Heskel S Abed v. Minister of National Revenue, [1978] CTC 5, 78 DTC 6007

Walsh, J:—This is an appeal from a decision of the Tax Appeal Board dated February 11, 1971, dismissing appellant’s appeal in respect of the taxation years 1960 to 1964 inclusive. It relates to the taxabality of a gain made on appellant’s interest in Lot 128 in Pointe Claire in the Province of Quebec in which appellant had a 25% interest, in association with his brothers-in-law Gourdji R Masri, and Saleh Masri and another brother-in-law Frank Iny who was married to the sister of appellant’s wife, Hannah Masri. All had been born in Iraq and had at one time lived there or in Iran where appellant had a General Motors automobile agency. Because of political, racial and economic discrimination he came to the United States in 1950 settling in New Rochelle in the vicinity of New York City, and bought property there, living there with his wife and family from 1950 until 1963 when the property was sold in December.

The property in question, Lot 128 was acquired on November 17, 1954 by Saleh R Masri and Frank J Iny and in May 1955 Iny sold his interest in it to the present appellant Heskel S Abed who was represented by Saleh Masri for the purpose of the deed which was signed in Montreal. The deed describes Abed as being of Baghdad, Iraq and Saleh Masri as being of the City of New York. The price of the 1954 acquisition was $170,000, the sale of Iny’s share to Abed being made for $1 and other valuable considerations. Saleh Masri and Heskel Abed sold the property by deed executed by the vendors in New York on May 17, 1960 for $1 and other considerations consisting of a balance of price of $643,559.14 payable on May 17, 1965 with interest payable half-yearly at 5 /2% per annum in the interval. For what it is worth both vendors described themselves as being of the City of New York in this deed. It is alleged that appellant was not engaged in the business of buying and selling real estate or undertaking any commercial operation in relationship thereto, that he did not have any place of business of any kind whatsoever in Canada or employees or agents with general authority to contract on his behalf in Canada. It is acknowledged however that by the year 1968 he had become a resident of Canada. In the submissions before the Tax Appeal Board it appears that there was an agreement that Heskel Abed was not a resident of Canada in 1960 but that he was a resident of Canada in the year 1968, and this is referred to in the decision. There is no such agreement in the present appeal which is of course a trial de novo. It is further alleged that in the decision of the Tax Appeal Board it is nevertheless stated that appellant had failed to satisfy it that with respect to the years in question he did not reside in Canada at any. time of the year, and that in any event it is appellant’s residence between the years 1954 and 1960 that is the relevant period. Under reserve of this appellant further argues that even if appellant were resident in Canada in any years subsequent to 1960 the assessment should be governed by section 85B of the Income Tax Act* [1] which does not have the effect of taxing accounts receivable of immigrants at the time of entry into Canada on a special reserve basis where they were not subject to tax at the time of the establishment of the reserve. Appellant further contended in his notice of appeal that during the years under appeal he was a non-resident. of Canada and hence only taxable therein if he carried on business in Canada within the meaning and intent of subsection 2(2) of the Act, and that even if it were found that what appellant did is regarded as business within the meaning of paragraph 139(1 )(e) of the Act it was not carried on in Canada and that in any event subsection 139(7) of the Act to which the decision of the Tax Appeal Board referred is inapplicable since it refers to a “thing” rather than “property” and therefore excludes the land.

Appellant’s principal contention is based on the fact that he was resident of and subject to tax in the United States at all relevant times and hence his taxability is governed by the Canada-US Reciprocal Tax Convention under the provisions of which he would be exempt from tax in this country unless he had a “permanent establishment” in Canada which he did not have. It is further contended that by Article VIII of the Convention gains derived in Canada from the sale of capital assets by a resident of the United States are exempt from taxation in Canada. The property in question would from the United States’ viewpoint be considered as a capital asset and in fact capital gains were paid to the United States on the profit arising from the sale thereof. Appellant also argued in the statement of claim that if the gain realized was not industrial or commercial profit from which he would be free of tax by virtue of Articles I and III of the Convention in any event the maximum rate of tax which could be imposed be limited by Article XI to 15%.

In its reply to the notice of appeal respondent states that in addition to the sale of Lot 128 in the parish of Pointe Claire the present case also relates to the taxability of income arising from the sale of Lot 278 in the Parish of Ste-Genevieve. It is contended that at the time of both the acquisitions and sale of the properties in question appellant was engaged in the carrying on of a business adventure in the nature of trade buying and selling real estate in Canada, that he had a place of business in Canada, his business being carried on by himself and by his brother Albert Sion Abed, a real estate broker who resided in Montreal who acted on his behalf with sufficient authority to conduct the business of buying and selling the property. It is contended that by 1960 appellant was already a resident in Canada. Reference is made to the acquisition by appellant of an interest in Lot 278 in the Parish of Ste-Genevieve on January 16, 1958 and to its having been sold on March 19, 1959 at a profit of $68,542. The profit realized on the sale of Lot 128 is said to be $740,979.22. In each case it is of course only the profit on appellant’s interest in the lots in question which respondent seeks to tax. It is further contended that at no time did appellant carry on any enterprise in the United States with the consequence that the profit realized from the sales was not a profit earned by a United States enterprise, and, in addition to contending that the profit from the sales was income from a business within the meaning of sections 3, 4 and paragraph 139(1)(e) of the Income Tax Act, that appellant was a resident of Canada within the meaning of subsection 2(1) and it is contended alternatively that even if he was not a resident then for all the relevant years he was carrying on a business in Canada within the meaning of subsections 2(2), 31(1) and 139(7) of the Act. The respondent further contends that appellant’s participation in the sale of Lots 128 and 278 was not a participation in a United States enterprise within the meaning of section 3(d) of the Protocol of the Canada-US Reciprocal Tax Convention signed on March 4, 1942, and that therefore this Tax Convention has no application to the assessments under appeal. Finally and alternatively it is alleged that if these transactions were a participation in a United States enterprise then the enterprise has a permanent establishment in Canada, being carried on through agents so that the profit should be allocable to the permanent establishment in Canada and that there is no inconsistency between the provision of the Canada-US Tax Convention and the provisions of the Income Tax Act.

The hearing of the case was substantially shortened by agreements between the parties. In a joint application for time and place for hearing it is stated:

the parties have read rule 485 of the Federal Court Rules and agree to the following:

(i) the evidence adduced by the Plaintiff before the Tax Appeal Board will be considered as if it were an examination on discovery held under the Federal Court Rules for the purposes of the hearing;

(ii) the Plaintiff waives his rights to a discovery;

(iii) the parties have communicated to each other the only documents that will be used at the hearing.

By agreement between the parties two books of documentary evidence were produced and an agreement was filed reading as follows:

AGREEMENT

The parties hereto, through their respective solicitors hereby agree to the following with respect to the present appeal:

1. The Respondent abandons its cross-appeal. Hence, if the appeal is dismissed on the issues that are contested, the assessments should nonetheless be referred back to the Minister: of National Revenue to reassess the Appellant to allow the deduction from gross profit on sale of all expenses related thereto, such as interest, taxes and commissions.

2. For the purpose of this hearing, the parties accept. mutatis mutandis the findings of fact made by the Trial Division of the Federal Court of Canada in the case of Gourd ji R Masri and the Minister of National Revenue, 73 DTC 5367 (photocopy attached).

3. The Appellant acknowledges for the purposes of this hearing that, if it is found that the Appellant was a resident of Canada in the relevant year or years and that the United States-Canada Income Tax Convention is not applicable, he would be subject to income tax on the profits on the land transactions in respect of such year or years.

DATED AT MONTREAL, this 16th day of November 1977.

PHILLIPS & VINEBERG

Per: Philip. F Vineberg,

Solicitor for the Appellant

DATED AT MONTREAL, this 17th day of November 1977.

ROGER TASSE, QC

Per: Roger Roy

Solicitor for the Respondent

The Masri judgment [[1973] CTC 448; 73 DTC 5367] referred to therein was a decision of Justice Heald dealing with the taxability of Gourdji Masri for profits arising inter alia from the sale of Lot 128 which is part of the subject matter of the present proceedings.

On page 450 [5368-9] the judgment reads in part:

. . . The appellant’s brother* [2] acted on behalf. of himself and the other three partners in acquiring this property. The appellant said that he and his brother were desirous of diversifying, their holdings and felt that it would be a good idea to acquire investments outside the United States. One of the partners, Abed, had a brother in the real estate business in Montreal and. this purchase was recommended by the members of Abed’s real estate firm (specifically either by one Koslov or by Albert Abed).

The appellant had never seen Lot 128 either before or after purchase, being content to rely on his brother’s judgment. He described himself as a “silent partner’’ in this venture. The same can be said for the other two partners. It is clear that the appellant’s brother was ‘in charge’’ so far as this purchase and sale was concerned.

The judgment goes on to say that it was sold as the result of the approach of a real estate agent to Saleh Masri and subsequent negotiations, the agent in question being paid a commission. The judgment then goes on to state:

. . . The appellant says it was his idea to pay at least a partial commission to Albert Abed, because while Keyes was their main selling agent, Albert Abed, in the appellant’s view, also contributed to-the sale and was therefore entitled to at least a partial commission for his efforts. Appellant’s brother said that they felt morally obligated, to Albert Abed because “he found the property for us’’.

He then discusses other real estate dealings in Canada of the appellant in that case, and concludes that paragraph 139(7)(b) is wide enough to cover the facts and that the appellant a non-resident was during the relevant period carrying on business in Canada within the meaning of section 2(b)* [3] of the Income Tax Act. He then makes a study of the provisions of the Canada-US Tax Convention however and at page 455 [5372] discusses the argument that appellant’s venture was a Canadian enterprise and not a US enterprise and therefore is not relieved by the Convention from taxation in Canada. “Enterprise” in section 3(b) of the Protocol is defined as including a partnership and hence on the arguments submitted to him the four associates who had acquired the Canadian property were in partnership in Canada and not carrying on an enterprise in the United States ‘as defined by section 3(d) of the Protocol. The learned Justice refuses to agree with this submission stating:

. . . We are here concerned with the appellant as an individual, not as a member of a partnership. In the words of Thurlow, J in McMahon v MNR, [1959] CTC 166 at 171; 59 DTC 1109 at 1111:

“. . . Only the appellant has been assessed, only his shares of the profit have been brought into the computation of his income, and only he is liable for the tax so determined.’’

Thus, when the definitions in section 3 of the Protocol are applied to these facts, it must be remembered that the “enterprise” in question is the appellant’s enterprise, not the partnership’s enterprise.

In this case, the appellant had no office or place of business in Canada, no telephone listing, no bank account for most of the relevant period. He lived in New York State, everything was looked after in New York at his office at 150 Broadway Avenue where his books and records were kept.

The appellant’s “enterprise”, in my view, included his investments in blue chip stocks, his various interests in property in New York State and his interest in the Canadian property and on this basis, appellant’s “enterprise” is most certainly a United States enterprise within section 3(d).

Even acceding to respondent’s contention that the entity to be here considered is the partnership itself, I fail to see how this partnership meets the definition of Canadian enterprise as contained in section 3(e) of the Protocol. A requirement of said subsection is a “partnership . . . created or organized in or under the laws of Canada”.

In this case, there was no evidence whatsoever of any partnership being organized under the laws of Canada or any province thereof. In fact, there was no evidence of an agreement in writing at all covering the Canadian venture. The partners lived in New York, they did their business in New York, the title to the Canadian land was all taken either in the name of one or more of the partners as individuals or in the name of a New York corporation wholly owned by one or more of the partners.

I have the firm view that regardless of whether the Canadian venture is looked at as merely a part of the appellant’s total enterprise or as a separate partnership in itself, it can by no means be considered a Canadian enterprise within the meaning of the Protocol.

He then deals with the argument that the enterprise had a permanent establishment in Canada and that accordingly under Article I the profits were taxable in Canada, stating that the Tara case* [4] is against this. At page 456 [5373] the judgment states:

Here, all management and executive decisions concerning appellant’s business and for that matter, the so-called partnership, were taken in New York; there were no employees in Canada; no office in Canada; no person resident in Canada having authority to contract or conduct business on behalf of the appellant or the partnership; al! documentation regarding the acquisition and sale of the Canadian property was executed in New York; all instructions concerning the property came from New York; appellant and the partnership acted in Canada only through commission agents and brokers. Counsel for the respondent sought to attach significance to the fact that in the course of the Canadian land venture, the partners used the services of two town planners, a land surveyor, two brokers, two law firms and a notary. In my view, these circumstances strengthen my conviction that the appellant cannot be said to have a “permanent establishment in Canada” because all of the above noted agents have one thing in common, they are independent agents, not employees, performing services on a fee for service basis. In my view, the nature of their relationship to the appellant and the partnership is clearly covered and contemplated in the third paragraph of section 3(f) of the Protocol quoted earlier herein.

I have therefore concluded that Article I applies in this case with the result that this appellant is not taxable in Canada even though, but for said provisions of the Tax Convention and Protocol he would have been taxable in Canada. By section 3 of the Canada-US Tax Convention Act, 1943, the terms of said Convention and Protocol have the force of law in Canada and must prevail over any other law to the extent of any inconsistency therewith.

In due course this decision was also applied to Saleh Masri and later to Frank Iny both of whom therefore avoided taxation in Canada on the profits from the sale of Lot 128. Appellant’s contention is that it should also have been applied to him and that this was not done primarily on respondent’s argument that he was a resident of Canada as well as being a resident of the United States or of Iraq.

It will be convenient to quote the sections or pertinent portions of sections of the Income Tax Act, Convention and Protocol to which reference was made by the parties or in the judgment in the Masri case.

Income Tax Act, RSC 1952, c 148:

2. (1) An income tax shall be paid as hereinafter required upon the taxable income for each taxation year of every person resident in Canada at any time in the year.* [5]

(2) Where a person who is not taxable under subsection (1) for a taxation year

(a) was employed in Canada at any time in the year, or:

(b) carried on business in Canada* at any time in the year, an income tax shall be paid as hereinafter required upon his taxable income earned in Canada for the year determined in accordance with Division D.

3. The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year from all sources inside or outside Canada and, without restricting the generality of the foregoing, includes income for the year from all

(b) property,

4. Subject to the other provisions of this Part, income for a taxation year from a business or property is the profit therefrom for the year.

31. (1) For the purpose of this Act, a non-resident person’s taxable income earned in Canada for a taxation year is

(a) his income for the year from all duties performed by him in Canada and all businesses carried on by him in Canada,

85B. (1) In computing the income of a taxpayer for a taxation year,

(b) every amount receivable in respect of property sold or services rendered in the course of the business in the year shall be included notwithstanding that the amount is not receivable until a subsequent year unless the method adopted by the taxpayer* for computing income from the business and accepted for the purpose of this Part does not require him to include any amount receivable in computing his income for a taxation year. unless it has been received in the year;

(d) where an amount has been included in computing the taxpayer’s income from the business for the year or for a previous year in respect of property sold in the course of the business and that amount or a part thereof is not receivable,

(ii) where the property sold is land, until a day that is after the end of the taxation year,

there may be deducted a reasonable amount as a reserve in respect of that part of the amount so included in computing the income that can reasonably be regarded as a portion of the profit from the sale; and

(e) there shall be included the amounts deducted under paragraphs (c) and (d) in computing the income of the taxpayer for the immediately preceding year.

(2) Paragraphs (a) and (b) of subsection (1) are enacted for greater certainty and shall not be construed as implying that any amount not referred to therein is not to be included in computing the income from a business for a taxation year whether it is received or receivable in the year or not.

139. (1) In this Act,

(e) “business” includes a profession, calling, trade, manufacture or undertaking of any kind whatsoever and includes an adventure or concern in the nature of trade but does not include an office or employment;

(7) Where, in a taxation year, a non-resident person

(a) produced, grew, mined, created, manufactured, fabricated, improved, packed, preserved or constructed, in whole or in part, anything in Canada whether or not he exported that thing without selling it prior to exportation, or

(b) solicited orders or offered anything for sale in Canada through an agent or servant whether the contract or transaction was to be completed inside or outside Canada or partly in and partly outside Canada,

he shall be deemed, for the purposes of this Act, to have been carrying on business in Canada in the year.

Canada-US Tax Convention (signed March 4, 1942)

annexed as scheduled to the Canada-United States of America

Tax Convention Act, 1943, 7 Geo VI, c 21

ARTICLE I

1. An enterprise of one of the contracting States is not subject to taxation by the other contracting State in respect of its industrial and commercial profits except in respect of such profits allocable in accordance with the Articles of this Convention to its permanent establishment in the latter State.

ARTICLE III

1. If an enterprise of one of the contracting States has a permanent establishment in the other State, there shall be attributed to such permanent establishment the net industrial and commercial profit which it might be expected to derive if it were an independent enterprise engaged in the same or similar activities under the same or similar conditions. Such net profit will, in principle, be determined on the basis of the separate accounts pertaining to such establishment.

ARTICLE VIII

Gains derived in one of the contracting States from the sale or exchange of capital assets by a resident or a corporation or other entity of the other contracting State shall be exempt from taxation in the former State, provided such resident or corporation or other entity has no permanent establishment in the former State.

ARTICLE XI

1. The rate of income tax imposed by one of the contracting States, in respect of income derived from sources therein, upon individuals residing in, or corporations organized under the laws of, the other contracting State, and not engaged in trade or business in the former State and having no office or place of business therein, shall not exceed 15 percent for each taxable year.

Protocol to Convention

3. As used in this Convention:

(b) the term “enterprise” includes every form of undertaking, whether

carried on by an individual, partnership, corporation or any other entity;

(d) the term “United States enterprise” means an enterprise carried on in the United States of America by an individual resident in the United States of America, or by a corporation, partnership or other entity created or organized in or under the laws of the United States of America, or of any of the States or Territories of the United States of America;

(e) the term “Canadian enterprise’’ is defined in the same manner mutatis mutandis as the term “United States enterprise”;

(f) the term “permanent establishment” includes branches, mines and oil wells, farms, timber lands, plantations, factories, workshops, warehouses, offices, agencies and other fixed places of business of an enterprise, but does not include a subsidiary corporation.

When an enterprise of one of the contracting States carries on business in the other contracting State through an employee or agent established there, who has general authority to contract for his employer or principal or has a stock of merchandise from which he regularly fills orders which he receives, such enterprise shall be deemed to have a permanent establishment in the latter State.

The fact that an enterprise of one of the contracting States has business dealings in the other contracting State through a commission agent, broker or other independent agent or maintains therein an office used solely for the purchase of merchandise shall not be held to mean that such enterprise has a permanent establishment in the latter State.

As previously indicated the Gourdji R Masri case dealt with real estate activities in Canada of four associates one being the appellant in the present proceedings and also dealt inter alia with one of the properties with which the present case is concerned namely Lot 128 in the Parish of Pointe Claire and it has been agreed that findings of fact made by my brother Heald, J in that case are applicable in the present proceedings. One of the findings of fact was that the properties were purchased with an intention to resell at a profit and hence were trading transactions. In that case it was admitted that the appellant Gourdji Masri was not and had never been a resident of Canada, and contended that he was not carrying on business in Canada within the meaning of paragraph 2(2)(b) of the Act. The learned Justice discusses the case of Tara Exploration and Development Company Limited v MNR (supra) in which President Jackett, as he then was, stated at page 567 [6376] of his judgment discussing the application of subsection 2(2):

With great doubt as to the correctness of my conclusion, I am of opinion that Section 139(1)(e) does not operate to make a non-resident person subject to Canadian income tax in respect of a profit from an adventure that otherwise does not amount to, and is not part of, a “business”. With considerable hesitation, I have concluded that the better view is that the words “carried on” are not words that can aptly be used with the word “adventure”. To carry on something involves continuity of time or operations such as is involved in the ordinary sense of a “business”. An adventure is an isolated happening. One has an adventure as opposed to carrying on a business.

Justice Heald then distinguishes this case on the grounds that it concerned an isolated happening, no continuity of time or operations being involved, which he finds was not the case in the proceedings before him. I would make the same conclusions of fact on the evidence in the present proceedings since Heskel S Abed also took part, whether as a partner, or as a shareholder in a corporation formed for the purpose, in other real estate transactions in Canada in addition to those relating to Lot 128 in the Parish of Pointe Claire and 278 in the Parish of Ste-Genevieve. With respect I would not agree with the additional finding he makes: on page 453 [5371] based on the application of subsection 139(7) of the Act, on the basis of an argument which was made before me which does not appear to have been raised before Justice Heald, or which in any event the judgment does not deal with. He states:

I have the view that paragraph 139(7)(b) is wide enough to cover the facts of this case where it is clear that the appellant, along with his partners, offered their real property for sale in Canada through real estate agents, knew that said agents were' in fact advertising said property for sale by erecting “for sale” signs on the property, and, on consummation of said sales, paid their agents a commission for said sales.

The argument raised before me is that paragraph 139(7)(a) refers to “that thing” and 139(7)(b) uses the word “anything”, and taken in the context of paragraph (a) I find it difficult to conclude that vacant land can be considered as a “thing”, so that in my view subsection 139(7) has no application. However, this in no way affects the conclusion that since the dealings in real estate did not constitute an “isolated transaction” the Tara case does not apply and Gourdji Masri was in fact carrying on business in Canada. It was also found, on the facts of that case however, that the appellant was a non-resident and much of the evidence in the present action was devoted to attempts by: respondent to establish that appellant Heskel S Abed was in fact a resident of Canada at the pertinent times, or at least partially resident in Canada and partially somewhere else. Appellant concedes that it is possible for a person to have more than one residence but denies that he was even partially resident in Canada at any time prior to 1965, and this is a question of fact which must be decided on the evidence in the present proceedings. Appellant’s wife testified that she was born in Baghdad, Iraq, married to appellant on June 3, 1936 and thereafter lived in Iran for one year before returning to Baghdad. One child was born in Iran and two in Baghdad. They came to the United States and settled in New Rochelle, New York, where apparently there is quite a colony of Iraqi families. They bought a large house there in 1950 and continued to reside there until it was sold in 1963. She herself became a United States citizen in 1964. (It would. appear that in her case at least the United States authorities must have decided she was resident in the United States in order to grant her citizenship.) Appellant himself never became a United States citizen since had he done so the Iraqi Government would allegedly have taken over all his business assets there. In 1965 they abrogated his citizenship in any event. Appellant’s mother came to Canada some time in the 1950’s, his brothers Albert and Sassoon also being residents of Montreal and having land investments in the area. Albert worked in a real estate brokerage firm. Appellant helped support his mother. A lease was entered into between Parkside Properties Limited and La Rochelle Corporation for an apartment on Drummond Street from September 15, 1960 to September 30, 1961 in which his mother resided and appellant who had an interest in La Rochelle Corporation intervened to guarantee the rent, as he did the following year when it was renewed until September 30, 1962. This by itself would certainly not justify a conclusion that he was residing there. Mrs Abed testified that they would sometimes come for two or three weeks in the summer to visit her mother-in-law but that they did not stay for any length of time having their own home in New Rochelle, New York, until they sold it, having occupancy until late in 1963. Their eldest son at the time was in college in Illinois, the second son in High School in Riverdale, New York near New Rochelle and their daughter in school in England. She testified that from 1938 to 1948 they had resided in Baghdad, their passports having been taken from them during the war. They moved to England in 1948 staying in hotels there. They would frequently stay for six weeks or two months in England. After the sale of their home in New Rochelle in 1963, their second son boarded at the school in Riverdale, New York and later attended Columbia University, completing his studies in Philadelphia where he graduated in architecture.

Appellant also testified stating that he was the General Motors distributor in Baghdad and carried on this agency even after moving to the United States to live in 1950. He finally lost the agency in 1965, because having been deprived of his Iraqi citizenship he could no longer return there. He corroborated Mrs Abed as to their visits to Canada, and admitted that he was a member of an Iraqi club on He Bizard near Montreal. Before 1965 he would go to Beirut for a few months every year in connection with his business interests there and also spent considerable time in England. After King Faisal was assassinated in 1958 he realized that eventually he would lose his assets in Baghdad and this became even more certain when Hassan was killed in 1963. Business in Baghdad began to deteriorate in 1960 according to his evidence, the situation being unstable, and he had to go there for six weeks in 1962. Sales were continuing well in 1963 as appears from a congratulatory letter from General Motors but he said that he could not bring money out of the country. The agency included the British Vauxhall cars and a considerable part of the business could be done from England. He went there in 1959, 1960, 1961 staying at the Dorchester Hotel where his daughter visited him when on holidays from school. One of his sons studied at Sir George Williams University and McGill University between September 1963 and 1965 and subsequently from 1966 to 1968. He had an interest in a building owned by Lakeside Holdings which was completed in 1963 and occasionally stayed there in a vacant apartment on visits to Montreal. He continued to file income tax returns in the United States until 1964, his first return in Canada being for the year 1965. He testified that he would come to Montreal for a few days at a time but never more than six weeks in any given year. In 1963, however, he admitted at his examination before the Tax Appeal Board, he had spent about three months in Canada. After the sale of the New Rochelle property they had occupancy of it for a few months.

Saleh Masri also testified corroborating the evidence of appellant stating that it was he who kept all the records pertaining to Lot 128 in his office in New York where he still resides. He heard of Lot 128 through a real estate broker in Montreal Lew Kozlov. Albert Abed who worked in his office offered the property to them. The sale of it in 1960 was negotiated with a broker representing the Morgan Real Estate firm, the deal being eventually closed in New York. On the basis of this evidence it appears clear to me that appellant was definitely a resident of New York at least until the end of 1963, although he had to travel frequently to England, Iraq and Canada in connection with his various business interests. While there might be slightly more doubt about his residence after the sale of their home in New Rochelle at the end of that year, there is certainly nothing to indicate that he took up residence in Canada in 1964, or that he could not even be considered a sojourner in Canada during that year within the meaning of paragraph 139(3)(a) of the Act which reads as follows:

139. (3) For the purposes of this Act, a person shall, subject to subsection (3a), be deemed to have been resident in Canada throughout a taxation year if

(a) he sojourned in Canada in the year for a period of, or periods the aggregate of which is, 183 days or more,

since there is nothing whatever to indicate that at any time prior to 1965 he spent more than 183 days in Canada, and in fact the evidence is all to the contrary. The fact that he guaranteed payment of rent for an apartment for his mother, which rent was actually paid by the corporation with whom the lease was made, certainly does not make him a resident of Canada. Even if he rented an apartment in his own name in Canada this would not make him a resident, this being a matter which must be determined on the basis of physical presence in a place and not merely availability of accommodation. Many Canadians, for example, own condominiums in Florida which they occupy for substantial periods of time in winter, but this does not make them residents of the United States. I have therefore reached the conclusion of fact that appellant was not during the relevant time a resident of Canada.

It still remains to be determined however whether the provisions of the Canada-US Tax Convention and Protocol thereto are applicable in the case of the present appellant, since it was on the basis of its provisions that Heald, J found in the Masri case that although the appellant was a non-resident carrying on business in Canada he was nevertheless not taxable in Canada. I have already discussed his findings in this connection (supra) all of which would seem to be applicable to the present case. Appellant, like Masri, was a resident of the United States with substantial business dealings in real estate in Canada in association with brothers and brothers-in-law, some being carried out through loosely organized unregistered partnerships, and others through corporations incorporated for this purpose. He was more or less a silent partner, the business records being looked after by Saleh Masri also a United States resident, and Lot 128 in par- ticular having been purchased on the recommendation of a brother Albert Abed a real estate agent in Montreal. It was not an isolated transaction. Respondent in the present case distinguishes the Masri case however on the sole ground that Gourdji Masri also had business interests in the United States including dealing in real estate there. In this connection respondent relies on a statement at page 455 [5372] already referred to (Supra) reading as follows:

The appellant’s “enterprise”, in my view, included his investments in blue chip stocks, his various interests in property in New York State and his interest in the Canadian property and on this basis, appellant’s “enterprise” is most certainly a United States enterprise within section 3(d).

Heald, J gave a wide interpretation to the word “enterprise” as used in the Protocol to the Convention and in deciding that it was a United States enterprise he took into consideration not only Masri’s investments in blue chip stocks, but also his various interests in property, in New York as well as his interests in Canadian property concluding that the totality constituted a United States enterprise. In the present case appellant also had blue chip stocks, but had no business interests in New York, his other business interests being his General Motors agency in Baghdad. The question therefore is whether this constitutes a sufficient distinction as to make the Masri judgment inapplicable to the present appellant Heskel Abed.

In an as yet unreported case (No T-3126-71), Juda Rutenberg v MNR, a judgment dated June 21, 1976, my brother Marceau, J discussed the Masri case and distinguished its conclusion on the basis of the facts before him. In that case a diamond broker resident in the United States carried on extensive real estate transactions in Canada in association with a Montreal real estate broker, there being no written partnership agreement, as is so in the present case. The appellant had contended that the gains realized in Canada were those of a United States enterprise within the meaning of section 3(d) of the Protocol, that he had no permanent establishment in Canada and hence they were not taxable having regard to Article I of the Convention. Marceau, J rejected both of these arguments, stating with respect to appellant’s first contention, at page 6:

. . . In his submission the Convention means that an individual may have only one enterprise, and his enterprise must be regarded as being of the State of which he is a resident. This argument leads to identification of the enterprise and the individual, so that Article I would state simply that any individual residing in one State can never be taxed by the other State on the gains which he makes abroad unless he has a permanent establishment there.

I cannot believe that the contracting States would have agreed on a disclaimer of such magnitude by expressing themselves in such an obscure and circuitous way. The interpretation which accords best with the language used, and which is the most reasonable, seems rather different to me. In the interests of furthering commercial exchanges between the two countries, as stated in the preamble to the Convention, the contracting States, as I see it, wanted to avoid a situation where an enterprise, whether an individual, a partnership or any other entity, would be compelled at all times to make a distinction for fiscal purposes between its activities on different sides of the border. Such a distinction is required only in the case of a permanent establishment in the other State. An individual may well have more than one enterprise, and in any case, an enterprise must have originated in a State and carry out some of its activities there, if it is to be considered “of that State”.* [6]

In distinguishing the Masri case he stated at page 7:

The case at bar is quite different. Appellant was, as we have seen, a jeweller who had never been involved in the land business. He undertook in Canada, together with a Canadian, a series of transactions which were negotiated and finalized in Canada in the aforementioned circumstances. This enterprise, the moving spirit behind which was the Canadian Feinstein, is not in my view a United States enterprise within the meaning of Article I of the Convention.

I am of the view that the same considerations apply in the present case. Unlike Masri, appellant had no business interests in the United States although he had investments there. Masri and his associates had had a formal partnership agreement in the United States and a business address there although it was limited to the management of properties owned by them in New York State and had nothing to do with the property in Canada. However it was certainly a permanent establishment in the United States. The present appellant had no such establishment. He had some business interests still in Iraq, part of which he carried on on visits there and part from England, but he had no business establishment in the United States and I cannot find that the real estate transactions in which he participated in Canada were part of a United States enterprise within the meaning of the Convention. Marceau, J went on to find on the second argument, although he conceded that this finding was unnecessary in view of his conclusion on the first question, that the role played by Rutenbera’s associate in Canada was such as to justify a finding that appellant had in Montreal a permanent establishment as defined in section 3(f) of the Protocol. While on the facts of the present case I would not agree with this second finding, preferring the finding of Heald, J in the Masri case and concluding that appellant did not for the years in question have a permanent establishment in Canada. nevertheless my finding that Article I of the Convention does not apply makes him taxable in Canada on the profits realized from the sale of the lots in question pursuant to paragraph 2(2)(b) of the Income Tax Act.

One subsidiary argument raised by appellant should be dealt with. Lot 128 in the Parish of Pointe Claire was sold in 1960. Payments on account of the purchase price were to be spread over a 5-year period thereafter. The present case concerns appeals with respect to assessments for the taxation years 1960 to 1964. Lot 278 in the Parish of Ste-Genevieve was sold in 1959, again with payments to be made over a period of years, the last payment to be made on February 5, 1963. The Minister in making the assessments applied the reserve provisions of section 85B and appellant contends that it is the option of the taxpayer to adopt this method for computing income, which of course he did not do since he denied that he was taxable in Canada in any event. He contends that section 85B would only be applicable to a taxpayer who is liable for taxation in Canada, stating as authority the case of Lea-Don Canada Limited v MNR, [1970] CTC 346; 70 DTC 6271, dealing with depreciation under subsection 20(4) of the Act. Since I have now found that appellant is taxable in Canada on his income therein by virtue of paragraph 2(2)(b) of the Act and that he cannot benefit by the provisions of the Canada-United States Tax Convention it would appear that section 85B could be properly applied. However, appellant argues, if he does not choose to apply it with respect to the sale of Lot 278 in the Parish of Ste-Genevieve, then, Since it took place in 1959 he could not be assessed in any of the years from 1960 to 1963, which are the assessments in issue in the present proceedings together with the year 1964, for his share of the profits arising from such sale. With respect to his share of the profits arising from the sale of Lot 128 in the Parish of Pointe Claire in the year 1960 it would appear to be to his advantage to seek the application of section 85B of the Act so as to spread these profits over the following years and be taxable only on his share of the payments by the purchaser in the years in which they were made. In the case of Isadore Weinstein v MNR, [1968] CTC 357; 68 DTC 5232, my brother Gibson, J held at page 359 [5234]:

The conclusion I reach firstly, is that on a true interpretation of Section 85B(1)(b) of the Income Tax Act the adoption of a method for computing income from a business and the acceptance of it by the respondent for the purpose of that subsection of the Act does not have to follow that chronology, that is, adoption first by the taxpayer and acceptance by the Minister. The reverse may obtain.

In this case the re-assessment by the respondent of the 1959 income of the appellant categorized this profit from this “business” as on income account and not on capital account and also used an accrual method of computing this income;. and in the circumstances of this case, the appellant’s failure to challenge this was in my view an “adoption” of this method for the purpose of this subsection of the Act.

While this is authority for the conclusion that the Minister can of his own accord apply the provisions of section 85B this is nevertheless contingent on the taxpayer failing to object to this. While it cannot be said in the present case that appellant has refused to agree to the application of section 85B in his case by the Minister since this issue did not arise as long as he was denying any tax liability in Canada whatsoever, I do not believe that as a result of his appeals against the assessments he has now lost this option. On the contrary in view of my finding as to his taxability in Canada, I believe he should now have this option. Accordingly the appeal will be dismissed with costs but in accordance with the agreement between the parties the assessments will be referred back to the Minister of National Revenue to reassess the appellant so as to allow the deduction from gross profit on sale of all expenses related thereto such as interest, taxes and commission. I would also reserve appellant’s right to agree to the application by the Minister of the provisions of section 85B of the Income Tax Act to his assessments for the years in question.