A
W
Prociuk
(orally:
May
4,
1973):—The
appellant,
Investors
Leaseholds
Limited,
appeals
from
the
respondent’s
reassessment
of
its
income
for
the
taxation
year
1972
wherein
the
net
gain
in
the
sum
of
$407,911
resulting
from
the
sale
of
land
was
taxed
as
business
income.
The
appellant’s
ground
of
appeal
is
that
the
said
gain
was
on
capital
account.
The
sale
took
place
on
January
7,
1972.
The
appellant
was
incorporated
under
the
laws
of
the
Province
of
Ontario
and
is
owned
by
Townsview
Properties
Limited
to
the
extent
of
75%
of
its
issued
and
outstanding
shares,
the
remaining
25%
being
owned
by
one
Max
Sapinet.
Townsview
Properties
Limited
is
controlled
by
George
S
Mann,
who
also
has
interests
in
a
number
of
other
companies
which
hold
or
have
real
estate.
His
involvement
in
real
estate
dates
back
to
1954
when
he
started
dealing
in
mortgages
and
building
houses.
He
took
over
his
father’s
real
estate
brokerage
firm,
Mann
and
Martel,
which
firm
was
subsequently
taken
over
by
the
United
Trust
Company,
of
which
company
Mann
is
the
executive
vice-president.
He
is
also
Chairman
of
the
Board,
a
director
and
a
member
of
the
Executive
Committee
of
the
Unity
Bank.
It
is
common
knowledge
that
Mann
is
an
experienced
and
knowledgeable
dealer
in
real
estate.
This
was
amply
substantiated
during
his
testimony,
particularly
when
he
was
referred
to
Exhibit
A-1,
a
lengthy
summary
of
his
and
his
companies’
real
estate
involvements.
Of
these
involvements,
some
eleven
properties
are
still
held
by
his
companies
as
income-producing
investments.
in
December
of
1967
the
appellant
company
purchased
a
parcel
of
land
comprising
approximately
5.6
acres
in
Mississauga,
Ontario,
and
located
in
the
northwest
quadrant
of
the
intersection
of
Dixon
or
Airport
Road
and
Highway
427
near
the
Toronto
International
Airport,
with
the
intention
of
building
thereon
an
office
complex
with
three
buildings
for
rental.
Preliminary
feasibility
studies,
including
foundation
investigation,
soil
tests
and
architectural
drawings,
were
made
by
an
architectural
firm
and
subcontractors
engaged
for
that
purpose.
(See
documents,
reports
and
correspondence
filed
together
in
a
booklet
as
Exhibit
A-2.)
The
Municipality
of
Mississauga
indicated
to
the
appellant
that
the
Department
of
Highways
proposed
to
build
a
ramp
leading
from
Dixon
or
Airport
Road
to
the
southbound
fanes
of
Highway
427.
However,
the
exact
location
of
same
was
uncertain,
and
it
took
approximately
two
years
to
have
this
matter
resolved.
While
proceeding
with
the
other
studies
during
this
interval,
the
officers
of
the
appellant
began
to
have
second
thoughts
about
the
economic
success
of
an
office
complex
in
this
area.
One
office
building
of
a
traditional
type
had
already
been
erected
in
this
area
by
Orlando
Construction
Company
and
it
was
experiencing
considerable
difficulty
in
obtaining
tenants.
In
1970
the
appellant
was
approached
by
Mr
Andrew
Zsolt
on
behalf
of
Ogim
Investments
Limited,
which
is
a
wholly-owned
sub-
sidiary
of
the
Downtowner
Corporation
of
Memphis,
Tennessee,
USA,
a
well-known
hotel
chain,
with
a
proposal
to
build
a
hotel
on
the
subject
property.
Mr
Zsolt
states
that
he
spoke
to
Mr
Mann
and
was
informed
by
the
latter
that,
while
the
appellant
was
interested
in
having
a
hotel
built
thereon,
it
would
not
sell
the
land.
Instead
the
appellant
offered
to
rent
the
land
to
Ogim.
A
99-year
lease
was
entered
into
between
the
appellant
and
Ogim
(see
Exhibit
A-10).
An
interim
building
loan
mortgage
of
$3.6
million
was
arranged
by
the
Downtowner
Corporation,
the
mortgagee
being
Guardian
Mortgage
Investors
of
Jacksonville,
Florida.
The
appellant
was
obliged
to
subordinate
its
interest
in
the
land
in
favour
of
the
mortgagee.
Financial
difficulties
beset
the
Downtowner
Corporation
and
the
mortgagee
withheld
approximately
half
a
million
dollars
in
mortgage
funds.
This
caused
a
chain
reaction
on
the
subject
property,
and
the
hotel
building
and
land
became
encumbered
by
mechanics’
liens
filed
by
unpaid
subtrades
and
supply
and
furnishings
firms.
The
appellant
was
having
problems
in
collecting
its
rental
as
well.
Refinancing
was
urgently
required
to
the
extent
of
some
$4.2
million.
The
appellant
refused
to
subordinate
its
interest
to
a
larger
sum,
and
the
entire
matter
was
in
a
state
of
financial
chaos.
Zsolt
states
that
he
attempted
to
interest
other
hotel
chains
to
take
over,
but
was
not
successful
until
he
contacted
the
Hilton
group
in
Montreal
and
New
York.
Hilton
was
interested
but
under
no
circumstances
would
it
consider
taking
over
the
hotel
unless
it
could
also
purchase
the
land.
Zsolt
instructed
his
solicitor,
Charles
E
Finley,
to
advise
the
appellant
of
the
proposal,
which
he
did
by
letter
dated
November
29,
1971,
which
letter
forms
part
of
Exhibit
A-3,
and
I
make
reference
here
to
the
last
two
paragraphs
of
the
said
letter,
which
reads
as
follows:
The
most
obvious
solution
to
the
present
situation
would
be
to
arrange
permanent
mortgage
financing
immediately
in
an
amount
of
approximately
$4,200,000.00.
Our
clients
are
reasonably
certain
that
such
financing
can
be
arranged
if
the
mortgage
could
include
the
entire
fee
interest.
Failing
the
arranging
of
a
permanent
mortgage
as
referred
to
above,
the
entire
project
is
in
serious
danger
of
collapse.
This
may,
of
course,
result
in
the
interim
mortgage
lender
calling
upon
you
to
retire
the
funds
already
advanced,
or
to
forfeit
the
lands
pursuant
to
your
guarantee.
Although
our
clients
realize
that
it
has
always
been
your
intention
to
retain
this
property
as
a
long-term
investment
the
liens
registered
and
your
guarantee
of
the
interim
mortgage
loan
have
placed
your
entire
investment
at
risk
and
in
order
to
salvage
your
interest
you
might
have
to
sacrifice
the
property
at
a
price
that
might
be
less
than
its
optimum
market
value.
In
order
to
save
the
project
and
your
interest
therein
our
clients
request
that
you
reconsider
your
position
and
agree
to
sell
the
land.
Investors
have
been
and
are
available
to
supply
the
necessary
permanent
financing
if
title
to
the
land
can
be
acquired.
We
would
appreciate
hearing
from
you
as
soon
as
possible
in
order
to
attempt
to
arrange
a
satisfactory
solution
to
this
matter.
The
appellant
considered
this
situation
at
some
length,
and
in
some
depth,
and
finally
agreed
to
sell
the
land,
and
the
sale
took
place
early
in
1972.
By
letter
dated
December
28,
1271.
also
filed
as
part
of
Exhibit
A-3,
the
appellant
caused
its
solicitors,
Messrs
Goodman
and
Goodman,
to
reply
to
Mr
Zsolt
and
his
companies.
In
part
the
letter
read
as
follows:
In
the
absence
of
Mr
George
S
Mann,
President
of
Investors
Leasehold
Limited,
I
hereby
confirm
to
you
our
client’s
agreement
to
sell
the
lands
described
in
Schedule
"A'
to
the
said
lease
for
$650,000.00
cash
and
to
accept
a
surrender
of
the
lease,
provided
the
transaction
is
closed
at
a
time
acceptable
to
our
client,
but
in
any
event
not
later
than
the
next
two
or
three
months.
The
sale
was
thus
concluded.
The
above
is
a
very
condensed
summary
of
the
evidence
as
it
unfolded
itself
at
the
hearing,
as
I
did
not
consider
it
necessary
at
this
time
to
deal
at
leagth
and
in
great
detail
with
every
item
thereof.
The
respondent’s
position
is
that
the
appellant,
in
acquiring
the
land,
intended
to
turn
it
to
account
as
soon
as
the
occasion
presented
itself,
the
land
being
another
item
of
its
business
inventory.
The
respondent
further
contended
that
Mann,
the
principal
controlling
shareholder,
was
an
experienced
dealer
in
real
estate,
and
he
directed
the
operations
of
the
appellant
to
realize
its
said
intention.
During
the
course
of
the
examination-in-chief
by
the
appellant’s
counsel
and
the
able
cross-examination
of
Mr
Mann
by
counsel
for
the
respondent,
I
took
particular
note
of
the
demeanour
and
conduct
of
the
witness.
I
believe
it
is
settled
law
that
a
real
estate
dealer
may
also
be
an
investor
in
real
estate,
in
which
case,
for
obvious
reasons,
he
comes
under
far
closer
scrutiny
than
an
inexperienced
taxpayer
would
be
subjected
to.
I
found
him
to
be
a
most
credible
and
forthright
witness.
Viewing
the
evidence
in
its
totality,
including
the
documentary
evidence
that
was
filed,
I
cannot
find
any
portion
thereof
that
in
my
humble
opinion
would
be
open
to
the
inference
that
is
suggested
by
counsel
for
the
respondent.
Indeed,
the
evidence
in
support
of
the
appellant’s
contention
is
overwhelming.
Similarly
the
evidence
of
Mr
Finley,
who
acted
for
the
other
side,
as
well
as
that
of
Mr
Zsolt,
has
been
equally
beyond
reproach
as
to
credibility
and
integrity.
While
this
latter
evidence
was
presented
by
the
two
gentlemen
for
the
other
side
of
the
problem,
that
is,
the
side
of
the
lessee
and
the
owner
of
the
hotel
building,
it
also
fully
corroborated
the
evidence
of
the
appellant
as
presented
by
the
witness
George
S
Mann.
l
can
come
to
no
other
rational
conclusion
than
to
state
that
the
appellant
clearly
and
undoubtedly
discharged
the
onus
placed
on
it
by
the
Income
Tax
Act.
The
appeal
is
accordingly
allowed
and
the
matter
is
referred
back
to
the
respondent
for
reassessment.
Appeal
allowed.
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