JACKETT,
P.:—This
is
an
appeal
from
a
decision
of
the
Tax
Appeal
Board
dismissing
the
appellant’s
appeal
from
its
assessments
under
Part
I
of
the
Income
Tax
Act
for
the
1962
and
1963
taxation
years.
The
appeal
raises
a
question
as
to
the
deductibility,
in
computing
the
appellant’s
‘‘income’’
for
each
of
those
years
for
the
purposes
of
Part
I,
of
certain
payments
that
would
otherwise
be
deductible
(to
the
extent
of
the
10
per
cent
ceiling)
as
“gifts”
to
‘‘charitable
organizations’’
under
Section
27(1)
(a)
of
the
aforesaid
Act.
In
each
of
the
two
years
in
question,
the
appellant
had
sales,
in
the
course
of
its
business,
of
over
one
million
dollars.
In
the
view
of
the
appellant’s
sales
manager,
between
25
per
cent
and
30
per
cent
of
these
sales
were
attributable
to
gifts
that,
while
they
qualified
as
‘‘gifts’’
to
‘‘charitable
organizations’’
within
the
meaning
of
those
words
in
Section
27(1)
(a)
of
the
Income
Tax
Act*
were
made
to
charitable
organizations
that
were
headed
up
by
men
who,
in
their
ordinary
business
lives,
were
in
a
position
to
cause
purchases
to
be
made
of
the
appellant’s
goods
and
who,
as
a
consequence
of
the
appellant’s
gifts
to
their
charitable
organizations,
did,
in
the
ordinary
course
of
events
as
things
were
done
in
the
particular
part
of
the
Montreal
community
that
was
involved,
cause
substantial
purchases
to
be
made
of
the
appellant’s
good
that
would
not
otherwise
have
been
made.
This
view
was
not
seriously
challenged
on
cross-examination
of
the
appellant’s
sales
manager
and
was
supported
by
other
evidence
including
the
evidence
of
a
person
who
swore
that
he
obtained
contributions
to
a
school
in
which
he
was
interested,
from
such
business
people
as
a
plumber
and
an
electrician,
as
well
as
from
the
appellant,
by
promising
that
he
would
use
his
business
position
to
cause
business
to
go
to
them
and
that,
when
he
obtained
contributions
for
that
charitable
organization’’
in
that
way,
he
carried
out
his
promise
in
a
substantial
way.
I
accept
this
evidence
and
I
find
that
contributions
to
charitable
organizations
so
made
were
expenditures
laid
out
by
the
appellant
in
the
years
in
question
largely,
if
not
entirely,
for
the
purpose
of
increasing
its
sales
and
only
subsidiarily,
if
at
all,
for
charitable
or
benevolent
reasons.
The
total
of
the
contributions
made
to
“charitable
organizations”
by
the
appellant
in
1962
was
over
$8,000
and
the
total
of
those
made
in
1963
was
over
$10,000.
Of
these
contributions,
however,
it
is
only
those
that
were
over
$100
that
were
made
for
the
purpose
of
increasing
the
appellant’s
sales
in
the
manner
that
I
have
described.
The
remainder
were
made
to
avoid
criticism
that
would
arise
if
gifts
were
refused
for
some
deserving
causes
when
they
were
being
made
for
others,
and
I
do
not
understand
that
counsel
for
the
appellant
seriously
argued
that
such
contributions
should
be
treated
as
business
expenditures.*
I
am
of
opinion
that
the
amounts
in
question
(after
eliminating
those
that
were
not
over
$100),
if
one
puts
aside
the
fact
that
they
were
gifts
to
charitable
organizations,
fall
clearly
within
the
authority
of
Riedle
Brewery
Limited
v.
M.N.R.,
[1939]
S.C.R.
253;
[1938-39]
C.T.C.
312,
where
amounts
were
held
to
be
deductible
when
they
were
spent
by
breweries
in
following
a
practice
of
‘‘treating’’
potential
customers
because
it
was
found
that,
if
the
practice
was
followed
consistently,
their
sales
would
either
be
maintained
or
increased
‘‘whereas
when
the
practice
was
discontinued,
their
sales
would
materially
decrease”.
See
per
Kerwin,
J.
(as
he
then
was)
delivering
the
judgment
of
himself
and
Crockett,
J.,
with
which
Duff,
C.J.C.
agreed,
at
page
263:
Now
upon
the
evidence,
it
appears
to
me
that
the
appellant
company
disbursed
the
sum
in
question
for
the
purpose
of
earning
income
and
not
as
a
capital
expenditure.
As
to
the
words
“wholly”
and
“exclusively”,
it
is
not
suggested
that
the
appellant
desired
to
give
away
its
funds,
or
any
part
of
them,
nor
is
it
contended
that
there
was
any
fraud
or
bad
faith,
or
that
any
part
of
the
expenditures
was
fictitious.
The
learned
President
of
the
Exchequer
Court
held
that
the
expenditure
was
not
necessary
but,
with
respect,
I
find
it
impossible
to
agree.
As
already
mentioned,
the
practice
followed
by
appellant
is
one
adopted
by
the
others
brewers
in
Manitoba,
and
followed
by
all
as
something
considered
by
them,
not
merely
as
advisable,
but
as
obligatory,
to
increase,
or
at
least
sustain,
the
volume
of
their
sales.
Being
considered
thus
in
a
commercial
sense,
I
think
it
should
be
similarly
held
for
the
purposes
of
the
Act.
Certainly,
if
on
facts
that,
in
my
view,
are
not
more
favourable
to
the
taxpayer,
the
deductions
were
permissible
in
the
Riedle
Brewery
case
notwithstanding
Section
6(1)
(a)
of
the
Income
War
Tax
Act,
which
prohibited
the
deduction
of
disbursements
‘‘not
wholly,
exclusively
and
necessarily
laid
out
.
.
.
for
the
purpose
of
earning
the
income’’,
the
deduction
here
are
not
prohibited
by
Section
12(1)
(a)
which
only
prohibits
an
outlay
or
expense
‘‘except
to
the
extent
that
it
was
made
or
incurred
.
.
.
for
the
purpose
of
gaining
or
producing
income
..
.”.
The
decision
of
this
Court
in
O’Reilly
&
Belanger,
Limited
v.
M.N.R.,
[1928]
Ex.C.R.
61;
[1917-27]
C.T.C.
332,
is
distinguishable
from
this
case
in
that
there
was
no
evidence
there,
as
there
is
here,
with
reference
to
the
amounts
over
$100,
of
an
immediate
expectation
of
business
as
a
result
of
making
the
payments.
I
recognize,
however,
that
there
are
passages
in
the
reasons
for
judgment
in
that
case
that
would
be
applicable
to
the
problem
before
me
but
as,
in
my
view,
such
passages
are
inconsistent
with
the
reasoning
of
the
majority
of
the
Supreme
Court
of
Canada
in
the
Riedle
Brewery
case,
I
have
concluded
that
I
must
not
adopt
them
as
applicable
here.
So
far
as
Section
12(1)
(b)*
is
concerned
I
have
difficulty
in
appreciating
the
submission
that
it
operated
to
prohibit
the
deduction
of
the
amounts
in
dispute.
From
this
point
of
view,
I
cannot
distinguish
such
amounts
from
advertising
expenses.
Compare
Algoma
Central
Railway
v.
M.N.R.,
[1967]
2
Ex.C.R.
88;
[1967]
C.T.C.
180;
[1968]
S.C.R.
447;
[1968]
C.T.C.
161.
So
far
as
the
objection
based
on
Section
12(2)*
is
concerned,
I
cannot
see
how
it
can
be
contended
that
a
disbursement
of
a
substantial
part
of
$8,000
in
one
year
and
of
$10,000
in
another
year
to
attract
or
maintain
sales
of
over
$250,000
was
not,
in
the
absence
of
additional
facts,
‘‘reasonable’’.
The
fact
that
the
business
man
makes
a
bona
fide
decision
to
make
disbursements
for
business
reasons
raises
a
presumption
in
my
mind
that
it
was
‘‘reasonable’’
to
make
such
disbursements
unless
facts
are
proved
that
establish
that
it
was
not
‘‘reasonable’’.
In
this
case,
moreover,
we
have
the
unchallenged
evidence
that
the
contributions
were
necessary
to
keep
some
25
per
cent
to
30
per
cent
of
the
appellant’s
sales.
That
being
so,
it
was
a
“necessary”
expense
within
the
test
applied
by
the
majority
of
the
Supreme
Court
of
Canada
in
the
passage
that
I
have
just
quoted
from
the
Riedle
Brewery
case.
If
an
expense
was
“necessary”,
I
do
not
think
it
can
be
said
that
it
was
not
‘‘reasonable’’.
As
already
indicated,
the
above
conclusions
were
reached
putting
aside
for
the
moment
the
fact
that
the
amounts
in
question
were
gifts
to
charitable
organizations.
I
must
now
consider
whether
that
fact,
in
itself,
or
by
reason
of
Section
27(1)
(a),
operates
to
bring
about
the
result
that
the
amounts
in
question
are
not
deductible
in
computing
‘‘income’’
for
the
purpose
of
Part
I
of
the
Income
Tax
Act.
At
this
point,
it
is
well
to
pause
and
recall
to
mind
the
basic
scheme
of
Part
I
of
the
Income
Tax
Act.
That
Part
imposes
an
income
tax
on
an
arbitrary
amount
called
‘‘taxable
income”
which,
by
definition,
is
‘‘income’’
less
certain
deductions
specially
allowed,
of
which
the
Section
27(1)
(a)
allowance
for
“gifts
to
charitable
organizations’’
is
one,
‘‘income’’
being,
in
the
case
of
a
business
such
as
we
have
here,
the
‘‘profit’’
from
the
business
(Secion
4).
Putting
it
in
reverse,
you
start
by
computing
the
‘‘profit’’
from
the
business,
which
involves
setting
off
against
the
revenue
of
the
business
the
‘‘expenditure
laid
out
as
part
of
the
process
of
profit
earning”.!
Having
determined
the
“profit”
from
he
business,
you
have
its
“income”
and
you
deduct
from
that
its
‘‘gifts’’
to
charitable
organizations
to
the
extent
permitted
by
Section
27(1)
(a)
to
obtain
its
“taxable
income’’
being
the
amount
on
which
its
tax
is
computed.
Having
tentatively
concluded
that
the
disbursements
here
were
deductible
in
computing
the
profit
from
the
business
because
they
were
laid
out
as
‘‘part
of
the
process
of
profit
earning’’,
I
must
now
consider
whether
that
conclusion
can
stand
up
when
one
considers
that
they
were
laid
out
as
contributions
to
charitable
organizations.
Ordinarily,
one
thinks
of
charity
as
a
personal
matter.
One
gives
of
what
one
would
otherwise
have
for
oneself
for
the
relief
of
poverty
in
others
or
for
education
or
other
“good
works’’.
In
its
original
concept,
therefore,
one
would
not
deduct
a
charitable
gift
in
computing
one’s
profit
or
income
because
it
is,
by
definition,
a
gift
made
out
of
the
profit
or
income
after
it
is
earned.
Quite
clearly,
I
should
have
thought,
in
its
inception,
a
gift
to
charity
was
a
‘‘personal’’
outlay,
the
deduction
of
which
would
have
been
prohibited
by
the
forerunner
of
Section
12(l)(h).*
That,
I
should
have
thought,
is
why,
originally,
the
special
provision
for
deduction
of
charitable
gifts
was
limited
to
gifts
by
individuals
(who
else
could
have
been
motivated
to
make
such
gifts?)
and
that
is
why
the
ceiling
was
expressed
as
a
percentage
of
‘‘income’’
(which
fact
presupposed
that
the
amount
of
the
‘‘income’’
had
been
established
before
the
individual
made
his
“gifts”
out
of
it).
Presumably,
a
time
came
in
the
evolution
of
income
tax
law
when,
the
more
sophisticated
campaigns
of
charitable
organizations
having
resulted
in
corporations
being
forced
to
make
charitable
contributions
(not
because
they
were
as
corporations
capable
of
charitable
motivation
but
because
an
atmosphere
was
created
in
which
a
failure
to
contribute
would
damage
the
corporate
‘‘image’’
so
as
to
affect
adversely
the
corporation’s
business
operations),
Parliament,
for
that
reason,
decided
that
corporations
should
have
some
sort
of
tax
treatment
for
such
contributions
as
individuals.
If
that
is
the
correct
rationalization
of
the
present
state
of
Section
27
(1)
(a)
as
far
as
gifts
to
charitable
organizations
are
concerned,
it
follows
that
what
is
being
permitted
by
that
provision
is
a
deduction
of
an
amount
that
has
been
given
out
of
the
corporation’s
income
after
it
has
been
earned
and
not
a
deduction
of
an
amount
that
has
been
laid
out
as
part
of
the
income
earning
process;
and
this
is
indeed
the
form
that
the
provision
takes.
Indeed,
it
might
be
said
that,
while
Parliament
could
not
have
been
oblivious
to
a
certain
cynicism
underlying
certain
charitable
giving
on
the
part
of
both
individuals
and
corporations,
the
legislature
could
not
have
foreseen,
when
Section
27(1)
(a)
was
enacted,
the
sort
of
commercialism
that
has
produced
the
facts
of
the
present
appeal.
While
hitherto
unforeseen,
however,
I
can
find
no
inherent
incompatibility
between
an
‘‘outlay
.
.
.
for
the
purpose
of
.
.
.
producing
income’’
and
a
gift
to
a
charitable
organization.
If,
on
the
facts
of
a
particular
case,
such
a
gift
is
found
to
have
been
made
bona
fide,
as
an
outlay
for
the
purpose
of
producing
income,
I
am
of
the
view
that,
prima
facie,
it
escapes
the
prohibition
in
Section
12(1)
(a).
There
remains
for
consideration
the
question
whether,
when
Section
27
(1)
(a)
is
read
with
the
other
provisions
of
the
Act,
one
must
reach
the
conclusion
that
Parliament
intended
that
gifts
to
charitable
organizations
were
not
to
be
deducted
except
in
the
manner
and
to
the
extent
authorized
by
that
provision.
In
other
words,
must
one
infer
from
the
existence
of
Section
27(1)
(a)
a
prohibition
against
any
deduction
of
charitable
contributions
in
the
computation
of
income?
It
is
trite
law
that
all
the
provisions
of
a
statute
must
be
read
together
in
deciding
what
any
one
of
them
means.
It
certainly
is
improbable
that
Paraliament
intended
that
some
gifts
to
charitable
organizations
should
be
deducted
in
computing
income
and
should
also
be
deducted
from
income
in
computing
taxable
income.
Before
I
reached
such
a
conclusion,
I
should,
I
think,
decide
that
Parliament
was
impliedly
prohibiting
the
deduction
of
gifts
to
charitable
organizations
as
outlays
for
the
purpose
of
earning
income
regardless
of
the
circumstances;
and
I
do
not
think
that
I
would
be
relieved
of
the
obligation
to
reach
that
conclusion
merely
because
the
particular
appellant
says,
as
it
does
here,
that
it
is
not
claiming
both
deductions
for
the
same
contributions.
However,
I
am
of
opinion
that
the
correct
interpretation
of
the
statute
does
not
involve
either
extreme
position.
In
my
view,
when
a
taxpayer
makes
an
outlay
for
the
purpose
of
producing
income—i.e.
as
part
of
his
profit
making
process—even
though
that
outlay
takes
the
form
of
a
“gift”
to
a
charitable
organization,
it
is
not
a
“gift”
within
the
meaning
of
that
word
in
Section
27(1)
(a)
which,
by
reason
of
the
place
it
holds
in
the
process
of
computing
taxable
income,
was
obviously
intended
to
confer
a
benefit
on
persons
who
made
contributions
out
of
income
and
was
not
intended
to
provide
deductions
for
outlays
made
in
the
course
of
the
income
earning
process.
In
reaching
the
conclusion
that
the
‘‘gifts’’
to
charitable
organizations
as
part
of
the
profit
earning
process
are
not
gifts”
within
the
meaning
of
Section
27(1)(a),
I
do
so
by
following
the
same
line
of
reasoning
that
I
followed
in
Montreal
Trust
Company
(Estate
of
Chesley
Arthur
Croshie)
v.
M.N.R.,
[1967]
Ex.
C.R.
297;
[1966]
C.T.C.
648,
where
I
held
that
a
bonus
granted
to
an
employee
who
happened
to
be
a
close
relative
of
the
principal
shareholder
of
the
employee’s
company
was
not
a
gift”
within
the
meaning
of
that
word
in
the
Estate
Tax
Act.
The
following
portion
of
the
reasons
that
I
gave
in
that
case
indicates,
I
think,
my
approach
to
the
problem
that
arises
in
this
case:
The
question
that
has
to
be
decided
is
whether
a
benefit
conferred
by
a
company
controlled
by
the
deceased,
upon
Andrew
C.
Crosbie
as
an
employee
of
the
company
“for
legitimate
business
reasons”
is
to
be
dealt
with
for
estate
tax
purposes
as
property
passing
on
the
death
of
the
deceased
by
reason
of
the
fact
that
Andrew
C.
Crosbie
happened
to
be
a
blood
relation
of
the
deceased.
There
is
no
suggestion
that
the
transaction
was
a
mere
subterfuge
for
conferring
a
benefit
on
Andrew
C.
Crosbie
as
a
blood
relation
of
the
deceased
and
there
is
no
suggestion
that
any
part
of
the
amount
of
the
benefit
is
for
anything
other
than
the
benefit
that
“legitimate
business
reasons”
dictated
that
it
was
in
the
commercial
interest
of
the
company
that
it
should
confer
on
this
employee.
This
aspect
of
the
case
is
underlined
by
the
otherwise
irrelevant
fact
that
a
similar
arrangement
was
made
for
a
fellow
employee
on
very
similar
terms
at
the
same
time.
One
further
point
needs
to
be
developed
in
considering
the
neat
point
that
has
to
be
decided
on
this
appeal.
In
my
view,
what
was
done
here
falls
into
a
not
uncommon
category
of
business
transactions,
namely,
payments
made
in
the
ordinary
course
of
business
without
legal
liability.
A
business
is
operated
to
make
a
profit.
No
disbursement
is
a
proper
business
disbursement
unless
it
is
made
directly
or
indirectly
to
attain
that
end.
Generally
speaking,
business
payments
are
made
pursuant
to
contracts
whereby
the
business
man
receives
a
quid
pro
quo
for
that
payment—e.g.,
contracts
for
services,
purchase
contracts,
construction
contracts,
etc.
Nevertheless,
good
business
can
dictate,
depending
on
the
circumstances,
disbursements
over
and
above
the
amounts
legally
owing
for
what
the
business
man
has
received
or
is
to
receive.
A
special
payment
to
a
good
contractor
in
unforeseen
difficulties
so
that
he
will
be
available
for
future
work,
is
one
example.
Bonuses
to
employees
over
and
above
any
requirement
of
the
contracts
of
employment,
so
as
to
maintain
their
goodwill
and
keep
employee
morale
high
is
another.
Still
another
is
the
very
type
of
benefit
conferred
on
senior
executives
that
we
find
in
this
appeal.
That
it
is
a
very
common
type
of
benefit
conferred
on
senior
executives
is
evidenced
by
the
special
provision
made
in
Section
85A
of
the
Income
Tax
Act
for
their
income
tax
treatment.
Two
aspects
of
the
facts
call
for
special
attention
when
it
is
claimed
that
the
benefit
should
be
treated
as
part
of
the
deceased’s
estate
for
estate
tax
purposes,
viz.:
(a)
the
benefit
was
conferred
on
Andrew
C.
Crosbie
as
an
employee
of
the
company
and
not
as
a
blood
relation
of
the
deceased,
and
(b)
while
the
benefit
was
completely
gratuitous
in
the
sense
that
it
was
not
conferred
pursuant
to
a
legal
obligation
as
payment
for
something
already
received
or
pursuant
to
a
contract
for
something
to
be
received,
it
was
nevertheless
an
ordinary
business
transaction
and
had
none
of
the
characteristics
of
what
is
commonly
thought
of
as
a
gift
inter
vivos.
Counsel
for
the
respondent
submits
that
neither
of
these
aspects
of
the
matter
is
of
any
significance.
He
would
say,
I
believe,
that
the
statute
necessarily
contains
arbitrary
provisions
designed
to
bring
into
the
tax
net
transactions
that
might
otherwise
be
employed
to
avoid
the
incidence
of
estate
tax
and
that
such
provisions
are
to
be
applied
quite
literally
to
transactions
that
are
not
avoidance
transactions—probably
because
of
the
difficulty
involved
in
establishing
that
any
particular
transaction
has
a
tax
avoidance
character.
I
accept
the
proposition
that
provisions
such
as
Section
3(1)
(c)
and
(g)
and
3(6)
(b),
by
their
very
nature,
must
be
applied
according
to
their
terms,
regardless
of
whether
their
application
to
particular
circumstances
may
go
further
than,
in
the
opinion
of
the
Court,
is
required
to
carry
out
the
scheme
of
the
statute.
I
am
of
opinion,
however,
that
in
determining
the
effect
of
such
a
provision,
as
in
the
case
of
determining
the
effect
of
any
other
provision
in
a
statute,
it
must
be
weighed
having
regard
to
the
place
it
occupies
in
the
scheme
of
the
statute.
Applying
that
approach
to
this
case,
in
my
view,
the
outlays
made
by
the
appellant
for
the
purpose
of
maintaining
or
expanding
sales,
even
though
they
took
the
form
of
contributions
to
charitable
organizations,
were
not
‘‘gifts’’
within
the
meaning
of
that
word
in
Section
27(1)
(a)
of
the
Income
Tax
Act.
The
appeal
will
be
allowed
with
costs
and
the
assessments
under
appeal
will
be
referred
back
to
the
respondent
for
reassessment
on
the
assumption
that
all
the
contributions
in
question
that
were
over
$100
are
deductible
in
computing
the
appellant’s
income
for
the
appropriate
year
and
that
the
remainder
of
such
contributions
are
‘‘gifts’’
within
Section
27(1)
(a)
of
the
Income
Tax
Act.