O’Connor T.C.J.:

This appeal was heard at Vancouver, British Columbia on July 23 and July 24, 1998 pursuant to the General Procedure of this Court.

The issue is whether subsection 55(2) of the Income Tax Act (“Act’’) was applicable to dividends totalling $1.8 million paid by two wholly owned subsidiaries to their parent corporation in the 1991 fiscal year with the result that the dividends were to be treated as proceeds of disposition on a subsequent sale by the parent of one-third of the shares of the subsidiaries.