THorson,
P.:—This
is
an
appeal
from
the
decision
of
the
Income
Tax
Appeal
Board,
sub
nom.
No.
661
v.
M.N.R.
(1959-60),
23
Tax
A.B.C.
46,
dated
October
16,
1959,
dismissing
the
appellant’s
appeal
against
his
income
assessments
for
1953,
1954
and
1955.
The
issue
in
the
appeal
herein
is
whether
certain
sums
of
money
and
other
valuable
benefits
which
the
appellant
received
in
1953,
1954
and
1955
from
National
Sea
Products
Limited,
of
which
he
had
been
the
president,
pursuant
to
an
agreement
between
himself
and
the
company,
dated
June
4,
1953,
were
items
of
taxable
income
to
him
for
the
said
years,
as
assessed
by
the
Minister,
or
capital
payments
to
him
as
part
of
the
consideration
for
the
sale
by
him
of
more
than
50
per
cent
of
the
shares
of
National
Sea
Products
Limited
to
Clarence
J.
Morrow,
W.
Stanley
Lee
and.
Ronald
G.
Smith,
who
were
executive
officers
of
the
said
company,
pursuant
to
an
agreement
for
the
sale
of
the
said
shares
between
himself
and
the
said
persons.
The
appellant
was
the
only
witness
called
at
the
hearing,
so
that
the
facts
relating
to
the
transaction
from
which
the
issue
arises
must
be
ascertained,
so
far
as
it
is
possible
to
do
so,
from
his
evidence
and
the
documents
produced
on
his
behalf.
Objections
were
taken
by
counsel
for
the
Minister
to
portions
of
the
appellant’s
evidence
and
many
of
the
documents
but
it
is
desirable,
in
my
opinion,
to
review
his
evidence
as
he
gave
it
and
then
determine
to
what
extent,
if
any,
effect
should
be
given
to
the
objections.
The
appellant,
who
resides
at
Murder
Point,
Mahone
Bay,
in
Nova
Scotia,
was
the
president
of
National
Sea
Products
Limited,
hereinafter
called
the
Company,
since
its
formation
by
him
in
1945.
It
was
a
combination
of
18
to
20
companies
in
Nova
Scotia
operating
fleets
of
fishing
vessels
and
trawlers
and
was
the
largest
fishing
operation
in
the
North
Atlantic.
After
1945,
the
Company
acquired
additional
companies
which
enlarged
the
scope
of
its
merchandising
so
that
before
1951
it
ended
with
a
group
of
22
or
23
companies,
including
the
largest
wholesale
and
distributing
houses
in
Montreal
and
Toronto
and
one
in
New
York.
The
Company
had
also
added
to
its
fleet
of
trawlers
new
trawlers
built
in
Great
Britain.
It
was,
as
the
appellant
said,
phenomenally
successful,
it
never
had
to
borrow
any
money
and
it
always
had
a
large
working
capital.
The
appellant
had
complete
control
of
the
Company
by
a
voting
control
of
129,000
shares
out
of
a
total
of
200,000.
This
resulted
from
the
fact
that
he
and
members
of
his
family
and
others
had
formed
a
pool
of
their
shares
under
a
pooling
agreement,
dated
September
10,
1945,
modified
by
a
supplementary
agreement,
dated
December
15,
1946,
under
which
the
appellant,
as
manager
of
the
pool,
had
the
right
to
vote
all
the
pooled
shares.
In
1953
a
difference
of
opinion
arose
between
Mr.
Clarence
J.
Morrow,
the
vice-president
and
treasurer
of
the
Company,
and
the
appellant
over
a
matter
of
policy
relating
to
the
price
to
be
paid
to
fishermen
and
the
reduction
of
inventory
and
in
a
letter
to
the
appellant,
dated
April
9,
1953,
Mr.
Morrow
offered
to
sell
his
shares
in
the
Company,
some
20,000,
to
the
appellant
at
$12
per
share
or
to
buy
the
shares
controlled
by
the
appellant
at
the
same
price.
The
appellant
replied
to
Mr.
Morrow
by
a
letter,
dated
April
20,
1953,
after
they
had
had
a
conversation
three
days
previously,
in
which
he
said
that
he
would
not
be
interested
in
buying
Mr.
Morrow’s
shares
at
any
price
because
he
did
not
want
the
Company
to
lose
his
active
interest
and
advice.
He
thought
that
a
sale
of
the
pooled
shares
belonging
to
members
of
his
family
could
be
arranged
provided
Mr.
Morrow
was
prepared
to
pay
a
fair
price
for
them,
but
he
did
not
want
to
sell
his
own
32,900
shares
or
sever
his
connection
with
the
Company.
But
the
letter
contained
certain
proposals
on
his
part;
if
there
was
agreement
relating
to
the
shares
held
by
the
members
of
his
family
he
would
agree
to
sell
his
own
shares
on
his
death,
and
if
Mr.
Morrow
would
undertake
to
continue
to
elect
him
as
a
director
he
would
vote
his
shares
in
support
of
any
policy
or
object
in
which
Mr.
Morrow
required
their
support.
He
also
stated
that
if
the
proposals
mentioned
were
acted
on
he
would
resign
the
presidency
in
favour
of
Mr.
Morrow
or
his
nominee
and
accept
the
chairmanship
of
the
board
of
directors
with
an
agreement
from
Mr.
Morrow,
confirmed
by
the
Company,
for
the
continuance
of
his
present
salary,
car,
chauffeur,
secretary
and
office
for
five
years—
or
until
earlier
retirement
at
his
option—and
two-thirds
of
his
present
salary
thereafter
for
the
balance
of
his
life
and
his
continuance
as
a
director
if
he
so
requested.
He
added
that
he
would
like
to
continue
ex-officio
only
as
a
member
of
the
executive
committee
but
would
not
participate
in
the
active
management
of
the
business
and
he
assured
Mr.
Morrow
of
his
whole-hearted
support
as
long
as
he
remained
actively
associated
with
the
Company.
Finally,
he
said
he
was
prepared
to
discuss
the
price
of
the
shares
at
$18
per
share.
After
the
appellant
had
written
this
letter
he
was
absent
from
Halifax
for
about
ten
days
and,
on
his
return,
he
found
a
letter
from
Mr.
Morrow,
dated
April
30,
1953,
in
which
he
said
that
Stan
(Mr.
W.
Stanley
Lee),
Ronald
(Mr.
Ronald
G.
Smith)
and
he
had
discussed
his
proposal
and
would
like
to
discuss
it
with
him
and
asked
him
to
name
a
time
for
a
meeting.
Mr.
Lee
was
the
general
manager
of
the
Company
and
Mr.
Smith
a
director
and
member
of
the
executive.
At
a
meeting
at
Halifax
on
Tuesday,
May
12,
1953,
Mr.
Morrow
proposed
a
price
of
$14
per
share
for
all
the
appellant’s
shares,
his
salary
for
three
years,
$15,000
per
year
for
a
further
five
years
and
$10,000
per
year
thereafter
but
no
car,
chauffeur
or
secretary.
He
and
his
associates
proposed
a
syndicate
based
on
a
nucleus
of
Messrs.
Morrow,
Lee
and
Smith.
The
appellant
took
time
to
consider
this
proposal.
On
the
following
day,
May
13,
1953,
he
had
a
conversation
with
Messrs.
Morrow,
Lee
and
Smith
and
made
a
counter
proposal
of
$17.50
per
share
for
all
the
pooled
shares
with
his
existing
salary
for
five
years
and
a
two-thirds
salary
thereafter
for
life,
together
with
a
chauffeur,
car
and
secretary
for
three
years.
At
this
meeting
Mr.
Morrow
asked
for
a
further
postponement
until
May
14,
1953.
The
appellant
stated
that
it
was
Mr.
Morrow
who
suggested
the
side
benefits
at
the
meeting
of
May
12,
1953,
but
it
will
be
recalled
that
the
appellant
had
referred
to
them
in
his
letter
of
April
20,
1953.
The
appellant
explained
that
he
had
two
things
to
sell,
one
being
the
pooled
shares
and
the
other
control
of
the
Company,
and
that
he
would
not
sell
the
one
without
the
other.
When
he
wrote
his
letter
of
April
20,
1953,
Mr.
Morrow
and
he
were
still
on
an
intimate
basis
but
after
that
date
it
became
clear
that
Mr.
Morrow
and
the
others
did
not
want
to
continue
him
as
a
director
or
chairman.
He
was
very
resentful
and
hurt
over
this
because
he
had
agreed
to
vote
his
shares
in
support
of
Mr.
Morrow’s
policies
and
he
took
the
cold
position
that
if
his
associates
wanted
to
buy
the
pooled
shares
they
must
also
buy
control
of
the
Company
and
the
question
of
what
they
had
to
pay
for
such
control
became
a
matter
of
negotiation
for
the
so-called
extras.
On
the
afternoon
of
Thursday,
May
14,
1953,
Messrs.
Morrow.
Lee
and
Smith,
whom
the
appellant
referred
to
as
‘‘they’’,
invited
him
into
Mr.
Lee’s
office
for
the
specific
purpose
of
making
a
final
counter-offer
to
his
counter-offer
of
the
previous
day.
Up
until
then
there
had
not
been
any
discussion
of
the
price
to
be
paid
for
the
Company’s
car,
a
Cadillac.
“They”
spelled
out
their
counter-offer
to
him,
emphasizing
that
it
was
final
from
their
point
of
view.
It
was
$16
per
share
for
all
the
pooled
shares
owned
by
the
appellant
and
the
members
of
his
family,
with
the
option
that
if
the
other
members
of
the
pooling
agreement
who
were
not
members
of
his
family
wished
to
avail
themselves
of
the
opportunity
of
selling
their
shares
at
$16
per
share
they
might
do
so.
Then,
as
the
appellant
put
it,
‘‘they’’
were
to
pay
him
$25,000
per
year
for
three
years
and
$15,000
per
year
thereafter
for
life,
provide
him
with
the
services
of
a
chauffeur
free
for
one
year,
the
services
of
a
secretary
free
for
one
year
and
the
use
of
the
office
he
occupied
free
for
one
year.
At
the
end
of
a
year
they
would
sell
him
the
Cadillac
car
for
$1
and
release
the
chauffeur
from
their
employ
for
him
to
employ
him.
After
a
short
talk
he
said
“I’ll
accept
that’’.
Then
they
said
that
they
would
have
the
Company
release
him.
This
was
the
first
time
that
the
Company’s
name
was
introduced
as
an
employer.
When
the
question
of
the
chairmanship
and
directorship
came
up
they
said
that
they
would
carry
him
on
as
chairman
for
one
year.
The
meeting
in
Mr.
Lee’s
office
lasted
about
an
hour
and
on
the
same
day
the
appellant
gave
Messrs.
Morrow,
Lee
and
Smith
an
option
written
in
his
own
handwriting,
which
was
filed
as
Exhibit
7.
I
set
it
out
in
full
as
follows:
“Page
1
(May
14th
53)
My
Dear
CJ,
Subject
to
acceptance
on
or
before
June
1st
I
offer
to
sell
to
you
and
your
associates
for
cash,
all
the
shares
refered
to
in
my
letter
to
you
of
April
20th;
for
$16.00
per
share
on
condition
that
you
arrange
a
contract
of
employment
for
me
with
National
Sea
Products
Ltd.
for
three
years
at
$25000.00
per
year,
with
a
retiring
allowance
of
$15000.00
per
year
thereafter
for
life;
that
you
continue
to
provide
me
with
my
present
chauffeur
for
one
year,
my
present
car
for
one
year,
and
at
the
expiration
of
that
period
the
Company
sells
me
the
ear
for
$1.00
and
I
may
engage
the
chauffeur
personally
thereafter.
Meantime
in
the
event
the
car
should
be
lost,
by
fire
or
collision
the
proceeds
of
insurance
would
be
paid
to
me
;
and
the
services
of
a
Secretary
for
one
year.
If
this
offer
is
accepted
you
will
pay
a
reasonable
deposit—
say
10%
of
the
purchase
price—to
be
forfeited
in
lieu
of
liquidated
damages
if
for
any
reason
you
should
fail
to
complete
the
purchase
prior
to
Sept.
1st
53.
All
page
2
of
letter
to
C.
J.
Morrow
et
al.
undertakings
with
respect
to
salary
and
services
to
date
from
date
of
final
payment.
Acceptance
shall
be
in
writing,
accompanied
by
the
deposit
specified.
Very
truly
yours
Ralph
P.
Bell
Halifax
May
14/53
To
Messrs.
C.
J.
Morrow
W.
Stanley
Lee
Ronald
G.
Smith
P.S.
In
the
event
of
death
salary
ceases
at
the
end
of
the
month
in
which
death
occurs.
The
offer
of
shares
includes
my
personal
shares
(approximately
33000
shares)
RPB”’
On
Friday,
May
29,
1953,
the
appellant
met
Mr.
Morrow
and
his
associates
in
the
Company’s
office
and
they
presented
him
with
a
draft
agreement
between
the
Company
and
himself,
a
copy
of
which
was
filed
as
Exhibit
9A.
It
contained
a
provision
to
employ
the
appellant
‘‘in
an
executive
and/or
consultive
capacity”
and
a
provision
restricting
the
appellant
from
competition
with
the
Company.
He
said
that
this
agreement
was
not
acceptable
to
him
and
they
said
that
they
could
not
continue
him
as
chairman
to
which
he
replied
that
they
would
never
get
any
document
from
him
with
the
restrictive
clauses
they
wanted
and
the
meeting
then
broke
up.
The
appellant
learned
on
Friday
that
he
was
not
going
to
be
kept
on
the
board.
On
Sunday,
May
31,
1953,
Mr.
Lee
called
him
on
the
phone
at
his
home
and
tried
to
patch
things
up
but
he
replied
‘‘No!
If
you
don’t
want
me
as
chairman
friendship
ceases.
That’s
all.”
On
Monday,
June
1,
1953,
Messrs.
Morrow,
Lee
and
Smith
exercised
the
option
given
by
the
appellant
on
May
14,
1953,
by
a
letter
addressed
to
the
appellant,
which
was
filed
as
Exhibit
8.
I
set
out
its
terms
in
full
as
follows:
“June
1st,
1953
R.
P.
Bell,
Esq.,
Murder
Point,
Martin’s
Point,
Lunenburg
County,
Nova
Scotia.
Dear
Mr.
Bell
:
Referring
to
your
letter
of
May
14th,
1953,
addressed
to
the
undersigned
and
to
your
letter
of
April
20th,
1953,
therein
referred
to,
we
hereby
exercise
the
option
therein
contained
to
purchase
for
cash
the
common
shares
in
the
capital
of
National
Sea
Products
Limited,
a
body
corporate,
with
head
office
at
Halifax,
Nova
Scotia,
at
$16.00
per
share,
such
purchase
to
include
your
present
holdings
of
approximately
33,000
shares
as
well
as
those
shares
referred
to
in
the
said
letter
of
April
20th,
1958.
We
submit
herewith
an
undertaking
on
our
part
to
arrange
for
the
contract
of
employment
referred
to
in
your
letter
of
May
14th,
1953,
with
said
National
Sea
Products
Limited.
You
will
note
that
annexed
as
Schedule
‘A’
to
our
undertaking
to
that
effect
is
a
draft
of
the
proposed
contract
between
yourself
and
said
National
Sea
Products
Limited
giving
effect
to
our
undertaking.
We
wish
to
advise
you
that
we
are
prepared
to
take
up
and
pay
for
all
of
the
shares
covered
by
your
option
at
once
and
are
prepared
to
tender
you
a
cheque
for
the
purchase
price
against
delivery
of
the
relevant
certificates
endorsed
in
such
manner
as
to
enable
us
to
procure
registration
thereof
on
the
books
of
the
company.
We
enclose
herewith
certified
cheques
for
a
total
of
$2,156,-
400.00,
which
we
calculate
to
be
the
purchase
price
for
the
shares
involved.
Yours
very
truly,
C.
J.
Morrow
W.S.
Lee
R.
G.
Smith’’
This
letter
carried
the
following
notation
in
the
appellant’s
handwriting
:
‘
*
Completed
June
1st/53
R.
P.
B.
Present
at
transfer—which
took
place
in
room
401
Nova
Scotia
Hotel
were
J.
MeG.
Stewart
Morrow
Lee
Ronald
Smith
Ian
Maclaren
and
myself’’
The
appellant
stated
that
he
would
not
sign
the
draft
agreement
that
was
submitted
at
the
June
1
meeting
and
that
he
tore
it
up.
On
his
cross-examination
he
said
that
Mr.
Morrow
had
presented
the
draft
to
him
at
the
same
time
as
the
letter
of
June
1
and
that
it
contained
the
same
restrictions
as
the
draft
that
he
had
seen
on
May
29.
In
any
event,
Messrs.
Morrow,
Lee
and
Smith
as
‘‘Buyers’’
and
the
appellant
as
‘‘Seller’’
did
execute
the
undertaking
referred
to
in
Exhibit
8,
dated
June
1,
1953,
and
filed
as
Exhibit
9.
This
was
in
the
following
terms:
“This
AGREEMENT
made
the
1st
day
of
June,
A.D.
1953,
BETWEEN
:
CLARENCE
J.
MORROW,
of
Lunenburg,
in
the
County
of
Lunenburg,
and
W.
STANLEY
LEE,
of
Halifax,
in
the
County
of
Halifax,
and
RONALD
G.
SMITH,
of
Halifax,
in
the
County
of
Halifax,
Corporation
Executives,
hereinafter
called
the
‘Buyers’,
Of
The
One
Part,
—
and
—
RALPH
P.
BELL,
of
Murder
Point,
Martin’s
Point,
in
the
County
of
Lunenburg
County,
Corporation
Executive,
hereinafter
called
the
‘
Seller
’
Of
The
Other
Part.
WHEREAS
the
Seller
has
given
to
the
Buyers
an
option
to
purchase
more
than
Fifty
percent
(50%)
of
the
common
shares
in
the
capital
of
National
Sea
Products
Limited
(a
body
corporate
with
head
office
at
Halifax
aforesaid,
hereinafter
called
the
‘Company’)
;
And
WHEREAS
the
Buyers
have
agreed
as
a
condition
to
the
exercise
of
the
said
option
that
the
Buyers
agree
to
make
arrangements
for
a
contract
of
employment
between
the
Company
and
the
Seller
on
terms
indicated
in
the
said
option;
Now
This
AGREEMENT
WITNESSETH
that
the
Buyers
hereby
covenant,
promise
and
agree
to
and
with
the
Seller
to
procure
the
execution
and
delivery
by
the
Company
of
an
agreement
in
the
terms
of
the
draft
thereof
hereunto
annexed
and
marked
‘A’
and
initialled
by
the
Buyers,
such
agreement
to
be
executed
in
several
counterparts
one
of
which,
executed
by
the
Company
shall
be
delivered
by
the
Company
to
the
Seller
not
later
than
June
10th,
1953;
This
AGREEMENT
and
everything
herein
contained
shall
be
binding
upon
and
enure
to
the
benefit
of
the
parties
hereto
and
their
respective
heirs,
executors,
administrators
and
assigns
;
In
Witness
WHEREOF
the
parties
hereto
have
hereunto
affixed
their
hands
and
seals
the
day
and
year
first
hereinabove
|
written
;
|
|
|
SIGNED,
SEALED
and
Delivered'
|
Clarence
J.
Morrow
|
|
in
the
presence
of:
|
|
|
Clarence
J.
Morrow
(Seal)
|
|
W.S.
Lee
|
|
|
Witness
as
to
all
|
|
|
signatures
|
W.
Stanley
Lee
|
(Seal)
|
|
signatures
|
|
|
Ronald
G.
Smith
|
|
|
Ronald
G.
Smith
|
(Seal)
|
|
J.
I.
Maclaren
|
|
|
Ralph
P.
Bell
|
|
|
Ralph
P.
Bell
|
(Seal)
”’
|
On
the
same
date,
June
1,
1953,
the
appellant
handed
Messrs.
Morrow,
Lee
and
Smith
his
resignation
as
president
and
director
of
the
Company
and
some
time
thereafter
between
June
1,
and
June
4,
1953,
there
was
a
meeting
of
the
directors
of
the
Company
at
which
Mr.
Morrow
was
elected
president
and
Mr.
Lee
vice-president.
Then
on
June
4,
1953,
the
contract
of
employment
between
the
Company
and
the
appellant,
which,
in
his
option
letter
of
May
14,
1953,
he
had
made
a
condition
of
his
offer
to
sell
the
Shares,
was
executed
by
the
Company
and
the
appellant.
This
was
the
contract
referred
to
in
Exhibit
9
as
‘‘A’’.
It
was
filed
as
Exhibit
10.
I
set
it
out
in
full:
“This
AGREEMENT
made
the
4th
day
of
June,
A.D.
1953,
Between
:
NATIONAL
SEA
PRODUCTS
LIMITED,
a
body
corporate,
having
its
head
office
at
Halifax,
in
the
County
of
Halifax,
hereinafter
called
the
‘Company’
Of
The
One
Part
—
and
—
RALPH
P.
BELL,
of
Murder
Point,
Martin’s
Point,
in
the
County
of
Lunenburg,
Corporation
Executive,
hereinafter
called
‘the
said
Bell’
Of
The
Other
Part.
WHEREAS
the
said
Bell
has
been
the
President
of
the
Company
since
its
inception
in
1945
and
during
the
intervening
period
has
devoted
his
time
and
efforts
to
the
service
of
the
Company
and
now
desires
to
be
relieved
in
part
of
the
obli-
gations
and
responsibilities
involved
in
occupying
the
chief
executive
position
in
the
Company
;
Now
THIS
AGREEMENT
WITNESSETH
as
follows:
The
Company
hereby
covenants,
promises
and
agrees
to
and
with
the
said
Bell
to
employ
the
said
Bell
in
an
advisory
or
consultive
capacity
for
three
(8)
years
commencing
June
1st,
1958,
at
Twenty-five
Thousand
Dollars
($25,000.00)
per
year
with
a
retiring
allowance
of
Fifteen
Thousand
Dollars
($15,-
000.00)
per
year
thereafter
for
life;
AND
to
continue
to
provide
the
said
Bell
with
his
present
chauffeur
for
one
(1)
year
commencing
June
1st,
1953,
and
to
provide
the
said
Bell
with
his
present
car
for
the
said
period
of
one
(1)
year,
and
at
the
expiration
of
one
(1)
year
to
sell
the
said
car
to
the
said
Bell
for
One
Dollar
($1.00)
;
And
to
permit
the
said
Bell
to
engage
the
said
chauffeur
personally
at
the
expiration
of
the
said
year
without
let
or
hindrance
from
the
Company;
AND
F'URTHER
that
in
the
event
the
said
car
should
be
lost
by
fire
or
collision
during
the
said
year
the
proceeds
of
insurance
will
be
paid
to
the
said
Bell
;
AND
Further
to
provide
the
said
Bell
with
the
services
of
a
secretary
for
one
(1)
year
commencing
June
1st,
1953;
In
the
event
of
the
death
of
the
said
Bell
the
salary
or
retiring
allowance
herein
provided
for
shall
cease
at
the
end
of
the
month
in
which
death
occurs.
THESE
PRESENTS
and
everything
herein
contained
shall
be
binding
upon
and
enure
to
the
benefit
of
the
parties
hereto
and
their
respective
heirs,
executors,
administrators,
successors
and
assigns
;
In
WITNESS
WHEREOF
the
Company
has
caused
its
corporate
seal
to
be
hereunto
affixed
and
These
Presents
to
be
executed
in
its
name
and
on
its
behalf
by
its
proper
officers
thereunto
legally
authorized
and
the
said
Bell
has
hereunto
affixed
his
hand
and
seal
the
day
and
year
first
hereinabove
written;
SIGNED,
SEALED
AND
Delivered
NATIONAL
SEA
|
in
the
presence
of:
|
PRODUCTS
LIMITED
|
|
[per
|
|
|
C.
J.
Morrow
|
(Seal)
|
|
J.
H.
Beleher
|
|
|
Pres.
|
|
and
|
|
|
W.
S.
Lee
|
|
|
J.
I.
Maclaren
|
|
|
V.
Pres.
|
|
Ralph
P.
Bell
|
|
|
1
Ralph
P.
Bell
|
(Seal)
’’
|
The
appellant
stated
that
prior
to
the
sale
of
the
shares
he
had
discussed
the
price
with
the
persons
who
had
signed
the
pooling
agreement
and
obtained
their
permission
to
negotiate
for
and
procure
for
himself
the
extras
referred
to
and
that
he
would
not
have
sold
any
of
the
shares
without
such
permission.
The
appellant’s
remaining
evidence
may
be
stated
briefly.
After
June
1,
1953,
he
had
the
free
use
of
the
same
office
as
he
had
had
previously
but
did
not
use
it
in
the
service
of
the
Company.
He
was
never
asked
by
Mr.
Morrow,
Mr.
lee
or
Mr.
Smith
to
render
any
service
to
the
Company
under
the
agreement
of
June
4,
1953,
and
never
rendered
any.
He
used
the
ear,
the
chauffeur
and
his
secretary
for
his
private
business
and
never
in
the
service
of
the
Company
and
was
never
asked
to
do
so.
On
his
cross-examination
he
stated
that
his
private
secretary
worked
for
him
and
not
for
the
Company.
He
had
exclusive
use
of
the
Cadillac
car,
which
belonged
to
the
Company,
and
used
it
only
for
his
own
purposes
and
never
paid
for
any
gas,
maintenance
or
repairs
or
insurance
premiums
during
the
year
commencing
June
1,
1953.
The
appellant
received
his
salary
payments
by
monthly
cheques
which
he
turned
over
to
his
accountant.
The
Company
made
the
usual
deductions
from
his
salary
for
income
tax,
medical
care
and
group
insurance
and
continued
to
do
so,
except
that
some
time
after
June
1,
1954,
he
cancelled
his
Blue
Cross
deductions.
The
appellant
admitted
that
he
was
not
under
any
financial
necessity
to
sell
the
shares,
that
he
had
been
associated
with
business
most
of
his
life
and
that
he
had
on
numerous
occasions
drafted
contracts
for
the
acquisition
of
various
things.
After
this
review
of
the
appellant’s
evidence
I
set
out
briefly
the
steps
that
led
to
the
appeal
herein.
After
June
1,
1953,
the
appellant
received
the
payments
of
salary
to
which
he
was
entitled
under
his
contract
of
employment
with
the
Company,
dated
June
4,
1953,
namely,
$12,500
in
1953
and
$25,000
in
each
of
the
years
1954
and
1955.
He
also
received
the
several
benefits
referred
to
in
the
contract.
In
assessing
the
appellant
for
the
years
under
review
the
Minister
included
the
amounts
of
salary
which
he
had
received
as
items
of
income
to
him
and
also
included
the
value
of
the
benefits
which
he
had
received
and
put
such
value
at
$1,983.25
for
1953
and
$5,545.17
for
1954,
the
details
of
which
are
set
out
in
the
statements
respectively
accompanying
the
notices
of
re-assessment
for
1953
and
1954,
mailed
to
the
appellant
on
April
18,
1956.
Thus
the
amounts
in
dispute
for
the
said
years
are
$12,500
and
$1,983.29
for
1953,
$25,000
and
$5,545.17
for
1954
and
$25,000
for
1955.
The
correctness
of
the
amounts
referred
to
is
not
disputed.
The
appellant
gave
notice
of
objection
to
each
of
the
assessments
levied
against
him
but
the
Minister,
subject
to
certain
adjustments
which
do
not
affect
the
issue
in
the
appeal
herein,
confirmed
them
and
the
appellant
appealed
against
them
to
the
Income
Tax
Appeal
Board,
which
dismissed
his
appeal.
It
is
from
that
decision
that
the
appeal
to
this
Court
was
brought.
I
have
no
hesitation
in
finding
that
the
appellant’s
appeal
against
his
income
tax
assessments
for
1953,
1954
and
1955
is
without
merit
and
should
be
dismissed.
As
I
understand
the
argument
advanced
on
his
behalf,
it
is
that
the
sums
of
money
and
benefits
that
he
received
in
1953,
1954
and
1955
from
the
Company
under
the
agreement
of
June
4,
1953,
were
part
of
the
consideration
to
him
for
the
sale
by
him
to
Messrs.
Morrow,
Lee
and
Smith
of
the
pooled
shares
and
control
of
the
Company
and
that,
consequently,
they
were
not
items
of
income
to
him
but
were
capital
payments
for
the
sale
of
a
capital
asset.
That
being
the
position
taken
on
behalf
of
the
appellant,
it
was
submitted,
in
support
of
it,
that
the
agreement
of
June
4,
1958,
filed
as
Exhibit
10,
was
not
a
contract
of
employment
of
the
appellant
in
an
advisory
or
consultive
capacity’’,
as
it
purported
to
be,
but
was,
in
fact,
a
device
arranged
by
Messrs.
Morrow,
Lee
and
Smith
whereby
the
amounts
of
salary
and
the
value
of
the
benefits
received
by
the
appellant
under
the
contract
were
paid
by
the
Company
instead
of
by
them
as
part
of
the
consideration
to
the
appellant
for
the
sale
by
him
to
them
of
the
pooled
shares
and
control
of
the
Company
over
and
above
the
amount
of
$16
per
share
which
they
had
paid
themselves.
The
submission
thus
put
forward
should
be
rejected
out
of
hand.
The
contract
for
the
sale
of
the
shares
and
control
of
the
Company
was
between
the
appellant
on
the
one
hand
and
Messrs.
Morrow,
Lee
and
Smith
on
the
other
and
the
Company
was
not
a
party
to
it
in
any
sense,
directly
or
indirectly.
Yet
the
submission
carries
the
implication
that
it
was
intended
by
Messrs.
Morrow,
Lee
and
Smith,
with
the
concurrence
of
the
appellant,
that
the
agreement
of
June
4,
1953,
should
be
a
device
whereby
the
Company
would
pay
part
of
the
consideration
to
the
appellant
for
the
sale
by
him
to
Messrs.
Morrow,
Lee
and
Smith
of
the
pooled
shares
and
control
of
the
Company,
notwithstanding
the
fact
that
the
Company
would
thereby
be
using
its
funds
in
part
payment
of
an
obligation
under
a
contract
to
which
it
was
not,
and
could
not
be,
a
party
and
for
a
purpose
for
which
they
could
not
lawfully
be
used,
namely,
assisting
in
the
purchase
of
its
own
shares
by
three
of
its
shareholders,
namely,
Messrs.
Morrow,
Lee
and
Smith,
from
another
shareholder,
namely,
the
appellant.
No
authority
is
required
for
rejecting
a
construction
of
the
agreement
of
June
4,
1953,
that
carries
such
an
implication.
Moreover,
the
terms
of
the
agreement
are
clear
and
it
is
free
from
ambiguity.
Consequently,
it
is
not
permissible
to
adduce
evidence
with
a
view
to
varying
or
contradicting
its
terms
or
showing
that
it
was
different
from
what
it
purported
to
be.
The
decision
of
Cameron,
J.,
in
Salter
v.
M.N.R.,
[1946]
Ex.
C.R.
634;
[1947]
C.T.C.
29,
on
which
counsel
for
the
appellant
so
strongly
relied,
cannot,
therefore,
be
of
any
assistance
to
him,
for
it
has
no
bearing
on
the
facts
of
the
present
case.
In
my
opinion,
the
fallacy
in
the
argument
on
the
appellant’s
behalf
lies
in
the
failure
to
distinguish
between
the
contract
of
employment
of
the
appellant
by
the
Company
on
the
one
hand
and
the
contract
for
the
sale
of
the
pooled
shares
and
control
of
the
Company
between
the
appellant
and
Messrs.
Morrow,
Lee
and
Smith
on
the
other.
I
see
no
reason
for
excluding
the
evidence
of
the
appellant
relating
to
the
events
that
led
to
his
giving
Messrs.
Morrow,
Lee
and
Smith
an
option
to
purchase
the
pooled
shares
and
their
exercise
of
it,
but
it
is
essential
that
the
true
nature
of
the
transaction
from
which
the
issue
in
the
appeal
herein
arises
should
be
determined.
That
requires
consideration
of
the
appellant’s
letter
of
May
14,
1953,
Exhibit
7,
in
which
he
gave
an
option
to
Messrs.
Morrow,
Lee
and
Smith
to
purchase
the
pooled
shares,
their
letter
of
reply
of
June
1,
1953,
Exhibit
8,
in
which
they
exercised
the
option,
the
agreement
between
Messrs.
Morrow,
Lee
and
Smith
and
the
appellant
of
June
1,
1953,
Exhibit
9,
whereby
they
undertook
to
procure
a
contract
of
employment
of
the
appellant
by
the
Company
and
the
contract
of
employment
of
June
4,
1953,
Exhibit
10.
The
appellant’s
letter
of
April
20,
1953,
Exhibit
4,
must
also
be
considered
in
view
of
the
fact
that
it
was
referred
to
in
the
appellant’s
letter
of
May
14,
1953,
and
the
letter
of
reply
to
it
of
June
1,
1953.
These
documents
prove
conclusively
that
the
undertaking
of
Messrs.
Morrow,
Lee
and
Smith
to
procure
a
contract
of
employment
of
the
appellant
by
the
Company
after
he
had
ceased
to
be
an
officer
and
had
sold
all
the
shares
under
his
control
was
a
condition
precedent
to
there
being
a
contract
for
the
sale
of
the
shares
at
all.
The
appellant’s
letter
of
May
14,
1953,
makes
it
clear
that
his
offer
to
sell
the
pooled
shares
to
Messrs.
Morrow,
Lee
and
Smith
for
$16
per
share
was
made
‘‘on
condition
that
you
arrange
a
contract
of
employment
for
me
with
National
Sea
Products
Lid.’’
and
he
specified
the
terms
that
such
contract
must
contain.
Nor
was
there
any
doubt
in
the
minds
of
Messrs.
Morrow,
Lee
and
Smith
that
their
undertaking
to
arrange
such
a
contract
was
a
condition
of
the
option
which
the
appellant
had
given
to
them
and
of
their
exercise
of
it.
In
their
agreement
with
the
appellant
of
June
1,
1953,
Exhibit
9,
it
was
stated
in
the
recitals
that
the
appellant
had
given
them
an
option
to
purchase
more
than
50
per
cent
of
the
shares
of
the
Company
and
that
they
had
agreed
as
a
condition
to
the
exercise
of
the
said
option
to
make
arrangements
for
a
contract
of
employment
between
the
Company
and
the
appellant
on
the
terms
indicated
in
the
option
and
they
covenanted,
promised
and
agreed
to
and
with
the
appellant
to
procure
the
execution
and
delivery
by
the
Company
of
the
contract
of
employment
which
he
had
insisted
upon.
Moreover,
their
letter
to
the
appellant
of
June
1,
1953,
Exhibit
8,
is
clear.
In
it
they
exercised
the
option
to
purchase
the
shares
at
$16
per
share
which
the
appellant
had
given
to
them
in
his
letter
of
May
14,
1953,
and
they
met
the
condition
to
which
his
offer
had
been
made
subject
by
submitting
their
undertaking
to
arrange
for
the
contract
of
employment
referred
to
in
his
letter.
They
then
closed
the
purchase
of
the
shares
by
enclosing
certified
cheques
for
$2,156,400,
in
payment
of
the
pooled
shares.
There
is
no
doubt
that
they
considered
this
to
be
the
full
amount
of
the
consideration
for
the
sale
of
the
shares.
The
expression
with
which
they
ended
their
letter
so
indicates,
namely,
‘‘which
we
calculate
to
be
the
purchase
price
for
the
shares
involved’’,
And
it
is
clear
that
the
appellant
himself
considered
the
sale
of
the
shares
complete,
for
he
noted
on
the
letter
of
June
1,
1953,
in
his
own
handwriting
that
the
transaction
was
“Completed”.
It
also
appears
from
his
notation
that
the
shares
were
transferred
to
Messrs.
Morrow,
Lee
and
Smith
on
June
1,
1953.
There
is
also
the
fact,
as
stated
by
him,
that
he
handed
in
his
resignation
as
president
and
director
of
the
Company.
I
find,
therefore,
if
any
finding
to
that
effect
is
really
necessary,
that
the
contract
of
employment
of
the
appellant
by
the
Company
of
June
4,
1953,
was
not
a
part
of
the
contract
for
the
sale
by
the
appellant
to
Messrs.
Morrow,
Lee
and
Smith
of
the
pooled
shares
and
control
of
the
Company.
The
fact
that
the
appellant
insisted
on
the
arrangement
of
such
a
contract
as
a
condition
of
his
offer
to
sell
the
shares
did
not
make
it
such.
The
contract
of
employment
could
not
lawfully
be
a
part
of
the
contract
of
sale
and
it
was
not
intended
by
the
appellant
or
Messrs.
Morrow,
Lee
and
Smith
that
it
should.
The
two
contracts
were
separate
contracts,
although
the
making
of
the
arrangement
for
the
one
was
a
condition
of
the
other
being
made.
It
follows,
of
course,
that
the
payments
and
benefits
received
by
the
appellant
under
his
contract
of
employment
with
the
Company
were
not
part
of
the
consideration
to
him
for
his
sale
of
the
pooled
shares
to
Messrs.
Morrow,
Lee
and
Smith.
They
could
not
lawfully
be
part
of
such
consideration
and
it
was
never
intended
that
they
should
be.
They
were
not,
therefore,
capital
payments
to
the
appellant
for
the
sale
by
him
on
a
capital
asset.
While
this
finding
disposes
of
the
argument
advanced
on
the
appellant’s
behalf,
I
should
also
determine
the
nature
of
the
sums
of
money
and
benefits
that
the
appellant
received
from
the
Company.
In
my
opinion,
there
cannot
be
any
doubt
about
their
nature.
They
were
received
by
the
appellant
pursuant
to
the
terms
of
the
agreement
of
June
4,
1953,
whereby
the
Company
agreed
to
employ
the
appellant
in
an
advisory
or
consultive
capacity
and
were
clearly
items
of
income
to
him
from
employment
within
the
meaning
of
Sections
3
and
5
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148,
and
taxable
accordingly.
Section
3
provides
as
follows
:
“3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purposes
of
this
Part
is
his
income
for
the
year
from
all
sources
inside
or
outside
Canada
and,
without
restricting
the
generality
of
the
foregoing,
includes
income
from
all
(a)
businesses,
(b)
property,
and
(c)
offices
and
employments.”
and
Section
5
provides,
in
part:
“5.
Income
for
a
taxation
year
from
an
office
or
employment
is
the
salary,
wages
and
other
remuneration,
including
gratuities,
received
by
the
taxpayer
in
the
year
plus
(a)
the
value
of
board,
lodging
and
other
benefits
(.
.
.)
received
or
enjoyed
by
him
in
the
year
in
respect
of,
in
the
course
of
or
by
virtue
of
the
office
or
the
employment
;
’
’
I
should
also
refer
to
the
definition
of
the
term
‘‘employment”
in
Section
139(1)
(m)
of
the
Act.
It
is
as
follows:
‘139.
(1)
In
this
Act,
(m)
employment
’
means
the
position
of
an
individual
in
the
service
of
some
other
person
(including
Her
Majesty
or
a
foreign
state
or
sovereign)
and
servant’
or
‘employee’
means
a
person
holding
such
a
position.”
It
may
be
fairly
deduced
that
the
Company
regarded
the
payments
that
it
made
under
the
contract
of
June
4,
1953,
as
payments
of
salary.
There
is
no
direct
evidence
of
how
it
treated
the
payments,
but
it
appears
from
the
notices
of
re-assessment
and
assessment
for
the
years
under
review
that
deductions
at
the
source
had
been
made
by
it
from
the
amounts
of
salary
payable
to
the
appellant
under
the
contract
and
it
would
be
surprising,
in
view
of
such
deductions,
if
it
did
not
deduct
the
amounts
as
operating
expenses.
And
there
is
no
doubt
that
the
appellant
himself
considered
the
payments
as
items
of
taxable
income,
for
he
included
them
in
his
income
tax
returns
for
the
years
under
review.
In
each
of
these
returns
he
described
the
Company
as
his
employer
and
certified
that
the
information
given
in
his
return
was
true,
correct
and
complete
in
every
respect.
It
is
not
surprising,
therefore,
that
in
his
notice
of
objection
to
the
assessments
levied
against
him
for
1953
and
1954
there
was
no
objection
to
the
inclusion
of
his
salary
payments
as
items
of
taxable
income,
his
only
objection
being
to
the
inclusion
of
the
amounts
at
which
the
Minister
had
valued
the
benefits
that
he
received
apart
from
his
salary.
It
is
obvious,
under
the
circumstances,
that
the
argument
advanced
on
the
appellant’s
behalf
to
which
I
have
referred
earlier
in
these
reasons
was
an
afterthought
with
a
view
to
freeing
him
from
an
income
tax
liability
to
which
he
was
plainly
subject.
In
my
opinion,
the
contract
of
employment
of
June
4,
1953,
between
the
Company
and
the
appellant
is
exactly
what
it
purports
to
be.
There
is
no
doubt
that
the
appellant
could
have
successfully
sued
the
Company
on
it
if
it
had
refused
to
carry
out
its
terms
and
it
could
not
have
defended
the
action
on
the
ground
that
the
contract
was
not
what
it
purported
to
be.
Moreover,
the
contract
contains
the
very
terms
that
the
appellant
had
insisted
upon
as
a
condition
of
his
offer
to
sell
the
pooled
shares
to
Messrs.
Morrow,
Lee
and
Smith.
There
is
no
doubt
that
he
desired
the
contract
of
employment
that
they
had
arranged
for
him.
I
have
already
referred
to
the
fact
that
the
draft
agreement
that
was
submitted
to
him
on
May
29,
1953,
filed
as
Exhibit
9A,
contained
a
provision
whereby
the
Company
agreed
to
employ
him
‘‘in
an
executive
and/or
consultive
capacity”,
for
he
knew
that
he
was
not
going
to
be
an
officer
of
the
Company.
There
is
no
doubt
that
he
intended
to
put
himself
in
the
position
of
a
person
who
was
employed
in
the
service
of
the
Company
and
entitled
to
receive
the
salary,
retiring
allowance
and
benefits
in
respect
of
such
employment
that
were
specified
in
his
contract
of
employment.
Moreover,
the
terms
of
the
agreement
are
clear
and
free
from
ambiguity
and
neither
the
appellant
nor
the
Company
could
be
heard
to
deny
them.
The
Company
has
not
sought
to
do
so
and
the
appellant’s
attempt
to
do
so
should
not
be
allowed
to
succeed.
If
the
appellant
had
continued
to
be
the
president
of
the
Company
he
would
have
received
the
salary
of
that
position
and
been
subject
to
income
tax
in
respect
of
it.
It
would
surely
be
absurd
to
say
that
his
salary
of
the
same
amount
for
employment
‘‘in
an
advisory
or
consultive
capacity”
was
free
from
income
tax.
The
fact
that
the
appellant
was
never
asked
by
Mr.
Morrow,
Mr.
Lee
or
Mr.
Smith
to
render
any
service
to
the
Company
under
his
contract
of
employment
and
that
he
never
rendered
any
service
is
immaterial.
If
he
had
sued
on
the
contract
for
failure
on
the
part
of
the
Company
to
comply
with
its
terms
it
would
not
have
been
a
valid
defence
on
its
part
that
it
had
never
asked
him
for
advice
or
consulted
him.
The
Company
could
have
called
upon
him
if
it
had
wished
to
do.
The
fact
that
it
did
not
do
so
could
not
affect
his
rights
under
the
contract
or
prevent
the
payments
or
benefits
from
being
payments
and
benefits
from
employment.
For
the
reasons
given
I
have
no
hesitation
in
finding
that
the
sums
of
money
and
the
value
of
the
benefits
received
by
the
appellant
from
the
Company
in
the
years
under
review
were
items
of
income
to
him
from
employment
within
the
meaning
of
the
Act
and
taxable
accordingly.
The
Minister
was,
therefore,
right
in
assessing
him
as
he
did
and
his
appeal
herein
must
be
dismissed
with
costs.
Judgment
accordingly.
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