Christie,
A.C.J.T.C.:—This
is
an
appeal
from
an
assessment
of
income
tax
under
Part
VIII
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
with
respect
to
the
appellant's
1986
taxation
year
which
was
the
period
May
22,
1985
to
May
21,1986.
The
alleged
liability
arises
under
subsection
194(1).
It
reads:
194.(1)
Every
corporation
shall
pay
a
tax
under
this
Part
for
a
taxation
year
equal
to
50
per
cent
of
the
aggregate
of
all
amounts
each
of
which
is
an
amount
designated
under
subsection
(4)
in
respect
of
a
share
or
debt
obligation
issued
by
it
in
the
year
or
a
right
granted
by
it
in
the
year.
The
amount
designated
was
$31,500,000
and
the
amount
assessed
was
50
per
cent
of
that
or
$15,750,000
plus
interest.
What
is
commonly
referred
to
in
commercial
law
and
accounting
circles
as
a
"quick
flip”
was
involved.
It
is
the
position
of
the
respondent
that
the
appellant
is
not
entitled
to
a
Part
VIII
refund
which
is
defined
under
subsection
194(2).
This
subsection,
in
turn,
relates
to
subparagraphs
37(1)(a)(i)
and
37(1)(b)(i).
The
first
speaks
of
expenditures
of
a
current
nature
made
in
Canada
by
the
taxpayer
on
scientific
research
and
experimental
development
related
to
the
business
of
the
taxpayer
and
directly
undertaken
by
or
on
behalf
of
the
taxpayer
and
the
second
subparagraph
speaks
of
expenditures
of
a
capital
nature
made
under
the
same
circumstances
and
for
the
same
purpose.
Paragraph
37(7)(b)
provides
that
"scientific
research
and
experimental
development"
has
the
meaning
given
to
that
expression
by
regulation.
Subsection
2900(1)
of
the
Income
Tax
Regulations
("the
Regulations")
provides:
2900.(1)
For
the
purposes
of
this
Part
and
paragraphs
37(7)(b)
and
37.1(5)(e)
of
the
Act,
“scientific
research
and
experimental
development"
means
systematic
investigation
or
search
carried
out
in
a
field
of
science
or
technology
by
means
of
experiment
or
analysis,
that
is
to
say,
(a)
basic
research,
namely,
work
undertaken
for
the
advancement
of
scientific
knowledge
without
a
specific
practical
application
in
view,
(b)
applied
research,
namely,
work
undertaken
for
the
advancement
of
scientific
knowledge
with
a
specific
practical
application
in
view,
or
(c)
development,
namely,
use
of
the
results
of
basic
or
applied
research
for
the
purpose
of
creating
new,
or
improving
existing,
materials,
devices,
products
or
processes,
and,
where
such
activities
are
undertaken
directly
in
support
of
activities
described
in
paragraph
(a),
(b)
or
(c),
includes
activities
with
respect
to
engineering
or
design,
operations
research,
mathematical
analysis
or
computer
programming
and
psychological
research,
but
does
not
include
activities
with
respect
to
(d)
market
research
or
sales
promotion;
(e)
quality
control
or
routine
testing
of
materials,
devices
or
products;
(f)
research
in
the
social
sciences
or
the
humanities;
(g)
prospecting,
exploring
or
drilling
for
or
producing
minerals,
petroleum
or
natural
gas;
(h)
the
commercial
production
of
a
new
or
improved
material,
device
or
product
or
the
commercial
use
of
a
new
or
improved
process;
(i)
style
changes;
or
(j)
routine
data
collection.
The
appellant
relies
exclusively
on
it
being
within
the
ambit
of
paragraph
2900(1)(c)
of
the
Regulations
in
support
of
its
appeal.
Four
testified
at
the
hearing.
For
the
appellant
there
was
its
president,
W.E.
Madryga,
Martin
Snelgrove
and
Donald
F.
Rennick.
Peter
C.
Davies
testified
on
behalf
of
the
respondent.
Mr.
Madryga
has
the
degree
of
B.A.Sc.
in
engineering
science
which
was
conferred
on
him
by
the
Universityof
Toronto
in
1947.
He
is
knowledgeable
in
the
field
of
computer
science.
Professor
Snelgrove
received
a
Ph.D.
in
electrical
engineering
from
the
University
of
Toronto
in
1982
and
is
an
associate
professor
with
the
Department
of
Electrical
Engineering
at
that
university.
Mr.
Rennick
received
a
Ph.D.
in
mechanical
engineering
in
1974
from
the
University
of
Toronto.
From
1975
to
1989
he
was
employed
by
Atomic
Energy
of
Canada
Ltd.,
Candu
Operations,
Mississauga,
Ontario.
Since
then
he
has
been
a
principal
with
Cantech
International,
a
division
of
Naress
Associates
Ltd.,
that
offers
technical
services
to
nuclear
and
non-nuclear
industries.
Its
main
product
lines
include
software
applications
and
development.
Software
applications
have
been
in
databases
and
expert
systems.
Mr.
Davies
received
a
Ph.D.
in
mathematics
from
the
University
of
Toronto
in
1979.
From
December
1979
to
May
1985
he
was
employed
by
Control
Data
Canada
Ltd.
at
Mississauga
and
from
February
1986
to
the
present
he
has
been
with
Expert
Solutions
of
Toronto.
It
focuses
on
consulting,
development
and
training
in
neural
networks,
expert
systems
and
other
computer
applications.
Professor
Snelgrove
and
Messrs.
Rennick
and
Davies
were
found
by
the
Court
to
be
qualified
to
give
expert
opinion
evidence
at
the
hearing.
All
three
are
learned
in
the
field
of
computer
science.
The
special
pursuit
of
Dr.
Snelgrove
is
the
area
of
signal
processing.
Mr.
Rennick
was
found
to
be
qualified
as
an
expert
regarding
data
acquisition
systems
and
real-time
systems,
but
not
in
respect
of
neural
networks.
Mr.
Davies
specializes
in
artificial
intelligence,
neural
networks
and
expert
systems.
Professor
Snelgrove
made
a
report
dated
October
21,
1991,
that
is
in
evidence.
It
is
1
A
letter
size
paper
in
length.
Attached
to
it
is
his
curriculum
vitae
and
a
number
of
pages
pertaining
to:
research
funding,
publications,
graduate
theses
supervised
and
co-supervised,
patents
applied
for,
collaborations,
professional
activities,
administration,
teaching,
honours
and
awards,
sabbatical
and
other
leaves
taken.
The
oral
evidence
of
this
witness
does
not
involve
any
significant
differentiation
from
his
report
of
October
21
so
I
shall
concentrate
on
the
latter.
The
first
two
paragraphs
of
the
report
read:
I
am
writing
with
my
opinion
on
the
eligibility
of
those
parts
of
your
research
that
are
in
my
area
of
expertise
for
consideration
as
research
according
to
the
criteria
of
appendix
B.1
of
Revenue
Canada
information
circular
86-4R2.
My
own
area
is
signal
processing
and
so
I
can’t
comment
in
detail
on
the
overall
project,
though
it
certainly
looks
to
have
been
extremely
technically
aggressive
in
terms
of
objectives,
scale
and
pace.
The
Information
Circular
86-4R2
referred
to
by
Professor
Snelgrove
is
dated
August
29,
1988,
which
is
after
the
year
under
review,
but
it
deals
with
subsection
2900(1)
of
the
Regulations.
Paragraph
2.9
is
the
heading"General
Criteria"
and
this
is
said
in
paragraph
2.10:
Essential
tests
that
must
be
met
before
any
activity
can
be
considered
scientific
research
and
experimental
development
include
the
criterion
of
scientific
or
technological
advancement,
the
criterion
of
scientific
or
technological
uncertainty,
and
the
criterion
of
scientific
and
technical
content.
The
heading
of
paragraph
6
reads:
"Criteria
for
the
Identification
of
Eligible
Activities
in
the
Fields
of
Computer
Science
and
Associated
Technologies".
This
follows:
The
following
discussion
addresses
the
problem
of
what
is
an
advance
directly
in
computer
science
and
associated
technologies.
The
costs
associated
with
such
activities
as
programming
and
coding,
carried
out
in
support
of
an
eligible
activity
in
other
fields
are,
of
course,
qualifying
expenditures.
Further
explanations
may
be
found
in
Appendix
B.1.
Appendix
B.1
deals
with:
“Application
Paper
Computer
Software”.
The
three
criteria
referred
to
in
paragraph
2.10
are
dealt
with
in
the
particular
context
of
B.1
in
paragraphs
2.2
“Scientific
or
Technological
Advancement";
2.3
"Scientific
or
Technological
Uncertainty”;
2.4
"Scientific
or
Technical
Content”.
Under
2.3
the
"Condition"
is:
There
is
an
identified
technological
uncertainty
in
computer
software
and
the
project
attempts
to
resolve
that
problem.
The
first
of
the
"Positive
Indicators"
reads:
There
is
iteration
within
the
project
that
is
caused
by
encountering
technological
problems.
Note
that
iteration
caused
by
externally
imposed
changes
in
functional
specifications
that
do
not
create
technological
uncertainty
would
not
be
an
indicator.
The
"Negative
Indicator”
reads:
The
technological
problems
being
addressed
have
been
overcome
by
the
taxpayer
in
a
previous
project
on
the
same
operating
system
and
computer
architecture.
Under
2.2
the
"Condition"
is:
The
project
contributes
new
knowledge
in
computer
software
technology
within
the
context
of
the
taxpayer's
business
environment.
The
first
of
the"Positive
Indicators"
is:
The
novelty,
or
newness
of
function
or
product,
demonstrates
the
technological
advancement.
The
"Negative
Indicator"
is:
The
specific
advancement
in
software
technology
was
publicly
available
in
detail
in
broadly
distributed
commercial
literature
such
as
widely
read
personal
computer
magazines.
Under
2.4
it
is
said
this
criterion
has
both
methodological
and
personnel
aspects.
There
is
a
subparagraph
2.4.1
that
deals
with
"Methodology"
in
these
words:
Conditions
The
technological
objectives
of
the
project
are
documented
and
a
method
of
achieving
them
is
outlined.
(In
using
this
test,
note
that
original
ideas
may
be
intuitive,
and
progress
is
typically
uneven.)
The
results
of
the
efforts
to
attempt
to
resolve
the
technological
problem
are
identified,
formally
or
informally.
There
is
a
second
subparagraph
2.4.2
that
deals
with
Personnel”
as
follows:
Condition
The
personnel
responsible
for
the
direction
or
performance
of
the
project
have
the
basic
professional
skills
or
experience
commensurate
with
the
requirements
of
the
project.
Positive
Indicators
The
personnel
involved
in
most
key
positions,
such
as
project
leader
or
technical
designer,
have
experience
at
the
functional
levels
assigned,
or
their
general
background
is
reasonably
related
to
such
an
assignment.
Personnel
either
have
technical
knowledge
of
the
area
where
the
uncertainty
is
to
be
resolved
or
have
set
out
to
obtain
such
knowledge.
The
portion
of
Professor
Snelgrove’s
opinion
that
focuses
on
the
issue
in
this
appeal
reads:
In
terms
of
Revenue
Canada's
criteria,
I
can
say
that:
there
would
certainly
have
been
considerable
"Technological
Uncertainty"
at
the
outset
that
this
performance
could
be
obtained.
This
meets
the
"Condition"
of
section
2.3
of
the
Revenue
Canada
document
above.
I
am
sure,
from
my
experience
with
real-time
signal
processing
work,
that
many
iterations
would
have
been
required
to
get
that
level
of
performance,
so
the
first
“Positive
Indicator”
is
there.
I
haven’t
heard
of
any
project,
even
to
the
present
day,
that
would
provide
the
"Negative
Indicator"
of
an
existing
taxpayer-supported
resolution
of
the
same
problem
on
the
same
or
similar
machines.
that
the
Condition”
for
defining
Scientific
or
Technological
Advancement"
(section
2.2,
that
the
project
contributes
new
knowledge)
appears
to
be
met
for
real-time
computing
technology.
It
would
be
interesting
to
see
more
details
of
the
software
techniques
used.
The
first
Positive
Indicator"—
novelty
of
function—is
also
clear
enough.
As
far
as
I
know
the
"Negative
Indicator”
of
commercial
availability
has
yet
to
appear:
the
closest
commercial
equivalents
run
on
Macintosh
computers
with
similar
CPU's,
but
use
signal-processing
boards
based
on
specialized
DSP
machines
to
do
real-time
Fourier
transforms.
As
to
"Methodology"
(section
2.4.1):
I
don't
know
what
state
your
planning
was
in
at
the
time,
but
I
don't
think
it
would
be
appropriate
to
expect
anything
too
formal
in
the
way
of
plans
for
something
this
experimental.
I’d
normally
expect
a
good
systems
programmer
to
spend
a
few
weeks
on
some
initial
experiments,
then
get
together
with
a
supervisor
to
evaluate
the
chances
of
success
and
best
strategies.
As
to
"Personnel":
your
own
background
makes
you
one
of
the
very
small
number
of
people
with
the
broad
range
of
systems
software
skills
and
hardware
understanding
needed
to
do
or
manage
this
kind
of
work.
I
remember
you,
from
the
time
we
were
working
together
at
the
Computer
Research
Facility,
as
extremely
productive
and
very
comfortable
with
the
internal
details
of
large
computer
systems.
In
this
kind
of
work
I
would
value
the
kind
of
experience
you've
had
over
more
formal
qualifications.
The
part
of
the
activity
I
can
clearly
judge,
the
data
acquisition,
is
clearly
qualified.
The
overall
project
is
harder
for
me
to
judge,
but
I
see
no"Negative
Indicators".
Mr.
Rennick's
report,
also
in
evidence,
is
dated
October
21,
1991.
As
with
Professor
Snelgrove
the
oral
evidence
of
this
witness
is
such
that
it
is
unnecessary
to
go
beyond
particular
reference
to
his
report.
The
report
commences
by
describing
his
relationship
to
Mr.
Madryga
which
arose
at
the
University
of
Toronto.
He
states
that
he
has
no
business
relationship
with
him
or
any
of
his
companies
and
that
he
is
not
receiving
a
fee
or
any
other
consideration
for
his
opinion.
He
then
describes
his
professional
background
and
experience.
His
report
goes
on:
SCOPE
OF
MY
REVIEW
This
review
is
directed
at
examining
the
three
criteria
related
to
the
tax
classification
of
the
research
effort
by
Revelations
Research
Ltd.
I
have
been
given
three
binders
of
background
information
prepared
by
Bill
Madryga.
This
included
a
copy
of
information
circular
86-4R2
dated
August
29,
1988,
superseding
the
IC
86-4R
which
was
issued
in
September
1985.
The
three
criteria
are
qualifications
of
the
staff,
uncertainty
in
outcome
of
the
research,
and
technological
advancement.
I
need
to
preface
my
remarks
by
noting
that
considerable
time
has
passed
since
the
dispute.
It
is
therefore
difficult
to
develop
an
opinion
unless
I
take
the
information
presented
to
me
by
Mr.
Madryga
at
face
value.
At
this
time,
I
do
not
have
any
reason
to
believe
he
has
misrepresented
the
facts.
My
outlook
has
been
to
analyze
whether,
in
1985,
he
would
have
met
the
criteria
for
eligibility
under
Section
2900
of
the
Income
Tax
Act
[sic].
While
I
realize
the
sums
of
money
are
large,
I
have
restricted
my
review
to
the
criteria.
Whether
the
money
was
well
spent
is
an
issue
for
the
investors.
“Technological
Advancement"
Criterion
The
project
under
review
is
the
invention
of
a
novel
neural
engine
eventually
leading
to
a
super
microchip
capable
of
simulating
intelligence.
The
work
with
the
supercomputer
was
to
develop
and
demonstrate
the
theory,
or
proof
of
principle.
As
I
understand
it,
it
was
to
be
based
on
the
biological
model
of
stimuli
and
response
among
neurons.
The
pilot
project
was
to
develop
a
real-time
speech
processing
system
based
on
neural
networks.
This
kind
of
architecture
was
envisioned
at
the
time
but
has
not
been
fully
developed
even
today.
There
is
no
question
that
it
would
have
been
a
scientific
achievement
of
mammoth
proportions.
The
question
of
scientific
process
is
more
difficult
to
answer.
There
was
a
ten
year
plan.
It
was
a
series
of
milestones,
not
a
written
series
of
items
to
try
or
avenues
to
explore.
On
the
other
hand,
I
understand
Madryga's
desire
for
commercial
security.
This
led
him
to
shred
all
working
papers.
The
size
of
the
research
team
caused
him
not
to
write
reports.
Related
to
the
demonstration
of
progress
for
the
first
year,
a
research
program
of
this
scope
would
involve
as
much
as
two
to
five
years
of
startup
time,
particularly
with
the
small
size
of
personnel
resources.
For
such
a
program,
it
is
likely
that
the
systems
could
only
be
assembled
and
debugged.
However,
the
dated
computer
output
included
with
the
package
under
review
indicates
that
a
neural
engine
was
constructed
in
the
time
frame.
I
cannot
comment
on
whether
this
engine
was
technically
correct
or
a
scientific
advancement.
Nevertheless,
it
demonstrates
that
[sic]
the
kernel
of
knowledge
for
the
program.
"Competence
of
the
Researchers
to
Perform
the
Task"
Criterion
I
have
reviewed
the
resumes
of
Bill
Madryga,
Bob
Sandness,
and
Walter
Berndl.
I
cannot
comment
on
Walter
Berndl's
or
Bob
Sandness'
qualifications
to
perform
the
work
because
I
did
not
know
them
and
it
is
not
obvious
from
their
resumes.
It
is
obvious
that
both
had
significant
data
processing
and
managerial
experience.
Neither
resume
shows
any
scientific
computing
background.
(There
are
two
footnotes
in
the
report
regarding
Berndl
and
Sandness.
They
read:
Berndl
does
have
a
degree
in
computer
science,
which
would
include
some
applied
mathematics.
I
note
his
M.Sc.
work
focused
on
development
of
a
SPITBOL
compiler.
I
do
not
recognize
this
as
scientific
computing.
Bob
Sandness'
experience
at
Bell-Northern
Research
might
have
had
an
element
of
scientific
analysis,
but
I
did
not
develop
the
sense
that
he
played
a
major
technical
role
in
the
project.)
However,
I
note
that
a
major
application
of
neural
networks
has
been
in
the
banking,
business,
and
commercial
market
so
it
would
be
natural
for
them
to
have
had
exposure
to
artificial
intelligence
there.
I
cannot
say
whether
they
did.
One
of
the
auditors
commented
that
neither
researcher
had
advanced
degrees
in
Mathematics.
Bill
Madryga
graduated
in
Engineering
Science
from
the
University
of
Toronto
with
a
major
in
computer
science.
Engineering
Science
were
(are)
the
elite
of
the
Engineering
Faculty
at
U
of
T.
For
example,
the
men
who
placed
1st,
3rd
and
5th
in
my
final
year
(I
was
2nd)
moved
to
Mechanical
Engineering
because
the
theoretical
course
work
was
too
onerous
for
them
in
Engineering
Science.
While
I
do
not
know
Madryga's
course
work
specifically,
I
know
from
personal
experience
that
Eng.
Sci.
offers
more
advanced
mathematics
than
any
other
Engineering
discipline.
In
fact,
my
graduate
course
in
mathematics
was
taken
concurrently
with
4th
year
Engineering
Science
and
Math
Physics
and
Chemistry
(MPC)
students.
There
were
also
graduate
students
in
Mathematics
in
that
course.
So
I
conclude
that
Madryga
should
have
had
the
mathematical
basis
to
carry
out
the
advanced
research.
I
note
also
that
Madryga
had
more
than
10
years
following
graduation
in
engineering-related
data
processing
and
hardware
applications.
Initially,
I
shared
the
auditor's
concern
that
the
principle
researchers
had
not
published
in
the
neural
networks
discipline.
However,
if
their
project
had
been
successful,
it
would
have
definitely
been
"publishable"
but
probably
would
not
have
been
for
commercial
reasons.
This
is
not
unusual
in
research:
oil
companies
do
not
publish
all
their
research.
It
is
impossible
for
me
to
tell
what
knowledge
Bill
Madryga
or
Walter
Berndl
had
of
neurobiology
in
1985.
However,
this
has
been
written
about
extensively
in
technical
journals
and
should
have
been
available
to
him.
The
notes
which
exist
for
1987
show
the
general
principles
were
understood.
"Element
of
Uncertainty"
Criterion
Neural
Networks
is
an
emerging
technology
which
has
the
potential
to
revolutionize
modelling
of
physical
processes
in
every
aspect
of
society.
In
1985,
people
were
just
beginning
to
develop
methods
for
simulation
of
neurobiological
processes.
In
spite
of
tremendous
effort
by
scientists
and
mathematicians
world
wide,
it
has
not
been
perfected
today.
There
is
no
question
in
my
mind
that
the
outcome
could
not
be
assured
at
the
start
of
the
project
in
1985.
ADDITIONAL
COMMENTS
From
the
documentation
presented,
it
seems
there
were
encouraging
(albeit
not
binding)
statements
made
as
to
the
eligibility
of
this
program
for
classification
as
Scientific
Research
and
Experimental
Development.
In
addition,
guidelines
were
not
published
until
after
the
project
was
underway.
The
lack
of
a
formal
statement
of
eligibility
led
to
the
early
collapse
of
the
program,
which
as
it
turns
out,
delayed
or
suspended
the
statement
of
eligibility
because
of
the
apparent
lack
of
demonstrated
progress.
Catch-22.
In
spite
of
this,
the
project
does
appear
to
meet
all
three
criteria.
To
a
considerable
extent
the
oral
evidence
of
Mr.
Madryga
is
directly
related
to
three
volumes
of
documents
assembled
by
him
for
the
purposes
of
this
appeal.
They
are
dated
September
20,
1991.
Much
of
it
is
of
no
assistance
in
determining
the
fundamental
issue
before
the
Court.
There
are,
for
example,
pages
of
computer
printouts
to
which
no
evidentiary
weight
can
be
attached.
The
same
can
be
said
of
some
of
the
supplementary
documents
filed
in
evidence
at
the
trial.
The
work
carried
on
by
the
appellant
that
is
said
to
be
scientific
research
and
experimental
development
within
the
meaning
of
paragraph
2900(1)(c)
of
the
Income
Tax
Regulations
is
a
project
labelled
"Synthetic
Intelligence”.
It
is
said
early
in
volume
1
that:
“The
key
reference
for
eligibility
is
the
Revenue
Canada
Information
Circular
1C86-4R2
which
was
developed
in
consultation
with
Canadian
industry."
This
information
bulletin
has
already
been
considered
in
conjunction
with
the
evidence
of
Professor
Snelgrove
and
Mr.
Rennick.
The
documentary
material
is
divided
into
ten
parts:
Project,
History
and
Issues;
General
Eligibility;
Activity
Eligibility;
Technical
Staff;
Reports
(that
include
a
“10
Year
Plan”),
etc.
The
goal
of
the
project
is
said
to
be:
“The
ultimate
objective
of
the
SI
project
is
to
develop
a
hardware
SYSTEM
constructed
of
elements
similar
to
biological
neurons
which
is
capable
of
performing
arbitrary
non-numerical
(functions),
e.g.
pattern
recognition,
rule
interpretation."
Later
it
is
said
under
the
heading
"Synthesis
of
natural
intelligence"
that:
This
is
the
prime
objective
of
the
research.
It
seeks
to
develop
a
cellular
network
model
of
natural
intelligence.
This
network
should
be
capable
of
representing
information
to
the
same
abstraction
level
as
in
human
intelligence.
Rather
than
have
an
encoding
scheme
for
information
imposed
on
it
by
a
programmer,
it
will
be
able
to
develop
its
own
storage
representation
based
on
the
nature
of
the
information.
Some
preliminary
work
has
already
been
completed
for
the
representation
of
the
cellular
network.
It
is
unnecessary
to
review
particular
aspects
of
the
evidence
of
Mr.
Mad-
ryga
because
I
have
no
hesitation
in
accepting
Mr.
Davies'
evaluation
of
the
appellant's
project
which
is
quite
the
contrary
of
what
is
contended
by
the
former.
Mr.
Davies
was
retained
by
Revenue
Canada
to
advise
whether,
in
his
opinion,
the
appellant's
project
could
properly
be
regarded
as
"scientific
research
and
experimental
development"
within
the
meaning
to
be
attributed
to
those
words
in
the
applicable
legislation.
After
having
met
with
Mr.
Madryga
and
after
examining
documentation
that
included
material
originating
with
the
appellant
and
material
supplied
by
Revenue
Canada,
he
concluded
in
a
report
dated
July
14,
1988,
that:
"I
have
no
hesitation
in
stating
that
I
find
no
part
of
this
project
to
be
eligible
as
scientific
research
or
experimental
development."
Subsequently
he
reviewed
the
contents
of
the
three
volumes
referred
to;
the
reports
of
Professor
Snelgrove
and
Mr.
Rennick
that
are
in
evidence;
the
supplementary
material
placed
in
evidence
at
trial
and
he
was
present
in
Court
when
Professor
Snelgrove
and
Messrs.
Rennick
and
Madryga
testified.
What
follows
are
some
of
the
points
made
in
the
course
of
Mr.
Davies'
testimony
that
I
believe
merit
special
emphasis.
He
has
evaluated
some
10
or
11
other
projects
for
the
same
purpose
as
the
project
relevant
to
this
appeal.
In
each
instance
except
two
he
made
a
finding
favourable
to
the
taxpayer.
In
one
of
the
two
exceptions
he
found
that
"the
majority
of
the
work
qualified.”
The
other
exception
is
the
case
at
hand.
He
said:
When
I
looked
at
the
overall
project,
I
was
concentrating
of
course
on
the
documents
from
Revelations
Research
and
I
was
looking
in
that
documentation
for
a
research
plan,
a
systematic
outline
of
how
Revelations
Research
proposed
to
achieve
these
goals.
The
only
thing
in
there
I
found
that
could
be
termed
a
plan
of
any
kind
was
the
ten
year
plan
overview,
and
that
to
me
was
not
a
research
plan,
it
was
a
list.
It
had
the
ten
years
of
goals,
but
there
was
no
mention
of
how
the
company
would
achieve
any
of
those
goals.
It
might
have
served
as
part
of
a
business
plan,
but
it
certainly
wasn't
a
research
plan.
With
respect
to
the
necessity
of
a
research
plan
he
added:
“If
you
have
no
idea
in
what
direction
you
are
going,
I
don't
see
any
possible
reason
for
assuming
that
you
will
get
to
your
goal.”
Detailed
notes
of
research
work
done
were
not
produced.
He
answered
no
to
this
question:
"Did
you
receive
any
information
setting
out
initial
hypotheses
or
any
proposed
means
of
determining
the
truth
or
falsity
of
these
hypotheses?"
With
reference
to
the
qualifications
or
Messrs.
Madryga
and
Berndl
he
said:
"They
certainly
have
impressive
work
credentials,
both
gentlemen,
particularly
Mr.
Madryga,
but
no
work
experience
in
the
central
areas
of
this
project.”
This
exchange
between
counsel
for
the
respondent
and
Mr.
Davies
follows:
Q.
You
also
say
finally
that
project
success
could
be
a
factor
in
assessing
the
qualifications
of
the
team?
A.
Certainly.
In
the
absence
of
anything
else,
if
they
had
managed
to
attain
any
of
the
goals
they
had
set
out
to,
this
would
tend
to
make
you
believe
that
they
could
do
it,
so
it
would
tend
to
qualify
them,
but
there
was
none
of
this,
there
was
nothing
significant
accomplished
at
all.
He
went
on:
The
staff
was
not
appropriate
to
this
project.
Both
Mr.
Madryga
and
Mr.
Berndl
would
have
been
excellent
candidates
to
be
part
of
such
a
project
team,
but
they
could
not,
neither
gentlemen
could
not
have
been
one
of
the
principal
researchers
.
.
.
I
concluded
that
the
project
was
not
eligible.
The
work
was
not
carried
out
in
any
systematic,
scientific
manner.
Mr.
Madryga
had
some
ideas
which
he
believed
might
prove
fruitful,
but
he
didn't
have
any
plan
of
how
he
was
going
to
go
about
implementing
that.
The
research
team,
as
I
mentioned,
was
inadequate
in
terms
of
size
and
in
terms
of
the
credentials
of
the
people
on
the
team.
He
observed
that
"neural
network
activity”
was
the
"central
activity"
of
the
project.
In
Sass
Manufacturing
Ltd.
v.
M.N.R.,
[1988]
1
C.T.C.
2524,
88
D.T.C.
1363,
Judge
Sarchuk
of
this
Court
said
at
page
2535
(D.T.C.
1371):
The
evidence
falls
short
of
establishing
the
existence
of
any
systematic
investigation
or
search
carried
out
in
a
field
of
technology
by
means
of
experiment
or
analysis.
In
my
view
Regulation
2900
requires
an
appellant
to
adduce
cogent
evidence
of
such
investigation
or
search.
Systematic
investigation
connotes
the
existence
of
controlled
experiments
and
of
highly
accurate
measurements
and
involves
the
testing
of
one's
theories
against
empirical
evidence.
Scientific
research
must
mean
the
enterprise
of
explaining
and
predicting
and
the
gaining
knowledge
of
whatever
the
subject
matter
of
the
hypothesis
is.
This
surely
would
include
repeatable
experiments
in
which
the
steps,
the
various
changes
made
and
the
results
are
carefully
noted.
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