Clare Leckie, Executrix or the Estate of Adam Newton Leckie v. Minister of National Revenue, [1966] CTC 309, 66 DTC 5237

GIBSON, J.:—This is an appeal and cross-appeal from the decision of the Tax Appeal Board dated November 12, 1965 concerning the tax levied against the estate of Adam Newton Leckie under the Estate Tax Act. The deceased died on January 2,1962 resident at Oakville, Ontario and domiciled in the Province of Ontario. The total value of this estate was $818,851.10. The estate has paid Ontario succession duties.

The issue on both appeal and cross-appeal is whether the deductions, sometimes called the provincial tax credits, on certain property passing on the death of the deceased, calculated and prescribed by Section 9 of the Estate Tax Act, are allowable to this estate.

The property passing on the death of the deceased with which the appeal is concerned consists of 30,001 common shares and 165 preferred shares in the public company known as Leckie Enterprises Limited, having a value of $607,514.75. The provincial credit if allowable would amount to somewhere between eighty and ninety thousand dollars.

The property passing on the death of the deceased with which the cross-appeal is concerned consists of 300 shares of Anglo Newfoundland Development Company Limited having a value of $2,925.

Insofar as the subject matter of the cross-appeal is. concerned, I am of the opinion that there is no error in law in the decision of the Tax Appeal Board and therefore the cross-appeal is dismissed with costs.

As to the subject matter of the appeal, namely, the shares in Leckie Enterprises Limited, the provincial tax credit from the aggregate taxable value is allowable to this estate if the situs of these shares for the purpose of the Estate Tax Act was the Province of Ontario and not the Province of Manitoba. The Tax Appeal Board found that these shares did not have such a situs within the Province of Ontario.

The rules for determining the situs of the subject matter of this appeal for the purposes of the Estate Tax Act are set out in Section 9(8)(d)(i). In brief this statutory provision says that such situs is ‘‘in the province where the deceased was domiciled at the time of his death, if any register of transfers or place of transfer is maintained by the corporation in that province . . .’’

There is no dispute about the fact that the deceased was domiciled in the Province of Ontario at the time of his death and the parties have agreed that Leckie Enterprises Limited kept only one ‘‘register of transfers’’ of shares and it was kept at Winnipeg, Manitoba.

The issue for decision therefore resolves itself into the question of whether or not on the facts of this case the corporation Leckie Enterprises Limited maintained a ‘‘place of transfer’’ for its shares in the Province of Ontario within the meaning of Section 9(8) (d) (i) of the Estate Tax Act.

The Estate Tax Act does not define “place of transfer’’. The only evidence adduced dealing specifically with these words was to the effect that public corporations with large numbers of shareholders often maintain one or more recognized trust company offices as places of transfer of its shares, but that a corporation such as Leckie Enterprises Limited never does. The meaning therefore of ‘‘place of transfer’’ in this case must be determined from all the other facts adduced.

The parties have agreed to the following Statement of Facts: ‘‘1. The deceased, Adam Newton Leckie, died testate on the 2nd day of January, A.D. 1962.

2. Under the last will and testament of the deceased, probate of which was granted to the Appellant by the Surrogate Court for the County of Halton, Province of Ontario, on the 17th day of April, 1962, the Appellant was appointed the sole executrix of his will.

3. At the time of his death, and for at least ten years prior thereto, the deceased was domiciled and resident in the County of Halton in the Province of Ontario.

4. At the date of his death, the deceased was the beneficial owner of 30,003 common shares of Leckie Enterprises Limited, being all of the issued and outstanding common shares of the said company. 30,001 of the common shares at the date of death were registered in his name, and the other two were registered in the names of nominees for the deceased. The deceased was the beneficial owner of 165 preferred shares of Leckie Enterprises and Hunter Enterprises was the beneficial owner of 100 preferred shares being the balance of preferred shares which had been issued and had not been redeemed at the date of death.

5. Leckie Enterprises Limited was incorporated on the 2nd day of October, 1957, under the provisions of the Manitoba Companies Act.

6. The head office of Leckie Enterprises Limited was at all times at the City of Winnipeg.

7. At the date of the death of the deceased, Leckie Enterprises Limited kept only one register for the transfer of shares, which register was kept at the head office of the Company at the City of Winnipeg, and at no time had the directors appointed any place, within the meaning of s.s. 1 of sec. 346 of the Manitoba Companies Act for the keeping of a branch register of transfers.

8. At the meeting of the first or provisional directors of Leckie Enterprises Limited, held on the 7th day of October, A.D. 1957, By-Law Number 1, being a by-law relating generally to the transaction of the business and affairs of the company was passed, and at the first general and special general meeting of the shareholders of Leckie Enterprises Limited, held on 7th October, 1957, the said By-Law was passed, sanctioned and confirmed by the shareholders.

9. Anglo Newfoundland Development Company Limited was incorporated under the provisions of the Companies Act of Newfoundland, R.S.N. 1952, c. 168, and the registered office of the company was in St. John’s, Newfoundland.

10. Anglo Newfoundland Development Company was authorized by its Articles of Association to keep a branch register of members outside of the province of Newfoundland, and at the time of the deceased’ death, kept a branch register in the Province of Ontario.

11. At the date of death, the deceased was the beneficial owner of 300 common shares of Anglo Newfoundland Development Company Limited. These shares were never transferred by the estate following the death of Adam Newton Leckie, the said shares being redeemed by the company in the month of July, 1962, and the redemption price being paid directly to the Executrix in the Province of Ontario some time during the said month. No releases were ever required by the Province of Newfoundland and no proceedings of any kind were had or taken in the Province of Newfoundland with respect to the transfer of the said shares.

12. The Province of Ontario was a prescribed province, but neither the Provinces of Manitoba nor Newfoundland were prescribed provinces, within the meaning of sec. 9 of the Estate Tax Act.

13. The parties agree that the following documents shall be admitted in evidence without formal proof and shall form part of this Agreed Statement of Facts:

(a) Letters Probate of the Surrogate Court of the County of Halton, dated 17th of April, 1962, of Last Will and Testament of the deceased, with a certified copy of the Last Will and Testament of Adam Newton Leckie attached thereto;

(b) Letters Patent of Leckie Enterprises Limited, dated 2nd day of October, A.D. 1957;

(c) By-Law Number 1 of Leckie Enterprises Limited.’’

The evidence adduced at the trial of this action established the kind of company that Leckie Enterprises Limited is and how it operated. It is a public company incorporated under the Manitoba Companies Act. Mr. D. A. Thompson, Q.C., Winnipeg, Manitoba, gave evidence that at the material time only public companies could be incorporated under the Manitoba Compames Act. He described from the minute book Exhibit A-4 and the so-called stock ledger Exhibit A-5 how in fact this company did operate.

This evidence established that the late Adam Newton Leckie was the sole beneficial shareholder and the sole operative officer and sole director with authority of this company; that in the minute book of the company ex post facto from time to time were recorded various transactions entered into by the late Mr. Leckie which required some corporate record ; that there was no reference in the minutes of the company to the maintaining of any register of transfers of shares’’ or “place of register’’.

In brief, the evidence established that the late Mr. Leckie operated Leckie Enterprises Limited as if it had been a sole proprietorship owned by him.

The so-called share ‘‘register of transfers’’ in fact consisted merely of stubs from printed forms of share certificates. And at all material times the actual share certificates were endorsed in blank, and in such street form were pledged to and were in the custody of the Bank of Montreal head office branch in Winnipeg, Manitoba as collateral security for a loan, so that the ‘‘register of transfers’’ that the parties have agreed was kept at Winnipeg was a very basic thing, but quite satisfactory for a company such as this.

The problem is what would a company such at this do to maintain a ‘‘place of transfer’’. Certainly, as indicated in the evidence, it would be ridiculous for it to have a public trust company as such, which, as stated, a company with many public shareholders often does.

To reach a practical answer to this problem, it is relevant to keep in mind that the deceased Adam Newton Leckie considered and treated Leckie Enterprises Limited as part of himself, in the same manner as so many lay persons do in reference to corporations they wholly own and control. They do not look on such corporations as third parties separate and distinct from themselves even though legally it is uncontrovertible that such corporations are separate legal entities.

Taking this into consideration, there is no doubt in my mind on the facts of this case that the deceased in effect considered the shares of Leckie Enterprises Limited could be transferred at any material time where he was, as, for example, where he resided, namely, in Oakville, Ontario. The question is whether or not this is sufficient to constitute Oakville a place of transfer to bring it within the statutory prescription that the corporation at the time of the deceased’s death must in fact have maintained a “place of transfer’’ in the Province of Ontario before the provincial credit to this estate is allowable.

It is unequivocal that this statutory provision is remedial and it is also patent on the facts of this case that a grievous injustice and absurd result will obtain if this estate is denied this deduction of provincial tax credit.

On considering this subsection in the Estate Tax Act it would seem clear that this provision was enacted having in mind the usual situation that obtains with a public corporation, namely, a large number of public shareholders, substantial corporate staff, good corporate business practice which would dictate the necessity of having a register of transfers of shares and places of transfer in all provinces where there were any number of shareholders, and so forth. But this provision also in law does apply to Leckie Enterprises Limited which it is clear is an entirely different kind of corporation and one which the drafters of the legislation may not have had in mind. But the proper rules of construction of statutes must also apply to the case of this corporation.

Important among these rules is the rule prescribing that where there are two constructions, the one which will do injustice and the other which will avoid that injustice and will keep exactly within the purpose for which the statute was passed, the court should always adopt the second and not adopt the first of these constructions. In many cases the courts have applied this rule of construction.

Also without breaching any of the principles of law set out in Salomon v. Salomon & Co., [1897] A.C. 22 in many other cases the courts have lifted the corporate veil so as to come to a correct conclusion in law on the facts of the matters before the courts.

An example of this is the situation where the court has been called upon to determine whether there was any basis for granting a company winding-up order. (See Re Bondi Better Bananas et al., [1951] O.R. 845; and Re R. C. Young Insurance Ltd., [1955] O.R. 598.)

Another example is the situation in which the court was called upon to decide whether during the first war a corporation whose shareholders were alien enemies could institute an action against an English company for payment of a debt where payment of a debt was prohibited as trading with the enemy. (See Daimler Company, Limited v. Continental Tyre and Rubber Company (Great Britain), Limited, [1916] 2 A.C. 307.)

There are also cases in which the court for the purposes of certain statutory offences has found that a corporation can have mens rea. (See the reference to the ‘‘brains of the company” in John Henshall (Quarries) Ltd. v. Harvey, [1965] 2 W.L.R. 758.)

The principles enunciated however in the numerous cases establishing the jurisprudence as to the situs of shares for purposes other than Section 9 of the Estate Tax Act are not helpful in deciding the issue here; and the provisions of the Manitoba Companies Act are irrelevant.

Instead, in this case I am of the opinion that applying the said rule of statutory construction and lifting the corporate veil of Leckie Enterprises Limited the correct conclusion in law will be reached in this case.

In doing so the finding of fact and law must be and is that the will of Leckie Enterprises Limited for the purposes of Section 9(8) (d) (i) of the Estate Tax Act was that of the late Adam Newton Leckie its sole beneficial shareholder and sole operative officer and sole director with authority at all material times; that the late Adam Newton Leckie also at all material times considered that where he was domiciled and resided, namely, for example, Oakville in the County of Halton in the Province of Ontario was a ‘‘place of transfer’’ for the shares of Leckie Enterprises Limited ; and that Leckie Enterprises Limited at the time of the death of Adam Newton Leckie maintained a ‘‘place of transfer’’ for its shares in the Province of Ontario within the meaning of Section 9(8)(d)(i) of the Estate Tax Act.

The appeal is therefore allowed with costs and the matter referred back for re-assessment not inconsistent with these reasons. GEORGE SMITH BUCHANAN, Appellant,

and

MINISTER OF NATIONAL REVENUE, Respondent.

Exchequer Court of Canada (Cattanach, J.), on appeal from a decision of the Tax Appeal Board, reported 38 Tax A.B.C. 449.

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148—Section 5(1)—Voluntary payment received by employee on dismissal— Whether gift or income from employment.

On September 11, 1961 the appellant was summarily dismissed from his employment and was given a cheque for his salary up to that date. The next day he received a letter from the firm undertaking to pay him an additional amount of $1,903.80 so as to enable him either to return to Scotland with his family or to assist him in finding other employment in Canada. Although described as an arbitrary, freewill, ex gratia payment, it represented three months’ salary less income tax thereon. In the Minister’s view it was income from employment but the appellant viewed it as a gift.

HELD:

A voluntary payment by employer to employee might be a gift or it might be income received in the course of or by virtue of the employment, depending on the circumstances. The payment in question was identical to three months’ pay in lieu of notice and was treated by the employer as remuneration and the conclusion could not be escaped that it was intended as such rather than as a personal gift. Appeal dismissed.

CASES REFERRED TO:

Bridges v. Hewitt (1957), 37 T.C. 289;

Herbert v. McQuade, 11902] 2 K.B. 631;

Goldman v. M.N.R., [1953] 1 S.C.R. 211; [1953] C.T.C. 95;

Blakeston v. Cooper, [1909] A.C. 104;

Cowan v. Seymour (1919), 7 T.C. 372;

Seymour v. Reed, [1927] A.C. 554.

W. D. Goodfellow, for the Appellant.

D. G. H. Bowman, for the Respondent.

CATTANACH, J.:—This is an appeal from a decision of the Tax Appeal Board, 38 Tax A.B.C. 449, dated June 28, 1965 whereby an appeal from the appellant’s assessment to income tax for his 1961 taxation year was dismissed. The Board held that an amount of $1,903.80 had been properly included by the Minister as part of the income received by the appellant in the taxation year in question.

The appellant, who had been a solicitor in Scotland, came to Canada in the fall of 1957 with a view to bettering his fortunes. He did not have any commitment of specific employment but he was armed with a letter of introduction to the then President of the Law Society of Alberta who was also, at that time, a member of the well-known and established legal firm of Chambers, Might, Saucier, Peacock, Jones, Black and Gain of the City of Calgary, in the Province of Alberta. The appellant discussed with the then president of the Law Society the possibility of and requisite steps to qualifying as a barrister and solicitor in Alberta and also inquired concerning any oil companies which might have need for his services. He was offered employment in the above legal firm of a permanent nature as an articled law clerk, at the outset, at a salary of $600 per month which was a salary double his highest expectations. Naturally the appellant accepted that offer forthwith and began his duties in the mortgage department of that firm on September 12, 1957.

There was no written contract of employment, but only an oral agreement.

In October 1957 the appellant forwarded to his wife, who had remained in Scotland, sufficient funds from his own resources to enable his wife and son to travel to Calgary which they did, arriving in Calgary in November 1957. It was not a condition of the appellant’s employment that the legal firm should assume any responsibility for the expense to be incurred in moving the appellant’s family to Calgary but, if my recollection of the evidence serves me correctly, the firm did accommodate the appellant by assisting him in arranging a loan from a bank, which was a client, by way of endorsement of the appellant’s promissory note in order that he might establish living accommodation for himself and family.

After some time the appellant qualified as a barrister and solicitor and continued his duties in the mortgage department of the legal firm with two other solicitors. His salary was raised to $700 per month and later to $750 per month. During the latter portion of the appellant’s employment he became the sole solicitor in the mortgage department. The appellant complained to the management committee of the legal firm that the volume of mortgage work was getting beyond him which might result in delays as well as complaining about the soul-killing monotony of that type of work. He was given other work of a similar nature which was not performed to the satisfaction of the client of the firm and accordingly to the firm’s dissatisfaction.

On August 25, 1961 the management committee by memorandum of that date, advised the appellant that his usefulness to the firm was limited as he had not demonstrated qualities which would enable him to take charge of the mortgage department and that if he wished to remain with the firm it would be on the basis that his salary would be reduced to $500 per month as from September 1, 1961, that he would do such mortgage work as was allocated to him under the supervision of a member of the firm placed in charge of the mortgage department and that his employment was henceforth probationary.

Shortly thereafter, on September 11, 1961, Mr. J. J. Saucier, a senior member of the firm and chairman of the firm’s management committee received a report of complaints respecting the appellant’s personal conduct which was of such a nature as to cause him to convene an immediate and emergency meeting of the committee. The bases of the complaints so made were thoroughly investigated and in the opinions of the members of the committee were substantiated and warranted the appellant’s summary dismissal without notice. The appellant was then summoned to Mr. Saucier’s office, where, in the presence of Mr. Roberts, the office manager, Mr. Saucier informed the appellant of their findings of his misconduct which were the reasons for his dismissal and thereupon dismissed him effective as of five o’clock, the closing of office hours on that day. The appellant protested the truth of the allegations made against him. He was given a cheque in the amount of $529.53 being the amount of his salary accrued to that date plus two week’s salary in lieu of holidays to which the appellant was entitled but had not taken. No deduction was made from this amount for income tax at that time. Mr. Saucier also informed the appellant that he would be written a letter confirming his dismissal.

The next day, September 12, 1961, Mr. Saucier wrote such confirmatory letter to the appellant which was received by him on September 14, 1961 the text of which reads as follows:

This will confirm my interview with you yesterday afternoon, at which our Mr. Roberts was present, when I dismissed you from the service of this firm, as of the close of business yesterday, upon grounds which I stated to you, and which our Management Committee considered sufficient to warrant your immediate dismissal without notice.

You received at that time, a cheque for $529.53, being the amount of your salary accrued to that date, plus two weeks’ salary in lieu of holidays you had been entitled to but had not taken, (no deduction being made for income tax).

As I indicated to you, we do not consider that you are entitled to any further payment, but we do recognize that you moved your wife and children from Scotland to Calgary, in reliance upon what we had all hoped would be a permanent position with this firm. Notwithstanding the grounds which led to your dismissal, we wish to provide you with some financial assistance, to enable you to seek further employment, or to return to Scotland with your family. Therefore, as a matter of grace, we will pay to you the further sum of $1,903.80 (less deductions for income tax thereon and on the amount you received yesterday), by equal semi-monthly instalments of $317.30 each (less such deduction), on the 15th and last days of each month, commencing the 30th day of September, 1961, on the understanding that, if you wish to move your family in the meantime, we will consider a joint application of your wife and yourself, for prepayment of the balance then outstanding. ’ ’

The amount of $1,903.80, the taxability of which is the issue in the present appeal, had not been demanded by the appellant, nor had the payment thereof been discussed with him at the time of his dismissal, his first intimation thereof being upon receipt of the above letter.

The matter of an ex gratia payment had been discussed by the management committee during its emergency meeting at which it decided to make such payment. Mr. Saucier testified that the appellant’s wife was known to the members of the management committee, who held her in high esteem, that they were aware of the precarious cash position of the appellant from their knowledge of an outstanding bank loan they had assisted him to obtain and that the amount of $1,903.80 was a purely arbitrary figure suggested and determined upon by the committee as being an adequate amount to enable the appellant to return to Scotland with his family.

It so happens, however, that this amount of $1,903.80 is also the appellant’s salary for three months at the rate of $750 per month less a deduction of $60 per month for income tax and less a further deduction for income tax which had not been made from the cheque for $529.58 previously given to the appellant and representing accrued salary and holiday pay.

The appellant did not avail himself of the offer in the third paragraph of the letter dated September 12, 1961 quoted above whereby upon a joint application with his wife for prepayment of the entire amount or any balance thereof would be paid forthwith, but rather chose to remain in Calgary. He was unemployed from September 11, 1961 until mid-November 1961 at which time, I observe from the appellant’s income tax return, he obtained employment. Meanwhile he received semi-monthly payments totalling $1,903.80 in accordance with the undertaking in Mr. Saucier’s letter. These payments were recorded upon a form entitled “Employees’ Earning Record’’ completed by the legal firm.

On the T4 form being a statement of remuneration paid, prepared by the appellant’s employer, Chamber, Might & Co. and supplied to the appellant in duplicate, one copy of which was attached by him to his income tax return for 1961, it was indicated that the appellant was employed for twelve months and that his salary or wages before deductions totalled $8,433.33. The appellant made corrections thereon in ink, changing the number of months employed from twelve to eight and one-half, substituting $6,529.53 as his total of salary or wages which he arrived at by deducting the sum of $1,903.80 from the sum of $8,433.33 and inserting the figure of $1,903.80 in a space on the form entitled ‘‘Lump Sum Payments’’. In a notation appended to his 1961 income tax return the appellant described the deduction of $1,903.80 as a ‘‘Settlement for Relocation’’.

Counsel for the appellant contended that the payment of $1,903.80 now in question, although prompted by the employeremployee relationship which had subsisted between the appellant and the legal firm until its abrupt termination on September 11, 1961, was a gift or benefaction of an exceptional kind, personal to the appellant and motivated by altruistic considerations of the former employer for the appellant’s wife and family.

I assume, as an original premise, that gifts, as such, are not chargeable to income tax. The important question, however, is whether the employment of the appellant was the source of the benefit received by him. It does not necessarily follow, as was pointed out by counsel for the appellant, from the fact that an amount is received by an employee from a firm by whom he was employed that it is chargeable to tax {vide Bridges v. Hewitt (1957), 37 T.C. 289. Whether a benefit received by a taxpayer was received by him ‘ ‘ in respect of, in the course of, or by virtue of the office or employment’’ must be considered in relation to the particular circumstances in which it was received.

Counsel for the Minister contended that the sum formed part of the appellant’s income from his office or employment by virtue of Sections 5(1) and 25 of the Income Tax Act because,

(1) it constituted salary, wages or other remuneration or other benefit received or enjoyed by him in respect of, in the course of, or by virtue of the office or employment, or

(2) it was an amount received by him from the legal firm on account of, or in lieu of payment of, or in satisfaction of an obligation arising out of an agreement made by the legal firm with the appellant immediately prior to the period that the appellant was in the employment of the firm and accordingly is deemed, for the purposes of Section 5, to be remuneration for the appellant’s services.

Alternatively counsel for the Minister contended that the sum is to be included in computing the appellant’s income by virtue of Section 6(1) (a) (v) as a retiring allowance within the meaning of Section 139(1) (aj) of the Act.

The provisions of the Income Tax Act, R.S.C. 1948, c. 52 which I consider pertinent to the present appeal are reproduced hereunder :

“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 for the year from all

(a) businesses,

(b) property, and

(c) offices and employments.

5. (1) 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 of any kind whatsoever (except the benefit he derives from his employer’s contributions to or under a registered pension fund or plan, group life, sickness or accident insurance plan, medical services plan, supplementary unemployment benefit plan or deferred profit sharing plan) received or enjoyed by him in the year in respect of, in the course of, or by virtue of the office or employment; . . .”

I am convinced, on the evidence adduced, that the appellant was dismissed upon grounds which warranted his summary dismissal without notice. In the absence of exceptional circumstances such as prevailed in the present instance, a contract of general or indefinite hiring, such as the oral contract of hiring entered into between the appellant and the legal firm, might be terminated on reasonable notice. What constitutes reasonable notice depends upon the grade of employment, If it were incumbent upon me to do so, which it is not, I would decide that, in the circumstances of the appellant’s employment, three months’ notice would be reasonable.

While the legal firm paid the appellant an amount equivalent to three months’ salary at $750 per month (less income tax thereon) it was under no legal obligation whatsoever to do so and the payment of that amount was purely voluntary. But a payment may be liable to income tax even though it was voluntary on the part of the person who made it.

In Herbert v. McQuade, [1902] 2 K.B. 631, Collins, M.R. said at page 649 :

. a payment may be liable to income tax although it is voluntary on the part of the persons who made it, and that the test is whether, from the standpoint of the person who receives it, it accrues to him in virtue of his office; if it does, it does not matter whether it was voluntary or whether it was compulsory on the part of the persons who paid it.’’

In Goldman v. M.N.R., [1953] 1 S.C.R. 211 at 219; [1953] C.T.C. 95 at 103, Rand, J., in commenting upon the foregoing extract, had this to say:

“In Herbert v. McQuade, it is said that the payment must be looked at from the standpoint of the person who receives it. While that aspect is no doubt relevant, the purpose of the donor or payer can be no less so. It is the latter’s mind which determines that the payment be made at all and the object to which it is referred. That, at the same time, we should have, on the part of the receiver, an acceptance in the same understanding furnishes a complementary circumstance which would seem to me to put the matter beyond controversy.”’

Mr. Saucier testified that the amount of $1,903.80 was a figure arbitrarily arrived at by the members of the management committee as being adequate to permit the appellant to return, with his family, to Scotland, or in the alternative, as put in the letter of dismissal dated September 12, 1961, to enable him to seek further employment. I have great difficulty in following how the amount was merely arbitrary other than in the sense that it need not have been given at all. I should have thought that an arbitrary amount would have been expressed in round figures, for example $2,250, being three months’ salary at $750. Further there appears to be an inaccuracy in Mr. Saucier’s letter when he states ‘‘Therefore, as a matter of grace, we will pay to you the further sum of $1,903.80 (less deductions for income tax thereon and on the amount you received yesterday) .. .’’. The resultant figure was in fact $1,903.80 from which no deductions were made, but rather the deductions were taken from the figure of $2,250 as well as from the accrued salary and holiday leave of $529.53 paid to the appellant on the day of his dismissal, but from which tax had not been deducted at that time so as to arrive at the figure of $1,903.80. There is no question in my mind that what the appellant was paid, and what the firm intended to pay to him, in addition to his accrued salary, was three months’ salary less tax deductions thereon. The firm was also generous in not restricting the amount to the appellant’s salary of $500 per month which became effective on September 1, 1961.

Mr. Saucier also testified that income deductions were made as a matter of caution to avoid any penalties under the Income Tax Act upon an employer who failed to deduct and remit the tax on employees’ salaries. In response to a question from myself Mr. Saucier intimated that the amount paid to the appellant had been included as an expense in arriving at the profits of the legal firm for the year in question.

There is no question that the legal firm in all its office procedures treated the payment as remuneration for the services of the appellant. It was described as salary, it was paid semimonthly, income tax deductions were made therefrom and it was reported as such.

The English authorities to which I was referred have decided that if the sum in question is received by a taxpayer by reason of his office, even if the payment is made voluntarily, it is taxable, but if it is a gift personal to the taxpayer and not by virtue of his office, then it is not taxable as a profit or gain of the office because it is not income received from the office. Where a gift of money is made by an employer to an employee under circumstances which lead to the conclusion that it was nothing more than extra remuneration to the taxpayer for his work, then that gratuitous payment is taxable.

In Blakeston v. Cooper, [1909] A.C. 104 a special Easter offering to augment a clergyman’s income was held to be taxable. It was argued that the offerings were personal non-official freewill gifts given to the vicar as marks of esteem and respect. While such reasons may have played their part in increasing the offerings, nevertheless, Lord Ashbourne had no doubt that they were given to the vicar as vicar and accordingly formed part of the profits accruing by reason of his office.

In Cowan v. Seymour (1919), 7 T.C. 372 a sum paid to the secretary of a company who had acted as liquidator without remuneration was held not to be taxable, the amount having been paid to him by the shareholders after the winding up as a tribute or testimonial personal to him and not as payment for services.

Later in Seymour v. Reed, [1927] A.C. 554 Viscount Cave stated the principle to be that Schedule E of the English Act rendered taxable,

“all payments made to the holder of an office or employment as such, that is to say, by way of remuneration for his services, even though such payments may be voluntary, but they do not include a mere gift or a present (such as a testimonial) which is made to him on personal grounds and not by way of payment for his services. ’ ’

He held that an award of the proceeds of a benefit match to a cricket player was not a profit accruing to him in respect to his office or employment, but was a personal gift to him. Benefit matches were arranged by a committee of the club which had an absolute discretion as to how the proceeds were to be applied and the player had no right to have them paid to him.

I take the question to be whether a pyament is in the nature of a personal gift or is it in the nature of remuneration. In this sense the words ‘‘ personal gift’’ are used in contradistinction to remuneration. Therefore, to say that a payment was intended as a personal gift is merely to say that it was not intended to be remuneration. An employer, for the purpose of assisting an employee whom he did, in fact, remunerate for his services, cannot relieve the employee from his obligation to pay income tax by saying that it was intended as a personal gift and not remuneration. This I believe to be the effect of Mr. Saucier’s evidence that the amount paid to the appellant was determined upon an arbitrary basis as being adequate to enable the appellant to return to Scotland. The payment was a gift in the sense that the legal firm was under no obligation to pay the appellant anything. But they did. The amount paid was identical to three months’ pay in lieu of notice. It was treated by the firm as remuneration and I cannot escape the conclusion that it was intended as such rather than as a gift personal to the appellant.

In my view it therefore follows that the payment was income in the hands of the appellant from an office or employment being a benefit received by the appellant in respect of, in the course of, or by virtue of the office or employment within the meaning of Section 5(1) (a) of the Income Tax Act.

Neither do I think that the fact that the appellant’s employment had been terminated when the payment was made, prevents the payment being taxable income (see Cowan v. Seymour (supra) ).

Because of the conclusion I have reached it is not necessary for me to consider the remaining arguments advanced on behalf of the Minister.

The appeal is dismissed with costs.