Estate or the Late Rose Pinkus v. Minister of National Revenue, [1971] CTC 767, 71 DTC 5492

PRATTE, J.:—This is an appeal from a decision of the Tax Appeal Board which affirmed an assessment for gift tax in the sum of $14,985.14 in respect of an alleged gift of property valued at $89,206.73 made in 1960 by the late Rose Pinkus to her son Lazar Pinkus.

Both parties agreed that this appeal was to be decided on the evidence adduced before the Tax Appeal Board.

The valuation of the property allegedly given by Mrs. Pinkus to her son being not in issue, the sole question for determination is whether or not such a gift was actually made. Simple as it is to state, this question cannot be answered by merely examining the content of the agreements from which, according to the respondent, the alleged gift would flow. In order to grasp the real nature of these agreements, it is necessary to be aware of the circumstances which led to their conclusion.

Rose Pinkus married David Pinkus in 1916 in Poland. Prior to their marriage, the future spouses entered into a marriage contract establishing between them a sort of community of property. This marriage contract (according to a translation that was acknowledged as accurate by both parties to this appeal) provided that :

The estate which each of the future spouses possesses at present, through purchase, gift, inheritance or by chance will be his (hers) only, the estate, however acquired during married life through common work and efforts will be their common property in equal parts.

Of this marriage was born a son, Lazar Pinkus, on January 1, 1921.

It seems that the Pinkus family lived in Europe till the outbreak of the last world war. At that time, David Pinkus succeeded in fleeing to Canada where his wife joined him shortly afterwards. The couple took up residence in Montreal. As to the son, Lazar Pinkus, he was also to immigrate to Canada a few years later.

In the ensuing years the relationship between David Pinkus and his wife deteriorated badly and, at the same time, David Pinkus developed a strong feeling of hostility toward his son, Lazar, who always sided with his mother.

On November 21, 1950, David Pinkus made a will (in the form derived from the Laws of England) that he later modified by two codicils dated respectively June 21, 1951 and March 50, 1952. By this will and the codicils thereto, David Pinkus, after making legacies not relevant to the purpose of this appeal, bequeathed the residue of his estate to his nephew, George Zames and appointed Mrs. S. Zames (mother of George) and The Royal Trust Company as his executors.

David Pinkus died on May 25, 1952. Shortly afterwards, Mrs. S. Zames presented to 2 judge of the Superior Court a petition to have the above-mentioned will probated. This petition was granted by a judgment of Brossard, J. dated June 30, 1952. At the same time, a petition was made by Lazar Pinkus, son of the deceased, to probate another will, made in the holograph form, by which David Pinkus appointed the said Lazar Pinkus as his sole universal legatee. This petition was also presented to Brossard, J., on June 30, 1952, and was dismissed on that same day for the following reasons :

Considering that, on this date, a will made in the form derived from the Laws of England by the said deceased, dated the 21st November 1950, was probated by us . . . as meeting all legal conditions pertaining to the probation of wills.

Considering that the will offered for probation by the petition herein bears no certain date.

Considering that the authentic copies of a probated will give effect to the will until ard unless it is set aside upon contestation, pursuant to Article 857 of the Civil Code.

Considering that the will presently offered for probation contradicts the will probated this day as aforesaid.

Considering that the Court cannot give concurrent legal effect to two wills of the same testator contradicting each other.

Considering therefore that until such time as the will probated this date has been set aside upon contestation, the present petition is premature.

This purported holograph will in favour of Lazar Pinkus was an undated document, apparently in the handwriting of the deceased, which read as follows :

As my last wishes and will, I leave to my son Lazar Pinku- sewicz everything I own, and nothing at all should go to my wife Ruchla Rosa Pinkusewicz.

David Pinkusewicz.

The circumstances in which this document was written are unknown. However, Lazar Pinkus asserted that it was a portion of the second page of à letter that he had received from his father at the end of April 1952. Lazar Pinkus added that, as this letter referred to his mother in an insulting manner and as he believed that a mere letter could not have any value as a will, he had cut out from the second page of the letter the portion containing the above quoted paragraph and signature and had destroyed the balance of the letter. Lazar Pinkus’ testimony on this point was not corroborated ; however, it was established first, that, at the end of April 1952, David Pinkus, who was then very sick, had handed an envelope to a friend of his and requested him to send it to his son Lazar who was then living in Ontario, and, second, that the friend in question had complied with his request and mailed the envelope to Lazar Pinkus.

So, the will made by David Pinkus in favour of George Zames was probated on June 30, 1952 by Mr. Justice Brossard who, on the same day, dismissed the petition made by Lazar Pinkus for probate of the undated holograph will. On the following 4th of July, Mrs. Rose Pinkus, widow of David Pinkus, instituted proceedings in the Superior Court seeking a declaration that she was the owner of an undivided half-interest in the community of property that had existed between her late husband and herself and that most, if not all, the assets that David Pinkus possessed at the time of his death were acquests of this community. This action was later to be contested by George Zames on the ground that all that the late David Pinkus possessed at the time of his death was the deceased’s own personal property.

Less than a month after the institution of this action, Lazar Pinkus took proceedings praying that the probated will of David Pinkus be declared to have been revoked by the undated holograph will to which I have already referred. These proceedings were also contested.

It is not without interest to note here that in both these actions Mrs. Rose Pinkus and her son were represented by the same solicitors. This shows that there was no dispute between them and that Lazar Pinkus, while. claiming his father’s estate, acknowledged the validity of his mother’s claim.

Neither the action taken by Rose Pinkus nor the proceedings instituted by Lazar Pinkus were ever brought to trial. They were still pending when, on March 2, 1960, following lengthy negotiations, all interested parties agreed in writing to put an end to these disputes. The parties to this agreement were: (a) Rose Pinkus and her son Lazar, (b) George Zames, residuary legatee under the probated will, and (c) The Royal Trust Company and Mrs. 8. Zames who, under the same will, were the executors of the estate of David Pinkus. The main provisions of the lengthy document evidencing the agreement may be summarized as follows :

1. All the assets owned by David Pinkus at the time of his death or forming part of the community of property which had existed between him and his wife (Rose Pinkus) were—after payment of the debts and liabilities of the deceased, of the succession duties and of the particular legacies contained in the probated will—to belong as to one undivided half to George Zames and, as to the other undivided half, to Rose Pinkus and her son Lazar, in such proportion as they might agree between themselves.

2. The Royal Trust Company was appointed by the parties as their agent for the purpose of taking possession of the assets of the estate and of the community, of paying the liabilities, succession duties and legacies, and of effecting the partition of the remaining assets in accordance with the agreement. With the written consent of Mrs. Pinkus and George Zames, the Royal Trust was given the authority to sell and dispose of any property forming part of the assets.

3. Mrs. S. Zames was to resign as the executrix of the estate of David Pinkus, failing which Mrs. Rose Pinkus was to have the right to cancel the agreement.

4. All proceedings then pending between the parties were to be discontinued, each party paying its own costs.

As soon as this agreement had been signed on March 2, 1960, Rose Pinkus and Lazar Pinkus entered into a second agreement providing that they would share equally in all the assets that they were to receive under the first agreement.

It is an undisputed fact that Lazar Pinkus, under those two agreements, received property valued at $89,206.73. The respondent, assuming that this amount had been given to Lazar Pinkus by his mother assessed her for gift tax in the amount of $14,985.14. Rose Pinkus objected to this assessment which was confirmed by the respondent, the decision of whom was confirmed by the Tax Appeal Board.

As already said, the only question raised by this appeal is whether or not the amount of $89,206.73 received by Lazar Pinkus under the two agreements of March 2, 1960 must be considered, under Section 111 of the Income Tax Act as it read in 1960, as a gift made to him by his mother, Rose Pinkus.

1 will deal very briefly with the submissions made by counsel at the hearing for, in my opinion, this appeal cannot be disposed of on any of the grounds that they suggested.

Counsel for the appellant first insisted on the fact that both Mrs. Rose Pinkus and her son had serious but questionable claims against George Zames. He then went on to state that the two agreements of March 2, 1960 should be considered as being, according to the terminology of the Civil Code of the Province of Quebec, (Articles 1918 et seq.) ‘‘transactions’’, namely contracts “by which the parties terminate a lawsuit already begun, or prevent future litigation by means of concessions or reservations made by one or both of them’’. As property transferred under a genuine “transaction” cannot be said, under Section 111 of the Income Tax Act as it read in 1960, to be transferred by way of gift, counsel concluded that Mrs. Rose Pinkus had not given to her son the amount of $89,206.73 that he received under the two agreements of March 2, 1960.

Of the argument put forward by counsel for the respondent, the least that one could say would be that it was simple, if not simplistic. From the undisputed fact that Rose Pinkus and her husband had been common as to property, counsel inferred that Rose Pinkus was entitled to one-half of the assets owned by her husband at the time of his death. And as it is also an undisputed fact that one-half of Rose Pinkus ’ share in the community found its way into the hands of Lazar Pinkus, counsel concluded that there had been a gift from the mother to her son. This reasoning is faulty in at least two respects. First of all it assumes that Rose Pinkus was entitled to one-half of what her husband owned when he died, whereas, in fact, Mrs. Pinkus had rights in these assets only inasmuch as they had been ‘‘acquired during married life through common work and effort’’. Secondly, the argument put forward by counsel for respondent does not take into consideration that, even if Mrs. Rose Pinkus had been entitled to one-half of all the assets left by her husband, she would not have made a gift (under Section 111) if, in order to avoid lengthy and expensive litigation, she had been forced to assign to her son a share of her rights in the community.

The problem for determination must be viewed in another light. As I already said, the assessment was made by the respondent on the assumption that Mrs. Pinkus had transferred by way of gift to her son Lazar the amount that he received under the two agreements of March 2, 1960. This assumption clearly implied that, if it had not been for the desire of Mrs. Pinkus to make a gift to her son, the latter would have agreed gratuitously to discontinue the proceedings he had instituted to set aside the probated will and that Mrs. Rose Pinkus would have then received, in settlement of her claim, the whole amount that George Zames paid under the first agreement of March 2, 1960.

The appellant had the onus of proving the inaccuracy of this assumption. More precisely, the appellant, in order to succeed, had to establish that Mrs. Pinkus, in order to settle the claim against the estate of her late husband, had had to accept that her son, Lazar, share in the amounts that George Zames was willing to pay. Now, the appellant did not adduce any direct evidence to this effect. Lazar Pinkus, when he testified, did not even say that he would not have agreed to discontinue the proceedings that he had taken, had he not received anything out of the settlement agreement. Moreover, the inferences that can be drawn from the evidence do not, in my view, favour the appellant. When he testified before the Board, Lazar Pinkus was asked why it had taken so long to achieve a settlement (from 1952 to 1960) ; to this he answered (Oral Evidence, T.A.B. page 61) :

“The attitude of Mrs. Zames was that my mother had had no rights at all to any part . . . ”

From this one can gather that the negotiations which led up to the first agreement of March 2, 1960 were negotiations on the rights of Mrs. Rose Pinkus and that consequently, this agreement was in substance, if not in form, an agreement the purpose of which was to determine the rights of Mrs. Pinkus. And such a conclusion is confirmed by the fact that, under the provisions of the first agreement of March 2, 1960, Mrs. Pinkus was to play a more important role than her son. She was the one who, with George Zames, was to authorize the Royal Trust Company to sell the assets of the estate; she was also the one who could, in the event that Mrs. Zames did not resign as an executor, cancel the agreement. On the other hand, if it had been shown that the proceedings taken by Lazar Pinkus were likely to be successful, certainly one could not presume that Lazar Pinkus would have, without receiving any consideration, agreed to discontinue his action. But such is not the case. According to the evidence, one can hardly imagine the possibility of these proceedings having been successful.

In these circumstances, I can only say that the appellant did not prove that the assessment complained of was based on a wong assumption. For this reason, the appeal will be dismissed with costs.