Stone, J.:—This appeal and cross-appeal from a judgment of the Trial Division raise two separate issues concerning the interpretation of section 125.1 of the Income Tax Act, S.C. 1970-71-72 c. 63 as amended as well as certain of the capital cost allowance provisions found in Schedule B to the Income Tax Regulations, P.C. 1954-1917 as amended. The learned trial judge decided against the respondent on the first issue but in its favour on the second. This appeal and cross-appeal bring forward these issues for decision by this Court.
In its taxation years 1974 and 1975 the respondent engaged in highway construction in Nova Scotia and Newfoundland from its head office situate in the eastern Nova Scotia university town of Antigonish. In carrying on its business it employed various kinds of construction equipment including trucks, tractor-trailers and asphaltic concrete rollers. Much of its work involved the laying of asphaltic concrete on road surfaces. This material it produced by mixing asphalt, a hot tar-like substance, with sand and crushed stone under Certain conditions. The produce was then deposited on road surfaces from trucks and rolled into place.
In 1974 the respondent acquired a new piece of equipment called “The Parker Super Blackmobile”. It was put into use for the first time in the 1975 taxation year. According to the agreed facts, the blackmobile produced asphaltic concrete by passing sand and stone in measured quantities through a dryer and then to a mixer where hot liquid asphalt was injected. The sand and stone were derived from gravel or quarried rock which had been crushed and screened.
The blackmobile is made up of component parts including hopper bins, generator, conveyor, dust collector, dryer, hot elevator, screen and mixer. It could be disassembled and moved from pit to pit which indeed happened in the 1975 taxation year. Some of its parts were equipped with wheels which allowed them to be towed. Other parts could be placed by crane on low bed trailers and moved in that fashion. The time required to disassemble, move and reassemble the plant varied with the distance moved. Trucks, tractor-trailers and a crane were required. A number of employees were engaged. Similar plants not equipped with wheels produced the same sort of product as the plant in question. These too could be moved but required more time to do so.
During the 1975 taxation year the blackmobile was used in connection with a number of construction projects carried out by the respondent on the mainland side of the Canso Causeway — at Antigonish, Mulgrave, Cape George and on the old Antigonish Road leading to the Strait of Canso — as well it was on the Cape Breton side between Port Hastings and Port Haw- kesbury and at Port Malcolm. In none of these projects was the plant located at the actual construction sites. It was placed in neighbouring pits situate as few as two miles and as many as 34 miles away. These pits produced sand and gravel and, by addition of hot asphalt, the asphaltic concrete needed for road hard-surfacing was produced there.
I come now to the issues raised in these proceedings. In calculating its taxable income for its 1974 and 1975 taxation years the respondent claimed the “Canadian manufacturing and processing profits” deduction available under section 125.1 of the Income Tax Act. The terms “Canadian manufacturing and processing profits” and "manufacturing or processing” for the purposes of section 125.1 are defined in subsection 3(a) and (b) thereof:
(a) “Canadian manufacturing and processing profits” of a corporation for a taxation year means such portion of the aggregate of all amounts each of which is the income of the corporation for the year from an active business carried on in Canada as is determined under rules prescribed for that purpose by regulation made on the recommendation of the Minister of Finance to be applicable to the manufacturing or processing in Canada of goods for sale or lease; and
(b) “manufacturing or processing” does not include
(i) farming or fishing,
(ii) logging,
(iii) construction,
(iv) operating an oil or gas well,
(v) extracting minerals from a mineral resource,
(vi) processing, to the prime metal stage or its equivalent, ore from a mineral resource,
(vii) producing industrial minerals,
(viii) producing or processing electrical energy or steam, for sale,
(ix) processing gas, if such gas is processed as part of the business of selling or distributing gas in the course of operating a public utility, or
(x) any manufacturing or processing of goods for sale or lease, if, for any taxation year of a corporation in respect of which the expression is being applied, less than 10% of its gross revenue from all active businesses carried on in Canada was from
(A) the selling or leasing of goods manufactured or processed in Canada by it, and
(B) the manufacturing or processing in Canada of goods for sale or lease, other than goods for sale or lease by it.
The deduction from tax was disallowed by the Minister.
He also disallowed the respondent's claim of capital cost allowance in respect of its blackmobile at the rate of 50 per cent. The respondent's position is that it is class 29 property described in Schedule B provided for under section 1100 to the Income Tax Regulations (made pursuant to paragraph 20(1)(a) of the Act):
1100. (1) Under paragraph (a) of subsection (1) of section 20 of the Act, there is hereby allowed to the taxpayer, in computing his income from a business or property, as the case may be, deductions for each taxation year equal to . . .
Class 29
(y) such amount as he may claim in respect of property of class 29 in Schedule B not exceeding the aggregate of
(i) 50% of the lesser of
(A) the aggregate of the capital cost of all property of that class acquired in the taxation year, or
(B) the undepreciated capital cost to him of property of that class as of the end of the taxation year (before making any deduction under this paragraph for the taxation year), and
(ii) the amount, if any, by which the amount determined under clause
(i)(B) exceeds the amount determined under clause (i)(A).
The provisions of class 29 in Schedule B read in part:
Class 29
Property that would otherwise be included in another class,
(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, or
(ii) to be leased, in the ordinary course of carrying on a business in Canada of the taxpayer, to a lessee who can be reasonably expected to use, directly or indirectly, the property in Canada primarily in the manufacturing or processing by him of goods for sale or lease, if the taxpayer is a corporation whose principal business is
(A) leasing property,
(B) manufacturing property that it sells or leases,
(C) the lending of money, or
(D) the purchasing of conditional sales contracts, accounts receivable, bills of sale, chattel mortgages, bills of exchange or other obligations representing part or all of the sale price of merchandise or services,
or any combination thereof, unless use of the property by the lessee commenced before May 9, 1972, and
(b) that is
(i) property (other than railway rolling stock) that, but for this class, would be included in class 8,
(ii) an oil or water storage tank,
(iii) a powered industrial lift truck, or
(iv) electrical generating equipment described in class 9,
but not including. ... .
The term “manufacturing or processing” as it appears in the text of class 29 is defined in section 1104(9) of the same regulations:
(9) For the purpose of class 29 in Schedule B, “manufacturing or processing” does not include
(a) farming or fishing,
(b) logging,
(c) construction,
(d) operating a gas or oil well,
(e) extracting minerals from a mineral resource,
(f) processing of ore from a mineral resource to the prime metal stage or its equivalent,
(g) producing industrial minerals,
(h) producing or processing electrical energy or steam, for sale, or
(i) processing gas, if such gas is processed as part of the business of selling or distributing gas in the course of operating a public utility.
The Minister reassessed the respondent's income for its 1974 and 1975 taxation years on the basis that the blackmobile was properly classifiable as property falling within class 10 of Schedule B rather than within class 29.
I will deal with these two issues separately.
The manufacturing and processing profits deduction
The respondent by its cross-appeal alleges an error on the part of the trial judge in refusing to interfere with this aspect of the Minister’s reassessment. He concluded at page 2 of his reasons for judgment:
The Act clearly contemplates that an activity may constitute either manufacturing or processing and, at the same time, fall within the exclusion of construction, just as, for example, it contemplates a manufacturing or processing activity may also be farming, fishing or logging, to cite other exclusions. In its use of the term “construction”, Parliament seems to have had in mind construction as an industrial undertaking rather than construction in the narrower sense of an activity.
The only question as to the first issue is whether the Plaintiff’s use of the plant was within the scope of its construction undertaking. If not within that exception, it clearly qualifies for the deduction allowed by section 125.1. The plant processed aggregates and asphalt to produce asphaltic concrete for pavement. About 90% of its production in the period in issue was used by the Plaintiff in the fulfilment of contracts it had entered into with provincial, municipal and private owners. Some of those contracts entailed a high proportion of other work; some were primarily for the paving. The remaining 10% was sold to third parties to permit them to fulfil contracts to pave or to do that for themselves.
“Construction” is not a term of art. The paving of roads, parking lots, and so on, is construction. That is so whether the paving is the initial application of pavement to a newly constructed grade, the maintenance or repair of an old pavement or a combination as in the case of a road widening and reconstruction. The production of asphaltic concrete was an integral part of the Plaintiff's construction undertaking as well as a processing, if not manufacturing, operation. The Minister was right to reject the claim for a deduction under section 125.1.
I share the opinion of the learned trial judge that the word “construction” in its context in subparagraph 125.1 (3)(b)(iii) refers to a construction undertaking or enterprise rather than to construction in any narrower sense. I also share his views that the blackmobile is manufacturing or processing equipment and that the production of asphaltic concrete was “a processing, if not manufacturing, operation”. The issue thus reduces itself to whether the word “construction” found in subparagraph 125.1 (3)(b)(iii) excludes the profits in question from the definition of “Canadian manufac- turing and processing profits” found in paragraph 125.1 (3)(a) so as to render the deduction unavailable. It was the opinion of the learned trial judge that it had such effect. If that be so it would become unnecessary to discuss an ancillary issue, namely, whether the asphaltic concrete manufactured or produced by the blackmobile was “goods for sale” within the meaning of paragraph 125.1 (3)(a) and even though the Government of Nova Scotia itself supplied the asphalt used to produce the product for its own highway construction projects.
Did the learned judge err in his conclusion that "production of asphaltic concrete was an integral part of the plaintiff’s construction undertaking” so as to render the "construction” exclusion applicable? The respondent argues, inter alia, such conclusion ignores the fact that the blackmobile operation was physically separated from that of its paving operations and as such was a business unto itself, that it produced asphaltic concrete for all of the paving jobs, that it was operated by a single employee exclusively assigned for the purpose and that 10 per cent of its output was sold to third parties. It urges that the learned judge's conclusion has given the word "construction” far too broad a meaning. According to this argument that meaning would extend, for example, to a building contractor supplying lumber from his own sawmill operation for a building being constructed by him. We have not in this case to decide that particular question but even so I am not prepared to say that the situation here is altogether analogous.
In argument the appellant relied upon various interpretations of the word "construction” or "construct” by other courts (Mary Jane Hoddinott v. Newton, Chambers & Co. Ltd., [1901] A.C. 49 (H.L.) at 53; The City of West Toronto and Toronto R.W. Co. (1911), 24 O.L.R. 9 (Ont. C.A.); Hillfield School v. The City of Hamilton, [1954] O.W.N. 184 (Ont. C.A.) and City of Dawson Creek v. Lougheed (1959), 19 D.L.R. (2d) 249 (B.C.C.A.)) but, on the whole, I find those cases of little or no assistance. Each was concerned with the meaning to be ascribed to one or other of those words in the context of a private agreement or of a particular statute. On the other hand, I would respectfully subscribe to the reasoning expressed by Lord Macnaghten in the following passage from his judgment in the Hoddinott case (at 54):
Many cases were put in argument, and many others may be suggested. Is a man who adds a storey or a new room to a house constructing a building? Is a man constructing a building if he strips off a coating of stucco and faces his house with red brick or cut stone? In one sense he is; in another sense he is not. It depends upon what is meant by “construction”, and whether reference is made to the building as it was, or to the building as it will be when the proposed alteration is complete. My Lords, these and such-like questions may be very interesting puzzles, but I do not think they help one much. The question, after all, must be what is construction ... in this Act of Parliament. . . . [Emphasis added.]
Similarly, in the present case the question for decision is whether by including the word "construction” among the exclusions contained in paragraph 125.1 (3)(b) Parliament intended to render that exclusion applicable in the circumstances of this particular case.
In my opinion the learned judge correctly decided that the respondent is not entitled to a deduction under section 125.1 of the Act. The blackmobile was used in the 1975 taxation year primarily to produce a product needed by the respondent to carry out various obligations under construction contracts. It is immaterial that the produce happened to be produced some distance from actual construction sites. Nor, in my view, does it matter that some of the paving work involved repair to existing highways as distinguished from the paving of new ones. As was well stated by the learned trial judge himself, the production of the product in either case was “construction” within the meaning of subparagraph 125.1 (3)(b)(iii) of the Act. The resulting profits are not eligible for the tax deduction under that section. Finally, as the respondent has not shown that asphaltic concrete manufactured or processed for sale to third parties falls outside the exclusion in subparagraph 125.1 (3)(b)(x), it is not eligible for any tax relief under section 125.1 of the Act.
The capital cost allowance rate
The appellant argues that the learned trial judge erred in classifying the blackmobile under class 29 of Schedule B and as such that it was subject to a 50 per cent rate of capital cost allowance. In arriving at that conclusion he reviewed certain of the provisions of classes 8 and 10
Class 8 (20%)
Property not included in Class 2, 7, 9 or 30 that is:
(a) a structure that is manufacturing or processing machinery or equipment;
(i) a tangible capital asset that is not included in any other class in this Schedule except...
Class 10 (30%)
Property not included in any other class that is
(h) contractor's moveable equipment, including portable camp buildings, except .. .
and of class 29, after which he concluded at page 4 of his reasons for judgment.
The Plaintiff was a contractor. The plant was contractor's equipment, in fact, as well as generically. The question is: was it moveable? Clearly, it was when disassembled but not otherwise. It is hard to conceive of anything that is not moveable provided it can be broken down into transportable elements. I do not think that the mere fact that a structure can be disassembled and moved makes it moveable. However, when the structure is designed to be disassembled and moved and when it is, in fact, assembled so as to preserve that moveability, e.g., not anchored or enclosed or otherwise assembled so that it cannot be disassembled as intended by its designer, it remains moveable.
The plant was contractor’s moveable equipment as well as a structure that is manufacturing or processing machinery or equipment. Having regard to the introductory words in each case, it is not excluded from Class 8 by the words “property not included in class 2, 7, 9 or 30” but, once within Class 8, it is excluded from Class 10 by the words “Property not included in any other class”. The plant, was prima facie, a Class 8 asset but, in view of Class 29, it is property that would be included in Class 8 but for Class 29. As it is, it was a Class 29 asset.
If I am wrong in finding the plant to be within Class 8 by virtue of paragraph (a) thereof, then the only other provision under which it might fall in Class 8 is paragraph (i). The finding that the plant is contractor’s moveable equipment excludes the plant from Class 8 on that basis, since paragraph (i) extends only to an “asset that is not included in any other class”. If it is not within Class 8 by virtue of paragraph (a), it is within Class 10 as contractor's moveable equipment and not to be included in Class 29.
The Minister’s reassessment was made on the basis that the blackmobile was properly classifiable as class 10 property.
A number of submissions were made against the inclusion of the black- mobile in class 29 but I find it unnecessary to deal with all of them. It seems to me that there is substance to the appellant’s primary attack, namely, that class 29 cannot apply because of the presence of the exclusionary word “construction” in the definition of “manufacturing or processing” found in subsection 1104(9) of the Regulations. That definition is expressly made applicable to the provisions of that class. By its own terms class 29 applies to: “Property, that would otherwise be included in another class, . . . that is . . . property acquired by the taxpayer after May 8, 1972 ... to be used directly or indirectly by him in Canada in the manufacturing or processing of goods for sale or lease. ...”. As paragraph 1104(9)(c) of the Regulations expressly excludes “construction” from the term “manufacturing or processing”, the simple position taken by the appellant is that the learned judge ought not to have included the blackmobile under class 29 having already found it was used in “construction”. The point is not specifically discussed in the reasons for judgment.
Although there are differences in the arrangement and, to some extent, the content of the exclusions found in subsection 1104(9) of the Regulations as compared with those of paragraph 125.1 (3)(b) of the Act, I am unable to see how the “construction” exclusion in paragraph (c) of subsection 1104(9) should not apply. That it does apply would appear to follow once it is decided, as I have, that the blackmobile was used in the respondent's construction business. In my opinion, the presence of the exclusionary word “construction” in paragraph 1104(9)(c) of the Regulations means that the blackmobile cannot properly be classified as class 29 property. It would seem to be arguable that the blackmobile falls into class 8 rather than into class 10 as the Minister concluded but it is unnecessary to reach a decided opinion on the point as neither party took that position and the decision to classify the blackmobile under class 10 and as such subject to a capital cost allowance rate of 30 per cent rather than under class 8 to which a rate of 20 per cent applies is not a subject of these proceedings. In my judgment this aspect of the reassessments should be restored.
I would therefore allow the appeal and dismiss the cross-appeal with costs both here and below and would restore the assessments or reassessments made herein by the Minister of National Revenue in respect of the respondent's 1974 and 1975 taxation years.
Crown's appeal allowed; respondent’s cross-appeal dismissed.