Bonner,
T.C.C.J.:—The
appellant
appeals
from
assessments
of
income
for
the
1982,
1983
and
1984
taxation
years
of
its
predecessor
V.S.
Services
Ltd..
At
all
relevant
times
it
was
part
of
a
group
of
corporations
which
carried
on
the
business
of
offering
food
and
beverages
for
sale
to
the
public.
In
making
the
assessments
in
dispute
the
respondent
proceeded
on
the
basis
that
certain
of
the
appellant's
microwave
ovens
and
coffee
brewing
devices:
a)
were
not
property
described
in
Class
29
of
Schedule
II
to
the
Income
Tax
Regulations
(the"Regulations")
and,
specifically,
were
not
property”.
.
.
to
be
used
directly
or
indirectly
by
(the
appellant)
in
Canada
primarily
in
the
manufacturing
or
processing
of
goods
for
sale
or
lease
.
.
.”
within
the
meaning
of
Class
29;
b)
were
not
“
qualified
property"
within
the
definition
found
in
subsection
127(10)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
and,
specifically,
that
none
of
them
was
”
.
.
.
a
property
.
.
.
to
be
used
by
(the
appellant)
in
Canada
primarily
for
the
purpose
of
manufacturing
or
processing
of
goods
for
sale
or
lease”
within
the
meaning
of
subparagraph
127(10)(c)(i)
of
the
Act;
and
c)
were
not
property
used
in
qualified
activities”
defined
in
section
5202
of
the
Regulations
and,
specifically,
because
the
relevant
activities
were
not".
.
.
performed
in
Canada
directly
in
connection
with
manufacturing
or
processing
.
.
.
in
Canada
of
goods
for
sale
or
lease
.
.
.”
within
the
meaning
of
paragraph
(b)
of
section
5202.
Only
some
of
the
coffee
brewers
and
microwave
ovens
used
by
the
appellant
are
in
issue.
The
appellant
took
the
position
that
brewers
and
ovens
furnished
for
use
by
its
own
employees
in
cafeterias
operated
by
it
fell
within
the
statutory
provisions
previously
referred
to
and,
on
assessment,
the
respondent
did
not
challenge
that
position.
However,
on
assessment
the
respondent
proceeded
on
the
basis
that
similar
or
identical
brewers
and
ovens
provided
by
the
appellant
for
use
not
by
its
employees
but
by
customers
in
locations
where
the
appellant
did
not
operate
a
cafeteria
did
not
fall
within
the
same
statutory
provisions.
It
is
the
tax
treatment
of
that
equipment
which
is
at
issue.
At
the
hearing
of
the
appeals
evidence
was
given
by
one
witness
only,
Robert
Boone.
He
is
senior
vice-president
and
secretary
of
the
appellant.
He
testified
that
during
the
period
in
question
the
appellant
carried
on
the
business
of
providing
food
products
for
customers
in
the
health
care
market,
the
school
market,
the
leisure
market,
and
the
“at
work"
market.
I
am
satisfied
that
in
general
his
description
of
the
nature
of
the
appellant's
activities
and
of
the
use
made
of
the
property
in
question
was
accurate.
Mr.
Boone
stated
that
the
appellant's
business
involved
providing
the
consumer
with
food
in
a
ready-to-eat
state.
In
some
locations
this
was
accomplished
by
the
operation
of
a
cafeteria.
In
cafeterias
the
preparation
of
meals,
snacks
and
beverages
was
carried
out
by
the
appellant's
employees.
Where
the
volume
of
business
did
not
warrant
the
operation
of
a
cafeteria
the
appellant
served
the
consumer
by
means
of
coin
operated
vending
machines
located
in
premises
belonging
to
the
appellant's
clients.
The
food
sold
from
vending
machines
was
prepared,
cooked
and
wrapped
at
food
distribution
centres
operated
by
the
appellant.
It
was
then
delivered
to
and
loaded
in
the
vending
machines
by
the
appellant's
employees.
The
products
sold
from
such
machines
were
ready
to
eat
save
for
final
heating
required
by
some
products
such
as
hotdogs,
hamburgers
and
pizzas.
The
microwave
ovens
in
issue
were
furnished
by
the
appellant
for
use
in
heating
such
products.
Those
ovens
were
said
to
be
similar
to
microwave
ovens
normally
found
in
a
home
except
that
they
bore
detailed
printed
instructions
and
were
designed
for
a
more
rugged
class
of
service.
The
appellant's
microwave
ovens
were
intended
to
be
used
only
in
heating
products
bought
from
the
appellant's
vending
machines.
Mr.
Boone
testified
that
the
coffee
brewers
in
issue
were
the
same
as
those
used
in
the
appellant's
cafeteria
operations.
They
were
not
of
the
automatic
coin
operated
variety.
Rather
they
appear
to
have
been
of
the
type
which
requires
someone
to
put
ground
coffee
in
a
basket,
insert
the
basket
in
the
machine
and
fill
the
machine
with
sufficient
water
to
make
a
pot
of
coffee.
From
that
point
onward
the
machine
automatically
completed
the
brewing
of
the
coffee.
The
appellant's
employees
were
involved
to
the
extent
of
visiting
the
customer's
premises
weekly
to
deliver
a
supply
of
ground
coffee
for
use
in
the
brewers
together
with
creamer
and
stir
sticks
as
required.
It
was
also
the
duty
of
the
appellant's
employees
when
visiting
the
customer's
premises
to
inspect
and
clean
the
equipment
and
to
replace
filters,
pots
and
other
parts
as
required
from
time
to
time.
According
to
Mr.
Boone
the
appellant’s
commitment
was
to
provide
food
in
a
state
ready
to
eat
and
that
in
consequence
the
appellant
was
prepared
to
refund
the
cost
of
spoiled
and
wasted
food
if
the
microwave
ovens
or
coffee
brewers
failed
to
function
properly.
Finally
Mr.
Boone
produced
a
copy
of
a
letter
dated
July
11,
1979
(Exhibit
A-2)
written
by
one
of
the
respondent's
officials
to
the
appellant's
accountant
in
which
the
official
said:
.
.
.
a
Microwave
oven
in
a
restaurant,
bar,
etc.,
which
is
used
to
heat
or
cook
a
hotdog,
a
hamburger,
soup
or
a
sandwich
that
is
bought
on
the
premises
or
out
of
a
vending
machine
would
generally
qualify
as
Class
29
property.
Mr.
Templeton,
counsel
for
the
appellant,
submitted
that
the
only
point
to
be
decided
was
whether
the
use
made
of
the
microwave
ovens
and
coffee
brewers
by
the
consumers
satisfied
the
various
statutory
requirements
regarding
use
by
the
appellant.
He
pointed
to
paragraph
9
of
the
notice
of
appeal
in
which
it
was
alleged
that
the
Minister
had
assessed
on
the
basis
that:
.
.
.
the
microwaves
and
coffee
brewers
were
not
operated
by
the
appellant
but
by
the
customers
of
the
appellant
and
therefore
were
not
used
by
the
appellant
in
manufacturing
and
processing
goods
for
sale.
The
respondent
accepted
that
the
microwave
ovens
and
coffee
brewers
used
by
the
appellant
in
its
cafeterias
were
used
by
the
appellant
in
manufacturing
or
processing
goods
for
sale
That
allegation
was
admitted
by
the
respondent
in
the
reply
to
the
notice
of
appeal.
Thus,
so
the
argument
went,
the
Minister
had
admitted
that
the
preparation
of
food
and
coffee
was
"processing"
and
his
denial
of
the
benefits
of
the
incentive
provisions
previously
outlined
rested
on
an
interpretation
of
the
meaning
of
the
word
"use"
that
was
narrow
and
unrealistic.
Counsel
suggested
that
the
fact
that
the
consumer
pushed
the
button
on
the
microwave
oven
did
not
mean
that
the
oven
was
not
at
the
same
time
being“
used"
by
the
appellant.
In
this
regard
counsel
referred
to
Funtronix
Amusements
Ltd.
v.
M.N.R.,
[1989]
2
C.T.C.
2296,
89
D.T.C.
545
and
to
FE.
Channan
Ltd.
v.
Clow,
[1974]
1
W.L.R.
1384.
He
emphasized
that
it
was
the
appellants
business
to
furnish
the
customer
with
food
in
a
ready-to-eat
state
not
only
in
cafeterias
in
which
all
operations
are
carried
out
by
the
appellants
employees
but
also
in
locations
in
which
the
only
practical
solution
was
to
furnish
microwave
ovens
and
coffee
brewers
for
operation
by
the
customer
himself
and
that
in
the
context
of
the
business
the
use
made
of
the
machines
was
the
same
in
both
cases.
Although
it
is
not
necessary
to
decide
the
point,
I
am
inclined
to
think
that
the
provisions
of
the
Act
and
Regulations
now
in
question
do
not
require
that
the
property
be
used
exclusively
by
the
taxpayer.
However
that
is
not
the
end
of
the
matter.
It
does
not
follow
that
the
respondent
misapplied
the
provisions
in
falling
to
treat
all
of
the
appellant’s
microwave
ovens
and
coffee
brewers
in
the
same
way.
Mr.
Erlichman,
counsel
for
the
respondent,
argued
that
none
of
the
equipment
fell
within
the
provisions
in
question.
He
submitted
that
what
the
appellant
seeks
is
not
the
proper
application
of
those
provisions
but
rather
the
extension
of
an
administrative
concession
made
by
the
respondent
in
relation
to
equipment
used
in
cafeteria
operations.
Mr.
Erlichman
stated
that
the
decision
of
the
Federal
Court-Trial
Division
in
Mother's
Pizza
Parlour
(London)
Ltd.
and
Mother's
Pizza
Parlour
Ltd.
v.
The
Queen,
[1985]
1
C.T.C.
361,
85
D.T.C.
5271
stands
for
the
proposition
that
"processing"
does
not
include
the
preparation
of
food
as
a
finished
product
ready
for
immediate
sale
and
consumption.
He
added
that
it
was
on
that
authority
that
this
Court
decided
Edwards
Fine
Food
Ltd.
v.
M.N.R.,
[1986]
2
C.T.C.
2447,
86
D.T.C.
1815.
He
conceded
that,
as
Mr.
Templeton
pointed
out,
the
Federal
Court
of
Appeal
decided
the
appeal
in
Mother's
Pizza,
[1988]
2
C.T.C.
197,
88
D.T.C.
6397,
on
a
different
ground
but
submitted
that
that
fact
does
not
diminish
the
authority
of
the
decision
of
the
Trial
Division.
Indeed,
he
said,
Pratte,
J.
took
care
to
refrain
from
suggesting
that
there
was
error
in
the
decision
below.
In
support
of
his
submission
he
pointed
to
the
following
passage
(pages
199-200
(D.T.C.
6399)):
I
need
not,
in
order
to
dispose
of
this
case,
express
any
opinion
on
that
finding.
Indeed,
even
if
the
trial
judge
were
wrong
on
that
point
(I
do
not
want
to
suggest
that
he
was)
and
if
the
preparation
of
food
for
immediate
consumption
and
sale
did
constitute
“
processing
of
goods"
within
the
meaning
of
subsection
127(10),
it
could
not
be
said
that
the
building
was
used
primarily
for
the
purpose
of
processing
goods
for
sale
since,
in
my
view,
it
was
mainly
used
for
the
consumption
and
sale
of
food.
I
agree
with
Mr.
Erlichman's
position.
Both
the
microwave
ovens
and
the
brewers
were
obviously
intended
for
use
in
the
preparation
of
food
for
immediate
consumption
and
on
the
basis
of
stare
decisis
alone
I
must
dismiss
the
appeals.
Furthermore
it
is
clear
that
neither
the
pleaded
admission
as
to
the
basis
on
which
the
respondent
treated
the
microwave
ovens
and
coffee
brewers
used
by
the
appellant
in
its
cafeterias
nor
the
further
admission
by
the
respondent
in
paragraph
2
of
the
reply
to
the
notice
of
appeal
.
.
.
that
the
appellant
was
partly
in
the
business
of
processing
food
and
coffee
for
sale
.
.
.
can
be
of
assistance
to
the
appellant.
Neither
is
an
admission
as
to
the
use
of
the
microwave
ovens
and
coffee
brewers
in
issue.
The
appellants
unstated
premise
amounts
to
this:
Whether
the
Minister
has
or
has
not
erred
in
his
treatment
of
the
equipment
used
by
the
appellant
in
its
cafeterias
he
is
obliged
to
be
logically
consistent
and
to
accord
the
same
treatment
to
the
equipment
in
issue.
The
answer
to
that
argument
is
to
be
found
in
the
decision
in
Edward's
Fine
Foods
Ltd.,
(supra)
where
Christie,
A.C.J.
said
at
page
2449
(D.T.C.
1817):
That
there
may
have
been,
or
even
if
there
has
in
fact
been,
inconsistencies
in
different
taxation
years
in
assessing
or
reassessing
a
taxpayer
this
cannot
alter
the
law
as
laid
down
by
or
under
the
authority
of
Parliament.
It
is
that
law,
unfettered
by
the
manner
in
which
the
Act
and
Regulations
may
have
been
construed
and
applied
in
other
years
by
those
administering
them,
that
governs
the
determination
of
appeals
to
this
Court.
The
impact
on
legislation
of
administrative
policy
and
interpretation
is
limited
to
the
role
of
interpretative
aids
in
circumstances
of
legislative
ambiguity:
What
is
said
there
applies
with
equal
force
to
inconsistencies
within
a
single
assessment
of
tax.
The
modern
rule
of
statutory
construction
as
stated
by
E.A.
Driedger
and
approved
by
the
Supreme
Court
of
Canada
(Stubart
Investments
Ltd.
v.
The
Queen,
[1984]
C.T.C.
294,
84
D.T.C.
6305,
at
page
316
(D.T.C.
6323))
is:
Today
there
is
only
one
principle
or
approach,
namely,
the
words
of
an
Act
are
to
be
read
in
their
entire
context
and
in
their
grammatical
and
ordinary
sense
harmoniously
with
the
scheme
of
the
Act,
the
object
of
the
Act,
and
the
intention
of
Parliament.
I
can
find
nothing
in
the
context
of
the
statutory
provisions
now
under
consideration
which
suggests
that
the
words
"manufacturing
or
processing
of
goods
for
sale”
ought
to
be
read
in
any
way
that
extends
their
scope
in
ordinary
usage.
It
has
been
said
that
the
investment
tax
credit
was
aimed
at
the
“evil”
of
"any
slowdown
in
investment"
(per
MacGuigan,
J.
in
Lor-Wes
Contracting
Ltd.
v.
The
Queen,
[1985]
2
C.T.C.
79,
85
D.T.C.
5310,
at
page
85
(D.T.C.
5314)
and
the
appellant
did
of
course
make
some
investment
in
the
equipment
in
issue.
However
it
is
clear
from
the
language
of
the
legislation
that
the
target
was
not
just
any
investment
at
all.
It
was
investment
in
property
for
use
in
Canada
in
an
activity
capable
of
being
fairly
described
as
“
manufacturing
or
processing
of
goods
for
sale".
When
those
words
are
used
in
an
ordinary
and
unstrained
way
they
do
not
encompass
the
heating
of
cold
hamburgers,
hotdogs
or
slices
of
pizza.
The
word
"processing"
does
not
stand
alone.
It
forms
part
of
the
term
“manufacturing
or
processing
of
goods
for
sale"
and
takes
colour
from
its
neighbour.
.
.
.
the
whole
context
of
the
Act
makes
it
clear
that
the
concepts"
manufacturing”
and
"processing"
are
related.
The
concept
"processing"
as
was
noted
in
the
Kimel
case,
is
very
broad.
The
ordinary
dictionary
definition
of
that
word
encompasses
a
very
wide
variety
of
activity.
For
the
purposes
of
section
125.1,
it
is
necessary
to
narrow
that
broad
scope
in
order
for
the
term
to
be
meaningful.
One
factor
which
is
useful
in
such
interpretation
is
the
import
and
meaning
of
the
associated
word
"manufacturing"
[per
Reed,
J.
in
Harvey
C.
Smith
Drugs
Ltd.
v.
The
Queen,
[1992]
1
C.T.C.
325,
92
D.T.C.
6349
at
333
(D.T.C.
6354)].
A
very
useful
review
of
the
applicable
law
may
be
found
in
the
decision
of
the
Federal
Court-Trial
Division
in
Harvey
C.
Smith
Drugs
Ltd.
v.
Canada,
supra.
In
that
case
Reed,
J.
considered
and
rejected
a
contention
that
the
dispensing
of
prescription
drugs
in
tablet
and
capsule
form
was''processing"
within
the
meaning
of
section
125.1
of
the
Act.
At
page
332
(D.T.C.
6354)
of
her
reasons
her
ladyship
stated:
As
I
read
the
cases
that
have
been
cited
to
me,
I
conclude
that
in
order
to
characterize
an
activity
as
processing
within
the
meaning
of
section
125.1
there
must
at
the
least
be
a
change
in
form
or
appearance
of
the
product
being
processed.
In
all
of
the
cases,
there
has
been
a
physical
change
in
the
product
being
processed.
The
physical
change
may
be
chemical
or
electrical
and
thus
not
immediately
visible
to
the
eye
but
there
has
been
a
physical
change
to
the
product.
In
my
view
the
mere
heating
of
a
hamburger,
hotdog
or
slice
of
pizza
does
not
effect
the
sort
of
physical
change
that
Reed,
J.
held
to
be
a
prerequisite
to
a
finding
that
processing
had
taken
place.
It
was
not
shown
that
the
form,
characteristics
or
appearance
of
the
hamburger
or
other
product
was
changed
by
the
heating
process.
The
product
was
simply
made
warm.
The
products
sold
by
the
appellant
from
coin
operated
machines
may
have
been
the
result
of
a
processing
operation
consisting
of
the
cooking
of
the
meat,
assembly
of
the
components
and
wrapping
of
the
finished
product
but
all
of
that
was
completed
prior
to
the
distribution
of
the
product
to
the
various
machines.
This
cannot
realistically
be
regarded
as
a
case
in
which
a
processing
operation
which
had
been
conducted
by
the
appellant
continued
following
the
purchase
of
the
product
by
the
client
from
the
vending
machine.
The
heating
of
the
product
standing
alone
did
not
effect
enough
in
the
way
of
change
to
warrant
the
use
of
the
word
"processing".
This
conclusion
is
reinforced
by
the
decision
of
the
Federal
Court
of
Appeal
in
Tenneco
Canada
Inc.
v.
Canada,
[1991]
1
C.T.C.
323,
91
D.T.C.
5207.
In
that
case
the
Court
rejected
a
contention
that
modifications
of
pipes
and
other
parts
used
in
automobile
exhaust
systems
which
had
taken
place
during
the
course
of
the
assembly
and
installation
of
such
systems
involved
"processing".
Those
alterations
were
characterized
by
the
Court
as
"minor".
The
Court
noted
that
there
was
no
real
change
in
the
form,
appearance
or
characteristics
of
the
pipes
and
other
component
parts
used
in
the
systems.
By
way
of
example
the
Court
observed
that
a
distinction
must
be
drawn
between
the
manufacturing
of
a
made-to-measure
suit
and
the
alteration
of
a
ready-made
suit
at
a
retail
clothing
store
with
a
view
to
meeting
the
specific
requirements
of
a
customer.
As
previously
noted
similar
considerations
apply
here.
The
change
in
temperature
effected
by
the
use
of
the
microwave
oven
is
so
minor
that
it
cannot
be
regarded
as
processing
within
the
meaning
of
the
provisions
now
in
question.
Turning
next
to
the
coffee
brewers
and
leaving
the
rule
in
Mother's
Pizza
aside
for
the
moment,
it
is
apparent
that
there
is
much
more
force
to
an
argument
that
brewing
a
cup
of
coffee
amounts
to
processing
than
to
an
argument
that
the
heating
of
a
snack
is
processing.
After
all
the
making
of
a
pot
of
coffee
in
one
of
the
appellant's
brewers
involves
not
only
the
heating
of
water
but
also
the
transfer
of
the
flavours
from
the
ground
coffee
bean
to
the
water
thus
producing
the
beverage.
However,
though
it
is
one
thing
to
say
that
the
appellant
uses
the
coffee
brewer
in
its
business
when
it
makes
that
device
available
for
use
by
its
customers,
it
is
quite
another
thing
to
say
that
the
appellant
thereby
uses
the
coffee
brewer
for
the
purpose
of“
processing
goods
for
sale".
The
evidence
was
fuzzy
as
to
the
precise
terms
of
the
contract
between
the
appellant
and
those
of
its
customers
who
were
provided
with
the
coffee
brewers
but
it
does
not
appear
that
the
appellant
was
engaged
in
selling
coffee
in
beverage
form
to
those
customers.
Rather,
it
appears
that
the
appellant
was
selling
ground
coffee
to
those
customers
and
lending
the
equipment
required
to
enable
the
customers
to
make
the
beverage.
Thus,
assuming
that
the
act
of
making
a
pot
of
coffee
amounts
to”
processing"
I
cannot
find
that
the
brewers
were
used
by
the
appellant
for
the
purpose
of
such
"processing".
I
should
note
that
Mr.
Templeton
did
place
some
reliance
on
the
respondent's
long
standing
administrative
practice
as
set
forth
in
Exhibit
A-2
and
as
demonstrated
by
his
treatment
of
the
appellant's
cafeteria
equipment
as
of
some
assistance
in
the
interpretation
of
the
legislative
language.
He
relied
on
Harel
v.
Deputy
Minister
of
Revenue,
[1977]
C.T.C.
441,
77
D.T.C.
5438,
for
the
proposition
that
in
a
case
of
doubt
about
the
meaning
of
legislation
such
practice
may
be
of
assistance
in
interpreting
the
statutory
language.
However,
de
Grandpré,
J.
did
emphasize
that
administrative
interpretation
cannot
be
used
to
contradict
a
clear
legislative
text.
In
my
view
the
legislative
language
now
in
question
clearly
does
not
encompass
the
use
made
of
the
equipment
by
the
appellant.
The
foregoing
reasons
apply
to
the
following
appeals
heard
on
common
evidence:
(a)
Versa
Services
Ltd.
(formerly
V.S.
Services
Ltd.)
in
respect
of
assessments
for
the
taxation
years
ending
April
27,
1983,
September
28,
1983
and
September
26,
1984
of
its
predecessor
Vancouver
Enterprises
Ltd.
(Court
File
89-435);
(b)
Versabec
Inc.
in
respect
of
assessments
made
for
the
1982,
1983
and
1984
taxation
years
(Court
File
89-434);
and
(c)
Major
Foods
Ltd.
in
respect
of
assessments
for
the
1984
and
1985
taxation
years
(Court
File
89-433).
The
appeals
will
be
dismissed.
Appeals
dismissed.
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