WALSH,
J.:—This
is
an
appeal
from
a
judgment
of
the
Tax
Appeal
Board,
dated
April
1,
1969,
maintaining
in
part
the
appeal
of
respondent
from
a
notice
of
re-assessment
dated
March
28,
1968
of
the
income
of
the
late
Rene
Fortin
for
the
1963
taxation
year.
Respondent
brought
the
proceedings
before
the
Tax
Appeal
Board
in
her
quality
as
testamentary
executrix
of
the
estate
of
her
husband,
the
late
Rene
Fortin
(hereinafter
referred
to
as
"‘the
deceased’’).
The
facts
of
the
case
are
as
follows.
The
deceased
entered
into
partnership
with
four
other
professional
engineers
namely,
Jean
Amyot,
Marcel
Bhal,
Gilbert
Coupienne
and
Louis
P.
Derome,
to
carry
on
their
profession
in
partnership.
and
share
the
resulting
expenses
and
income.
equally.
The
partnership
was
for
a
period
of
two
years:
commencing
on
January
1,
1962
and
renewable
by
express
or
tacit
agreement.
Provision
was
made
for
the
withdrawal
of
a
partner,
in
which
event
the
partnership
would
continue
to
exist
with
the
remaining
partners
having
a
delay
of
six
months
o.
pay
to
the
partner
who
had
withdrawn
his
share
in
the
operating
capital,
but
the
withdrawing
partner
would
not
have
the
?
Fight
to
share
in
the
profits
for
the
current
year.
One
of
the
partners,
Gilbert
Coupienne,
withdrew
as
of
December
19,
1963
and
the
deceased
as
of
December
20,
1963,
the
withdrawal:
agreement
in
his
case
being
signed
on
March
23,
1964.
By
virtue
of
this
agreement,
he
accepted,
as
a
withdrawal
indemnity
in
settlement
of
all
the
rights
which
he
had
or
might
have
in
the
partnership,
the
sum
of
$35,900,
payable
in
the
amount
of
$19,900
by
certain
ms
I
whieh
he
received
from
the
following
contracts
:
|
Sogefors
|
—
$13,900
|
|
Métro
|
—
|
3,000.
|
|
Stadium
|
—
|
3,000
|
and
a
balance
of
$16,000,
which
was
specified
to
be
payable
when
the
City
of
Montreal
paid
for
the
Métro
plans,
out
of
the
share
of
the
fees
due
to
the
three
other
partners
on
this
project
in
accordance
with
the
terms
of
a
later
clause
in
the
agreement.
The
later
clause
provided
that
he
should
make
the
plans
for
and
exercise
supervision
of
the
Papineau
Station
of
the.
Montreal
Métro,
and
the
division
of
the
fees
was
to
be
in
the
amount
of
50%
for
him
and
50%
for
the
other
three
partners.
The
agreement
continued
(translated)
:
It
is
clearly
understood
that,
should
Rene
Fortin
give
up
his
contract
for
this
Métro
station
or
withdraw
in
favour
of
someone
else,
he
shall
not
receive
from
his
other
three
partners
the
$16,000
which
remains
owing
to
him,
and
furthermore
he
shall
be
liable
towards
the
other
three
partners
for
half
of
the
fees
paid
by
the
City
for
this
Métro
station,
less
the
amount
of
‘$16,
000
which
As
owing
to
him.
The
withdrawal
agreement
further
provided
(translated)
:
This
agreement
is
retroactive
to
December
30,
1963,
to
take
effect
as
if
it
had
been
signed
on
that
date
and
shall
remain
unalterable
with
respect
to
the
amounts
mentioned
as
having
been
collected
or
to
be
collected.
(It
will
be
noted
that
the
preamble
of
the
agreement
refers
to
the
dissolution
taking
place
as
of
December
20,
1963,
but
I
do
not
believe
this
affects
the
issue
before
me.)
The
amount
of
$35,900
payable
to
the
deceased
under
this
agreement
appears
to
have
been
established
in
accordance
with
the
handwritten
schedule
to
the
agreement
appearing
on
page
8
of
the
documentary
proof,
filed
as
Exhibit
C-2.
This
schedule,
which
seems
to
have
been
based
on
estimates
in
round
figures
at
the
time,
indicates
amounts
due
to
him
of
$29,400
as
his
share
of
the
partnership
assets
at
the
time,
and
an
additional
$6,500
for
contracts
to
be
completed,
making
a
total
of
$35,900
and
provides
for
the
manner
of
payment
of
$19,900
of
this,
which
amount
it
is
admitted
that
he
received,
leaving
a
balance
of
$16,000
due
to
be
paid
to
him
when
payment
was
made
to
the
partnership
by
the
City
of
Montreal
for
his
engineering
work
and
supervision
in
connection
with
the
construction
of
the
Papineau
Station
of
the
Montreal
Métro.
The
deceased
did
not
give
up
this
contract
nor
did
he
withdraw
in
favour
of
someone
else.
This
work
was
taken
out
of
his
hands
by
the
City
of
Montreal
which
decided
to
do
the
work
through
its
own
engineers
and
it
is
alleged
by
the
other
partners,
though
this
does
not
concern
us
here,
that
the
deceased
was
aware
of
this
at
the
time
the
withdrawal
agreement
was
signed
in
March,
as
the
result
of
a
letter
received
from
the
Montreal
Transportation
Commission
dated
January
9,
1964.
Consequently,
the
partnership
never
received
payment
for
this
work
and
the
remaining
partners
refused
to
pay
any
part
of
this
$16,000
to
Fortin
or
to
his
estate.
Before
his
death
he
instituted
proceedings
against
them
in
the
Superior
Court
in
Montreal
to
claim
this
amount
which
proceedings
were
contested
and
have
been
carried
on
by
his
executrix,
the
present
respondent,
but
have
not
yet
come
to
trial.
In
calculating
the
amount
of
$35,900
owing
to
him,
no
allowance
was
included
for
the
amount.
to
be
earned
in
connection
with
the
Papineau
Métro
Station,
the
amount
of
$3,000
appearing
for
Métro
in
the
said
‘schedule
being
for
services
in
connection
with
the
tube
under
the
station
for
which
the
work
was
completed.
and
payment
made
(evidence
of
Jean
Amyot
before
Tax
Appeal
Board,
Exhibit
C-l,
p.
26).
In
so
far
as
the
with-
drawal
agreement
itself
is
concerned,
therefore,
it
merely
provided
a
suspensive
condition
for
payment
of
the
balance
of
$16,000
due
to
the
deceased
in
connection
with
contracts
other
than
the
Papineau
Métro
Station.
While
the
evidence
of
Mr.
Amyot
before
the
Tax
Appeal
Board
was
rather
vague
on
the
point,
apparently
the
contention
of
the
other
partners
is
that
had
they
known
at
the
time,
as
they
claim
the
deceased
already
did,
that
he
would
not
be
receiving
the
Métro
contract
involving
some
$35,000,
of
which
they
would
receive
50%,
they
would
not
have
agreed
to
pay
him
$35,900
on
his
withdrawal
from
the
partnership,
even
though.
his
share
of
this
potential
$35,000
had
not
been
taken
into
consideration
in
arriving
at
the
amount
he
was
to
be
paid,
because
Amyot
and
Derome,
who
are
also
surveyors,
put
into
the
partnership
earnings
which
they
had
received
in
this
capacity,
which
Mr.
Amyot
claims
they
were
not
obliged
to
do
and
would
not
have
done
had
they
not
counted
on
paying
the
balance
of
$16,000
due
to
Fortin
out
of
payments
to
be
eventually
received
as
the
result
of
the
Métro
contract
(pages
29-31,
evidence
of
Jean
Amyot
before
Tax
Appeal
Board).
As
previously
indicated,
this
is
being
litigated
in
the
Superior
Court
in
Montreal
and
cannot
be
dealt
with
here.
Two
amounts
were
in
issue
in
the
appeal
before
the
Tax
Appeal
Board.
The
first
of
these
was
the
sum
of
$11,110
which
the
deceased
received
in
1964
as
his
share
of
profits
for
work
done
in
connection
with
the
Sogefors
contract
which
was
completed
in
1963.
He
filed
his
personal
returns
on
a
cash
basis
but
the
partnership
accounting
was
done
on
an
accrual
basis.
The
financial
statements
of
the
partnership
for
its
year
ending
December
31,
1963
were
not
filed
in
evidence
and,
in
fact,
production
of
them
was
quite
properly
objected
to
before
the
Tax
Appeal
Board
on
the
grounds
that
the
deceased
was
no
longer
a
partner
at
that
date,
and
that
the
income
of
the
remaining
three
partners
was
not
an
issue
in
his
appeal
before
the
Board.
The
only
accounting
of
the
income
of
the
partnership
at
the
date
of
the
deceased’s
withdrawal
is
the
rough
handwritten
calculation
already
referred
to
dated
November
30,
1963,
which
established
the
amount
due
to
him
as
$35,900.
This
did
show
amounts
totalling
$13,900
to
be
collected
by
him
in
connection
with
the
Sogefors
contract
which
sums
it
is
admitted
he
collected.
The
judgment
of
the
Tax
Appeal
Board
found
that
this
was
for
work
completed
while
he
was
a
member
of
the
partnership
in
1963
and
consequently,
pursuant
to
Section
6(l)(c)
of
the
Income
Tax
Act,
he
must
be
assessed
for
the
year
in
which
it
was
earned
whether
or
not
he
received
it
in
that
year.
The
assessor
had
transferred
the
sum
of
$11,110
from
his
1964
tax
return
to
his
1963
return
and
this
was
held
to
be
correct,
and
as
there
has
been
no
counter
appeal
on
this
issue
it
can
be
considered
as
settled.
The
other
question
in
issue,
and
that
which
is
before
the
Court,
is
whether
the
estate
of
the
deceased
should
be
taxed
in
1963
on
the
amount
of
$16,000
which
he
never
received
and
which,
in
fact,
may
never
be
received,
this
being
a
litigious
right.
The
Minister,
in
assessing
the
deceased
for
this
sum
of
$16,000
in
the
1963
taxation
year,
relies
on
Sections
3,
4,
6(1)
(c),
15(1)
and
139(1)
(e)
of
the
Income
Tax
Act
which
read
as
follows:
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
(a)
businesses,
(b)
property,
and
(c)
offices
and
employments.
4.
Subject
to
the
other
provisions
of
this
Part,
income
for
a
taxation
year
from
a
business
or
property
is
the
profit
therefrom
for
the
year.
6.
(1)
Without
restricting
the
generality
of
section
3,
there
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
(c)
the
taxpayer’s
income
from
a
partnership
or
syndicate
for
the
year
whether
or
not
he
has
withdrawn
it
during
the
year;
15.
(1)
Where
a
person
is
a
partner
or
an
individual
is
a
proprietor
of
a
business,
his
income
from
the
partnership
or
business
for
a
taxation
year
shall
be
deemed
to
be
his
income
from
the
partnership
or
business
for
the
fiscal
period
or
periods
that
ended
in
the
year.
139.
(1)
In
this
Act,
(e)
"business"
includes
a
profession,
calling,
trade,
manufacture
or
undertaking
of
any
kind
whatsoever
and
includes
an
adventure
or
concern
in
the
nature
of
trade
but
does
not
include
an
office
or
employment;
Although
no
proper
financial.
statement
of
the
partnership
was
drawn
up
for
the
period
ending
December
20
(or
December
30,
1963,
as
the
case
may
be)
the
rough
calculation
prepared
and
on
which
the
amount
of
the
payment
due
to
the
deceased
was
established
is
in
effect
a
statement
prepared
on
an
accrual
basis
showing
the
earnings
of
the
partnership
and
his
share
in
them
calculated
on
an
accrual
basis
as
of
November
30,
1963
and,
in
so
far
as
he
is
concerned,
this
would
represent
his
earnings
from
the
partnership
for
the
fiscal
period
ending
in
the
1963
taxation
year
whether
or
not
he
received
payment
of
the
amount
of
$35,900
so
established
during
that
year.
The
judgment
of
the
Tax
Appeal
Board
holding
that
the
sum
of
$16,000
should
not
be
included
in
his
income
for
the
year
because
it
is
a
litigious
right,
relies
on
the
Supreme
Court
case
of
M.N.R.
v.
Benaby
Realties
Ltd.,
[1968]
S.C.R.
12;
[1967]
C.T.C.
418.
In
that
case
it
was
held
that,
although
expropriation
of
property
gives
the
owner
the
right
to
receive
compensation
from
the
moment
of
expropriation,
even
though
the
amount
is
not
fixed
until
a
subsequent
date,
and
the
taxpayer
in
that
case
was
on
an
accrual
basis,
nevertheless
it
should
be
taxed
only
when
the
amount
to
be
paid
had
been
agreed
to
by
the
parties
or
established
by
judgment
since,
although
the
taxpayer
had
a
right
to
compensation,
there
was
nothing
which
could
be
taken
into
account
as
an
amount
receivable
until
such
an
amount
was
determined.
I
do
not
believe
that
the
same
situation
exists
in
the
present
case.
The
sum
of
$35,000,
of
which
the
partners
hoped
eventually
to
receive
a
50%
share
as
a
result
of
the
Métro
contract
for
the
Papineau
Station,
was
not
taken
into
account
in
the
settlement
with
the
deceased,
which
settlement
for
$35,900
was
based
entirely
on
the
amounts
already
earned
or
to
be
earned
from
contracts
which
were
taken
into
account
on
an
accrual
basis.
The
only
way
in
which
the
other
three
partners
took
into
account
the
Métro
Papineau
Station
contract
was
that
they
were
counting
on
the
proceeds
of
it
to
make
it
convenient
for
them
to
pay
the
deceased
the
$16,000,
which
the
statement
prepared
on
his
withdrawal
from
partnership
showed
they
owed
him
on
other
contracts.
Whether
he
misled
them
is
not
an
issue
before
me,
and
clearly
this
Métro
contract
did
not
enter
into
the
accounting
at
the
dissolution
of
the
partnership
in
1963,
nor
become
a
bad
debt
of
the
partnership,
nor
was
there
any
reserve
set
aside
for
this.
Respondent
contends
that
a
payment
on
withdrawal
from
a
partnership
should
not
be
assimilated
in
its
consequences
to
a
distribution
to
the
partners
of
income
and
capital
of
the
partnership
on
its
dissolution,
which
did
not
take
place
in
this
case
as
the
remaining
partners
continued
in
partnership.
I
believe,
however,
that
a
clear
distinction
must
be
made
between
withdrawal
of
capital
and
withdrawal
of
a
partner’s
share
of
the
income
of
the
partnership
for
the
period
in
question.
A
withdrawal
payment
can
include
both
elements,
but
in
the
present
case
most
of
the
sum
of
$35,900
due
to
the
deceased
seems
to
have
consisted
of
his
share
of
the
income
of
the
partnership
for
the
year
1963
to
the
date
of
his
withdrawal.
The
notice
of
re-assessment
(Book
of
Documents,
p.
11)
makes
an
allowance
of
$2,264.03
for
deceased’s
share
of
the
capital
of
the
partnership
as
of
January
1,
1963,
and
this
is
not
in
dispute.
Earned
income
cannot
be
converted
into
capital
by
the
process
of
making
an
agreement
whereby
such
income
is
withdrawn
by
a
partner
leaving
the
partnership,
whether
such
withdrawal
is
in
the
form
of
a
lump
payment
or
by
instalments.
This
question
was
dealt
with
by
Dumoulin,
J.
in
the
case
of
William
G.
Briggs
v.
M.N.R.,
[1958]
C.T.C.
11,
in
which
the
payment
received
by
the
appellant
on
withdrawal
from
a
partnership
included
the
sum
of
$3,255
which,
according
to
the
partnership’s
balance
sheet,
represented
his
proportion
of
the
firm’s
accounts
receivable.
His
income
was
reported
on
a
cash
basis
and
appellant
contended
that
this
was
a
capital
receipt
resulting
from
the
sale
of
his
interest
in
the
partnership
to
the
remaining
partners.
It
was
held
that
the
amount
at
issue
was
not
paid
to
the
appellant
as
the
purchase
price
of
his
interest
in
the
firm
but
as
his
share
of
earnings
already
realized
by
the
partnership
that
would
be
collected
periodically
by
the
continuing
partners.
This
judgment
referred
with
approval
to
the
case
of
Commissioner
of
Income
Tax,
Madras
v.
P.R.A.L.M.
Muthukaruppan
Chettiar,
Gordon’s
Digest
of
Income
Tax
Cases,
p.
757,
where,
upon
the
dissolution
of
a
partnership,
the
Commissioner
of
Income
Tax
purported
to
assess
interest
received
by
the
respondent
on
capital
employed
in
business.
On
the
appeal,
Lord
Atkin
held
that:
.
.
.
Being
profits
of
the
respondent
up
to
May
31,
1930,
how
did
they
alter
their
character
by
dissolution?
The
account
taken
on
dissolution
ascertains
what
is
due
to
the
partners
for
profits,
and
what
is
due
for
capital.
It
can
hardly
be
suggested
that
the
partners
share
according
to
their
capital
proportions
in
the
whole
assets
of
the
partnership.
The
sum
due
for
undrawn
profits
was
and
remains
a
sum
due
by
the
partners
to
each
partner,
and
necessarily
ranks
first
before
the
sums
due
for
capital
can
be
distributed.
In
other
words,
on
dissolution
of
a
partnership
an
outgoing
partner
has
the
right
to
receive
not
as
in
the
case
of
a
shareholder
in
winding-up
a
company
only
a
share
of
the
assets,
but
to
receive
payment
of
his
profits,
profits
which
were
his
before
dissolution
and
do
not
cease
to
be
his
on
dissolution.
In
the
Supreme
Court
case
of
M.N.R.
v.
Joseph
Sedgwick,
[1963]
C.T.C.
571,
the
respondent
lawyer
and
four
associates
financed
the
formation
of
a
Toronto
Stock
Exchange
member
firm
to
be
carried
on
by
a
stockbroker
who
agreed
to
pay
the
five
associates
90%
of
the
firm’s
profits
of
which
the
respondents
share
was
10%
of
the
amount
allotted
to
the
group.
In
due
course
the
five
associates
sold
their
interests
for
a
total
of
$550,000
payable
in
instalments
of
which
$300,000
was
the
amount
fixed
as
their
share
of
the
net
profits
of
the
business
for
the
fiscal
year
ending
March
31,
1956.
Respondent
therefore
became
entitled
to
receive
$55,000
of
which
$30,000
was
related
to
1956
profits
and
during
the
year
1956
he
was
paid
$15,000
on
account
of
this.
The
Minister
treated
him
as
a
partner
and
added
$30,000
to
his
declared
income,
whereas
respondent
contended
that
this
was
a
capital
reecipt.
It
was
held,
with
one
dissent,
that
the
agreement
could
not
be
construed
as
being
one
for
the
sale
of
interest
in
a
partnership
but
that
it
was
rather
an
agreement
for
the
winding-up
of
the
partnership
and
that
under
the
Act
respondent
was
liable
to
pay
tax
for
the
year
1956
in
respect
of
his
share
of
the
partnership
income
(even
though
not
withdrawn
by
him)
for
the
fiscal
period
ending
in
1956,
which
period
ended
when
the
partnership
was
wound
up
on
February
1,
1956,
even
though
the
partnership
profits
were
determined
by
the
agreement
itself
up
to
the
end
of
its
normal
fiscal
period
ending
on
March
31,
1956.
In
the
present
case,
as
already
stated,
the
assessment
makes
allowance
for
the
portion
of
the
withdrawal
payment
made
to
the
deceased
which
could
be
considered
as
capital.
The
question
of
goodwill
does
not
enter
into
this
case
and
the
entire
amount
of
$35,900,
less
the
amount
of
capital
already
allowed
for
in
the
assessment,
therefore,
represents
deceased’s
share
of
the
accrued
earnings
of
the
partnership
on
contracts
completed
or
in
course
of
completion
at
the
date
of
his
withdrawal
and,
hence,
is
taxable
in
that
year
whether
or
not
full
payment
is
ever
made
to
him.
The
appeal
is
therefore
allowed
with
costs
with
respect
to
the
assessment.
for
the
1963
taxation
year.
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