Le Dain, J:—This is an appeal from a judgment of the Trial Division delivered by Marceau, J dismissing an appeal against assessments under the Income Tax Act, RSC 1952, c 148, for the taxation years 1958,1959,1960, 1962, 1963, 1964 and 1965 in respect of income earned by the appellant, a resident of the United States, from real estate transactions in Canada.
The appellant conceded at trial that he was carrying on business in Canada within the meaning of paragraph 2(2)(b) and subsection 139(7) of the Act, but he contended that he escaped liability for taxation by virtue of Article 1 of the Canada-United States Tax Convention for the avoidance of double taxation and the prevention of fiscal evasion, which was given the force of law in Canada by The Canada-United States Tax Convention Act, SC 1943, c 21, as amended by SC 1959, c 27.
Article 1 of the Convention provides:
An enterprise of one of the contracting States is not subject to taxation by the other contracting State in respect of its industrial and commercial profits except in respect of such profits allocable in accordance with the Articles of this Convention to its permanent establishment in the latter State.
No account shall be taken in determining the tax in one of the contracting States, of the mere purchase of merchandise effected therein by an enterprise of the other State.
Paragraph 3 of the Protocol to the Convention contains the following definitions:
3. As used in the Convention:
(a) the terms “person”, “individual” and “corporation” shall have the same meanings, respectively, as they have under the revenue laws of the taxing State or the State furnishing the information, as the case may be;
(b) the term “enterprise” includes every form of undertaking, whether carried on by an individual, partnership, corporation or any other entity;
(c) the term “enterprise of one of the contracting States” means, as the case may be, “United States enterprise” or “Canadian enterprise”;
(d) the term “United States enterprise” means an enterprise carried on in the United States of America by an individual resident in the United States of America, or by a corporation, partnership or other entity created or organized in or under the laws of the United States of America, or of any of the States or Territories of the United States of America;
(e) the term “Canadian enterprise” is defined in the same manner mutatis mutandis as the term “United States enterprise”;
(f) the term “permanent establishment” includes branches, mines and oil wells, farms, timber lands, plantations, factories, workshops, warehouses, offices, agencies and other fixed places of business of an enterprise, but does not include a subsidiary corporation. The use of substantial equipment or machinery within one of the contracting States at any time in any taxable year by an enterprise of the other contracting State shall constitute a permanent establishment of such enterprise in the former State for such taxable year.
When an enterprise of one of the contracting States carries on business in the other contracting State through an employee or agent established there, who has general authority to contract for his employer or principal or has a stock of merchandise from which he regularly fills orders which he receives, such enterprise shall be deemed to have a permanent establishment in the latter State.
The fact that an enterprise of one of the contracting States has business dealings in the other contracting State through a commission agent, broker or other independent agent or maintains therein an office used solely for the purchase of merchandise shall not be held to mean that such enterprise has a permanent establishment in the latter State.
The issue is whether the appellant’s real estate activity in Canada was part of an enterprise carried on by him in the United States, and if so, whether that enterprise had a permanent establishment in Canada.
During the relevant period, which is generally referred to in the evidence as being the years 1955 to 1965, the appellant resided in New York. He had come to the United States in 1926 and had resided there ever since. His principal occupation was that of jeweller and diamond broker, and he was a member of the Diamond Dealers Club, often referred to in the evidence as simply the “Diamond Club.” During the 1950’s and 1960’s he acquired certain real estate interests in the United States and Israel. His testimony is vague and uncertain as to the precise dates of acquisition and sale. There was a commercial building in New Jersey which was held for several years by the appellant in partnership with others for revenue purposes but was apparently ceded back to the vendor at a loss. There was land in Colorado which was sold in 1969 or 1970 and the profits declared in the United States as capital gains. There was a building lots project in the United States in which the appellant was interested with another person, although the evidence does not indicate its precise location or the dates of acquisition and sale. There was land in Israel from the sale of which the appellant did not derive any profit during the years 1955 to 1965.
The appellant’s real estate activity in Canada began around the mid 1950’s when he made contact through a fellow member of the Diamond Club with one Morris Feinstein, a very active real estate broker and dealer in the Montreal area. The appellant sought suggestions from Feinstein as to Suitable real estate acquisitions. Thereafter he became involved with Feinstein in real estate transactions relating to some 14 pieces of land in the Province of Quebec. The assessments are with respect to the income derived from these transactions.
Feinstein and the appellant were major participants in the various transactions. In some cases they held the land directly as co-owners, in others they were shareholders in corporations which held the land. In some cases they would appear as equal co-owners or shareholders but would hold some part of their respective shares in trust for others. When the appellant took a share he would generally find others in the United States, frequently among the members of the Diamond Club, to participate with him. Feinstein would sometimes consider a prospective acquisition and come to the United States to try to interest others in it. In some cases deeds of sale were executed in New York. In most cases the appellant, with other interested Americans, would come to Montreal to consider a transaction, and the transaction would be completed there. The appellant did not have an office in the United States from which to look after the Canadian real estate activity. He would take telephone calls concerning it at the Diamond Club or at his home. When he came to Montreal he would stay at a hotel. He testified that he never used the office of Feinstein or any of the corporations which held the land in which he was interested. Both Feinstein and the appellant testified that Feinstein was not authorized to contract on the appellant’s behalf and that there was no agreement between them as to the general manner in which the business should be carried on. Although some documents were sent directly to the appellant and the other Americans who were interested in the properties, it would appear that for the most part the payment of real estate taxes and mortgage payments were looked after by Feinstein’s accountant Chodos. He would call on the interested parties for their respective contributions and would then make the payments. The books of the corporations were kept in Montreal and their affairs were administered there. Chodos testified that while he did not have authority to contract on behalf of the appellant or any of the other principals he did recall having powers of attorney in some cases to grant mainlevées of hypothecs on the properties. It is clear from the appellant’s testimony that he had little recollection of how the affairs of the corporations were handled. That was obviously left to Feinstein’s organization, although the appellant made his own decisions as a shareholder.
On these facts the learned triai judge held that the real estate activity of the appellant was not a United States enterprise within the meaning of Article 1 of the Convention and pargraph 3(d) of the Protocol. He further held, assuming that it was such an enterprise, that the profits from the transactions in question were allocable to a permanent establishment in Canada. Accordingly, he dismissed the appeal.
The trial judge based his conclusion that the enterprise was not a United States enterprise on the following findings of fact: that the transactions were negotiated and completed in Canada; that the properties were administered in Canada and the books kept there; that Feinstein was the prime mover or guiding spirit behind the real estate activity, and, as the expert on the spot, looked after everything; and that there was a firm agree- ment or understanding which bound the appellant and Feinstein in a common undertaking.
It is the appellant’s contention that the whole of his business activity during the relevant period, including his activity as jeweller and diamond broker, his real estate activity in the United States and Israel, and his real estate activity in Canada, should be considered to be an enterprise within the meaning of the Convention. Alternatively, he contends that the enterprise consisted of the whole of his real estate activity and not merely the transactions carried out in Canada. The learned Trial Judge appears to have regarded the enterprise as consisting of the real estate activity in Canada and to have ignored the appellant’s real estate interests in the United States and Israel. In my opinion he did not err in this conclusion. The real estate activity in Canada had a distinct and separate character that not only distinguished it during the relevant period from the appellant’s business as a jeweller and diamond broker, but also from his real estate interests in the United States and Israel. During the period 1955-65 he was not, on his own testimony, dealing in real estate in the United States and Israel, as he was in Canada. But even if his real estate interests in the United States and Israel during this period be included in the enterprise I do not think they are of sufficient significance by themselves, particularly in view of the vagueness of the testimony concerning them, to impart to that enterprise the character of a United States enterprise.
As for the specific findings of the trial judge concerning the real estate activity in Canada, one might argue that they should be qualified somewhat in the light of a detailed review of the evidence, but I am unable to disagree with what I take to be his essential conclusion: that because of the role played by Feinstein the appellant’s real estate activity in Canada cannot be held to be an enterprise that was carried on in the United States. The principal focus of the activity was in Montreal, where Feinstein, who acted not only as a broker or agent but as a major participant in his own right, gave the activity such direction and administration as it required, with the aid of his accountant Chodos. Although Feinstein did not have authority to bind the appellant and the evidence does not in my opinion support a conclusion that they were in any real sense partners, the initiative in the development and management of the enterprise was left very largely to him. The fact that the appellant resided in the United States, had telephone calls and meetings there concerning the business, interested others in the United States to participate in the various transactions, executed some deeds there, and reserved the final decision in each case as to whether he would buy or sell, are not sufficient in my opinion, given the leading role of Feinstein, to support a conclusion that the enterprise was in any meaningful sense one that was carried on in the United States.
In view of this conclusion it is unnecessary to consider whether, assuming it to have been a United States enterprise, it could be said to have a permanent establishment in Canada within the meaning of the Convention and the Protocol.
For these reasons I would dismiss the appeal with costs.