Halliburton Services Ltd. v. The Queen, 85 DTC 5336, [1985] 2 CTC 52 (FCTD), aff'd 90 DTC 6320 (FCA).

Reed, J:—The plaintiff seeks a reassessment of the income tax payable by it for the 1976 and 1977 taxation years on the ground that:

(1) it is entitled to a reduction in tax payable because part of its income consists of profit arising out of the manufacturing or processing of goods for sale (paragraph 125.1 (3)(b) of the Income Tax Act, SC 1970-71-72, c 63 as amended SC 1973-74, c 29, s 1);

(2) it is entitled to an investment tax credit with respect to qualified property (ie: property described in Regulation 4600) because such property is used either for the purpose of manufacturing or processing goods for sale or for the purpose of exploring or drilling for petroleum or natural gas (subsection 127(10)(c)(i) and (v) of the Income Tax Act, SC 1970- 71-72, c 63 as amended SC 1974-75-76, c 71, s 9(1)); and

(3) it is entitled to an accelerated capital cost allowance for some of its assets because they fall within class 29 of Schedule B to the Act, and the plaintiff is engaged in the manufacturing or processing of goods for sale (section 20(1 )(a) of the Income Tax Act, 1970-71-72, c 63 and Income Tax Regulation 1100(1)).

Taxpayer's Business Activities

The business activities of the taxpayer to which this dispute relates are operations it carries out in relation to the drilling of oil and gas wells. Most of these activities are with respect to yet to be completed, or recently completed but not adequately producing wells. Some small part of the operations might apply to wells which have been producing for some time but which have developed a lower production rate than usual.

The plaintiff refers to itself as Halliburton Services. It describes all the activities it engages in as "services”, even those which are clearly only the sale of a product. This use by the plaintiff of the word "services” is in no way determinative of whether or not it processes goods for sale. The substance of its activities must be considered.

The activities in issue are all ones in which the plaintiff produces a specialized product for its customers as well as providing certain services connected therewith. These activities are: (1) oil and gas well cementing activities; (2) a fracturing process which involves the pumping of a specialized fluid into an oil or gas welll; and (3) an acidizing process which involves the pumping of a specially prepared acid blend into a well. The plaintiff's posi tion is that with respect to all three activities, while a service may be provided, it is also involved in the manufacture or processing of goods for sale as that concept is used in paragraph 125.1 (3)(b) of the Income Tax Act.

The cementing operations, in general terms, involve the placing of cement between the well casing and the earth in order to: (1) hold the casing pipe in a stable vertical position; (2) prevent any migration of solutions or substances from one geological strata (referred to in the evidence as formation) to another; (3) prevent corrosion of the pipe which might occur as a result of its immediate juxtaposition to the various geological formations with which it would otherwise come in contact. The cementing is done in stages but the details thereof are not relevant for present purposes. What is relevant is the fact that the cement for each cementing operation is custom made, with some commonality as between wells of the same owner/opera- tor in the same area. The cement is custom made because the properties it must have will vary from well to well depending upon factors such as the nature of the formations to which it must bond, the temperature at which it must set; the depth to which it must be pumped the nature of the formation fluids (the fluids flowing into the well from the hydrocarbon bearing strata). The evidence is clear that in each case the plaintiff discusses with the customer the particular needs of the well in question and develops a proposal as to the composition the cement should have. If the customer accepts the plaintiff's proposal it is hired not only to provide the specialized cement but also to place that cement in the well hole around the casing pipe.

The plaintiff's fracturing “operations", in general terms, involve the forcing of fluids, under pressure, down the well and into the hydrocarbon bearing formation so as to force cracks (or fissures) in that strata and thus facilitate the flow of hydrocarbons into the well. Two types of processes are used. One involves the use of a fluid (or gel), carrying a proppant (eg: sand, glass or aluminum pellet). The other involves the use of what is called a “live” acid. The fluid or gel carrying a proppant is constituted so as to deposit the proppant in the crack or fracture and thus keep the fracture open even after the pressure and fluid have been withdrawn. The live acid process involves the pumping of a specially prepared acid mixture into the formation thereby etching channels into the formation. The channels are created as a result of the interaction between the acid blend and the hydrocarbon bearing formation into which it is pumped. In both cases the fluid chosen for the job is specially prepared by the plaintiff after consultation with the customer and with reference to the particular characteristics of the well in question. For the purposes of deciding what composition the fracturing fluid should have, there will often be a need for laboratory testing of the relevant core samples, analysis of the formation fluids, as well as consideration given to matters such as temperature and the depth of the well.

The acidizing process is similar to acid fracturing in that a specialized fluid is pumped into the well. But rather than being designed to etch channels into the formation it serves to remove debris, blockage or damage existing around the immediate vicinity of the perforated well bore. The composition of the fluid used, as with fracturing fluids, is determined for each well by reference to considerations such as temperature, depth, the nature of the formation, the nature of the formation fluids, and the drilling fluid which had been used.

In general, the specialized cement is prepared in dry bulk form at the plaintiff's bulk plants, transported to the well site, mixed there with water and sometimes additional additives before being placed in the well. The fracturing fluids and acidizing fluids are more generally mixed on the well site in equipment brought there by the plaintiff. This is particularly necessary when the fluid to be used is designedly unstable, and time is a crucial factor in its useful life. For some small acidizing jobs the acid mixture is prepared at the bulk plant and then transported to the well site for use.

Manufacturing or Processing of Goods for Sale?

The defendant does not dispute the fact that in all three activities there is processing carried out. Nor does she dispute the fact that “goods” are produced. What is disputed, however, is that there is a “sale of a good”. It is argued that the plaintiff’s main activity is the provision of services and the production of “goods” in connection therewith is only incidental to the service being provided. Therefore, it is argued there can be no “manufacturing or processing of goods for sale” as that concept is used in paragraph 125.1 (3)(b) of the Income Tax Act.

This argument is based on the well known distinction between contracts for the sale of goods and contracts for work, labour and materials, developed with respect to sales of goods legislation. The defendant cites in support of its argument Sterling Engine Works v Red Deer Lumber Co (1920), 51 DLR 509 (Man CA), and Scott Maritimes Pulp Ltd v B F Goodrich Canada Ltd et al (1977), 72 DLR (3d) 680 (NSSC App Div). It is argued that the test of relative importance set out at page 40 of Benjamin — Sale of Goods (1974) is applicable, and that in the present case the services provided by the taxpayer are a much more important component of its contract with its customers than are the products it produces. It is argued that the services and products are inseparable; that customers (except with respect to one specialized product) do not purchase the goods without the services. The way the industry is structured makes it impractical for customers to do so (as noted above some of the processing of the product must necessarily be done at the well site immediately before use). It is argued that what the customer contracts for is the placing of the cement in the well, the fracturing of the hydrocarbon bearing formation, or the cleaning of the well to free it from the debris, blockage etc, not the products used to accomplish these results. Also, in two cases (fracturing and cleaning) the product is consumed in the providing of the service.

I have considerable difficulty with this line of argument. In the first place, it is based on distinctions developed for purposes of the sale of goods legislation, not with respect to paragraph 125.1 (3)(b) of the Income Tax Act. I do not read paragraph 125.1(3)(b) as requiring that a taxpayer's profit has to arise out of a contract for a sale of goods as defined by the various Sales of Goods Acts. Paragraph 125.1(3)(b) does not talk of a sale of goods. It talks of profit arising out of the processing of goods for sale. There is no doubt that the products in question are sold to the plaintiff's customers in the sense that the invoices list the cost of the various components which go into each product and the blending and processing charges are specifically detailed in the invoice.

Secondly, I do not find any requirement that the contract which gives rise to the taxpayer’s profit must be of a particular nature eg: one for the sale of goods and not one of a more extensive nature involving work and labour as well as the goods or material supplied. In my view it is the source of the profit, (arising out of processing) that is important for the purposes of paragraph 125.1(3)(b), not the nature of the taxpayer's contract with its customers.

In the third place, to adopt the distinction for which the defendant argues would be to create an illogical result. As counsel for the plaintiff pointed out, under such a regime, a manufacturer or processor of a product (eg: a chemical fertilizer) who also provided a service in connection therewith (eg: spreading the fertilizer for his customers) would be denied the processing tax deduction. If he merely sold the produce to his customers he would be allowed the deduction.

Counsel for the defendant argued in response that even though illogical, such a result had to be reached if it were required by the wording of the Act. I agree with counsel's arguments respecting the rules of interpretation which pertain. But, I do not find that the wording clearly requires a distinction to be made between profits arising out of a sale of goods and profits arising out of the sale of a good when that good is part of a larger contract including services and labour as well.

Counsel for the defendant argued that because paragraph 125.1 (3)(b) was an exemption section, in cases of ambiguity, it should be interpreted against the taxpayer. Even if this is an accurate statement of the applicable rule of interpretation I do not find the wording of the section ambiguous so as to attract its application. It seems to me to be quite clear that what was intended was a tax deduction with respect to profit arising out of the manufacturing and processing of goods, not a requirement that the goods had to be sold in a particular fashion. I do not think Parliament intended the distinction for which the defendant argues.

A passage of the Tax Review Board's decision in Nova Construction Company Ltd v MNR, [1979] CTC 2048 at 2050; 79 DTC 77 at 79, paragraph 5.2.1 is particularly apt:

There is no doubt for the Board that the appellant's mobile asphalt plant is used “primarily in the manufacturing or processing of goods” ... If the regulation would stop after the word “goods", the appeal would be allowed immediately. But are goods produced “for sale or lease"? It is clear that asphalt is not produced for lease. Asphalt must be produced only for sale. But when somebody produces asphalt and uses it for paving, or repairing or resurfacing roads, for which work he is paid, is asphalt produced for sale? Directly not but indirectly, yes.

How to construe that regulation?

The word “sale” is not a word of art with precise meaning but a word with general meaning. The Board thinks that the word in its ordinary meaning covers both direct and indirect sale.

Mr Justice Mahoney of this Court clearly agreed with this decision in so far as the making of, and paving with, asphalt is concerned: see [1983] CTC 58; 83 DTC 5105.

I would note that even if the defendant's position were correct and the test of “relative importance" as developed for sale of goods purposes was applicable to the contracts entered into by the taxpayer with its customers, I could not find that the service aspect of this taxpayer's cementing operation is more important that the creating of the specialized product required for the job. Equally it would be hard to find that the particular fracturing fluid created by the plaintiff for each job is less important than its proper application. The plaintiff's evidence was that the choice of the wrong product could irreparably damage what might otherwise be a commercially producing well. An analysis of neither the amount of time spent by the plaintiff creating the specialized products required as opposed to placing them in the well, nor of the proportionate costs billed to the customer for these two functions, can lead to a conclusion that the service aspect is more important than the provision of the product.

The defendant relies on a section of a sentence in the decision of the Federal Court of Appeal in Canadian Wirevision Limited v The Queen, [1979] CTC 122; 79 DTC 5101. In that case the taxpayer argued that in the course of providing cablevision services to its customers it processed television and radio signals. The Court of Appeal stated, at 124 (DTC 5103):

. . . The questions raised by this appeal are . .. whether the signals are goods within the meaning of section 125.1 and whether the appellant did, in fact, enter into contracts of sale with its customers.

. . . both these questions must be answered in the negative.

(Emphasis added.)

And at 125 (DTC 5104), the Court said:

The appellant is in the communication business; it is not in the business of selling goods. The text of the form of contract used by the appellant in its relations with its subscribers supports that conclusion and makes clear that this is the view that the appellant takes of its role. This form does not refer to the sale of any commodity, but to the supply of services.

(Emphasis added.)

In my view this decision does not help the defendant. The issue before the Court of Appeal was whether there were “goods” produced by the taxpayer. In the present case, there is no dispute that goods are produced. The form of the contract makes that clear; a customer is billed for both the services and the material. The Court of Appeal's comment in the Wirevision case, that it must consider whether the taxpayer entered into contracts of sale with its customers, was in the context of considering whether goods were produced. It found it was dealing with a pure service contract and this was evidence that goods, in the ordinary meaning of that term, were not produced. The Court was not dealing with a contract for work, labour and materials.

Counsel for the defendant also relied on the decision of Mr Justice Strayer in Crown Tire Service Ltd v The Queen, [1983] CTC 412; 83 DTC 5427 (FCTD):

. . . In my view the contracts with respect to such tires were contracts for work and materials and not contracts for the sale of goods. Although I was invited to draw certain inferences from the contract documents, including order forms, invoices, and warranties, I did not find these to be particularly helpful in determining the nature of the contract except as noted below.

In Benjamin's Sale of Goods (London, 1974), in considering the distinction between a contract of sale of goods and a contract for work and materials, it is stated:

Where work is to be done on the land of the employer or on a chattel belonging to him, which involves the use or affixing of materials belonging to the person employed, the contract will ordinarily be one for work and materials, the property in the latter passing to the employer by accession and not under any contract of sale.

This I believe states the general principle applicable to the situation, although its application is of course always a matter for interpretation in each case.

I believe that the situation here fits within the general principle as stated in Benjamin. With respect to the retreading of tires owned by customers, it appears to me that the customers retain ownership throughout the process.

The most important factor in establishing that Crown Tire's contracts for retreading customers' tires were contracts for work and material is, in my view, the fact that the work was done to a tire casing which the customer owned throughout. I think this distinguishes the present situation from those involved in many of the decided cases where the customer had never previously owned any part of the end product.

While the distinctions employed here may seem somewhat technical and remote from revenue law, one must assume that Parliament in speaking of “goods for sale or lease” had reference to the general law of sale or lease to give greater precision to this phrase in particular cases.

(Emphasis added.)

It should first of all be noted that while Mr Justice Strayer relied on the distinction between contracts for the sale of goods and contracts for work, labour and materials as described in Benjamin’s Sale of Goods, he expressly noted that the application of that principle was “always a matter for interpretation in each case”. Secondly the processing with which he was concerned did not involve the creation of a good antecedent to its use in the provision of a service. Thirdly, the significant factor in that case was the fact that “the work was done to a tire casing which the customer owned throughout”. Accordingly, while the distinction between contracts for the sale of goods and contracts for work, labour and materials may have been signficant in the Crown Tire Service case, I do not think it is applicable in the present one.

For the purpose of computing the manufacturing and processing deduction allowable pursuant to paragraph 125.1 (3)(b) it is necessary to determine which activities of the taxpayer are qualified activities as defined in Regulation 5203(1)(a). Counsel for the plaintiff has asked for a determination of this point, although there seems to be no real dispute between the plaintiff and the defendant concerning the matter.* [1] Regulation 5203(1)(a) provides:

“qualified activities” means

(a) any of the following activities, when they are performed in Canada in connection with manufacturing or processing . . . in Canada of goods for sale or lease:

(i) engineering design of products and production facilities,

(ii) receiving and storing of raw materials,

(iii) producing, assembling and handling of goods in process,

(iv) inspecting and packaging of finished goods,

(v) line supervision,

(vi) production support activities including security, cleaning, heating and factory maintenance,

(vii) quality and production control,

(viii) repair of production facilities, and

(ix) pollution control,

As submitted by the plaintiff, subparagraphs (iv), (v) and (ix) of Regulation 5203(1)(a) are of little relevance to the plaintiffs activities. However, the plaintiff does engage in the engineering design of products and production facilities (subparagraph (i)). It should be clear that the products to which such activities relate are the specialized fluids designed by the plaintiff for each customer (cement, the individualized fracturing fluids and acidizing blends). The activities do not include the pumping or placing of these substances into the well or the transporting of these products to the well site. Subparagraph (i) would include the design of the bulk plants and the processing equipment therein, the designed machines such as blenders. The application of subparagraph (ii) is clear and as counsel for the plaintiff pleaded no elucidation is necessary. Subparagraph (iii) overlaps with subparagraph (i) and it would seem that it includes the facilities to which the design activities described in subparagraph (i) relate. As counsel for the plaintiff submitted, the plaintiff also engages in the activities described in subparagraphs (vi), (vii) and (viii). These are limited by the same considerations as set out above concerning subparagraph (i). I do not think it useful, in the absence of a real dispute between the parties concerning the scope of the various categories to elaborate further on the bounds of those categories. The allocation of the plaintiff’s profits as between its service operation and its processing operation is a matter for the plaintiff’s accountant and Revenue Canada to determine in the first instance.

Investment Tax Credit

Subsection 127(10) of the Income Tax Act provides an investment tax credit for certain property owned by a taxpayer and used either for the purpose of manufacturing and processing goods for sale or for the purpose of exploring or drilling for petroleum or natural gas. The property which qualifies is described in Regulation 4600. While the defendant contests the claim that the taxpayer uses its “property for the purposes of manufacturing or processing goods for sale” it does not contest the claim that it uses the property for exploring or drilling for petroleum or natural gas. Thus there is no dispute between the parties that subsection 127(10) properly applies to the plaintiff’s property if it falls within Regulation 4600.* [2] The items of property in dispute are all truck cabs and chassis or vans to which have been bolted, welded or wired various pieces of the taxpayer’s equipment. The cabs, chassis and vans are usually purchased from a manufacturer of these products and then modified or “built-up” by the plaintiff to adapt them to its particular uses. On occasion, the chassis themselves are altered to allow for the installation of particular tanks. In some cases the suspension is altered to provide for a more cushioned ride (in the case of the instrument vans). In all cases the vehicles while operable on the road, and indeed registered for such use, are designed also to operate off road, on rougher terrain. These vehicles are required by the plaintiff because much of its operations take place at the well site and equipment must be easily and quickly transportable from one site to another.

It should be noted that at trial leave was granted, on consent of both parties, to allow for the filing of amended statements of claim and defence in order to include, for determination by the Court the status of vans used by the plaintiff in what is called its Well-Ex Division. The vans are used in connection with the plaintiff’s well logging and well completion services. The well logging service involves the analyzing by electronic and other means the potential of suspected hydrocarbon-bearing formations. The well completion or perforation services involves the perforating of an oil well casing at the appropriate place to allow hydrocarbons to flow into the well. There is no claim that this equipment is in any way connected to the manufacturing or processing of goods for sale.

The defendant's argument with respect to all the equipment mounted by one means or another on a truck chassis or in a van is that it is automotive equipment, of the nature of trucks designed and licensed for use on the highways. It is argued that regardless of what other uses the equipment might serve, when it is welded or bolted to a chassis or van it becomes an integral part thereof and should be classified in the same way as its carrying component.

Counsel for the plaintiff argues that the equipment in question, regardless of whether or not it is automotive equipment of the kind described by the defendant is also contractor's moveable equipment listed in paragraph

(h) of Class 10 and therefore a tax credit is available with respect to it. Part of the plaintiff's argument is to note that exactly the same components as are bolted to the truck chassis may be bolted to a trailer or may be attached to a frame to create a skid unit not in itself moveable. When either of the last two options are used the equipment is clearly eligible for the investment tax credit because it falls either within the classification of "trailer" (Class 10(e)) or "contractor's moveable equipment" (Class 10(h)).

In my view the equipment in dispute properly fits within two categories. The cab and chassis parts, or van as the case may be, are obviously automotive equipment designed for use on a highway. But at the same time to allocate the equipment mounted thereto or therein to the category of automotive equipment is neither logical nor in accord with the common understanding of the function these components play. They are clearly contractor's moveable equipment. The units as a whole perform two different functions. They provide a means of transporting the plaintiff's equipment from site to site and they also provide a stable base for the use of the equipment at the well site. It would be travesty of logic and common sense to classify the equipment bolted to the chassis as automotive equipment. If it had merely been placed thereon, instead of bolted thereto, as some of the skid units must be, then it would clearly be contractor's moveable equipment. I do not think the fact that the taxpayers’ operators in this case make it more practical to have such equipment bolted or welded to a truck chassis, because of the need for constant movement from site to site means that the equipment loses its essential characteristics as contractor's moveable equipment. Accordingly the cab and chassis of the units should be classified as automotive equipment of the nature of a truck designed for use on the highway, and not included for the purposes of the investment tax credit; the equipment bolted or welded on to the chassis or in a van including the instruments in the Well Ex vans are contractors moveable equipment for purposes of calculating the investment tax credit. The engine components which serve a dual purpose eg: running the truck and the plaintiff's pumping or other equipment should be classified as part of the truck. Their use for other purposes is ancillary to their primary use as a truck engine.

There was also some dispute about a building used for office, classroom and laboratory purposes. The Plaintiff’s evidence was that the laboratory comprised about 40 per cent of the building and the other functions used the remaining 60 per cent. As I understood the plaintiff's argument it was that the laboratory part of the building should be included for purposes of the investment tax credit. The laboratory portion of the building can be said to be primarily used for the purposes of providing goods for sale. I agree with that argument.

Accelerated Capital Cost Allowance — Class 29

Accelerated capital cost allowance is allowed with respect to property falling within Class 29 of Schedule B to the Act, that is:

(i) property . . . in class 8

(ii) an oil or water storage tank,

(iii) a powered industrial lift truck,

The disputed categories to be considered as far as the taxpayer’s property is concerned are: (1) structures that are manufacturing or processing machinery or equipment;* [1] (2) a tangible capital asset not included in another class in the schedule;! [2] (3) oil or water storage tanks;! [3] and (4) powered industrial lift trucks.** [4]

It is clear that much of the equipment connected with the plaintiff’s bulk plants are structures for the purpose of Class 29. I did not understand there to be any disagreement on this point. The plaintiff also claims, however, that much of the equipment which it employs at the well site also falls within the category of structures. Equipment such as the pneumatic bulk transports; the CA units and the iron truck (or at least those components of these units which have been attached by the plaintiff to the truck or trailer chassis). It is argued as well that the equipment mounted on trailers or attached to frames for use at the well site are structures.

The plaintiff’s argument that much of this equipment should be classified as structures relies on Mr Justice Mahoney’s decision in Nova Construction Company Ltd v The Queen, [1983] CTC 58; 83 DTC 5105. In that case a "portable” asphalt plant was held to be a structure. At 59 (DTC 5107) of that decision, Mr Justice Mahoney said:

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.”

Mr. Justice Mahoney went on, however, at 60 (DTC 5107) to say:

Stroud's Judicial Dictionary, Fourth Edition, at p 2640 quoted Lord Denning in BP 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 “portable” asphalt plant with which Mr Justice Mahoney was concerned was one that was moved twice during the taxation year in question. That moving required the disassembling and reassembling at a new location, by crane, of the component parts. The plaintiff’s equipment in this case is vastly different. It is mounted permanently on truck or trailer chassis or on frames for easy transportation. The equipment is required to be moved from site to site, from day to day. Most importantly, it is not “built up of component parts on the site”. Therefore it does not come within the scope of the Nova Construction Company Ltd case.

Counsel for the plaintiff argues that if this equipment is not within the category of structures then it is within Class 29 because it falls in Class 8(i) as being: “a tangible capital asset that is not included in another class in this schedule . . . ”. This classification is particularly sought for certain storage tanks (eg: Exhibit 15, Tab 18) and ^trailers^ (tanks on wheels but without a full trailer chassis — eg: Exhibit 15, Tab 15). These are hitched to a truck tractor and used for the dual purpose of transportation to the site and storge on the site. My classification of the self-propelled units as comprising an automotive component and contractor's moveable equipment disposes of the argument in so far as they are concerned. With respect to equipment mounted on trailer chassis built up on trailers, this equally should be classified as having two components: trailer plus contractor’s moveable equipment. The storage tanks, on frames are contractor’s moveable equipment. The "trailers”, tanks on wheels which are hitched onto truck tractors for hauling to the well site, and used at the well site for storage purposes, fall within both the categories of contractor’s moveable equipment and trailers. None of the equipment, in my view, falls within Class 8(i).

The plaintiff argues that certain of its on-site equipment should be classified as oil or water storage tanks. I do not so find.

The plaintiff argues that a "winch truck” it uses for moving storage tanks and skid mounted equipment to and from and around at the well site falls within Class 29 as being “a powered industrial lift truck”. The truck in question is a flat bed truck used for transporting the heavy equipment with a winch mounted thereon to accomplish the loading and unloading of the equipment from the truck. I do not think this comes within the category “a powered industrial lift truck”. In my view, the winch truck has characteristics closer to a tow truck; or as noted above, an ordinary flat bed truck on which contractors moveable equipment (the winch) has been mounted. A "powered industrial lift truck” would seem to describe something more in the line of a fork-lift unit.

Conclusion

The assessment of the tax payable by the plaintiff for its 1976 and 1977 taxation years should be referred back to the Minister for reassessment in accordance with the above reasons.

The plaintiff is entitled to a reduction in tax payable pursuant to paragraph 125.1 (3)(b) with respect to the profits it receives from the processing carried out of the special oil well cements, fracturing fluids, and acid blends which it produces. It is entitled to an investment tax credit with respect to that part of its self-propelled equipment which is affixed to the truck chassis or van and described above as contractor’s moveable equipment. It is entitled to an investment tax credit on the laboratory part of its technical building centre.

It is not entitled to an accelerated capital cost allowance with respect to its on-site equipment.

I invite counsel to submit a draft order in accordance with these reasons.

Appeal allowed in part.