PIGEON,
J.:—The
respondent
is
a
barrister
pracising
in
Toronto.
At
the
end
of
the
year
1961
he
resigned
his
partnership
in
the
law
firm
Borden,
Elliott,
Kelley
&
Palmer
and
established
a
new
firm
under
the
name
of
Wahn,
McAlpine,
Mayer,
Smith,
Creber,
Lyons,
Torrance
&
Stevenson.
This
new
firm
elected
to
end
its
fiscal
year
on
April
30
and
consequently
its
1962
fiscal
year
was
a
four-month
period.
The
audited
financial
statement
for
that
period
showed
a
deficit
of
which
respondent’s
share
was
$6,516.39.
After
adding
to
this
loss
$386.50
for
expenses
incurred
during
the
year
1962
in
connection
with
the
practice
of
his
profession,
he
sought
to
have
the
total
of
$6,902.89
carried
back
to
the
year
1961
against
his
substantial
professional
income
for
that
year.
The
Minister
took
the
view
that
the
1962
loss
had
to
be
deducted
first
from
other
income
in
the
same
year
and,
as
there
was
in
that
year
other
income
(mostly
from
an
office
or
employment)
to
an
amount
exceeding
the
aforementioned
loss
and
all
other
allowable
deductions,
he
assessed
respondent
for
1962
on
that
basis.
For
the
year
1961
he
issued
a
revised
assessment
in
which
it
is
expressly
stated
that
the
deduction
of
the
1962
business
loss
is
refused
for
the
reason
that
it
‘has
previously
been
allowed
as
a
deduction
from
other
income
in
1962”.
Seeing
that
respondent
had
a
substantial
professional
income
in
1961
while
his
other
income
in
1962
exceeded
his
allowable
deductions
and
the
aforementioned
loss
by
a
very
small
sum
only,
the
progressive
character
of
our
income
tax
results
in
the
respondent
obtaining
for
the
1962
loss
by
such
assessment
an
income
tax
credit
that
is
only
a
small
fraction
of
that
which
he
would
obtain
if
allowed
to
carry
it
back
to
the
year
1961.
Respondent
objected
to
his
assessment
for
the
year
1961
and
the
Minister
refused
to
modify
it.
On
appeal
to
the
Tax
Appeal
Board,
the
assessment
was
affirmed
(J.
0.
Weldon,
February
15,
1967).
This
decision
was
based
essentially
on
the
statutory
definition
of
loss
in
paragraph
(x)
of
Section
139(1)
of
the
Income
Tax
Act
(hereinafter
referred
to
as
the
Act)
:
(x)
“loss”
means
a
loss
computed
by
applying
the
provisions
of
this
Act
respecting
computation
of
income
from
a
business
mutatis
mutandis
(but
not
including
in
the
computation
a
dividend
or
part
of
a
dividend
the
amount
whereof
would
be
deductible
under
section
28
in
computing
taxable
income)
minus
any
amount
by
which
a
loss
operated
to
reduce
the
taxpayer’s
income
from
other
sources
for
purpose
of
income
tax
for
the
year
in
which
it
was
sustained.
This
was
apparently
taken
to
mean
that
a
business
loss
always
so
operates
to
reduce
the
income
from
all
other
sources
in
the
same
year.
On
a
further
appeal
to
the
Exchequer
Court
Gibson,
J.
took
a
different
view.
He
held
that
the
taxpayer
was
entitled
to
carry
back
his
loss
to
the
year
1961,
saying:
By
reason
of
Section
139(1)
(x)
of
the
Income
Tax
Act
the
appellant
had
the
option
to
deduct
this
1962
business
loss
from
his
1962
non-business
other
income
but
it
was
not
mandatory
for
him
to
do
so
and
he
did
not
do
so.
I
must
say
at
the
outset
that
I
cannot
agree
with
this
construction
of
the
Act.
It
is
not
supported
by
any
argument
and
I
cannot
reconcile
it
with
the
text.
A
reading
of
the
whole
Act
shows
that
where
it
is
intended
that
a
taxpayer
shall
have
an
option,
this
is
clearly
indicated.
In
my
view,
the
last
part
of
the
definition
of
loss
is
not
intended
to
define
the
extent
to
which
a
loss
operates
to
reduce
income
from
other
sources
in
the
year
in
which
it
is
sustained.
That
part
of
the
definition
clearly
means
one
thing
only
and
that
is
that
the
word
“‘loss’’
applies
only
to
what
remains
of
the
loss
after
deducting
therefrom
whatever
part
has
operated
to
reduce
the
income
from
other
sources
in
the
year
in
which
it
was
sustained.
It
is
equally
clear
that
one
must
look
to
the
substantive
provisions
of
the
Act
in
order
to
ascertain
the
extent
to
which
a
loss
so
operates:
the
definition
does
not
purport
to
indicate
such
extent.
Of
course
it
does
imply
that
it
may
so
operate
but
it
does
not
specify
in
which
circumstances
or
to
what
extent.
One
cannot
read
into
this
definition
any
intention
to
enact
a
substantive
rule
such
as
that
a
business
loss
does
not
operate
to
reduce
the
income
from
other
sources
in
the
current
year
except
at
the
option
of
the
taxpayer
or
that
it
always
does
so
operate.
It
may
happen
that
substantive
provisions
creep
into
statutory
definitions
but
this
is
not
to
be
presumed.
It
is
therefore
necessary
to
examine
the
whole
Act
in
order
to
ascertain
the
extent
to
which
a
business
loss
operates
to
reduce
income
from
other
sources
in
the
same
year.
This
is
by
no
means
an
easy
task.
In
the
first
place,
it
is
apparent
that
the
definition
was
drawn
up
essentially
for
the
purposes
of
paragraph
(e)
of
Section
27
(1)
respecting
the
deduction
of
business
losses.
This
provision
deals
with
such
deduction
only
in
the
immediately
preceding
and
the
five
immediately
following
taxation
years
and
not
in
the
year
in
which
they
are
sustained.
It
is
in
Division
C
dealing
with
deductions
in
the
“Computation
of
Taxable
Income’’,
not
in
Division
B
:
‘‘Computation
of
Income’’.
When
the
Act
was
originally
adopted
in
1948
with
the
definition
in
its
present
form,
there
was
in
Division
B
a
provision
(repealed
in
1952)
that
might
be
considered
as
defining
the
extent
to
which
a
loss
could
be
deducted
in
the
year
in
which
it
was
sustained.
This
was
Section
13
of
which
subsection
(1)
read
:
(1)
The
income
of
a
person
for
a
taxation
year
shall
be
deemed
to
be
not
less
than
his
income
for
the
year
from
his
chief
source
of
income.
The
effect
of
that
provision
was
that
whenever
a
loss
was
incurred
in
a
business
that
was
not
the
taxpayer’s
chief
source
of
income,
it
could
not
be
deducted
from
income
from
that
source.
This
might
be
said
to
imply
that
it
could
be
deducted
from
other
income,
because,
if
as
a
general
rule,
a
loss
from
one
source
could
not
be
deducted
from
income
from
any
other
source
in
the
same
year,
there
would
never
have
been
any
reason
for
enacting
any
rule
to
limit
such
deductions
in
respect
of
the
taxpayer’s
chief
source
of
income.
Section
13(1)
as
enacted
in
1948,
was
substantially
to
the
same
effect
as
Section
10
of
the
Income
War
Tax
Act
when
replaced
by
the
new
Act.
This
may
be
of
some
importance
when
comparing
the
wording
of
the
‘‘general
rules’’
of
the
present
Act
in
Division
B
“Computation
of
-Income’’
with
the
corresponding
provisions
of
the
former
Act.
In
the
latter,
“income”
was
defined
as
meaning
‘‘the
annual
net
profit
or
gain
or
gratuity,
.
.
.
”.
The
word
‘‘net’’
was
there
from
the
outset
and
was
obviously
considered
as
implying
the
right
to
deduct
any
expenses
or
losses
incurred
in
the
year
because
Parliament
in
1919,
besides
making
other
changes,
added
to
the
definition
of
“income”
the
following
paragraphs
(9-10
George
V,
c.
55,
s.
2)
:
(e)
in
determining
the
income
no
deduction
shall
be
allowed
in
respect
of
personal
and
living
expenses,
and
in
cases
in
which
personal
and
living
expenses
form
part
of
the
profit,
gain
or
remuneration
of
the
taxpayer,
the
sarnie
shall
be
assessed
as
income
for
the
purposes
of
this
Act;
/
(f)
deficits
or
losses
sustained
in
transactions
entered
into
for
profit
but
not
connected
with
the
chief
business,
trade,
profession
or
occupation
of
the
taxpayer
shall
not
be
deducted
from
income
derived
from
the
chief
business,
trade,
profession
or
occupation
of
the
taxpayer
in
determining
his
taxable
income.
The
above
paragraph
(f£)
was
amended
the
following
year
to
provide
for
conclusive
determination
by
the
Minister
and,
in
1923,
was
replaced
by
a
new
provision
stating
that
‘‘the
income
of
a
taxpayer
shall
be
deemed
to
be
not
less
than
the
income
derived
from
his
chief
position,
occupation,
trade,
business
or
calling”.
In
the
1927
revision
this
became
Section
10.
Despite
the
change
of
wording
no
doubt
effected.
for
the
purpose
of
plugging
loopholes,
the
purpose
of
the
provision
clearly
remained
to
prohibit
the
deduction
of
business
losses
from
income
derived
from
the
taxpayer’s
chief
occupation
while
leaving
intact
the
right
to
deduct
them
from
income
from
any
other
sources
by
virtue
of
the
general
rule
that
net
income
only
was
taxed.
However,
and
this
might
be
said
to
be
the
main
basis
of
respondent’s
argument,
the
present
Act
no
longer
defines
“income”
as
‘‘net
income”.
The
basic
provisions
are
now
the
following
:
2.
(3)
The
taxable
income
of
a
taxpayer
for
a
taxation
year
is
his
income
for
the
year
minus
the
deductions
permitted
by
Division
C.
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.
A.
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.
5.
(1)
Income
for
a
taxation
year
from
an
office
or
employment
is
the
salary,
wages
and
other
remuneration,
including
gratuities,
received
by
the
taxpayer
in
the
year
plus
.
.
.
minus
the
deductions
permitted
by
paragraphs
(i),
(ib),
(q)
and
(qa)
of
subsection
(1)
of
section
11
and
by
subsections
(5)
to
(11),
inclusive,
of
section
11
but
without
any
other
deductions
whatsoever.
Concerning
business
losses
the
difficulty
is
that,
as
we
have
seen,
the
only
provision
for
their
deduction
is
paragraph
(e)
of
Section
27(1)
in
Division
C.
This,
as
already
noted,
does
not
provide
for
such
deduction
in
the
year
in
which
they
are
suffered.
Section
4
defining
income
from
a
business
or
property
as
‘‘the
profit
therefrom’’
would
appear
to
negate
the
consideration
of
losses.
Also
the
definition
of
‘‘loss’’
requiring
the
application
of
the
provisions
‘‘respecting
computation
of
income
from
a
business
mutatis
mutandis
’
implies
that
‘‘income’’
in
the
“general
rules’’
does
not
include
a
loss.
On
the
other
hand,
the
result
of
such
literal
reading
of
Sections
2,
3,
4
and
5
would
be
that
what
is
contemplated
in
the
last
part
of
the
definition
of
‘‘loss’’
would
never
arise.
A
loss
would
never
operate
to
reduce
the
taxpayer’s
income
from
other
sources
for
purposes
of
income
tax
for
the
year
in
which
it
is
sustained
if
Section
3
contemplates
only
the
addition
of
income
from
every
source
this
being
taken
in
the
case
of
a
“business”
as
meaning
a
profit
not
a
loss.
The
difficulty
is
that
such
a
construction
deprives
the
last
part
of
the
definition
of
‘‘loss’’
of
any
meaning.
It
must
also
be
considered
that
when
Sections
2,
3
and
4
were
enacted
in
1948,
the
Act
included
besides
the
definition
of
“loss”
a
Section
13
which
would
have
no
effect
unless,
as
a
general
rule,
business
losses
were
deductible
from
other
income
in
the
same
year.
This
provision
was
repealed
in
1952
(1
Eliz.
IT,
c.
29,
s.
4).
However,
aceording
to
Maxwell
(On
Interpretation
of
Statutes,
11th
ed.,
p.
37)
:
Where
a
part
of
an
Act
has
been
repealed,
it
may,
although
not
of
operative
force,
still
be
taken
into
consideration
in
construing
the
rest,
for
it
is
part
of
the
history
of
the
new
Act.
But,
how
do
we
know
that
the
provision
was
not
repealed
because
it
was
considered
useless
?
One
must
also
consider
that
under
Section
27
(1)
(e)
as
amended
in
1958,
c.
32,
s.
12,
business
losses
sustained
in
the
five
preceding
years
or
in
the
immediately
following
year
are
now
deductible
not
only
from
the
income
from
the
same
business
but
from
the
income
from
any
other
business
as
well.
It
would
be
an
extreme
anomaly
if
they
were
not
deductible
from
the
income
from
another
business
in
the
same
year,
but
such
is
the
result
if
Sections
3
and
4
are
read
literally
as
requiring
an
addition
of
income
from
every
source
without
deducting
any
loss.
On
this
literal
construction,
another
equally
anomalous
result
would
follow
from
the
definition
of
‘‘earned
income’’
(Section
32(5))
as
it
now
stands.
Despite
its
length,
I
find
it
necessary
to
quote
it
in
full:
(5)
For
the
purpose
of
this
section,
“earned
income”
means
the
aggregate
of
(a)
salary
or
wages,
superannuation
or
pension
benefits,
retiring
allowances,
death
benefits,
royalties
in
respect
of
a
work
or
invention
of
which
the
taxpayer
was
the
author
or
inventor,
amounts
included
in
computing
the
income
of
the
taxpayer
by
virtue
of
paragraph
(d),
(da)
or
(db)
of
subsection
(1)
of
section
6,
amounts
allocated
to
the
taxpayer
by
a
trustee
under
an
employees
profit
sharing
plan,
amounts
received
by
the
taxpayer
from
a
trustee
under
a
supplementary
unemployment
benefit
plan,
amounts
included
in
computing
the
income
of
the
taxpayer
by
virtue
of
section
79B
and
amounts
included
in
computing
the
income
of
the
taxpayer
by
virtue
of
subsections
(9)
and
(14)
of
section
79C,
(b)
income
from
the
carrying
on
of
a
business
either
alone
or
as
a
partner
actively
engaged
in
the
business,
and
(c)
rental
income
from
real
property,
minus
(d)
business
losses
sustained
in
the
taxation
year
in
the
course
of
the
carrying
on
of
a
business
either
alone
or
as
a
partner
actively
engaged
in
the
business,
(da)
losses
sustained
in
the
taxation
year
from
the
rental
of
real
property,
and
(e)
amounts
deductible
under
paragraph
(u)
or
(v)
of
subsection
(1)
of
section
11
or
under
section
79B
in
computing
income
for
the
taxation
year.
The
above
provision
clearly
indicates
that
for
the
purpose
of
the
definition
of
‘‘earned
income’’
business
losses
are
deductible
from
what
might
be
described
as
all
income
other
than
investment
income
in
the
year
in
which
they
are
suffered,
but
not
in
subsequent
or
preceding
years
although
they
may
be
deductible
from
business
income
in
such
years.
While
it
is
very
hard
to
see
how
Parliament
can
possibly
have
intended
that
business
losses
should
be
deducted
in
the
same
year
for
ascertaining
what
is
“earned
income’’
and
not
for
ascertaining
what
is
‘‘income’’,
one
must
bear
in
mind
that
the
paramount
duty
of
the
Courts
is
to
construe
the
legislation
as
written
and
not
to
depart
from
the
clear
wording
because
the
result
of
the
literal
construction
appears
illogical
or
unfair.
Here,
if
we
compare,
as
we
must,
the
provisions
of
Section
32(5)
with
those
of
Sections
3,
4
and
5,
we
find
not
only
an
explicit
provision
for
an
algebraic
addition,
plusses
and
minusses
being
specified,
but
also
a
reference
not
to
income
only
but
to
losses
as
well.
A
comparison
of
the
language
thus
appears
to
indicate
a
deliberate
different
intention.
It
must
be
noted
that
this
difference
arises
essentially
from
an
amendment
enacted
in
1957
(5-6
Eliz.
IT,
c.
29,
s.
9).
In
the
Act
as
adopted
in
1948,
subsection
(5)
of
Section
31
read:
(5)
For
the
purpose
of
this
section,
“earned
income”
means
(a)
salary
or
wages,
superannuation
or
pension
benefits,
retiring
allowances
and
royalties
in
respect
of
a
work
or
invention
of
which
the
taxpayer
was
the
author
or
inventor,
and
(b)
income
from
the
carrying
on
of
a
business
either
alone
or
as
a
partner
actively
engaged
in
the
business.
One
must
now
turn
to
the
last
part
of
subsection
(1)
of
Section
5,
being
the
definition
of
‘‘income
from
an
office
or
employment”.
While
Section
4
does
not
specify
the
deductions
that
may
be
made
in
ascertaining
the
income
from
a
business
or
property,
Section
5,
after
enumerating
all
the
items
to
be
included
in
income
from
an
office
or
employment,
expressly
limits
the
allowable
deductions
to
those
contemplated
in
a
few
specifically
enumerated
provisions
of
the
Act.
Can
this
mean
that
the
other
deductions,
although
they
are
thus
disallowed
from
income
from
an
office
or
employment,
are
nevertheless
allowable
from
total
income
even
if
there
is
no
other
income,
or
if
all
other
income
amounts
to
less
than
those
deductions?
Would
this
not
deprive
the
restriction
of
any
practical
effect
due
to
the
repeal
of
Section
13(1)
°?
It
does
not
seem
that
this
repeal
was
intended
to
have
that
result
because
not
only
was
the
limitation
of
the
deductions
allowable
against
employment
income
left
intact
at
that
time,
but
it
was
re-enacted
in
amended
form
in
1957
(5-6
Khz.
II,
c.
29,
s.
1).
Parliament
having
decreed
that
income
from
an
office
or
employment
shall
include
all
the
items
specified
minus
the
permitted
deductions
‘‘but
without
any
other
deductions
whatsoever’’,
it
is
not
easy
to
see
on
what
basis
some
other
deductions,
namely
business
losses
incurred
in
the
same
year,
should
be
allowed
to
reduce
the
income
of
a
taxpayer
below
the
amount
of
his
income
from
an
office
or
employment.
On
the
other
hand,
the
limitation
of
deductions
from
‘‘income
from
an
office
or
employment’’
is
only
in
the
definition
of
such
income
(Section
5)
and
does
not
affect
the
definition
of
“income”
(Section
3).
Can
it
be
held
to
exclude
the
deduction
of
business
losses
incurred
in
the
same
year
unless
it
is
also
held
that
the
latter
definition
does
not
implicitly
provide
for
that
particular
deduction
being
made?
If
it
is
so,
then
there
is
no
basis
anywhere
in
the
Act
as
it
now
reads
for
allowing
the
deduction
of
a
business
loss
from
income
from
any
other
source
in
the
same
year
as
is
expressly
contemplated
in
the
definition
of
‘‘loss’’
(Section
139(1)
(x)).
Should
it
be
said
that
this
merely
means
that
this
part
of
the
definition
was
made
useless
by
the
repeal
of
the
former
Section
13(1)
in
1952?
Nothing
indicates
that
this
amendment
was
intended
to
prohibit
the
deduction
of
any
business
loss
in
the
same
year.
Both
parties
seek
to
avoid
the
difficulty
by
calling
this
a
‘‘netting
out’’
instead
of
a
deduction.
Respondent
contends
that
the
plural
‘‘businesses’’
in
Section
3
implies
a
“netting
out”
of
the
income
from
all
businesses
in
the
same
year.
This
argument
is
self-defeating
because,
if
the
plural
does
of
itself
carry
such
an
implication,
then
this
must
be
applied
to
‘‘sources’’
as
well,
resulting
in
an
overall
“netting
out’?
that
is
the
very
basis
of
the
Minister’s
contention.
On
the
other
hand,
some
very
serious
objections
to
any
“netting
out’’
theory
are
not
only
that
the
word
‘‘net’’
was
eliminated
from
the
Act
in
the
1948
revision
but
also
that,
in
the
Act
generally,
‘‘deduction’’
appears
to
cover
anything
that
may
be
subtracted.
Moreover,
the
word
‘‘loss’’
is
found
in
Section
12
dealing
with
deductions
that
are
not
to
be
made.
12.
(1)
In
computing
income,
no
deduction
shall
be
made
in
respect
of
(b)
an
outlay,
loss
or
replacement
of
capital,
a
payment
on
account
of
capital
or
an
allowance
in
respect
of
depreciation,
obsolescence
or
depletion
except
as
expressly
permitted
by
this
Part,
This
might
be
said
to
imply
that
a
loss
that
is
not
a
loss
of
capital
is,
as
a
rule,
deductible.
But,
if
this
is
a
“deduction”,
how
can
it
escape
the
effect
of
the
limitation
of
deductions
against
‘‘income
from
an
office
or
employment”?
Having
thus
stated
at
length
the
problem
presented
in
argument
by
the
parties,
I
find
however
that
it
does
not
require
to
be
solved
in
the
instant
case
because
there
is
no
appeal
from
respondent’s
assessment
for
the
year
1962.
It
is
for
that
year
that
the
question
really
arose
whether,
for
income
tax
purposes,
the
business
loss
suffered
in
that
year
was
to
be
applied
first
against
other
income
in
that
same
year.
Although
the
assessment
notice
for
the
year
1962
is
not
in
the
record,
the
transcript
shows
that
while
respondent
was
testifying
in
the
Exchequer
Court,
his
counsel
said:
MR.
ESTEY:
Then,
I
believe,
My
Lord,
part
of
the
record
already
before
Your
Lordship
includes
the
three
assessment
notices
which
followed
that
sequence
of
correspondence.
There
are
three
in
all
which
perhaps
would
be
helpful
to
the
Court
to
mention
for
a
moment
now.
The
first
one
is
1961
on
which
is
endorsed,
after
the
arithmetic
is
sorted
out—and
there
is
no
contest
on
the
arithmetic—“As
per
amended
return
filed
with
the
exception
of
1962
business
loss,
1962
business
loan
[sic]
has
previously
been
allowed
as
a
deduction
from
other
income
in
1962.”
So
the
issue
for
1961
is
narrowed
down
to
whether
or
not
the
loss
which
the
taxpayer
seeks
to
apply
against
that
year
has
already
been
used
up
in
1962.
And
then
on
the
’62
assessment,
notice
of
assessment,
is
endorsed:
“Your
loss
from
business
in
1962
must
first
be
applied
against
any
other
income
of
the
year
in
which
the
loss
occurs,
and
accordingly
it
has
been
deducted
in
1962
and
your
amended
1961
return
will
have
no
effect.”
And
the
third
one
is
for
1963
which
again,
after
dealing
with
the
other
matters
of
arithmetic,
it
adds
in
the
$9,897.80
with
this
note:
“Taxable
income
as
previously
assessed
as
payments
received
from
Borden,
Elliott
deems
income
$9,897.30.”
I
take
it
it
is
not
necessary
to
file
those
as
exhibits,
My
Lord?
to
which
His
Lordship
replied:
“No.”
Thus
it
appears
that
in
making
up
respondent’s
assessment
for
the
year
1962,
the
Minister
applied
the
business
loss
suffered
in
that
year
against
other
income
in
that
same
year.
Respondent’s
return,
which
is
in
the
record,
shows
how
this
was
done
and
also
reveals
that
there
was
other
income
in
that
year
in
an
amount
exceeding
the
business
loss
and
all
other
allowable
deductions.
As
there
is
no
appeal
from
that
assessment,
the
courts
cannot
revise
it.
It
follows
that
they
cannot
consider
whether
the
Minister
was
correct
in
applying
the
business
loss,
as
he
did,
against
other
income
in
that
year.
That
is
a
question
that
arose
on
respondent’s
assessment
for
the
year
1962
and
was
properly
determined
on
that
assessment.
That
determination
is
binding
on
the
parties.
Section
46(7)
reads:
(7)
An
assessment
shall,
subject
to
being
varied
or
vacated
on
an
objection
or
appeal
under
this
Part
and
subject
to
a
re-assessment,
be
deemed
to
be
valid
and
binding
notwithstanding
any
error,
defect
or
omission
therein
or
in
any
proceeding
under
this
Act
relating
thereto.
It
is
only
by
an
objection
made
in
proper
time
and
an
appeal,
if
necessary,
that
the
respondent
could
prevent
his
1962
business
loss
from
operating
to
reduce
his
other
income
in
that
year
by
virtue
of
the
assessment.
As
this
was
not
done,
the
result
is
that,
having
to
consider
only
the
assessment
for
the
year
1961,
the
statutory
definition
of
loss
is
to
be
applied
to
the
facts
as
they
are.
These
are
that
the
whole
amount
of
the
1962
business
loss
has
operated
to
reduce
the
taxpayer’s
income
from
other
sources
for
purposes
of
income
tax
for
the
year
in
which
it
was
sustained
and,
therefore,
it
is
not
available
as
a
deduction
in
the
previous
year.
I
must
add
that
Section
46(7)
was
not
referred
to
in
argument
written
or
oral
and
I
would
consider
a
rehearing
necessary
on
that
point
before
such
could
properly
be
the
basis
of
the
majority
decision
on
this
branch
of
the
case.
For
the
year
1963
the
facts
are
the
following.
The
partnership
known
as
Borden,
Elliott,
Kelley
&
Palmer
was,
at
the
material
time,
governed
by
an
agreement
made
as
of
January
1,
1961.
Clause
1
of
this
contract
states
that
the
partnership
is
a
continuation
of
the
partnership
heretofore
carried
under
the
same
firm
name
and
shall
continue
until
determined
by
the
affirmative
vote
of
75%
of
the
total
votes
exercisable.
There
are
elaborate
provisions
for
establishing
yearly
the
percentage
of
the
profits
to
which
each
partner
is
to
be
entitled.
It
must
be
noted
that
two
of
them
are
entitled
to
fix
their
own
share
without
any
restriction
and
also
to
exercise
this
right
upon
a
dissolution
with
respect
to
all
assets
remaining
after
discharging
any
liabilities.
In
respect
of
withdrawals
from
partnership,
clause
14
provides
:
14.
In
the
event
of
the
withdrawal
from
partnership
or
death
of
any
partner,
the
withdrawing
partner
or
the
estate
of
a
deceased
partner,
as
the
case
may
be,
shall
be
entitled
to
receive,
not
later
than
six
(6)
months
following
the
date
of
such
withdrawal
or
death,
the
amount
of
undrawn
profits
from
years
preceding
the
year
of
withdrawal
or
death
then
standing
to
the
credit
of
such
partner.
The
withdrawing
partner
or
the
estate
of
a
deceased
partner
shall
also
be
paid
the
following
additional
amounts,—
(a)
In
respect
of
the
financial
year
(hereinafter
in
this
subparagraph
(a)
called
the
“current
financial
year”)
in
which
death
or
withdrawal
occurred,
such
portion
of
the
profits
for
that
year
as
shall
be
voted
to
the
withdrawing
partner
or
to
the
estate
of
the
deceased
partner
at
the
ballot
conducted
pursuant
to
sub-paragraph
(c)
of
paragraph
12
by
the
partners
then
entitled
to
vote.
The
withdrawing
partner
or
the
personal
representatives
of
the
deceased
partner
shall
not
be
entitled
to
vote
on
such
ballot
but
the
name
of
the
withdrawing
or
deceased
partner
shall
appear
on
the
ballot;
provided
that
the
withdrawing
partner
or
the
estate
of
the
deceased
partner
shall
be
entitled
to
receive
from
the
profits
for
the
current
financial
year
not
less
than
an
amount
which
shall
be
the
average
of
his
percentage
rates
of
profit
participation
for
the
three
(3)
preceding
financial
years
applied
to
the
profits
in
which
the
withdrawing
or
deceased
partner
would
have
been
entitled
to
share
but
for
his
withdrawal
or
death
of
[sic]
the
current
financial
year
and
prorated
to
the
period
from
the
commencement
of
such
current
financial
year
to
the
date
of
withdrawal
or
death.
The
amount
so
voted
to
such
partner
or
the
aforesaid
minimum
whichever
may
be
the
greater,
after
deduction
of
sums
paid
on
account
as
monthly
drawings
to
the
withdrawing
partner,
or
to
the
deceased
partner
and
his
estate,
as
the
case
may
be,
shall
be
paid
in
full
at
once;
and
pending
the
determination
of
the
actual
amount
so
payable
there
shall
be
paid
on
account
thereof
each
month
during
the
balance
of
the
current
year
an
amount
equal
to
his
last
effective
monthly
drawing
rate,
and
any
necessary
adjustment
shall
be
made
when
the
actual
amount
so
payable
is
determined;
and
(b)
The
Management
Committee
shall
examine
into
and,
in
the
exercise
of
its
best
judgment,
evaluate
the
profits
accruing
or
to
accrue
or
likely
to
accrue
to
the
partnership
from
work
in
process
or
in
contemplation
on
which
the
withdrawing
or
deceased
partner
was
engaged
or
in
respect
of
which
he
had
general
supervision
or
which
he
had
introduced
to
the
partnership
and
shall
allocate
to
the
withdrawing
or
deceased
partner
such
portion
of
those
profits
as
they,
in
their
sole
and
unrestricted
discretion
shall
consider
to
be
just
and
equitable;
provided,
however,
that
unless
the
Management
Committee
shall,
by
the
affirmative
vote
of
90%
of
the
total
votes
exercisable
in
accordance
with
clauses
(d)
and
(f)
of
paragraph
11
of
this
agreement
(excluding
for
the
purpose
of
such
vote
the
votes
of
the
withdrawing
partner),
have
determined
that
the
withdrawing
partner
or
the
deceased
partner
has
by
his
misconduct
or
dishonesty
caused
actual
loss
or
damage
to
the
partnership
or
prejudiced
its
reputation
with
the
public
or
clients
or
the
profession,
the
amount
so
allocated
shall
not
be
less
than
an
amount
calculated
as
follows,—
The
average
of
the
percentage
rates
of
profit-participation
awarded
to
the
withdrawing
or
deceased
partner
during
the
three
(3)
financial
years
of
the
partnership
last
completed
on
or
before
the
date
of
his
withdrawal
or
death
shall
be
calculated.
The
average
percentage
rate
so
obtained
shall
be
applied
to
the
amount
of
the
profits
of
the
partnership,
in
which
the
withdrawing
or
deceased
partner
would
have
been
entitled
to
share
but
for
his
withdrawal
or
death,
for
the
financial
year
of
the
partnership
next
following
that
in
which
the
withdrawal
or
death
occurred
and
the
amount
so
obtained
shall
be
the
minimum
entitlement
of
such
partner
under
this
sub-paragraph
(b).
Such
allocation
shall
be
final
and
binding
on
all
persons
in
interest
and
shall
not
be
subject
to
review
in
any
court.
The
profits
so
allocated
under
this
sub-paragraph
(b)
to
a
withdrawing
or
deceased
partner
shall
be
paid
in
full
at
once
or
in
equal
annual
instalments
over
such
period
of
time
not
exceeding
five
years
from
the
date
on
which
such
withdrawal
or
death
occurred
as
the
Management
Committee
shall,
in
its
discretion,
consider
appropriate.
There
shall,
however,
be
paid
to
the
estate
of
a
deceased
partner,
on
account
of
the
profits
to
be
so
allocated,
a
sum
equal
to
the
income
tax
payable
by
the
estate
in
respect
of
the
said
profits,
and
such
sum
shall
be
paid
forthwith
upon
the
ascertainment
of
the
amount
of
such
tax.
In
no
event
shall
interest
be
payable
on
any
deferred
balance.
Some
time
after
respondent’s
withdrawal
from
the
firm,
the
Management
Committee
made
a
decision
under
paragraph
(b)
of
the
above
clause.
The
decision
allocated
to
the
respondent
an
amount
calculated
on
the
minimum
basis
specified
and
decided
that
this
would
be
payable
in
four
yearly
equal
instalments
starting
in
1963.
On
April
28,
1963,
the
auditors
of
the
firm
certified
in
writing
‘‘that
the
sum
of
$39,589.20
was
credited
to
the
account
of
Mr.
I.
G.
Wahn
as
his
share
of
the
net
profit
of
the
firm
for
the
year
ended
December
31,
1962”,
and
on
April
26
this
[notice]
was
mailed
to
the
respondent
with
a
cheque
for
$9,897.30,
being
one
quarter
of
the
total
credit.
In
his
income
tax
return
for
the
year
1962,
respondent,
after
setting
forth
the
details
of
his
business
loss
of
$6,902.89
previously
referred
to
and
claiming
the
right
to
carry
it
back
against
his
1961
professional
income,
added
the
following
note
:
I
also
received
from
Borden,
Elliott,
Kelley
&
Palmer
a
cheque
for
$9,897.30
being
one
quarter
of
the
amount
(which
is
subject
to
dispute
and
adjustment)
payable
to
me
under
my
old
partnership
agreement
with
that
firm.
The
proper
amount
payable
is
determined
by
reference
to
1962
profits
of
Borden,
Elliott,
Kelley
&
Palmer.
I
left
that
firm
effective
December
31,
1961.
Accordingly
all
such
payments
are
capital
not
income.
Although,
as
previously
mentioned,
the
notice
of
assessment
for
the
year
1962
is
not
in
the
record,
it
is
clear
that
the
respondent
was
not
assessed
for
income
tax
on
his
income
for
the
year
1962
in
respect
of
either
the
whole
amount
allocated
to
him
by
his
former
firm
or
the
part
of
this
amount
that
was
paid
to
him
in
April
1963.
What
happened
was
that
on
August
16,
1965,
a
notice
of
re-assessment
was
issued
for
the
taxation
year
1963
bearing
the
following
mention:
ADD:
payments
received
from
Borden,
Elliott,
Kelley
&
Palmer
—deemed
income
$9,897.30
In
his
notice
of
objection,
respondent
again
raised
the
contention
that
this
was
‘‘a
capital
payment’’.
He
also
urged
in
alternative
that
if
the
payment
is
considered
as
income,
it
should
be
treated
as
income
for
the
taxation
year
1962
rather
than
1963.
The
objection
was
overruled
by
the
Minister
who
said
in
a
notification
dated
May
31,
1966
:
The
amount
of
$9,897.30
received
by
the
taxpayer
in
the
1963
taxation
year
from
Messrs.
Borden,
Elliott,
Kelley
and
Palmer
pursuant
to
clause
14
of
the
Agreement
dated
1st
January,
1961
has
been
properly
taken
into
account
in
computing
the
taxpayer’s
income
for
the
1963
taxation
year
in
accordance
with
the
provisions
of
sections
3
and
4
and
paragraph
(c)
of
subsection
(1)
of
section
6
of
the
Act.
The
parties
took
substantially
the
same
position
in
the
notice
of
appeal
to
the
Tax
Appeal
Board
and
the
reply
thereto.
On
February
15,
1967,
the
Tax
Appeal
Board
upheld
the
assessment.
Weldon
said,
after
quoting
from
clause
14(b)
of
the
partnership
agreement:
My
interpretation
of
sub-paragraph
(b)
is
that
it
was
included
in
the
Partnership
Agreement
to
provide
a
convenient
formula
for
compensating
a
withdrawing
partner
in
respect
of
legal
fees
which
he
had
earned,
in
whole
or
in
part,
but
which
were
destined
to
be
received
by
his
former
firm
after
his
withdrawal
therefrom.
In
that
light,
the
amount
of
$39,589.20,
allocated
to
the
Appellant
as
aforesaid,
was
clearly
income.
Concerning
respondent’s
alternative
contention,
all
that
was
said
is
the
following:
Since
the
above
payment
of
$9,897.30
was
properly
made
to
the
Appellant
by
his
former
partners
strictly
in
accordance
with
the
relevant
provision
contained
in
the
Partnership
Agreement,
there
is
no
question,
in
my
view,
that
the
payment
does
not
fall
directly
within
the
taxpayer’s
1963
taxation
year.
That
point
has
been
clarified
because
Mr.
Wahn
has
submitted,
in
the
alternative,
that,
if
the
payment
of
$9,897.30
was
found
to
be
income
instead
of
capital,
as
maintained
by
him,
it
should
be
taxed
in
his
1962
rather
than
in
his
1963
taxation
year.
This
is
found
in
the
reasons
for
judgment
of
the
Board
before
the
other
quoted
passage
in
which
reference
is
made
not
to
the
amount
paid
in
1963
but
to
the
whole
amount
allocated
out
of
the
1962
profits.
This
makes
it
rather
difficult
to
understand
the
precise
basis
on
which
respondent’s
alternative
contention
was
rejected
by
the
conclusion
confirming
the
assessment
for
the
year
1963.
In
the
Exchequer
Court,
Gibson,
J.
said
:
The
payment
in
1963
of
$9,897.30
(together
with
the
payments
of
a
similar
amount
in
the
four
years
following)
was
for
the
release,
transfer
or
surrender
of
the
interest
of
the
appellant
in
goodwill
in
the
law
practice
of
Borden,
Elliott,
Kelley
and
Palmer
to
the
remaining
partners,
the
corollary
of
purchased
goodwill,
a
capital
asset,
and
also
to
a
small
degree
for
the
surrender
of
all
the
right,
title
and
interest
of
the
appellant
in
the
other
capital
assets
less
his
responsibility
for
the
liabilities
of
this
firm,
and
therefore
the
receipt
of
this
sum
for
such
by
the
appellant
was
not
income
to
him
within
the
meaning
of
the
Income
Tax
Act.
Here
again
I
find
myself
unable
to
agree
with
the
view
taken
in
the
Court
below.
In
order
to
ascertain
the
nature
of
the
amount
allocated
to
the
respondent
out
of
the
profits
of
the
firm
from
which
he
had
withdrawn,
the
partnership
agreement
must
be
construed
as
written.
It
was
obviously
drawn
up
with
great
care
and
special
consideration
was
given
to
the
fiscal
consequences
of
the
provisions
for
payments
to
a
withdrawing
partner
or
to
the
estate
of
a
deceased
partner.
In
the
latter
case
it
is
provided
that
payment
will
be
made
by
the
firm
of
‘‘a
sum
equal
to
the
income
tax
payable
by
the
estate
in
respect
of
the
said
profits’’
(viz.
the
profits
so
allocated).
This
shows
clearly
that
it
was
not
the
intention
that
the
remaining
partners
should
bear
the
income
tax
on
the
part
of
the
1962
profits
allocated
to
the
respondent.
However,
such
would
be
the
result
of
treating
the
amount
as
a
capital
payment.
Respondent
would
be
getting
it
free
from
income
tax
but
the
amount
allocated
to
him
out
of
the
1962
profits
would
be
added
to
the
share
of
the
remaining
partners
because,
on
the
assumption
that
the
sum
allocated
is
a
capital
payment,
the
whole
amount
of
the
1962
profits
would
have
to
be
apportioned
among
the
partners
instead
of
the
portion
remaining
after
deducting
the
amount
allocated
to
the
respondent.
This
is
clearly
what
was
never
intended
and
I
fail
to
see
on
what
basis
the
agreement
should
be
given
an
effect
other
than
that
which
was
undoubtedly
intended.
It
is
contended
that
what
is
said
in
the
agreement
respecting
income
tax
cannot
override
the
provisions
of
the
Act.
This
is
quite
true
but
does
not
mean
that
what
is
said
is
not
to
be
taken
as
expressing
the
intention
of
the
parties.
I
find
it
obvious
that
the
intention
was
that
the
payment
to
a
withdrawing
partner
should
be
an
allocation
of
profits.
It
is
true
that
the
fact
that
a
payment
is
measured
by
reference
to
profits
may
not
prevent
it
from
being
of
a
capital
nature
but
there
must
be
something
to
show
that
such
is
the
true
nature
of
a
payment.
In
the
present
ease,
I
can
find
nothing
tending
to
indicate
that
it
is
so.
On
the
contrary,
clause
18
provides
clearly
that
a
withdrawing
partner
has
no
interest
in
the
capital
assets
of
the
firm.
18.
The
amounts
hereinbefore
provided
to
be
paid
to
a
withdrawing,
retiring
or
expelled
partner
or
to
the
estate
of
a
deceased
partner
shall
be
accepted
by
the
withdrawing,
retiring
or
expelled
partner
or
by
the
estate
of
the
deceased
partner
in
full
satisfaction
of
all
claims
or
demands
which
he
or
it
may
have
against
the
partnership.
It
must
also
be
noted
that
when
respondent
was
admitted
to
the
partnership,
he
was
not
required
to
make
and
did
not
make,
at
that
time
or
at
any
other
time,
any
contribution
to
capital
account.
Under
such
circumstances
it
is
only
natural
that
the
agreement
was
not
intended
to
compel
the
other
partners
to
pay
a
substantial
capital
sum
for
the
privilege
of
retaining
assets
to
which
respondent
had
not
contributed.
Concerning
goodwill,
it
is
significant
that
the
agreement
contains
no
provision
intended
to
secure
it
to
the
remaining
partners
as
against
a
withdrawing
partner
although
such
provision
is
made
for
the
case
when
a
partner
retires
because
of
age
or
ill
health.
In
such
case,
clause
17
of
the
agreement
provides
for
a
retiring
allowance
subject
to
the
condition
that
he
shall
not
in
any
way
compete
with
the
continuing
partnership
’
’.
It
is
thus
clear
that
the
matter
of
goodwill
was
considered
in
the
drafting
of
the
partnership
agreement.
The
wording
of
the
provision
for
the
allowance
to
a
withdrawing
yartner
shows
that
it
was
not
intended
to
be
a
capital
payment
for
goodwill
but
an
allocation
of
profits
and
this
is
conclusive
evidence
that
it
is
income
of
the
recipient
as
was
held
by
this
Court
in
M.N.R.
v.
Sedgwick,
[1964]
S.C.R.
177
;
[1963]
C.T.C.
571.
Much
was
said
of
The
Partnerships
Act
(R.S.O.,
ce.
288)
but
I
can
find
nothing
in
it
which
would
compel
us
to
hold
that
the
amount
allocated
to
the
respondent
is
anything
else
than
what
the
agreement
intends
it
to
be,
namely
a
share
of
the
1962
profits.
Sections
82
and
33
clearly
show
that
it
may
be
lawfully
stipulated
that
a
partnership
will
continue
after
the
withdrawal
of
a
partner
and
Section
48
implies
that
payments
to
a
withdrawing
partner
may
be
governed
by
the
stipulations
of
the
partnership
agreement.
Having
come
to
the
conclusion
that
the
amount
allocated
to
the
respondent
by
his
former
firm
is
not
a
capital
payment
but
a
part
of
the
profits
of
that
partnership
in
the
year
1962,
being
the
year
following
his
withdrawal,
it
is
necessary
to
consider
Section
6(1)
of
the
Act
and
especially
paragraph
(c).
This
section
down
to
that
paragraph
reads
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
(a)
amounts
received
in
the
year
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of
(i)
dividends,
(ii)
director’s
or
other
fees,
(iii)
Repealed.
1963,
c.
21,
s.
2(1).
(iv)
superannuation
or
pension
benefits,
(v)
retiring
allowances,
or
(vi)
death
benefit;
(aa)
amounts
received
in
the
year
as
annuity
payments;
(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;
(c)
the
taxpayer’s
income
from
a
partnership
or
syndicate
for
the
year
whether
or
not
he
has
withdrawn
it
during
the
year;
These
provisions
must
be
considered
in
the
light
of
Section
15
of
which
subsection
(1)
reads
as
follows:
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.
It
is
clear
that
the
last
quoted
provision
cannot
be
applied
to
the
respondent.
He
was
not
a
partner
of
his
former
firm
in
the
year
1962.
In
my
view,
this
provision
should
also
be
taken
as
defining
what
is
meant
as
the
taxpayer’s
income
from
a
partnership
in
paragraph
(c)
of
Section
6(1).
The
Shorter
Oxford
Dictionary
gives
the
following
as
the
first
two
meanings
of
the
word
“partnership”
:
1.
The
fact
or
condition
of
being
a
partner.
2.
Comm.
An
association
of
two
or
more
persons
for
the
carrying
on
a
business,
of
which
they
share
the
expenses,
profit,
and
loss.
In
the
first
and
stricter
sense
the
payment
made
to
the
respondent
in
1963
was
not
income
from
a
partnership
because
he
was
not
a
partner,
although
in
the
second
and
wider
sense
it
might
be
said
to
be
income
from
the
partnership
because
it
came
from
the
association
of
which
he
had
formerly
been
a
member.
Bearing
in
mind,
(1)
that
fiscal
statutes
must
be
construed
strictly,
(2)
that
the
respondent
having
regularly
followed
the
method
of
reporting
his
income
as
received,
paragraph
(c)
is
an
exception
to
the
more
general
rule,
(3)
that
the
narrow
sense
is
the
only
one
consistent
with
Section
15(1),
I
have
reached
the
conclusion
that
the
respondent
was
properly
assessed
for
the
payment
made
by
his
former
firm
in
the
year
in
which
he
actually
received
it.
For
the
above
reasons
I
am
of
the
opinion
that
the
appeal
should
be
allowed
with
costs,
that
the
judgment
of
the
Exchequer
Court
should
be
reversed,
that
respondent’s
appeal
to
that
Court
from
the
decision
of
the
Tax
Appeal
Board
should
be
dismissed
with
costs
and
that
the
said
decision
should
be
reestablished
and
confirmed.
Email this Content