GIBSON,
J.:—The
question
for
decision
in
this
appeal
from
an
assessment
for
income
tax
for
the
taxation
year
1964
is
whether
or
not
the
forgiveness
of
$24,222.11
by
Maple
Leaf
Mills
Limited
to
the
appellant
in
the
course
of
the
latter’s
1964
taxation
year
should
be
regarded
as
a
receipt
from
its
trade
or
business
during
that
year.
Maple
Leaf
Mills
Limited
in
1964
forgave
a
debt
owing
to
it
by
the
appellant
of
$206,700.59.
All
of
this
debt,
except
the
said
$24,222.11,
was
incurred
by
the
purchases
of
feed
from
it
by
the
appellant.
The
$24,222.11
debt
was
incurred
by
way
of
financial
accommodation
provided
by
Maple
Leaf
Mills
Limited
to
the
appellant
when
Maple
Leaf
Mills
Limited
paid
that
sum
to
a
company
known
as
Cuddy
Turkey
Farms
Limited,
a
creditor
of
the
appellant
in
respect
of
four
invoices
in
1964
representing
purchases
of
turkey
poults.
The
appellant,
in
the
taxation
year
1964
and
prior
thereto,
was
in
the
turkey
farming
business
at
Mount
Hope,
Ontario.
It
bought
its
turkey
poults
in
the
main
from
Cuddy
Turkey
Farms
Limited
and
its
feed
to
raise
them
from
Maple
Leaf
Mills
Limited.
It
then
raised
the
turkeys
to
maturity
and
sold
them
on
the
market.
In
1964
the
appellant
was
insolvent,
which
condition
came
about
mainly
because
of
a
catastrophic
fatal
loss
of
turkeys
from
disease.
In
a
settlement
Maple
Leaf
Mills
Limited
forgave,
as
stated,
the
total
indebtedness
of
the
appellant
to
it
in
1964.
In
filing
its
income
tax
for
the
taxation
year
1964,
the
appellant
treated
the
whole
of
this
gain
as
capital
and
added
it
to
its
surplus
account.
The
respondent,
in
assessing
the
appellant
for
its
1964
taxation
year,
took
the
position
that
this
total
sum
represented
a
forgiveness
of
a
debt
on
revenue
account
and
accordingly
included
it
in
computing
for
taxation
purposes
the
appellant’s
income
for
1964.
This
appeal
however,
as
stated,
is
restricted
to
the
treatment
for
income
tax
purposes
of
the
foregiveness
of
the
said
debt
of
$24
222.11
incurred
in
the
manner
before
mentioned.
In
my
view,
this
case
falls
to
be
decided
on
the
law
applicable
to
abatements.
The
question
is
whether
this
was
an
abatement
of
a
capital
liability
or
an
abatement
received
in
the
course
of
the
appellant’s
normal
trading
operations.
If
it
was
the
latter
then
this
sum
is
‘‘income’’
within
the
meaning
of
that
term
in
the
Income
Tax
Act,
namely
a
profit
from
the
appellant’s
business
in
the
taxation
year
1964.
To
determine
the
substance
of
this
transaction
of
abatement
for
income
tax
purposes
it
is
necessary
to
categorize
and
find
the
relationships
of
the
parties
to
it.
From
the
evidence
it
is
beyond
doubt
that
there
are
two
distinct
relationships
in
law
to
be
considered
in
this
matter:
firstly,
there
is
the
relationship
between
the
appellant
and
Cuddy
Turkey
Farms
Limited
which
was
that
of
debtor
and
creditor
in
respect
of
turkey
inventory
of
the
appellant
in
the
sum
of
$24,222.11
;
and
secondly,
there
is
the
relationship
between
the
appellant
and
Maple
Leaf
Mills
Limited
which
was
that
of
lender
and
borrower
in
respect
of
a
similar
sum
of
$24,222.11.
It
is
also
beyond
doubt
that
it
is
the
latter
relationship
and
the
sum
involved
in
it
that
is
germane
to
the
adjudication
of
this
appeal.
In
my
view,
the
sum
received
by
way
of
an
abatement
of
this
debt
was
a
profit
to
the
appellant
arising
out
of
its
dealings
with
Maple
Leaf
Mills
Limited,
and
this
abatement
arose
in
dealings
when
the
relationship
between
the
appellant
and
Maple
Leaf
Mills
Limited
was
that
of
lender
and
borrower.
This
profit
arising
out
of
such
relationship
therefore,
was
not
income
within
the
meaning
of
that
term
in
the
Income
Tax
Act
and
is
not
taxable.
The
appeal
is
allowed
with
costs
and
the
matter
is
referred
back
for
re-assessment
not
inconsistent
with
these
Reasons.
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