Mahoney, J:—The first issue is whether a “portable” asphalt plant, acquired by the plaintiff in its 1974 taxation year and first used in its 1975 taxation year, generated “Canadian manufacturing and processing profits” for purposes of subsection 125.1(1) of the Income Tax Act. The second issue is whether, for purposes of capital cost allowance, it fell within Class 8, and therefore by reference, Class 29 of Schedule B to the Income Tax Regulations, or within Class 10.
Section 125.1 provides for the deduction, from the tax otherwise payable by a corporation, of a portion of its “Canadian manufacturing and processing profits”, which are defined by subsection 125.1(3) as a prescribed portion of its income “applicable to the manufacturing or processing in Canada of goods for sale or lease”. The subsection goes on
125.1 (3)(b) “manufacturing or processing” does not include
(iii) Construction, ...
The Act clearly contemplates that an activity may constitute either manufacturing or processing and, at the same time, fall within the exclusion of construction, just as, for example, it contemplates a manufacturing or processing activity may also be farming, fishing or logging, to cite other exclusions. In its use of the term “construction”, Parliament seems to have had in mind construction as an industrial undertaking rather than construction in the narrower sense of an activity.
The only question as to the first issue is whether the plaintiff’s use of the plant was within the scope of its construction undertaking. If not within that exception, it clearly qualifies for the deduction allowed by section 125.1. The plant processed aggregates and asphalt to produce asphaltic concrete for pavement. About 90% of its production in the period in issue was used by the plaintiff in the fulfilment of contracts it had entered into with provincial, municipal and private owners. Some of those contracts entailed a high proportion of other work; some were primarily for the paving. The remaining 10% was sold to third parties to permit them to fulfil contracts to pave or to do that for themselves.
“Construction” is not a term of art. The paving of roads, parking lots, and so on, is construction. That is so whether the paving is the initial application of pavement to a newly constructed grade, the maintenance or repair of an old pavement or a combination as in the case of a road widening and reconstruction. The production of asphaltic concrete was an integral part of the plaintiff’s construction undertaking as well as a processing, if not manufacturing, operation. The Minister was right to reject the claim for a deduction under section 125.1.
The plant consists of a number of elements. Some have wheels attached; others may be loaded on trucks or trailers. All may be transported from location to location and reassembled. A crane is needed to assemble and reassemble. A crane is needed to assemble and reassemble and to load and unload the elements. The plant was moved twice during the 1975 taxation year; that is, it operated at three different locations in Nova Scotia, not more than 50 miles apart as the crow flies. One operator ran the plant; it took 6 to 8 men, a dozen trucks, tractors and trailers and at least 3 /2 days for each move.
The provisions of the Regulations are, to say the least, confusing. One starts with Class 8 (20%).
Property not included in Class 2, 7, 9 or 30 that is:
(a) a structure that is manufacturing or processing machinery or equipment;
(i) a tangible capital asset that is not included in any other class in this Schedule except...
Classes 2, 7, 9 and 30 are not in play. Neither are the exceptions of paragraph (i). Then there is Class 10 (30%):
Property not included in any other class that is
(h) contractor’s moveable equipment, including portable camp buildings, except. ..
The exceptions are not in play. Finally, there is Class 29 (50%).
Property that would otherwise be included in another class in this Schedule
(b) that is
(i) property that, but for this class, would be included in Class 8, except...
Again, the exceptions are not in play.
The plant was manufacturing or processing equipment. It was also a structure within the appropriate definition of The Shorter Oxford English Dictionary.
STRUCTURE: 6. An organized body or combination of mutually connected and dependent parts or elements.
Stroud’s Judicial Dictionary, Fourth Edition, at p 2640 quotes Lord Denning in B P Refinery (Kent) v Walker, for which no citation is given. He is quoted as saying, in part:
It is, I think, characteristic of a structure that it is built up of component parts on the site.
That expresses my understanding of the term in this context. The plant was a structure that is manufacturing or processing equipment within paragraph
(a) of Class 8.
The plaintiff was a contractor. The plant was contractor’s equipment, in fact, as well as generically. The question is: was it moveable? Clearly, it was when disassembled but not otherwise. It is hard to conceive of anything that is not moveable provided it can be broken down into transportable elements. I do not think that the mere fact that a structure can be disassembled and moved makes is moveable. However, when the structure is designed to be disassembled and moved and when it is, in fact, assembled so as to preserve that moveability, eg, not anchored or enclosed or otherwise assembled so that it cannot be disassembled as intended by its designer, it remains moveable.
The plant was contractor’s moveable equipment as well as a structure that is manufacturing or processing machinery or equipment. Having regard to the introductory words in each case, it is not excluded from Class 8 by the words “property not included in class 2, 7, 9 or 30” but, once within Class 8, it is excluded from Class 10 by the words “Property not included in any other class”. The plant was, prima facie, a Class 8 asset but, in view of Class 29, it is property that would be included in Class 8 but for Class 29. As it is, it was a Class 29 asset.
If I am wrong in finding the plant to be within Class 8 by virtue of paragraph (a) thereof, then the only other provision under which it might fall into Class 8 is paragraph (i). The finding that the plant is contractor’s moveable equipment excludes the plant from Class 8 on that basis, since paragraph (i) extends only to an “asset that is not included in any other class”. If it is not within Class 8 by virtue of paragraph (a), it is within Class 10 as contractor’s moveable equipment and not to be included in Class 29.
Success being about equally divided, there will be no order as to costs.
Judgment
The appeal is allowed in part. The plaintiff’s 1974 and 1975 income tax assessments are referred back to the Minister for reassessment on the basis that the Parker “Super-Blackmobile” was an asset properly to be classified under Class 29 of Schedule B of the Income Tax Regulations.