D
E
Taylor:—This
is
an
appeal
heard
November
31,
1980
in
the
City
of
Montreal,
Québec,
against
an
income
tax
assessment
for
the
year
1974.
On
April
14,
1970,
the
appellant
entered
into
a
memorandum
of
agreement
with
Mursid
Incorporated
(“Mursid”),
wherein
the
appellant
purchased
from
Mursid
“en
bloc”
and
as
a
going
concern,
a
cafeteria
business
located
at
5850
Cote
de
Liesse
Road,
in
the
Town
of
Mount
Royal,
District
of
Montreal,
Province
of
Quebec
(hereinafter
referred
to
as
the
“Cafeteria
Business”).
The
cafeteria
business
comprised
the
following
assets:
(a)
all
of
the
equipment,
furniture,
fixtures
and
utensils
of
the
cafeteria
business;
(b)
all
of
the
inventory
of
the
cafeteria
business
as
at
the
close
of
business
on
April
17,
1970;
(c)
all
of
the
applicable
permits
necessary
for
the
carrying
out
of
the
cafeteria
business;
(d)
rights
of
Mursid
in
and
to
the
lease
for
the
cafeteria
business
which
said
lease
was
dated
October
8,
1965
and
was
due
to
expire
on
April
30,
1976
and
was
subject
to
two
successive
renewal
options
of
5
years
each
under
the
same
rental,
terms
and
conditions;
and
(e)
the
goodwill
attaching
to
the
cafeteria
business.
The
purchase
price
for
the
cafeteria
business
except
for
the
inventory
was
$75,000.
The
appellant
allocated
the
sum
of
$16,000
of
the
purchase
price
to
the
cost
of
restaurant
equipment.
On
November
25,
1974,
the
appellant
entered
into
a
memorandum
of
agreement
with
Spiros
Dellas
wherein
the
appellant
sold
to
the
said
Spiros
Delas
the
cafeteria
business.
The
cafeteria
business
sold
by
the
appellant
comprised
the
following
assets:
(a)
all
of
the
equipment,
furniture,
fixtures
and
utensils
of
the
cafeteria
business;
(b)
all
of
the
inventory
of
the
cafeteria
business;
(c)
all
of
the
applicable
permits
necessary
for
the
carrying
out
of
the
cafeteria
business;
(d)
the
rights
of
the
appellant
in
and
to
the
lease
for
the
cafeteria
business
which
said
lease
was
dated
October
8,
1965
and
was
due
to
expire
on
April
30,
1976
and
was
subject
to
two
successive
renewal
options
of
5
years
each
under
the
same
rental,
terms
and
conditions;
and
(e)
the
goodwill
attaching
to
the
cafeteria
business.
The
sale
price
for
the
cafeteria
business,
except
for
the
inventory
referred
to
above,
was
$55,000.
In
computing
his
income
for
the
1974
taxation
year,
the
appellant
claimed
an
allowable
capital
loss
on
the
disposition
of
the
cafeteria
business
in
the
amount
of
$1,000.
The
Minister
of
National
Revenue
allocated
the
sale
price
of
the
cafeteria
business
in
the
amount
of
$55,000
as
follows:
(a)
restaurant
equipment
$
7,500
(b)
goodwill
$47,500
Total
$55,000
The
Minister
disallowed
the
appellant’s
claim
of
an
allowable
capital
loss
in
the
amount
of
$1,000
and
added
to
the
appellant’s
income
the
sum
of
$11,875
as
a
sale
of
goodwill
pursuant
to
the
provisions
of
subsection
14(1)
of
the
Income
Tax
Act
and
subsection
21(1)
of
the
Income
Tax
Application
Rules.
In
assessing
the
appellant,
the
respondent
relied,
inter
alia,
upon
subsections
14(1),
paragraph
54(d)
and
section
68
of
the
Income
Tax
Act
(SC
1970-71-72,
c
63)
as
amended,
and
upon
subsection
21(1)
of
the
Income
Tax
Application
Rules
(ITAR).
Contentions
For
the
appellant:
—
The
difference
between
the
amount
allocated
by
the
appellant
to
the
cost
of
restaurant
equipment,
namely
the
sum
of
$16,000
with
respect
to
the
purchase
of
the
cafeteria
business
in
1970
and
the
total
purchase
price,
namely
the
sum
of
$75,000
was
an
acquisition
by
the
appellant
of
a
leasehold
interest.
—
Any
portion
of
the
$55,000
of
the
proceeds
of
sale,
receivable
by
the
appellant
with
respect
to
the
sale
of
the
cafeteria
business,
not
allocated
as
a
disposition
of
restaurant
equipment
by
the
appellant
should
have
been
allocated
as
a
disposition
of
the
appellant’s
leasehold
interest
and
not
as
a
disposition
of
goodwill.
—
The
appellant
did
not
claim
any
capital
cost
allowance
with
respect
to
his
acquisition
of
a
leasehold
interest
in
1970
and
is
entitled
to
claim
a
terminal
loss
on
the
disposition
of
the
said
interest
in
1974.
—
There
was
no
goodwill
attached
to
and
forming
part
of
the
cafeteria
business.
For
the
respondent:
—
The
appellant
never
considered
or
included
the
alleged
value
of
the
leasehold
interest
in
the
allocation
of
the
acquisition
price.
—
The
appellant
was
subsequently
unable
to
establish
that
any
part
of
the
sale
price
was
attributable
to
the
value
of
the
leasehold
interest.
—
The
leasehold
interest
was
correctly
valuated
at
nil,
according
to
the
well-established
valuation
principles.
—
The
amount
of
$11,875
was
correctly
added
to
the
appellant’s
income
as
the
profit
derived
from
the
sale
of
goodwill,
pursuant
and
in
accordance
with
subsection
14(1)
of
the
new
Income
Tax
Act,
and
subsection
21(1)
of
the
Income
Tax
Application
Rules.
Evidence
The
appellant
testified
for
himself,
as
also
did
Mr
Spiros
Dellas.
The
essence
of
such
testimony
was
that,
in
their
opinion,
the
value
of
anything
related
to
the
cafeteria
was
in
the
unexpired
portion
of
the
leasehold
rather
than
in
any
goodwill.
Argument
By
counsel
for
the
appellant:
In
my
opinion,
the
lease
had
to
have
some
value.
A
dollar,
a
cent,
five
dollars,
something.
As
far
as
the
allocation
is
concerned,
I
would
like
to
state
that
we
have,
at
the
beginning,
in
1970,
a
purchase
of
$75,000.
The
allocation
of
the
purchase
price
made
by
the
taxpayer
and
his
accountant
on
the
financial
statements
is
not
in
dispute.
The
allocation
between
hard
assets,
namely
equipment,
furniture,
fixtures
and
equipment
and
something
else,
whatever
that
something
else
may
be,
is
the
question
in
dispute.
There
is
no
question
of
recapture.
There
is
no
question
of
how
much
would
be
allocated
to
hard
assets,
furniture
and
fixtures
and
how
much
should
be
allocated
to
this
other
thing.
The
only
question
before
the
Board,
since
the
allocations
have
been
accepted
by
the
tax
department
in
assessing
the
taxpayer’s
return
in
1970
and
1974,
the
only
question
before
the
Board
is
the
characterization
of
this
“other
thing”.
The
department
allocated
the
$55,000
sale
price
between
hard
assets,
equipment
$7,500;
goodwill
$47,500.
The
taxpayer
does
not
dispute
the
allocation
as
between
hard
assets
and
something
else.
He
only
disputes
the
characterization
of
the
something
else.
The
question,
therefore,
before
the
Board
is
since
the
department
has
stated
that
this
is
goodwill
in
their
assessment,
was
there
goodwill
in
this
business.
Mr
Gluck
gave
evidence
which
was
uncontradicted
although
the
amount
may
have
differed,
the
evidence
was
clear
from
Mr
Gluck
that
one
of
the
considerations
when
he
purchased
the
cafeteria
business
as
the
lease.
The
evidence
is
also
clear
from
Mr
Dellas,
the
subsequent
purchaser,
when
he
purchased
the
cafeteria,
one
of
the
most
valuable
things
to
him
was
the
lease.
Even
if
there
is
goodwill,
which
is
not
admitted,
.
..
the
taxpayer
maintains
that
the
goodwill
is
goodwill
of
location
and,
therefore,
under
the
Saskatoon
Drug
case,
is
synonymous
with
leasehold
interest
and
should
be
treated
as
such.
It
is
also
uncontradicted
that
the
department
has
allocated
$7,500
of
the
$55,000
sale
price
to
furniture
and
fixtures.
Therefore,
the
question
is
how
do
we
characterize
the
$47,
500.
I
submit
to
you
.
.
.
that
the
department
has
made
an
assumption
in
its
assessment
that
it
is
goodwill.
I
submit
to
you
that
we
have
shown
through
the
evidence
of
the
witnesses
and
through
the
documents
before
you
that
there
was
no
goodwill
at
the
time.
We
submit
to
you
that
the
difference
between
the
allocation
by
the
department
and
the
price
paid
is
an
allocation
that
should
be
attributed
to
a
leasehold
interest.
The
question
of
an
expert
witness
I
find
intriguing
because
in
a
situation
where
you
have
a
question
of
valuation,
do
you
need
an
expert
witness?
Most
of
the
cases
that
have
come
before
the
Court
and
the
Board
recently
determining
valuation,
especially
with
capital
gains
versus
income
tax,
are
cases
where
there
are
no
outsiders,
no
actual
disposition.
I
frankly
don’t
see
why
we
need
an
expert
witness
in
this
case.
The
value
of
the
business
is
a
going
concern,
there
is
no
question
it
was
valued
by
Mr
Gluck
when
he
agreed
to
pay
$75,000
who
was
valued
by
Mr
Dellas
when
he
agreed
to
pay
$55,000.
We
have
proven
that
there
certainly
was
no
goodwill
or
certainly,
in
my
humble
Opinion,
there
was
no
goodwill
in
the
business
and
I
think
the
burden,
under
those
cases
that
I
have
quoted,
shifts
back
to
the
Minister.
The
Minister
has
not
proven
that
there
was
goodwill
and
the
taxpayer’s
appeal
should
succeed.
By
counsel
for
the
respondent:
.
.
.
What
was
sold?
Goodwill
was
sold,
the
rights
in
and
to
the
lease
were
sold,
the
equipment
and
furniture
was
sold
and
all
permits
necessary
for
the
carrying
on
of
the
said
business
were
sold
and
the
Minister
agreed
with
that.
It
appears
clearly
from
the
contract
of
sale.
..
.
The
appellant
was
subsequently
unable
to
establish
that
any
part
of
the
sale
price
was
attributable
to
the
value
of
the
leasehold
interest.
Furthermore,
the
respondent
established
the
value
of
the
leasehold
interest
at
nil.
Now,
these
were
the
assumptions
of
the
Minister
that
as
far
as
we
are
concerned,
the
leasehold
interest,
the
value
of
this
leasehold
interest,
was
considered
to
be
nil
and
that
the
goodwill,
based
on
the
allocation
that
the
appellant
had
himself
established,
was
to
be,
or
the
value
after
having
subtracted
the
equipment
of
the
value
of
$7,500,
the
goodwill
was
to
get
the
remaining
value.
One
thing
is
certain
from
the
(reading)
of
the
lease.
The
only
purpose
for
which
this
could
be
sublet
was
to
operate
a
cafeteria,
a
restaurant.
Mr
Dellas
did
pay
an
amount
of
$55,00
for
the
said
business.
Now,
I
think
that
he
didn't
pay
his
amount
only
for
the
lease
since
he
could
not
do
anything
else
on
the
premises
except
operate
a
restaurant.
There
had
to
be
more
to
it
than
the
leasehold
interest.
The
question
of
apportionment
between
the
different
assets
has
been
often
the
issue
before
the
Board
and
also
before
the
Courts,
and
some
interesting
guidelines
were
used
in
many
of
those
cases
based
on
certain
decisions
by
the
Exchequer
Court
and
the
Federal
Court.
.
.
.
Now,
the
burden
lies
upon
the
appellant
and
it
is
submitted
to
this
Board
that
by
choosing
not
to
have
any
evidence
before
this
Board
this
morning
as
to
what
the
value
that
could
be
placed,
any
independent
evidence,
that
the
appellant
has
clearly
not
established
what
the
value
could
be.
First
of
all,
he
hasn’t
even
established
what
amount
should
be
considered
to
be
apportioned
to
the
leasehold
interest
and
secondly,
he
hasn’t
established
that
such
an
amount
should
be
rightly
apportioned
to
the
leasehold
interest
which
could
only
be
done
through
an
expert
witness.
.
.
.
it
might
be
viewed
at
first
glance
as
a
particular
situation
since
the
appellant
bought
this
cafeteria
for
$75,000
and
for
different
reasons
had
to
sell
it
for
$55,000.
The
Department
of
National
Revenue
also
understands
that
there
is
a
difference
there
of
$20,000
but
the
enactment
of
the
new
Act
clearly
established
that
when
an
amount
was
paid
for
goodwill,
and
this
was
not
challenged
here
this
morning
with
any
proper
testimony,
that
subsection
21(1)
must
be
applied
and
the
Minister,
based
on
the
apportionment
established
by
the
taxpayer
and
after
considering
the
lease
to
which
it
could
not
attribute
any
value
at
all,
proceeded
in
calculating
the
$47,500
on
the
basis
of
subsection
21(1)
and
we
have
tried
to
compromise
but,
unfortunately,
it
was
impossible
because
the
only
other
asset
being
sold,
or
transferred,
was
the
lease,
and
it
is
impossible
for
the
Department
of
National
Revenue
to
accept
that
this
lease
had
any
value
at
all
and
we
were
not
provided
with
any
evidence
or
any
expertise
that
could
maybe
permit
us
to
come
to
a
compromise
on
the
basis
of
which
we
would
have
been
able
to
attribute
a
certain
amount
to
the
lease.
It
wasn't
done.
So,
on
the
basis
of
the
apportionment
of
the
taxpayer,
on
the
basis
that
after
analyzing
the
lease
which
had
no
value,
there
was
no
other
asset
left
than
the
goodwill
and
there
is
nothing
else
in
the
sale
agreement.
There
is
no
argument
as
far
as
the
equipment
is
concerned.
So,
we
are
only
left
with
a
leasehold
interest
and
with
the
goodwill
and
it
is
the
Minister’s
submission
that
the
appellant
did
not
establish
in
any
clear
manner
that
the
leasehold
interest
had
a
value
and
that
the
assessment
should
be
maintained,
and
that
the
appeal
should
be
dismissed.
Findings
Leaving
aside
the
undisputed
value
of
the
“hard
assets”
($6,000
in
1970
and
$7,500
in
1974),
the
issue
is
simply
that
the
Minister
has
classified
the
balance
of
$47,500
received
at
the
sale
by
the
appellant
in
1974
as
“goodwill”,
while
the
appellant
regards
it
as
“leasehold
interest”.
One
of
these
must
be
wrong
since
there
is
no
evidence
which
would
indicate
that
anything
different
was
sold
in
1974
than
that
which
was
purchased
in
1970.
If
the
appellant
purchased
a
“leasehold
interest”
in
1970,
then
to
reach
the
Minister’s
conclusion
at
the
sale
in
1974
would
require
that
there
was
no
longer
any
value
to
the
leasehold
interest
in
1974,
but
somehow
the
business
itself
had
developed
a
pool
of
“goodwill”.
That
is
possible,
just
as
the
reverse
could
be
possible,
but
there
is
no
evidence
to
support
either
theory.
There
is
no
reason
to
presume
(as
have
been
asserted
by
counsel
for
the
appellant)
that
the
acquisition
of
an
unexpired
lease
in
itself
is
an
asset
more
than
a
liability,
or
that
if
an
asset
it
should
have
a
calculable
positive
value.
It
would
be
just
as
logical,
in
the
present
case,
to
assume
that
the
business
had
a
gross
goodwill
value
of
say
$100,000,
and
that
for
some
disadvantageous
reason
related
to
the
lease,
this
was
reduced
in
the
sale
agreement
to
a
net
value
of
$47,500
as
alleged
by
the
Minister,
the
lost
difference
of
$52,000
being
a
negative
value
attributable
to
the
lease.
Ultimately,
in
my
view
the
only
perspective
is
that
whatever
was
purchased
in
1970
by
the
appellant
was
also
sold
by
him
in
1974.
Much
of
the
evidence
and
the
argument
related
to
efforts
by
both
parties
to
establish
their
respective
position
(appellant
as
“leasehold
interest”;
respondent
as
“goodwill”)
at
the
date
of
sale
in
1974.
As
I
see
it,
however,
the
critical
issue
is
what
did
the
appellant
acquire
in
1970?
In
that
respect,
the
evidence
is
minimal
and
was
provided
by
the
appellant:
Q.
What
was
the
date
of
the
purchase,
Mr
Gluck?
A.
April
14,
1970.
Q.
Whom
did
you
purchase
the
cafeteria
from?
A.
From
Mr
Sydney
Chechik.
He
was
from
1965
there
and
the
building
was
erected
and
after
five
years
he
sold
it
to
me.
Q.
How
much
did
you
pay?
A.
$75,000.
Q.
Is
this
the
contract
that
you
have
executed
with
the
vendor?
A.
Yes,
Sydney
Chechik.
The
corporation
is
Mursid
Corporation.
Q.
Mr
Gluck,
when
you
purchased
the
cafeteria,
how
old
was
the
building?
A.
Five
years.
Q.
Was
Mursid
the
vendor
of
the
cafeteria
to
you,
were
they
the
first
operators
of
the
cafeteria?
A.
They
were
the
first,
sure.
Q.
On
the
financial
statements
that
I
have
given
to
you,
there
is
an
item
marked
wages.
Who
were
those
wages
paid
to?
A.
The
cook
and
the
sandwich
man
and
the
two,
I
got
five,
two
girls
and
a
dish
washer.
Q.
Was
there
any
salary
paid
to
you
included
in
those
wages?
A.
No.
Q.
What
hours
did
you
work,
Mr
Gluck?
A.
From
seven
in
the
morning
till
five
in
the
afternoon.
Q.
Had
the
equipment
changed
in
the
intervening
years
betwen
1970
and
1974?
A.
It
was
like
brand
new
all
the
time.
A
good
quality,
stainless
steel
and
they
didn't
change
at
all.
There
is
nothing
specific
in
the
documentation
filed
with
the
Board
by
the
appellant
which
would
indicate
whether
or
not
Mursid
had
a
bad,
good,
average
or
exceptional
business
in
1970.
Mursid
had
been
on
the
premises
for
five
years,
the
appellant
was
already
familiar
with
the
restaurant
business,
at
the
date
of
purchase
he
became
bound
by
the
existing
lease,
but
in
addition
he
provided
the
following
commitments
to
the
owner
and
manager
of
the
premises
—
See
Exhibit
A-1,
Memorandum
of
conditional
sales
agreement
dated
April
14,
1970
and
Schedule
“B”
thereto:
SCHEDULE
“B”
THE
METROPOLITAN
BUILDING
5050
Cote
de
Liesse
Road
Montreal
9,
Quebec
Building
Superintendant’s
Office
Telephone
735-3251
April
7,
1970
Mursid
Inc,
5850
Cote
de
Liesse
Road,
Montreal,
Que
By
this
letter
we
hereby
consent
to
your
subletting
the
premises
which
you
have
leased
from
us
by
lease
dated
October
8th,
1965,
to
Mr
Sam
Gluck,
in
accordance
with
clause
19
of
the
said
lease.
It
is
a
condition
of
this
consent
that
the
said
Sam
Gluck
undertake
by
signing
a
copy
of
this
letter,
to
maintain
at
least
the
same
standard
of
quality,
service
and
cleanliness
as
now
exists.
THE
METROPOLITAN
BUILDING
per
Donald
E
Hahamovitch
per
Marc
Donolo
I
agree
to
the
conditions
set
forth.
Sam
Gluck
|
Address
of
|
Address
of
|
|
Marc
Donolo
and
of
|
A
I
and
D
E
Hahamovitch:
|
|
Accounting
Office
|
4008
Montée
de
Liesse
Road
|
|
8320
St.
Lawrence
Boulevard
|
Montreal
9,
Quebec
|
|
Montreal
11,
Quebec
|
Telephone
747-7535
|
|
Telephone
367-2535
|
|
FOR
PURPOSES
OF
IDENTIFICATION:
MURSID
INCORPORATED
Per:
Sidney
Chechik
Per:
Sam
Gluck
(Note:
Clause
19
is
from
the
original
lease
and
it
reads
as
follows:
19.
The
lessee
may
sublet
the
said
premises
at
any
time,
provided,
however,
that
the
lessee
shall
in
such
case
remain
liable
to
the
lessor,
jointly
and
severally
with
the
sub-lessee
and
without
the
benefit
of
division
or
discussion,
for
the
payment
of
the
said
rental
and
for
the
performance
of
all
the
terms
and
conditions
of
this
lease,
and
provided
further
that
it,
the
lessee,
has
first
obtained
the
prior
written
consent
of
the
lessor
to
such
subletting,
such
consent
not
to
be
unreasonably
withheld.
It
is
acknowledged
by
the
lessee
that
the
lessor
is
renting
the
premises
to
the
lessee
not
only
for
the
rental
involved,
but
to
provide
a
suitable
and
well
functioning
restaurant
for
the
use
of
other
tenant
of
the
building
and
the
lessor
is
entitled
to
consider
same
in
giving
his
consent
of
a
prospective
sub-lessee.
It
should
be
further
noted
that
each
of
the
pages,
including
the
page
upon
which
clause
19
is
to
be
found
in
the
original
lease,
has
been
initialed
apparently
by
Samuel
Gluck,
the
appellant
in
this
matter.)
While
the
maintenance
of
“quality,
service
and
cleanliness”
would
not
necessarily
guarantee
the
continuation
of
the
then
existing
business
and
profit,
I
am
prepared
to
assume
that
it
would
contribute
to
it
rather
than
detract
from
it.
The
results
of
the
appellant’s
operations
for
1970
(9
months)
showed
a
profit
of
$8,429,79,
for
the
full
year
1971
—
$12,145.95,
for
1972
—
$7,946.63,
and
for
1973
—
$9,562.44.
These
amounts
are
before
the
deduction
of
any
salary
or
wages
for
the
appellant
and
his
wife.
If
there
was
a
calculable,
realizable
or
recognizable
business
goodwill
at
the
date
of
purchase
in
the
year
1979,
then
its
existence
is
not
evident
from
the
operational
results
which
flowed
therefrom
immediately
thereafter.
Certainly,
any
degree
to
which
an
amount
of
goodwill
of
$59,000
was
appropriate
in
1979
(and
virtually
retained
its
total
value
to
the
date
of
sale
in
1974
at
$47,500,
as
alleged
by
the
Minister)
is
not
evident
in
any
“super
profits”.
The
Minister’s
inclusion
of
an
amount
of
$47,500
from
the
sale
of
goodwill,
and
the
resul-
tant
calculation
of
$11,875
as
income
applicable
to
the
year
1974,
is
not
warranted
upon
examination
of
the
facts
in
this
appeal.
No
valuation
evidence
was
presented
by
the
Minister
regarding
any
appropriate
amount
that
should
be
attributed
to
goodwill
at
either
date,
1970
or
1974.
The
amount
of
$11,875
should
be
deleted
from
the
taxable
income
of
the
appellant.
At
the
same
time,
the
appellant
has
not
supported
the
contention
that
the
amounts
at
issue
represented
a
calculable,
realizable
and
recognizable
value
to
be
attributed
to
the
leasehold
interest
as
a
capital
asset.
Accordingly,
the
amount
of
$1,000
claimed
as
a
capital
loss
for
the
year
1974
has
not
been
supported.
Decision
The
appeal
is
to
be
allowed
in
part
so
that
the
amount
of
$11,875
not
be
classified
as
taxable
income
for
the
year
1974
and
the
matter
referred
back
to
the
respondent
for
reconsideration
and
reassessment
accordingly.
In
all
other
respects,
the
appeal
is
dismissed.
Appeal
allowed
in
part.
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