JUDSON,
J.
(all
concur)
:—The
appellant
company,
among
other
activities,
carries
on
the
business
of
an
investment
dealer.
In
1954
it
agreed
to
purchase
from
Trans-Prairie
Pipelines
Limited
a
new
issue
of
preference
and
common
shares.
It
purchased
140,000
preference
shares
for
$700,000,
less
a
commission
of
$37,500,
and
190,000
common
shares
for
$140,000.
We
are
concerned
in
this
appeal
with
the
common
shares.
The
company
sold
140,000
of
these
for
$140,000,
leaving
it
with
a
balance
of
50,000
shares.
28,000
of
these
were
used
as
a
bonus
on
the
sale
of
the
preference
shares
at
the
rate
of
one
common
share
for
each
five
preference
shares,
leaving
the
appellant
with
22,000
common
shares
which
it
retained
in
its
investment
account.
In
1956,
Trans-Prairie
Pipelines
Limited
gave
its
common
shareholders
the
right
to
purchase
one
new
common
share
for
each
four
held.
The
appellant
thus
became
entitled
to
5,500
shares,
which
it
immediately
sold
at
a
profit
of
$19,250.
Counsel
admits
that
this
profit
is
taxable
if
the
next
mentioned
profit
in
the
year
1957
is
taxable.
In
1957,
the
appellant
sold
2,000
shares
out
of
the
block
of
22,000
common
shares
which
it
had
retained
in
its
investment
account
since
the
1954
underwriting.
On
this
sale
it
realized
a
profit
of
$57,032.88.
Both
the
profits
on
the
sale
of
the
rights
in
1956
and
on
the
sale
of
the
2,000
shares
in
1957
were
assessed
for
income
tax
as
income
derived
from
the
appellant’s
business.
The
appellant
argues
that
they
were
capital
gains.
The
judgment
of
the
Exchequer
Court
was
that
they
were
income
subject
to
taxation.
Much
evidence
was
heard
on
the
reasons
why
the
appellant
retained
the
block
of
22,000
common
shares
but
it
is
all
adequately
summarized
in
the
reasons
of
the
learned
President
of
the
Exchequer
Court
when
he
said
that
the
appellant
thought
that
it
was
a
good
investment
and
hoped
that
its
retention
would
lead
to
further
business
from
the
issuing
company.
The
ratio
of
the
decision
in
the
Exchequer
Court
which
I
wish
to
affirm
is
that
the
appellant
did
not
purchase
these
shares
as
an
investment.
They
formed
part
of
and
were
received
by
the
appellant
as
part
of
an
underwriting
transaction.
They
were
acquired
and,
to
the
extent
of
2,000
shares,
were
sold
in
the
course
of
the
appellant’s
business
of
underwriting,
and
any
profits
arising
from
their
disposition
were
profits
from
the
appellant’s
business.
The
fact
that
they
were
retained
in
what
the
appellant
chose
to
call
an
“investment
account’’
made
no
difference.
This
retention
was
inseparably
connected
with
the
appellant’s
underwriting
activity
and
the
profits
derived
from
this
activity,
whether
immediate
or
deferred,
were
subject
to
income
tax.
I
attach
no
importance
to
the
fact
that
on
the
figures
that
I
have
quoted
above,
these
22,000
shares
may
be
regarded
as
the
appellant’s
commission
for
the
underwriting
of
the
common
shares.
Even
if
this
had
not
been
so,
it
would
still
be
a
case
where
the
shares
had
been
acquired
and
sold
and
the
profits
made
in
the
course
of
the
appellant’s
business.
Counsel
for
the
Minister
on
this
appeal
argued
that
there
was
error
in
a
ruling
on
evidence
made
at
the
trial.
The
learned
trial
judge,
against
counsel’s
objection,
rejected
a
tender
of
evidence
and
cross-examination
on
the
following
matters:
(a)
the
financial
statements
of
the
appellant
for
its
1958,
1959
and
1960
taxation
years;
(b)
purchases
and
sales
of
securities
recorded
in
the
investment
account
in
the
years
subsequent
to
the
years
under
appeal
;
(c)
purchases
and
sales
of
securities
recorded
in
the
investment
account
in
the
1956
and
1957
taxation
years
in
the
cases
where
the
appellant
at
the
end
of
the
1957
taxation
year
still
held
some
of
these
securities.
In
my
opinion,
there
was
error
in
the
rejection
of
this
evidence.
It
was
relevant
to
show
a
course
of
conduct
in
trading
in
securities
recorded
in
the
investment
account,
and
to
show
that
at
all
times
the
shares
of
Trans-Prairie
Pipelines
Limited
sold
in
1956
were
part
of
the
appellant’s
stock-in-trade
and
that
the
profit
from
the
sale
of
these
shares
arose
from
the
business
carried
on
by
the
appellant.
The
appeal
should
be
dismissed
with
costs.
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