Rip,
T.C.J.:
—Roy
Legumex
Inc.
("Roy"),
the
appellant,
appeals
from
reassessments
for
its
1982,
1983
and
1984
taxation
years
and
an
assessment
for
its
1986
taxation
year.
In
assessing,
the
Minister
of
National
Revenue,
the
respondent,
reclassified
properties
acquired
in
1982
and
1984
to
Class
3
for
purposes
of
capital
cost
allowance
in
accordance
with
paragraph
20(1)(a)
of
the
Income
Tax
Act
("Act"),
Schedule
II
of
the
Regulations
to
the
Act
and
section
1100
of
the
Regulations.
The
amounts
of
the
deductions
claimed
by
the
appellant
for
capital
cost
allowance
purposes
were
reduced
by
the
respondent.
At
all
relevant
times
Roy
owned
a
processing
facility
for
peas
and
other
legumes,
and
in
order
to
carry
on
the
business
erected
certain
containers
in
which
to
dry
the
product
for
processing;
it
is
the
classification
of
these
containers
or
units
for
capital
cost
allowance
purposes
that
is
the
issue
in
appeal.
Roy
is
a
leading
Canadian
supplier
of
whole
and
split
yellow
peas,
whole,
"dehulled"
or
split
faba
beans,
lentils
and
canaryseed.
The
appellant
was
incorporated
in
1978
and
its
facility
was
built
in
that
year.
Product
is
delivered
to
Roy's
plant
in
St.
Jean
Baptiste,
Manitoba
for
processing
from
its
contract
producers.
Whole
pulses,
the
edible
seeds
of
leguminous
plants,
are
usually
sold
on
the
basis
of
grades
set
by
the
Canadian
Grain
Commission;
however,
since
there
are
no
grades
for
dehulled
or
split
products,
they
are
offered
for
sale
on
a
sample
basis.
Mr.
Robert
Lafond
("Lafond"),
general
manager
of
Roy,
recalled
that
the
appellant
and
its
predecessors
(its
shareholders
who
carried
on
the
business
prior
to
1978)
did
substantial
research
and
development
to
find
a
process
to
more
efficiently
split
peas
and
beans
which
it
sells.
A
whole
pea
loses
moisture
at
a
different
rate
from
its
hull;
at
a
point
in
the
process
"separation"
takes
place
and
the
hull,
the
outer
skin
of
the
pea,
comes
off
and
the
product,
the
pea,
is
split.
The
previous
owners
and
Lafond
designed
a
plant
in
response
to
a
need
it
saw
at
the
time;
the
new
plant
now
uses
natural
means
rather
than
fossil
fuels
to
dry
the
produce
which,
in
the
case
of
split
peas,
has
very
high
moisture
content,
between
60
to
70
per
cent.
Roy
has
gained
a
competitive
edge
because
of
the
money
saved
in
not
using
fossil
fuels
in
the
drying
process
carried
on
in
the
containers.
The
drying
of
the
legume
is
necessary
before
the
actual
processing
can
begin;
without
the
drying
there
would
be
no
product.
The
purpose
of
these
containers
or
units
is
to
dry
the
product
naturally.
The
legumes
arrive
at
the
plant
by
trucks
owned
by
Roy
or
by
the
producers
themselves.
The
produce
is
then
placed
into
a
bucket
elevator,
partially
enclosed
by
a
building
in
which
the
produce
is
processed;
it
is
then
deposited
into
the
units
for
drying.
The
units
are
made
of
galvanized
steel
and
are
cylindrical
in
shape
and
are
from
40
to
45
feet
high.
Two
were
acquired
in
1982
and
have
a
capacity
of
30,000
bushels
each;
the
one
acquired
in
1984
has
a
capacity
of
65,000
bushels.
The
units
are
described
by
its
manufacturer
as
“stiffened
grain
tanks".
Two
of
the
units
rest
on
a
concrete
foundation
on
piers;
a
third
does
not
have
a
pier.
The
piers
are
50
to
60
feet
deep;
the
concrete
pads
are
only
inches
thick
and
contain
reinforcements.
The
units
were
built
to
Roy's
specifications.
At
the
bottom
of
each
unit
is
a
fan
which
draws
air
from
outside
into
the
unit.
Within
the
tank
is
a
floor
raised
about
two
or
three
feet
from
the
main
floor
of
the
tank
on
which
the
legumes
are
placed
for
aeration.
The
raised
floor
is
a
type
of
screen,
a
floor
with
little
holes,
to
permit
air
drawn
into
the
lower
portion
of
the
unit
to
enter
and
ventilate
the
upper
chamber
where
the
product
is
stored.
In
the
space
between
the
floor
and
subfloor
is
equipment
for
the
fan.
A
bean
ladder
is
built
in
the
centre
of
the
interior
in
two
of
the
tanks
to
slow
down
the
flow
of
the
fragile
product
as
it
is
deposited
into
the
unit;
each
ladder
extends
from
the
aeration
floor
to
the
top
of
the
unit.
On
top
of
each
tank
are
large
down
spouts
through
which
the
product
enters
the
unit.
A
conveyer
belt
connects
the
interior
of
the
tank
to
the
main
building
or
plant
where
the
processing
is
carried
out.
The
belt
is
used
to
transfer
product
to
and
from
the
building.
It
takes
approximately
20
to
25
days
between
receipt
of
delivery
of
the
product
and
the
time
it
goes
to
the
plant
for
processing.
During
this
time
the
peas
are
aerated
in
the
units.
Once
the
product
is
aerated,
it
is
conveyed
to
the
plant
for
processing;
the
peas
are
cleaned,
dehulled
and
split.
Once
split,
the
peas
are
polished
for
marketing.
Polishing
takes
place
in
large
drums;
steam,
water
and
additives
such
as
glucose
are
used
to
give
the
product
an
attractive
appearance.
The
product
is
then
taken
back
to
the
unit
without
the
bean
ladder
for
further
dehydration
since
the
moisture
content
had
been
increased
during
the
polishing
procedure.
The
unit
without
the
bean
ladder
is
used
because
once
the
product
has
been
split
breakage
is
no
longer
an
issue.
The
product
is
then
returned
to
the
plant
for
packaging.
Roy
sometimes
sells
whole
peas
that
have
been
cleaned
but
85
per
cent
of
Roy's
business
is
in
split
legumes.
Counsel
for
the
respondent
asked
Lafond
whether
the
units
are
simply
storage
units.
He
replied
that
product
is
being
stored
as
it
is
being
conditioned
or
dried.
Later
he
explained
that
when
product
is
not
in
motion
it
is
being
stored;
storage,
to
Lafond,
was
an
essential
part
of
the
process.
In
its
income
tax
return
for
its
1982
taxation
year
the
appellant
claimed
a
deduction
for
capital
cost
allowance
with
respect
to
the
units
acquired
in
1982
on
the
basis
they
were
Class
8
assets.
For
its
1983
(amended
return)
and
1984
taxation
years
the
claim
was
based
on
the
units
being
Class
29
assets.
The
1984
acquisition
was
originally
reported
as
a
Class
6
asset.
The
appellant
appeals
on
the
basis
the
three
units
acquired
in
1982
and
1984
were
Class
29
assets.
Schedule
Il
to
the
Regulations
of
the
Act
describes
Class
3
assets,
in
part,
as
follows:
Property
not
included
in
any
other
class
that
is
(a)
a
building
or
other
structure,
including
component
parts
.
.
.
.
Class
8
property
is
defined,
in
part,
as
follows:
Property
not
included
in
Class
2,
7,
9
or
30
that
is
(a)
a
structure
that
is
manufacturing
or
processing
machinery
or
equipment;
(b)
tangible
property
attached
to
a
building
and
acquired
solely
for
the
purpose
of
(i)
servicing,
supporting
or
providing
access
to
or
egress
from,
machinery
or
equipment,
(ii)
manufacturing
or
processing,
or
(iii)
any
combination
of
the
functions
described
in
subparagraphs
(i)
and
(ii);
(c)
a
building
that
is
a
kiln,
tank
or
vat,
acquired
for
the
purpose
of
manufacturing
or
processing
.
.
.
.
Property
in
Class
29
includes:
Property
that
would
otherwise
be
included
in
another
class
in
this
Schedule
(a)
that
is
property
manufactured
by
the
taxpayer,
the
manufacture
of
which
was
completed
by
him
after
May
8,
1972,
or
other
property
acquired
by
the
taxpayer
after
May
8,
1972,
(i)
to
be
used
directly
or
indirectly
by
him
in
Canada
primarily
in
the
manufacturing
or
processing
of
goods
for
sale
or
lease,
(b)
that
is
(i)
property
that,
but
for
this
class,
would
be
included
in
Class
8
.
.
.
.
In
assessing,
the
respondent
classified
the
units
as
Class
3
assets
for
the
following
reasons:
(a)
Either
before
or
after
the
course
of
the
appellant's
processing
activities
certain
products
were
stored
outside
of
the
appellant's
plant
in
large
storage
bins.
(b)
Peas
or
beans
(hereinafter
the
"stored
product")
would
be
stored
for
several
months,
either
until
needed
in
the
appellant's
processing
plant
or
until
shipped
to
the
appellant’s
customers.
(c)
The
storage
bins
were
erected
on
an
underground
concrete
foundation
and
were
connected
to
the
appellant's
main
plant
by
conveyors
for
moving
the
stored
product.
(d)
The
storage
bins
were
purchased
as
"stock
grain
bins"
and
modified
slightly
to
receive
the
stored
product.
(e)
The
storage
bins
were
not
manufactured
or
designed
as
part
of
the
appellant's
processing
operation.
(f)
The
storage
bins
were
not
machinery
or
equipment,
nor
a
kiln,
tank
or
vat
as
contemplated
by
Class
8
of
Schedule
Il
of
the
Income
Tax
Regulations.
(g)
The
purpose
of
acquiring
the
storage
bins
was
only
for
storage,
it
was
not
for
the
purpose
of
manufacturing
or
processing
goods
for
sale.
Counsel
for
the
appellant
submitted
that
the
units
were
acquired
by
the
appellant
to
be
used
directly
or
indirectly
by
it
in
Canada
primarily
for
processing
of
goods
for
sale.
The
units
would
ordinarily
be
Class
8
property
were
it
not
for
the
existence
of
Class
29.
The
business
of
the
appellant
is
the
processing
of
legumes
from
a
raw
product
to
a
product
for
sale.
The
units
were
built
in
1982
and
1984
as
part
of
the
processing
operation.
The
appellant
designed
a
procedure
to
enhance
the
processing
of
the
product
which
was
novel
and
economical.
The
dehulling
of
the
product
facilitated
by
the
dehydration
procedure
designed
by
the
appellant
was
essential
to
the
processing
of
the
product.
If
moisture
content
is
not
reduced
the
product
is
not
sellable.
The
units
are
receptacles
which
held
the
legumes
during
the
drying
process,
both
at
the
beginning
of
the
process
and
after
the
finished
product
had
been
polished.
The
units,
counsel
added,
play
an
important
and
integral
part
of
the
process
since
processing
is
not
possible
without
the
initial
drying.
Counsel
referred
the
Court
to
the
reasons
for
judgment
of
the
Federal
Court-Trial
Division
and
Appeal
Division
in
Nowsco
Well
Service
Ltd.
v.
The
Queen,
[1990]
1
C.T.C.
416;
90
D.T.C.
6312
(F.C.A.);
affg
[1988]
2
C.T.C.
24;
88
D.T.C.
6300.
Cullen,
J.
accepted
the
plaintiff's
contention
in
that
appeal
that
“for
the
purposes
of
Class
29,
one
includes
all
equipment
that
is
both
necessary
and
ancillary
to
the
processing
operation"
(F.C.T.D.
judgment,
page
41
(D.T.C.
6313)).
The
Court
of
Appeal
dismissed
the
Crown's
appeal
without
commenting
on
the
"necessary
and
ancillary”
test.
Appellant's
counsel
also
referred
to
two
other
decisions:
B.C.
Ice
and
Cold
Storage
Ltd.
v.
M.N.R.,
[1981]
C.T.C.
2563;
81
D.T.C.
508
(T.R.B.)
and
Woods
Harbour
Lobster
Co.
v.
M.N.R.,
[1989]
2
C.T.C.
2032;
89
D.T.C.
303,
a
decision
of
this
Court,
as
well
as
Interpretation
Bulletin
IT-147R2,
published
by
the
respondent.
In
the
first
case
a
freezing
plant
was
held
to
be
processing
equipment
used
directly
or
indirectly
by
the
taxpayer
primarily
in
the
processing
of
goods
for
sale
and
was
properly
included
in
Class
29.
In
the
latter
case
the
appellant
operated
a
lobster
pond.
Its
business
consisted
of
buying
lobsters
in
bulk,
sorting
them
by
size
and
grade
and
culling
the
unsatisfactory
ones,
fixing
the
claws
and
crating
and
shipping
after
selling.
The
taxpayer's
facilities
included
outdoor
holding
ponds
and
indoor
holding
tanks
in
which
the
lobsters
were
held
awaiting
sale
or
shipment.
Kempo,
T.C.J.
held
the
point
of
the
taxpayer's
operation
was
to
add
value
to
the
inventory
which
it
received
in
bulk
form
and
which
it
sold
in
a
very
different
and
enhanced,
albeit
bulk,
form.
The
taxpayer's
equipment
was
classified
as
Class
29.
In
paragraph
6
of
the
Interpretation
Bulletin,
the
respondent
interprets
the
term
"to
be
used
directly
or
indirectly”
in
the
description
of
Class
29
property
to
refer
"to
assets
which
are
acquired
by
the
taxpayer
for
the
purpose
of
being
an
integral
and
essential
part
of
the
taxpayer's.
.
.processing
activities
as
well
as
any
ancillary
equipment.
.
.acquired
for
use
in
those
activities.”
In
the
appellant's
view,
therefore,
the
units
were
necessary
for
processing
the
legumes.
If
the
dehydration
or
drying
was
not
part
and
parcel
of
the
processing
of
the
legumes,
it
was
an
essential
step
for
the
processing
itself;
without
the
aeration
of
the
legumes,
there
could
be
no
processing.
The
respondent's
counsel
stated
that
Lafond
testified
the
purpose
of
the
units
was
to
bring
down
the
moisture
content
levels
of
the
legumes
so
that
they
may
be
processed.
He
inferred
that
drying
is
not
part
of
processing
but
preparatory
to
it.
Counsel
relied
on
the
reasons
for
judgment
of
the
Supreme
Court
of
Canada
in
British
Columbia
Forest
Products
Ltd.
v.
M.N.R.,
[1971]
C.T.C.
270;
71
D.T.C.
5178
(“B.C.
Forest
Products").
The
disputed
assets,
component
parts
in
three
main
mill
buildings
and
a
series
of
storage
tanks,
in
that
case
formed
part
of
the
taxpayer's
paper
mill
and
consisted
of
three
categories,
i.e.
those
used
in
the
production
process;
e.g.
chests
and
tanks;
those
used
to
provide
access
to
the
equipment,
e.g.
stairs,
handrails;
and
those
which
supply
sup-
port
for
the
equipment,
e.g.
piers,
concrete
pads
and
supports
and
walls
of
the
tanks.
The
tanks
were
located
outside
the
mill
building
and
were
used
for
the
storage
and
treatment
of
the
stock.
Martland,
J.,
at
page
5183,
found
the
tanks
to
be
structures.
He
also
held
that:
If
the
disputed
assets
are
within
the
words
“building
or
other
structure"
in
Class
3
they
would
be
tangible
capital
assets
"included
in
another
class”
and
so
would
be
excluded
from
Class
8.
Accordingly,
even
though
they
may
form
a
part
of
the
manufacturing
process,
that
does
not
necessarily
mean
that
they
fall
within
Class
8.
I
note
that
with
respect
to
the
taxation
years
in
issue
in
B.C.
Forest
Products
the
description
of
property
in
Class
8
was
different
from
that
in
Class
8
for
the
years
in
appeal.
Thus,
for
1982,
1983,
1984
and
1986,
Class
8
property
includes
a
structure
that
is
processing
machinery
or
equipment,
tangible
property
attached
to
a
building
and
a
tank.
In
Nova
Scotia
Sand
and
Gravel
Ltd.
v.
The
Queen,
[1978]
C.T.C.
279;
78
D.T.C.
6192;
revd
[1980]
C.T.C.
378;
80
D.T.C.
6298,
the
Federal
Court-Trial
Division
considered
the
meaning
of
the
word
"process"
at
page
289
(D.T.C.
6198-99).
Dubinsky,
D.J.
referred
the
comments
of
Cattanach,
J.
in
Federal
Farms
Ltd.
v.
M.N.R.,
(No.
2),
[1966]
Ex.
C.R.
410;
[1966]
C.T.C.
62;
66
D.T.C.
5068
at
67
(D.T.C.
5071-72),
where,
inter
alia
he
states:
The
word
"process"
is
defined
in
The
Shorter
Oxford
English
Dictionary,
Third
Edition
as
"To
treat
by
a
special
process;
e.g.
to
reproduce
(a
drawing,
etc.)
by
a
mechanical
or
photographic
process."
In
Webster's
Third
New
International
Dictionary
published
in
1964
the
word
"process"
is
defined
as
follows,
"to
subject
to
a
particular
method,
system
or
technique
of
preparation,
handling
or
other
treatment
designed
to
effect
a
particular
result:
put
through
a
special
process
as
(1)
to
prepare
for
market,
manufacture
or
other
commercial
use
by
subjecting
to
some
process
(-ing
cattle
by
slaughtering
them)
(-ed
milk
by
pasteurizing
it)
(-ing
grain
by
milling)
(-ing
cotton
by
spinning)."
The
evidence
of
the
appellant
as
to
its
operations
convinces
me
that
those
operations
were
a
process
or
series
of
processes
to
prepare
the
product
for
retail
market.
There
is
no
doubt
that
quite
apart
from
the
grading
of
the
vegetables,
a
clean
and
attractive
appearance
is
an
important
factor
in
marketing
vegetables
and
especially
so
in
the
present
day
methods
of
retail
marketing.
Although
the
product
sold
remains
a
vegetable,
nevertheless,
it
is
not
a
vegetable
as
it
came
from
the
ground
but
rather
one
that
has
been
cleaned,
with
improved
keeping
qualities
and
thereby
rendered
more
attractive
and
convenient
to
the
consumer.
The
appellant
in
Federal
Farms,
supra,
was
successful
in
his
appeal
before
the
Exchequer
Court;
the
decision
was
upheld
by
the
Supreme
Court
of
Canada
without
written
reasons.
In
Nova
Scotia
Sand
and
Gravel
Ltd.,
supra,
the
Court
held
that
the
taxpayer
was
engaged
in
the
production
of
industrial
minerals;
manufacturing
or
processing
"does
not
include
producing
industrial
minerals":
subsection
1104(9)
of
the
Regulations
to
the
Act.
The
respondent's
counsel
invited
me
to
read
out
of
the
term
“tangible
property"
in
the
opening
words
of
paragraph
(b)
describing
Class
8
assets,
any
reference
to
"structure"
or
“building”
that
may
be
attached
to
a
building.
In
other
words,
I
was
asked
to
rule
that
for
the
purposes
of
Class
8
property
“tangible
property"
does
not
include
a
structure;
that
is,
“tangible
property"
is
something
other
than
a
structure
or
building.
Counsel
for
the
respondent
admitted
he
had
no
authority
to
support
his
submission,
and
I
am
not
prepared
to
accept
his
novel
submission.
A
structure,
building
or
anything
else
capable
of
being
touched
is
tangible.
The
respondent's
counsel
stated
that
the
units
are
not
machinery
or
equipment.
He
said,
and
I
agree,
that
conceivably
the
different
assets,
the
conveyor,
the
bean
ladder,
different
buildings
used
in
the
same
operation,
may
be
of
different
classes.
I
assume
he
advanced
this
proposition
in
support
of
his
client's
assessment
that
while
the
bean
ladder
and
fans,
for
example,
are
Class
29
assets,
it
need
not
follow
the
tank
in
which
they
are
found
is
a
Class
29
asset.
The
Oxford
English
Dictionary
(2nd
ed.)
defines
the
word
"tank"
as
"an
artificial
receptacle,
usually
rectangular
or
cylindrical
and
often
of
plate
iron,
used
for
storing
water,
oil
or
other
liquids
in
large
quantities”.
Thus
since
the
units
in
issue
were
used
to
store
legumes,
a
solid,
it
cannot
be
a
tank,counsel
argued.
Counsel
for
the
appellant
submitted
the
units
are
described
in
any
of
paragraph
(a),
(b)(ii)
or
(c)
of
the
description
of
Class
8
property.
He
dealt
firstly
with
subparagraph
(b)(ii).
He
stated
that
there
is
no
doubt
the
units
were
attached
to
the
building
where
processing
takes
place
and
the
units
were
acquired
solely
for
the
purpose
of
processing.
The
attachment
of
the
units
to
the
buildings
was
by
way
of
the
conveyor.
The
units
were
used
to
dry
out
the
product
in
two
phases
of
the
process
to
get
the
product
to
market.
Thus,
counsel
concludes,
since
the
units
are
attached
to
the
main
building
and
were
acquired
for
the
purpose
of
processing,
the
units
are
property
described
in
subparagraph
(b)(ii).
The
Shorter
Oxford
Dictionary
on
Historical
Principles
(3rd
ed.)
defines
the
word
"attach"
as
follows:
"III.
To
tack
on;
to
fasten
or
join
(to)
by
tacking,
tying,
sticking,
etc.
.
.
.".
The
word
"attached"
in
subparagraph
(b)(ii)
contemplates
more
than
a
simple
connection.
It
is
likely
the
tanks
are
connected
to
the
main
building
but
they
are
not
joined
to
the
building
as
required
by
subparagraph
(b)(ii).
In
the
French
language
the
introductory
words
of
subparagraph
(b)(ii)
are:
"des
bien
corporels
faisant
partie
d'un
immeuble.
.
.”.
The
phrase
"faisant
partie"
confirms
that
the
word
"attached"
in
the
English
language
version
of
subparagraph
(b)(ii)
means
more
than
a
mere
connection;
the
tangible
property
must
be
so
attached
to
the
building
that
it
more
or
less
becomes
part
of
it.
This
is
not
the
case
in
the
appeal
at
Bar.
The
second
point
argued
by
appellant's
counsel
was
that
the
units
are
structures
that
are
processing
machinery
or
equipment
within
the
meaning
of
paragraph
(a).
I
agree
the
units
were
structures:
B.C.
Forest
Products
(page
5183).
They
were
of
substantial
size,
built
up
from
component
parts
and
intended
to
remain
permanently
on
a
permanent
foundation.
The
question
is
whether
they
are
processing
machinery
or
equipment.
The
evidence
indicates
that
whether
or
not
the
units
are
by
themselves
processing
machinery
or
equipment
it
is
obvious
that
they
are
used
in
a
necessary
initial
step
in
the
processing
of
the
legumes;
without
the
dehydration
of
the
legumes
carried
on
in
the
units,
processing
of
the
legumes
is
not
possible.
The
respondent
has
agreed
that
the
equipment
in
the
units,
i.e.
the
bean
ladders,
fans,
conveyors,
are
properly
included
in
Class
29
but
the
unit
itself
is
a
Class
3
asset.
I
cannot
imagine
how
the
fan
can
draw
in
the
air
from
the
outside
to
aerate
the
legumes
without
the
unit
being
so
constructed
that
not
only
the
product
but
the
air
as
well
is
contained;
the
wall
of
each
unit
permits
the
air
to
circulate
within
a
given
limited
area
that
is
the
interior
of
the
unit.
This
is
necessary
for
the
drying
process
to
function
with
any
practical
effect.
The
bean
ladder
in
two
of
the
units,
the
aeration
flow
and
the
conveyor
are
built
into
the
unit
and
together
with
the
shell
of
the
unit
become
machinery
or
equipment
used
in
the
processing
of
the
legumes.
If
the
units
were
not
an
integral
and
essential
part
of
Roy's
processing
activities,
they
surely
constituted
ancillary
machinery
or
equipment
acquired
for
use
in
Roy's
processing
activities.
The
aeration
flow,
bean
ladder,
conveyor
and
each
unit
would
ordinarily
be
included
as
Class
8
assets
but
since
they
were
acquired
after
1972
to
be
used
directly
or
indirectly
by
Roy
in
Canada
primarily
in
the
processing
of
goods
for
sale,
they
are
included
in
Class
29
for
purposes
of
capital
cost
allowance.
I
need
not
determine
whether
the
containers
or
units
were
tanks
within
the
meaning
of
paragraph
(c)
of
Class
8
property.
The
appeals
are
allowed
with
costs.
Appeals
allowed.