DUMOULIN,
J.:—This
is
an
appeal
from
a
decision
of
the
Tax
Appeal
Board
(32
Tax
A.B.C.
331),
dated
June
28,
1968,
respecting
the
income
tax
assessments
of
the
appellant
for
taxation
years
1954,
1955,
1956
and
1957.
Harry
Topper,
of
the
City
of
Toronto,
pursues
the
trade
of
fur
dresser
and
presser.
In
the
statement
of
facts
introductory
of
his
appeal,
at
paragraph
1,
he
states
that
:
“1.
During
the
year
1953,
the
Appellant
and
others
formed
an
investment
company,
Forest
Hill
Building
Limited,
herein
called
‘the
Company’.
As
a
condition
of
acquiring
a
one-third
interest
in
the
common
shares
of
the
Company,
the
Appellant
was
required
to
lend
certain
sums
to
the
Company
for
purposes
of
financing
construction
of
a
proposed
building.
’
’
In
order
to
clarify
the
ratio
linking
loans
and
shares,
Harry
Topper
testified
to
a
respective
proportion
of
40
per
cent
of
the
funds
advanced
and
one
third
of
the
shares
issued
(loans,
40%
;
shares,
33%).
On
five
occasions,
spreading
between
July
28,
1954,
and
February
23,
1955,
the
appellant
borrowed
a
total
of
$59,000
from
the
Toronto-Dominion
Bank
‘‘and
immediately
re-lent
the
said
sums
to
Forest
Hill
Building
Limited’’
(statement
of
facts,
para.
2).
It
should
be
noted
that,
according
to
the
evidence
adduced
by
one
Steven
Polon,
erstwhile
president
of
the
now
defunct
real
estate
enterprise
whose
corporate
style
was
“124
Richmond
West
Limited’’,
this
company
stood
as
a
twin
venture
to
Forest
Hill,
both
firms
proposing
to
erect
buildings
in
Toronto
for
investment
purposes.
Polon
also
identified
‘‘the
shareholders
.
.
.
beneficially
interested
in
each
of
these
companies
as
the
Topper
group,
the
Tannenbaum
group
and
my
own
group’’,
the
former
of
the
three
consisting
of
“Victor
and
Harry
Topper’’
and
Mrs.
Florence
Topper,
the
latter’s
wife
(cf.
transcript,
at
pages
9
and
10).
Mrs.
Florence
Topper
is
not
a
party
to
this
case,
but
a
son,
Victor
Topper,
also
lodged,
simultaneously
with
his
father,
appeal
No.
A-1620
of
this
Court’s
records
for
1963;
both
issues
being
heard
jointly,
on
similar
facts
and
points
of
law,
the
sole
difference
relating
to
dates,
amounts
of
money
lent
and
bank
interest
paid.
Resuming
the
thread
of
the
instant
suit,
Harry
Topper’s
payments
in
respect
of
bank
interest
for
the
taxation
period
1954
to
1957
inclusive
reached
a
total
of
$5,279.17.
As
for
the
two
companies,
one,
124
Richmond
West
Ltd.,
now
wound-up,
obtained
its
incorporation
January
8,
1956,
the
other,
Forest
Hill
Building
Ltd.,
December
28,
1953
(cf.
transcript,
pages
9
and
10).
The
crucial
explanations
of
the
joint
schemes
are
vouchsafed
in
paragraphs
1
and
2
of
Part
B
of
the
appeal
and
may
be
summarized
thus:
1.
the
monies
borrowed
from
the
Toronto-Dominion
Bank
were
expected
to
produce
income
in
the
form
of
interest
at
six
per
cent
per
annum
to
be
received
from
the
two
companies,
2.
the
loans
to
Forest
Hill
Building
and
124
Richmond
West
were
a
condition
precedent
to
the
acquisition
of
shares,
which
in
turn
would
earn
income
‘‘
in
the
form
of
company
dividends’’.
To
these
averments,
the
respondent,
striking
at
the
root
of
the
matter,
counters
concisely
that
‘‘.
.
.
if
the
appellant
did
pay
interest
to
a
bank
in
the
years
in
question,
he
was
not
entitled
to
deduct
any
such
interest
.
.
.
as
(it)
was
not
interest
on
borrowed
money
used
for
the
purposes
of
earning
income
within
the
meaning
of
paragraph
(c)
of
subsection
(1)
of
Section
11
of
the
Income
Tax
Act
(Reply
to
Notice
of
Appeal,
para.
6).
Written
briefs
were
filed
by
the
litigants
elaborating
at
greater
length
their
contending
viewpoints.
Counsel
for
the
appellant,
in
the
closing
lines
of
his
memorandum,
submits
this
two-fold
conclusion
:
“17.(a)
.
.
.
the
evidence
clearly
indicates
that
the
monies
borrowed
by
the
Messrs.
Topper
from
their
bank
were
relent
by
them
to
Forest
Hill
Building
Limited
and
124
Richmond
West
Limited
in
the
hope
and
expectation
of
receiving
interest
on
these
loans
when
these
companies
were
in
a
position
to
pay
interest
out
of
revenues,
and
(b)
that,
in
any
event,
even
if
the
monies
which
they
borrowed
from
the
bank
were
relent
to
these
companies
without
any
hope
or
expectation
of
receiving
interest
on
these
loans
(which
is
not
admitted
but
expressly
denied),
the
monies
were
nevertheless
relent
in
the
expectation
that
by
doing
so
the
Messers.
Topper
would
be
enabled
to
earn
dividends
on
their
shares
in
these
companies;
and
that,
in
either
event,
the
Messrs.
Topper
are
entitled
to
deduct
the
bank
interest
which
they
paid
as
‘interest
on
borrowed
money
used
for
the
purpose
of
earning
income
.
.
.
from
property’,
under
Section
11(1)
(c)
of
the
Income
Tax
Act.’’
The
course
of
my
review
will
be
set
along
those
lines,
whose
factual
and
legal
appropriateness
I
shall
attempt
to
probe.
The
oral
evidence
indisputably
established,
in
relation
to
the
purported
interest
incentive,
a
sequence
of
rather
untoward
incidents.
To
begin
with,
it
must
be
pointed
out
that
Steven
Polon,
former
president
of
124
Richmond
West
Ltd.,
still
is
secretary
of
Forest
Hill
Building.
This
executive’s
cross-examination
on
the
interest
topic
is
quite
revealing,
as
the
undergoing
excerpts
may
prove.
Mr.
8S.
Silver,
for
respondent,
is
the
examining
counsel
:
“Q.
Mr.
Polon,
my
question
was:
whether
the
company
itself
was
a
party
to
these
arrangements
(i.e.
future
payment
of
interest
on
eventual
loans)
at
the
time
they
were
made?
A.
At
the
time
they
were
made,
there
was
no
company.
Q.
Forest
Hill
Building
Limited
wasn’t
in
existence
at
the
time?
A.
No.
Q.
So,
in
fact,
the
company
didn’t
agree
to
pay
interest
on
these
loans?
That
must
follow,
musn’t
it?
A.
Yes,
but
the
principals,
of
course,
agreed
and
whatever
the
principals
agreed
to
do
naturally
would
necessarily
follow.”
(Transcript,
pp.
28,
29,
lines
23
to
33
and
2
to
6.)
Nonetheless,
this
asserted
effect
did
not
trigger
so
instantaneous
a
‘
‘
follow-up
’
on
the
part
of
the
executive
boards,
chosen
after
both
incorporations,
of
which
Harry
Topper
was
not
a
member.
Mr.
Polon
has
this
to
say
in
the
matter
of
124
Richmond
West
Ltd.
:
“Q.
Was
interest,
in
fact,
ever
paid
by
124
Richmond
West
Limited?
A.
No,
it
wasn’t.”
(Transcript,
p.
25,
lines
31
to
33
and
repeated
on
p.
32,
lines
7
to
9.)
This
omission
is
all
the
harder
to
explain
when
coupled
with
a
surplus
bearing
liquidation
as
told
by
Mr.
Polon
in
these
words:
“After
the
property
(owned
by
124
Richmond
West
Ltd.)
was
sold
there
was
somewhat
of
a
profit
which
was
distributed
in
accordance
with
our
arrangements
and
the
company
was
wound
up,
actually,
because
it
was
a
single
purpose
thing.’’
(Transcript,
page
26,
lines
24-29.)
I
would
subscribe
to
the
respondent’s
apt
comment
recorded
on
pages
7
and
8
of
his
brief,
from
which
I
quote:
“
It
is
submitted
that
nothing
could
be
a
clearer
indication
that
the
parties
to
these
loan
transactions
never
contemplated
the
payment
of
interest.
Had
the
purpose
of
these
loans
been
to
earn
income
in
the
form
of
interest,
it
is
submitted
that
they
would
have
insisted
on
the
payment
of
interest
in
priority
to
the
distribution
of
profits.
Their
failure
to
do
so
and
their
acceptance
of
the
presumably
tax
free
capital
gains
distributed
to
them
on
the
winding-up
of
the
company
confirm
the
Respondent’s
submission
that
the
receipt
of
interest
was
not
their
purpose
in
making
the
loans.’’
The
twin
venture,
Forest
Hill
Building
Limited,
offers
a
somewhat
different
picture,
but
this
could
well
be
in
appearance
only.
Harry
Topper
does
not
dispute
the
suggestion
of
respondent’s
counsel
‘‘that
Forest
Hill
Building
never
set
up
an
amount
on
its
balance
sheet
or
in
its
financial
statement
for
the
relevant
years
te
indicate
that
it
owed
you
interest’’.
On
May
26,
1961
(cf.
ex.
A-2),
a
directors’
meeting
passed
a
resolution
enacting
that
“.
.
.
the
Company
(Forest
Hill
Building
Ltd.)
do
pay
interest
at
the
rate
of
6%
per
annum
to
those
shareholders
having
made
advances
to
the
Company
on
the
amounts
so
advanced,
such
interest
to
be
calculated
from
the
date
the
said
advances
were
made”.
It
should
not
be
overlooked,
however,
that
this
rather
belated
decision
was
arrived
at
nearly
seven
years
after
the
initial
advance,
of
July
28,
1954,
and
more
than
six
years
after
the
last
loan,
on
February
23,
1955.
Did
the
departmental
re-assessments,
dated
July
28,
1960,
spur
a
failing
intention,
or
possibly
suggest
a
previously
forgotten
initiative?
All
such
surmises
may
be
entertained
without,
I
trust,
denoting
an
unduly
skeptical
mind.
A
last
link
in
this
circumstantial
chain
seems
no
less
intriguing.
Exhibit
A-2,
the
May
26,
1961,
resolution
authorizing
eventual
interest
at
a
rate
of
6
per
cent,
corresponds
to
a
nicety
with
that
due
to
the
lending
bank
as
Harry
Topper
readily
admits.
I
quote
from
page
52
of
the
evidence,
lines
9
to
28;
Mr.
Silver
is
cross-
examining
:
“Q.
Now,
Mr.
Polon
had
said
that
the
interest
was
to
be
at
the
bank
rate?
A.
Yes.
Q.
Would
it
be
fair
to
say,
Mr.
Topper,
that
.
.
.
the
reason
you
set
the
rate
of
6%
was
because
you
were
merely
trying
to
recover
or
recoup
the
interest
you
had
paid
to
the
bank?
A.
This
is
about
the
case.
I
had
paid
around
6%
to
the
bank.’’
And
six
lines
below
this
witness
agrees
he
was
not
particularly
trying
to
make
a
profit
‘‘on
the
interest’’.
No
better
justification
than
the
appellant’s
own
acquiescence
is
required
to
waive
aside
the
first
of
the
appeal’s
two
submissions,
and
hold
that
earning
of
interest
on
loans
was
not
a
prompting
motive.
But,
had
it
been
a
proven
incentive,
the
appellant’s
claim
would
not
derive
therefrom
any
firmer
support.
The
Supreme
Court
of
Canada
dealt
with
a
problem
of
this
kind
in
Canada
‘Safeway
Ltd.
v.
M.N.R.,
[1957]
S.C.R.
717
at
727;
[1957]
C.T.C.
335
at
344.
One
of
the
issues
concerned
the
deductibility
of
interest
accruing
from
bonds.
issued
by
the
appellant
for
the
taking
over
from
the
holding
company
of
a
subsidiary
enterprise.
Speaking
for
the
majority
of
the
Court,
Rand,
J.
expressed
himself
as
follows:
“
It
is
important
to
remember
that
in
the
absence
of
an
express
statutory
allowance,
interest
payable
on
capital
indebtedness
is
not
deductible
as
an
income
expense.
If
a
company
has
not
the
money
capital
to
commence
business,
why
should
it
be
allowed
to
deduct
the
interest
on
borrowed
money?
The
company
setting
up
with
its
own
contributed
capital
would,
on
such
a
principle,
be
entitled
to
interest
on
its
capital
before
taxable
income
was
reached,
but
the
income
statutes
give
no
countenance
to
such
a
deduction
.
.
.
What
is
aimed
at
by
the
section
is
an
employment
of
the
borrowed
funds
immediately
within
the
company
s
business
and
not
one
that
effects
its
purpose
in
such
an
indirect
and
remote
manner.’’
(Italics
added.)
The
mere
substitution
of
an
individual,
namely,
Harry
Topper,
to
the
company
in
the
precedent
above,
renders
it
fully
applicable
here.
Very
few
lines
need
be
written
to
dispose
of
Harry
Topper’s
alternate
submission
(equally
true
in
the
case
of
Victor
Topper)
that
the
borrowed
funds
served
the
purpose
of
earning
income
in
the
form
of
dividends,
periodically
produced
by
company
shares.
Once
more,
unrebutted
facts
run
counter
to
this
contention.
When
the
loans
were
extended
to
Forest
Hill
Building
Ltd.,
the
ultimate
date
being
Februarv
23,
1955,
Harry
Topper
did
not
own
one
share
of
that
company’s
capital
stock,
and
neither
he
nor
his
son,
Victor,
became
shareholders
until
their
allotment,
of
33
shares
each,
on
June
17,
1956
(ef.
ex.
R-2,
R-3,
R-4).
Next,
none
of
the
two
enterprises,
neither
Forest
Hill
Building
nor
124
Richmond
West
Ltd.,
had,
as
yet,
paid
a
dollar
in
dividend
when
Harry
Topper
gave
evidence
before
this
Court,
September
17,
1964,
as
appears
in
the
transcript
(page
53,
lines
27
to
33)
:
“Q.
(By
Mr.
Silver)
You
never
received
a
dividend
from
either
Forest
Hill
Building
Limited
or
124
Richmond?
A.
Not
yet.
The
company
isn’t
in
a
position
to
do
it
yet.”
If
an
urge
for
dividends
really
prompted
this
deal,
the
taxpayer’s
patience
must
have
been
sorely
tried
after
close
to
a
decade
of
negative
results.
Such
financial
forebearance
might
appear
more
consonant
with
an
outright
participation,
through
borrowed
funds,
to
the
furtherance
of
two
real
estate
projects.
At
all
events,
a
pertinent
section,
possibly
more
so
than
11(1)
(c),
is,
I
believe,
Section
12(1)
(a)
prescribing
that:
“12.
(1)
In
computing
income,
no
deduction
shall
be
made
in
respect
of
(a)
an
outlay
or
expense
except
to
the
extent
that
it
was
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
property
or
a
business
of
the
taxpayer.’’
(Italics
not
in
text.)
The
enabling
condition
for
availing
oneself
of
the
exception
is
that
the
‘‘outlay
or
expense’’
be
invested
directly
in
the
taxpayer’s
personal
trade,
business
or
calling,
and
not
fused
with
the
funds
or
working
capital
of
a
distinct
legal
body.
It
is,
I
know,
poor
taste
to
presume
quoting
one’s
decisions
;
yet,
since
the
parties
at
bar
referred
to
a
pronouncement
of
mine,
I
venture
to
take
the
liberty
of
so
doing
to
emphasize
the
opinion
just
expressed.
In
the
matter
of
Meyer
Shuchat
v.
M.N.R.,
[1963]
C.T.C.
481
at
483,
‘‘the
appellant
borrowed
money
from
the
bank
and
reloaned
it,
interest
free,
to
a
company,
8.
&
G.
Furs,
Inc.,
of
which
he
was
the
controlling
shareholder.
He
sought
to
deduct
the
interest
paid
to
the
bank
in
computing
his
personal
income.
’
’
(Cf.
respondent’s
brief,
page
14.)
The
Court
held
that:
“S.
&
G.
Furs,
Inc.,
is
a
company
duly
endowed
with
its
own
legal
entity,
completely
separate
from
that
of
the
appellant,
and,
therefore,
had
no
financial
connection
whatever
in
law
with
Shuchat’s
personal
income.
If
this
assumption
is
exact,
the
money
appellant
borrowed
from
Canada
Trust
Company
and
subsequently
passed
on
to
S.
&
G.
Furs,
Inc.,
was
not
used
for
the
purposes
of
earning
his
own
personal
income.”
I
can
perceive
of
no
significant
differences
between
these
two
cases.
For
these
reasons,
the
appeal
is
dismissed
with
costs.
Judgment
accordingly.