Taylor,
T.C.J.:—This
is
an
appeal
heard
in
London,
Ontario,
on
September
10,
1986,
against
income
tax
assessments
for
the
years
1978,
1979,
1980,
1981
and
1982,
in
which
the
Minister
of
National
Revenue
assessed
on
the
basis
that
certain
property
of
the
appellant
was
not
“qualified
property'
for
purposes
of
the
investment
tax
credit
within
the
provisions
of
subsection
127(10)
of
the
Income
Tax
Act,
as
that
Act
read
during
the
relevant
years.
An
agreed
statement
of
facts
(below)
was
filed
with
the
Court,
and
this
constituted
the
only
factual
information
available,
and
the
decision
of
the
Court
is
based
thereon,
as
augmented
by
the
jurisprudence
and
argument
submitted
by
counsel.
Agreed
Statement
of
Facts
1.
Versatile
Machine
&
Tool
Manufacturing
Co.
Ltd.
(hereinafter
called
"Versatile
)
was
incorporated
under
the
laws
of
the
Province
of
Ontario
on
May
24,
1973.
2.
Versatile
is
related
to
398644
Ontario
Ltd.,
a
company
incorporated
under
the
laws
of
Ontario
on
October
20,
1978,
which
carries
on
business
as
Concord
Manufacturing
(hereinafter
called
"Concord
).
3.
Versatile
had
a
lease
agreement
with
Concord
according
to
which
Versatile
purchased
certain
prescribed
machinery
and
equipment
after
June
23,
1975,
and
which
Versatile
leased
to
Concord,
and
which
is
prescribed
machinery
and
equipment
pursuant
to
sub-section
127(10)
of
the
Income
Tax
Act.
4.
In
the
ordinary
course
of
carrying
on
a
manufacturing
business,
Versatile
had
as
its
principal
business,
the
manufacturing
of
tools,
dies,
jigs
and
fixtures
for
sale
to
the
automotive
industry
in
Windsor,
Ontario.
5.
During
Versatile's
1978
to
1982
taxation
years
inclusive,
Versatile
leased
equipment,
in
the
ordinary
course
of
its
manufacturing
business*,
worth
Four
Hundred
and
Eighty-nine
Thousand,
Five
Hundred
and
Three
Dollars
($489,503.00)
to
Concord,
which
was
used
by
Concord,
as
the
Lessee,
primarily
in
the
manufacturing
of
goods
for
sale
or
lease.
6.
Versatile’s
profits
during
the
1979
through
1982
taxation
years,
inclusive,
from
the
sale
of
manufactured
goods
were
as
follows:
|
Revenues
|
Expenses
|
Gross
Profits
|
1979
|
$1,256,312
|
$
977,343
|
$278,969
|
1980
|
1,732,760
|
1,302,193
|
430,567
|
1981
|
1,856,476
|
1,528,461
|
328,015
|
1982
|
1,633,441
|
1,334,404
|
299,037
|
7.
Versatile's
gross
profits
during
the
1979
through
1982
taxation
years,
inclusive,
from
the
leasing
of
machinery
to
Concord
were
as
follows:
|
Gross
Revenues
|
Expenses
|
Gross
Profits
|
1979
|
$
45,124
|
$
25,860
|
$19,264
|
1980
|
170,131
|
87,694
|
82,437
|
1981
|
150,800
|
88,991
|
61,809
|
1982
|
156,000
|
135,073
|
20,927
|
8.
The
machinery
had
not
been
used
or
acquired
for
use
or
lease
for
any
purpose
whatsoever
before
it
was
acquired
by
Versatile
for
lease
to
Concord.
9.
Versatile
did
not
manufacture
the
machinery
which
was
leased
by
it
to
Concord,
but
acquired
all
of
the
new
machinery
from
another
source.
The
Appellant
does
not
as
its
principal
business
in
Canada
either
lease
property
or
manufacture
property
that
it
leases.
The
Appellant
does
manufacture
goods,
being
tools,
dies,
jigs,
and
fixtures
that
it
sells
in
Canada.
10.
All
of
the
prescribed
machinery
and
equipment
was
acquired
by
Versatile
after
June
23,
1975
and
before
July
1,
1980
and
the
use
of
the
property
by
Concord
commenced
after
June
23,
1975
and
before
July
1,
1980.
The
argument
of
the
parties
consisted
of
interpretation
and
definition
of
various
parts
and
terms
contained
in
the
following
extract
from
subsection
127(10)
of
the
Act;
127.(10)
"Qualified
property”.
—
For
the
purpose
of
subsection
(9),
a
"qualified
property”
of
a
taxpayer
means.
.
.
.
(b)
prescribed
machinery
and
equipment
acquired
by
the
taxpayer,
and
that
is
(d)
to
be
leased
by
the
taxpayer,
to
a
lessee
(other
than
a
person
exempt
from
tax
under
section
149)
who
can
reasonably
be
expected
to
use
the
property
in
Canada
primarily
for
any
of
the
purposes
referred
to
in
subparagraphs
(c)(i)
to
(x),
but
this
paragraph
does
not
apply
in
respect
of
the
property
that
is
a
prescribed
property
for
the
purposes
of
paragraph
(b),
unless
.
.
.
(i)
the
property
is
leased
by
the
taxpayer
in
the
ordinary
course
of
carrying
on
a
business
in
Canada
and
the
taxpayer
is
a
corporation
whose
principal
business
is
(B)
manufacturing
property
that
it
sells
or
leases,
It
was
common
ground
between
the
parties
in
this
appeal
that
Concord
used
the
leased
machinery
for
"manufacturing
or
processing
of
goods
for
sale
or
lease”,
meeting
a
separate
condition
under
subparagraph
127(10)
(c)(i)
of
the
Act.
The
crux
of
the
argument
of
counsel
for
the
appellant
was
that
Versatile
qualified
because
it
was
a
corporation
"manufacturing
property
that
it
sells
.
.
.”
as
its
"principal
business”;
and
that
"in
the
ordinary
course
of
carrying
on
a
business”
it
simply
acquired
and
leased
to
Concord
the
equipment
at
issue.
The
basic
position
asserted
by
the
respondent
was
that
leasing
of
property
was
not
part
of
the
“ordinary
course
of
the
appellant’s
business”,
and
accordingly
on
either
or
both
of
these
grounds
the
assessment
should
be
upheld.
During
the
course
of
argument
the
parties
made
reference
to
certain
portions
from
the
following
jurisprudence:
Bunge
of
Canada
Ltd.
v.
The
Queen,
[1984]
C.T.C.
284;
84
D.T.C.
6276
—
April
10,
1984
—
(F.C.A.)
—
Taxpayer
Successful;
Stubart
Investments
Limited
v.
The
Queen,
[1984]
C.T.C.
294;
84
D.T.C.
6305
—
June
7,
1984
—
(S.C.C.)
—
Taxpayer
Successful;
Mother’s
Pizza
Parlour
(London)
Limited
and
Mother's
Pizza
Parlour
Limited
v.
The
Queen,
[1985]
1
C.T.C.
361;
85
D.T.C.
5271
—
April
30,
1985
—
(F.C.T.D.)
—
Taxpayer
Unsuccessful;
Lor-Wes
Contracting
Ltd.
v.
The
Queen,
[1985]
2
C.T.C.
79;
85
D.T.C.
5310
—
June
2,
1985
—
(F.C.A.)
—
Taxpayer
Successful;
BXL
Bulk
Explosives
Limited
v.
M.N.R.,
[1985]
2
C.T.C.
2256;
85
D.T.C.
579
—
August
29,
1985
—
(T.C.C.)
—
Taxpayer
Successful.
In
the
above
list
of
jurisprudence
I
have
included
the
dates
upon
which
the
judgment
was
delivered,
and
the
Court
involved.
I
do
so
because
it
seems
to
me
that
the
“break
with
tradition”,
as
that
term
was
used
in
this
appeal
came
when
the
Federal
Court
of
Appeal
in
Bunge
(supra)
reversed
a
judgment
of
the
Federal
Court—Trial
Division
([1982]
C.T.C.
313;
82
D.T.C.
6273)
which
had
dismissed
the
appeal
of
that
taxpayer.
I
would
quote
from
the
1982
judgment
at
314
(D.T.C.
6274):
Obviously,
the
plaintiff
in
order
to
operate
its
business
must
have
the
capability
to
offload
grain
from
incoming
vessels
as
well
as
the
capability
to
load
grain
into
outgoing
vessels.
It
must
also
have
the
facilities
to
store
the
grain.
Those
are
three
separate
operations.
It
cannot
be
said
that
the
equipment
used
for
taking
the
grain
out
for
shipping
is
itself
“primarily
for
the
purpose
of
the
storing
of
grain”.
The
obvious
conclusion
is
that
the
shipping
galleries
are
primarily
used
for
the
shipping
of
grain
on
board
outbound
vessels.
Section
127
is
an
exemption
section
which
must
be
strictly
construed
and
the
taxpayer
must
fit
his
claim
squarely
within
the
four
corners
of
the
exemption
in
order
to
benefit
from
it.
The
old
principle
still
applies:
taxation
is
the
rule
and
exemption
is
the
exception.
In
the
Federal
Court
of
Appeal
judgment,
at
285
(D.T.C.
6277)
the
following
is
to
be
found:
The
only
question
on
this
appeal,
therefore,
is
whether
those
new
discharging
facilities
were
used
by
the
appellant
“primarily
for
the
purpose
of.
.
.
the
storing
of
grain”.
That
question
must,
in
my
view,
be
answered
in
the
affirmative.
The
storage
of
grain
requires
not
only
that
there
be
silos
where
the
grain
can
be
stored
but
also
that
the
silos
be
provided
with
the
equipment
necessary
to
receive
the
grain
for
storage
and
deliver
it
to
its
owner
after
it
has
been
stored.
In
my
opinion,
the
equipment
required
to
discharge
grain
from
the
appellant’s
silos
was
equipment
used
for
“the
storing
of
grain”
because
the
discharge
of
grain
from
a
silo
appears
to
me
to
be
a
necessary
and
integral
part
of
the
storing
of
the
grain.
I
cannot,
for
this
reason,
agree
with
the
conclusion
of
the
trial
judge.
The
direction
for
the
Minister
and
for
the
courts
had
thereby
been
chartered,
and
the
signal
judgment
of
Stubart
(supra)
provided
the
basis
for
the
subsequent
Lor-Wes
(supra)
judgment,
in
the
following
quotation
at
5312
of
Lor-Wes:
Similarly,
in
Stubart
Investments
Ltd.
v.
The
Queen,
[1984]
C.T.C.
294
at
314;
53
N.R.
241
at
263-5,
the
Supreme
Court,
again
speaking
through
Estey,
J.,
expressed
its
point
of
view
with
respect
to
allowance
or
benefit
provisions
in
tax
statutes:
Income
tax
legislation,
such
as
the
federal
Act
in
our
country,
is
no
longer
a
simple
device
to
raise
revenue
to
meet
the
cost
of
governing
the
community.
Income
taxation
is
also
employed
by
government
to
attain
selected
economic
policy
objectives.
Thus,
the
statute
is
a
mix
of
fiscal
and
economic
policy.
The
economic
policy
element
of
the
Act
sometimes
takes
the
form
of
an
inducement
to
the
taxpayer
to
undertake
or
redirect
a
specific
activity
.
..
Indeed,
where
Parliament
is
successful
and
a
taxpayer
is
induced
to
act
in
a
certain
manner
by
virtue
of
incentives
prescribed
in
the
legislation,
it
is
at
least
arguable
that
the
taxpayer
was
attracted
to
these
incentives
for
the
valid
business
purpose
of
reducing
his
cash
outlay
for
taxes
to
conserve
his
resources
for
other
business
activities.
It
seems
more
appropriate
to
turn
to
an
interpretation
test
which
would
provide
a
means
of
applying
the
act
so
as
to
affect
only
the
conduct
of
a
taxpayer
which
has
the
designed
effect
of
defeating
the
expressed
intention
of
Parliament.
In
short,
the
tax
statute,
by
this
interpretative
technique,
is
extended
to
reach
conduct
of
the
taxpayer
which
clearly
falls
within
“the
object
and
spirit”
of
the
taxing
provisions.
Such
an
approach
would
promote
rather
than
interfere
with
administration
of
the
Income
Tax
Act,
supra,
in
both
its
aspects
without
interference
with
the
granting
and
withdrawal,
according
to
the
economic
climate,
of
tax
incentives
.
.
.
Where
the
taxpayer
sought
to
rely
on
a
specific
exemption
or
deduction
provided
in
the
statute,
the
strict
rule
required
that
the
taxpayer's
claim
fall
clearly
within
the
exempting
provision,
and
any
doubt
would
there
be
resolved
in
favour
of
the
Crown.
See
Lumbers
v.
M.N.R.,
[1943]
C.T.C.
281;
2
D.T.C.
652
(Ex.
Ct.),
affirmed
[1944]
S.C.R.
167
and
W.
A.
Sheaffer
Pen
Co.
Ltd.
v.
M.N.R.,
[1953]
Ex.
C.R.
251;
[1953]
C.T.C.
345;
53
D.T.C.
1223.
Indeed,
the
introduction
of
exemptions
and
allowances
was
the
beginning
of
the
end
of
the
reign
of
the
strict
rule.
Professor
Willis,*
accurately
forecast
the
demise
of
the
strict
interpretation
rule
for
the
construction
of
taxing
statutes.
Gradually,
the
role
of
the
tax
statute
in
the
community
changed,
as
we
have
seen,
and
the
application
of
strict
construction
to
it
receded.
Courts
today
apply
to
this
statute
the
plain
meaning
rule,
but
in
a
substantive
sense
so
that
if
a
taxpayer
is
within
the
spirit
of
the
charge,
he
may
be
held
liable
.
..
While
not
directing
his
observations
exclusively
to
taxing
statutes,
the
learned
aurhor
of
Construction
of
Statutes,
2nd
ed.
(1983),
at
87
E.A.
Dreidger,
put
the
modern
rule
succinctly:
Today
there
is
only
one
principle
or
approach,
namely,
the
words
of
an
Act
are
to
be
read
in
their
entire
context
and
in
their
grammatical
and
ordinary
sense
harmoniously
with
the
scheme
of
the
Act,
the
object
of
the
Act,
and
the
intention
of
Parliament.
It
seems
clear
from
these
cases
that
older
authorities
are
no
longer
to
be
absolutely
relied
upon.
The
only
principle
of
interpretation
now
recognized
is
a
words-in-total-context
approach
with
a
view
to
determining
the
object
and
spirit
of
the
taxing
provisions.
As
I
read
it,
the
judgment
in
BXL
(supra)
is
consistent
with
that
view
of
the
evolving
jurisprudence,
and
the
adverse
judgment
in
Mother's
Pizza
(supra)
should
be
regarded
as
directly
related
to
the
specifics
of
that
case.
The
income
tax
assessments
at
issue
in
this
appeal
were
dated
January
26,
1984,
and
the
Minister's
confirmation
of
those
assessments
was
dated
September
25,
1984.
Even
the
Minister's
reply
to
notice
of
appeal
was
dated
June
11,
1985.
Taken
in
the
context
of
the
time
frame
necessary
for
appropriate
absorption
of
even
critical
judgments
within
income
tax
procedure,
I
do
not
find
it
unreasonable
that
the
respondent's
position
in
this
matter
reflected
more
of
the
traditional
assessing
practice
than
can
easily
be
seen
in
a
review
of
more
current
jurisprudence.
In
my
view,
the
“principal
business”
of
Versatile
was
“manufacturing
property
that
it
sells
.
.
.”,
(in
this
case
“tools,
dies,
jigs
and
fixtures")
and
that
“in
the
ordinary
course
of
carrying
on
a
(that)
business",
the
corporation
saw
an
opportunity
to
increase
its
revenue
by
acquiring
and
leasing,
certain
machinery,
and,
at
the
same
time
taking
advantage
of
the
investment
tax
credit
inducement
by
accomplishing
this
in
the
manner
described
in
this
appeal.
I
am
prepared
to
take
from
the
jurisprudence
cited
above,
that
this
Court
should
interpret
the
provisions
of
the
Act
at
issue
in
this
appeal
with
an
eye
toward
whether
the
purpose
for
the
investment
tax
credit
had
been
accomplished.
That
objective
would
appear
to
be
to
provide
an
incentive
for
investment
in
certain
fields
of
endeavour.
The
list
of
possible
circumstances,
under
which
a
business
could
qualify
under
subsection
127(10)
of
the
Act
would
indicate
to
me
that
a
fairly
wide
cross-section
of
the
economy
was
intended
to
be
covered
by
this
provision.
No
reasons
have
been
advanced
which
would
exclude
this
appellant
from
that
qualified
group.
The
appeal
is
allowed
and
the
matter
referred
back
to
the
respondent
for
reconsideration
and
reassessment.
The
appellant
is
entitled
to
party
and
party
costs.
Appeal
allowed.