JUDSON,
J.
(all
concur)
:—The
problem
in
these
two
appeals
is
essentially
the
same
as
that
in
the
Smythe
appeals
[[1969]
C.T.C.
558].
Wilbour
Lee
Craddock
and
Stanley
Curtis
Atkinson
were
the
principal
shareholders
in
a
private
Saskatchewan
corporation
named
Allied
Heating
and
Supply
Limited.
There
were
200
issued
common
shares,
of
which
Craddock
held
138,
Atkinson
60,
and
the
remaining
2
belonged
to
Craddock’s
son,
W.
J.
Craddock,
and
his
son-in-law,
Norman
Abraham.
This
company
had
$101,000
of
undistributed
income
on
hand.
At
the
conclusion
of
the
series
of
transactions,
which
I
will
summarize
later,
this
undistributed
income
was
in
the
hands
of
the
appellants.
The
transactions
took
place
in
April
and
May
of
1968,
just
before
the
enactment
of
Section
138A
of
the
Income
Tax
Act
relating
to
dividend-stripping.
This
new
legislation
came
into
force
after
June
13,
1963.
The
amounts
received
by
the
appellants
as
a
result
of
these
transactions
were
not
reported
in
their
1963
returns.
The
Minister
re-assessed
in
1967.
The
appeals
from
these
re-assess-
ments
were
decided
in
the
Exchequer
Court
solely
under
Section
137(2)
of
the
Income
Tax
Act.
Gibson,
J.
held
that
this
section
stood
by
itself
independently
of
other
sections
of
the
Act,
that
it
was
a
charging
section
and
that
a
benefit
under
Section
137(2)
was
one
of
the
sources
of
income
under
Section
3
so
that
it
was
not
necessary
to
assess
the
benefit
under
any
specific
provisions
of
the
Act.
He
further
held
that
no
dividend
tax
credit
could
be
claimed
in
respect
of
these
benefits.
He
dismissed
the
appeals
but
referred
back
the
re-assessments
for
reconsideration
and
re-assessment
in
accordance
with
his
reasons.
I
adhere
to
my
reasons
in
the
Smythe
appeals.
In
my
opinion,
these
receipts
by
the
appellants
were
deemed
to
be
dividends
under
Section
81(1)
of
the
Income
Tax
Act
and
the
appellants
are
entitled
to
the
dividend
tax
credit.
On
the
hearing
of
the
appeals
a
letter
was
filed
from
the
Minister
undertaking
that
the
dividend
tax
credits
would
be
allowed
as
they
had
been
in
the
original
assessments.
I
now
turn
to
a
brief
summary
of
the
facts.
The
scheme
is,
in
substance,
the
same
as
that
in
the
Smythe
appeals.
I
have
mentioned
the
shareholders
in
the
old
company.
On
April
19,
1963,
a
new
company—Allied
Heating
Supply
(1963)
Ltd.—
was
incorporated
as
a
private
Saskatchewan
corporation.
The
ownership
of
the
common
shares
of
the
new
company
was
substantially
the
same
as
that
of
the
old
company.
The
new
company
agreed
to
buy
the
assets
of
the
old
company
for
$101,000.
The
common
shares
of
the
old
company
were
divided
into
two
classes,
with
the
proportionate
ownership
of
the
subdivided
shares
remaining
unchanged.
The
new
company
gave
a
cheque
for
$101,000
in
exchange
for
the
assets
of
the
old
company.
This
cheque
was
covered
by
what
is
called
a
‘‘daylight
loan’’
from
a
bank.
The
next
transaction
was
a
sale
by
the
appellants
of
their
shares
in
the
old
company,
as
subdivided,
to
certain
individuals
who
were
engaged
in
the
business
of
dividend-stripping.
These
individuals
and
companies
were
to
perform
their
services
for
a
fee
of
$3,000.
The
old
company
distributed
its
assets
by
way
of
a
liquidating
dividend.
The
appellants
received
$96,000
of
this
amount,
which
they
then
lent
to
the
new
company
to
cover
that
company’s
cheque
for
the
purchase
of
the
assets.
The
precise
figures
are
as
follows:
(a)
A
cheque
for
$101,448.61
was
passed
from
the
new
company.
At
this
point
$2,000
disappears
in
expenses.
(b)
A
cheque
for
$99,442.61
was
passed
from
the
old
company
to
the
dividend-strippers.
At
this
point
a
fee
of
$3,000
was
extracted.
(c)
A
cheque
for
$96,447.99
was
passed
from
the
dividendstrippers
to
Craddock
and
Atkinson.
(d)
Craddock
and
Atkinson
lent
$96,447.99.
For
the
reasons
delivered
in
the
Smythe
appeals,
I
would
hold
that
these
receipts
were
taxable
to
the
appellants
in
their
proportionate
shares
as
deemed
to
be
dividends
under
Section
81(1),
and
that
they
are
entitled
to
the
dividend
tax
credits
which
they
have
already
been
allowed.
I
would
dismiss
the
appeals
with
costs.
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