Pratte, J [TRANSLATION]:—The only question raised by this appeal is as to whether the Trial Division properly held that appellant could not deduct, in computing its income for the taxation years 1974 and 1975, certain legal fees which it had incurred in those years.
Appellant is the tenant of a building in Beloeil, in which it operated a service station. In 1973, a neighbour sued it asking the Superior Court to issue an injunction prohibiting operation of this service station. The neighbour alleged that the property occupied by appellant was subject to a servitude which prohibited its being used for the business of selling gas. The Superior Court granted the inunction requested. Appellant nonetheless continued to operate the service station. Because of this, it had on three occasions to defend itself against charges of contempt of court. In May 1974, after being convicted of contempt of court twice, appellant closed its service station.
It is legal fees incurred in connection with these proceedings, relating to the injunction and contempt of court, which appellant claims to be able to deduct in computing its income.
With regard to the portion of the costs which appellant incurred in attempting to oppose the application for injunction, these are obviously expenses incurred for the purpose of earning income. The only problem arising in connection with them is as to whether they are amounts which were spent on capital account, the deduction of which is prohibited by paragraph 18(1)(b) of the Income Tax Act.* The trial judge answered this question in the affirmative, because in his opinion these expenses were incurred in order to protect the very existence of the service station. I concur in that view and would affirm the Trial Division judgment on this point.
With regard to the legal fees incurred by appellant in connection with the charges of contempt of court, the trial judge held that they should be likened to the fees incurred in opposing the injunction proceedings. The judge considered that all such fees were incurred for the purpose of keeping the service station in operation. Counsel for the respondent disputed this finding. He argued that the fees incurred in order to avoid conviction for contempt of court were not paid for the purpose of keeping the service station in operation, but solely in order to avoid appellant being punished for contravening the injunction. It is not necessary to decide this question here, for whatever the response given to it, the deduction of all such fees is still prohibited, if not by paragraph (b) then by paragraph (a) of subsection 18(1).
For these reasons, I would dismiss the appeal with costs.
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