GIBSON,
J.:—Don
Finance
Co.
Ltd.
was
licensed
under
the
Small
Loans
Act,
R.S.C.
1952,
ce.
251,
from
1956
to
1958
and
carried
on
the
business
of
loaning
money
on
the
security
of
chattel
mortgages
in
the
City
of
Toronto,
Ontario.
The
original
investment
in
this
company
was
$50,000
and,
by
August
23,
1958,
which
is
the
material
date,
the
total
amount
of
loans
outstanding
was
only
about
$27,000.
On
August
23,
1958,
the
company
sold
all
its
chattel
mortgages
to
Industrial
Acceptance
Corporation,
Ltd.
for
the
total
amount
owing
on
the
chattel
mortgages
as
of
that
date,
plus
the
sum
of
$8,000.
Exhibit
A-3
is
a
copy
of
a
letter
from
Industrial
Acceptance
Corporation,
Ltd.
to
Don
Finance
Co.
Ltd.,
and
constitutes
the
only
contract
document.
After
that
time,
Don
Finance
Co.
Ltd.
surrendered
its
small
loans
licence
and
took
steps
to
surrender
its
charter
by
requesting
its
solicitors
to
do
so,
but
did
not
succeed
in
its
endeavour
because
it
could
not
get
an
income
tax
clearance.
Subsequent
to
this
time,
and
for
an
entirely
different
purpose,
the
company
commenced
business
again
after
certain
new
shareholders
had
acquired
an
interest
in
the
company
and
substantial
new
financing
was
introduced
in
the
company.
For
the
purpose
of
this
appeal,
however,
what
transpired
after
the
transaction
in
1958
with
Industrial
Acceptance
Corporation,
Ltd.
and
after
the
small
loans
licence
had
been
surrendered
and
steps
taken
to
surrender
its
charter
is
relevant.
Mr.
Richard
McDonald
Parkinson,
a
chartered
accountant
with
over
25
years’
experience
gave
in
evidence
his
accounting
opinion
that
the
outstanding
loans
of
this
company
as
of
August
23,
1958,
should
not
be
categorized
as
inventory.
He
stated
that
the
company
computed
its
income
on
a
cash
basis;
that
the
sum
of
$27,339.65
as
of
August
23,
1958,
represented
the
balance
of
all
monies
owing
from
debtors
of
Don
Finance
Co.
Ltd.;
that
as
of
that
date
there
were
no
chattel
mortgages
in
default;
and
that
the
$8,000,
over
and
above
the
balance
owing
by
the
debtors,
paid
by
Industrial
Acceptance
Corporation
Ltd.,
was
credited
directly
to
the
surplus
account
of
Don
Finance
Co.
Ltd.
and
not
to
its
profit
and
loss
account.
This
was
done,
he
said,
because,
in
his
opinion,
the
$8,000
was
an
unusual
gain
outside
the
ordinary
course
of
business
and
if
it
had
been
credited
to
the
profit
and
loss
account,
it
would
have
given
an
untrue
and
inaccurate
picture
of
the
normal
operating
profit
of
this
company.
Ted
Davy,
President
of
Don
Finance
Co.
Ltd.,
said
in
evidence
that
it
was
intended
as
of
August
23,
1958,
that
this
company
would
go
out
of
business
because
of
the
competition
of
other
companies
in
this
field
of
business
and
also
because
this
company
had
never
really
developed
a
substantial
business.
I
am
of
opinion
that
the
sale
made
to
Industrial
Acceptance
Corporation,
Ltd.
by
Don
Finance
Co.
Ltd.,
on
August
23,
1958,
was
not
made
for
any
purpose
other
than
to
go
out
of
the
finance
business.
I
am
also
of
opinion
that
Section
85F(4)
of
the
Income
Tax
Act
is
not
applicable
to
the
transaction
which
took
place
here
because,
in
my
opinion,
and
I
so
find,
part
of
what
was
sold
by
the
appellant
was
the
‘‘right’’
to
receive
a
receivable,
and
the
right
to
receive
a
receivable
is
not
in
itself
a
receivable.
I
am
also
of
opinion
that
these
chattel
mortgages
are
not,
for
the
purpose
of
the
Income
Tax
Act,
‘‘inventory’’
notwithstanding
the
definition
contained
in
Section
139(1)
(w)
of
this
Act.
In
this
respect,
I
must
respectfully
disagree
with
the
learned
opinions
set
out
in
Kendon
Finance
Company
Ltd.
v.
M.N.R.,
33
Tax
A.B.C.
149,
and
Cosmopolitan
Discount
Ltd.
v.
M.N.R.,
27
Tax
A.B.C.
373.
I
say
this
because
if
the
broad
interpretation
urged
as
the
meaning
of
inventory
in
this
subsection
is
correct,
then
many
of
the
other
sections
of
the
Income
Tax
Act
and
the
Regulations
under
the
Act
are
meaningless.
It
is
not
necessary
in
this
particular
case
to
give
a
broad
and
all
inclusive
meaning
to
that
definition
of
‘‘inventory’’
and
in
refraining
from
doing
so
a
common
sense
solution
to
this
problem
results.
I
am
further
of
opinion
that
in
so
restricting
the
definition
of
“inventory”
a
meaning
is
not
being
given
to
it
so
as
to
make
it
inconsistent
with
other
sections
of
the
Act
which
provide
in
themselves
what
is
tantamount
to
a
full
code.
To
categorize
these
chattel
mortgages
as
inventory
in
this
case
would
have
the
effect
of
making
it
in
conflict
with
other
sections
of
the
Act.
Section
85E
of
the
Income
Tax
Act,
it
follows,
has
no
application
to
the
facts
of
this
case.
I
therefore
find
that
the
$8,000
differential
paid
by
Industrial
Acceptance
Corporation,
Ltd.
to
Don
Finance
Co.
Ltd.,
over
and
above
the
sum
owing
by
the
debtors
to
Don
Finance
Co.
Ltd.,
as
of
August
23,
1958,
is
capital
profit
and
does
not
have
to
be
included
in
computing
the
appellant’s
income
for
the
1958
taxation
year.
The
appeal
therefore
is
allowed
with
costs.
Judgment
accordingly.
Email this Content