Tremblay,
T.C.J.:—This
appeal
was
heard
on
November
20,
1984
in
the
City
of
Montreal,
Quebec.
1.
The
Point
at
Issue
Pursuant
to
the
pleadings,
the
point
is
whether
the
appellant
company
is
correct
in
the
computation
of
its
net
income
for
the
taxation
year
1977
to
consider
as
capital
gain
the
profit
made
on
the
sale
of
a
52-arpent
farm
purchased
in
1958
and
which
was
never
subdivided
and
offered
for
sale.
The
appellant
company
itself
for
18
years
had
no
activities
of
any
nature
whatsoever.
The
respondent
considers
the
profit
of
$250,958.80
as
business
income
on
the
basis
that
when
the
farm
was
purchased,
the
intention
of
the
appellant’s
shareholders
was
to
sell
it
at
a
profit.
Alternatively,
if
the
Court
decides
it
is
capital
gain,
then
the
respondent
contends
the
V-Day
value
does
not
exceed
$93,510.
The
appellant
contends
then
the
said
V-Day
value
is
$130.193.
2.
Agreement
on
the
V-Day
Value
At
the
beginning
of
the
trial,
the
Court
was
informed
that
parties
agreed
that
if
the
Court
arrived
at
the
conclusion
that
it
is
a
capital
gain,
then
the
V-Day
value
of
the
land
would
be
$101,000
plus
some
additions.
Moreover
the
figures
in
the
computation
of
the
business
income
or
of
the
capital
gain
are
not
in
dispute.
3.
The
Burden
of
Proof
3.01
The
burden
is
on
the
appellant
to
show
that
the
respondent's
assessment
is
incorrect.
This
burden
of
proof
results
particularly
from
several
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
Johnston
v.
M.N.R.,
[1948]
C.T.C.
195;
3
D.T.C.
1182.
3.02
In
the
same
judgment,
the
Court
decided
that
the
assumed
facts
on
which
the
respondent
based
his
assessment
or
reassessment
are
also
deemed
to
be
correct.
In
the
present
case,
the
assumed
facts
are
described
in
the
reply
to
notice
of
appeal
as
follows
in
paragraph
4
of
the
reply,
(a)
to
(n):
4.
In
assessing
the
appellant
for
its
1977
taxation
year,
respondent
relied,
inter
alia,
on
the
following
assumptions
of
facts:
(a)
Appellant
was
incorporated
on
May
26,
1958
and
acquired
farm
land
of
approximately
52
arpents
on
July
25,
1958
for
the
price
of
$72,860.20
of
which
$30,408.60
was
paid
cash,
and
the
balance
was
financed
by
the
vendor;
(b)
The
said
farm
land
changed
owners
three
times
in
July
1958
with
the
indicated
increase
in
sale
price:
|
Date
|
Vendor
|
Purchaser
|
Purchase
Price
|
|
July
23,
1958
|
Arthur
Barrette
|
Bernard
Rosenbaum
|
$48,638.00
|
|
et
al
|
|
|
July
25,
1958
|
Bernard
Rosenbaum
|
Glenclairn
Dev.
Co.
|
$48,638.00
|
|
et
al
|
Ltd.
|
|
|
July
25,
1958
|
Glenclairn
Dev.
Co.
|
Appellant
|
$72,860.20
|
|
Ltd.
|
|
(c)
The
said
farm
land
was
situated
in
a
speculative
area
on
the
outskirts
of
the
Ste-Philomène
—
Ville
Mercier
urban
centre,
Chateauguay
County,
Québec;
(d)
The
president
of
the
appellant,
Norman
Tennenbaum
is
a
“developer
and
electrical
contractor”
and
the
principal
shareholder
in
Carmel
Homes
Ltd.
a
corporation
which
was
engaged
in
the
late
fifties
and
early
sixties
in
the
purchase
of
land
in
the
St-Martin
area,
the
building
of
houses
thereon
and
the
selling
of
same
as
well
as
the
selling
of
surplus
land
at
a
profit
on
revenue
account;
(e)
Five
of
the
shareholders
of
the
appellant
were
also
shareholders
in
Norfield
Dev.
Corp.,
a
corporation
engaged
in
the
real
estate
trade;
(f)
In
addition
to
“purchasing
and
acquiring
land
for
the
purpose
of
construction
and
development”,
the
letters
patent
of
the
appellant
include
as
its
objects
the
carrying
on
of
“the
business
of
real
estate
agents”;
(g)
The
appellant
treated
the
said
land
as
inventory
in
its
first
fiscal
year;
(h)
Attempts
to
sell
the
said
land
were
made
before
July
29,
1976;
(i)
The
appellant
derived
no
income
from
the
said
land
and
no
plans
were
made
to
develop
it;
(j)
At
the
time
of
purchase
the
intention
of
the
shareholders
was
to
sell
the
land
at
a
profit;
(k)
If
at
the
time
of
purchase
the
shareholders
had
the
intention
to
develop
the
said
land
by
subdividing
it
and
erecting
houses
thereon
the
purpose
was
still
to
dispose
of
the
land
and
in
any
event,
one
of
the
motivating
reason
for
the
purchase
was
to
sell
at
a
profit
at
the
most
opportune
time;
(l)
In
appellant’s
1977
taxation
year,
on
July
29,
1976,
the
said
land
was
sold
to
Salva
Realties
Ltd.
through
Michel
Langelier
Inc.,
broker,
at
a
price
of
$382,319.00
($7,797.00
per
arpent);
(m)
The
cost
of
the
land
sold
was
properly
computed
as
follows:
|
1959
—
cost
of
acquisition
|
|
$
72,860.20
|
|
Add:
Taxes
and
carrying
charges
|
|
|
1959
(claimed
as
business
expenses)
|
Nil
|
|
|
1960
|
$3,415.54
|
|
|
1961
|
2,069.63
|
|
|
1962
|
2,272.31
|
|
|
1963
|
2,121.37
|
|
|
1964
|
1,730.36
|
|
|
1965
|
1,473.89
|
|
|
1966
|
2,285.76
|
|
|
1967
|
2,105.00
|
|
|
1968
|
1,125.00
|
|
|
1969
|
3,442.00
|
|
|
1970
|
1,827.00
|
|
|
1971
|
2,118.00
|
|
|
1972
|
1,670.00
|
|
|
1973
|
1,206.00
|
|
|
1974
|
1,955.00
|
|
|
1975
|
1,507.00
|
|
|
1976
|
1,558.00
|
|
|
1977
|
1,679.00
|
$
35,560.86
|
|
Total
cost
|
|
$108,421.06
|
(n)
The
profit
and
section
20(1)(n)
reserve
were
properly
computed
as
follows:
|
Proceeds
|
$382,319.00
|
|
Deduct
|
|
|
Cost
of
land
|
108,421.06
|
|
Commissions
|
22,939.14
|
|
Net
Profit
|
250,958.80
|
|
Reserve
under
section
20(1)(n)
|
167,306.00
|
4.
Facts
in
Evidence
4.01
Three
witnesses
testified
for
the
appellant.
Mrs.
Bessie
Tennenbaum,
Mrs.
Leak
Brown
Prupos
and
Mr.
Sam
Faierman.
They
are
three
of
the
11
original
shareholders
of
Leaside.
The
substance
of
their
testimonies
in
direct
examination
was
as
follows:
(a)
The
Leaside's
sole
asset
consisted
of
a
piece
of
land
(54
arpents)
which
was
acquired
in
1958
from
Glenclairn
Development
Co.
It
was
lot
numbers
200
and
201
of
the
Official
Plan
Book
of
Reference
of
the
Parish
of
St.
Philomene
(Quebec)
in
the
Town
of
Mercier.
(b)
For
18
years,
from
1958
until
the
year
1976,
(the
taxation
year
1977
of
Leaside)
it
had
no
activities
of
any
nature
whatsoever.
(c)
The
land
which
it
acquired
was
a
farm
and
for
15
years
Leaside
allowed
the
former
owner
of
the
farm
to
farm
it
without
paying
any
rent.
(d)
During
the
entire
period
of
the
Leaside’s
retention
of
the
property,
the
latter
was
never
subdivided.
(e)
During
the
18
years,
Leaside
made
one
offer
to
sell
the
land.
It
gave
a
mandate
in
November
1971
to
Butler
&
Paule
Realties
Ltd.
(Exhibit
A-2)
(price
between
$2,800
to
$3,400
per
arpent).
The
decision
was
taken
following
a
stroke
that
the
president
Mr.
Norman
Tennenbaum
had
suffered.
Moreover,
some
shareholders
were
tired
of
paying
and
thence
there
was
a
problem
to
pick
up
the
payments.
(f)
During
each
of
the
years
from
1959
to
1977
taxation
years,
Leaside
capitalised
all
of
the
taxes
and
carrying
charges
and
reported
them
as
being
payments
on
capital
account
and
they
were
so
assessed
by
the
respondent.
(g)
Leaside
never
had
any
office
or
place
of
business
or
salaried
employees
during
the
entire
period
from
its
inception
until
the
1977
taxation
year.
(h)
Leaside
corporation
pooled
the
passive
investments
of
11
shareholders
(at
least
the
three
witnesses
did
not
borrow
money
to
buy
the
Leaside's
shares)
nine
of
whom
were
housewives.
One
of
whom
was
an
employee
of
B.P.
Petroleum
and
another
of
an
electrical
contractor.
None
of
the
shareholders
ever
sold
their
shares
and
two
of
them
died
before
the
1977
taxation
year
so
that
as
a
result
of
the
transmissions
arising
from
death,
there
were
at
the
time
of
the
1977
taxation
year,
19
shareholders.
(i)
When
Leaside
did
sell
the
subject
property
in
July
1976
(Exhibit
A-3)
this
arose
by
virtue
of
an
unsolicited
offer
without
any
effort
or
activity
on
the
Leaside’s
part
whatsoever.
(j)
Mrs.
Bessie
Tennenbaum
received
a
call
from
a
real
estate
agent
who
had
a
client
interested
in
buying
the
subject
property.
He
had
gotten
her
name
in
the
Registry
Office
in
Chateauguay.
(T.S.
p.
19)
(k)
Mrs.
Bessie
Tennenbaum
acted
as
secretary
from
1958
to
1976.
She
testified
that
Mr.
Tennenbaum
did
not
act
as
president
of
the
appellant
without
discussing
with
the
shareholders
and
having
the
agreement
of
the
majority.
4.02
In
cross-examination,
the
witnesses
confirmed
or
at
least
admitted
the
signature
on
the
following
documents:
R-1
An
offer
for
purchase
dated
July
11,
1958
sent
by
Leaside
to
Glen-
clairn
Development.
It
is
signed
by
Norman
Tennenbaum,
President
of
Leaside.
This
was
the
offer
leading
to
the
purchase
of
the
subject
property
in
1958.
Paragraph
5
of
the
first
page
of
this
offer
reads
as
follows:
5.
It
is
an
essential
condition
of
this
present
Offer,
and
one
without
which
it
would
not
have
been
made,
that
the
proposed
Plan
of
Subdivision
of
the
said
emplacement
prepared
by
Guy
A.
Faubert,
Q.L.S.,
dated
the
first
day
of
December,
Nineteen
hundred
and
fifty-seven,
shall
be
approved
by
the
Municipal
Council
of
St.
Philomene
prior
to
execution
of
the
Deed
of
Sale.
R-2
An
offer
of
sale
dated
February
4,
1974
sent
by
Leaside,
signed
by
the
president
Mr.
Tennenbaum,
to
Plassard
Realties
Inc.
(Plassard).
The
offer
expired
on
October
15,
1974.
The
sale
price
was
$3,850
per
arpent.
R-3
An
offer
of
sale
dated
February
11,
1976
sent
by
Leaside
signed
by
the
president
Mr.
Tennenbaum
to
Michel
Langelier
Inc.
in
trust.
This
was
the
offer
leading
to
the
sale
in
question.
R-4
A
letter
dated
April
1976
addressed
by
Leaside
to
Michel
Langelier
Inc.
This
document
amended
the
previous
offer
of
sale
(Exhibit
R-3).
In
subparagraph
(f),
one
can
read:
The
Purchaser
shall
have
the
right
to
annul
the
present
offer
and
its
acceptance
and
to
recover
the
deposit
of
Fifteen
Thousand
Dollars
($15,000.00)
without
further
recourse
by
either
party,
in
the
event
that
the
Purchaser
has
not
by
the
date
of
the
execution
of
the
Deed,
become
the
registered
owner
of
the
following
properties:—
Lots
196
—
197
—
199
as
a
whole
of
the
Parish
of
Ste.
Philomene
in
the
Town
of
Mercier.
R-5
Minutes
of
a
meeting
of
the
Board
of
Directors
of
Leaside
Realty
Co.,
held
on
March
22,
1965.
In
that
document
one
can
read:
Upon
motion
duly
seconded
and
unanimously
approved,
the
Chairman
advised
the
Directors
that
the
Town
of
Ste-Philomène
was
preparing
the
management
and
development
of
an
important
part
of
its
territory,
preliminary
study
has
been
done
and
a
positive
action
is
to
be
involved.
The
said
town
of
Ste-Philomène
is
anxious
to
work
in
collaboration
with
any
individual
or
organisation
having
interests
of
any
nature
and
the
Town
Planning
Commission
invites
any
interested
person
to
a
special
meeting
that
will
be
held
Wednesday,
March
24th,
at
8:00
p.m.
in
St-René
school,
14
Vervais
Street.
The
Chairman
advised
the
meeting
that
it
was
necessary
and
important
to
the
company
that
the
President
and
Vice-President
attend
the
said
meeting
in
order
to
give
certain
recommendations
and/or
suggestions
unto
the
Town
of
Ste-
Philomène
to
discuss
certain
ideas
and/or
recommendations
in
order
for
the
promotion
of
the
company’s
land.
R-6
Letters
patent
incorporating
Leaside
Realty
Co.,
recorded
May
1958.
One
of
the
objects
is
“to
purchase
urban
and
rural
land
to
hold
and
subdivide,
develop
and
sell
same,
...
to
carry
on
the
business
of
real
estate
agents".
R-7
&
R-8
Financial
statements
of
Leaside
as
at
May
31,1976
and
1977.
It
appears
from
these
latter
documents
that
Leaside
considered
the
subject
property
as
inventory
in
the
balance
sheet.
However
the
evidence
is
to
the
effect
that
from
1958,
Leaside
had
at
least
4
different
accounting
firms.
4.03
Mr.
Bernard
Rosenbaum,
one
of
the
main
shareholders
of
Glenclairn
Dev.
Co.
that
sold
the
property
to
the
appellant,
was
not
a
shareholder
of
the
appellant.
4.04
At
least
five
of
the
shareholders
of
Leaside
were
also
shareholders
of
Norfield
Development
and
Ellerton
Barton
Co.,
the
latter
owned
a
piece
of
land
for
20
years
in
Duvernay.
Norfield
Development
Co.
that
also
had
only
one
piece
of
land,
sold
it
after
20
years
of
retention.
The
shareholders
lost
money.
4.05
In
Exhibit
A-1,
the
deed
or
purchase
by
the
appellant
of
the
subject
property,
one
can
read
at
page
11:
The
vendor
binds
and
obliges
itself
to
grant
Main-Levee
of
its
privilege,
hypothec
and
the
effects
of
the
Resolutory
clause,
at
any
time
upon
demand
by
the
Purchaser,
and
without
further
consideration
whatsoever,
upon
any
portion
of
said
emplacement
required
for
the
opening
of
roads
and
designated
as
such
upon
the
proposed
or
registered
subdivision
Plan,
provided
that
the
Purchaser
agrees
to
cede
and
transfer
the
said
roads
immediately
to
the
Municipality
of
Sainte
Philo-
mene.
The
vendor
further
binds
and
obliges
itself
to
grant
Main-Levee
of
its
privileges,
hypothecs
and
resolutory
clauses
affecting
any
portion
of
said
emplacement,
upon
payment
to
itself
in
the
sum
of
THREE
HUNDRED
DOLLARS
($300.00)
per
arpent
of
land
to
be
thus
released,
.
.
.”
Mr.
Faierman
testified
that
the
appellant
never
exercised
its
right
to
have
land
released
from
the
mortgage
provision.
The
appellant
never
subdivided
the
land.
The
appellant
purchased
the
land
gross
and
sold
it
gross.
4.06
Mr.
Faierman
also
testified
that
in
1965,
the
appellant
was
advised:
.
.
.
that
there
was
going
to
be
a
general
meeting
regarding
the
development
by
the
I
don’t
know
if
it
was
the
City
at
that
time
or
the
Town
of
Ste-Philomène,
relating
to
the
industrial
development,
and
they
invited
principals
who
owned
property,
and
myself
and
the
President
attended
that
meeting
and
it
was
a
general
meeting,
they
had
some
surveyors
present
and
I
gather
they
were
employees
from
the
township
making
a
presentation
and
they
had
drawings
of
what
they
planned
on
developing
primarily
industrial
development.
(TS
pp
61,
62)
(See
par
4.02(R-5))
They
attended
the
meeting
but
did
not
play
active
roles
in
the
discussions.
They
went
to
the
meeting
only
as
interested
bystanders.
From
1965
to
1971,
the
appellant
never
promoted
the
sale
of
it
in
any
way.
4.07
Concerning
the
“essential
condition”
described
in
paragraph
5
of
Exhibit
R-1
(see
par.
4.02(R-1))
it
ceased
to
be
an
essential
condition
of
the
purchase.
Mr.
Faubert's
plan
indeed
was
then
only
a
tentative
idea
submitted
to
the
city.
It
was
never
registered.
The
shareholders
of
Leaside
decided
to
purchase
the
land
anyway.
Mr.
Faubert
gave
the
plan
to
the
shareholders
when
the
appellant
purchased
the
farm
from
Glenclairn.
(T.S.:
Mr.
Faierman,
p.
79
and
F.
Tirabasso,
p.
88)
4.08
Concerning
the
offer
of
sale
of
February
4,
1974
(see
par.
4.02(R-2))
it
appears
that
this
offer
made
to
Plassard
is
a
document
completely
different
from
Exhibit
A-2
pursuant
to
which
an
exclusive
authority
to
sell
the
property
was
given
to
Butler
&
Paule
Realties
(Exhibit
A-2)
in
1971.
It
seems
to
the
Court
that
the
offer
made
to
Plassard
is
only
the
answer
of
the
appellant
to
Plassard
to
have
an
offer.
It
is
a
normal
proceeding
when
a
party
needs
time
to
meet
some
conditions
before
purchasing.
Plassard
in
fact
approached
Mr.
Tennenbaum
to
get
an
option
to
buy
the
land
(T.S.
p.
63).
Plassard
did
not
exercise
the
option.
4.09
Mr.
Franco
Tirabasso,
auditor
for
Revenue
Canada
for
eight
years,
testified
that:
(a)
pursuant
to
a
normal
audit
routine,
he
was
assigned
to
make
a
verification
in
the
appellant’s
file;
(b)
he
met
Mr.
Norman
Tennenbaum,
President
of
Leaside,
at
his
residence.
Mr.
Tennenbaum
then
told
him
that
the
property
was
bought
in
order
to
build
a
residence
for
the
shareholders
(T.S.
p.
88).
This
however
was
only
a
possibility,
in
case
it
was
divided
(T.S.
p.
104).
Concerning
the
subdivision
of
the
property
prepared
by
Mr.
Faubert
in
1958,
“it
was
never
carried
out,
was
never
registered"
(T.S.
p.
88).
(c)
about
10
per
cent
of
the
companies
he
had
examined,
were
investment
companies.
He
admitted
it
is
normal,
for
a
small
investment
company,
to
have
no
salaried
employees
(T.S.
pp.
96,
97).
5.
Law
—
Cases
at
Law
—
Analysis
5.01
Law
The
provisions
of
the
Income
Tax
Act
involved
in
this
case
are
39(1)
and
the
definition
of
“business”
in
248(1).
They
shall
be
quoted
in
the
analysis
if
it
is
necessary.
5.02
Cases
at
Law
Counsel
for
the
parties
referred
the
Court
to
the
following
Cases
at
Law:
A.
Appellant's
Authorities
Undeveloped
land
as
a
long
term
investment
giving
rise
to
a
capital
gain
1.
M.N.R.
v.
Lawee,
[1972]
C.T.C.
359;
72
D.T.C.
6342;
2.
The
Queen
v.
Stanfold
Investment
Corporation,
[1974]
C.T.C.
19;
74
D.T.C.
6035;
3.
M.N.R.
v.
Valclair
Investment
Company,
[1964]
C.T.C.
22;
64
D.T.C.
5014;
4.
M.N.R.
v.
Cosmos
Inc.,
[1964]
C.T.C.
34;
64
D.T.C.
5020;
5.
Sim
v.
M.N.R.,
28
Tax
ABC
189:
62
D.T.C.
1;
6.
Todd
v.
M.N.R.,
15
Tax
ABC
42;
56
D.T.C.
208;
7.
Montfort
Lakes
Estates
v.
The
Queen,
[1980]
C.T.C.
27;
79
D.T.C.
5467;
8.
Leeming
v.
Jones
(1928-31),
15
T.C.
333
Property
acquired
as
a
source
of
security
is
an
investment
giving
rise
to
a
capital
gain
9.
Harms
v.
M.N.R.,
[1984]
C.T.C.
2714;
84
D.T.C.
1666
Letter
patent
not
determinative
of
company's
activities
10.
Sutton
Lumber
and
Trading
Co.
v.
M.N.R.,
[1953]
C.T.C.
237;
53
D.T.C.
1158;
11.
Kit-Win
Holdings
(1973)
Limited
v.
The
Queen,
[1981]
C.T.C.
43;
81
D.T.C.
5030;
12.
Clemow
Realty
v.
The
Queen,
[1976]
C.T.C.
129;
76
D.T.C.
6094;
13.
Regal
Heights
v.
M.N.R.,
[1960]
C.T.C.
384;
60
D.T.C.
1041;
Characterization
of
land
as
inventory
in
financial
statement
not
indicative
of
a
sale
on
revenue
account
7.
Montfort
Lakes
Estates
v.
The
Queen,
[1980]
C.T.C.
27;
79
D.T.C.
5467;
14.
Riznek
Construction
v.
The
Queen,
[1979]
C.T.C.
197;
79
D.T.C.
5131;
The
fact
that
the
offer
giving
rise
to
the
sale
was
unsolicited
is
an
indication
of
an
investment
12.
Clemow
Realty
v.
The
Queen,
[1976]
C.T.C.
129;
76
D.T.C.
6094;
2.
The
Queen
v.
Stanfold
Investments,
[1974]
C.T.C.
19;
74
D.T.C.
6035;
11.
Kit-Win
Holdings
(1973)
Limited
v.
The
Queen,
[1981]
C.T.C.
43;
81
D.T.C.
5030;
15.
Robbie
Holdings
v.
The
Queen,
[1980]
C.T.C.
422;
80
D.T.C.
6336;
16.
Bead
Realties
v.
M.N.R.,
[1971]
C.T.C.
774;
71
D.T.C.
5453;
Continuation
of
farming
implies
a
long
term
investment
3.
M.N.R.
v.
Valclair
Investment
Company,
[1964]
C.T.C.
22;
64
D.T.C.
5014;
B.
Respondent's
Authorities
17.
Anderson
Logging
Company
v.
The
King,
[1917-27]
C.T.C.
198;
52
D.T.C.
1209;
18.
Program
Properties
Limited
v.
The
Queen,
[1978]
C.T.C.
320;
78
D.T.C.
6215;
19.
Sam
Grossman
v.
M.N.R.,
[1979]
C.T.C.
2132;
79
D.T.C.
141;
20.
Edmund
Peachey
Limited
v.
The
Queen,
[1979]
C.T.C.
51;
79
D.T.C.
5064;
21.
Hummel
Corporation
of
Quebec
Limited
and
Hummel
Estate
Corporation
of
Canada
Limited
v.
The
Queen,
[1979]
C.T.C.
483;
79
D.T.C.
5426;
22.
Glacier
Realties
Limited
v.
The
Queen,
[1980]
C.T.C.
308;
80
D.T.C.
6243;
23.
Dr.
Hirsh
Rosenfield
v.
M.N.R.,
Appeals
C.R.I.N.
81-1641,
82-108
5.03
Analysis
5.03.1
The
crux
of
the
matter
is
to
determine
the
original
intention
of
the
appellant
at
the
time
of
the
purchase
of
the
property.
Indeed,
in
a
case
of
this
nature,
the
intention
of
the
purchaser
is
the
main
criterion
to
qualified
nature
of
the
profit.
All
the
other
criteria
are
not
useful
but
put
some
light
on
the
original
intention
of
the
purchaser.
A
certain
number
of
the
respondent's
assumptions
of
facts
(par.
3.02)
are
in
the
sense
that
the
original
intention
of
the
appellant
is
that
the
subject
property
was
purchased
to
be
resold.
The
other
assumptions
of
facts
concern
the
computation
of
the
capital
gain
and
the
computation
of
the
business
profit
which
are
not
involved
because
of
the
agreement
(see
par.
2).
Let
us
see
those
assumptions
of
facts
that
concern
the
one
general
intention
in
the
light
of
the
adduced
evidence.
5.03.2
Alinea
(b)
of
paragraph
4
of
the
reply
to
notice
of
appeal
(par.
3.02)
reads
as
follows:
(b)
The
said
farm
land
changed
owners
three
times
in
July
1958
with
the
indicated
increase
in
sale
price:
|
Date
|
Vendor
|
Purchaser
|
Purchase
Price
|
|
July
23,1958
|
Arthur
Barrette
|
Bernard
Rosenbaum
|
$48,638.00
|
|
et
al
|
|
|
July
25,
1958
|
Bernard
Rosenbaum
|
Glenclairn
Dev.
Co.
|
$48,638.00
|
|
et
al
|
Ltd.
|
|
|
July
25,
1958
|
Glenclairn
Dev.
Co.
|
Appellant
|
$72,860.20
|
|
Ltd.
|
|
The
acquisition
of
the
property
by
Mr.
Bernard
Rosenbaum
on
July
23,
1958,
the
transfer
of
the
said
property
to
Glenclairn
Dev.
Co.
on
July
25,
1958
and
its
sale
on
the
same
day
to
the
appellant
imply
the
intention
of
Mr.
Rosenbaum
and
Glenclairn.
This
has
no
relevancy
with
the
intention
of
the
appellant
in
purchasing
the
same
property.
Moreover
Mr.
Bernard
Rosenbaum
was
not
shareholder
of
the
appellant.
5.03.3
Alinea
(c)
of
paragraph
3.02
reads
as
follows:
(c)
The
said
farm
land
was
situated
in
a
speculative
area
on
the
outskirts
of
the
Ste-Philomène
—
Ville
Mercier
urban
centre,
Chateauguay
County,
Québec;
The
evidence
is
to
the
effect
that
from
1958
to
1976
there
was
no
development
in
this
area.
It
is
difficult
to
ascertain
that
in
1958
it
was
a
speculative
area.
The
only
evidence
given
by
the
respondent
witness
is
that
in
1952,
there
was
the
St.
Lawrence
Seaway
Project.
5.03.4
Alinea
(d)
of
paragraph
3.02
reads
as
follows:
(d)
The
president
of
the
appellant,
Norman
Tennenbaum
is
a
“developer
and
electrical
contractor”
and
the
principal
shareholder
in
Carmel
Homes
Ltd.
a
corporation
which
was
engaged
in
the
late
fifties
and
early
sixties
in
the
purchase
of
land
in
the
St-Martin
area,
the
building
of
houses
thereon
and
the
selling
of
same
as
well
as
the
selling
of
surplus
land
at
a
profit
on
revenue
account.
There
is
no
evidence
about
that
assumption
but
that
Norman
Tennenbaum
was
an
electrical
contractor.
The
assumption
is
not
reversed.
The
Court
was
surprised
that
the
person
who
had
been
the
president
of
the
appellant
since
1958
and
who
had
signed
all
the
important
documents
did
not
come
to
testify
at
the
trial.
5.03.5
Alinea
(e)
of
paragraph
3.02
reads
as
follows:
(e)
Five
of
the
shareholders
of
the
appellant
were
also
shareholders
in
Norfield
Dev.
Corp.,
a
corporation
engaged
in
the
real
estate
trade;
On
this
point
the
evidence
is
to
the
effect
that
Norfield
Dev.
Corp.
owned
only
one
piece
of
land.
It
was
owner
for
20
years
and
sold
it
at
a
loss,
(see
par.
4.04)
5.03.6
Alinea
(f)
of
paragraph
3.02
reads
as
follows:
(f)
In
addition
to
“purchasing
and
acquiring
land
for
the
purpose
of
construction
and
development”,
the
letters
patent
of
the
appellant
include
as
its
objects
the
carrying
on
of
“the
business
of
real
estate
agents”;
There
is
a
presumption
of
business
purpose
for
a
company
especially
when
the
declared
objects
of
the
articles
of
incorporation
include
transaction
in
the
nature
of
purchase
and
sale.
The
presumption
however
may
be
reversed
because
letters
patent
(Anderson
Logging,
[1917-27]
C.T.C.
198;
52
D.T.C.
1209,
Western
Leaseholds
Ltd.,
[1959]
C.T.C.
531;
59
D.T.C.
1316)
are
not
conclusive
of
company's
activities.
It
is
well
known
indeed
that
the
in-
corporators
include
many
objects
and
privileges,
most
of
which
are
not
used
during
the
life
of
the
Company.
Mr.
Justice
Locke
of
the
Supreme
Court
of
Canada
in
the
Sutton
Lumber
case
(5.02(10))
said:
The
question
to
be
decided
is
not
as
to
what
business
or
trade
the
company
might
have
carried
on
under
its
memorandum,
but
rather
what
was
in
truth
the
business
it
did
engage
in.
To
determine
this,
it
is
necessary
to
examine
the
facts
with
care.
In
the
Clemow
Realty
case
(5.02(12)),
[1976]
C.T.C.
129;
76
D.T.C.
6094,
Mr.
Justice
Walsh
said:
“It
has
been
consistently
held,
however,
that
the
objects
clauses
of
a
corporation
are
relatively
unimportant
in
determining
its
intentions.”
However
objects
of
the
corporation
may
be
taken
into
consideration
with
the
other
elements
and
circumstances.
One
must
look
at
all
facts
of
each
transaction
in
order
to
ascertain
the
true
actions
taken
by
the
corporation.
5.03.7
Alinea
(g)
of
paragraph
4
of
the
reply
to
notice
of
appeal
(par.
3.02)
reads
as
follows:
"(g)
The
appellant
treated
the
said
land
as
inventory
in
its
first
fiscal
year;""
There
is
no
evidence
concerning
the
first
fiscal
year
of
the
appellant
the
year
1959.
However
it
is
true
for
1976
and
1977
(par.
4.02
—
Exhibit
R-7
and
R-8).
Alinea
(m)
of
assumptions
of
facts
(see
paragraph
3.02)
seems
in
substance
to
confirm
that
the
property
from
1960
to
1975
was
not
treated
as
inventory.
In
the
Montfort
case
as
well,
the
accountant
had
listed
the
property
as
an
inventory.
Plaintiff
submits
that
its
financial
statements
are
not
properly
to
be
relied
upon
in
determining
the
nature
of
the
assets.
He
argues
that
they
are
not
to
be
used
as
an
admission
that
all
the
lands
were
the
subject
of
an
adventure
in
the
nature
of
trade.
Learned
counsel
for
the
defendant
agrees
that
book-keeping,
by
itself,
is
not
conclusive,
but
is
still
an
element
to
be
considered.
As
Cartwright,
J
said
in
Dominion
Taxicab
Assn
v.
MNR,
[1954]
CTC
34;
54
DTC
1020
at
37(1021);
"It
is
well
settled
that
in
considering
whether
a
particular
transaction
brings
a
party
within
the
terms
of
the
Income
Tax
Act,
its
substance
rather
than
its
form
is
to
be
regarded.”
As
four
times
during
the
ownership
of
the
property,
the
appellant
had
to
change
accounting
firms,
it
seems
to
the
Court
that
this
element
is
not
in
fact
significant.
5.03.8
Alinea
(h)
of
paragraph
3.02
reads
as
follows:
"(h)
Attempts
to
sell
the
said
land
were
made
before
July
29,
1976.”
The
only
attempt
to
sell
the
land,
pursuant
to
the
evidence,
was
in
1971
(Exhibit
A-2).
The
reasons
given
in
paragraph
4.01(e)
by
the
witnesses
of
the
appellant
were
not
contradicted
by
the
respondent.
5.03.9
Alinea
(i)
of
paragraph
3.02
reads
as
follows:
‘‘(i)
The
appellant
derived
no
income
from
the
said
land
and
no
plans
were
made
to
develop
it.""
This
is
confirmed
by
the
evidence
(par.
4.01(c)).
It
appears
from
the
evidence
that
the
shareholders
did
intend
to
receive
revenue
from
the
property.
The
only
way
to
recuperate
their
money
was
by
the
sale
of
the
property
sometime
in
the
future.
In
one
year,
in
five
years,
in
15
years,
the
three
witnesses
for
the
appellant
did
not
clarify
that
point
but
in
substance
they
testified
that
the
money
would
only
come
from
selling
the
property.
There
is
no
evidence
indeed
that
the
appellant
was
motivated
in
making
the
purchase
by
an
intention
of
using
the
property,
as
capital
asset
to
produce
income,
for
instance,
farming.
Pursuant
to
the
evidence,
the
only
“use”
of
property
was
to
hold
it
until
an
eventual
sale.
In
my
view,
this
element
is
the
main
one
that
guides
the
Court
to
conclude
that
the
original
and
sole
intention
of
the
appellant
company
in
purchasing
the
property
was
to
make
profit
in
selling
it
and
therefore
that
the
profit
must
be
considered
as
a
business
income.
The
criterion
of
the
length
of
property
becomes
insignificant
despite
the
fact
that
a
real
property
is
not
by
itself
an
object
of
trade
but
rather
an
object
of
investment.
This
decision
is
confirmed
by
other
elements
which
are
not
conclusive
by
themselves
but
must
be
considered
in
the
present
circumstances:
(a)
The
president
of
the
appellant,
Mr.
N.
Tennenbaum,
as
main
shareholder
of
Carmel
Homes
Ltd.
that
was
engaged
in
the
purchase
and
sale
of
land
(par.
5.03.4).
(b)
The
objects
clause
of
the
appellant
corporation
(par.
5.03.6).
(c)
The
“essential
condition”
of
the
original
offer
of
purchase
(Exhibit
R-1)
despite
it
was
not
met
and
put
aside
(par.
4.02,
R-1,
4.07).
(d)
The
clause
of
main-levée
included
in
the
deed
of
purchase
(Exhibit
A-1)
(par.
4.05).
6.
Conclusion
The
appeal
is
dismissed
in
accordance
with
the
above
reasons
for
judgment.
Appeal
dismissed.
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