
of
the
income
therefrom,
and
as
the
principals
in
fund
transactions,
from
which
it
follows,
in
my
view,
that
they
must
be
regarded
as
the
owners
of
the
shares
of
City
Park
and
in
control
of
that
company
through
their
representative,
SIP,
which
manages
the
assets
of
their
fund
for
them
and
dictates
what
City
Park
is
to
do.
In
such
circumstances
the
certificate
holders,
in
my
opinion,
cannot
be
regarded
as
ever
having
been,
since
the
incorporation
of
City
Park,
parties
with
whom
City
Park
deals
at
arm’s
length
either
in
the
payment
of
interest
or
in
any
other
fund
transactions
between
them.
In
this
view
of
the
case
therefore
the
interest
payments
are
subject
to
tax
and
the
appeals
cannot
succeed.
I
also
find
it
difficult
to
regard
either
the
appellants
alone
or
SIP
alone
as
the
recipients,
for
the
purposes
of
Section
106,
of
\
the
interest
paid
by
City
Park
and
it
seems
to
me
that
in
truth
\the
recipient
was
the
three
of
them,
or
perhaps
more
precisely,
in
respect
of
each
payment,
SIP
and
the
particular
appellant
to
whom
the
interest
payment
was
remitted.
For
while
the
money
was
paid
in
each
case
to
the
appellant
bank,
which
had
itself
undertaken
certain
obligations
to
the
certificate
holders
under
the
fund
regulations
and
thus
had
a
measure
of
control
over
its
disposition,
the
funds
had
been
raised
by
the
appellants
and
S
I
P
acting
in
concert
and
the
interest,
when
paid,
was
paid
into
an
account
in
the
name
of
S
I
P—albeit
one
earmarked
with
the
name
of
the
fund—and
SIP
too
had
certain
rights
and
authority
and
obligations
to
the
certificate
holders
in
regard
thereto.
In
this
view
as
well,
however,
it
seems
clear
that
the
recipients
cannot
be
regarded
as
parties
with
whom
City
Park
ever
dealt
at
arm’s
length
since
they
acted
in
concert,
and
within
the
group
they
had
all
the
voting
power
of
City
Park
and
could
dictate
what
it
was
to
do.
As
I
see
it
the
same
result
would
follow
for
similar
reasons
if
the
appellant
alone
were
regarded
in
each
instance
as
the
recipient
of
the
interest
paid
by
City
Park.
I
do
not
agree
with
the
submission
of
counsel
for
the
Minister
that
S
I
P
controlled
both
City
Park
and
the
appellants
because
I
do
not
think
it
is
correct,
in
any
practical
sense,
to
say
that
SIP
controlled
the
appellants
even
in
matters
pertaining
to
the
fund.
But
it
appears
to
me
on
the
evidence
that
SIP
and
the
appellants
acted
in
concert
in
establishing
the
fund
and
in
organizing
its
investments
and
while
neither
appellant
alone
controlled
$
I
P
to
my
mind
it
is
not
conceivable
as
a
practical
possibility
that
SIP
would
or
could
disregard
the
instructions
or
wishes
of
the
appellants
or
either
of
them
as
to
the
voting
of
City
Park
stock
or
as
to
what
City
Park
should
do
or
that
they
would
not
combine
their
voting
power
in
SI
P
itself
to
enforce
their
will
if
occasion
to
do
so
arose
whether
with
respect
to
these
pari
passu
ranking
and
somewhat
interdependent
loans
or
any
other
matters
of
concern
to
them.
I
should
add
that
the
view
that
the
appellants
and
SIP,
though
separately
carrying
out
somewhat.
different
functions,
acted
throughout
in
concert
appears
to
me
to
be
supported
by
the
fact
that
apart
from
their
joint
participation
in
organizing
and
raising
the
funds
and
in
arranging
for
their
investment,
no
security
on
City
Park
properties
has
ever
been
taken
or
demanded
by
either
appellant
for
the
outstanding
loans
and
the
amount
to
be
paid
as
interest
thereon
is
determined
annually
by
SIP.
In
such
circumstances
it
does
not
appear
to
me
that
City
Park,
in
dealings
with
S
I
P
or
the
appellants,
either
singly
or
as
a
group,
could
be
regarded
as
free
of
the
influence
which
the
three
together
or
separately
were
in
a
position
to
exert
or
that
City
Park
could
be
regarded
as
dealing
with
any
of
them
either
together
or
separately
at
arm’s
length.
Indeed,
as
a
practical
matter,
it
appears
to
me
that
the
payment
of
the
interest
by
City
Park
did
amount
to
nothing
more
than
the
moving
of
money
from
one
of
the
fund’s
pockets
to
another.
In
view
of
this
conclusion
it
is
unnecessary
to
reach
or
express
any
concluded
opinion
on
the
Minister’s
alternative
contention
that
the
interest
was
income
of
a
trust
within
the
meaning
of
Section
106(1)
(c).
The
appeals
therefore
fail
and
they
will
be
dismissed
with
costs.
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