David Nelson Smith v. Minister of National Revenue, [1984] CTC 2524, 84 DTC 1502

Rip, TCJ:—This is an appeal from an income tax reassessment for 1980 in which the respondent added to the appellant’s income the sum of $54,659 as “shareholder appropriation from Holiday Ford Sales (1980) Limited under the provisions of subsection 15(1) of the Income Tax Act (“the Act”). In his amended reply to the notice of appeal the respondent says a corporation, Holiday Ford Sales (1977) Inc, of which the appellant was a shareholder, “received funds to which it was not entitled to and/or conversely was discharged of some of its liability by (Holiday Ford Sales (1980) Limited) and therefore received benefits . . .” and that “payments or transfer of property to (Holiday Ford Sales (1977) Inc) for the benefit of the appellant or as a benefit that the appellant desired to have conferred on (Holiday Ford Sales (1977) Inc) were made pursuant to the direction of, or with the concurrence of the appellant” and therefore the value of the purported benefit, $54,659, ought to be included in the appellant’s income for the year in accordance with subsections 15(1) and 56(2) of the Act. An appeal in respect of 1981 was quashed at trial since the appellant had not filed a notice of objection against the assessment for 1981.

The appellant also appeals the assessment for 1980 on the basis that he incurred capital losses on shares owned by him, Holiday Ford Sales (1977) Inc. (“Holiday 77”) and Holiday Ford Sales (1980) Limited (‘‘Holiday 80”) and loans made to Holiday 77.

During the early summer of 1980 the appellant was employed as vice-president of Holiday 77 which carried on the business of a franchised dealer of new Ford products, lessor of automobiles, service garage and related activities in Peterborough, Ontario. The appellant in 1977 invested $100,000 in Holiday 77 to acquire 49 per cent of the issued and outstanding shares of that company; one Alan MacGurr owned 51 per cent of the issued and outstanding shares and was president of Holiday 77.

Sometime in the late spring or early summer of 1980, Holiday 80 was incorporated by the appellant. The appellant testified the reason for incorporating Holiday 80 was because Holiday 77 had become short of capital and required refinancing; at the same time Mr MacGurr wished to retire from the car business while the appellant wished to continue in that business. The appellant approached the Ford Motor Company Limited (“Ford”) to discuss capitalization for the new company under their “dealer development” program and worked out an agreement whereby he would subscribe for 20 per cent of the share capital of Holiday 80 for $110,000 and Ford would subscribe for 80 per cent of the share capital for $440,000. Holiday 80 would acquire assets from Holiday 77 and continue the business. The shares were subscribed for and issued to the appellant and Ford.

By agreement of purchase and sale dated July 24, 1980, which was also the date of closing of the transaction, Holiday 80 acquired most of the business assets from Holiday 77, effective July 13, 1980 (in testimony, the appellant referred to the effective date of sale as July 14, 1980 and I have adopted that date as the effective date of sale). Assets not acquired included accounts receivable of approximately $200,000, some unsold parts and used cars and a lease fleet of some 700 motor vehicles having a value of approximately $6,000,000.

The appellant testified that prior to the sale taking place he advanced $49,000 to Holiday 77 so that creditors who did not waive their rights under the Bulk Sales Act of Ontario could be paid.

In respect of which I shall refer to as the interim period, that is the period between July 14, 1980, the effective date of the sale, and July 24, 1980, the date of closing, arrangements were made for Holiday 77 to open an interim bank account at a Royal Bank of Canada branch in Peterborough during which time it would be a general account of the dealership; all moneys received in respect of the business during this period would go into the account and all costs and expenses incurred in respect of the business during this period would be paid from this account. On closing, the remaining moneys would go to Holiday 80; if the transaction did not close, the moneys would go to Holiday 77’s regular account. This account was referred to in the agreement of purchase and sale as a “special interim account”.

The appellant testified that it was his and Mr MacGurr’s intention for Holiday 77 to continue to administer its lease fleet and liquidate its assets in an orderly manner. During the interim period the business was run from the same premises as the dealership; Holiday 77 moved out of the premises on closing.

On the evening of the closing date, that is July 24, 1980, representatives from Ford Credit Corporation (“FCC”) entered Holiday 77’s offices and “started collecting money”.* [1] On August 11, FCC appointed a receiver to manage the remaining business of Holiday 77. The appellant was notified of the appointment of a receiver on August 12, 1980. During the period from July 24, 1980, to August 11, 1980, FCC collected all cheques and accounts paid to Holiday 77 for its own account. The appellant’s involvement with Holiday 77 ceased once the receiver was appointed, although he was still a shareholder of both Holiday 77 and Holiday 80.

On August 5, 1980, the appellant was relieved of his duties as general manager of Holiday 80 and he was fired on August 12, 1980. From August 5 on he had no authority to sign cheques for Holiday 80. Law suits and counter suits ensued between the appellant, Holiday 80 and FCC which were finally settled by the parties agreeing to dismiss the respective actions.

The appellant, in objecting to his income tax assessment for 1980, claimed a capital loss in respect of the shares of both Holiday 77 being put into receivership and his termination by Holiday 80. Counsel for the appellant was unable to provide the Court with the statutory authority permitting a taxpayer to claim a capital loss in respect of the shares in such circumstances; there was no disposition of shares. Paragraph 50(l)(b) of the Act applies only in the case where the corporation in which the shareholder owned shares becomes bankrupt. Also no evidence was led that any loans the appellant made to Holiday 77 became bad in 1980.

In his amended reply to notice of appeal, the respondent states that “while assessing and reassessing the appellant’s 1980 return of income, (he) assumed’’ various facts, the principal facts of which are set out hereunder:

j) “(1977)“ operated as a going concern up until July 13, 1980 at which time it sold almost all of its assets, except its accounts receivable and cars that were out on wholesale leases, to a newly formed company called Holiday Ford Sales (1980) Ltd, (hereinafter referred to as “(1980)’’, by agreement of sale between “(1977)“ and “(1980)’’ made as of July 24, 1980;

k) the appellant became shareholder, president and general manager of “(1980)“ from its inception but was later dismissed on August 14, 1980;

l) “(1977)“ kept carrying on business as an agent of “(1980)“ in the interim period, that is, between July 13, (effective date) and July 22, 1980 (closing date), through a new bank account opened on July 13, 1980 in “(1980)“’s name;

m) unaffected by the above-mentioned sale, “(1977)“ kept renting cars by means of a “red carpet lease” whereby “(1977)“ would initially lease a car and then assign the financed amount as well as the lease itself to Ford Credit Corporation “(FCC)“; when the car came off lease “FCC” had the option of offering the car back to the dealership in which case “(1977)“ couldn’t refuse to buy the car;

n) at the time of the sale between “(1977)’’ and “(1980)“, there was an understanding that “FCC” could offer the previously leased cars to either “(1977)’’ or “(1980)’’ and that the relevant company would have to buy the car, even though these red carpet leases were all property of “(1977)’’ since these leases were not part of the above- mentioned sale;

o) on or about August 11, 1980, “FCC” placed “(1977)’’ into receivership and caused the Appellant to be dismissed as President of “(1980)’’;

p) the Appellant signed a cheque issued on the bank account of “(1980)’’, bearing #44 dated July 28, 1980, and in the amount of $3,063.33 to pay an outstanding liability between “(1977)’’ and “FCC”;

q) “(1980)’’ purchased from “(1977)’’ a 1979 Ford Bronco (licence #EN9794) for $6,800.00 on July 13, 1980 as it appears from Schedule F of the Agreement of Sale made as of July 24, 1980;

r) one Edith Dunk purchased this Ford Bronco car on July 22, 1980 for $9,000.00 from “(1980)’’, but such proceeds of sale were deposited to the bank account of “(1977)’’;

s) one Mr Lawson and one Mr Keith Brown both purchased from “(1977)’’ former “(1977)’”s red carpet leased cars respectively a 1980 Corvette on July 21, 1980 for $14,000.00 and a Chrysler on July 14, 1980 for $2,741.50 and proceeds of sale were deposited in the bank account of “(1977)’’;

t) the liabilities to “FCC” in respect of these vehicles were both paid by “(1980)’’ as more precisely described in paragraph (n) above-mentioned;

u) the Appellant signed a cheque to the order of “FCC”, issued on the bank account of “(1980)’’, dated July 31, 1980, in the amount of $11,202.53 allegedly in respect of a 1980 Ford E350 Van, serial number E3ZGHHJ5162 leased to a business called United Carpet Ltd on July 25, 1980;

v) the Ford Van referred to in the above-mentioned lease was sold to Superior Cleaners of Peterborough Ltd on July 19, 1980 for $12,600.00;

w) two cheques respectively in the amounts of $1,668.48 and $4,735.54 from the Pilot Insurance Company, dated July 18 and 30, 1980, with respect to work orders dated June 12 and July 3, 1980 were deposited in the “(1977)” bank account;

x) these work orders were not completed on July 13, 1980 and formed part of the work in process purchased by “(1980)”;

y) “(1977)” sold a 1980 Ford Fairmont to one Mr Russell Wildman on July 9, 1980 for $8,080.00;

z) “(1980)” made the payout to “FCC” on this vehicle on July 25, 1980 being a portion of an amount of $22,843.43 remitted to “FCC” by “(1980)”;

aa) 7 deposits totalling less than $700.00 were made to “(1977)”’s bank account without proper justification.

(In the reply to notice of appeal, Holiday Ford Sales (1977) Inc is referred to as “(1977)” and Holiday Ford Sales 1980 Limited is referred to as “(1980)”).

Each of the facts found or assumed by the respondent in the making of the assessment must be accepted as it was dealt with by the officials of the respondent unless questioned by the appellant (Johnston v MNR, [1948] SCR 486, per Rand, J at 489). The appellant can meet the respondent’s pleadings that, in assessing the appellant, he assumed the facts by:

(a) challenging the Minister’s allegations that he did assume those facts;

(b) assuming the onus of showing that one or more of the assumptions was wrong, or

(c) contending that even if the assumptions were justified they do not by themselves support the assessment (MNR v Pillsbury Holdings Ltd, [1964] CTC 294; 64 DTC 5184), per Cattanach, J at 302 [5188]).

A review of the law on the question of onus of proof is found in Kit Win Holdings (1973) Limited v The Queen, [1981] CTC 43; 81 DTC 5030, at 54 to 57 [5038 to 5041] inclusive.

In this appeal the appellant did not challenge the Minister’s allegations that he did assume the facts he said he assumed. The appellant, however, attempted to show that certain assumptions were wrong in fact and that the actual facts did not support the assessment.

The evidence before the Court in respect of the assumptions made were as follows:

(a) In respect of assumption (p), on or about July 28, 1980, the appellant and FC O’Connor, the business manager and accountant of Holiday 80, signed a cheque drawn on the bank account of Holiday 80 in the amount of $3,063.33 payable to FCC. The appellant testified he “can’t recall specifically” the purpose of the cheque, but assumes “Mr O’Connor came to me, said we owe Ford Credit the money on a lease” and the appellant signed the cheque. The appellant testified he relied on Mr O’Connor “to keep the accounting straight”.

(b) In respect of assumptions (q) and (r), pursuant to the agreement or purchase and sale between Holiday 80 and Holiday 77, Holiday 80 purchased a 1979 Ford Bronco, one of the several assets being sold, for $6,800, the price indicated in the agreement.

By agreement dated July 22, 1980, that is, made during the interim period, Holiday 77 agreed to sell the same Ford Bronco to one Edith Mary Dunk for $19,000; on July 28, 1980, this $9,000 was deposited to the bank account of Holiday 77, not to the special interim account previously described. The appellant testified the bank deposit slip was prepared by Mr MacGurr who was in charge of administration “for the franchise”. Under the agreement the money was to be transferred to the Holiday 80 account. The appellant stated that because Holiday 77 was selling cars at distress prices there was an agreement with Ford that if a used vehicle sold at a higher price than called for in the agreement of purchase and sale, that particular vehicle would not be included in the sale between Holiday 77 and Holiday 80. The Bronco was in fact sold for a price higher than that set out in the agreement but for some reason it was also included as an asset in the sale of assets from Holiday 77 to Holiday 80. Thus it appears Holiday 77 received $9,000 from Edith Mary Dunk and $6,800 from Holiday 80 for the same vehicle.

(c) In respect of assumptions (s) and (t), on July 21, 1980, a 1977 Corvette came off a retail vehicle lease, sometimes referred to as a “red carpet lease”, and was sold by Holiday 77 to one Lawson, a used car dealer from Winnipeg. Under a red carpet lease vehicle ownership was in the name of FCC during the term lease. In fact, Holiday 77 would purchase the vehicle from Ford, lease the vehicle to a customer and reassign its rights as owner and lessor to FCC. On the expiry of the lease the vehicle would be resold and reassigned by FCC to Holiday 77 for a value stipulated previously in the lease. The purchase price of the Corvette was $14,000; the money was deposited in the Holiday 77 bank account. The appellant testified the deposit slip from the original cheque was prepared by Mr MacGurr’s son, who was working at the time for Holiday 77; the first cheque was returned because of non-sufficient funds but Lawson replaced the cheque; the deposit slip for the second cheque was prepared by Mr MacGurr.

Again on July 14, 1980, a 1977 Chevrolet Suburban, not a Chrysler, which had also come off a red carpet lease was sold by Holiday 77 to another dealer, Keith Brown Dodge, for $2,741.50.

A cheque dated August 13, 1980, drawn on Holiday 80’s bank account and payable to FCC for $2,741.50 was tendered in evidence by the appellant; this cheque was signed by one John Langevin, a Ford official and successor to the appellant at Holiday 80. As previously mentioned on that date the appellant no longer had cheque-signing authority for Holiday 80.

In respect of payments made by Holiday 80 to FCC, the appellant testified that there was an arrangement between Holiday 80 and Holiday 77 similar to that Holiday 77 had with the vendor of the business it acquired in 1977: the purchasing company (in this case, Holiday 80) would handle all accounting with FCC and Holiday 77 would then settle up with Holiday 80; this was an arrangement, he said, desired by FCC. The appellant stated that there were inter-company accounts between Holiday 77 and Holiday 80 so that the August 13 cheque would be a receivable to Holiday 80 and an account payable to Holiday 77; the red carpet leases would also have a value. Experience showed that Holiday 77 would eventually end up with a credit rather than owe Holiday 80 any money. But the appellant testified, no reconciliation of accounts was made between Holiday 80 and Holiday 77 since “I was terminated and Holiday 77 was in receivership. All the records of Holiday 77 were seized by Ford. I had no access to any records.”

(d) In respect of assumptions (u) and (v), the appellant signed another cheque dated July 31, 1980, drawn on Holiday 80’s bank account payable to FCC for $11,202.53. The appellant stated this cheque was made in payment for a 1980 Ford Van which FCC had discounted in favour of Holiday 77 and subsequently FCC requested the lease be paid off at the discounted price. The appellant stated it was his intention that a loan be set up between the two companies for the $11,202.53 but because of the receivership and his termination of employment the intent was never carried out.

In any event the Ford Van referred to above was sold; the respondent assumed it was sold on July 19, 1980. Evidence at trial showed the sale took place on July 19, 1981; the agreement of purchase and sale described the vendor as “Holiday Ford Sales Ltd”, a corporation which sold its business to Holiday 77 in 1977; I do not make much of this except to comment that it is not clear if Holiday 77 or Holiday 80 made the sale.

(e) In respect of assumptions (w) and (x), two cheques in the amounts of $1,668.48 and $4,735.54 from Pilot Insurance Company dated respectively July 18 and July 30, 1980, concerning work orders dated July 3, and June 12, 1980, respectively, were made payable to “Holiday Ford Sales Limited”. The earlier cheque was deposited to the account of Holiday 77 and the later cheque was deposited to the credit of FCC, without the endorsement of Holiday 77. The appellant stated the practice in respect of repair work to an insured vehicle would be for Holiday 77 to prepare a repair estimate which would be signed by the customer and then sent to the insurer; on receiving approval by the insurer to perform the work, the work would be performed and the customer, upon completion of the work, would execute a release and receive his car. Then Holiday 77 would send out the invoice together with the release to the insurer and the insurer would issue a cheque. While the appellant could not determine when the work orders were completed he believed it was unlikely the work in respect of the July 18, 1980 cheque was performed after July 13, since the time for mailing and preparation of the cheque would be more than five days.

(f) In respect of assumptions (y) and (z), on July 9, 1980, Holiday 77 agreed to sell a new automobile, a demonstrator, to a Mr Wildman for $8,080. By cheque dated July 25, 1980, Holiday 80 paid to the order of FCC an amount of $22,843.43. One of the signatories of the cheque was the appellant. On the reverse side of the cheque was a series of serial numbers, the first serial number being the sale agreement number of the sale to Mr Wildman; just above the Wildman serial number is written the words “old Co”. The respondent assumed Holiday 80 was satisfying Holiday 77’s obligation to FCC in respect of the vehicle sold to Wildman.

The appellant testified FCC would finance vehicles while in inventory and when the vehicle was sold payment would be made to FCC for the wholesale price. The appellant testified that the payment by Holiday 80 appeared to be an error and probably the reference to ‘‘old Co” was because the car was missed during inventory and the payment “probably should have been from the old Company”.

(g) In respect of assumption (aa), seven deposits totalling less than $700 were made to Holiday 77’s bank account which the respondent assumed were made “without proper justification”. The appellant stated he had no knowledge of these deposits.

The appellant testified that he was not aware of any deposits of moneys transferred to Holiday 77 or cheques drawn on Holiday 80’s bank account payable to FCC. The appellant claims he did not appropriate any money from Holiday 80 nor did he direct, or concur with the payment or transfer of property from Holiday 80 to Holiday 77 for his benefit or as a benefit he desired to confer on Holiday 77.

The respondent’s witness, Mr Terrence Law, Chief of Appeal of the Belleville District Office of the respondent, testified the appellant was assessed since he was a shareholder and officer of Holiday 77 and Holiday 80 and caused money of Holiday 80 to be deposited to Holiday 77’s bank account or caused accounts of Holiday 77 to be paid by Holiday 80, thus indirectly conferring a benefit on himself.

This was all the evidence submitted by the parties. The appellant did not call any witnesses to corroborate his testimony. The Court is asked to come, to a conclusion based on this evidence. Some of the evidence is credible, some is not. I cannot accept evidence as credible when a witness — an officer and shareholder of a corporation — says he relied on certain people to inform him of the nature of cheques he is signing on behalf of the corporation and signs the cheques without question, especially when he has just entered into a venture with a new “partner” and would be expected to at least show some prudence and control over his employees to ensure there would be no confusion, but in answer to another question he remembers precisely that a cheque paid by one corporation for the benefit of another was to have been set up as a loan between the two companies.

The question the Court is called upon to decide is whether there were appropriations of property of Holiday 80 to the appellant within the meaning of subsection 15(1) of the Act or whether any amount is to be included in the appellant’s income in accordance with subsection 56(2).

Subsection 15(1) of the Act reads as follows:

(1) Where in a taxation year

(a) a payment has been made by a corporation to a shareholder otherwise than pursuant to a bona fide business transaction,

(b) funds or property of a corporation have been appropriated in any manner whatever to or for the benefit of, a shareholder or

(c) a benefit or advantage has been conferred on a shareholder by a corporation.

otherwise than

(d) on the reduction of capital, the redemption, cancellation or acquisition by the corporation of shares of its capital stock or the winding-up, discontinuance or reorganization of its business, or otherwise by way of a transaction to which section 88 applies,

(e) by the payment of a dividend or a stock dividend,

(f) by conferring on all holders of common shares of the capital stock of the corporation a right to buy additional common shares thereof, or

(g) by an action described in paragraph 84(l)(c. 1) or (c.2),

the amount or value thereof shall, except to the extent that it is deemed to be a dividend by section 84 be included in computing the income of the shareholder for the year.

(2) Indirect payments. A payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person shall be included in computing the taxpayer’s income to the extent that it would be if the payment or transfer had been made to him.

The appellant was a shareholder, officer and director of both companies when certain payments were made to FCC on behalf of Holiday 77 and the deposits were made to the bank account of FCC. There is no evidence the appellant had personally guaranteed any of Holiday 77’s liabilities to FCC. There is no evidence that any of the moneys deposited to Holiday 77’s bank account found their way to the appellant personally; in fact the evidence is that once the trans- action of purchase and sale closed on July 24, 1980, FCC entered the premises of Holiday 77 and the appellant lost control of the operations of that company. There was no evidence as to the quantum of Holiday 77’s indebtedness to FCC and whether Holiday 77 reasonably could have been expected to pay off the liabilities in the course of the orderly sales of its leased vehicles.

It is clear that Holiday 77 had unpaid liabilities owing to FCC. And it is also clear that certain property moved from Holiday 80 to Holiday 77, some directly by means of proceeds of sales by Holiday 80 being deposited in the bank account of Holiday 77 and some property being transferred directly by Holiday 80 issuing cheques in satisfaction of Holiday 77’s obligations to FCC.

If there was any evidence that the appellant had personally guaranteed FCC against any liabilities of Holiday 77 then, it would be a relatively easy task to conclude the assessment was, in the main, correct. However, no such evidence is before me.

The parties have not stripped naked the assessment for a full examination of the facts; after the trial some facts are still in hiding. My task therefore is to determine the appeal on the balance of probabilities.

Under the provision of subsection 56(2) an amount is included in computing a taxpayer’s income when:

(a) a payment or transfer of property is made pursuant to the direction of, or with the concurrence of, a taxpayer,

(b) the payment or transfer of property is made

(i) to some other person for the benefit of the taxpayer, or

(ii) as a benefit that the taxpayer desired to have conferred on another person, and

(c) the payment or transfer of property would be included in the taxpayer’s income had the payment or transfer been made directly to him.

I make the following findings of fact in respect of the various transactions described above:

(i) That the appellant concurred in the payment by Holiday 80 of $3,063.33 to FCC to satisfy an outstanding liability to FCC by Holiday 77. The cheque in the amount of $3,063.33 was signed by the appellant; in my view by signing the cheque he concurred in its payment.

(ii) the appellant knew, or ought to have known, had he acted in any responsible way, what at least one of his employees, the son of a shareholder and senior officer of Holiday 77, was doing. I cannot accept the appellant’s evidence that he was not aware of the deposit of the $9,000 received from Mrs. Dunk to the bank account of Holiday 77 instead of to the bank account of Holiday 80. The deposit of $9,000 to the bank account of Holiday 77 was made with the concurrence of the appellant as a benefit that he desired to have conferred on Holiday 77. Mr MacGurr was not called as a witness. The money was rightfully the property of Holiday 80.

(iii) In respect of the sale to Lawson and the proceeds of $14,000 deposited to the bank account of Holiday 77, again I cannot accept that the appellant had no knowledge of Mr MacGurr’s actions. The appellant’s ignorance of Mr MacGurr’s activities does not and cannot void his concurrence to the transfer of the funds from Holiday 80 to Holiday 77. However, in respect of the proceeds of $2,741.50 from the sale of an automobile to Keith Brown Dodge, the unchallenged evidence of the appellant is that the cheque to FCC for that amount was made by an employee of Ford without the appellant’s knowledge; the respondent did not seriously pursue this issue.

(iv) The assumptions contained in subparagraphs (u) and (v) of the respondent’s assumptions do not support the inclusion of $11,202.53 to the appellant’s income. Nowhere in subparagraphs (u) and (v) is it mentioned or alleged that the payment to FCC was to pay or satisfy a debt or obligation of Holiday 77. The respondent did not adduce any evidence to support its claim; the appellant benefited from this payment or directed or concurred in its payment. The evidence on this issue also disclosed the Ford Van was sold to Superior Cleaners on July 19, 1981, almost a year after the appellant left the employ of Holiday 80.

(v) With respect to facts assessed in subparagraphs (w) and (x) of the assumptions, I accept the appellant’s rationale that it is reasonable to conclude the Pilot Insurance Company cheque dated July 18, 1980 was in respect of work performed prior to July 14, 1980 and was rightfully the property of Holiday 77.

(vi) The assumption set out in subparagraph (aa) does not support the inclusion of $700 to the appellant’s income. That cheques totalling $700 were deposited in the bank account of Holiday 77 “without proper justification’’ is not a fact but a conclusion. The only fact in this assumption is that cheques aggregating $700 were deposited to Holiday 77’s bank account; this in and by itself does not support the inclusion of $700 to the appellant’s income.

I therefore find that the appellant concurred with the payments made by Holiday 77 to FCC described in the assumptions of the respondent contained in subparagraphs (p), (s), and (t); with respect to the Lawson vehicle, (x) and (y); the transfers of properties described in subparagraphs (q) and (r); (w) and (x) with respect to the cheque dated July 30, 1980.

The payments and transfers of property were made pursuant to the direction of or with the concurrence of, the appellant as a benefit the appellant desired to have conferred on Holiday 77, a corporation which was in some financial difficulty. In my view if Holiday 80 had made the payments referred to in the immediately preceding paragraph directly to the appellant and not to FCC the payments would not have been made pursuant to a bona fide business transaction and the amount thereof would be included in the appellant’s income pursuant to paragraph 15(l)(a) of the Act; had the other funds and properties referred to in the immediately preceding paragraph been transferred to the appellant’s income as well. There was no legitimate business reason for Holiday 80 to make these payments to FCC or for Holiday 80’s property to be directed to Holiday 77; the payments were made for the benefit of, and the properties were directed to, Holiday 77 because the appellant desired that to be done. Accordingly, pursuant to subsection 56(2) the payments and transfers of property referred to in the immediately preceding paragraph are to be included in computing the appellant’s income for 1980.

The appeal will therefore be allowed and referred back to the respondent for reconsideration and reassessment in accordance with these reasons.

Appeal allowed in part.