MNR v. Yonge-Eglinton Building Ltd., 74 DTC 6180, [1974] CTC 209 (FCA)

Thurlow, J:—The issue raised by this appeal is whether certain amounts which the respondent paid to Traders Realty Limited in the taxation years 1965 to 1968 inclusive were deductible in computing the respondent’s income for those years.

The amounts in question became payable under the terms of a contract concluded in July 1962 by which the respondent obtained from Traders a commitment to provide interim financing to the extent of $6,500,000 for the construction of an office building on leasehold premises of the respondent at the corner of Yonge and Eglinton Streets in Toronto. The respondent thereby became entitled to borrow from time to time from Traders up to the specified limit. In return the contract provided by clause 3 as follows:

3. Yonge-Eglinton shall pay to Traders interest with respect to the Credit calculated as follows:

(a) The amount owing from time to time under the Credit shall bear interest (with interest on overdue interest), payable quarter-yearly not in advance both before and after maturity and before and after default on the 30th days of January, April, July and October in each year at the rate of 9% per annum.

(b) In each calendar year in which Yonge-Eglinton earns a net profit from its operations (as certified by Yonge-Eglinton’s auditors) it shall pay to Traders as an additional interest charge an amount equal to 1% of its gross rental income (as certified by Yonge-Eglinton’s auditors) from the Project, such payments to become due and be payable 90 days after the termination of each such calendar year; the first of such payments to be payable with respect to the first calendar year after 1964 in which Yonge-Eglinton earns a net profit and such payments to continue until 25 payments have been made pursuant hereto.

As a part of the transaction, though not of the formal contract, a further consideration for the commitment was given by the transfer by the principal shareholder of the respondent to Traders of 5% of the issued shares of the respondent for the total sum of $5.

Following the making of this contract the respondent from time to time borrowed from Traders amounts which at one time totalled $900,000, on which interest at 9% was paid as provided, but the chief purpose to which the contract was put by the respondent was to use it as a security upon which the respondent was able to borrow some $5,475,000 from the Bank of Montreal at 5 to 6% interest to finance the construction of the building. By January 1965 permanent financing at 6%2% had been obtained from an insurance company and the loans from both Traders and the bank had been repaid with the interest which accrued thereon. The respondent’s obligation under clause 3(b) of the contract, however, remained and it is the payments under this clause which became payable in the taxation years 1965 to 1968 inclusive which are in issue in the appeal. The amounts in question are the following:

The learned trial judge held that these amounts were not interest and therefore were not deductible under paragraph 11(1)(c)* [1] of the Income Tax Act but that they were deductible under paragraph 11 (1 )(d)t [2] as parts of payments repaying borrowed money used for the purpose of earning income from a business or property that were required by section 7J [3] to be included in computing the income of the recipient. In view of this conclusion the learned judge did not consider or deal with an alternative contention by the respondent that the amounts were deductible under paragraph 11(1)(cb) of the Act.

I agree with the conclusion of the learned judge that notwithstanding the use of the name “interest” in clause 3(b) of the contract the payments were not interest within the meaning of paragraph 11(1)(c) and were not deductible thereunder but, with respect, I am also of the opinion that the amounts in question cannot be regarded, when considered either singly or in their totality and whether by themselves or in conjunction with interest and other considerations received by Traders, as payments “repaying borrowed money” or as payments “for property acquired for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business” within the meaning of paragraph 11(1)(d). Nor do I regard section 7 as applicable to require any of the amounts in question to be included in the income of the recipient.

I am also of the opinion, contrary to the submission of the respondent, that the obligation to pay the amounts in question was not incurred in the course of the respondent’s business so as to make their deduction permissible under paragraph 12(1 )(a) of the Act and that they are expenditures of a capital nature the deduction of which is prohibited by paragraph 12(1 )(b).

it remains therefore to consider whether the amounts fall within and are deductible under paragraph 11{1)(cb). This paragraph, which was enacted in 1955, expands into another area the deductibility of expenses relating to capital used for the purpose of gaining or producing income which had formerly been provided under paragraphs 11(1)(c) and 11(1 )(ca) only for interest and compound interest payable in respect of such capital. The paragraph provides:

11. (1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year:

(cb) an expense incurred in the year,

(I) in the course of issuing or selling shares of the capital stock of the taxpayer, or

(li) in the course of borrowing money used by the taxpayer for the purpose of earning income from a business or property (other than money used by the taxpayer for the purpose of acquiring property the income from which would be exempt),

but not including any amount in respect of

(iii) a commission or bonus paid or payable to a person to whom the shares were issued or sold or from whom the money was borrowed, or for or on account of services rendered by a person as a salesman, agent or dealer in securities In the course of issuing or selling the shares or borrowing the money, or

(iv) an amount paid or payable as or on account of the principal amount of the indebtedness incurred in the course of borrowing the money, or as or on account of Interest;

This provision has been considered in a number of cases* [4] and has received in general a strict and in one case what might be regarded as a narrow construction. In none of them, however, has a point comparable to the present arisen.

The Minister’s position, as I understand it, is not that the amounts were not expenses of borrowing money but that in order to qualify for deduction the expense must be one that is incurred at or around the time the borrowing takes place and that here the liability to pay the amounts was not incurred in the course of the borrowing but in years

part of the payment that can reasonably be regarded as a payment of interest or other payment of an income nature shall, irrespective of when the contract or arrangement was made or the form or legal effect thereof, be included in computing the recipient’s Income.

after the borrowing took place upon profits being earned from the operation of the building. Counsel for the Minister further contended that the amounts were bonuses within the meaning of subparagraph (iii).

The respondent’s position on the other hand is that the obligation to pay the amounts are expenses that arose in the course of borrowing the money to construct the building but that they could not be regarded as having been incurred until the years in which by reason of the respondent having a net profit from its operation the amount of such expense could be ascertained, that paragraph 11(1)(cb) does not require that to be deductible the expense must be incurred in the year when the borrowing occurs and that the amounts in question accordingly fall within subparagraph (ii) and are not commissions or bonuses within the meaning of subparagraph (iii).

The general area of what is comprehended in subparagraphs (i) and (ii) of paragraph 11(1)(cb) is I think indicated by the scope of what is expressly excluded by subparagraphs (iii) and (iv) for the fact that it was considered expedient to expressly exclude commissions and bonuses and payments as or on account of principal or interest, to my mind, shows that what is referred to as “an expense incurred in the year” in the course of issuing or selling shares or borrowing money for the purpose referred to is capable of embracing a broad class of expenditures for such purposes. The easiest cases to think of are professional fees for necessary documentation and fees for registering documents but the wording is not confined to these or like expenses and to my mind it involves no stretch of the language used to treat it as including amounts of the kind here in question. I also think these amounts are to be regarded as expenses “incurred in the year” in which they became payable. The difficulty is with the wording ‘“‘in the course of borrowing money” in the context of “an expense incurred in the year in the course of borrowing money” etc.

On this point I am of the opinion that the Minister’s position is not sound. It does not seem to me to be a sensible or practical interpretation (and counsel for the Minister did not so contend) to hold that the deduction can only be made when the taxation year in which shares are issued or sold or money is borrowed is the same as that in which the expense is incurred because such a construction would arbitrarily exclude the deduction, for example, of professional fees incurred in connection with a share issue or a borrowing in a taxation year prior to the share issue or borrowing. It would also exclude the deduction, again for example, of expenses for formal documentation contemplated by the arrangements but incurred in a taxation year after that in which money has been borrowed on the strength of temporary or informal arrangements. There seems to be no good reason based on the language of the statute why the expenses referred to in either example should be excluded. But the Minister’s suggestion that the incurring of the expense must be at or around the time of the issuing or selling or the borrowing if it is to be “in the course of” the issuing or selling or borrowing appears to me to leave the deductibility of such expenses subject to a vague and uncertain test. It would be untenable if it meant that the expense must be incurred in the taxation year of the issuing or selling or borrowing and since it is impossible to know what is included in “around the time” it seems to me to be untenable on that basis as well. What appears to me to be the test is whether the expense, in whatever taxation year it occurs, arose from the issuing or selling or borrowing. It may not always be easy to decide whether an expense has so arisen but it seems to me that the words “in the course of” in paragraph 11(1)(cb) are not a reference to the time when the expenses are incurred but are used in the sense of “in connection with” or “incidental to” or “arising from” and refer to the process of carrying out or the things which must be undertaken to carry out the issuing or selling or borrowing for or in connection with which the expenses are incurred. In my opinion therefore since the amounts here in question arose from and were incidental to the borrowing of money required to finance the construction of the respondent’s building they fall within subparagraph 11(1)(cb)(ii) as expenses incurred in the year in the course of borrowing money etc and it becomes necessary to consider whether they are excluded therefrom as being commissions or bonuses within the meaning of subparagraph 11(1)(cb)(iii). It was not suggested that they were excluded by subparagraph 11(1){cb)(iv) as being payments as or on account of interest.

Omitting wording concerned with the issue and sale of shares subparagraph 11 (1 )(cb)(iii) refers to and excludes any amount in respect of

(iii) a commission or bonus paid or payable to a person . . . from whom the money was borrowed or for or on account of services rendered by a person as a salesman agent or dealer in securities in the course of . . . borrowing the money.

On the evidence there is no basis for thinking that the amounts in question were payments for services of the kind referred to in the second portion of the provision but as a part of the money was borrowed from Traders, to whom the amounts in question were paid it becomes necessary to determine whether they fall within the meaning of “a commission or bonus” in the subparagraph. I do not recall counsel for the Minister having suggested that the word commission was apt to describe the amounts and 1! do not think that it is. The Shorter Oxford Dictionary meaning of commission in such a context is “a pro rata remuneration for work done as agent” and a similar definition is given in The Living Webster Encyclopedic Dictionary. On the other hand I understood counsel to contend that the word bonus was applicable and in this connection there was a reference to the judgment of Lord Greene, MR in Lomax v Dixon, [1943] 2 All ER 255. However, the question in that case was not whether the amounts under consideration were bonuses but whether they were of a capital or of an income nature and for that reason I do not find the judgment helpful in the present situation. Here again the two dictionaries to which I have referred define the word “bonus” in similar terms, the definition in The Shorter Oxford Dictionary being “a boon or gift over and above what is normally due, a premium for services rendered or expected, an extra dividend paid out of surplus profits, etc”. I do not think this definition fits the amounts here in question but apart from that it appears to me that in ordinary usage a bonus in the issuing and selling of shares refers to some portion of the shares issued or sold and in borrowings refers to some additional amount of principal or interest to be paid. It does not in my opinion connote an amount of the kind in issue here; that is to say, an amount that is to be paid whether or not money is borrowed from the person who is to receive the amount, without reference or relation to any principal sum or any interest to be paid thereon and which is not in any sense a payment for the use of the money to be borrowed but simply a part of the consideration for a commitment to lend money on certain terms when and if called upon to do so. In my opinion therefore the amounts in question were not bonuses within the meaning of subparagraph (iii) and it follows from the foregoing that the amounts were deductible under paragraph 11 (1)(cb).

I would dismiss the appeal with costs.

Lacroix, DJ:—I concur with Mr Justice Thurlow and adopt his conclusion as to the fact that this appeal should be dismissed with costs.

In his reasons for judgment, Mr Justice Thurlow referring to subparagraph 11 (1 )(cb)(ii) outlines the fact that:

This provision has been considered In a number of cases and has received in general a strict and in one case what might be regarded as a narrow construction. In none of them, however, has a point comparable to the present arisen.

Precisely because this seems to be a new point submitted to the Court, I made a special study concerning the interpretation which, in my humble opinion, should be given to this subparagraph 11(1)(cb)(ii) and the application that should be made of the same section. This is why ! take the liberty to add my own notes and reasons for judgment.

The main goal of the taxpayer in the present case was to build an office building for the purpose of earning income therefrom.

First: it bought the air rights where the building was to be erected; second: it had to obtain the money necessary for that purpose.

After having made, with the Manufacturers Life Company, arrangements, which proved inadequate, the respondent-taxpayer entered into an agreement with Traders Realty, in the form of a long-term revolving credit for the sum of $6,500,000. This is Exhibit 8 (page 112—Appeal Book).

Naturally, in order to obtain or secure such money or credit, the taxpayer had to pay the cost or the price for it. In other words, he had, in the terms of paragraph 11(1)(cb) of the Income Tax Act, RSC 1952, c 148, to incur an expense in order to obtain money for the purpose of earning income.

An expense, according to Webster’s Dictionary is a direct outlay or a financial burden.

In the present case, this expense or financial burden seems to be clearly expressed in the contractual obligation entered into on July 3, 1962, by which the respondent-taxpayer binds himself to pay for the money he borrows by a twofold form of payment or disbursement, but in both cases amounting to an expense incurred by the taxpayer for the same purpose; this form of payment or expense is:

First: 9% interest on any amount borrowed from the Traders Realty according to the credit given by the terms of Exhibit 8 and, second: in each calendar year in which Yonge-Eglinton earns a net profit from its operations to pay an amount equal to 1% of its gross rentals income, and this for a period of 25 years.

This is the cost or the price the taxpayer had to pay, or in the words of the statute (11(1)(cb)) this is the expense he had to incur or the financial burden he had to assume, in order to obtain the needed money for the purpose of earning income from its business or property.

Now, in my view it is difficult not to say that this expense was incurred or that financial burden was assumed or accepted by the taxpayer, in the course of borrowing money for the purpose of earning income from a business or property, according, this time, to the terms of subparagraph 11 (1)(cb)(ii).

It is all in the same contractual obligation entered into on July 3, 1962 (Exhibit 8), and it matters not whether the payments were to be made at a later date.

The obligation arose with the agreement, but the expenses or part of the price or cost to be paid could naturally only be ascertained in the years when the rentals were being paid and consequently the expense or part of the price should be deducted in the year they were incurred.

The appellant seems to contend that the amounts allocated by the respondent to each of the years 1965 to 1968 inclusive, are expenses respectively incurred in those years, within the meaning of paragraph

(cb) and that those expenses to qualify, should have been incurred in the course “of borrowing the money”.

In the years 1965 to 1968 inclusive the respondent-taxpayer was not borrowing money, it was paying the expenses incurred or the financial burden assumed on July 3, 1962, when it was then, and for the only time, in the course of borrowing money from Traders Realty.

At the risk of repeating myself, I may say that at the time it actually borrowed (1962) or while “in the course of borrowing”, it could not ascertain the amounts that would be due in 1965 to 1968 inclusive, it could only assume the obligation to pay them and this is exactly what it did during the years in litigation.

This part of the cost of the borrowing money is not interest. At the time it was paid and deducted, Traders Realty had been reimbursed of the money borrowed by the taxpayer. No capital being due there was no basis for the calculation of interest.

It is not a commission nor a bonus. Can we call it a payment in the nature of an income or a commitment fee, it is clearly part of the cost of borrowing the capital required for creating property for the purpose of earning income.

As a matter of fact, the agreement of July 3, 1962 (Exhibit 8) served as a security for the taxpayer to borrow money elsewhere at a lower rate and allow the completion of the project or undertaking.

The evidence shows that the respondent used the contract of July 3, 1962 giving it a revolving credit as a security which enabled him to borrow $5,000,000 from the Bank of Montréal at 5 to 6% interest to finance the construction of the building.

Finally, the taxpayer reached his goal which was to build an office building from which it would derive income.

lt had to borrow money for that purpose and in conformity with the dispositions of paragraph 11(1)(cb) of the statute it had to make or incur an expense in the course of the process of borrowing this money (subparagraph 11 (1)(cb)(ii)).

One cannot overlook the fact that in the Act itself the title of paragraph 11(1)(cb) allowing these deductions is precisely “Expense of Borrowing Money”.

In conclusion, therefore, the respondent-taxpayer should benefit of the right to the deductions contemplated and authorized by the above- mentioned section, that is subparagraph 11 (1)(cb)(ii).

For these reasons, the present appeal should be dismissed with costs.

Sweet, DJ (dissenting):—This is an appeal from a judgment of the Trial Division which allowed the appeal of the respondent from assessments of income tax for the years 1965 to 1968 inclusive. The question raised with respect to the assessments in each of the years is the same, that is, whether certain amounts paid by the respondent to Traders Realty Limited (which will be referred to as Traders) are deductible in computing the respondent’s income for tax purposes.

In 1961 the respondent acquired leasehold interests in air rights over property owned by Toronto Transit Commission adequate for an office building. The building was erected. To obtain interim financing for its construction the respondent entered into an agreement with Traders, which is dated “as of the 3rd day of July 1962”. It will be referred to as the Traders agreement. It provided for Traders extending to the respondent “a long term revolving credit” “in a maximum amount of $6,500,000”. It also provided that all loans made thereunder were to be repaid by June 30, 1965 or sooner under circumstances therein set out.

The respondent, inter alia, agreed therein as follows:

3. Yonge-Eglinton shall pay to Traders interest with respect to the Credit calculated as follows:

(a) The amount owing from time to time under the Credit shall bear interest (with interest on overdue interest), payable quarter-yearly not in advance both before and after maturity and before and after default on the 30th days of January, April, July and October in each year at the rate of 9% per annum.

(b) In each calendar year in which Yonge-Eglinton earns a net profit from its operations (as certified by Yonge-Eglinton’s auditors) it shall pay to Traders as an additional interest charge an amount equal to 1% of its gross rental income (as certified by. Yonge-Eglinton’s auditors) from the Project, such payments to become due and be payable 90 days after the termination of each such calendar year; the first of such payments to be payable with respect to the first calendar year after 1964 in which Yonge-Eglinton earns a net profit and such payments to continue until 25 payments have been made pursuant hereto.

As I construe it the respondent was obliged to make the payments provided for in the above-quoted section 3(b) regardless of the amount borrowed from Traders and regardless of the time any such amount was outstanding and even if nothing was borrowed.

Pursuant to that section 3(b) the respondent made payments to Traders as follows:

Those are the payments which the appellant disallowed and which are the subject matter of this appeal.

Also in connection with the proposed financing Gerhard W Moog, a shareholder of the respondent, transferred to Traders 5% of the respondent’s outstanding common stock at the total price of $5.

From July 16, 1962 to December 23, 1964 there were advances by Traders pursuant to the Traders agreement. During that time balances in varying amounts were outstanding, the lowest being $200,000 and the highest, $900,000. By January 15, 1965 the respondent had paid the total amount owing and no further advances were made by Traders pursuant to the Traders agreement.

The respondent also obtained financing from the Bank of Montreal. In connection with that financing the respondent agreed that when requested by that bank it would apply to Traders for payments to be made under the Traders agreement and would require such payments to be made to the bank and if any such payments were received by the respondent while the bank’s loan or any part thereof was outstanding such payments would be received by the respondent as trustee to pay the same to the bank.

it appears to me that those amounts, which are the subject matter of this appeal, are not outlays or expenses made or incurred by the respondent for the purpose of gaining or producing income from property or a business of the respondent within the exception in paragraph 12(1 )(a) of the Income Tax Act.

Even if, in a very broad sense, they could be considered to have been made or incurred for that purpose, they, having regard to their use in connection with the erection of a capital asset, namely an Office building, are amounts of a capital nature, the deduction of which is prohibited by paragraph 12(1)(b) of the Income Tax Act.

Accordingly, the matter falls for determination on whether the rele- vant items are deductible under any other provisions of the Income Tax Act.

Counsel for the respondent submits they are deductible by virtue of paragraphs 11(1)(c); 11(1)(cb) and 11(1 )(d) of which the following are parts*.

11. (1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year:

(c) an amount paid in the year or payable in respect of the year (depending upon the method regularly followed by the taxpayer in computing his income), pursuant to a legal obligation to pay interest on

(i) borrowed money used for the purpose of earning income from a business or property . . .

(ii) an amount payable for property acquired for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business . . .

or a reasonable amount in respect thereof, whichever Is the lesser;

(cb) an expense incurred in the year,

(ii) in the course of borrowing money used by the taxpayer for the purpose of earning income from a business or property . . .

but not including any amount in respect of

iii) a commission or bonus paid or payable to a person . . . from whom the money was borrowed, or for or on account of services rendered by a person as a salesman, agent or dealer in securities in the course of. . . borrowing the money, or

(iv) an amount paid or payable as or on account of the principal amount of the indebtedness incurred in the course of borrowing the money, or as or on account of interest;

(d) such part of a payment

(i) repaying borrowed money used for the purpose of earning income from a business or property . . ., or

(ii) for property acquired for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business...

made by the taxpayer in the year as is by section 7 required to be included in computing the recipient’s income for a taxation year;

Paragraph 11(1)(c) deals with “interest”. The Traders agreement refers to the payments in question as interest. It is a commonplace that merely calling payments interest does not make them interest. If the payments do not have the necessary characteristics properly to categorize them as interest the designating of them as interest does not make them such. The learned trial judge held that the payments in issue were not interest and with that conclusion of his I respectfully agree.

Here the obligation of the respondent to pay an amount equal to 1% of the gross annual rentals from the building existed regardless of the quantum of money lent. It was not computed upon the quantum advanced nor on the time they were outstanding. The amounts payable pursuant to that obligation were not referable to a principal in money. By the wording of the document those amounts were payable even if no money had been borrowed from Traders.

In my opinion the payments required to be made to Traders computed on the gross rentals were not interest within the meaning of paragraph 11(1)(c). That, in my view, is not changed because there were advances of money in respect of which interest was payable at 9% per annum under another clause in the agreement.

In my opinion there is nothing in paragraph 11(1)(c) which permits the deduction.

Nor do I think that paragraph 11 (1)(cb) permits the deduction.

It occurs to me that the expenses dealt with in paragraph (cb) might merely be those incidental costs often incurred by a borrower, for example, professional fees, and not extended periodical payments as here. However that was not a contention of the appellant and was not put in issue. In any event in the view which I take 1 need not decide it and I do not. I proceed to deal with the matter as though the amounts in question are “expenses” within the meaning of the paragraph.

Governing wording in paragraph (cb) is “an expense incurred in the year... in the course of borrowing money”.

I understand it to be common ground of the parties that the relevant amounts allocated by the respondent to each of the years 1965 to 1968, inclusive, are expenses incurred in those years within the meaning of paragraph (cb). If I should be under a misapprehension as to the position of the parties in this regard it is, in any event, my opinion that the words "expenses incurred” are to be construed as actual expenditures made.

For those expenses to qualify for deduction under paragraph (cb) they must not only be “incurred in the year” but must also have been incurred “in the course of borrowing”.

The respondent’s obligation to make the expenditures arose pursuant to the Traders agreement dated “as of the 3rd day of July 1962”. As I see it, then, the Traders agreement would be said to have been entered into in the course of borrowing and the respondent’s obligations under that agreement created in the course of borrowing. However the agreement to make an expenditure under certain circumstances in the future and the expenditure itself if and when those circumstances arise are not the same thing.

Since the last borrowing from Traders was on December 23, 1964 and the first year in which any such expense was incurred was 1965 those expenses, having been incurred after the last instalment had been lent, could not, in my opinion be said to have been incurred in the course of borrowing.

Had Parliament intended that all expenses incurred pursuant to an agreement made in the course of borrowing money be deductible it could, easily enough, have said just that. However that it did not say. By its wording paragraph (cb) refers only to expenses incurred in the course of borrowing.

This leaves paragraph 11 (1)(d) to be dealt with. To qualify for deduction under it the “payment” must, in any event, either be one repaying borrowed money (subparagraph (i)) or for property acquired (subparagraph (ii)). The payments were neither of those. They were not the repayment of borrowed money. The money borrowed had all been repaid by January 15, 1965. Neither were they for acquiring property.

Even if the payments had been such as to fall within the wording of either subparagraph (i) or (ii) of paragraph (d) they would, nevertheless, only be deductible by the taxpayer if by section 7 they were required to be included in computing the recipient’s income for a taxation year. The emphasis is mine.

The only portion of section 7 which could have relevance here would be subsection (1), which is:

7. (1) Where a payment under a contract or other arrangement can reasonably be regarded as being in part a payment of Interest or other payment of an income nature and in part a payment of a capital nature, the part of the payment that can reasonably be regarded as a payment of Interest or other payment of an income nature shall, irrespective of when the contract or arrangement was made or the form or legal effect thereof, be included in computing the recipient’s income.

By its terms that subsection only deals with payments which are in part a payment of interest or other payment of an income nature and in part a payment of a capital nature.

There is no element of blending in the payments made pursuant to section 3(b) of the Traders agreement. In my opinion those payments were not of a kind described in section 7. That, in any event, would make subsection 7(1) inapplicable here and in turn make paragraph 11 (1)(d) inapplicable.

In my opinion, the following items respectively claimed by the respondent to be deductible in computing its income in the following years, namely

were not so deductible and that the appellant was correct in disallowing them.

I would allow this appeal with costs here and below.