Décary,
J:—In
this
matter,
the
facts
were
agreed
upon:
1.
The
plaintiff
is
a
corporation
which
was
incorporated
under
the
laws
of
Canada
on
January
26,
1972,
and
it
is
a
resident
of
Canada
for
purposes
of
the
Income
Tax
Act.
The
plaintiff’s
fiscal
year
end
is
December
31.
2.
The
objects
for
which
the
plaintiff
was
incorporated
as
set
forth
in
its
letters
patent
include:
“To
conduct
and
carry
on
in
all
branches
the
business
of
builders,
developers
and
contractors
for
the
purpose
of
doing
any
work
in
connection
with
any
and
all
classes
of
building,
works
and
improvements
of
any
nature,
kind
or
description
whatsoever”.
3.
The
plaintiff
is
registered
in
and
carries
on
business
in,
among
other
places,
the
Provinces
of
Manitoba,
British
Columbia,
Alberta
and
Saskatchewan.
The
plaintiff’s
business
as
developer
consists
of
selling
houses
which
have
been
constructed
on
land
that
has
been
purchased,
subdivided
and
developed
by
it.
4.
The
plaintiff
in
its
1976
and
1977
taxation
years
carried
out
housing
developments
in
the
cities
of
Winnipeg,
Vancouver,
Edmonton
and
Calgary.
5.
The
subdivided
lots
and
houses,
in
the
said
housing
developments
(“development
property”)
were
property
which
formed
part
of
an
were
properly
described
in
the
plaintiff’s
inventory.
6.
At
the
end
of
its
1976
taxation
year
the
plaintiff
owned
and
held
in
its
closing
inventory
certain
development
property
in
respect
to
which
there
had
been
landscaping
of
grounds
and
for
which
landscaping
the
plaintiff
had
in
the
1976
year
paid
$826,512.
The
said
landscaping
was
.
.
around
a
building
or
other
structure
of
the
taxpayer
(the
plaintiff)
within
the
meaning
of
those
words
as
found
in
paragraph
20(1
)(aa)
of
the
Income
Tax
Act.
7.
At
the
end
of
its
1977
taxation
year
the
plaintiff
owned
and
held
in
its
closing
inventory
certain
development
property
in
respect
to
which
there
had
been
landscaping
of
grounds
and
for
which
landscaping
the
plaintiff
had
in
the
1977
year
paid
$299,782.
The
said
landscaping
was
“.
.
.
around
a
building
or
other
structure
of
the
taxpayer
(the
plaintiff)
within
the
meaning
of
those
words
as
found
in
paragraph
20(1
)(aa)
of
the
Income
Tax
Act’.
8.
In
preparing
its
financial
statements
for
incorporate
purposes
for
its
1976
and
1977
taxation
years,
the
plaintiff,
as
it
had
consistently
done
so
in
prior
years,
treated
the
said
landscaping
costs
as
forming
part
of
its
inventory
on
hand
of
development
property
at
the
end
of
the
respective
accounting
periods.
9.
The
treatment
adopted
by
the
plaintiff
for
recording,
for
corporate
purposes,
the
costs
of
landscaping
of
grounds
was
one
(a)
consistent
with
generally
accepted
accounting
principles,
and
(b)
consistent
with
the
manner
in
which
the
plaintiff,
had
for
taxation
years
prior
to
1976,
both
for
corporate
and
tax
purposes,
reported
these
costs.
10.
In
computing
its
income
for
the
1976
taxation
year
for
the
purposes
of
the
Income
Tax
Act,
the
plaintiff
proceeded
as
follows:
(a)
it
excluded
in
determining
the
cost
amount
of
the
property
described
in
its
inventory,
landscaping
costs
in
the
amount
of
$826,512
in
respect
of
its
inventory
on
hand
at
the
end
of
the
1976
fiscal
period;
(b)
it
sought
in
the
computation
of
its
income
(for
tax
purposes)
for
the
1976
taxation
year
a
deduction
of
$826,512
under
the
provisions
of
paragraph
20(1
)(aa)
of
the
Income
Tax
Act,
(being
the
amount
of
expense
for
landscaping
for
which
the
plaintiff
had
paid
in
the
1976
year).
11.
In
computing
its
income
for
the
1977
taxation
year
for
the
purposes
of
the
Income
Tax
Act,
the
plaintiff
proceeded
as
follows:
(a)
it
first
reconciled
its
1976
income
for
tax
purposes
with
its
corporate
income
per
financial
statements
by
treating
the
landscaping
costs
as
forming
part
of
its
inventory
on
hand
so
that
it
added
back
to
its
inventory
on
hand
at
the
beginning
of
its
1977
fiscal
period
an
amount
of
$826,512
in
respect
of
landscaping
costs;
(b)
it
then
deducted
from
its
inventory
on
hand
at
the
end
of
its
1977
fiscal
period,
an
amount
of
$1,126,294;
(c)
the
net
effect
was
that
in
the
computation
of
its
income
for
tax
purposes
for
the
1977
taxation
year
the
plaintiff
claimed
a
deduction
of
$299,782
(that
is,
$1,126,294
less
$826,512)
under
the
provisions
of
paragraph
20(1
)(aa)
of
the
Income
Tax
Act,
being
the
amount
of
expense
for
landscaping
for
which
the
plaintiff
had
paid
in
the
1977
year.
Particulars
of
these
adjustments
are
summarized
in
Appendix
III.
12.
The
treatment
sought
by
the
plaintiff
for
reporting
the
said
costs
of
landscaping
of
grounds
for
purposes
of
the
Income
Tax
Act
in
respect
of
its
1976
and
1977
taxation
years
is
one
contrary
to
generally
accepted
accounting
principles
in
that,
such
treatment
is
contrary
to
the
principle
known
as
the
“matching
principle”
which
seeks
to
match,
over
a
period,
revenues
with
expenditures
made
or
incurred
to
earn
these
revenues.
13.
By
notices
of
reassessment
dated
September
9,
1981
and
October
14,
1981
the
Minister
of
National
Revenue
reassessed
the
plaintiff
for
its
1976
and
1977
taxation
years
respectively
and
disallowed
the
deduction
of
landscaping
costs
sought
by
the
plaintiff
on
the
basis
that:
(a)
the
amounts
of
$862,512
and
$1,126,294
referred
to
in
paragraphs
10
and
11
herein
formed
part
of
and
were
to
be
taken
into
account
in
determining
the
cost
of
the
plaintiff’s
inventory
on
hand
at
the
end
of
its
1976
and
1977
taxation
years
respectively
within
the
meaning
of
subsections
248(1)
and
10(1)
of
the
Income
Tax
Act
with
the
consequence
that
the
amounts
the
plaintiff
sought
to
deduct
as
described
in
paragraph
10
and
11
could
not
be
properly
deducted
as
current
expenses
in
the
said
taxation
years;
(b)
the
landscaping
costs
at
issue
were
not
amounts
paid
by
the
plaintiff
in
the
1976
and
1977
taxation
years
for
the
landscaping
of
grounds
around
a
building
or
other
structure
of
the
plaintiff
that
was
used
by
the
plaintiff
primarily
for
the
purpose
of
gaining
or
producing
income
therefrom
or
from
a
business
within
the
meaning
of
paragraph
20(1
)(aa)
of
the
Income
Tax
Act.
In
view
of
the
fact
that
an
oral
decision
dismissing
the
appeal
has
already
been
rendered
on
the
bench,
there
is
no
necessity
to
include
the
annexes
to
the
agreed
statement
of
facts.
On
the
6th
of
January
1983,
an
Order
of
the
Associate
Chief
Justice
was
issued,
reading
in
part:
IT
IS
ORDERED
that
the
trial
or
hearing
of
this
matter
take
place
before
this
Court
in
the
City
of
Ottawa,
Ontario,
on
Friday,
the
4th
day
of
February,
1983,
at
10:30
o’clock
in
the
forenoon,
to
be
heard
together
and
on
common
evidence
with
Qual-
ico
Developments
Ltd
v
The
Queen,
Court
No
T-4044-82.
The
only
issue
is
whether
or
not
the
expenses
for
the
year
1976,
in
the
amount
of
$826,512,
and
for
the
year
1977
in
the
amount
of
$299,782
are
deductible
in
computing
the
income
of
the
plaintiff
under
the
provisions
of
paragraph
20(1
)(aa)
of
the
Income
Tax
Act,
which
reads
as
follows:
Landscaping
of
grounds
—
An
amount
paid
by
the
taxpayer
in
the
year
for
the
landscaping
of
grounds
around
a
building
or
other
structure
of
the
taxpayer
that
Is
used
by
him
primarily
for
the
purpose
of
gaining
or
producing
income
therefrom
or
from
a
business;
The
amount
incurred
by
the
taxpayer
are
found
not
to
have
been
“paid
.
.
.
around
a
building
that
is
used
by
him
(the
italics
are
mine)
because
the
buildings,
being
part
of
inventory,
are
not
used
by
him
for
the
purpose
of
gaining
or
producing
income
therefrom
or
from
a
business”.
In
other
words,
the
landscaping
is
not
done
around
a
source
of
income
but
around
the
inventory.
It
is
only
when
that
character
of
inventory
shall
be
lost
through
sale
that
the
landscaping
shall
become
deductible.
Here
are
some
of
the
authorities
cited
by
counsel
for
the
defendant:
in
Brake
v
Inland
Revenue
Commissioners
[1915]
1
KB
731,
we
read
these
remarks
of
Rowlatt,
J,
at
733:
The
only
question
in
this
case
is
whether
this
land
is
“bona
fide
used
for
any
business,
trade,
or
industry”.
It
seems
to
me
to
be
too
clear
for
argument
that
the
use
of
land
for
any
business,
trade
or
industry
means
the
employment
of
the
land
as
land.
That
means,
of
course,
its
physical
employment,
not
because
one
reads
in
the
word
“physically”
before
“used”
in
the
statute,
but
because
the
use
of
the
land
means
the
use
of
the
land
as
land,
and
that
brings
in
the
idea
of
physical
use.
The
use
of
it
meant
by
the
statute
is
not
the
use
of
it
as
a
saleable
article
held
in
a
condition
in
which,
regarded
as
land,
it
is
unused
for
business,
trade
or
industry,
whether
it
is
so
held
as
a
marketable
commodity,
or
as
a
sample,
or
as
serving
any
other
ulterior
commercial
purpose.
In
Union
Cold
Storage
Company
Limited
v
Jones,
[1923]
KB
512,
we
read
from
Rowlatt,
J,
at
516:
In
this
case
what
has
happened
is
this,
that
a
great
company
of
world-wide
business
gets
rid
for
a
term
of
years
of
all
its
business
outside
the
United
Kingdom,
on
certain
terms,
and
the
terms
so
far
as
relevant,
may
be
stated
as
follows:
that
the
company
taking
over
the
business
was
to
have
the
use,
but
without
a
demise,
or
a
formal
demise
at
any
rate,
of
the
property,
of
certain
buildings
and
appliances
outside
the
realm.
Later
on,
at
the
same
page,
we
read:
With
regard
to
the
other
point,
it
is
even
clearer
in
favour
of
the
Crown,
because
really
the
point
is
this:
can
they
be
allowed
for
wear
and
tear
of
machinery
and
plant
for
the
purpose
of
the
trade
and
to
belong
to
the
person
by
whom
it
is
carried
on.
They
must
be
used
for
the
purpose
of
the
trade
of
the
appellant
company.
All
I
can
say
is
the
machinery
and
plant
are
not.
I
think
“used
for
the
purpose
of
the
trade
of
the
appellant
company”
means
that
the
appellant
company
are
making
profits
by
using
and
causing
the
wear
and
tear
of
the
machinery.
That
is
what
I
think
the
scope
of
this
is.
This
is
used
in
the
trade
of
the
other
company
and
of
course
prima
facie
the
depreciation
of
plant
and
machinery
cannot
be
allowed
as
a
deduction.
It
has
got
to
be
brought
within
these
words
which
create
the
allowance,
and
if
it
is
not
within
the
words,
it
is
not
within
the
words.
It
cannot
be
allowed
on
general
principle;
the
words
must
be
satisfied
“used
for
the
purpose
of
the
trade”
and
all
I
can
say
is
I
do
not
think
they
are.
(Italics
are
mine.)
It
is
my
opinion
that
no
substantial
differences
can
be
made
between
these
two
decisions
of
Rowlatt,
J,
and
the
joined
cases
at
hand.
The
two
cases
being
Court
No
T-4043-82
and
Court
No
T-4044-82
heard
together
and
on
common
evidence,
are
dismissed
with
costs.