Prem Lata Gupta, Mahendra Prasad Chaubey, Amit Gupta, Om. P. Gupta, Mahesh C. Jain, Kamlesh Jain, Ram Sarup Kaushal and Precision Photomask Inc. v. M.N.R., [1992] 1 CTC 2535

Tremblay, T.C.C.J.:—These appeals were heard on common evidence on September 26 and 27,1991 at Montreal, Quebec.

1. Points at issue

1.1 The point at issue concerning the appellant corporation is whether it is correct for its 1985 taxation year:

1. in the computation of its net income, pursuant to Part I of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act"), in claiming the deduction of an amount of $73,174 for current expenditures in respect of scientific research and experimental development activities;

However, in the middle of the hearing the appellant withdrew this point at issue.

2. in the computation of its tax, pursuant to Part VIII of the Act, in considering as designations the amount of $396,000 in respect of issued shares and in establishing $188,000 as the tax payable pursuant to the said Part, this amount being refundable.

1.2 The point at issue concerning the appeals of the appellant individuals is whether in the computation of their tax, they are correct in claiming scientific research tax credit in the amount of $60,520 altogether. This point depends on the decision to be rendered in the second point at issue of the appellant corporation because it is related to the number of shares issued to each appellant individual.

2. Burden of proof

2.01 The burden of proof is on the appellant to show that the respondent's reassessments are incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486, [1948] C.T.C. 195, 3 D.T.C. 1182.

2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his reassessments were also deemed to be correct. In the present case, the assumed facts are described in the Amended Reply to the Notice of Appeal.

2.02.1 Appellant corporation

Before giving the respondent's assumptions of facts, it is useful to examine a summary of the facts pursuant to the appellants income tax return and pursuant to the respondent's assessments as it appears from the Amended Reply to the Notice of Appeal as follows:

2.02.1(1) Tax return and assessment

PART VIII OF THE INCOME TAX ACT

7. From June 25, 1985 to December 21, 1985, the appellant made designations totalling the sum of $376,000 under Part VIII of the Income Tax Act.

8. In its income tax return filed under Part VIII of the Income Tax Act for its 1985 taxation year, the appellant stated that it was liable to pay a Part VIII tax in the amount of $188,000.

9. Following an audit, the respondent did not accept the designations in issue and, accordingly, did not levy any Part VIII tax against the appellant.

2.02.1(2) Assumptions of facts

PART VIII OF THE INCOME TAX ACT

s) On January 3rd, 1985, the appellant provided the Quebec Securities Commission with an application to authorize the issue of 70,000 class "B" shares with no voting rights, at $8 per share, providing net proceeds of $560,000;

t) The Quebec Securities Commission authorized the issue on January 30, 1985, and, at the request of the appellant, dispensed the latter of its obligation to file a prospectus;

u) Between June and December 1985, the appellant issued 47,000 class "B" shares and in the process designated amounts totalling $376,000 in order to qualify the shares for the scientific research tax credit;

v) No agreement in writing concerning the shares in question was entered into between the appellant and the purchasers of the shares before May 23, 1985;

w) The shares in question were not issued to the various investors as part of a lawful distribution to the public in accordance with a prospectus, preliminary prospectus or registration statement filed before May 24, 1985 with a public authority in Canada pursuant to and in accordance with the securities legislation of Canada or of any province, and accepted for filing by such public authority.

2.02.2 Appellant individuals

The facts and assumptions of facts for the appellant individuals are similar. Only the figures vary depending on the amount of purchased shares.

Hereinafter are the facts concerning Prem Lata Gupta (88-1412):

2.02.2(1) Income tax return and assessment

1. In calculating her basic federal tax for the taxation year 1985, the appellant claimed a scientific research tax credit in the amount of $15,300;

2. 1985. In establishing this assessment, the respondent disallowed the scientific research tax credit claimed by the appellant in the said taxation year;

2.02.2(2) Assumptions of facts

7. In assessing the appellant for her 1985 taxation year, the respondent, the Minister of National Revenue, relied, inter alia, upon the following facts:

a) on January 3rd, 1985, Precision Photomask Inc. hereinafter referred to as "Precision") provided the Quebec Securities Commission with an application to authorize the issue of 70,000 class"B" shares with no voting rights at $8 per share providing net proceeds of $560,000;

b) The Quebec Securities Commission authorized the issue on January 30, 1985, and, at the request of“ Precision”, dispensed the latter on its obligation to file a propectus [sic];

c) Between June and December 1985, "Precision" issued 47,000 class "B" shares and in the process designated a total of $376,000 in order to qualify the shares for the scientific research tax credit;

d) No written agreement was entered into between "Precision" and the purchasers of the shares before May 23, 1985;

e) On July 22, 1985, the appellant purchased 5625 class "B" shares of "Precision" for a total consideration of $45,000;

f) The designation made by "Precision" on the shares issued to the appellant, was not part of a lawful distribution to the public in accordance with a prospectus, preliminary prospectus or registration statement filed before May 24, 1985 with a public authority in Canada, as required by the Income Tax Act;

g) A dispense to file a prospectus does not fall within the restriction imposed by the Income Tax Act in the above mentioned paragraph and therefore the shares issued by" Precision” did not qualify for the scientific research tax credit;

The number of shares purchased by each appellant individual, the consideration and the amount of tax credit are as follows:

3. Facts

3.01 The material facts concerning the figures and the transactions as described above are not in dispute.

3.02 At the beginning of the trial, the following exhibits were filed by counsel for the respondent with consent of counsel for the appellant:

Exhibit R-1: The Income tax returns of Precision for the years 1980 to 1989 with financial statements and related documents;

Exhibit R-2:

a) Description of total designations made by Precision during 1985;

b) Four forms T-2113 entitled "Designation under Section 194 (Scientific Research Tax Credit)";

c) 13 forms T-2114-1985 entitled “ Scientific Research Tax Credit Statement" issued by Precision to the appellant individuals describing the purchased shares and related information;

d) 1985 Income tax returns of Precision under Part VIII of the Act.

Exhibit R-3: Income tax returns of the appellant individuals including notice of assessments, notice of objections and notification of confirmation.

3.03 Mr. Mahesh C. Jain, the first witness of the appellants, is a physician and president of Precision Photomask Inc. (hereinafter called "Precision"). For 14 years, he has been involved in research in England and Canada. He developed a project for research. He was the only person in Canada to make such a product and the project was approved in 1985.

3.03.1 He filed the following documents as Exhibit A-I:

1. A copy of the prospectus issued by Precision and dated January 25, 1985 concerning 70,000 class "B" shares at $8 per share sent to La Commission des valeurs mobilières du Québec (C.V.M.Q.).

2. A letter issued by C.V.M.Q. dated January 30, 1985, addressed to Precision exempting the latter from the obligation of doing a prospectus and from the inscription as broker to sell 70,000 shares of Precision.

3. A letter dated November 16, 1984 written by Regional Industrial Expansion to Precision approving the project for research at St-Laurent, Québec. The eligible cost being $1,957,000 and the contribution of the Regional Industrial Expansion estimated at $489,250.

4. Letter from La Société de développement industriel du Québec dated January 7, 1985 also approving the project with a contribution of $129,000.

5. Contract with investors dated October 23, 1985.

6. Letter dated September 4, 1986 to Communications Research Centre from Mr. 0. Berolo, Project Leader, Advanced Devices Technology: DSE, STAC, CRC, Scientific Authority on PILP.

3.03.2 The witness filed as Exhibit A-2 the correspondence between National Research Council Canada (N.R.C.C.) and Precision concerning among other things employment of a student paid by N.R.C.C. and contribution arrangement in the amount of $331,500 for a period of three years.

3.03.3 Exhibits R-3 to R-15 confirm figures or facts already enumerated above or already filed in Exhibits A-1 and A-2. Exhibits R-16 includes two letters to the Quebec Securities Commission, the first one dated January 3, 1985, transfering a “notice d'offre" and the second letter dated January 25, 1985, requiring an exemption from the obligation to be registered as dealer with the Commission to carry on business.

3.04 The witness Mr. Raymond Duhaime, who has been working for the Quebec Securities Commission since 1968, was in 1985 chief of the section of the distribution of securities to the public.

He explained that the word "prospectus" is not defined in the Securities Act. However the regulations list its contents. The difference between a prospectus and an offering memorandum is that the information given in the latter is less detailed than in the prospectus. The latter is imposed upon the person who wishes to issue shares to the public for a high degree of information required to alert the people who wish to purchase the shares.

An offering memorandum contains less information because

a) there is a provision that the person purchasing the shares is a qualified or knowledgeable investor or that he has sought information which would allow him to arrive at a decision as to the merits of the shares;

b) it is limited to a number of people to whom the shares can be sold.

In the present case the number is limited to 50.

4. Law—Cases at law—Analysis

4.01 Law

The main provision of the Income Tax Act involved in the present case is subsection 194(4.2) which reads as follows:

194. (4.2) Where amount may not be designated. Notwithstanding subsection (4), no amount may be designated by a corporation in respect of

(a) a share issued by the corporation after October 10, 1984, other than

(i) a qualifying share issued before May 23, 1985, or

(ii) a qualifying share issued after May 22,1985 and before 1986

(A) under the terms of an agreement in writing entered into by the corporation before May 23, 1985, other than pursuant to an option to acquire the share if the option was not exercised before May 23, 1985, or

(B) as part of a lawful distribution to the public in accordance with a prospectus, preliminary prospectus or registration statement filed before May 24, 1985 with a public authority in Canada pursuant to and in accordance with the securities legislation of Canada or of any province and, where required by law, accepted for filing by such public authority;

(b) a share or debt obligation issued or a right granted by the corporation after October 10, 1984, other than a share or debt obligation issued or a right granted before 1986.

4.02 Cases at law and doctrine

Counsel for the parties referred the Court to the following cases at law and doctrine:

1. The Dictionary of Canadian Law, Dukelow and Nuse, Carswell 1991 ;

2. The Queen v. Golden et al., [1986] 1 S.C.R. 209, [1986] 1 C.T.C. 274, 86 D.T.C. 6138;

3. Black's Law Dictionary, (1979) Fifth Edition;

4. Words and Phrases Judicially Noted, (1944) London, Volume 4;

5. The Principles of Modern Company Lab by L.B.C. Gower, (1969) Third Edition, p. 296;

6. The Shorter Oxford English Dictionary on Historical Principles;

7. Le Petit Robert, Dictionnaire alphabétique et analogique de la langue française, 1984;

8. Petit Larousse illustré 1987, Dictionnaire encyclopédique pour tous;

9. CCH Canadian Securities Law Reporter, Looseleaf Edition, CCH Canadian Ltd., vol. 1, pp. 1509 to 1593 and 1649 to 1676;

10. Securities Act, R.S. Nfld. 1970, c. 349, (as amended to 1985);

11. Securities Act, R.S.N.S. 1967, c. 280, (as amended to 1985).

4.03 Analysis

4.03.1 From subsection 194(4.2), it appears that six requirements must be met in order to have shares designated after October 10, 1984, for the computation of the investment tax credit:

i) A qualifying share must be issued between May 22, 1985 and January 1, 1986;

ii) As part of a lawful distribution to the public;

iii) In accordance with a prospectus, preliminary prospectus or registration statement;

iv) Filed before May 24, 1985;

v) With a public authority in Canada;

vi) Pursuant to and in accordance with the securities legislation of any province;

vii) Where accepted for filing by such public authority.

Only the third one is at issue.

4.03.2 On January 25, 1985, Precision sent to the Quebec Securities Commission a document called by Precision a prospectus or an offering memorandum (Exhibit A-1(1), paragraph 3.03.1) for the purpose of provision 194(4.2)(a)(n)(B) of the Act quoted above (paragraph 4.01).

The appellant contends that this document has the same legal value as a prospectus or as a preliminary prospectus. The table of contents of this 12-page exhibit reads as follows:

According to the respondent, it is only an application by Precision to be authorized to issue 70,000 class B" shares and a request to be disponsed from its obligation to file a prospectus.

4.03.3 Indeed on January 30, 1985, the Quebec Securities Commission exempted Precision from filing a prospectus. The Commission then referred to the above document dated January 25, 1985, to section 11 of Title II of the Securities Act (requiring a prospectus to make a distribution of securities), to section 148 of Title V (requiring that a dealer be registered with the Commission to carry on business) and to section 263 which reads as follows:

263. The Commission may, on such conditions as it may determine, exempt a person or a group of persons from any or all of the requirements under Titles 11 to VI or the regulations where it considers the exemption not to be detrimental to the protection of investors.

The decision is without appeal.

The conditions determined by the Commission read as follows:

En conséquence, le directeur de l'information:

dispense Précision Photomask Inc. de l'obligation d’établir un prospectus et de l'inscription à titre de courtier pour le placement de 70 000 actions subalternes au prix de 8 $ l’action auprès d'au plus 50 souscripteurs, aux conditions suivantes:

1. chaque souscripteur agit pour son propre compte;

2. chaque opération est constatée par écrit et le contrat contient les dispositions prévues à l'article 103 du Règlement sur les valeurs mobilières;

3. le placement dure moins de six mois;

4. le placement se déroule sans publicité;

5. l'émetteur ne pourra se prévaloir à nouveau d'une dispense d'établir un prospectus pour le placement de ses titres auprès d'au plus 25 souscripteurs ou, dans le cas de valeurs refuges, de 50 souscripteurs;

6. l'émetteur doit faire parvenir à la Commission dans un délai de 10 jours de la fin du placement un avis contenant les informations prévues à l’article 105 du règlement;

7. l'aliénation de ces titres, sauf entre les souscripteurs, ne pourra avoir lieu sans un prospectus ou use dispense de prospectus dans les 12 mois de leur souscription. Après ce délai, le prospectus ne sera pas exigé pourvu que l'émetteur soit un émetteur assujetti et qu'il ait satisfait aux obligations qui en découlent durant les 12 mois prededant immédiatement l'aliénation.

4.03.4 A prospectus and an offering memorandum contain one aspect which is the same and which is very important. It is that both are an appeal to the public to purchase the shares in the respective corporation.

The items required by the Regulation respecting securities are quite similar:

4.03.5 Neither the Income Tax Act nor the Quebec Securities Act define the words "prospectus" and "offering memorandum" or "registration statements". However, one can find these definitions in the following reference works:

1. The Dictionary of Canadian Law (4.02(1)):

“PROSPECTUS. n. Any prospectus, notice, circular or advertisement of any kind whatsoever, whether of the kind hereinbefore enumerated or not, whether in writing or otherwise offering to the public for purchase or subscription any shares or debentures of any company."

“OFFERING MEMORANDUM. A document that: (i) sets forth information concerning the business and affairs of an issuer; and (ii) has been prepared primarily for prospective purchasers to assist those purchasers to make an investment decision with respect to securities being sold pursuant to a trade that is made in reliance on an exemption."

2. The Black's Law Dictionary (4.02(3)) :

“PROSPECTUS. A document published by a company or corporation, or by persons acting as its agents or assignees, setting forth the nature and objects of an issue of shares, debentures, or other securities created by the company or corporation, and inviting the public to subscribe to the issue. The principal document of a registration statement required by law to be furnished an investor prior to any purchase. It is the document which is to contain all material Tacts concerning a company and its operations so that a prospective investor may make an informed decision as to the merit of an investment. The content of the prospectus is governed by federal securities laws and regulations.

The term "prospectus" means any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security. Securities Act of 1933,

§1."

3. Words and Phrases (4.02(4)):

“PROSPECTUS [833] and see Contract entered into by the company" [Section 4 of the Companies Act, 1900 (repealed; see now Companies Act, 1929, s. 39), made it unlawful for a company to proceed to allotment unless (inter alia) the amount of the minimum subscription was stated in the "prospectus". “The term "prospectus" was defined by section 30 (see now section 381 of the 1929 Act)]. “A prospectus is defined in section 30 to mean "any prospectus, notice, circular, advertisement, or other invitation, offering to the public for subscription or purchase any shares or debentures of a company” and it appears to me to be a reasonable interpretation of the term "the prospectus" used in section 4 to hold that although as regards every invitation issued to the public the statutory provisions apply, yet, when we come to the remedy,"the prospectus” is that document offering capital to the public upon the basis of which the applicant has actually subscribed.” Roussell v. Burnham, [1909] 1 Ch. 127, per Parker, J., at pages 130-31.”

4. The Principles of Modern Company Law (4.02(5)), at page 296:

PROSPECTUS

“In fact, however, they are greatly extended in their ambit by section 45, which provides that where a company allots or agrees to allot any securities with a view to their being offered for sale to the public "any document by which the offer for sale . . . is made shall for all purposes be deemed to be a prospectus issued by the company.” This is clearly wide enough to include issues by an offer for sale. It will also include placings, unless of a purely domestic nature without either renounceable allotment letters or a stock exchange introduction; if the placing is not a merely domestic concern the placing letters and stock exchange advertisement will have to be treated as prospectuses issued by or on behalf of the company."

5. The Shorter Oxford English Dictionary (4.02(6)):

"Prospectus. 1777. [-L. prospenus view, prospect, prob. after Fr. use (XVIII).] A description or account of the chief features of a forthcoming work or proposed enterprise, circulated for the purpose of obtaining support. The plaintiff applied for shares in this company on the faith of the page 1890.”

6. Le Petit Robert (4.02(7)):

“PROSPECTUS, de prospicere «regarder devant». 1° Annonce imprimée, brochure exposant le plan d'un ouvrage paraître, d'une collection, d'une série d'ouvrages. Prospectus d'un nouveau journal. 2° Cour. (Fin XVIII ). Annonce publicitaire, le plus souvent imprimée, brochure ou simple feuille, dépliant, destinée à vanter auprès de la clientèle un éstablissement public, un commerce, une affaire.

7. Petit Larousse illustré (4.02(8)) :

“PROSPECTUS n.m. (mot lat., aspect). Brochure donnant le plan, la description d'un ouvrage, d'un éstablissement, d'une affaire, etc. Feuille ou brochure diffusée à des fins publicitaires.”

8. Securities Act, R.S. Newfoundland (4.02(10)):

2 (g)"prospectus" means any prospectus, notice, circular, or advertisement of any kind whatsoever, whether of the kind hereinbefore enumerated or not and whether in writing or otherwise, offering to the public for purchase or subscription any shares or debentures of any company;

(i) "registration statement" means a statement provided for in Section 15 and includes any amendment or alteration thereto, or change therein, and any report, document or other memorandum of any kind accompanying such statement, or incorporated therein by reference;

9. Securities Act, R.S. Nova Scotia (4.02(11)):

2 (I) "prospectus" means any prospectus, notice, circular or advertisement of any kind whatsoever, whether of the kind hereinbefore enumerated or not, whether in writing or otherwise offering to the public for purchase or subscription any shares or debentures of any company;

(n) "registration statement" means statement provided for in Section 13 and includes any amendment or alteration thereto, or change therein, and any report, document or other memorandum of any kind accompanying such statement, or incorporated therein by reference;

10. CCH Canadian Securities Law Reporter (4.02(9)) at page 1649, #1885 under title Registration Statements:

"General.—As noted before (#1505) there are no requirements regarding the contents of a prospectus in Newfoundland, Nova Scotia and Prince Edward Island. However Newfoundland and Nova Scotia require the filing of registration statements which are similar to the contents of a prospectus required to be furnished in the other provinces. Prince Edward Island requires the filing of information on a prescribed form. Both registration statements and the information required in Prince Edward Island are open to inspection by the public.”

[Emphasis added.]

11. Loi sur les impôts du Québec. Provision 776.9.1 which is equivalent to provision 194(4.2) of the Act reads as follows:

"776.9.1 Aux fins du présent titre et du titre V.l, lorsqu’un titre admissible, décrit aux sous-paragraphes i ou ii du paragraphe a de l’article 776.7, d'une corporation publique est légalement distribué dans le public conformément à un prospectus, état d'enregistrement ou document semblable produit auprès d'un organisme public au Canada conformément à la loi du Canada ou d'une province et, si la loi l'exige, accepté par cet organisme aux fins de cette production, et que la corporation a désigné, en vertu de l'article 776.10, un montant à l'égard de ce titre admissible, celle-ci peut choisir, dans la forme prescrite requise par cet article 776.10, que la première personne qui acquiert le titre admissible et qui n'est pas un courtier ou un négociant en valeurs agissant en sa qualité d’intermédiaire, soit considérée comme étant le premier détenteur du titre admissible et, dans un tel cas, aucune autre personne ne peut alors être considérée comme étant ce premier détenteur."

[Emphasis added.]

4.03.6 Following all those quotations, what is the ordinary meaning of prospectus"?

The meaning regarder en avant" (to look forward) from the latin word prospicere gives, in my opinion, the basic meaning of the word "prospectus". “Feuille ou annonce publicitaire" as well as a "document setting forth the nature and objects of an issue of shares, debentures" (4.03.5(2) and 4.03.5(6)) are both issued to permit to a person “to look forward’ to take information about the goods or debentures he wants to buy.

In the present case, the meaning is obviously the second one which is the language of commercial law. Moreover, in the country Registration Statement" has the same meaning as "prospectus" (4.03.5(10)). Pursuant to the Quebec Regulation respecting securities, "prospectus" and "offering memorandum" have almost similar content, the latter being for small business, giving fewer details (3.04, 4.03.4).

If one reads the content of Exhibit A-1(1) dated January 25, 1985, sent to the Quebec Securities Commission (4.03.2), one will conclude that this document has substantially the same content as "a prospectus" of the Quebec Regulation respecting securities (4.03.4).

Moreover, this word being commonly used in commercial law, the ordinary meaning used in the common law provinces also applies in the province of Quebec. One may state that the definition of the word "prospectus" in the Securities Act of some provinces is the same as the ordinary meaning 4.03.5(8) and (4.03.5(9)).

4.03.7 In the Golden et al. case (4.02(2)) at page 214, the Supreme Court of Canada stated:

In Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305 at pp. 573-79, the Court recognized that in the construction of taxation statutes the law is not confined to a literal and virtually meaningless interpretation of the Act where the words will support on a broader construction a conclusion which is workable and in harmony with the evident purposes of the Act in question. Strict construction in the historic sense no longer finds a place in the canons of interpretation applicable to taxation statutes in an era such as the present, where taxation serves many purposes in addition to the old and traditional object of raising the cost of government from a somewhat unenthusiastic public.

In the present case, the definition I arrived at cannot be, in my view, larger nor stricter, it is the ordinary definition: “notice, circular, advertisement, or other invitation, offering to the public for subscription or purchase any shares or debentures of a company".

4.03.8 Counsel for the appellant contends that a strict interpretation must be given to the provision 194(4.2) of the Act, because it is an exception to the general principle to the effect that no designation may be done concerning shares issued after October 10, 1984. In my view, even if a strict interpretation applies, it arrives at the same conclusion that the document A-1(1) has the same substance as a prospectus. It is a prospectus. At least, it is" in accordance with a prospectus", as 194(4.2)(a)(ii)(B) says. The French version says "conforme à un prospectus”.

4.03.9 However, counsel for the respondent submits that if a taxpayer, such as the appellant company in the present case, has asked to be exempted from the obligation of filing a prospectus and obtained this exemption, how can he contend under subsection 194(4.2) of the Act that he filed a prospectus "pursuant to” and "in accordance with the securities legislation"?

It is important to quote the provision at issue:

(B) as part of a lawful distribution to the public in accordance with a prospectus, preliminary prospectus or registration statement filed before May 24, 1985 with a public authority in Canada pursuant to and in accordance with the securities legislation of Canada or of any province and, where required by law, accepted for filing by such public authority;

The French version reads as follows:

B) soit dans le cadre d'un appel public légal à l'épargne conforme à un prospectus, à un prospectus préliminaire ou à une déclaration d'enregistrement, produit avant le 24 mai 1985 auprès d'un organisme public du Canada suivant la législation fédérale ou provinciale sur les valeurs mobilières et, si la loi le prévoit, approuvé par un tel organisme public.

Moreover, it seems that the legislator's main purpose in writing provision 194(4.2) is to control the issued shares permitting a corporation to qualify the shares for the scientific research tax credit.

In providing in 194(4.2)(a)(ii)(B) that a lawful distribution to the public be done "in accordance with a prospectus", the only intention was that a certain control be done by a public authority of Canada or of any province "pursuant to and in accordance with the securities legislation. . . .”.

The evidence is to the effect that a prospectus was filed in January 1985 with the Quebec Securities Commission. However it was "not required by law" to be accepted for filing as a lawful distribution to the public because it is provided by the same Act that allows for exemption from such acceptance when the purchasers of the shares are not numerous and aware of the business of the company.

The Quebec Securities Commission in exempting the appellant from filing a prospectus pursuant to section 263 of the Quebec Securities Act determines a certain number of conditions quoted above (4.03.3) to protect the purchasers. Indeed the protection of the purchasers of securities is the main basis of the legislation concerning securities.

In my view, the main obligation provided in provision 194(4.2)(a)(ii)(B) was met "pursuant to and in accordance with” the Quebec Securities Act.

4.03.10 In consequence of this decision, all the appeals of the appellant individuals must be allowed.

5. Conclusion

The appeal is dismissed concerning the amount of $73,174 claimed pursuant to Part I of the Act and is allowed with costs concerning the claim pursuant to Part VIII of the Act and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment.

Appeal allowed in part.