Dubé,
J:—Plaintiff,
a
corporation
in
the
meat
wholesaling
business,
is
appealing
from
a
decision
of
the
Tax
Review
Board
dismissing
its
appeal
from
a
reassessment
by
the
Minister
of
National
Revenue
for
the
1975
taxation
year.
On
January
3,1975
plaintiff
(“CA-MO”)
purchased
by
contract
for
$60,000
the
customer
list
of
Produits
Alimentaires
de
la
Mauricie
Inc
(“PAM”),
also
a
meat
wholesaler.
In
its
tax
return
for
the
taxation
year
ending
January
31,
1975,
CA-MO
deducted
the
said
sum
of
$60,000
from
its
income
as
an
amount
spent
in
order
to
earn
income.
The
Minister
of
National
Revenue
disallowed
the
deduction
and
considered
the
said
amount
an
eligible
capital
expenditure
in
accordance
with
paragraph
14(5)(b)
of
the
Income
Tax
Act.
The
Minister
alleged
that
the
sum
represented
a
capital
expenditure,
deduction
of
which
is
prohibited
by
paragraph
18(1
)(b)
of
the
Act.
The
two
witnesses
heard
at
the
hearing
were
the
same
as
those
who
testified
before
the
Tax
Review
Board,
namely
Armand
Beaudry,
Secretary
and
Manager
of
CA-MO
and
Jacques
Milot,
Vice
President
of
PAM.
They
repeated
in
substance
the
same
statements
made
before
the
two
tribunals,
except
that
in
this
Court
the
CA-MO
manager
added
that
about
a
year
and
a
half
after
the
aforementioned
transaction,
CA-MO
again
purchased
a
customer
list
from
another
company
in
the
meat
business,
Aliments
Champlain,
for
$15,000.
He
alleged
that
the
results
of
this
second
transaction
proved
to
be
unprofitable.
It
appears
that
as
a
result
of
preliminary
negotiations
in
December
1974,
PAM
authorized
CA-MO
to
examine
its
books
and
make
up
a
complete
list
of
customers.
On
that
date
CA-MO
prepared
a
list
and
began
soliciting
customers
of
PAM.
One
month
later,
on
January
3,1975,
a
written
agreement
was
concluded
between
the
two
companies,
under
which
PAM
sold
to
CA-MO
its
list
of
customers
for
fresh
beef,
pork,
veal
and
smoked
meat
for
the
sum
of
$60,000
payable
in
four
consecutive
instalments,
“the
said
list
being
attached
hereto”.
In
fact,
the
list
was
not
attached
thereto
for,
as
we
have
seen,
it
was
already
in
the
buyer’s
possession.
The
contract
also
contains
the
following
clauses
restraining
competition.
4.
The
seller,
specifically
François
Milot
and/or
Jacques
Milot,
undertakes
not
to
operate
the
same
type
of
business
within
a
radius
of
one
hundred
(100)
miles
of
the
city
limits
of
Trois-Rivières,
for
a
period
of
ten
(10)
years
from
the
date
hereof;
5.
In
the
event
that
the
seller,
specifically
François
Milot
and/or
Jacques
Milot,
does
not
comply
with
the
undertaking
mentioned
in
the
preceding
paragraph,
he
undertakes
to
pay
the
sum
of
one
hundred
dollars
($100)
for
each
day
of
infringement;
the
said
amount
of
one
hundred
dollars
($100)
for
each
day
of
infringement
shall
be
payable
by
the
party
who
fails
to
perform
the
undertaking;
6.
The
seller
further
undertakes
not
to
sell,
lend,
lease
or
give
in
whole
or
in
part,
for
use
by
a
business
in
competition
with
that
designated
herein,
the
building
located
at
630
rue
Poisson
at
Trois-Rivières,
for
a
period
of
five
years
from
the
date
hereof;
in
the
next
five
years
if
the
seller
wishes
to
sell
or
lease
the
aforesaid
building,
it
shall
first
offer
it
to
the
buyer
at
a
price
that
shall
not
exceed
the
price
it
would
have
received
from
any
other
buyer
or
tenant;
7.
In
the
event
of
failure
by
the
buyer
to
make
payment
within
the
time
specified
the
seller,
in
particular
François
Milot
and/or
Jacques
Milot,
shall
be
immediately
discharged
from
the
undertakings
set
forth
in
paragraphs
four
and
six
hereof.
The
evidence
further
showed
that
from
January
1974
onward
CA-MO
was
already
purchasing
fresh
meat
from
PAM,
and
continued
to
do
so
until
October
1975.
During
1974
the
monthly
transactions
ranged
from
$415
to
$8,331.
On
the
other
hand,
on
December
30
and
31,
1974
the
transactions
totaled
$30,964.
Purchases
were
thereafter
appreciably
reduced.
On
January
14,
1975
CA-MO
bought
two
trucks
and
four
cars
from
PAM
for
a
total
amount
of
$18,700.
In
his
reasons
for
judgment
Mr
St-Onge,
QC,
a
Member
of
the
Board,
gives
a
clear
summary
of
the
salient
facts
emerging
from
the
cross-
examination
of
Mr
Beaudry.
1.
that
appellant
company
is
primarily
in
the
fresh
meat
business,
consisting
in
the
purchase
of
complete
animals
to
be
cut
up
and
sold
to
retailers;
2.
that
its
principal
competitors
were
Canada
Packers,
Boeuf
Mérite,
Bellerive
et
Frères
and
the
seller
company;
3.
that
appellant
company
was
glad
to
see
a
competitor
like
the
seller
company
disappear;
4.
that
the
sum
of
$60,000
was
reasonable
to
obtain
new
customers
before
any
other
competitor;
5.
that
as
a
result
of
this
purchase,
appellant
company’s
turnover
increased
from
$4,000,000
in
1974
to
$8,000,000
in
1975;
6.
that
clauses
four
and
six
of
the
written
agreement
were
included
to
prevent
any
competition
by
the
seller
company;
7.
that
appellant
company
did
not
buy
a
meat
inventory,
merely
the
line
of
business
which
interested
it.
In
their
examination
before
the
Federal
Court
the
witnesses
gave
further
Clarification.
To
begin
with,
in
their
submission
the
clauses
restraining
competition
were
not
that
important,
since
in
any
case
PAM
was
planning
to
discontinue
the
fresh
meat
line.
While
the
matter
was
being
negotiated
between
the
two
companies,
three
of
the
PAM
sellers
went
over
to
CA-MO;
the
negotiations
were
conducted
directly
and
personally
with
the
sellers
themselves,
without
going
through
PAM.
The
fact
that
the
CA-MO
turnover
doubled
in
1975
was
not
due
merely
to
purchase
of
the
PAM
list,
but
also
because
at
this
time,
as
a
result
of
disclosures
made
in
the
CECO
inquiry,
Quebec
consumers
were
looking
for
reputable
and
licenced
wholesalers.
Merely
obtaining
the
customer
list
would
not
have
benefited
the
buyer
in
any
way;
the
increase
in
sales
resulted
from
concerted
efforts
by
CA-MO
with
the
new
customers.
After
January
1975,
PAM
concentrated
on
exporting
salted
meat.
There
was
no
connection
linking
the
PAM
customers
to
that
company,
and
no
pressure
was
exercised
by
PAM
based
on
the
sale
of
the
list
to
ensure
that
its
customers
would
henceforth
buy
from
CA-MO.
The
customers
were
simply
told
of
the
transaction,
nothing
more.
Plaintiff
further
submitted
that
the
purchase
of
the
trucks
and
cars
was
not
an
integral
part
of
the
aforesaid
transaction.
CA-MO
decided
to
buy
these
vehicles
because
they
were
for
sale
and
the
prices
were
reasonable.
Learned
counsel
for
the
plaintiff
reviewed
the
usual
criteria
and
made
the
following
submissions.
It
is
true
that
the
clauses
restraining
competition
support
the
Minister’s
position.
However,
these
clauses
were
not
anticipated
when
the
list
was
prepared.
Moreover,
they
did
not
have
the
effect
of
eliminating
the
seller,
which
in
any
case
withdrew
from
domestic
business.
This
was
not
a
sale
of
good
will,
rather
the
obtaining
of
information,
namely
as
to
which
customers
should
be
solicited.
The
buyer
did
not
buy
the
seller’s
business
in
its
entirety,
merely
a
list,
and
subsequently
certain
vehicles.
The
purchase
of
fresh
meat
was
not
all
at
once,
but
over
a
period
of
several
months.
CA-MO
did
not
purchase
the
building,
offices
and
facilities
of
PAM.
There
was
not
a
complete
transfer
of
staff;
only
three
sellers
individually
left
PAM
and
went
over
to
CA-MO.
Counsel
concluded
that
there
was
neither
a
general
sale
nor
a
sale
of
good
will,
simply
a
purchase
of
information
for
the
sum
of
$60,000,
and
thus
a
current
expense
incurred
to
earn
income.
The
question
therefore
is
whether
the
amount
in
question
was
spent
on
capital
account
or
in
order
to
earn
income.
The
difference
between
these
two
corresponds
to
the
difference
between
a
commercial
entity,
the
structure,
the
organization
created
to
earn
a
profit
on
the
one
hand,
and
on
the
other
the
process
by
which
the
organization
operates
in
order
to
obtain
a
regular
income.*
So
far
as
the
purchase
of
a
customer
list
is
concerned,
there
is
a
long
and
nearly
consistent
line
of
authority
holding
that
such
an
expense
is
on
capital
account,
since
it
secures
a
“lasting
benefit”
and
cannot
really
be
considered
as
merely
a
current
expense
incurred
by
the
taxpayer
in
order
to
earn
income.*
The
reason
for
the
purchase
of
this
customer
list
was
manifestly
to
secure
for
the
buyer
a
“lasting
benefit”
to
the
company.
The
fact
that
the
buyer
had
to
invest
considerable
effort
in
order
to
make
use
of
its
purchase
did
not
thereby
transform
the
nature
of
the
transaction;
nor
is
the
intrinsic
nature
of
this
transaction
affected
by
its
eventual
results.
It
is
quite
clear
that
if
the
buyer
obtains
a
customer
list
and
leaves
it
in
a
drawer,
his
transaction
will
produce
no
result.
The
sum
of
$60,000
was
spent
by
CA-MO
“once
and
for
all”
for
the
purpose
of
securing
a
lasting
benefit
for
its
busines,
not
as
an
expense
relating
to
operation
of
the
business.
The
expenditure
was
not
made
simply
for
the
current
year,
but
in
order
to
expand
the
business
further
in
years
to
come.
Moreover,
plaintiff
did
not
confine
itself
to
purchasing
the
list
in
question;
it
also
secured
an
undertaking
by
the
seller
not
to
compete
and
not
to
convey
its
building
to
other
persons
for
competitive
purposes:
in
paragraph
6
of
the
contract
the
building
located
at
630
rue
Poisson
at
Trois-Rivières
is
in
fact
the
building
where
the
seller
carried
on
its
business.
The
expenditure
of
money
in
this
manner
in
order
to
preclude
competion
by
another
seller
is
an
expenditure
on
capital
account
and
not
for
income
purposes.
The
fact
that
the
list
in
question
was
already
in
the
buyer’s
hands
before
signature
of
the
contract
does
not
greatly
assist
plaintiff’s
position.
After
all,
the
emphasis
of
the
document
is
far
more
on
the
restraint
on
competition
than
on
the
list
itself,
which
was
not
even
made
an
appendix
to
the
contract.
It
is
therefore
not
correct
to
say
that
this
list
of
names
represents
merely
a
piece
of
information,
since
it
carries
with
it
significant
and
lasting
good
will,
and
a
written
guarantee
against
competition.
The
expenditure
manifestly
constitutes
an
expense
on
capital
account
and
the
appeal
must
accordingly
be
dismissed.
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