Noël,
A.C.J.:—This
is
an
appeal
from
assessments
to
income
tax
for
the
taxation
years
1958,
1959
and
1960
whereby
certain
capital
cost
allowances
claimed
by
the
appellant
with
respect
to
certain
rights
called
Corner
Brook
rights
and
Humber
River
rights
of
$104,665.47
and
$941,989.32
respectively
and
leasehold
interests
within
the
meaning
of
Section
1100(1)(b)
of
the
Income
Tax
Regulations
were
disallowed
by
the
Minister.
The
Minister
also
disallowed
an
expenditure
of
$18,195
and
$15,801
in
1959
and
1960
respectively,
as
property
of
Class
2
in
Schedule
B
to
the
Income
Tax
Regulations,
nor
did
he
accept
that
they
were
deductible
as
operating
costs.
The
position
taken
by
the
Minister
is
that
(a)
neither
of
the
power
rights
acquired
by
the
appellant,
and
described
as
‘‘Humber
River”
and
‘‘Corner
Brook’’
are
property
within
Class
13
of
Schedule
B
of
the
Income
Tax
Regulations
in
that
neither
is
a
leasehold
interest;
(b)
neither
of
the
power
rights
acquired
by
the.
appellant,
and
described
as
"‘Humber
River’’
and
‘‘Corner
Brook”
is
property
within
Class
14
of
Schedule
B
of
the
Income
Tax
Regulations
in
that
neither
is
a
patent,
franchise,
concession
or
licence
or
(c)
as
an
alternative
to
(b)
hereof,
if
the
property
described
as
"‘Humber
River’’
and
"Corner
Brook”
is
within
the
meaning
of
said
Class
14,
that
is,
it
is
one
of
a
patent,
franchise,
concession
or
licence,
the
patent,
fanchise,
concession
or
licence
is
not
for
a
limited
period.
The
appellant
was
incorporated
in
1955
under
The
Companies
Act
(Newfoundland)
for
the
purpose
of
carrying
on
the
business
of
generating
and
selling
electrical
power
and
energy
and
has
been
since
that
time
a
wholly-owned
subsidiary
of
the
Bowater
Corporation
of
North
America
Limited.
By
deed
dated
June
1,
1955
appellant
acquired
from
Bowater’s
Newfoundland
Pulp
&
Paper
Mills
Limited
(also
a
wholly-owned
subsidiary
of
The
Bowater
Corporation
of
North
America
Limited)
rights
relating
to
Corner
Brook
and
the
Humber
River
in
Newfoundland,
hereafter
called
the
Corner
Brook
rights
and
the
Humber
River
rights.
In
filing
its
1958,
1959
and
1960
income
tax
returns,
appellant
took
the
position
that
the
capital
cost
of
the
Corner
Brooks
rights
and
Humber
River
rights
was
$2,321,320.78
and
claimed
capital
cost
allowance
accordingly.
Subsequently,
appellant
and
respondent
agreed
that.the
capital
cost
of
both
rights
was
$1,046,654.79
of
which
appellant
says
$104,665.47
may
reasonably
be
regarded
as
consideration
for
the
Corner
Brook
rights
and
the
balance,
or
$941,989.32,
may
reasonably
be
regarded
as
consideration
for
the.
Humber
River
rights.
The
Corner
Brook
and
Humber
River
rights
had
been
obtained
by
thé.
predecessors
‘in
title
to
appellant
from
the
Governor
of
Newfoundland
i
in
1918
and
from
the
Governor
of
Newfoundland
in
Council
in
1915
respectively.
During
its
1959
and
1960
taxation
years,
appellant
made,
or
incurred,
expenditures.
of
$18,195
and
$15,801
respectively
for
engineering
studies
of
the
cost
of
developing
additional
power
and
location
of
physical
plant
for
appellant’s
power
system.
For
the
purposes
of
computing
its
income
for
the
1959
and
1960
taxation
years,
appellant
added
the
amounts
of
$18,195
and
$15,801
respectively
to
the
capital
cost
of
its
assets
following
Class
2
in
Schedule:B
to
the
Income
Tax
Regulations
and:
deducted
capital
‘Gost
allowance
accordingly.
The
appellant,
how-
ever,
has
new
abandoned
this
position
and
relies
only,
as
far
as
these
items
are
concerned,
on
having
them
accepted
as
operat-
ing
costs
as
made
or
incurred
for
the
purpose
of
gaining
or
producing
income
from
appellant’s
business
and,
therefore,
deductible
pursuant
to
Sections
4
and
12(1)
(a)
of
the
Income
Tax
Act.
The
Minister,
on
the
other
hand,
submits
that
these
amounts
were
outlays
on
account
of
capital
within
the
meaning
of
Section
12(1)
(b)
and
are
therefore
not
deductible
for
the
purpose
of
computing
appellant’s
1959
and
1960
income.
Counsel
for
the
respondent
stated
at
the
hearing
that
the
Minister
was
now
prepared
to
admit
that
the
Corner
Brook
rights
are,
for
a
limited
period,
one
of
a
franchise,
concession
or
licence
and
that
this
asset
has
a
capital
cost
of
$104,665.47
and
therefore
this
issue
is
now
settled
and
the
appeal
should
be
allowed
thereon.
The
respondent
also
abandoned
the
contention
that
the
grant
of
the
Humber
River
rights
was
not
a
patent,
franchise,
concession
or
licence
within
the
meaning
of
Class
14
of
Schedule
B
of
the
Regulations
although
he
still
maintains
that
the
grant
is
not
for
a
limited
period.
The
parties
prepared
an
agreed
statement
of
facts,
and
documents,
which
was
filed
as
Exhibit
A-2
and
which
is
reproduced
hereunder
:
STATEMENT
OF
FACTS
1.
On
16
April
1915
an
agreement
was
entered
into
between
the
Governor
of
Newfoundland
and
its
Dependencies,
in
Council,
and
the
Newfoundland
Products
Corporation,
Limited
by
which
inter
alia,
the
water
power
or
powers
in
and
upon
the
Humber
River,
Newfoundland
(hereafter
called
the
“Humber
River
rights”)
were
demised
to
the
Newfoundland
Products
Corporation,
Limited.
Exhibit
ASF
1
is
a
true
copy
of
this
agreement.
2.
On
5
June
1915
the
Act
for
the
confirmation
of
the
agreement
of
16
April
1915,
which
had
been
enacted
by
the
Governor,
the
Legislative
Council
and
the
House
of
Assembly
of
Newfoundland,
in
Legislative
Session
convened,
was
passed.
Exhibit
ASF
2
is
a
true
copy
of
the
Act.
8.
On
9
June
1923
Newfoundland
Products
Corporation
Limited
changed
its
name
to
Newfoundland
Power
and
Paper
Company
Limited.
4.
On
13
July
1923
the
General
Assembly
of
Newfoundland
passed
an
Act
which
amended
exhibit
ASF
2.
Section
7
of
that
Act
of
13
July
1923
provided:
“7.
Time
in
all
respects,
wherever
mentioned
in
the
agreement
of
1915
and
the
Act
of
1915
(Except
as
to
the
proviso
to
clause
1
of
the
agreement
of
1915)
shall
be
deemed
to
commence
to
run
from
the
date
of
passing
of
this
Act.”
(This
is
important
because
it
means
that
the
terms
of
the
Humber
River
grant
started
to
run
from
July
1923
and
not
from
1915
because
although
the
agreement
was
originally
entered
into
in
1915,
the
99-year
period
starts
to
run
from
1923
only
and
not
1915.)
Paragraphs
5,
6
and
7
of
the
above
statement
of
facts
deal
with
the
transfer
of
the
Humber
River
rights,
through
the
chain
of
companies,
and,
as
this
is
not
contested,
they
are
not
reproduced
here.
8.
In
1955
Bowater
Power
Company
Limited
(the
appellant)
was
incorporated
and
its
objects
included
carrying
on
the
business
of
generating
and
selling
electrical
power
and
energy.
It
has
carried
on
that
business
from
its
incorporation
to
the
present
time.
9,
On
1
June
1955
Bowater’s
Newfoundland
Pulp
and
Paper
Mills
Limited
sold
to
appellant
the
Humber
River
rights.
The
capital
cost
of
the
Humber
River
rights
to
appellant
was
$941,989.32.
As
a
result
of
the
admissions
made
by
the
respondent,
the
issues
are
narrowed
down
to
three:
(1)
did
the
grant
of
the
Humber
River
rights
constitute
a
leasehold
interest
within
the
meaning
of
Class
13?
(2)
An
an
alternative
to
the
first
issue,
was
the
grant
of
the
Humber
River
rights
(which
admittedly
was
a
franchise,
concession
or
licence)
for
a
limited
period
within
the
meaning
of
Class
14
of
Schedule
B
of
the
Regulations
and
(3)
are
the
amounts
of
$18,195
and
$15,801
expended
in
1959
and
1960
on
account
of
certain
engineering
studies,
deductible
as
ordinary
business
expenses
pursuant
to
Sections
4
and
12(1)
(a)
of
the
Act.
If
the
respondent’s
position
with
regard
to
the
$941,989.32
expended
for
the
Humber
River
rights
and
the
above
two
amounts
of
$18,195
and
$15,801
expended
for
engineering
studies
is
right,
we
would
have
here
what
is
termed
in
fiscal
jargon
two
‘‘nothings’’
of
which
no
allowance
would
be
possible
nor
deduction
permitted.
The
problems
involved
herein
arise
in
the
three
years
under
review
1958,
1959
and
1960
and
the
solution
reached
herein
will
apply
to
those
three
years.
The
agreed
statement
of
facts
and
documents
produced
as
Exhibit
A-2
comprise
the
sole
evidence
submitted
with
regard
to
the
two
first
issues,
i.e.
whether
(1)
the
grant
of
the
Humber
River
rights
amounted
to
a
leasehold
interest
and
(2)
was
it
for
a
limited
period.
As
for
the
third
issue,
the
deductibility
of
the
cost
of
the
engineering
studies,
one
witness
only
was
heard,
a
Mr.
Sansome.
Before
dealing,
however,
with
the
cost
of
the
engineering
studies,
we
will
look
at
the
two
first
issues.
The
important
paragraph
of
Exhibit
ASF-1
is
paragraph
1,
on
page
5,
of
which
the
opening
part
only
is
relevant
to
the
determination
of
whether
the
Humber
River
rights
are
a
leasehold
interest,
as
submitted
by
the
appellant,
or
a
licence,
as
submitted
by
the
respondent
and
it
is
reproduced
hereunder
:
1.—The
Government
hereby
demises,
for
a
term
of
ninety-nine
years,
from
the
date
of
this
Agreement,
to
the
Company
(so
far
as
the
Government
can
consistently
with
any
grants,
leases
or
licenses
heretofore
made
and
actually
subsisting,
demise
the
same),
the
water
power
or
powers
in
and
upon
the
Humber
River,
and
in
and
upon
Junction
Brook,
and
for
the
purpose
of
its
works
and
operations
the
Company
shall
have
the
right
to
divert,
stop
or
dam
up
any
stream,
lake
or
water
course
within
the
drainage
area
of
the
Humber
River,
and
to
make,
construct
or
maintain
any
dam,
water
course,
culverts,
drains
and
reservoirs
in
said
area
for
any
of
its
said
works
of
operations
.
.
.
and
then
lower
down:
.
.
.
such
water
power
or
water
powers
shall
be
taken
to
be
held
under
this
Agreement:
and
the
provisions
of
this
Agreement,
except
clause
10
hereof
in
respect
of
the
rights
and
privileges
granted
to
the
Company,
shall
apply
to
all
works
and
business,
.
.
.
then
paragraph
17:
17.—If
this
demise
shall
not
have
been
determined
other
than
by
effluxion
of
time,
the
Government
will,
at
the
reqeust
and
cost
of
the
Company,
at
the
expiration
of
the
term
hereby
granted,
and
again
at
the
expiration
of
every
further
term
of
ninety-nine
years,
which
may
hereafter
be
granted
under
this
covenant,
grant
to
the
Company,
subject
to
the
like
covenants,
provisions
and
agreements
as
are
in
and
by
these
presents
reserved
and
contained
by
way
of
renewal
for
the
further
term
of
ninety-nine
years,
to
be
computed
from
the
expiration
of
the
term
hereby
granted,
a
new
lease
of
the
said
rights.
(This
paragraph
is
relevant
to
the
question
of
whether
it
is
a
lease
and,
if
not,
whether
it
is
a
franchise
for
a
limited
period).
And
then
paragraph
20
:
20.—Notwithstanding
the
grant
of
the
water
powers
herein,
all
persons
shall
have
the
right
to
the
temporary
use
of
the
said
waters
for
the
purpose
of
passing
to
and
fro
in
small
boats,
and
for
the
purpose
of
floating
logs
and
lumber
belonging
to
such
persons
to
their
mills
;
provided
that
such
use
shall
not
interfere
with
or
prejudice
the
business
or
operations
of
the
Company.
(This
paragraph
is
important
because
it
goes
to
the
question
of
exclusive
possession
over
use
by
the
grantee).
And,
lastly,
paragraph
22
provides
that
:
22.—This
Agreement
is
subject
to
approval
and
confirmation
by
the
Legislature
of
the
Colony.
And
this
leads
us
directly
into
Exhibit
ASF-2
which
is
the
Act
which
confirms
and
approves
the
Agreement
ASF-1.
The
important
part
of
Exhibit
ASF-2
is
the
first
paragraph
which
after
identifying
Agreement
ASF-1
states
that
it
:
..
is
hereby
approved
and
confirmed,
subject
to
the
conditions
and
exceptions
hereinafter
contained,
and
all
and
singular
the
several
clauses
‘and
provisions
thereof
are
hereby
declared
to
be
valid
and
binding
upon
the
said
parties
thereto,
and
each
of
them
respectively,
and
all
and
singular
the
several
acts,
matters
and
things
therein
provided
to
be
done
or
performed
by
or
on
the
part
of
the
parties
respectively
are
hereby
declared
to
be
proper
and
lawful,
and
in
so
far
as
not
by
this
Act
expressly
provided
for,
the
parties
and
each
of
them
shall
have
full
power
and
authority
to
do
and
perform
all
and
singular
the
several
acts,
matters
and
things,
and
in
and
by
the
said
Agreement
provided
to
be
done
.
.
.
The
appellant,
as
we
have
seen,
submits
that
the
grant
of
the
Humber
River
rights
amounted
to
a
leasehold
interest
within
the
meaning
of
Class
18
of
Schedule
B
of
the
Income
Tax
Regulations*
and,
alternatively,
that
the
grant
was
a
patent,
franchise,
concession
or
licence,
for
a
limited
period
within
the
meaning
of
Class
14
in
Schedule
B
of
the
Regulations.
Counsel
for
the
appellant
submits
that
paragraph
1
of
Exhibit
ASF-1
provides
three
things,
namely,
that
(1)
the
water
power
or
powers
in
and
upon
Humber
River
and
Junction
Brook
are
demised;
(2)
the
company
has
the
right
to
divert,
stop
or
dam
up
any
stream,
lake
or
water
course
and
(3)
the
company
has
the
right
to
construct
and
maintain
dams,
reservoirs,
etc.
The
grants
can,
therefore,
be
summarized
as
follows:
The
right
to
the
demised
water
powers,
the
right
to
divert
and
the
right
to
dam.
The
appellant
does
not
suggest
that
the
Humber
River
grant
is
a
leasehold
interest
of
the
type
which
would
arise
and
be
recognized
if
the
transaction
had
been
between
private
parties.
It
is
admitted,
he
said,
that
there
is
a
wealth
of
old
common
law
jurisprudence
that
an
emphytéotique
lease,
such
as
exists
under
the
civil
law
when
there
is
an
alienation
of
the
property
does
not
exist
in
the
common
law.
The
appellant
merely
suggests
that
the
grant
was
an
agreement
between
the
appropriate
legislative
body
of
the
Parliament
of
Newfoundland
and
the
company
and
that
it
comes
down
to
a
question
of
deciding
the
true
nature
of
the
grant
from
the
plain
meaning
of
the
words
used
in
the
agreement
(ASF-1)
and
the
Act
(ASF-2).
The
consideration
for
the
grant
was
a
small
amount
of
$20
but
comprised
also
the
obligation
to
do
some
construction
work
and
supply
electricity.
The
obligations
of
the
company
can
be
found
in
paragraph
3
of
Exhibit
ASF-1
on
page
31
(page
7)
:
3.—The
Company
agrees
that
it
will
furnish
at
any
of
its
power
houses
in
Labrador
to
any
person
or
company
engaged
in
any
industry
or
employment
not
concerned
with
the
manufacture
of
phosphate
of
ammonia
such
electrical
power
.
.
.
(The
Newfoundland
Power
Corporation
was
incorporated
as
a
chemical
company
and
did
not
want
any
competitors.
It
later
turned
to
the
manufacture
of
pulp
and
paper.)
The
agreement
did
not
provide
for
the
payment
of
rent
which,
however,
can
be
replaced
by
an
obligation
such
as
here
to
do
development
work
and
provide
power.
Houses
indeed
are
frequently
leased
as
a
result
of
conventional
arrangements
between
private
parties
on
the
lessee’s
undertaking
to
do
maintenance
work
and
look
after
the
property
and,
of
course,
this
is
a
consideration
that
can
be
the
equivalent
to
rent.
The
appellant
also
submits
that
even
if
an
emphytéotique
lease
does
not
exist
under
the
common
law
and
although
there
may
be
some
doubt
as
to
whether
a
lease
may,
under
the
common
law,
be
made
renewable
in
perpetuity
between
private
parties,*
Parliament
can,
however,
create
such
an
interest
in
a
common
law
province
even
if
such
an
interest
is
unknown
to
the
common
law
and
relies
on
Sevenoaks
et
al.
v.
London
and
Dover
Railway
Company
(1879),
11
Ch.
D.
625,
where
Jessel,
M.R.
stated
at
page
635:
.
.
.
An
Act
of
Parliament
has
power
to
create
interests
which
were
unknown
to
the
common
law,
and
which
could
not
be
created
between
individuals
by
contract.
Now
we
have
not
by
law
any
such
thing
as
a
lease
in
perpetuity.
We
have
a
fee
simple
subject
to
a
rent-charge,
and
we
have
a
lease
for
years,
but
we
have
no
such
thing
as
a
lease
in
perpetuity;
and
therefore,
when
we
find
a
perpetuity
of
this
kind,
if
it
carries,
as
I
think
it
does
carry,
the
right
to
possession,
that
could
not
be
properly
described
as
a
lease
or
as
a
fee
simple,
because
it
was
not
intended
to
vest
in
the
Dover
Company
any
of
the
soil,
only
the
right
of
possession
or
occupation.
Therefore
I
can
well
understand
why
the
term
“lease”,
or
some
similar
term,
was
not
used.
But
it
is
to
my
mind
equivalent
to
a
lease,
so
far
as
regards
the
possession
of
the
surface
and
adjuncts
necessary
for
the
working
of
the
line.
Newfoundland
achieved
responsible
government
in
1855
and
Dominion
status
in
1917.
Counsel
for
the
appellant
submits
that
statutes
of
the
Governor,
the
Legislative
Council
and
the
House
of
Assembly,
in
legislative
session,
are
acts
of
Parliament.
It
follows,
he
says,
that
the
Government
of
Newfoundland
had
the
authority
and
competence
to
create
leasehold
interests
in
respect
of
waters
and
water
power
which
might
otherwise
be
unknown,
and
I
must
say
that
I
agree
with
this
submission
if
such
is
the
nature
of
the
agreement
entered
into
between
the
parties.
The
question
of
whether
the
agreement
is
a
lease
or
a
licence
is
not,
however,
an
easy
matter
to
determine
from
the
present
state
of
the
authorities.
The
problem,
basically,
involves
a
determination
of
the
significance
of
the
exclusive
possession
of
a
non-owner
occupier
who
is
not
a
trespasser.
The
difficulty
resides
in
the
ambiguity
of
the
term
“exclusive
possession’’
which
may
be
used
in
the
sense
of
sole
possession
or
dominant
control
in
fact
as
in
Westminster
Council
v.
Southern
Railway,
[1936]
A.C.
511,
or
as
meaning
a
right
to
sole
possession
such
as
in
Addiscombe
Garden
Estates
Ltd.
v.
Crabbe,
[1958]
1
Q.B.
513.
The
matter
is
also
due
to
the
fact
that
certain
decisions
have
emphasized,
as
a
determining
factor,
the
intention
of
the
parties.
In
Errington
v.
Errington
and
Woods,
[1952]
1
K.B.
290,
however,
Lord
Denning
stated
at
page
298
:
.
.
.
although
a
person
who
is
let
into
exclusive
possession
is
prima
facie
to
be
considered
to
be
a
tenant,
nevertheless
he
will
not
be
held
to
be
so
if
the
circumstances
negative
any
intention
to
create
a
tenancy
.
.
.
According
to
this
decision,
the
test
can
be
said
to
be
in
the
case
of
a
licence,
whether
the
parties’
actual
intention
was
to
create
a
mere
permissive
privilege
of
exclusive
possession
whereas
in
the
case
of
a
lease,
the
intention
was
to
create
an
interest
in
land.
A
licence,
as
a
matter
of
fact,
confers
no
rights
and
is
merely
a
dispensation.
Cf.
Thomas
v.
Sorrell,
[1674]
Vaugh.
3380.
It
merely
prevents
a
licensee
from
being
treated
as
a
wrongdoer,
without
the
right
to
exclude
the
licensor.
The
licensee
whose
possession
is
exclusive
would,
therefore,
have
factual
exclusive
possession
but
without
any
right
to
it.
If
such
a
situation
can
exist,
it
would
appear
that
there
could
be
little
difference
in
practice
between
a
licencee
and
a
tenant
at
will.
The
tenant
would,
of
course,
have
exclusive
possession
as
of
right
and
the
licensee
would
possess
a
mere
privilege
of
doing
acts
of
control
subject
to
the
power
of
the
licensor
to
revoke
them.
There
there-
fore
appears
to
be
very
little
to
distinguish
a
lease
from
a
licence
if
the
criterion
of
exclusive
possession
is
considered.
The
second
factor
is,
as
suggested
by
Lord
Denning,
in
the
above
case,
to
examine
the
intention
of
the
parties
and
this
is
always
rather
difficult
as
the
only
way
to
do
so
is
to
consider
the
circumstances
in
which
the
agreement
was
drawn
and
infer
therefrom
what
the
parties
intended,
whether
there
was
an
intention
to
confer
a
right
of
exclusive
possession
or
merely
a
privilege.
In
Facchim
v.
Bryson,
[1952]
1
T.L.R.
1386,
it
was
said
that
usually
where
a
non-owner
non-trespasser
has
exclusive
possession,
the
presumption
will
be
that
a
tenancy
had
been
granted.
It
was
also
therein
stated
at
page
1389
that
where
‘‘a
family
arrangement,
an
act
of
friendship
or
generosity
or
such
like,
was
found,
it
would
negative
any
intention
to
create
a
tenancy.
The
term
‘‘permissive
occupation’’
has
been
used
in
some
cases
to
describe
such
a
situation.
In
Cobb
v.
Lane,
[1952]
1
All
E.R.
1199,
a
tenancy
and
not
a
licence
was
found
although
there
was
a
clause
in
the
agreement
that
nothing
in
it
was
to
be
construed
so
as
to
create
a
tenancy.
It
was
said
therein
that
the
label
chosen
by
the
parties
was
not
conclusive.
The
importance
of
the
right
of
the
occupier
to
keep
the
landlord
out
was
also
stressed
and,
of
course,
such
a
right
is
the
usual
indication
of
a
right
of
exclusive
possession.
In
Addiscombe
Garden
Estates
Ltd.
v.
Crabbe
(supra)
at
page
528,
Jenkins,
L.J.
stated
that:
.
.
.
the
law
remains
that
the
fact
of
exclusive
possession,
if
not
decisive
against
the
view
that
there
is
a
mere
licence,
as
distinct
from
a
tenancy,
is
at
all
events
a
consideration
of
the
first
importance.
In
the
present
case
there
is
not
only
the
indication
afforded
by
the
provision
which
shows
that
exclusive
occupation
was
intended,
but
there
are
all
the
various
other
matters
which
I
have
mentioned,
which
appear
to
me
to
show
that
the
actual
interest
taken
by
the
grantees
under
the
document
was
the
interest
of
tenants,
and
not
the
interest
of
mere
licensees.
The
Court
in
that
case
felt
that
provisions
in
the
agreement
which
imposed
obligations
on
the
occupier
to
repair,
not
to
eut
down
trees,
not
to
remove
clay,
to
make
monthly
payments
to
the
owners
were
more
appropriate
to
the
grant
of
a
tenancy
than
of
a
licence.
I
must
say
that
although
the
Court,
in
the
above
case,
felt
that
such
obligations
were
helpful
in
determining
whether
the
agreement
was
a
lease
or
a
licence,
I
fail
to
see
how
such
matters
can
be
of
any
great
assistance.
There
:
is,
as
a
matter
of
fact
in
the
authorities,
no
one
test
which
can
enable
one
to
determine
such
matters
with
any
amount
of
certainty.
In
Bracey
v.
Read,
[1962]
1
All
E.R.
472,
Cross,
J.
stressed
the
importance
of
business
arrangements
when,
at
page
475,
he
held
that
a
tenancy
had
been
created;
He
said:
.
.
.
In
the
case
of
a
business
transaction
like
this,
I
think
that
the
question
whether
a
man
ought
to
be
considered
as
a
licensee
or
a
tenant
depends
principally,
if
not
entirely,
on
whether
he
has
exclusive
possession
of
the
property
in
question.
Under
arrangements
which
are
not
of
an
ordinary
business
character,
one
very
often
has
a
man
in
exclusive
possession
of
the
property
in
question
who
is
yet
not
a
tenant
but
only
a
licensee;
but
no
case
was
cited
to
me,
and
I
do
not
know
of
any
case,
where
a
man
who
is
in
exclusive
possession
under
an
ordinary
business
agreement
has
been
held
not
to
be
a
tenant
but
only
a
licensee.
Although
the
above
decisions
are,
in
some
small
measure,
of
assistance,
there
is
still
considerable
obscurity
and
therefore
uncertainty,
in
that
it
is
still
not
clear
as
to
what
extent
an
intention
must
be
a
real
one
and
if
it
is
a
real
intention,
precisely
what
has
to
be
intended.
Some
decisions
are
to
the
effect
that
a
right
to
exclusive
possession
was
not
necessarily
decisive
of
the
question.
Others
held
that
a
right
to
exclusive
possession
was
decisive.
In
Radaich
v.
Smith,
(1959),
101
C.L.R.
209,
Windeyer,
J.
(at
page
223)
stated
that:
.
.
.
persons
who
are
allowed
to
enjoy
sole
occupation
in
fact
are
not
necessarily
to
be
taken
to
have
been
given
a
right
of
exclusive
possession
in
law.
If
there
be
any
decision
which
goes
further
and
states
positively
that
a
person
legally
entitled
to
exclusive
possession
for
a
term
is
a
licensee
and
not
a
tenant,
it
should
be
disregarded
for
it
is
self-contradictory
and
meaningless.
It
appears
to
me
that
the
very
concept
of
‘‘interest
in
land”
is
ambiguous
and
obscure.
There
is,
as
a
matter
of
fact,
no
answer
given
in
any
of
the
authorities
I
read
as
to
what
are
the
circumstances
which
would
normally
involve
the
existence
of
‘‘an
interest
in
land’’
and
the
further
question
may
also
be
asked
whether
the
existence
or
non-existence
of
an
‘‘interest
in
land”
is
a
matter
of
law
or
merely
a
matter
of
fact.
Lord
Davey
in
Glenwood
Lumber
Co.
Lid.
v.
Phillips,
[1904]
A.C.
405,
even
held
that
the
agreement
was
a
lease
despite
the
fact
that
there
were
certain
restrictions
or
reservations
of
the
purposes
for
which
the
property
could
be
used.
He
said
at
page
408
:
.
.
.
In
the
so-called
licence
itself
it
is
called
indifferently
a
licence
and
a
demise,
but
in
the
Act
it
is
spoken
of
as
a
lease,
and
the
holder
of
it
is
described
as
the
lessee.
It
is
not,
however,
a
question
of
words
but
of
substance.
If
the
effect
of
the
instrument
is
to
give
the
holder
an
exclusive
right
of
occupation
of
the
land,
though
subject
to
certain
reservations
or
to
a
restriction
of
the
purposes
for
which
it
may
be
used,
it
is
in
law
a
demise
of
the
land
itself
.
Although
the
determination
of
the
nature
of
the
agreement
here
is
fraught
with
difficulties,
an
examination
of
the
terms
or
language
of
the
agreement
and
of
the
statute
which
sanctioned
it
in
the
light
of
the
above
decisions
may
assist
in
reaching
a
conclusion
herein.
The
water
power
or
powers
on
the
Humber
River
were
demised
to
the
Newfoundland
Products
Corporation
on
April
16,
1915
for
a
term
of
99
years
and
I
must
say
that
it
would
appear
from
the
language
of
the
agreement
that
the
intention
of
the
parties
was
to
create
a
lease.
This
intention
can
be
drawn
from
a
number
of
sources
and
especially
from
the
use
of
the
word
“demised”
in
paragraph
1
and
paragraph
17
of
Exhibit
ASF-1
where
the
word
‘‘demised’’
is
used
twice
in
the
first
line,
‘‘The
Government
hereby
demises’’
and
in
the
fifth
line
again
a
reference
to
a
demise
of
the
same,
and
then
in
paragraph
17,
the
first
line
‘‘If
this
demise’’
and
the
word
“demise”
when
used
in
its
ordinary
sense
means
to
grant
a
lease.
Cf.
Jowitt’s
Dictionary
of
English
Law,
page
607.*
The
use
of
the
word
‘‘held’’
in
paragraph
1
of
Exhibit
ASF-1
‘‘such
water
power
or
water
powers
shall
be
taken
to
be
held”
also
would
seem
to
indicate
that
a
lease
is
intended
as
Jowitt,
at
page
915,
says
the
word
‘‘hold’’
means
‘‘to
have
as
a
tenant”
and,
lastly,
at
paragraph
17
of
Exhibit
ASF-1
:
If
this
demise
shall
not
have
been
determined
other
than
by
effluxion
of
time,
the
Government
will
.
.
.
grant
.
.
.
a
new
lease
.
.
.
where
the
use
of
the
word
lease
clearly
shows
that
such
a
grant
was
intended.
Paragraph
17,
the
renewal
of
the
lease
clause,
would
indeed
imply
that
if
what
is
going
to
be
given
as
a
renewal
is
a
lease,
what
the
concessionnaire
held
was
also
one.
There
are,
however,
as
already
mentioned,
many
decisions
to
the
effect
that
the
mere
use
of
the
word
lease
or
demise
is
not
sufficient
to
transform
an
agreement
into
a
lease
if
in
fact
it
is
not
such
an
instrument.
An
examination
of
the
rights
granted
here
and
the
use
made,
or
to
be
made,
of
the
land
and
territory
covered
by
the
agreement
should,
however,
in
my
view,
enable
the
determination
of
the
nature
of
the
grant
made
by
the
Government
of
Newfoundland
to
the
appellant.
It
was,
of
course,
given
as
mentioned
in
the
third
and
fourth
“WHEREAS”
of
the
indenture,
‘‘certain
rights
and
privileges’’
and
‘‘
water
power
and
waters
upon
the
Humber
River
and
Junction
Brook”
and
in
section
1
of
the
indenture
The
Government
.
.
.
demised
.
.
.
to
the
Company
.
.
.
the
water
power
or
powers
in
and
upon
the
Humber
River,
and
in
and
upon
Junction
Brook,
and
for
the
purpose
of
its
works
and
operations
the
Company
shall
have
the
right
to
divert,
stop
or
dam
up
any
stream,
lake
or
water
course
within
the
drainage
area
of
the
Humber
River,
and
to
make,
construct
or
maintain
any
dam,
water
course,
culverts,
drains
and
reservoirs
in
said
area
for
any
of
its
said
works
or
operations
.
.
.
(The
italics
are
mine.)
It
therefore
appears
that
the
appellant,
or
its
predecessors
in
title,
was
given
the
right
to
erect
whatever
works
necessary
to
produce
electricity
and
from
clause
3
of
the
agreement,
agreed
that
it
would
.
.
.
furnish
at
any
of
its
power
houses
in
Labrador
to
any
person
or
company
engaged
in
any
industry
or
employment
.
.
.
within
one
hundred
miles
of
any
such
power
house,
such
electrical
power
as
may
be
required
for
the
operation
of
any
such
industry
or
employment
at
a
price
to
be
agreed
upon
and
failing
such
agreement
to
be
settled
by
arbitration
.
.
.
Clause
9
of
the
agreement
also
contemplates
the
possibility
of
the
grantee
.
.
.
acquiring
lands
incident
to
flowage
rights
or
rights
of
way
for
telegraphs,
telephones,
power
transmission
lines,
railways,
tramways,
roads
or
sites
for
mills,
works,
factories,
warehouses
or
for
wharves,
piers
or
docks,
or
other
shipping
facilities
in
connection
with
the
Company’s
operations
for
the
purposes
aforesaid,
and
within
a
distance
of
fifty
miles
therefrom,
up
to
and
not
exceeding
in
the
whole
ten
thousand
acres,
on
lands
belonging
to
and
in
the
possession
of
the
Crown,
the
Governor
in
Council
shall,
upon
the
request
in
writing
of
the
Company,
convey
such
lands
to
the
Company
at
the
price
of
thirty
cents
per
acre.
(The
italics
are
mine.)
As
for
the
acquiring
of
lands
incident
to
flowage
rights
not
belonging
to
or
not
in
the
possession
of
the
Crown
clause
10
provides
for
their
acquisition
by
arbitration.
Clauses
15
and
16
also
provide
for
a
method
of
indemnification
by
arbitration
in
the
event
the
exercise
of
any
of
the
company
s
rights
‘submerge,
destroy,
damage
or
injuriously
affect
any
private
rights,
interests,
lands
or
property’’
or
any
Crown
rights.
°
Now
although
clause
20
of
the
agreement
provides
for
the
right
of
persons
to
the
temporary
use
of
the
said
waters
for
the
purpose
of
passing
to
and
fro
in
small
boats
and
for
the
purpose
of
floating
logs
and
lumber
belonging
to
such
persons
to
their
mills
‘‘provided
that
such
use
shall
not
interfere
with
or
prejudice
the
business
or
operations
of
the
Company’’,
I
do
not
think
that
it
can
be
said
that
the
grantee
was
not
given
exclusive
possession
or,
at
least,
a
quasi-exclusive
possession
of
the
water
sheds
where
it
could
exploit
the
water
power
and
the
flowage
rights
of
the
property
it
was
granted
as
it
may
be
inferred
from
the
agreement
as
well
as
from
the
statute
that
one
does
not
build
dams
or
power
developments
without
causing
a
certain
surface
of
land
to
be
submerged
either
permanently
or
intermittently
for
the
purpose
of
developing
the
electricity
to
be
supplied
to
certain
industries
in
Newfoundland.
Furthermore,
I
cannot
see
how
the
erection
of
dams
or
of
hydro-electrical
plants
or
other
similar
works
on
the
soil
of
another
can
fail
to
create
at
least
some
sort
of
an
interest
in
the
land.
It
has
indeed
been
held
for
centuries,
at
least
since
the
Middle
Ages,
in
the
common
law
that
anyone
who
is
in
exclusive
possession
of
land
had
necessarily
an
interest
in
that
land
however
exiguous
that
interest
may
be.
There
is,
it
is
true,
no
rent
provided
for
in
the
agreement
but
there
is,
as
pointed
out
above,
certain
undertakings
of
the
grantee
including
investments
of
considerable
funds
which,
in
my
view,
are
of
such
a
nature
that
it
cannot
be
said
that
this
grant
was
given
gratuitously
and
such
a
consideration,
I
believe,
can
be
equated
to
a
rental
even
if
the
agreement
provides
for
payment
by
the
grantee
of
a
token
amount
of
$20
only.
On
the
balance
of
the
conflicting
considerations
which
apply
to
the
present
situation,
I
have
come
to
the
conclusion
that
the
real
effect
of
this
agreement,
which
is
strictly
of
a
business
character,
is
to
give
the
appellant
an
exclusive
right
of
occupation
for
the
purpose
of
the
grant
and
on
the
proper
construction
of
the
agreement
as
well
as
the
statute,
I
must
hold
that
it
creates
a
tenancy.
Having
thus
determined
that
the
agreement
is
a
lease,
there
would
be
no
need
to
go
any
further
as
this
would
be
sufficient
to
allow
the
appellant
to
succeed
in
applying
capital
cost
allowances
to
its
lease.
As
the
matter
may,
however,
be
appealed,
I
must
deal
also
with
the
second
issue
which
is
whether
the
grant
of
the
Humber
River
rights,
which
the
parties
agree
was
(if
not
a
lease)
a
franchise,
was
for
a
limited
period
as
required
by
clause
14
of
schedule
B
of
the
Regulations.
If
the
grant
was
for
a
limited
period,
capital
cost
allowance
may
also
be
applied
to
it
and,
if
not,
it
may
not.
The
reasons
for
this
is
that
if
the
grant
is
for
an
unlimited
period,
it
is
in
effect
like
land,
i.e.
an
asset
which
is
not
going
to
disappear,
as
it
goes
on
forever.
The
Income
Tax
Act
and
Regulations
contain
no
express
rules
to
determine
when
and
under
what
circumstances
a
franchise
or
a
concession
is
for
a
limited
period
and
therefore
the
words
used
must
be
given
their
normal
every
day
meaning.
The
cases
in
the
Exchequer
Court
appear
to
me
to
have
gone
no
further
than
to
say
that
if
a
franchise
or
concession
may
be
terminated
during
the
period
of
the
term,
then
it
is
not
for
a
limited
period.
Cf.
Armand
Plouffe
v.
M.N.R.,
[1964]
C.T.C.
500,
and
M.N.R.
v.
Kirby-Maurice
Co.
Limited,
[1958]
C.T.C.
41.
The
Humber
River
grant
(Exhibit
ASF-1)
was
for
a
period
of
99
years.
There
was
no
provision
for
termination
during
the
term
by
either
party.
However,
in
Crystal
Spring
Beverage
Company
Ltd.
v.
M.N.R.,
[1964]
C.T.C.
408,
Gibson,
J.
at
page
410
stated
:
The
franchise
agreement,
.
.
.
is
for
five
years
plus
a
five-year
option,
which
for
the
purpose
of
the
Income
Tax
Act
would
result
in
an
apportionment
for
capital
cost
allowance
over
a
ten-year
period.
This
statement
is,
however,
clearly
obiter
dictum
as
it
was
not
relevant
to
the
issue
which
was
whether
$18,000
paid
to
induce
a
third
party
to
give
up
a
franchise
was
part
of
the
capital
cost
of
the
franchise.
Clause
17
of
Exhibit
ASF-l
says
that
:
17.—If
this
demise
shall
not
have
been
determined
other
than
by
effluxion
of
time,
the
Government
will,
at
the
request
and
cost
of
the
Company,
at
the
expiration
of
the
term
hereby
granted,
and
again
at
the
expiration
of
every
further
term
of
ninety-nine
years,
which
may
hereafter
be
granted
under
this
covenant,
grant
to
the
Company,
subject
to
the
like
covenants,
provisions
and
agreements
as
are
in
and
by
these
presents
reserved
and
contained
by
way
of
renewal
for
the
further
term
of
ninety-nine
years,
to
be
computed
from
the
expiration
of
the
term
hereby
granted,
a
new
lease
of
the
said
rights.
(The
italics
are
mine.)
It
appears
here
that
the
renewal
is
at
the
request
of
the
franchise
holder
and
does
not
automatically
take
place.
Furthermore,
it
is
clear
that
clause
17
provides,
not
for
the
extention
of
the
existing
Humber
River
grant
but
for
a
‘‘new
lease
of
the
said
rights’’
even
if
it
is
‘‘subject
to
the
like
covenants,
provisions
and
agreements
as
are
in
and
by
these
presents
reserved’’.
This
new
lease
could,
and
in
my
view,
would
have
to
be
the
subject
of
fresh
negotiations
and
could
include
a
number
of
new
provisions
and
a
number
of
the
old
provisions
would
be
deleted
or
amended.
For
example,
paragraphs
7,
8
and
13*
could
not
remain
the
same
as
they
would
now
be
ultra
vires
the
province
of
Newfoundland.
This,
of
course,
would
necessarily
mean
that
a
new
grant
would
be
substantially
different
from
the
first
one.
The
test
here
is
simply
whether
the
grant
per
se
was
for
a
limited
period
which,
of
course,
as
already
mentioned,
is
for
the
practical
purpose
of
enabling
the
taxpayer
to
compute
the
annual
capital
cost
deduction.
There
is,
on
the
other
hand,
nothing
in
the
Act
which
requires
that
renewal
rights
be
taken
into
consideration
in
determining
the
term
of
a
franchise
or
a
concession
(see
Section
3(b)
of
Schedule
H
of
the
Income
Tax
Regulations!).
Exhibit
ASF-1,
in
my
view,
does
not
provide
for
a
continuation
for
a
period
of
years
but
merely
gives
the
grantee
the
right
to
apply
for
a
new
grant.
To
suggest
that
a
grant
for
a
fixed
term
but
with
successive
rights
of
renewal
would
not
qualify
for
capital
cost
allowance
is,
in
my
view,
to
give
to
the
expression
‘‘for
a
limited
period’’
a
construction
which
does
not
conform
to
the
apparent
scheme
of
the
Act.
(Cf.
Highway
Sawmills
Limited
v.
M.N.R.,
[1966]
C.T.C.
150,
per
Cartwright,
J.
at
151.)
The
apparent
scheme
of
the
Act
is
to
allow
business
expenses
and
deductions
in
the
year
they
are
made
or
incurred
whereas
under
Sections
4
and
12(1)
(a)
capital
outlays
relating
to
the
business
are
allowed
as
deductions
over
a
reasonable
period.
I
must
therefore
conclude
that
the
phrase
in
Class
14
“for
a
limited
period’’
simply
means
‘‘for
a
period
capable
of
being
ascertained’’
which
the
Humber
River
grant
obviously
is
as
it
is
a
grant
for
99
years
(paragraph
1,
Exhibit
ASF-1).
It
then
follows
that
in
the
alternative,
the
Humber
River
orant
is
for
a
limited
period
and
therefore
is
a
concession,
franchise
or
licence
within
the
meaning
of
Class
14
of
Schedule
B
of
the
Income
Tax
Regulations.
I
now
come
to
the
third
issue,
the
survey
costs
and
engineering
studies.
The
appellant’s
submission
here
is
that
these
expenditures
occurred
in
1959
and
1960
and
were
properly
deductible
*Paragraph
7
says
that
the
stock,
dividends
and
other
securities
of
the
company
shall
be
exempt
from
taxation.
Paragraph
8
says
that
all
construction
materials
and
machinery
of
the
company
shall
be
admitted
free
and
paragraph
13
that
all
coal
required
by
the
company
shall
be
admitted
free
of
duty.
as
current
business
expenses.
Mr.
Sansome
explained
why
the
above
studies
were
made
as
follows
:
A.
We
are
continually
looking
into
the
feasibility
of
installing
thermo
power—power
produced
by
steam.
We
are
looking
at
our
own
existing
facilities
that
we
have
now,
the
two
stations,
the
Watson
Brook
Station
and
the
Deer
Lake
Station,
to
see
what
changes
can
be
made
to
increase
the
capacity
of
these
two
stations
.
.
.
-
f
;
A.
I
might
say
that
in
the
power
business
we
have
to
do
these
studies
and
we
are
always
looking
at
our
resources
in
order
to
meet
our
customers’
demand
for
power.
The
demand
for
electrical
power
is
ever
increasing
and
we
always
have
to
look
to
new
sources
of
generation
and
so
on.
As
an
example
of
some
of
the
things
we
have
done,
we
have
four
transmission
lines
from
Deer
Lake,
or
Deer
Lake
Station
to
Corner
Brook.
In
the
’50’s
these
were
reconductors
using
a
new
more
efficient
conductor
and
by
doing
this
we
decreased
the
losses,
the
transmission
losses
on
those
lines
from
approximately
ten
percent
down
to
five
percent.
Looking
at
our
Deer
Lake
plant
we
have
carried
out
many
studies
on
the
plant
itself
with
a
view
to
increasing
the
capacity
and
capability
of
this
plant—some
of
the
things
that
we
have
finally
done
have
been
in
installing
new
runners,
runners
being
water
wheels,
in
our
seven
smaller
units
and
together
with
new
windings
for
these
units,
this
increased
their
capacity
to
further
or
by
a
further
ten
percent.
These
units
are
capable
of
supplying
or
producing
eleven
thousand
kilowatts.
We
looked
at
the
possibility
of
diverting
Perry’s
River,
which
is
a
river
that
flows
into
St.
George’s
Bay
which
now
does
not
flow
into
our
water
shed.
This
was
found
to
be
a
possible
diversion
that
could
be
made.
There
was
some
problem
with
the
Department
of
Fisheries
on
this
—
if
the
diversion
went
ahead
they
would
want
us
to
make
provisions
for
the
salmon
that
run
up
that
river.
We
looked
at
it
but
so
far
we
have
not
done
this.
We
did
look
at,
as
I
said,
Indian
Brook,
and
did
a
diversion
on
that
which
diverts
about
eight
billion,
or
eight
BCF
of
water
from
that
brook
into
our
reservoir.
The
job
description
of
the
Little
Grand
Lake
project,
for
which
Shawinigan
Engineering
Co.
produced
a
report
(Exhibit
A-4)
reads
as
follows:
With
the
increasing
demand
on
our
system
investigations
must
be
made
to
utilize
to
greater
advantage
the
power
potential
of
our
existing
water
shed.
It
is
proposed
to
do
a
report
of
Little
Grand
Lake,
one
of
the.
tributaries
to
our
main
storage
basin.
All
field
information
presently
available
for
this
work
and
it
is
the
intention
to
retain
a
consultant
who
will
review
the
data
available
and
make
a
report
on
the
potential
of
this
site.
This
report
covers
things
like
the
availability
of
construction
materials
at
site,
the
geography
of
the
area,
the
geology
of
the
area,
the
hydrology,
the
run-off
water,
the
water
flows.
Shawinigan
Engineering
Co.
then
concluded
that:
Due
to
the
high
cost
per
horse
power
it
is
recommended
that
other
available
power
sites
be
studied
in
comparison
to
ascertain
if
there
is
not
a
cheaper
scheme.
The
work
order
covering
a
field
study
to
be
carried
out
on
the
Hinds
Brook
potential
was
filed
as
Exhibit
A-6.
The
job
description
of
the
Hinds
Brook
project
reads
as
follows
:
In
consideration
of
maximum
utilization
of
our
existing
water
shed
it
has
been
proposed
to
make
a
study
to
ascertain
the
most
efficient
means
to
derive
the
greatest
potential
on
Hinds
Brook.
This
area
is
part
of
our
existing
attachment
basin
but
as
yet
it
is
not
being
used
to
its
ultimate
advantage.
The
basis
of
the
above
requirement
was
to
obtain
a
more
efficient
utilization
of
the
appellant’s
existing
water
shed.
A
report
was
prepared
by
Montreal
Engineering
Co.
(Exhibit
A-7)
who
suggested
three
alternate
methods
of
developing
Hinds
Brook
or
the
Hinds
Brook
hydro
potential.
Mr.
Sansome
explained
that:
A.
.
.
.
As
I
have
stated
before,
we
have
to
continually
be
looking
at
the
potential
of
the
drainage
areas
of
which
we
have
control.
We
have
to
look
at
the
hydro
potential
of
all
the
sites
that
drain
into
our
area,
and
also
streams
that
are
more
or
less
contiguous
with
our
area
but
do
not
at
the
present
time
drain
into
our
area.
.
..
We
have
also
done
the
same
thing—we
have
looked
at
the
feasibility
of
installing
controlling
dams
on
Sheffield
Lake
as
well.
No
property
resulted,
however,
to
the
appellant
because
of
those
expenditures.
The
sites
were
not
developed.
With
regard
to
the
Little
Grand
Lake
project,
it
was
not
economically
feasible
to
proceed
at
that
time
with
the
report.
As
for
the
Hinds
Brook
project,
although
it
was
economically
feasible
to
proceed
with
the
report
and
the
appellant
went
so
far
as
to
arrange
the
financing
for
the
job,
it
did
not
materialize.
Just
before
it
got
off
the
ground,
the
Provincial
Power
Commission
came
onto
the
scene
and
wanted
to
develop
a
fairly
large
hydro
site
at
Bay
Despair.
They
offered
to
sell
the
appellant
power
from
their
Bay
Despair
plant
at
a
cheaper
rate
than
the
appellant
could
produce
at
Hinds
Brook
at
that
time
and
the
plan
was
abandoned.
The
above
studies
or
surveys
are,
in
a
sense,
of
a
category
similar
to
what
the
President
of
this
Court
(as
he
then
was)
said
were
expenses
on
revenue
account
when
in
Canada
Starch
Co.
Ltd.
v.
M.N.R.,
[1968]
C.T.C.
466,
he
stated
at
page
473:
.
.
.
Huge
sums
must
be
spent
on
market
surveys
before
a
decision
can
be
made
as
to
what
product
to
market
or
as
to
what
trade
mark
or
trade
name
to
adopt.
Industrial
designers
are
employed
at
great
expense
to
choose
a
colour
and
design
for
a
label.
Lawyers,
accountants
and
economists
find
employment
in
the
highly
complicated
process
that
has
replaced
the
decisions
that
an
individual
would
have
made
“by
the
seat
of
his
pants”.
Nevertheless,
from
the
point
of
view
of
what
are
current
business
operations
and
what
are
capital
transactions,
as
it
seems
to
me,
the
distinction
follows
the
same
line.
And
then
referring
to
what
he
had
said
in
Algoma
Central
Railway
v.
M.N.R.,
[1967]
2
Ex.
C.R.
88;
[1967]
C.T.C.
130,
a
decision
upheld
on
appeal
([1968]
C.T.C.
161),
he
said
at
page
95
[136]
:
..
.
According
to
my
understanding
of
commercial
principles
.
.
.
advertising
expenses
paid
out
while
a
business
is
operating,
and
directed
to
attracting
customers
to
a
business
are
current
expenses.
.
.
.
And
then
in
Canada
Starch
Company
Limited
v.
M.N.R.
(supra)
he
stated
at
page
474:
.
.
.
Similarly,
in
my
view,
expenses
of
other
measures
taken
by
a
businessman
with
a
view
to
introducing
particular
products
to
the
market—such
as
market
surveys
and
industrial
design
studies—are
also
current
expenses.
They
also
are
expenses
laid
out
while
the
business
is
operating
as
part
of
the
process
of
inducing
the
buying
public
to
buy
the
goods
being
sold.
The
costs
here
of
the
engineering
studies
conducted
to
examine
the
potential
of
appellant’s
drainage
area
or
to
determine
the
feasibility
of
constructing
power
developments
at
certain
sites
in
Newfoundland
were
also
incurred
in
my
view
or
laid
out
while
the
business
of
the
appellant
was
operating
and
was
part
of
the
cost
of
this
business.
Had
it
lead
to
the
building
of
plants,
business
profits
would
have
resulted.
Should
these
expenses
be
less
current
expenses
because
instead
of
being
laid
out
in
the
process
of
inducing
the
buying
public
to
buy
the
goods
or
with
a
view
to
introducing
particular
products
to
the
market,
they
were
laid
out
for
the
purpose
of
determining
whether
a
depreciable
asset
should
be
constructed
from
which
business
gains
could
be
collected
and
would
then
have
been
added
to
the
value
of
this
capital
asset
which
would
have
been
subject
to
capital
cost
allowances
?
I
do
not
think
so.
The
law
with
regard
to
the
deduction
of
what
might
be
called
border-line
expenses.
or
‘‘nothings’’
has
moved
considerably
ahead
in
the
last
few
years,
as
can
be
seen
from
the
above
decisions.
The
Chief
Justice
of
the
Supreme
Court,
in
dismissing
the
appeal
from
the
decision
of
the
President
in
M.N.R.
v.
Algoma
Central
Railway
(supra)
at
page
162,
referred
with
approval
to
the
following
statement
by
Lord
Pearce
in
B.P.
Australia
Ltd.
v.
Commissioner
of
Taxation
of
the
Commonwealth
of
Australia,
[1966]
A.C.
224,
at
page
264:
The
solution
to
the
problem
is
not
to
be
found
by
any
rigid
test
or
description.
It
has
to
be
derived
from
many
aspects
of
the
whole
set
of
circumstances
some
of
which
may
point
in
one
direction,
some
in
the
other.
One
consideration
may
point
so
clearly
that
it
dominates
othe
rand
vaguer
indications
in
the
contrary
direction.
It
is
a
commonsense
appreciation
of
all
the
guiding
features
which
must
provide
the
ultimate
answer.
The
solution,
therefore,
‘‘depends
on
what
the
expenditure
is
calculated
to
effect
from
a
practical
and
business
point
of
view
rather
than
upon
the
juristic
classification
of
the
legal
rights,
if
any,
secured,
employed
or
exhausted
in
the
process’’.*
The
question
of
deductibility
of
expenses
must
therefore
be
considered
from
the
standpoint
of
the
company,
or
its
operations,
as
a
practical
matter.
Having
regard
to
the
facts
and
the
circumstances
of
the
work
conducted
by
the
appellant
who
is
in
the
business
of
developing
and
marketing
electricity,
which
business
requires,
as
stated
by
Mr.
Sansome,
its
manager,
a
continuous
evaluation
and
appraisal
of
not
only
its
power
resources,
but
also
its
methods
of
operations,
it
appears
to
me
that
the
expenditures
of
$18,195
in
1959
and
$15,801
in
1960,
were
from
a
practical
point
of
view,
part
of
the
current
operations
of
the
Company.
These
expenditures,
it
is
true,
did
not
materialize
into
any
concrete
assets
for
which
capital
allowances
could
have
been
obtained
but
they
were
made
for
the
purpose
of
effecting
an
increase
in
the
volume
and
the
efficiency
of
its
business
and,
therefore,
for
the
purpose
of
gaining
income
(in
such
a
way
that
their
deduction
is
not
prohibited
by
Section
12(1)(a)f)
and,
as
such,
should
be
accepted
as
current
expenses.
In
Associated
Investors
of
Canada
v.
M.N.R.,
[1967]
C.T.C.
138,
Jackett,
P.
held
that
losses
from
advanced
commissions
to
salesmen
of
the
company
were
deductible
as
operating
expenses
as
they
were,
he
said
a
part
of
the
company’s
current
business
operations.
In
Canada
Starch
Company
Limited
v.
M.N.R.
(supra)
Jackett,
P.
(as
he
then
was)
allowed
an
amount
of
$15,000
paid
to
a
competitor
of
the
taxpayer
to
induce
it
to
withdraw
its
opposition
to
the
registration
of
a
trade
mark.
It
was,
I
believe,
felt
in
the
two
above
cases,
that
a
business
expenditure
that
is
made
or
incurred
for
the
purpose
of
gaining
or
producing
income
is
no
less
a
cost
of
doing
business
because
it
is
not
attached
to
depreciable
property
and
the
same
should
apply,
I
believe,
when
the
business
expenditure
is
made
in
vain
and
did
not
result
in
the
creation
of
a
depreciable
asset
such
as
we
have
here.
I
do
not
indeed
feel
that
merely
because
the
expenditure
was
made
for
the
purpose
of
determining
whether
to
bring
into
existence
a
capital
asset,
it
should
always
be
considered
as
a
capital
expenditure
and,
therefore,
not
deductible.
In
distinguishing
between
a
capital
payment
and
a
payment
on
current
account,
regard
must
always
be
had
to
the
business
and
commercial
realities
of
the
matter.
While
the
hydroelectric
development,
once
it
becomes
a
business
or
commercial
realty
is
a
capital
asset
of
the
business
giving
rise
to
it,
whatever
reasonable
means
were
taken
to
find
out
whether
it
should
be
created
or
not
may
still
result
from
the
current
operations
of
the
business
as
part
of
the
every
day
concern
of
its
officers
in
conducting
the
operations
of
the
company
in
a
business-like
way.
I
can,
indeed,
see
no
difference
in
principle
between
all
of
these
cases.
The
appeal
is
allowed.
The
1958,
1959
and
1960
assessments
are
referred
back
to
the
respondent
for
reassessment
on
the
basis
that
(1)
the
Corner
Brook
rights
are
a
franchise,
concession
or
licence.
for
a
limited
period
and
this
asset
has
a
capital
cost
of
$104,665.6;
(2)
the
grant
of
the
Humber
River
rights
constitutes
a
leasehold
interest
within
the
meaning
of
Class
13
of
Schedule
B
of
the
Regulations
and
this
asset
has
a
capital
cost
of
$941,989.32;
(3)
that,
alternatively,
if
such
grant
does
not
constitute
a
leasehold;
it
does
constitute
a
franchise,
concession
or
licence
for
a
limited
period
within
the
meaning
of
Class
14
of
Schedule
B
of
the
Regulations
and
(4)
the
amounts
of
$18,195
expended
in
1959
and
$15,801
expended
in
1960
for
certain
engineering
studies,
are
deductible
as
ordinary
business
expenses
pursuant
to
Sections
4
and
12(1)
(a)
of
the
Act
for
the
1959
and
1960
taxation
years
respectively.
The
respondent
is
to
pay
the
costs
of
the
appeal
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