Gestion S.A.P. Inc. v. Minister of National Revenue, [1994] 1 CTC 2450, 94 DTC 1349

Rip, J.T.C.C.:— Gestion S.A.P. Inc. (“the appellant") instituted the appeal from income tax assessments made by the respondent, the Minister of National Revenue (the "Minister"), for its taxation years 1981 to 1986 inclusive.

The point at issue is whether the appellant’s income during the taxation years in question was a combination of farming and some other source of income. The Minister denied that the appellant’s income was from farming and some other source of income and in making the assessment limited the appellant’s losses from its farming business under the provisions of section 31 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") to $5,000 for each of the years in issue.

Counsel for the Minister stated that the credibility of the appellant’s witnesses was not in doubt. It was the weight of the evidence that would decide the appeals.

Mr. Pierre Pilon ("Mr. Pilon") was president and shareholder of Gestion S.A.P. Inc. The appellant operated six food stores in Drummondville during the years in issue.

Mr. Pilon is from Montreal. He received his bachelor's degree in chemistry in Montreal. When he worked in a food store in Montreal, he realized that there was not a great difference between the products sold by the various food stores: the competition sold the same cans of peas and boxes of soap, for example. According to Mr. Pilon, he learned that the food store that runs the highest quality meat counter has a great advantage.

In 1968, at the age of 20, Mr. Pilon purchased shares in the company Marché Jules Ltée, which owned a food store in Drummondville. That was his first store. That store's meat counter was not good. One year later, in January 1970, Mr. Pilon personally purchased his first farm. He stated that he bought the farm to raise livestock in order to supply the meat counter. He explained that when he began operating his food business, it was difficult to obtain superior quality meat in Drummondville. The local slaughterhouses supplied the meat of dairy cattle. If hecould have his own supply of good quality meat, he could attract a large clientele.

In 1973, Mr. Pilon began his studies in the M.B.A. program at the Université de Sherbrooke. That program was given by the university with the cooperation of industry. With the approval of authorities, Mr. Pilon continued working at Marché Jules.

One year later, Mr. Pilon founded a corporation (“Ferme L'Avenir Inc.") in order to purchase a second farm, an abandoned farm, in the village of l’Avenir ("Ferme L'Avenir"). Marché Jules Ltée also purchased a second food store. In 1976, after Mr. Pilon had completed his studies, Marché Jules Ltée built another store, its third. During 1981, Marché Jules Ltée purchased its fourth store. At the outset, the stores ran their business under the Marché Metro banner, but subsequently changed to Provigo. In 1986, the appellant owned six food stores and had between 40 and 50 percent of the Drummondville food market.

Mr. Pilon said that Drummondville had a population of 50,000 persons during the years in issue and he explained that Drummondville is a large town where the activities of its inhabitants are centralized. He described Drummondville as a “closed market" where the town's citizens do their buying. Mr. Pilon stated that he was well-known in the town because of his activities in the community.

According to Mr. Pilon’s testimony, Ferme L'Avenir was bought in order to raise a herd of superior quality cattle whose meat could be sold by the food stores. At the outset, Ferme L'Avenir was run as a mixed farm: dairy and beef cattle. The farm was profitable during the 1970s. During 1975 and 1976, for example, meat sales at Marché Jules Ltée were $2,166.30 and $5,307.39 respectively. Ferme L'Avenir made profits of $1,499 during 1977 and $2,494 during 1978. After that fiscal year, Ferme L'Avenir incurred losses. The food stores' operation was always profitable.

On November 1, 1978, Mr. Pilon merged Ferme L'Avenir with Marché Jules Ltée under the name of Gestion S.A.P. Inc.

Mr. Pilon testified that since 1980 the Government of Quebec had had a general policy of promoting the production of good quality beef cattle. The government wanted to transform the Quebec meat industry, which was weak at the time, and offered grants to stimulate the industry. The new provincial policy was consistent with the goal of the appellant, which wanted superior quality meat for its meat counters. In 1980, Mr. Pilon decided to change the nature of Ferme L'Avenir. The appellant ceased the dairy operation and devoted its efforts to livestock breeding and to the livestock market.

Mr. Pilon constantly communicated with the employees of the Quebec Department of Agriculture to obtain their assistance and advice. On March 3, 1981, the Quebec Department of Agriculture prepared recommendations for a cow-calf system requiring building fit-ups, crops and dimensions that would immediately have to meet the needs of 100 head, including 60 cows; the goal was to form a herd of 200 cattle.

Mr. Pilon explained that he had problems with Provigo. In a letter dated May 12, 1983 to the vice-president of Provigo, he complained that, notwithstanding its assurances, Provigo was filling only a small part of the meat orders given at Provigo. Consequently, Mr. Pilon refused when buying from Provigo "to pay $5.10 or even 15 percent more for goods of quality identical. . .” to that which he could buy from small local wholesalers.

Throughout his testimony, Mr. Pilon emphasized the fact that he wanted to draw a distinction between the quality of the appellant’s meat and that of its competitors. In his view, consumers would pay two or three cents per pound more for better service and superior quality meat. He wanted the appellant to be considered as the vendor that offered the best quality meat in the environs of Drummondville.

The gross income and net income of the farm and food stores was as follows:

[Chart not reproduced.]

Mr. Pilon explained that the farm's losses arose from purchases of animals. He said that he had purchased the animals for their meat, but that he had also bought some for the publicity. He stated that a good herd could not be constituted from one day to the next. A fair amount of time was required to form a herd of 200 animals. A sustained progression was needed.

Mr. Pilon visited many agricultural exhibitions in Canada, including Expo Quebec, Agrifest in Regina and the Royal Winter Fair in Toronto. The appellant bought animals at those exhibitions and took part in animal breeding competitions at exhibitions in Quebec, in particular in Sherbrooke and Quebec City. Mr. Pilon explained that in the early 1980s animals had to be bought outside Quebec. He therefore travelled inter alia to Saskatchewan to purchase a Hereford. When he visited these exhibitions, he also requested farmers’ advice concerning the animals’ progeny, food, etc. The appellant had considerable success with animal breeding and won many prizes, in particular the Grand Champion Hereford at the Salon de Montreal in 1984 and the Grand Champion Hereford as well as the Reserve Champion at the Exposition de Québec. The appellant sold a number of animals, including the bull that was the Reserve Grand Champion, which was sold for artificial insemination purposes.

The first letters of the names of the animals taking part in the competitions were “SAP”, that is the letters of the appellant's name: "SAP TNT 2000”, "SAP Prancette 44S", “SAP Prancer 77P”.

Mr. Pilon explained that he had conducted experiments with cattle feed. One can have cattle that win prizes but that have meat of inferior quality. He wanted to win prizes and have good meat. He applied to Quebec the advice received in the West concerning grains and wheat, for example. The appellant became an innovator in Quebec.

Mr. Pilon observed that the appellant’s success at exhibitions had an effect on the appellant’s food stores. It was the stores’ butchers who were in daily contact with customers and informed them of Ferme L'Avenir's success. The success built a reputation in the community for the meat sold by the appellant. People believed that the meat sold in the stores came from animals that had previously won awards. Meat sales increased during the period from 1981 to 1986.

Mr. Pilon stated that he devoted his weekends and evenings to the farm during the years in issue. He wanted the farm to be prosperous. He was in contact wit each animal and knew its "nature by heart". He said that he had completely familiarized himself with the farm's activities. It was he who prepared the animals for the exhibitions.

According to Mr. Pilon’s testimony, the profits of the 1986 fiscal year were good. Furthermore, he explained how the announcement of the installation in Drummondville of a large food business called "Super Carnaval" had been made during 1985. That business was going to have an area of 55,000 square feet, that is twice the size of the appellant's largest store. Super Carnaval would be built in the area of the town where the appellant's two businesses were located. Mr. Pilon made requests to town authorities to stop the construction of Super Carnaval. He also tried to convince Provigo to help him. His efforts were unfortunately in vain. The appellant ultimately sold two stores in September 1987 and sold the other four stores in December 1988.

The appellant continued winning prizes at agricultural exhibitions from 1986 to 1988 and although it was named top breeder in Quebec, it ceased operating the farming business in 1988 because of the sale of the businesses. The appellant leased the farm to the operator who was there at the time of the trial.

When the appellant stopped operating the farm, there were about 100 cows, 100 calves and roughly 20 replacement animals, that is to say approximately 225 animals in toto.

Mr. Romain Hamel (“Mr. Hamel") was an employee of the appellant. At the outset, in 1976, he was employed as the manager of the meat counter of one of the appellant's stores, and he later supervised the meat counters of all the stores.

Mr. Hamel testified that, at the start, there was considerable waste with the meat sold by the farm because of the bone structure, "not because the quality was not good, the quality was very good", but that after five years, that is around 1983 or 1984, the beef truly met standards from the point of view of yield. At the outset, the butchers of the stores had to be convinced of the quality of the meat. The butchers were the first to hear customers' complaints if the meat sold was of poor quality.

Mr. Hamel confirmed that the appellant's clientele [sic] raised beef cattle and “that enabled us to go after a good market of potential customers". The customers were aware of the appellant's cattle breeding operation by "word of mouth from the meat managers and from the meat employees".

Mr. Hamel explained that the customers at the points of sale often asked whether the beef came from Mr. Pilon’s farm, "and there were weeks when we could say yes". The price of the meat sold by Ferme L'Avenir was determined by the market in Montreal.

Mr. Hamel emphasized the fact that the appellant had a good reputation, that it was well perceived. The animals were taken to a slaughterhouse where there was always a federal inspector on site, and the appellant’s meat regularly obtained the A-1 rating; during the last year, it was always in the A-1 class.

Mr. Hamel testified that the meat that came from Ferme L'Avenir represented a minimal percentage of meat sold; in “the last years, perhaps 50 head”.

Super Carnaval's arrival in Drummondville marked the start of a difficult period for the appellant, Mr. Hamel said. The sales figure was reduced by about 20 to 30 percent. The food business was in operation for two more years, but "it was a major battle.”

Mr. Michel Gagné ("Mr. Gagné") was the final witness. He was a farmer and head of a private genetic assessment station which brings together about 400 bulls and calves of the year which are taken to the slaughterhouse by the producers. The quality of the animals” weight gain or growth rate is measured. The station, which is subsidized by the Quebec Department of Agriculture, is Mr. Gagné's principal activity. Prior to 1985, when he began working at the assessment station, he was a breeder of purebred Hereford cows and calves. In 1985, he was the president of the Hereford breeders in Canada. He has taken part in numerous agricultural exhibitions since 1973 and has won many prizes.

Mr. Gagné was familiar with the appellant’s farming operation. In his testimony, Mr. Gagné described Mr. Pilon’s work with the animals and the appellant's success at the exhibitions. In effect, he confirmed Mr. Pilon’s testimony in this regard. In his view, it was "very, very, very rare" that a breeder could achieve such a level of quality in eight years (1978 to 1986). He said that the appellant had a very well-balanced herd. His Hereford breeding business was one of the best in Quebec.

The appellant also received income from the operation of an income property of which he was the owner, as well as income from other investments.

During the years in appeal subsection 31(1) of the Act read as follows:

Where a taxpayer's chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income, for the purposes of sections 3 and 111 his loss, if any, for the year from all farming business carried on by him shall be deemed to be the aggregate of

(a) the lesser of

(i) the amount by which the aggregate of his losses for the year, determined without reference to this section and before making any deduction under section 37 or 37.1, from all farming businesses carried on by him exceeds the aggregate of his incomes for the year, so determined from all such businesses, and

(ii) $2,500 plus the lesser of

(A) 1/2 of the amount by which the amount determined under subparagraph (i) exceeds $2,500, and

(B) $2,500, and

(b) the amount, if any, by which

(i) the amount that would be determined under subparagraph (a)(i) if it were read as though the words "and before making any deduction under section 37 or 37.1” were deleted,

exceeds

(ii) the amount determined under subparagraph (a)(i);

and for the purposes of this Act the amount, if any, by which the amount determined under subparagraph (a)(i) exceeds the amount determined under subparagraph (a)(ii) is the taxpayer's "restricted farm loss” for the year.

The issue before me is not whether the appellant’s chief source of income during the years 1981 to 1986 was farming — counsel concedes it was not — but whether its chief source of income during this period was a combination of farming and selling groceries. As Bowman, J.T.C.C. remarked in Hover v. M.N.R.,

[1993] 1 C.T.C. 2585, 93 D.T.C. 98, at page 2595 (D.T.C. 105) [1] , this determination is no easy task.

The leading case which interprets subsection 31(1) is Moldowan v. The Queen, [1978] 1 S.C.R. 480, [1977] C.T.C. 310, 77 D.T.C. 5213, a decision of the Supreme Court of Canada. In analyzing the opening paragraph of subsection 13(1), now subsection 31(1), Dickson, J. (as he then was) stated, at page 485 (C.T.C. 313-14, D.T.C. 5215):

Although originally disputed, it is now accepted that in order to have a "source of income” the taxpayer must have a profit or a reasonable expectation of profit. Source of income, thus, is an equivalent term to business: Dorfman v. M.N.R., [1972] C.T.C. 151, 72 D.T.C. 6131. See also paragraph 139(1)(ae) of the Income Tax Act which includes as "personal and living expenses" and therefore not deductible for tax purposes, the expenses of properties maintained by the taxpayer for his own use and benefit, and not maintained in connection with a business carried on for profit or with a reasonable expectation of profit. If the taxpayer in operating his farm is merely indulging in a hobby, with no reasonable expectation of profit, he is disentitled to claim any deduction at all in respect of expenses incurred.

There is a vast case literature on what reasonable expectation of profit means and it is by no means entirely consistent. In my view, whether a taxpayer has a reasonable expectation of profit is an objective determination to be made from all of the facts. The following criteria should be considered: the profit and loss experience in past years, the taxpayer's training, the taxpayer's intended course of action, the capability of the venture as capitalized to show a profit after charging capital cost allowance. The list is not intended to be exhaustive. The factors will differ with the nature and extent of the undertaking: The Queen v. Matthews, [1974] C.T.C. 230, 74 D.T.C. 6193 (F.C.T.D.). One would not expect a farmer who purchased a productive going operation to suffer the same start-up losses as the man who begins a tree farm on raw land.

The Moldowan case has been the cornerstone of most, if not all, farming loss decisions since 1977. As Bowman, J.T.C.C. stated in Hover, supra, at page 2596 (D.T.C. 105):

. . . [Moldowan] it assists in focusing on the criteria to be considered to set out the relevant passages from the reasons for judgment of the Court, bearing in mind the admonition that the words of the court are not to be parsed and analyzed with the same degree of particularity as one would employ in the interpretation of a statute. Rather they are guidelines of high authority that lower courts must endeavour to apply to the particular facts before them.

Whether a particular taxpayer's chief source of income is farming either alone or in combination with "some other source" is a question of fact that is to be resolved having regard to all the surrounding circumstances and no single factor is to be taken as determinative in isolation: Connell v. M.N.R., [1992] 1 C.T.C. 182, 92 D.T.C. 6134, Morrissey v. The Queen, [1989] 1 C.T.C. 235, 89 D.T.C. 5080, Poirier Estate v. The Queen, [1992] 2 C.T.C. 9, 92 D.T.C. 6335 (all F.C.A.).

The Minister assessed the appellant on the basis that the appellant had a reasonable expectation of profit from farming, that farming was a business and a source of income to the appellant, but was not its chief source of income even in combination with another source.

The farm did not show a profit in the years in appeal. However, the evidence of

Messrs. Pilon and Gagne was that normally it would take about ten years for a cow-calf operation to show a profit. The intention of Mr. Pilon was for the farm to supply meat to the appellant's food stores. The appellant reasonably expected to make a profit from operating the farm in this manner.

The publicity the appellant obtained in winning prizes at various agricultural exhibitions helped build its reputation for superior quality meats. Arguably, the sales of meat, not necessarily meat from the farm, increased as a result. Thus, income increased at the stores. The appellant increased its income as a result of the farm's operations. The farm was not a hobby farm but a commercial operation undertaken by the appellant for profit.

Counsel for the Minister submitted I lift the appellant’s corporate veil and examine the farming activity of its shareholder. He suggested that for the appel lant to succeed in these appeals, Mr. Pilon’s ordinary mode and habit of work must be farming. One must look at Mr. Pilon’s training and intended source of actions [sic]. I do not necessarily agree with counsel's view but I am satisfied from Mr. Pilon’s evidence that he expended as much time on the farm as he reasonably was required to spend: evenings and weekends. The time required to work on a farm depends on the type of farming undertaken. To determine the chief source of income of a corporation carrying on farming activities, one must not consider only its shareholder’s work routine but also the actual farming activity of the corporation in the overall scheme of the business or businesses carried on by it. The corporation's farming operations must be considered in relation to all other income earning activities of the corporation.

The words “chief source" are discussed by Dickson, J., at page 486 (C.T.C. 314, D.T.C. 5215-16):

Whether a source of income is a taxpayer's “chief source” of income is both a relative and objective test. It is decidedly not a pure quantum measurement. A man who has farmed all of his life does not cease to have his chief source of income from farming because he unexpectedly wins a lottery. The distinguishing features of "chief source" are the taxpayer’s reasonable expectation of income from his various revenue sources and his ordinary mode and habit of work. These may be tested by considering, inter alia in relation to a source of income, the time spent, the capital committed, the profitability both actual and potential. A change in the taxpayer’s mode and habit of work or reasonable expectations may signify a change in the chief source, but that is a question of fact in the circumstances.

He adds, at pages 486-87 (C.T.C. 314, D.T.C. 5216):

There has been difference of opinion on whether the word “combination” in subsection 13(1) requires some “connection” by way of physical relationship or integration or interconnection between farming and the subordinate activity which provides another source of income. Paragraph 3(f) of the Income War Tax Act of 1917, as amended, made reference to "connection" in defining the permissible deductions from income derived from the chief business, trade, profession or occupation of the taxpayer in determining his taxable income. Paragraph 3(f) read:

3(f) deficits or losses sustained in transactions entered into for profit but not connected with the chief business, trade, profession or occupation of the taxpayer shall not be deducted from income derived from the chief business, trade, profession or occupation of the taxpayer in determining his taxable income.

The word "connected" is not found in section 13 of the present Act. As Thorson, P. said, obiter, in Simpson v. M.N.R., [1961] C.T.C. 174, 61 D.T.C. 1117 (Ex. Ct.), there is no reason why there must be such a limitation. I share this view. See also Dorfman, supra, at page 154 (D.T.C. 6134) and James v. M.N.R., [1973] C.T.C. 457, 73 D.T.C. 5333 (F.C.T.D.) at page 464 (D.T.C. 5337).

It is clear that “combination” in section 13 cannot mean simple addition of two sources of income for any taxpayer. That would lead to the result that a taxpayer could combine his farming loss with his most important other source of income, thereby constituting his chief source. I do not think subsection 13(1) can be properly so construed. Such a construction would mean that the limitation of the section would never apply and, in every case, the taxpayer could deduct the full amount of farming losses.

Like my brother Bowman, the aspect of “combination” causes me concern. He stated in Hover, supra, at page 2598 (D.T.C. 107):

We have it on high authority that there is no reason why there should be any connection between farming and another source of income with which it is combined to create a chief source of income. We have it on equally high authority that a “combina- tion’’cannot mean a mere addition of two sources (see also Poirier, supra). I am faced therefore with the conceptual problem of determining whether two unconnected sources of income which bear no physical relationship to one another can be combined into one chief source.

I am not faced with the problem of whether two unconnected sources of income can be combined into one source. Indeed, on the facts before me it is clear that there is a connection between the farming and the food stores. The purpose of the farm was to raise cattle to supply the stores. If there was no stores, there would be no farm. Indeed, once the stores were sold, the appellant ceased farming.

There is no question in anyone's mind the activity of the appellant that had first call on both the appellant and Mr. Pilon was that of the food stores. The food stores employed over 150 persons. Investment in the stores during the years 1981 to 1984 was $424,000. The gross profit earned by the stores increased form $13,662,361 in 1981 to $22,347,104 in 1984; net profits increased from $357,013 to $543,980 during this period.

In the meantime the farm had only one full-time and one part-time employee. Its gross profit during the period 1981 to 1984 reached only $100,416 and it incurred losses. Clearly, then, in the scheme of things, farming was subsidiary to the food stores.

In the opinion of Dickson, J., the Act envisages three classes of farmers (pages 487-88 (C.T.C. 315, D.T.C. 5216)):

1. A taxpayer, for whom farming may reasonably be expected to provide the bulk of income or the centre of work routine. Such a taxpayer, who looks to farming for his livelihood, is free of the limitation of subsection 13(1) in those years in which he sustains a farming loss.

2. The taxpayer who does not look to farming, or to farming and some subordinate source of income, for his livelihood but carries on farming as a sideline business. Such a taxpayer is entitled to the deductions spelled out in subsection 13(1) in respect of farming losses.

3. The taxpayer who does not look to farming, or to farming and some subordinate source of income, for his livelihood and who carries on some farming activities as a hobby. The losses sustained by such a taxpayer on his non-business farming are not deductible in any amount.

He explains that:

The reference in subsection 13(1) to a taxpayer whose source of income is a combination of farming and some other source of income is a reference to class (1). It contemplates a man whose major preoccupation is farming. But it recognizes that such a man may have other pecuniary interests as well, such as income from investments, or income from a sideline employment or business. The section provides that these subsidiary interests will not place the taxpayer in class (2) and thereby limit the deductibility of any loss which may be suffered to $5,000. While a quantum measurement of farming income is relevant, it is not alone decisive. The test is again both relative and objective, and one may employ the criteria indicative of "chief source" to distinguish whether or not the interest if auxiliary. A man who has farmed all of his life does not become disentitled to class (1) classification simply because he comes into an inheritance. On the other hand, a man who changes occupational direction and commits his energies and capital to farming as a main expectation of income is not disentitled to deduct the full impact of start-up costs.

Bowman, J.T.C.C. (in Hover, supra), at page 2598 (D.T.C. 107), was concerned with the portion of the passage contained in the description of a category II farmer, in the words:

. . . farming and some subordinate source of income. .. .

[Emphasis added.]

and the subsequent portion:

It contemplates a man whose major preoccupation is farming, but it recognizes that such a man may have other pecuniary interests as well, such as income from investments, or income from a sideline employment or business.

[Emphasis added.]

The facts of this case are peculiar to itself. The appellant is a corporation. The farming in issue, if not part of the appellant’s primary business of selling groceries, is connected to that business. Much of the criteria listed by Dickson, J. to be considered in determining “chief source of income" and whether a taxpayer is a Class I farmer is not applicable to this case. Joyal, J. stated in Hadley v. The Queen, [1985] 1 C.T.C. 62, 85 D.T.C. 5058 (F.C.T.D.) at page 69 (D.T.C. 5064):

One must also guard against adapting a statutory interpretation to the guidelines articulated by Dickson, J. in the Moldowan case, supra. The words used by His Lordship in simplifying the wording of section 31 of the Act do not, a priori, fit every taxpayer into a procrustean bed of someone else's choosing. Indeed, His Lordship, in suggesting tests which might be applied from case to case, is careful to point out that such tests are "not exhaustive”, that some of them are both relative and objective, or that some of them are not to be measured purely in quantum terms. In a few words, His Lordship was not attempting to draft legislation.

I do not read the passages of Dickson, J. as a statement that for a chief source of income to be a combination of farming and some other source, that other source must always be subordinate to farming. (See, for example, Service d'Administration Champlain Inc. v. M.N.R., [1990] 2 C.T.C. 485, 91 D.T.C. 5193 (F.C.T.D.).) Were this the case there would be no need for the words "nor a combination of farming and some other source of income" in subsection 31(1). If farming is the chief source of income from the outset we need not consider it in combination with any other source. It is because farming may be in a subordinate or equal relationship to another source of income, that we must consider whether the two sources are combined to constitute a chief source of income.

The Act itself does not use the words “subordinate”, “sideline” or “auxiliary” to describe a source of income. Dickson, J. discusses the word “combination” in section 31 in Moldowan, supra, and concludes the word does not mean there must be a connection between farming and the other source. Indeed, he cautions that the word "combination":

. . .. cannot mean simple addition of two sources of income for any taxpayer.

In the case at bar, as I previously mentioned, there is a connection between the farming carried on by the appellant and its food stores. When two or more objects are connected to each other they usually act together. Petit Robert defines the word "connexion" as:

The state of being connected; relation between connected things. See . . . union.

[Translation.]

The same dictionary also refers to the word "combinaison" as follows:

Fig. Specific organization of means with a view to guaranteeing the success of an undertaking.

[Translation.]

The Shorter Oxford English Dictionary on Historical Principles includes the following in the definition of the word "combination":

1. The action of combining two or more separate things . . .

3. A group of things combined into a whole.

The Shorter Oxford English Dictionary defines the word "combine" as:

1. To couple or join together; to join in action, condition, or feeling; to conjoin, associate, ally.

2. To cause to unite or coalesce into one body or substance.

3. To unite (distinct qualities).

5. To unite together for a common purpose; to form a union, spec. for some economic, social, or political purpose; to form a combination.

The reasons for the purchase of the farm and the type of farming undertaken by the appellant were for the appellant's retail business. On the facts of the case the appellant's farming and retail operations were not connected by a mere narrow thread but by an umbilical cord: the farm owed its existence to the retail operation of the appellant, was nurtured by the retail operation and, on the evidence, existed for the retail operation. The farm and the retail operation had a common object: to increase sales and profits of the appellant. The two were more that merely related. They acted in combination to accomplish a goal of producing income and when the retail operations ceased, so did those of the farm.

In my view, therefore, the chief source of the appellant’s income for 1981 to 1986 was a combination of farming and its food stores. The appeals will be allowed, with costs.

Appeals allowed.