The
Assistant
Chairman:—This
is
the
appeal
of
BACM
Industries
Limited
from
an
assessment
of
the
appellant’s
1968
taxation
year
which
was
heard
in
Winnipeg
on
April
6,
1973.
The
point
in
issue
is
whether
an
amount
of
$60,186
claimed
by
the
appellant
in
1968
is
an
expense
incurred
in
the
course
of
issuing
or
selling
of
shares
of
the
capital
stock
of
the
taxpayer
within
the
meaning
of
subparagraph
11
(1
)(cb)(i).
In
1968
the
appellant,
pursuant
to
subparagraph
11
(1
)(cb)(i),
claimed
a
total
deduction
of
$227,358.01
as
expenses
incurred
in
the
course
of
issuing
and
selling
shares
of
its
capital
stock.
The
respondent
disallowed
the
amount
of
$60,186
on
the
grounds
that
this
amount
was
not
incurred
in
the
course
of
issuing
shares
of
the
taxpayer’s
capital
stock
within
the
meaning
of
subparagraph
11(1)(cb)(i)
and,
further,
was
not
incurred
in
the
course
of
borrowing
money
used
by
the
taxpayer
for
the
purpose
of
earning
income
from
a
business
or
property
pursuant
to
subparagraph
11
(1
)(cb)(ii).
In
my
view,
the
question
to
be
resolved
here
is
not
so
much
one
of
principle
nor
even
one
of
the
interpretation
of
subparagraphs
11
(1
)(cb)
(i)
and
(ii)
as
it
is
a
question
of
fact.
In
1967
BACM
Industries
Limited
envisaged
an
expansion
of
its
operations
in
the
provinces
west
of
Manitoba.
The
authorized
capital
of
the
appellant
company
at
that
time
was
4,000,000
common
shares
at
a
par
value
of
$5,
one-half
of
which
were
issued.
The
company
needed
money
for
the
proposed
expansion
of
its
operation
and
plans
for
the
financing
of
the
project
were
considered.
In
1961,
when
the
company
first
went
public,
the
required
funds
were
raised
on
the
American
market
by
means
of
convertible
debentures
which
were
popular
at
the
time.
In
the
fall
of
1967,
therefore,
the
financing
of
the
company’s
expansion
was
contemplated
by
means
of
convertible
debentures
on
the
New
York
Stock
Exchange.
In
February
of
1968
a
registered
statement
for
the
issue
of
convertible
debentures
was
filed
(Exhibit
A-2).
This
statement
contained
a
prospectus
giving
the
history
of
the
company,
the
balance
sheet,
and
an
indication
of
its
proposed
expansion
without
mentioning
any
specific
proposed
acquisitions.
In
May
of
1968
there
was
an
updating
of
the
information
contained
in
the
registration
statement
of
February.
The
negotiations
which
had
been
proceeding
for
some
time
with
a
number
of
western
industries
known
as
the
“standard
group”
were
finalized
and
were
specifically
mentioned
in
the
registration
statement.
Moreover,
it
was
found
that
because
the
interest
rates
had
risen
by
2
to
2
/2%,
the
issue
of
convertible
debentures
was
less
attractive
to
the
company.
Convertible
debentures
were
considered
by
the
company’s
financial
advisers
as
being
at
that
time
less
popular
with
the
public
than
shares.
The
company
then
decided
it
had
to
go
to
the
shares
market
which
decision
was
followed
up
by
a
first
amendment
to
the
registered
statement
to
the
effect
that
instead
of
convertible
debentures
the
company
would
issue
200,000
shares
of
its
capital
stock.
This
decision
was
again
amended
and
the
number
of
shares
to
be
issued
was
increased
from
200,000
to
300,000
so
as
to
raise
$4,000,000.
The
financial
statement
in
the
registration
statement
was
again
updated
by
a
second
amendment.
At
that
time
the
stock
prices
were
declining
in
the
United
States
and
the
company
would
have
received
only
$13
per
share
which
was
considered
an
insufficient
return.
The
appellant
company
then
entered
into
an
agreement
with
Soge-
mines
Limited
in
which
it
raised
$3,300,000
from
the
issue
of
175,000
shares
at
approximately
$18.85
per
share
of
the
company’s
capital
stock.
The
overall
acquisition
of
the
standard
group
was
realized
by
the
issue
Of
540,000
common
shares
of
the
company’s
capital
stock,
only
175,000
shares
being
paid
in
cash.
The
total
cost
to
the
appellant
for
the
final
issue
of
these
shares
was
$227,358.01
of
which,
from
evidence
adduced,
only
$1,050
was
directly
and
exclusively
attributable
to
the
originally
planned
issue
of
convertible
debentures.
In
my
opinion
the
facts
of
the
case
indicate
clearly
that
what
we
are
concerned
with
here
is
an
overall
plan
for
the
financing
of
the
appellant
company’s
desired
expansion
which
it
successfully
achieved.
I
do
not
believe
that
any
or
the
progressive
changes
which
were
made
because
of
existing
circumstances
to
the
original
plan
for
the
financing
of
the
company’s
expansion,
and
which
changes
were
in
the
company’s
interest,
can
be
considered
as
separate
or
abortive
attempts
to
borrow
money
or
to
issue
shares.
The
shares
were
successfully
issued
and
the
company’s
expansion
was
realized
by
means
of
a
financing
program
which
went
through
normal
planning
and
experimental
stages
which
nevertheless
form
part
of
one
overall
successful
transaction.
Furthermore,
it
is
difficult
to
see
on
what
basis
$60,186—roughly
one-
third
of
the
expenses
claimed
by
the
company
in
the
course
of
issuing
or
selling
shares—was
disallowed
by
the
respondent
when
only
$1,050
is
directly
attributable
to
what
the
respondent
considers
an
abortive
attempt
by
the
company
to
borrow
money.
In
my
opinion,
the
different
steps
taken
by
the
company
in
financing
the
expansion
of
the
company’s
operations
constitute
an
overall
financing
scheme
in
the
successful
realization
of
the
company’s
project.
The
total
amount
of
$227,358.01,
in
my
view,
was
an
expense
incurred
in
the
course
of
issuing
shares
of
the
capital
stock
of
the
appellant
company
within
the
meaning
of
subparagraph
11(1)(cb)(i)
and
the
amount
of
$60,186
should
not
have
been
disallowed
therefrom.
For
these
reasons
the
appeal
is
allowed.
Appeal
allowed.