KERWIN,
J.:—We
are
called
upon
to
decide
whether
the
respondent,
Wain-Town
Gas
and
Oil
Company,
Limited,
is
liable
to
assessment
for
income
tax
and
excess
profits
tax
in
the
years
1944
and
1945,
and
the
particular
question
is
whether
an
item
of
$1,965.02
should
be
included
in
the
respondent’s
revenue
receipts
for
1944
as
‘‘net
royalties’’
and
an
item
of
$4,181.45
should
be
included
in
its
revenue
receipts
for
the
year
1945
as
‘‘royalties
and
sales’’.
These
items
were
in
fact
so
inserted
under
those
names
by
the
respondent
in
its
tax
returns
for
the
respective
years
but
because
of
certain
claimed
expenditures
a
loss
was
shown.
When
these
expenditures
were
disallowed
by
the
Department,
a
profit
appeared
in
each
year,
upon
which
the
assessments
in
question
were
made,
and
the
respondent
thereupon
appealed
to
the
Minister
—
not
with
respect
to
the
disallowed
expenditures
but
with
reference
to
the
‘‘net
royalties’’
and
‘‘royalties
and
sales’’.
These
moneys
were
received
by
the
respondent
from
Franco
Public
Service
Limited
in
pursuance
of
an
assignment
dated
January
6,
1940,
from
the
respondent
to
Franco
of
a
certain
franchise.
This
franchise
had
been
secured
by
the
respondent
from
the
Town
of
Vermilion
in
1948
for
the
purpose
of
supplying
and
conducting
natural
gas
to
consumers
in
the
municipality.
It
conferred
upon
the
respondent
the
right
to
put
down,
repair,
etc.,
and
operate
gas
lines
and
related
structures
and
equipment
in
the
town’s
streets,
squares,
etc.,
and
other
public
places,
and
also
the
exclusive
right
to
sell
natural
gas
within
the
town
limits.
These
rights
were
granted
for
a
period
of
ten
years
with
the
option
of
renewal
for
a
further
period
of
ten
years
and
a
similar
option
at
the
expiration
of
each
succeeding
ten
year
period.
Provision
was
made
whereby
the
Town
could
under
certain
conditions
and
at
the
end
of
any
ten
year
period
purchase
the
respondent’s
rights
under
the
agreement
and
its
property
used
in
connection
therewith.
The
respondent
undertook
to
continue
a
well,
which
at
the
time
of
the
granting
of
the
franchise
was
in
process
of
drilling,
and
to
drill
other
wells
as
required
to
provide
and
maintain
a
suitable
supply
of
gas
for
the
town
so
long
as
such
operations
were
economically
sound.
In
the
event
of
the
respondent
failing
to
comply
with
its
covenants,
or
in
the
event
of
its
failing
to
secure
a
suitable
supply
of
natural
gas
within
twelve
months
of
the
date
the
franchise
became
Operative
and
binding
on
the
parties,
the
Town
might,
by
written
notice,
require
the
Company
to
remedy
such
default
or
secure
such
suitable
supply
of
natural
gas,
and
upon
the
respondent’s
failure
to
remedy
such
default
or
secure
such
a
suitable
supply
of
natural
gas
within
six
months
of
the
date
of
service
of
such
notice,
the
Town
might
by
resolution
of
its
council
terminate
the
contract.
The
respondent
drilled
only
one
well,
failed
to
obtain
a
supply
of
natural
gas
and
was
without
funds
to
continue
further
drilling
operations.
So
far
as
appears,
no
gas
lines
or
other
structures
were
put
down
by
the
respondent.
It
was
under
these
circumstances
that
by
the
assignment
of
January
6,
1940,
the
respondent,
with
the
consent
of
the
Town,
assigned
the
franchise
agreement
to
Franco.
By
this
assignment,
Franco
covenanted
to
carry
out
the
terms
of
the
franchise
agreement
and
to
indemnify
and
save
harmless
the
respondent
from
all
liability
for
breach,
non-performance
or
misfeasance
in
respect
of
any
of
the
provisions
thereof
as
against
the
Town
or
otherwise.
Paragraphs
4
and
5
provide
:—
“4.
In
consideration
of
this
assignment
Franco
doth
hereby
covenant
and
agree
with
Wain-Town
to
pay
to
Wain-Town
by
way
of
royalty,
from
the
proceeds
of
all
sales
of
natural
gas
under
the
said
Franchise,
the
following
percentages
of
the
actual
gross
sales
of
gas
reckoned
at
consumers’
prices,
less
consumers’
discounts:
(a)
During
the
first
three
years,
six
and
a
quarter
per
-
cent
(6*4%)
;
(b)
During
the
next
7
years,
eight
and
one-third
per
cent
(813%)
;
(c)
Thereafter
during
the
currency
of
this
Agreement,
and
of
the
said
Franchise
twelve
and
one-half
per
cent
...
5.
It
is
further
agreed
that
the
following
provisions
shall
apply
:
(a)
All
royalties
shall
be
deposited
to
the
credit
of
Wain-Town
in
the
Vermilion
Branch
of
the
Canadian
Bank
of
Commerce
or
in
such
other
institution
as
Wain-Town
may
designate
from
time
to
time
not
later
than
the
.‘1‘5‘th
of
-
month
covering
sales
for
the
preceding
month“..-
(b)
An
authorized
representative
of
Wain-Town
shall
be
permitted
to
inspect
the
books,
records,
meters,
etc.,
pertaining
to
the
sale
of
gas.
(c)
In
the
event
of
the
Town
exercising
its
right
to
purchase
the
gas
utility
during
or
at
the
end
of
either
the
ten
(10)
year
term
of
the
franchise
or
during
or
at
the
end
of
the
first
renewal
period
of
ten
(10)
years
then
in
such
event
Franco
covenants
and
agrees
to
pay
to
Wain-Town
twenty-
five
per
cent
(25%)
of
the
net
proceeds
of
such
sale;
such
net
proceeds
to
be
computed
after
all
debts
of
Franco
have
been
paid.”
In
pursuance
of
paragraph
4,
the
above
mentioned
sums
of
$1,965.02
and
$4,181.45
were
paid
by
Franco
to
the
respondent
in
1944
and
1945
respectively.
The
appellant
claims
that
these
payments
fall
within
clause
(f)
of
subsection
1
of
Section
3
of
the
Income
War
Tax
Act
as
amended
down
to
and
including
the
year
1945.
Speaking
generally,
it
is
undoubted
that
Parliament
intended
to
tax
under
the
Act
income
as
distinct
from
capital:
Wilder
v.
Minister
of
National
Revenue,
[1952]
I
D.L.R.
401;
[1951]
C.T.C.
304;
a
decision
of
this
Court
under
Section
3(1)
(b)
as
it
stood
before
amendment
in
1945.
However,
it
is
clear
that
Parliament
may
also
provide
that
receipts,
part
or
all
of
which
might
ordinarily
be
termed
capital,
shall
be
treated
as
income
for
the
purposes
of
the
Act.
Hence
it
is
that
after
stating
what
income
means,
Parliament
has
enacted,
by
subsection
1,
that
it
shall
include
certain
things
‘‘and
also
the
annual
profit
or
gain
from
any
other
source
including
(f)
rents,
royalties,
annuities
or
other
like
periodical
receipts
which
depend
upon
the
production
or
use
of
any
real
or
personal
property,
notwithstanding
that
the
same
are
payable
on
account
of
the
use
or
sale
of
any
such
property
;
’
’
Clause
(f)
was
enacted
for
the
first
time
by
Section
1
of
chapter
55
of
the
1934
statutes
as
a
result
of
the
decision
in
Minister
of
National
Revenue
v.
Spooner,
[1933]
A.C.
684,
affirming
[1931]
S.C.R.
399;
[1928-34]
C.T.C.
178,
184.
The
first
point
to
be
determined
is
whether
the
moneys
received
by
the
respondent
are
‘‘royalties’’
within
the
meaning
of
this
clause.
The
word
does
not
bear
the
original
meaning
ascribed
to
it
as
rights
belonging
to
the
Crown
jure
coronae.
As
pointed
out
in
Attorney
General
of
Ontario
v,
Mercer
in
the
Judicial
Committee
(1883),
8
App.
Cas.
767,
and
in
this
Court
(1881),
5
S.C.R.
538,
it
has
a
special
sense
when
used
in
mining
grants
or
licences
signifying
that
part
of
the
reddendum
which
is
variable
and
depends
upon
the
quantity
of
minerals
gotten.
It
is
a
well-known
term
in
connection
with
patents
and
copyrights.
In
a
business
sense
in
Canada,
it
covers
the
payments
which
were
to
be,
and
were,
paid
monthly
by
way
of
percentages
of
the
actual
gross
sales
(to
quote
paragraph
4
of
the
assignment),
‘‘of
natural
gas
under
the
said
Franchise’’.
It
is
settled
by
authority
both
here
and
in
England
that
the
appearance
of
the
word
“royalties”
in
the
assignment
does
not
necessarily
dispose
of
the
matter
but,
to
quote
Finlay,
J.,
in
British
Salmson
Aero
Engines
Ltd.
v.
Commissioners
of
Inland
Revenue
(1937),
22
Tax
Cases
29
at
p.
35:—“the
fact
that
people
who,
after
all,
know
all
about
it,
choose
in
their
agreement
to
refer
to
these
annual
sums
.
.
.
as
‘royalties’,
is
a
matter
not
to
be
entirely
neglected.’’
Furthermore,
the
word
is
used
in
the
respondent’s
tax
returns
for
each
of
the
years
1944
and
1945,
to
describe
the
moneys
received
by
it
from
Franco.
I
quite
agree
that
this
is
not
decisive
but,
that
circumstance
added
to
the
first,
are
at
least
evidence
of
the
manner
in
which,
in
a
business
sense,
the
word
is
looked
upon
in
this
country.
A
particularly
useful
judgment
is
that
of
the
High
Court
of
Australia
in
McCauley
v.
The
Federal
Commissioner
of
Taxation
(1944),
69
C.L.R.
235,
where
it
is
pointed
out
that
in
an
agreement
drawn
in
England
the
term
‘
royalties
’
’
has
been
used
to
describe
payments
for
removing
furnace
slag
from
land
(Shingler
v.
P.
Williams
and
Sons
(1933),
17
Tax
Cases
574)
and
in
an
agreement
drawn
in
New
Zealand
to
describe
payments
for
flax
cut:
Akers
v.
Commissioner
of
Taxes
(1926),
G.L.R.
(N.Z.)
259.
Finally,
even
if
the
payments
were
not
received
as
royalties,
they
fall
within
the
expression
‘‘other
like
periodical
receipts’’.
They
are
at
least
similar
to
percentages
‘‘as
on
output,
paid
to
the
owner
of
an
article,
esp.
a
machine,
by
one
who
hires
the
use
of
it’’:
Webster’s
New
International
Dictionary
sub
nom
“royalties”.
These
receipts
depend
upon
the
use
of
the
franchise.
In
Natural
Gas
and
Fuel
Co.
of
Hamilton
v.
Dominion
Natural
Gas
Co.,
[1934]
A.C.
435,
Lord
Macmillan,
speaking
for
the
Judicial
Committee,
points
out
that
the
by-law
of
the
Town
of
Barton
and
the
realtive
agreement
there
in
question
conferred
what
was
correctly
designated
as
a
‘‘franchise’’,
and
that
in
Canadian
local
government
law
the
term
is
not
used
with
the
technical
signification
which
it
possessed
in
other
connections.
Here,
as
there,
it
is
employed
so
as
to
include
such
rights
and
privileges
as
were
conferred
by
the
original
agreement
between
the
respondent
and
the
Town.
That
such
a
body
of
rights
is
real
or
personal
property
does
not
admit
of
doubt,
and
the
moneys
received
by
the
respondent
from
Franco
were
dependent
upon
the
use
of
that
franchise.
It
is
not
the
production
of
natural
gas
upon
which
depend
the
payments
by
Franco
to
the
respondent
as
it
is
only
under
the
powers
conferred
by
the
franchise
that
natural
gas
may
be
supplied
and
conducted
to
the
consumers
thereof.
By
virtue
of
the
concluding
part
of
clause
(f),
the
receipts,
so
dependent,
are
income
even
though
they
are
payable
on
account
either
of
the
use
or
sale
of
the
franchise.
It
is
not
without
importance
to
note
the
changes
that
were
made
in
1945
in
clause
(b)
of
subsection
1
of
Section
3
of
the
Act
dealing
with
contractual
annuities
as
a
result
of
the
Report
of
the
Royal
Commission
on
Taxation
of
Annuities
and
Family
Corporations.
Clause
(f)
remains
intact
and
perhaps
it
may
be
difficult
to
find
a
basis
for
any
suggested
change
to
cover
a
case
like
the
present
when
on
bears
in
mind
that
no
total
sum
was
fixed
for
the
sale
of
the
franchise
by
the
respondent
to
Franco
and
that
provision
was
made
by
paragraph
5
of
the
assignment
for
the
contingency
of
the
Town
exercising
its
right
to
purchase
during
or
at
the
end
of
the
first
or
second
ten
year
terms—
whereupon
Franco
was
to
pay
the
respondent
twenty-five
per-
centum
of
the
net
profits
of
such
sale.
It
has
not
been
overlooked
that
even
if
the
Town
should
so
exercise
its
right
to
purchase,
the
respondent
had
disposed
of
part
of
its
property
(the
franchise)
for
the
intervening
period
just
as
Miss
Nethersole
had
disposed
of
a
portion
of
her
copyright
in
Nethersole
v.
Withers
(1948),
28
Tax
Cases
501.
However,
in
that
case
the
claim
of
the
Inspector
of
Taxes
was
that,
under
Case
VI
of
Schedule
D
of
the
English
Act,
a
certain
amount
received
by
Miss
Nethersole
was
‘‘annual
profits
or
gains
not
falling
under
any
of
the
foregoing
Cases
and
not
charged
by
virtue
of
any
other
Schedule.’’
It
was
held
by
the
Court
of
Appeal
and
the
House
of
Lords
that
the
payment
was
not
an
annual
profit
or
gain.
The
determination
of
this
appeal
depends
upon
the
proper
construction
of
clause
(f)
of
subsection
1
of
Section
3
of
the
Income
War
Tax
Act
and
I
have
been
unable
to
secure
any
assistance
from
the
Nethersole
case
or
any
of
the
other
English
eases
cited
by
counsel
on
either
side.
They
must
be
read
with
care
and
always
bearing
in
mind
the
different
statutory
enactments
with
which
they
were
concerned.
The
appeal
should
be
allowed
with
costs
here
and
in
the
Court
below
and
the
assessments
of
the
Minister
restored.
RAND,
J.:—By
the
terms
of
an
agreement
dated
September
19,
1938
between
the
Gas
Company
respondent
and
the
Town
of
Vermilion,
the
latter
granted
to
the
company
an
exclusive
franchise
to
supply
the
town
and
its
inhabitants
with
natural
gas,
together
with
all
necessary
powers
to
lay
pipe
lines
under
the
streets
and
other
public
ways
or
places
and
otherwise
to
perform
the
public
service
undertaken.
The
franchise
was
to
continue
for
ten
years
with
a
right
of
renewal,
indefinitely,
for
further
terms
of
like
duration.
The
Gas
Company
agreed
to
do
certain
work
of
drilling
wells
for
the
gas,
and
in
the
event
of
default
the
Town
was
authorized
to
take
action
looking
to
the
termination
of
the
contract.
The
company
was
not
successful
in
its
drilling,
and
having
exhausted
its
funds
entered
into
an
agreement
dated
January
6,
1940
with
Franco
Public
Service
Limited,
by
which,
with
the
consent
of
the
Town,
it
transferred
to
the
Service
Company
the
franchise
with
all
rights
and
powers
annexed
to
it.
The
Service
Company
convenanted
to
pay
to
the
Gas
Company
:—
4
By
way
of
royalty,
from
the
proceeds
of
all
sales
of
natural
gas
under
the
said
Franchise,
the
following
percentages
of
the
actual
gross
sales
of
gas
reckoned
at
consumers’
prices,
less
consumers’
discounts:
(a)
During
the
first
three
years,
six
and
a
quarter
per
cent
614%)
;
(b)
During
the
next
7
years,
eight
and
one-third
per
cent
(813
7%
)
;
(c)
Thereafter
during
the
currency
of
this
Agreement,
and
of
the
said
Franchise
twelve
and
one-half
per
cent
The
royalties
were
to
be
deposited
to
the
credit
of
the
Gas
Company
in
one
of
the
banks
in
the
town
‘‘not
later
than
the
15th
of
month
covering
sales
for
the
preceding
month’’.
In
the
event,
within
the
first
two
periods
of
the
franchise,
of
the
Town
exercising
its
right
to
purchase
under
the
original
contract,
the
Service
Company
was
to
pay
to
the
Gas
Company
25%
of
the
proceeds
after
all
the
debts
of
the
Service
Company
had
been
paid.
The
narrow
question
is
whether
these
monthly
payments
are
income
for
the
purposes
of
the
Income
War
Tax
Act,
and
the
clause
of
the
latter
under
which
the
Crown
supports
its
contention
that
they
are
is
Section
3(1)(f)
which
reads:—
“(f)
rents,
royalties,
annuities
or
other
like
periodical
receipts
which
depend
upon
the
production
or
use
of
any
real
or
personal
property,
notwithstanding
that
the
same
are
payable
on
account
of
the
use
or
sale
of
any
such
property
;’’
The
word
‘‘royalty’’
in
the
agreement
is
not,
of
course,
controlling,
but
it
does
bear
upon
the
propriety
of
the
use
of
the
word,
in
the
minds
of
business
men,
to
describe
the
type
of
payment
involved.
The
statutory
language,
dealing
with
the
results
of
accounting
processes
determining
economic
gain
in
business,
must,
in
large
degree,
use
the
vocabulary
employed
in
them
;
and
the
meaning
of
the
word
as
it
appears
in
the
statute
must
have
regard
to
its
general
acceptation
in
the
course
of
property
and
business
transactions.
Now
a
rent
is,
primarily,
something
reserved,
in
some
form
or
other,
and
in
a
conceptual
sense,
from
property
or
property
interest
transferred
from
one
person
to
another.
The
word
‘
royalties”
is
best
known,
perhaps,
as
a
term
to
express
an
interest
in
the
nature
generally
of
future
payments
upon
a
grant
or
lease
of
mines,
such
as
gold,
coal,
petroleum
or
gas
rights;
and
it
makes
no
real
difference
in
substance
or
as
to
the
nature
of
the
payments
whether
they
arise
through
a
‘‘reservation’’,
strictly
so-called,
or
a
covenant.
The
language
of
paragraph
(f)
seems
to
be
directly
related
to
that
signification
of
the
term,
and
I
should
take
it
to
be
beyond
serious
doubt
that
prima
facie
the
payments
here
come
within
the
expression
‘‘royalties
.
.
.
or
other
like
periodical
receipts’’.
The
query
then
is
whether
they
‘‘depend
upon
the
production
or
use’’
of
any
property.
Purists
in
language
might
object
to
the
word
i
‘
use
’
’
in
relation
to
carrying
on
a
franchise;
the
franchise
is
perhaps
more
properly
said
to
be
‘‘exercised’’
than
‘‘used’’.
But
the
words
i
‘
production
or
use
’
’
are
intended
to
cover
a
great
many
particulars
of
a
general
class
of
dealings
with
property,
and
to
“use”
a
franchise
would
not
at
all
be
beyond
the
range
of
common
parlance.
I
should
say,
then,
that
the
word
‘‘use’’
is
appropriate
to
the
exercise
of
such
a
franchise;
and
that
a
franchise
is
personal
property
was
not
challenged.
Are
the
payments,
then,
constituting
as
they
do
part
of
he
consideration
for
the
sale
of
the
franchise,
to
be
excluded
from
tax
as
being
capital
in
their
nature?
In
Wilder
v.
The
Minister,
a
decision
of
this
Court,
as
yet
reported
only
in
[1952]
1
D.L.R.
401;
[1951]
C.T.C.
304,
it
was
held
that
an
annuity
of
$1,000.00
a
month
for
the
life
of
the
annuitant,
which
was
part
of
the
price
for
the
transfer
of
a
business
from
an
individual
to
a
company,
was
of
a
capital
nature
and
not
within
the
definition
of
“income”
in
Section
3(1)
(b)
;
but
under
paragraph
(f)
of
the
section
that
ground
seems
to
be
expressly
met
by
the
language
‘
‘
notwithstanding
that
the
same
are
payable
on
account
of
the
use
or
sale
of
any
such
property’’.
Now,
the
property
is
the
franchise
;
the
royalty
is
payable
on
account
of
the
sale
of
it
;
and
the
payment
depends
upon
its
exercise.
The
paragraph
seems
to
me
to
be
satisfied
completely
by
the
terms
of
the
transaction,
and
I
must
hold
the
respondent
to
come
within
it.
I
would
therefore
allow
the
appeal
and
direct
judgment
for
the
amount
claimed
with
costs
in
both
Courts.
Locke,
J.:—By
an
agreement
dated
September
19,
1938,
the
Town
of
Vermilion
granted
to
the
respondent,
inter
alia,
the
right
to
enter
upon
the
streets
of
the
town
and
install
gas
pipe
lines
and
related
structures
and
equipment
for
the
supply
of
natural
gas
to
inhabitants
on
terms
defined
by
that
instrument.
Rights
of
the
nature
granted
to
the
respondent
are
referred
to
as
a
“special
franchise’’
in
Section
291
of
The
Town
and
Village
Act,
R.S.A.
1942,
chapter
150,
and
by
Section
292
the
council
was
empowered
to
grant
such
rights
with
the
approval
of
the
Board
of
Public
Utility
Commissioners
for
any
period
not
in
excess
of
twenty
years.
By
the
agreement
the
town
granted
the
exclusive
right
to
supply
natural
gas
to
its
inhabitants
to
the
respondent
for
a
period
of
ten
years
from
the
date
of
the
agreement,
and
by
a
further
clause
it
was
provided
that
at
the
expiration
of
that
term
the
company
might
have
the
option
of
renewing
:—
‘‘the
said
exclusive
franchise
and
its
contract
for
a
further
period
of
ten
years
and
a
similar
option
at
the
expiration
of
each
succeeding
ten-year
period
for
which
the
said
contract
and
franchise
may
be
renewed’’
provided
that
such
renewals
should
be
subject
to
such
alterations
as
might
be
agreed
upon
between
the
parties,
and
that
if
either
party
refused
to
renew
or
if
the
parties
failed
to
agree
as
to
the
conditions
of
such
renewal
:—
‘‘then
the
Company
may
refer
the
matters
in
dispute
to
the
Board
of
Public
Utilities
Commissioners
for
settlement
and
the
order
of
such
Board
shall
be
final
and
binding
on
both
parties
hereto.’’
A
further
term
provided
that
if
the
company
failed
to
refer
any
such
matter
to
the
Board
within
thirty
days
after
a
written
request
by
the
town
to
do
so,
the
town
council
might
purchase
the
company
’s
rights
under
the
contract
and
in
all
apparatus
and
property
used
for
the
purposes
thereof
on
such
terms
as
might
be
agreed
upon
or,
failing
agreement,
as
might
be
fixed
by
the
Board
of
Public
Utility
Commissioners.
By
an
order
dated
January
24,
1941,
the
Board
of
Publie
Utility
Commissioners,
a
body
constituted
under
the
Public
Utilities
Act
(R.S.A.
1942,
chapter
28),
which
referred
to
the
agreement
of
September
19,
1938,
as
granting
exclusive
privileges
for
a
period
of
ten
years
to
the
respondent,
approved
the
agreement.
By
an
agreement
in
writing
dated
January
6,
1940,
to
which
the
Town
of
Vermilion
was
a
party,
the
Wain-Town
Company
assigned
the
agreement
of
September
19,
1938,
to
Franco
Public
Service
Limited,
the
latter
company
assuming
the
obligations
of
the
respondent
to
the
town
contained
in
that
agreement
and
the
town
joining
for
the
purpose
of
evidencing
its
consent
to
the
transaction.
The
consideration
for
the
assignment
was
stated
in
the
following
language
:—
“In
consideration
of
this
assignment
Franco
doth
hereby
covenant
and
agree
with
Wain-Town
to
pay
to
Wain-Town
by
way
of
royalty,
from
the
proceeds
of
all
sales
of
natural
gas
under
the
said
Franchise,
the
following
percentages
of
the
actual
gross
sales
of
gas
reckoned
at
consumers’
prices,
less
consumers’
discounts:
(a)
During
the
first
three
years
six
and
a
quarter
per
cent
(614%)
;
(b)
During
the
next
7
years,
eight
and
one-third
per
cent
(843%)
;
(c)
Thereafter
during
the
currency
of
this
agreement,
and
of
the
said
Franchise
twelve
and
one-half
per
cent
/2%).”
A
further
term
provided
that
in
the
event
of
the
town
exercising
its
right
to
purchase
the
gas
utility
during
or
at
the
end
of
either
the
ten
year
term
of
the
franchise
or
during
or
at
the
end
of
the
first
renewal
period
of
ten
years
the
Franco
Company
would
pay
to
Wain-Town
twenty-five
per
cent
of
the
net
proceeds
of
such
sale.
The
matter
to
be
determined
is
as
to
whether
amounts
received
by
the
respondent
from
the
Franco
Company
during
the
taxation
years
1944
and
1945
of
the
nature
referred
to
as
royalties
in
the
agreement
of
January
6,
1940,
were
taxable
income
of
the
respondent
during
these
years.
In
a
carefully
considered
judgment,
by
which
the
decision
of
the
Minister
of
National
Revenue
affirming
assessments
made
upon
the
respondent
was
set
aside,
Mr.
Justice
Angers
has
found
that
these
receipts
were
not
taxable.
The
question
turns
upon
the
interpretation
to
be
placed
upon
paragraph
(f)
of
subsection
1
of
Section
3
of
the
Income
War
Tax
Act,
R.S.C.
1927,
chapter
97,
and
the
amendments
to
that
Act
applicable
to
these
taxation
periods.
The
definition
of
taxable
income,
in
so
far
as
it
affects
this
matter,
as
contained
in
subsection
1
of
Section
3
of
the
Act,
reads
:—
i
‘For
the
purposes
of
this
Act
‘income’
means
the
annual
net
profit
or
gain
or
gratuity,
whether
ascertained
and
capable
of
computation
as
being
wages,
salary,
or
other
fixed
amount,
or
unascertained
as
being
fees
or
emoluments,
or
as
being
profits
from
a
trade
or
commercial
or
financial
or
other
business
or
calling,
directly
or
indirectly
received
by
a
person
from
any
office
or
employment,
or
from
any
profession
or
calling,
or
from
any
trade,
manufacture,
or
business,
as
the
case
may
be,
whether
derived
from
sources
within
Canada
or
elsewhere.’’
and
is
stated
to
include,
inter
alia
:—
“(f)
rents,
royalties,
annuities
or
other
like
periodical
receipts
which
depend
upon
the
production
or
use
of
any
real
or
personal
property,
notwithstanding
that
the
same
are
payable
on
account
of
the
use
or
sale
of
any
such
property.”
The
evidence
discloses
that
the
Wain-Town
Company
did
not
discover
natural
gas
on
its
own
properties
or
construct
pipe
lines
or
install
the
apparatus
required
for
the
supply
of
gas
to
the
town
and
what
was
conveyed
to
the
Franco
Company
was
simply
the
rights
of
the
company
under
the
agreement
which
granted
the
franchise.
Apparently
the
Franco
Company
proceeded
with
the
necessary
installations
and
supplies
the
Town
of
Vermilion
with
natural
gas
acquired
by
it
from
the
wells
of
certain
companies
with
which
it
is
associated.
For
the
Crown
it
is
said
that
within
the
language
of
paragraph
(f)
the
payments
made
to
the
respondent
company
are
either
royalties
or
other
like
periodical
receipts
which
depend
upon
the
production
or
use
of
personal
property,
that
is,
the
franchise
granted
by
the
town
to
Wain-
Town.
For
the
respondent
it
is
contended
that
the
payments
are
simply
instalments
of
the
purchase
price
of
the
sale
of
a
capital
asset,
that
is,
of
the
incorporeal
hereditament
described
in
the
statute
as
a
special
franchise.
Paragraph
(f)
of
subsection
1
of
Section
3
was
introduced
into
the
Income
War
Tax
Act
by
Section
1
of
chapter
55
of
the
Statutes
of
1934.
It
appears
to
be
common
ground
that
this
amendment
was
made
in
consequence
of
the
decisions
of
this
Court
and
of
the
Judicial
Committee
in
Minister
of
National
Revenue
v.
Spooner,
[1931]
S.C.R.
339;
[1933]
A.C.
684;
[1928-34]
C.T.C.
178,
184.
In
that
case
a
landowner
had
sold
a
parcel
of
land
in
Alberta
to
a
company
engaged
in
drilling
for
oil
for
the
consideration
of
a
sum
in
cash,
certain
fully
paid
shares
of
the
company
and
the
delivery
of
ten
per
cent
of
the
petroleum,
natural
gas
and
oil
which
might
be
produced
from
the
said
lands,
which
was
referred
to
in
the
agreement
of
sale
as
a
royalty
reserved
to
the
vendor.
Affirming
the
decision
in
this
Court,
it
was
held
that
the
so-called
royalties
were
not
taxable
income.
Paragraph
(f)
of
subsection
1
does
not
reproduce
the
terms
of
any
of
the
various
Income
Tax
Acts
in
England
or
of
the
rules
passed
under
the
authority
of
any
such
Act
and
little
help
in
its
interpretation
is
to
be
found
in
any
of
the
English
decisions.
In
the
present
matter
the
franchise
was
sold
outright,
without
any
reservation,
and
thus
the
sale
was
of
a
different
nature
from
that
considered
in
Spooner’s
case.
While
the
agreement
of
June
6,
1940
referred
to
the
percentages
of
the
actual
gross
sales
of
gas
as
royalties,
this,
while
a
matter
to
be
considered,
is
not
decisive
nor
relieved
us
of
the
necessity
of
determining
what
was
the
real
nature
of
the
transactions.
The
expression
‘‘royalties’’
in
the
paragraph,
in
the
absence
of
a
statutory
definition,
is
to
be
assigned
its
ordinary
and
natural
meaning.
The
word
appears
in
Section
109
of
the
British
North
America
Act,
where
lands,
mines,
minerals
and
royalties
belonging
to
the
several
provinces
of
Canada,
Nova
Scotia
and
New
Brunswick
at
the
time
of
Union
were
reserved
to
them.
It
is
not,
however,
in
the
sense
of
a
royal
prerogative
or
right
that
the
word
is
used
in
the
Income
Tax
Act,
but
rather
in
the
sense
that
the
word
is
commonly
used
in
business
transactions
to
describe
sums
paid
for
the
right
to
use
a
patent
or
copyright,
or
to
exercise
some
like
incorporeal
right,
or
some
payment
to
be
made
from
the
production
from
property
the
ownership
of
which
remains
vested
in
the
grantor.
In
my
opinion,
the
word
in
its
ordinary
meaning
does
not
describe,
or
extend
to,
a
payment
such
as
was
stipulated
for
in
the
agreement
between
the
parties
in
this
matter,
where
the
payment
is
made
as
part
of
the
purchase
price
of
the
outright
sale
of
personal
property
transferred
without
reservation
to
the
Franco
Company.
By
the
terms
of
the
agreement,
the
payments
to
which
the
Wain-Town
Company
should
become
entitled
were
to
be
paid
monthly
to
its
credit
in
the
Vermilion
Branch
of
the
Canadian
Bank
of
Commerce
covering
sales
of
gas
in
the
preceding
month
and
are
clearly
not
of
the
nature
of
annuities.
The
remaining
question
is,
therefore,
whether
they
are
1
‘
other
like
periodical
receipts’’,
within
the
meaning
of
paragraph
(f).
The
Income
War
Tax
Act,
as
the
name
implies
and
as
the
language
of
the
defining
section
discloses,
is
intended
to
impose
a
tax
on
income.
In
Withers
v.
Nethersole,
[1948]
1
All
E.R.
400,
Lord
Simon,
delivering
the
judgment
of
the
House
of
Lords,
said
in
part
(p.
402)
:—
“Much
emphasis
was
laid
by
the
Crown
on
r.
19(2)
of
the
General
Rules
which
begins:
‘Where
any
royalty
or
other
sum
is
paid
in
respect
of
a
user
of
a
patent
.
.
.’
but
the
Solicitor
General
did
not
dispute
the
Master
of
the
Rolls’
proposition
(which
is
plainly
correct)
that
‘other
sum’
in
the
phrase
quoted
means
other
sum
which
is
of
a
revenue
nature
and
does
not
include
a
capital
sum.
’
’
In
my
opinion,
the
same
rule
of
construction
should
be
applied
to
the
language
above
quoted
and
so
the
‘‘other
like
periodical
receipts
’
’
referred
to
are
those
of
an
income
or
revenue,
as
distinguished
from
a
capital
nature.
I
think
the
payments
stipulated
for
by
the
agreement
in
question
were
instalments
on
account
of
the
purchase
price
of
the
franchise
of
a
capital
nature,
such
as
were
the
annuities
stipulated
for
as
part
of
the
sale
price
of
property
considered
by
this
Court
in
Wilder
v.
Minister
of
National
Revenue,
[1952]
1
D.L.R.
401;
[1951]
C.T.C.
304.
Since
I
consider
that
these
payments
do
not
all
within
any
of
the
four
classifications
mentioned
in
subparagraph
(f),
it
is
unnecessary
to
consider
whether
they
are
otherwise
payments
of
the
nature
referred
to
in
the
concluding
portion
of
the
paragraph.
I
would
dismiss
this
appeal
with
costs.
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