David Grotell v. Minister of National Revenue, [1972] CTC 480

Gibson, J (orally):—In this matter the evidence adduced by the appellant amply proved that the lease contract (Exhibit 5), and the so- called service contract (Exhibit 6), both dated December 31, 1965, were bona fide business transactions, not shams;* [1] and, more relevant to what is at issue on this appeal, that paragraph 3 of Exhibit 6, being the contract provisions for the supply of certain non-medical services, was such a transaction.

The appellant has therefore proved that the assumptions of the respondent in paragraph 7(j) and (k) of the Reply are invalid.

It follows as a consequence that all of the sum of $13,348 paid in 1966 was a deductible expense for the clinic partnership referred to in the evidence and therefore the pro rata part paid by the appellant partner, and specifically that (1) such was an outlay or expense made or incurred by the appellant for the purpose of gaining or producing income from the medical practice of the appellant within the meaning of paragraph 12(1)(a) of the Act, and also (2) that such was not a disbursement or expense made or incurred in respect of a transaction or operation that, if allowed, would artificially reduce the income of the appellant within the meaning of subsection 137(1) of the Income Tax Act.

The appeal is allowed with costs.

IN THE MATTER OF an application by the MINISTER OF NATIONAL REVENUE and JAY-KAY PUBLICATIONS LIMITED, pursuant to subsection 17(3) of the Federal Court Act and subsection 173(1) of the Income Tax Act.

Federal Court—Trial Division (Noël, AC J), August 31, 1972.

Income tax—Federal—Income Tax Act, RSC 1952, c 148, as amended by 1970-

The taxpayer, the publisher of a non-Canadian periodical entitled “Medical Aspects of Human Sexuality”, sought a ruling from the Court under section 173 of the Act that advertising placed in the publication by Canadian advertisers would not be subject to disallowance under section 19 of the Act (formerly section 12A). The taxpayer claimed exclusion from section 19 on the ground that the principal function of the publication was the “encouragement, promotion or development of . . . scholarship”, which was denied by the Minister on the ground that the publication was largely an advertising vehicle.

HELD:

Despite its high scholarly content, the publication’s function of providing a vehicle for advertisers was of at least equal importance. It therefore could not be said that the promotion of scholarship was its principal function within paragraph 19(4)(b) of the Act.

J A Scollin, QC and M J Bonner for the Appellant.

D G H Bowman for the Respondent.

Noël ACJ:—This is a matter that comes for decision pursuant to subsection (1) of section 173 of the Income Tax Act (as amended by 1970-71-72, c 63) which now enables a question of law, fact or mixed law and fact, arising under the Act, to be determined by this Court providing the taxpayer and the Minister of National Revenue agree in writing.

The problem involved in these proceedings is whether a certain periodical called “Medical Aspects of Human Sexuality” is a publication, the principal function of which is the encouragement, promotion or development of scholarship within the meaning of section 19, subsection (4) of the Income Tax Act (as amended by 1970-71-72, c 63) reproduced hereunder:

19. (1) In computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer for advertising space in an issue of a non-Canadian newspaper or periodical dated after December 31, 1965 for an advertisement directed primarily to a market in Canada.

(4) Subsection (1) does not apply with respect to an advertisement in

(a) a catalogue, or

(b) any publication the principal function of which is the encouragement, promotion or development of the fine arts, letters, scholarship or religion.

The following agreement was reached between the parties:

1. Jay-Kay Publications Limited is the publisher of the Canadian edition of “Medical Aspects of Human Sexuality”.

2. Exhibits 1 to 9 are copies of the issues of the Canadian edition of “Medical Aspects of Human Sexuality”, known as Volume 1 No. 1 to Volume 2 No. 5, published for the months September 1971 to May 1972 inclusive.

3. The Minister of National Revenue and the party of the second part are unable to agree whether a deduction in the computation of income in respect of an outlay or expense made or incurred by a taxpayer for advertising space in “Medical Aspects of Human Sexuality” is prohibited by section 12A of the Income Tax Act for 1971 or section 19 of the Income Tax Act as it applies to the 1972 taxation year.

4. By reason of the disagreement, Jay-Kay Publications Limited is unable to advise advertisers whether they, in computing their income, are entitled to deduct any outlays or expenses made or incurred for advertising space in the publication.

5. “Medical Aspects of Human Sexuality” is a periodical:

(a) the type of which, other than the type for advertisements, is set in Canada;

(b) that is printed in Canada;

(c) that is edited in Canada by individuals resident in Canada;

(d) that is published in Canada; and

(e) that is produced or published under a licence granted by Hospital Publications Inc., which is a person who produces or publishes issues of a periodical that are printed, edited and published outside Canada.

NOW THEREFORE the parties hereto agree as follows:

1. The Federal Court of Canada shall determine pursuant to the provisions of subsection (3) of section 17 of the Federal Court Act, S.C. 1970, chapter 1 and subsection (1) of section 173 of the Income Tax Act, the following question:

Is the Canadian edition of “Medical Aspects of Human Sexuality” a publication, the principal function of which is the encouragement, promotion, or development of scholarship within the meaning of subsection (4) of sections 19 and 12A of the Income Tax Act?

2. The question shall be determined on the facts set forth in the recitals to this agreement and upon such further evidence not inconsistent therewith, including expert testimony, as the parties may adduce.

As the periodical involved herein is produced or published under a licence granted by a person who produces or publishes issues of a periodical that are printed, edited or published outside Canada, it falls under clause (E) of subparagraph (5)(a)(ii) of section 19 of the Act* [2] and, therefore, is to be considered as not being a Canadian issue. Not being a Canadian issue it therefore comes under subsection (1) of section 19 which states that

19. (1) In computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer for advertising space in an issue of a non-Canadian newspaper or periodical dated after December 31, 1965 for an advertisement directed primarily to a market in Canada.

unless such periodical is under paragraph (4)(b) of section 19 a “pub- lication the principal function of which is the encouragement, promotion or development of the fine arts, letters, scholarship or religion”.

The sole question to be determined, therefore, really is whether “the principal function” of the periodical “Medical Aspects of Human Sexuality” is the encouragement, promotion or development of . . . scholarship.

Ten issues, from September 1971 to June 1972, were produced as Exhibit A-1. These issues comprise a number of articles some of which were reproduced from the American counterpart of the periodical and a few by Canadian authors.

A statement of purpose, published at page 3 in every issue is descriptive of the objective sought in producing the periodical and will be helpful in describing the usefulness of the periodical to the medical profession. I will refer to this later. A number of doctors and physicians testified as to the usefulness in Canada of the articles published in the periodical for Canadian doctors.

Dr J N Rushforth, an Ottawa family doctor, married with five children, testified by quoting from Sampson Wright’s textbook Applied Physiology (9th edition): “The technique, courtesies and aesthetics of sexual intercourse are matters of outstanding importance, yet they are never taught by the physiologist, and rarely discussed adequately at any stage of the medical curriculum.” According to Dr Rushforth, the above quotation is in accordance with his experience and with the experience of the colleagues whom he has consulted. A doctor, he said, is “just expected to know” answers to problems on which he himself has received no specific instructions.

He stated that the periodicals involved herein contain articles in every issue which would contribute constructively to the ordinary practitioner’s body of knowledge. He also stated that he concurs with what Eric Bern said in his book Sex in Human Loving when referring to the American version of the Canadian periodical: “In 1967 began the publication of the monthly journal ‘Medical Aspects of Human Sexuality’ the most reasonable, reliable and respectable periodical of its kind.” He pointed out that some of the medical discipline particularly related to human sexuality are psychiatry, obstetrics and gynaecology and urology and that generally the authorities in these fields are well represented in the authorship of articles in this magazine.

Dr Walter J Hannah, a Toronto physician, graduated in 1953 from Western University. He is an associate professor of obstetrics and gynaecology at the University of Toronto and a fellow of the Royal College of Surgeons (Canada). Dr Hannah stated that a certain body of knowledge exists in any field and the degree to which that body of knowledge is increased is reflected in part by the research activity in that field. New knowledge not only comes from research and investigation but also may arise as the result of the accumulation of wisdom that normally results from years of clinical experience. This, he says, is particularly true in the case of medicine.

The very nature of the subject matter, namely human sexuality, does not lend itself to a scientific investigation or the kind of carefully controlled, rigidly matched experimentations such as, for instance, would the effect of a new drug on a specific disease process. There is, he said, a vast literature on the abnormal aspects of sexuality, including perversions, deviations, etc extending back many decades but that it is only very recently that our fund of knowledge on this fundamentally important area of our lives has begun to expand. He pointed out that the pioneer work of Masters and Johnson in defining some of the basic physiological phenomena associated with sexual response, has led to a gradually more sophisticated approach to the management of some of the difficult but not uncommon problems physicians are called upon to face. And yet, he added, much of the knowledge of doctors in this field is empirical and will, he says, necessarily remain so since human sexuality cannot, except in rare circumstances, be studied under the same carefully controlled conditions demanded for other forms of scientific investigation. He pointed out that our knowledge of this topic has always been fragmentary and that our approach to it has been distorted by our own prejudices, the natural products of our own upbringing. He stated that as we have come to realize how important a role sexuality plays in human affairs and how unsatisfactory our attempts have been to deal with the problems it creates, it has been recognized for some time that a medium for the dissemination of knowledge in this field has been badly needed. He is of the view that on the basis of its performance to date, the journal “Medical Aspects of Human Sexuality” has helped to fill that need. The material presented therein, he said, promotes and enlarges the body of knowledge on this very important topic and does so by publishing articles on sexuality by recognized authorities in the field by exchanging viewpoints based on counselling experiences in various centres and perhaps most important of all, he added, it has compelled physicians to re-examine their own views and values in an attempt to develop a more precise objectivity in treating patients’ problems in this area. He finally concluded that all of this gradually increases the fund of knowledge available to the practising physician.

Dr Charles A Roberts graduated in medicine in 1942 and is now psychiatrist in chief of the Royal Ottawa Hospital. Concurrently, his academic career has been developing from an initial appointment as an assistant professor at McGill University to the rank of associate professor at the University of Toronto and to professor and chairman of the Department of Psychiatry, University of Ottawa. In the course of his practice of psychiatry he has, he says, become aware of the im. portance and significance of sexual behaviour in terms of the adaptation of human beings to their environment and to life. He also pointed out that until very recently, very little information was available with respect to human sexual behaviour except perhaps for the theories developed by Sigmund Freud and his co-workers. With, he said, the opening up of studies in the United States, much more information has become available and more recently a number of people in Canada have also devoted themselves to studies in this field. As soon as studies begin, it becomes necessary to provide media for the publication and exchange of acquired knowledge and information and Dr Roberts pointed out that, as far as he knew, the only current publication available in Canada is ‘‘Medical Aspects of Human Sexuality”. This publication, he says, has provided a channel for the publication of information in this field and thereby has stimulated and encouraged knowledge with respect to human sexual behaviour. Once knowledge has been developed, it becomes necessary to disseminate it and make it available for use by practitioners in further development of programs to meet the needs of sick people whose sexual behaviour and adjustment are of significance in their illness. He stated that the nature of the articles contained in this magazine are of use in the health care field.

Dr R W Tooley, a medical doctor, obtained his licence of medicine and surgery of the Society of Apothecaries of London in 1952 and practised medicine in England for a number of years. He is at present at the Family Planning Division of the Department of Health and Welfare of the Government of Canada. Dr Tooley stated that human sexuality, which includes not only sexual anatomy and physiology and reproduction, but also the psychology of sexual behaviour, and the purposes, methods and behavioural aspects of fertility regulation is considered part of medical knowledge. He is of the view that physicians can and should play an important role in the management and resolution of the clinical psychological and behavioural problems that occur in that area. He stated also that human sexuality is not sufficiently taught in medical schools to allow physicians to function as effectively in this area as is desirable and expressed the view that “Medical Aspects of Human Sexuality” adds to physicians’ knowledge of human sexuality and stimulates them to read further on the subject by publishing authoritative articles by well qualified writers. He also pointed out that the editor is advised by a medical advisory board, a number of whose members hold senior academic appointments.

Dr Marion H Powell, of Don Mills, Ontario is the medical editor of “Medical Aspects of Human Sexuality”. She is also ortho-professor of population dynamics, Department of Health Administration, School of Hygiene, University of Toronto and associate professor, Department of Preventive Medicine, Faculty of Medicine, University of Toronto. She holds a diploma of public health from the School of Hygiene, University of Toronto and has been president of Planned Parenthood, of Toronto, for two years. As medical editor of the journal, Dr Powell has had occasion to review articles published in it both before and after their publication. She stated that the circulation of the journal is limited to the members of the practising medical profession. She pointed out that physicians who otherwise have had an inadequate training in the area of sexuality are being called upon with greater frequency to deal with problems of their patients in regard to sex. The community is, she said, calling upon the medical profession as the experts in this area to provide knowledge and skill in this field, both in dealing with sexual problems of patients and in training sex educators. Sexuality, according to Dr Powell, has been a neglected area in medical education, yet it is demanding more time and expertise on the part of the physicians in practice, who see more patients coming in with sexual problems arising at least in part from the freer sexual climate in which we are living at the present time. Dr Powell is of the view that the journal has successfully integrated the sociological, physiological and psychological aspects of medicine in the area of sexuality and has, she says, bridged the gap that has developed between the practising physician in the main stream of medicine and the physician who has developed skills in dealing with, treating and counselling persons with sexual problems either physiological or psychological. The journal, she said, imports knowledge in this field of medicine at a professional level to the physician who is meeting sexual problems on a day to day basis in his practice. Dr Powell stated that human sexuality is becoming recognized as a specialized branch of medicine. Physicians, she said, are the professionals best able to work in this specialty because of their background in physiology and anatomy and their experience in dealing with medical problems having their origin in psychological disorders. One in five patients coming to a gynaecologist’s office comes, she said, with complaints due to, or at least aggravated by sexual problems. She is of the view that “Medical Aspects of Human Sexuality” is unique among medical journals in Canada and that it provides the practising physician with knowledge and understanding of sexual problems to enable him to deal with patients’ complaints with greater insight and skill and also provokes further investigation and reading in this area and the exchange of views and experience with other physicians. Because of the educational aspect of this publication, many of those on the advisory board are associated with universities or have major academic appointments and many of these men, she said, have written editorials, original articles or responded to questions submitted by readers. Dr Powell said that as medical officer of health for Scarborough, she is very much aware of the impact of sexual problems on the community. Venereal diseases are encountered with increasing frequency and the social problems resulting from other types of sexual complaints are a constant source of difficulty for physicians who are, by their background and training, not adequately prepared to deal with problems of this type. The journal, in her opinion, meets a serious need in the medical field adding that if she were not convinced of this, she would not have agreed to go on the editorial board. The journal, she said, makes available and disseminates the knowledge and experience of qualified experts in this branch of medical science to other members of the profession and it stimulates them to increase their knowledge.

Two medical doctors, husband and wife, were finally heard. The husband, Dr Avinoam B Chernick, graduated in medicine from the University of Western Ontario in 1962. After a general internship, he pursued postgraduate studies in obstetrics and gynaecology in London and Hamilton, Ontario under Dr R A H Kinch. He obtained his fellowship in the Royal College of Surgeons of Canada in 1968. He then pursued further studies in Winston-Salem, North Carolina under Dr Clark Vincent followed by one year of training in marriage counselling, family life education in the community and teaching of human sexuality to medical students at the Division of Family Study of the Department of Psychiatry, University of Pennsylvania School of Medicine, in Philadelphia. Since 1969 he has been in the private practice of obstetrics and gynaecology in London, Ontario and with his wife, Dr Beryl Cher- nick, forms part of a co-therapy team for the counselling of sexual dysfunction.

He is of the view that the material found in the journal is of practical value to many physicians and is such as to enhance the work of doctors in that field. Sex and sexuality are now, he says, recognized as an integral part of family practice and obstetrics and gynaecology. He pointed out that within the field of obstetrics and gynaecology there are now many specialty journals of which, he said, “Medical Aspects of Human Sexuality” can be considered one.

His wife, Dr Beryl A Chernick, also graduated from the University of Western Ontario, but in 1963. She then pursued postgraduate studies at the University of Western Ontario for four years where she was a Medical Research Council of Canada fellow under the supervision of Drs C W Gowdy, professor and chairman, Department of Pharmacology and Robert A H Kinch, professor and chairman, Department of Obstetrics and Gynaecology, which led to the degree of PhD in pharmacology in 1967. She was then invited by the Department of Public Health of the municipality to organize the city’s family planning clinic and to supervise and instruct the public health nurses in appropriate counselling of patients attending this clinic. Dr Chernick said that at no time in her undergraduate or postgraduate medical education and training was she given information concerning human sexual functioning, nor was she referred to any books or other publications where she could obtain useful information. With Dr Kinch’s interest and encouragement, she, therefore, sought further training in these areas in the United States, that training being unavailable in Canada at that point in time. She spent six months as a post-doctoral fellow in the Behavioral Sciences Center of the Bowman Gray School of Medicine of Wake Forest University in Winston-Salem, North Carolina under the tutelage of Dr Clark Vincent, a renowned sociologist who was pioneering the introduction of the teaching of behavioural science including pertinent aspects of human sexuality to medical students. A further year of clinical training in marriage counselling followed in the Division of Family Study of the Department of Psychiatry of the University of Pennsylvania School of Medicine, in Philadelphia, under Dr Harold I Lief. Since July 1969 she has been in private practice in London, Ontario with her practice limited to marital and sexual counselling forming part in this practice of a co-therapy team along with Dr Avinoam Chernick, her husband. She is an honorary lecturer in the Division of Family Medicine of the Department of Community Medicine at the University of Western Ontario and is also a member of the American Association of Marriage and Family Counsellors. In the last three years, there has been, according to Dr Chernick, an overwhelming number of referais of patients with problems in interpersonal relationships including sexual function, from physicians, both in London and the surrounding area and from distant points in Canada. The referais are made, she said, because the physicians themselves lack the information and expertise for helping their patients in this area. She added that they have increasing numbers of requests from physicians for sources of information and for training to enable them to be more effective in their own medical practice. Many of the patients referred to her, she said, have presented anxieties which could have been allayed in short order and relatively simply by their own physicians had they but had the necessary information to give the patients and the comfort with which to convey it. She stated that until recently there has been few printed sources of useful information regarding human sexuality. She became well acquainted with one monthly periodical called “Medical Aspects of Human Sexuality” during her year of study at the University of Pennsylvania which, she said, was used as source material for reference and as subject for discussions in seminar groups as well as in the teaching of undergraduates at that medical school. She found that this journal provided clinical information on sexual function and dysfunction as well as pertinent current data from sociology, psychology and the other behavioural sciences. It also included, she said, an exposure to view points of the most eminent people in the research and treatment areas of sexuality. She stated that it was with dismay that she found this journal so inaccessible to her when she returned to Canada. She missed the availability of the current data presented in the journal and the stimulation of her own study of this area provided by its writings. She says she greeted with pleasure the news a year ago that Jay-Kay Publications were interested in introducing “Medical Aspects of Human Sexuality” to Canada and willingly accepted the invitation of its publisher to participate as a national consulting editor. She finally stated that the writings in this journal have encouraged her further study of this area and have affected her own clinical practice. The reports of others’ works, she said, have provided comparison for her own clinical observations and material from this publication has been incorporated into her teaching of physicians, an activity which, at present, occupies an important proportion of her professional energies.

The statement of purpose to be found at page 3 of the issues, does give a fair background of the intent of the publishers and, in my view, is supported by the evidence of the doctors as well as by the content of the articles contained in the ten issues published at the time of the hearing. It therefore, in my view, should be reproduced hereunder:

Canadian Edition

A STATEMENT OF PURPOSE

Physicians are becoming increasingly aware of the need for better ways of understanding and managing the sex-related problems of their patients As an editorial in JAMA (Sex and Medicine, JAMA 197:146, July 18, 1966) put it:

To some, sex is the ultimate area of privacy, and hence not appropriate for study and evaluation. No scientific criteria can justify such a conclusion. It is no more reasonable to teach students the anatomy of the reproductive organs and ignore the way these organs function during their ordered activities than it would be to study the anatomy of the stomach but disdain any knowledge of motillity, secretion, or disease under various kinds of gastric activity . . . Perhaps one reason many physicians have abdicated their role in providing sexual advice is recognition that their knowledge is deficient.

Another sign of this need is the almost unanimous reaction to a personal interview of one per cent of the physicians in Canada, before it was decided to publish a Canadian Edition of MEDICAL ASPECTS OF HUMAN SEXUALITY. Of the 31,000 physicians in Canada, 317 were interviewed, and 316 reacted favorably. Interviews scheduled for 10 minutes lasted 50 minutes in 85% of those interviewed. The need, interest and suggestions for additional information on human sexuality in Canada were fully expressed. In the United States no less than 98% of the respondents from 11,500 doctors surveyed expressed similar interest prior to the first publication of MEDICAL ASPECTS OF HUMAN SEXUALITY in 1967.

MEDICAL ASPECTS OF HUMAN SEXUALITY will provide authoritative information on sexual problems that affect many patients. This clinical information will enable the physician to deal more effectively with a broad array of such problems and it will be supplemented by pertinent current data from sociology, psychology, and other behavioral sciences.

As a scientific journal, MEDICAL ASPECTS OF HUMAN SEXUALITY is not designed to promulgate any particular point of view. Our distinguished Consulting Editors represent a wide variety of opinions, but they do share one conviction: that sex-related problems are the proper concern of every physician, and that the importance of these problems deserves a responsible and authoritative journal. This is what we intend to provide.

We welcome your opinion, criticisms, and suggestions.

There is no question that this publication serves as a means of placing before the medical profession in Canada the results of research and learning in the field of human sexuality and this is new. The field of course is not brand new but the attempt by doctors to treat it in a scientific way for the medical profession is new. It has not, to date, encouraged any considerable amount of further studies in this field by medical doctors and this is not too surprising having been in publication for ten months only. As a matter of fact, this is not the best time to judge a publication such as the one involved herein. The best time would be after a couple of years of publication, at a time when the impact of the articles produced therein on Canadian doctors or scientists could be more fully appreciated. In the meantime, however, the publisher would have to take a chance and put it out without or with little advertising and await a considerable period of time before he could be sure that advertisers would be able to deduct their advertising expenses. This is not something that one can do unless he is prepared and able to spend a considerable amount of capital in the meantime nor could the present publisher do this here because of the advertising revenue it had to generate under the licence agreement with the owner of the American periodical of which I will say more later. It follows that the financing of the publication is a very important item indeed in the publishing of the periodical. There is, however, nothing sinister in a publisher seeking to make a profit and I do accept that the scholarly nature of a magazine should not be tainted by the commerciality of whatever operations are necessary to create it or to keep it going. As a matter of fact I, for one, would be more impressed by the financial success of a scholarly periodical than I would be if it did not flourish. I do not think that it is sufficient here to say that because a publisher happens to be a successful businessman, the publication must then fail to qualify as “encouraging scholarship” and if this were the only matter to consider in determining the question involved herein, I would have little difficulty in deciding that the publication ‘‘Medical Aspects of Human Sexuality” contains a number of serious articles which, having regard to the meaning of “scholarship” I accept can be considered as falling within that category. Scholarship, which in the French version has been translated by “les sciences” (and which, I believe, should have been translated by “le savoir”), in my view refers in the context of subsection 19(4) to a relatively high level of learning. It is, I believe, knowledge which goes somewhat beyond what someone already trained in a special sphere of human activity may learn. It is an increase of knowledge given to one who already has a background of knowledge. Scholarship, according to Webster’s Dictionary, is “the character, qualities or attainments of a scholar, scholastic achievement, the body of learning especially of research available in a particular field” and I am content to accept this as the meaning of scholarship in the above section. There is no question that the publication is also a practical one and this is not too surprising as medical scholarship must, by its very nature, have a practical result in mind. It would be a great misfortune indeed if matters of a medical nature which deal with human functions resulted only in a simple exercise in meta- physicis or had purely impractical or academic results. I, therefore, accept that knowledge acquired by scholarship should not be excluded merely because it happens also to be practical. If, of course, the periodical is merely an artificial attempt made to create an advertising vehicle for drug companies, that is one situation. I would think, however, that if that is all the publisher is trying to do, the magazine will not last very long because the doctors will not read it and the advertisers will realize that they are not reaching their customers. The answer to the question whether the principal function* [3] of this magazine is the encouragement, promotion or development of scholarship is not easy because it cannot be said here that the publishers of this magazine have not, in the ten issues published to date, included articles of a scholarly nature, useful to doctors in their every day practice, but also highly informative from a scholarly point of view as well and even helpful in instigating further research and study on the subjects treated therein. The evidence of the doctors on this point, as well as the contents of the articles, which I have all read, are overwhelming and uncontradicted. Indeed, if the caliber of the people who have written these articles, as well as most of the articles themselves, are considered, this publication must be accepted as a vehicle for the dissemination of scholarship in a field which, until recently, was one that had never been properly treated by doctors.

There is unfortunately, however, a further matter to be considered and that is whether the principal function of the magazine (not only its contents) is the encouragement of scholarship and here, of course, the whole background of the publisher or publishers, the manner in which the publication was initiated, must be considered and although the question of whether a publisher wants to make money with a publication should not normally be considered in order to determine whether the contents of the publication are scholarly, it may well have to be here in order to answer the question whether “the principal function” of this publication is the encouragement of scholarship.

Counsel for the Minister said that the overall picture here indicates that this publication was more an advertising vehicle than a really sincere attempt to disseminate and encourage scholarship and because of the manner in which the publisher became licensed by the American owner of the American publication and the requirements of the licence, there may well be some truth in the above assertions. The object of the legislation involved herein, section 19, was not, I am sure, to create a cultural wall or to deprive Canadian doctors from access to the best minds in the United States or the world or to restrict the flow of scientific information of the type contained in the issues of both the American and Canadian editions, which, I am prepared to hold as being valuable not only to Canadian doctors but also to Canadians in general with problems of the type dealt with in the articles. The restrictions contained, however, in subsection (4) of section 19 may well result in preventing such articles from reaching the country if the method adopted is by means of a Canadian (foreign deemed) publication such as here.

The underlying policy of section 19 is to provide to publishers of Canadian publications the incentive of Canadian advertising and to prevent the deduction by Canadian advertisers of their costs of advertising if they choose to take their advertising space in an issue of a non-Canadian newspaper or periodical with the major exception of “Time” Magazine and “Reader’s Digest”, which are not covered by the qualification “of a newspaper or periodical dated after December 31, 1965”. If such is the case, we must hold that the category of publications comprised in the exception provided by subsection (4) is one with not too strong a commercial orientation, one which, because of the subjects involved, art, scholarship, religion and letters, should not take away much advertising from Canadian publications. It is, as a matter of fact, interesting to consider the language of subsection (4) with regard to the prohibition of section 19 and if this is done, one must, I believe, conclude that the exemption provided for must be restricted to publications which are more concerned with matters of art, science, letters and religion where advertising is not a major concern and where the use of such subjects is not to attain a profitable market for those manufacturing goods. If such is the rule in section 19, whatever exception to it should, I believe, be one which does not defeat its obvious purpose which, as already mentioned, is to retain Canadian advertisers for Canadian publications or periodicals.

With this in mind, I will now consider Jay-Kay Publications, the company that publishes the journal or the periodical. It has strong associations with advertising. Mr Knox, the principal shareholder, has a strong background in marketing and selling. Mr Becker, the minority shareholder, is an advertising man from New York and the licensing agreement sets down the requirements Jay-Kay Publications must meet in order to be able to use its name and reproduce in the Canadian magazine the articles published in the American one. Jay-Kay has indeed to meet performance standards which bear no relationship to scholarship but are restricted to generating a progressive sale of advertising revenue. Starting in 1971 with $56,000 of advertising revenue, Jay-Kay Publications must, in order to keep the name and continue this publication, generate advertising revenue of $250,000 in 1972, $375,000 in 1973, $510,000 in 1974 and $650,000 in 1975 and thereafter.

Mr Knox agreed that the advertising is the entire source of the company’s operations and the publications cannot exist without it. It would seem that, to date, 53 people in Canada out of 22,000 doctors paid $20 for the issues of this magazine, the balance apparently have received the issues free of charge. On the basis of what we may call the business aspects of this publication, there can be no doubt that at least one of the objects of the publication is to provide a vehicle to advertisers.

I must, therefore, consider not only the content of the publication which I have already done, but also the material or business set-up of the publishers, their commitments to the American publishing company and the requirements of the licence agreement and weigh, if possible, one against the other. I must, indeed, decide whether the principal function “l’objet principal” of the publication, not only of its contents, is scholarship although I must also accept that the publication does comprise its contents. I cannot say that the unusual amount of advertising content necessary to ensure the life of the publication overrides the article content even if the latter must be considered of a high scholarly nature nor that the article content overrides the former. As a matter of fact, considering that the magazine has so far a high scholarly content, I would still, putting it at its highest, have to hold that it has no more than a co-equal function or object with providing an advertising vehicle and this, of course, would not be sufficient to satisfy the subsection which, as already mentioned, requires that the principal function must be the encouragement, development and promotion of scholarship.

I must, therefore, conclude that a major object of this publication is to provide an advertising vehicle and by distributing it to doctors across the country, it assures the advertisers of a good reach among doctors who are going to read it. This, of course, is a good thing and would be useful to doctors and their patients but it does not, unfor- tunately, allow the principal function of the publication to be a dissemination of scholarship.

The question to be solved here is one mainly of fact and although the quality of the articles published in the periodical, as well as the caliber of the doctors on the editorial board, must be considered, the financial activities of the proprietors of the publication and the advertising revenue they must reach in order to maintain their licence with the American company cannot be ignored and constitutes an important factor in reaching a decision particularly in the light of the object of section 19 which, as already mentioned, is to allow the deduction of Canadian advertising in foreign periodicals in exceptional cases only.

Here a most important object of the publication is to serve as an advertising vehicle and the answer to the questions posed must regrettably be that the principal object of this publication is not for the advancement or promotion of scholarship.

I should not part with this case without saying that the evidence discloses that the Canadian publication has been mainly a repeat in a proportion of 60% of the material published in the American publication and for this reason alone it would not qualify under clause (F) of subparagraph 19(5)(a)(ii) which says that a Canadian issue does not include an issue of a periodical

(F) the contents of which, excluding advertisements, are substantially the same as the contents of an issue of a periodical, or the contents of one or more issues, of one or more periodicals that was or were printed, edited or published outside Canada.

This Court doth determine that the answer to the question

“Is the Canadian Edition of ‘Medical Aspects of Human Sexuality’ a publication, the principal function of which is the encouragement, promotion or development of scholarship within the meaning of subsection (4) of sections 19 and 12A of the Income Tax Act?”

is in the negative. The costs of this application shall be to the Minister of National Revenue.