[1] The appellant Banner Pharmacaps NRO Ltd. ("Banner") is appealing a Tax Court judgment dated February 26, 2003, now reported asBanner Pharmacaps NRO Ltd. v. Canada, 2003 D.T.C. 245, [2003] 3 C.T.C. 2022 (T.C.C.), dismissing its appeal of an assessment under the Income Tax Act, R.S.C. 1985, s. 1 (5^th supp.) for its 1996 taxation year.

[2] It is not necessary to recite the facts, which are fully stated in the Tax Court decision. It is enough to say that Banner's appeal cannot succeed unless one of two alternative propositions can be established. The first proposition is that Banner was not required to include in its 1996 income a dividend in the amount of $5,647,775 declared by its wholly owned Canadian subsidiary, Banner Gelatin Products (Canada) Ltd. ("Banner Canada") on February 15, 1996. The second proposition is that the principal business of Banner in 1996 was the making of loans.

[3] The resolution declaring the dividend was made on February 15, 1996 and reads as follows:

RESOLVED THAT there is hereby declared on the shares of the Corporation a dividend to be payable to the holders of record of the shares of the Corporation on the date hereof, such dividend to be in the aggregate amount of $5,647,775 and to be payable by the Corporation by the issuance of a demand promissory note which shall bear interest until paid at the prime rate of The Toronto-Dominion Bank plus 1% per annum.

[4] On February 15, 1996, Banner Canada executed a promissory note in the amount of $5,647,775 that met the description in the resolution, and delivered the note to Banner. It is undisputed that the resolution was valid. There is no evidence that the resolution does not accurately express the intention of Banner Canada, or that the resolution does not mean what it says, or that the resolution was not carried out in accordance with its terms. Nor is there any evidence that the value of the note was less than its face amount.

[5] The Tax Court Judge concluded that Banner did not receive the dividend in 1996 but nevertheless was required to include the dividend in its income for that year because the dividend was owed in 1996 and Banner should have computed its income on the accrual basis. We are all of the view that the Tax Court Judge reached the correct conclusion, but for the wrong reasons.

[6] First, we respectfully disagree with the Tax Court Judge's interpretation of the provisions of the Income Tax Act dealing with the tax treatment of dividends from a corporation resident in Canada. We note that the Crown has conceded this point. The clear result of the combined operation of paragraph 12(1)(j) and clause 82(1)(a)(ii)(A) of the Income Tax Act is that such dividends are taxable only when received, not when they are merely receivable. Therefore, Banner was required to include the dividend in its 1996 income only if it received the dividend in that year.

[7] Second, we respectfully disagree with the conclusion of the Tax Court Judge that, as a matter of law, a dividend cannot be paid by delivery of a promissory note. The legal effect of delivery of a promissory note depends upon all the relevant facts, the most important fact being the intention of the maker of the note as determined by the evidence. For example, in some circumstances a promissory note may be evidence of a debt to be paid at some future time. In other circumstances, delivery of a promissory note may itself be payment of a particular obligation.

[8] In the context of this case, the most important evidence is the resolution declaring the dividend. That resolution must be presumed to express the intention of Banner Canada because there is no evidence to the contrary. It states in the clearest possible terms that a dividend in the amount of $5,647,775 was to be paid on the date of the resolution, and that the dividend was to be paid by means of delivery of a promissory note in that amount. As the promissory note was in fact delivered as the resolution required, it is impossible to conclude that the dividend was not paid when it was supposed to be paid, on February 15, 1996. It follows that Banner was required to include the amount of the dividend in its income for its 1996 taxation year.

[9] That being the case, it is necessary to consider whether the principal business of Banner was the making of loans. The Tax Court Judge concluded that it was not and we agree with him, for the reasons he gave. There is no evidence that Banner ever advanced money to another party on the condition that the money be repaid, and thus no evidence that it made any loans at all, much less that it carried on a money lending business.

[10] For these reasons, the appeal will be dismissed with costs.

"Karen R. Sharlow"

J.A.

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-124-03

STYLE OF CAUSE: BANNER PHARMACAPS NRO LTD. v.

HER MAJESTY THE QUEEN

PLACE OF HEARING: Edmonton, Alberta

DATE OF HEARING: October 2, 2003

REASONS FOR JUDGMENT BY: Sharlow J.A.

CONCURRED IN BY: Rothstein, Sexton, JJ.A.

DATED: October 2, 2003

APPEARANCES:

Mr. Curtis Stewart For the Appellant

Mr. Michel Bourque For the Appellant

Ms. Bonnie Moon For the Respondent

SOLICITORS OF RECORD:

Bennett Jones LLP For the Appellant

Calgary, Alberta

Morris Rosenberg For the Respondent

Deputy Attorney General of Canada

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