The
Chairman:—This
is
the
appeal
of
Henuset
Bros
Ltd
from
an
income
tax
assessment
in
respect
of
the
1970
taxation
year.
By
a
notice
of
assessment
dated
March
15,
1974,
the
Minister
added
to
the
appellant’s
taxable
income
for
that
year,
as
interest
income
not
reported,
an
amount
of
$83,882.16.
The
appellant
claims
that
the
amount
of
$83,882.16
was
not
interest
income
but
was
part
of
the
consideration
for
the
sale
of
a
convalescent
hospital
in
California,
and
that
consequently
the
amount
was
treated
by
it
as
a
capital
return.
Mr
Arthur
Henuset,
one
of
the
appellant’s
principal
shareholders,
testified
that
the
appellant
wanted
to
dispose
of
the
convalescent
hospital,
for
which
an
asking
price
of
$775,000
was
originally
set.
Only
one
offer
was
received
and,
after
negotiation,
the
sale
price
for
the
hospital
was
fixed
at
$708,900
and
a
note
for
that
amount,
secured
by
a
Deed
of
Trust
dated
June
1,
1970
(Ex
A-1)
was
assigned
to
a
Santa
Monica
Bank
for
collection.
Paragraph
No
1
of
Ex
A-1
reads
as
follows:
On
or
before
June
1,
1970
the
sum
of
$83,882.16
(to
be
paid)
as
interest
for
the
period
June
1,
1970
to
December
31,
1971.
There
seems
to
have
been
some
delay
in
completing
the
purchase
of
the
hospital.
However,
the
amount
of
$83,882.16
described
in
Ex
A-2
as
“Prepaid
interest
on
$708,900.00
at
8.5%
from
6/1/70
to
and
including
12/31/71”,
was
in
fact
received
by
the
appellant
in
1970.
Counsel
for
the
appellant
alleges
in
his
pleadings
that
‘‘a
contractual
payment
described
as
‘interest’
does
not
determine
the
question
as
to
whether
such
a
payment
is
‘interest’
within
the
meaning
of
the
Income
Tax
Act”.
That,
of
course,
may
well
be;
but,
in
the
circumstances,
in
order
to
prove
that
the
amount
of
$83,882.16
was
not
prepaid
interest
as
described
in
the
contract,
substantially
more
evidence
than
a
verbal
statement
by
Mr
Henuset
that
he
considered
that
amount
to
be
a
down
payment
on
the
property
would
be
necessary
in
order
to
establish
any
degree
of
credibility.
Not
only
was
the
necessary
evidence
not
produced,
but
Mr
Henuset
said
he
did
not
know
whether
any
alternative
offer
for
cash
payment
had
been
made.
He
also
said
he
did
not
know
what
happened
to
the
$708,900
note,
representing
the
sale
price
of
the
convalescent
hospital,
nor
could
he
remember
what
became
of
the
$122,410.05
shown
in
Ex
A-2
as
the
“balance”.
Counsel
for
the
appellant
suggested
that
the
agreement
(Ex
A-2)
had
not
been
proceeded
with.
If
that
were
indeed
the
case,
why
would
not
Mr
Henuset
have
clearly
said
so
in
his
testimony,
rather
than
stating
that
he
could
not
remember
what
had
happened
to
a
rather
substantial
amount
of
money
that
I
understand
to
have
been
part
of
the
sale
price
of
the
convalescent
hospital.
Based
on
this
lack
of
essential
evidence,
I
hold
that
the
appellant
did
not
prove
to
the
satisfaction
of
the
Board
that
the
amount
of
$83,882.16
was
not
prepaid
interest
on
a
sale
price
of
$708,900
as
stated
in
the
document
filed
as
Exhibit
A-2.
There
is
no
evidence
whatever
before
the
Board
to
substantiate
the
appellant’s
contention
that
the
said
amount
was,
or
was
intended
to
be,
a
payment
of
a
portion
of
the
purchase
price
of
the
convalescent
hospital.
The
appeal
in
respect
of
the
1970
taxation
year
is
therefore
dismissed.
Appeal
dismissed.
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