Mahoney,
J.:
—This
is
an
appeal
from
the
Trial
Division
which
held
that
a
reserve
established
by
the
appellant
in
respect
of
expected
outlays
to
perform
its
obligations
to
customers
under
maintenance
agreements
for
household
appliances
was
not
deductible
in
calculating
its
taxable
income.
Without
expressing
a
concluded
opinion
as
to
whether
he
was
correct
in
holding
that
the
deduction
was
not
prohibited
by
paragraph
18(1)(e)
of
the
Income
Tax
Act,
we
are
of
the
view
that
the
learned
trial
judge
did
not
err
in
concluding
that
the
deduction
was,
in
any
event,
prohibited
by
subsection
20(7).
By
undertaking
to
service
and
maintain
the
appliances
as
required,
the
appellant
obliged
itself
to
bear
expenses
which
its
customers
would
otherwise
have
to
incur
if
they
wished
to
maintain
and
repair
their
appliances.
That,
in
our
view,
is
an
indemnity.
A
subsidiary
issue,
to
be
dealt
with
only
if
the
appellant
did
not
succeed
in
maintaining
the
deductibility
of
the
reserve,
stems
from
the
requirements
of
paragraph
12(1)(e).
In
computing
its
1976
income,
the
appellant
included
the
amount
of
the
reserve
deducted
and
allowed
in
1975.
The
appellant's
1975
assessment
is
not
subject
of
appeal.
In
our
view,
the
learned
trial
judge
did
not
err
in
disposing
of
this
issue
on
the
basis
of
this
Court's
decision
in
Dominion
of
Canada
General
Insurance
v.
The
Queen,
[1986]
1
C.T.C.
423;
86
D.T.C.
6154,
which,
dealing
with
the
precise
issue,
held
that
a
reserve
in
fact
deducted
and
allowed
was
required
by
paragraph
12(1)(e)
to
be
added
back
notwithstanding
that
its
deduction
had
not
been
according
to
law.
With
respect,
we
see
no
conflict
between
that
decision
and
Sogemines
Development
v.
M.N.R.,
[1973]
C.T.C.
383;
73
D.T.C.
5304.
In
issue
there
was
a
provision
allowing
expenses
to
be
carried
forward
only
"to
the
extent
that
they
were
not
deductible
in
computing
income
for
a
previous
year".
That
posed
only
the
question
whether
the
expenses
could
legally
have
been
deducted
by
the
taxpayer
in
a
previous
year.
The
fact
that
their
deduction
had
been
claimed
by
the
taxpayer's
parent
and
improperly
allowed
by
the
Minister,
while
explaining
the
taxpayer's
failure
to
deduct
them
when
it
first
might
have,
was
not
really
material.
Here,
the
obligation
to
add
back
the
1975
reserve
depends
entirely
on
the
fact
that
it
had
been
claimed
and
allowed,
the
legality
thereof
being
immaterial.
The
appeal
will
be
dismissed
with
costs.
Appeal
dismissed.
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