Pratte,
J:—This
appeal
raises
three
distinct
issues
related
to
the
income
tax
payable
by
the
appellant
for
the
1966
and
1967
taxation
years.
Those
three
issues,
which
were
all
decided
against
the
appellant
by
the
trial
judge,
are
referred
to
in
the
pleadings
under
the
following
headings:
(1)
The
Bituminous
Sands
Leases;
(2)
The
Conjuring
Creek
Lease;
(3)
The
Wilkinson
Sublease.
(1)
The
Bituminous
Sands
Leases:
The
appellant
is
a
company
incorporated
in
Alberta;
its
principal
business,
at
all
material
times,
has
been
exploring
and
drilling
for
petroleum
and
natural
gas.
By
an
agreement
dated
December
31,
1964,
the
appellant
and
five
other
oil
companies
agreed
to
pool
their
rights
under
9
Bituminous
Sands
Leases
granted
by
Her
Majesty
the
Queen
in
right
of
Alberta.
The
appellant
thereby
became
the
beneficial
owner
of
an
undivided
15%
share
or
interest
in
those
leases.
By
an
agreement
dated
January
24,
1966,
the
appellant
sold
that
15%
interest
for
a
consideration
of
$368,832.16.*
The
issue
is
whether
the
proceeds
of
that
sale
were
properly
included
in
the
appellant’s
income
under
subsection
83A(5b)
of
the
Income
Tax
Act.
Subsection
83A(5b)
reads
as
follows:
83A.
(5b)
Where
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
is
disposed
of
after
April
10,
1962,
(a)
by
a
corporation
described
in
subsection
(3b),
(b)
by
a
corporation,
other
than
a
corporation
described
in
subsection
(3b),
that
was
at
the
time
of
acquisition
of
such
right,
licence
or
privilege
a
corporation
described
in
subsection
(3b),
or
(c)
by
an
association,
partnership
or
syndicate
described
in
subsection
(4),
any
amount
received
by
the
corporation,
association,
partnership
or
syndicate
as
consideration
for
the
disposition
thereof
shall
be
included
in
computing
its
income
for
its
fiscal
period
in
which
the
amount
was
received
unless
the
corporation,
association,
partnership
or
syndicate
(d)
acquired
such
right,
licence
or
privilege
by
inheritance
or
bequest,
or
(e)
acquired
such
right,
licence
or
privilege
before
April
11,
1962
and
disposed
of
it
before
November
9,
1962.
It
must
be
read
in
conjunction
with
subsections
(5d)
and
(5a)
of
section
83A:
(5d)
Subsections
(5b)
and
(50)
do
not
apply
to
any
disposition
by
an
association,
partnership
or
syndicate
described
in
subsection
(4)
or
a
corporation
or
an
individual
of
any
right,
licence
or
privilege
described
in
subsection
(5a)
or
(5b)
unless
such
right,
licence
or
privilege
was
acquired
by
the
association,
partnership,
syndicate
or
corporation
or
individual,
as
the
case
may
be,
under
an
agreement,
contract
or
arrangement
described
in
subsection
(5a).
(5a)
Where
an
association,
partnership
or
syndicate
described
in
subsection
(4)
or
a
corporation
or
individual
has,
after
April
10,
1962,
acquired
under
an
agreement
or
other
contract
or
arrangement
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
under
which
agreement,
contract
or
arrangement
there
was
not
acquired
any
other
right
to,
over
or
in
respect
of
the
land
in
respect
of
which
such
right,
licence
or
privilege
was
so
acquired
except
the
right
(a)
to
explore
for,
drill
for
or
take
materials
and
substances
(whether
liquid
or
solid
and
whether
hydrocarbons
or
not)
produced
in
association
with
the
petroleum,
natural
gas
or
other
related
hydrocarbon
(except
coal)
or
found
in
any
water
contained
in
an
oil
or
gas
reservoir,
or
(b)
to
enter
upon,
use
and
occupy
so
much
of
the
land
as
may
be
necessary
for
the
purpose
of
exploiting
such
right,
licence
or
privilege,
an
amount
paid
in
respect
of
the
acquisition
thereof
shall,
for
the
purposes
of
subsections
(3b),
(3d),
(4a),
(4b)
and
(40),
be
deemed
to
be
a
drilling
or
exploration
expense
on
or
in
respect
of
exploring
or
drilling
for
petroleum
or
natural
gas
in
Canada
incurred
at
the
time
of
such
payment.
Subject
to
the
appellant’s
contention
that
only
one
part
of
the
sum
of
$368,832.16
represented
the
consideration
for
the
sale
of
its
interest
in
the
leases,
it
is
common
ground
that
the
sum
of
$368,832.16
was
properly
included
in
computing
the
appellant’s
income
if
it
is
found:
(a)
that
the
appellant’s
right,
under
the
leases
was,
within
the
meaning
of
subsection
83A(5b),
“a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)’’,
and
(b)
that
such
a
right
was
acquired
under
an
arrangement
described
in
subsection
(5a)
of
section
83A.
Counsel
for
the
appellant
first
argued
that
the
rights
of
the
lessees
under
the
various
Bituminous
Sands
Leases
were
not
of
the
kind
described
in
subsection
83A(5b);
those
leases,
according
to
him,
conferred
the
right
to
explore
for,
drill
for
or
take
bituminous
sands,
rather
than
‘‘petroleum,
natural
gas
or
other
related
hydrocarbons”.
He
also
submitted
that
such
a
right
had
not
been
acquired
under
an
arrangement
described
in
subsection
(5a)
since,
in
his
view,
the
leases
granted
to
the
lessees,
in
addition
to
the
rights
already
mentioned,
other
rights
in
respect
of
the
land
covered
by
the
leases.
Those
two
arguments
had
been
made
at
the
trial.
They
were
rejected
by
the
trial
judge.
After
due
consideration,
I
have
reached
the
conclusion
that
the
decision
of
the
trial
judge
to
reject
those
two
arguments
was
right
and
that
I
could
not
add
anything
useful
to
the
reasons
that
he
gave
to
support
it.
At
the
hearing
of
the
appeal,
counsel
for
the
appellant
argued
that
there
was
another
reason
why
the
15%
interest
of
the
appellant
in
the
leases
could
not
be
said
to
have
been
acquired
under
an
arrangement
described
in
subsection
(5a).
The
contract
under
which
the
15%
interest
had
been
acquired
by
the
appellant,
said
counsel,
was
the
“pooling
agreement’’
of
December
31,
1964;
the
source
of
the
appellant’s
15%
interest
was
not,
contrary
to
what
everybody
had
assumed
at
the
trial,
the
leases
granted
by
the
Province
of
Alberta.
Counsel
pointed
out
that
a
mere
reading
of
the
pooling
agreement
indicates
that,
in
addition
to
an
interest
in
the
leases,
the
appellant
acquired
an
interest
in
‘‘all
assets
directly
or
indirectly
relating
to
such
interest”.
It
must
therefore
be
concluded,
following
counsel,
that
the
right
to
explore
for
and
take
bituminous
sand
under
the
leases
had
not
been
acquired
by
the
appellant
under
an
agreement
of
the
kind
described
in
subsection
(5a).
To
answer
this
argument,
which,
it
must
be
observed,
was
put
forward
for
the
first
time
at
the
hearing
of
the
appeal,
it
is
sufficient
to
observe
that
there
is
nothing
either
in
the
pooling
agreement
or
in
the
evidence
from
which
one
could
infer
that
those
other
assets
to
which
the
agreement
makes
reference
were
rights
“to,
over
or
in
respect
of
the
land”
covered
by
the
leases.
I
am
therefore
of
the
view
that,
on
this
first
issue,
the
judgment
of
the
trial
judge
should
not
be
disturbed.
(2)
The
Conjuring
Creek
Lease
and
(3)
The
Wilkinson
Sublease:
The
last
two
issues
are
similar
but
arose
from
different
factual
situations.
They
can
conveniently
be
dealt
with
together.
Under
section
83A
as
it
then
stood,
in
order
to
fix
the
amount
that
the
appellant
was
entitled
to
deduct
for
drilling
and
exploration
expenses
in
computing
its
income
for
the
1966
and
1967
taxation
years,
it
was
necessary
to
determine
whether
certain
sums,
paid
from
1949
to
1964,
had
to
be
included
in
the
computation
of
the
appellant’s
income
for
those
years.
The
sums
in
question
are
an
amount
of
$50,000
paid
in
relation
to
the
Conjuring
Creek
Lease
and
a
sum
of
$64,058.74
paid
in
respect
of
the
Wilkinson
Lease.
It
is
the
appellant’s
contention
that
the
Minister
of
National
Revenue
was
wrong
in
determining
the
amount
that
the
appellant
was
entitled
to
deduct
for
drilling
and
exploration
expenses
in
1966
and
1967
on
the
basis
that
the
two
sums
in
question
were
to
be
included
in
the
computation
of
the
appellant’s
income
in
the
years
preceding
1965.
The
facts
which
gave
rise
to
these
two
issues
are
correctly
summarized
by
the
trial
judge
[[1976]
CTC
44
at
50-51]:
The
Conjuring
Creek
Lease
arose
out
of
an
option
(Exhibit
P-22),
dated
November
22,
1947
whereby
the
optionees,
Michelberry
and
Naylor,
obtained
the
right
to
enter
into
a
petroleum
and
natural
gas
lease
with
a
private
owner,
one
Hamula.
The
option
was
exercised
and
a
lease,
dated
December
20,
1947,
was
entered
into.
A
copy
of
the
lease
is
part
of
Exhibit
P-24.
The
optionees
had
previously
assigned
the
option
to
a
trust
company
as
trustee
for
a
syndicate,
whereof
the
optionees
were
the
management
committee.
By
another
agreement
(Exhibit
P-24),
dated
December
20,
the
optionees,
in
their
capacity
as
the
management
committee,
sold
the
plaintiff
the
syndicate’s
rights
under
the
lease.
The
sale
was
in
consideration
of
a
drilling
commitment
and
provided,
in
the
event
of
success,
for
the
equal
division
of
the
net
proceeds
of
production
between
the
syndicate
and
the
plaintiff.
By
a
letter
(Exhibit
P-23),
dated
December
19,
1947
(I
attach
no
significance
to
the
discrepancy
in
dates)
referring
to
the
transactions
previously
described,
the
plaintiff
undertook
to
pay
the
optionees,
personally
and
not
in
their
capacities
as
syndicate
managers,
the
sum
of
$50,000
out
of
the
plaintiff's
50%
share
of
the
net
proceeds
of
production.
By
an
assignment
(Exhibit
P-25),
dated
December
20,
1947,
Michelberry
and
Naylor
assigned
one-fifth
of
the
$50,000
to
Hamula.
The
full
body
of
the
letter
(Exhibit
P-23)
follows:
“In
consideration
of
the
sum
of
$1.00
and
other
valuable
consideration,
the
receipt
whereof
is
hereby
acknowledged,
this
Company
agrees
and
undertakes
that,
out
of
the
production
of
petroleum
and
natural
gas
to
which
this
Company
becomes
entitled
under
agreements
dated
the
20th
day
of
December,
1947,
between
yourselves
on
behalf
of
the
Conjuring
Creek
Syndicate
and
this
Company
and
yourselves
and
Prudential
Trust
Company
Limited
and
the
individual
members
of
the
Syndicate,
you
will
be
paid
by
this
Company
a
total
sum
of
$50,000.00,
payable
at
the
rate
of
10%
of
the
proceeds
of
net
production
of
each
well
drilled
by
this
Company
on
the
NW
/4
of
Sec
7,
TWP
50,
Rge
26,
West
of
the
4th
Meridian
pursuant
to
the
said
agreements
until
the
full
sum
of
$50,000.00
has
been
paid.
You
shall
be
paid
promptly
at
the
said
rate
as
production
proceeds
are
received
but
you
shall
not
be
entitled
to
any
payment
except
out
of
production.”
The
$50,000
was
paid
in
accordance
with
the
commitment
during
the
years
1949
to
1952
inclusive.
The
full
amount
of
the
plaintiff’s
50%
share
of
the
net
proceeds
of
production
was
recorded
as
income
and
the
payments
on
account
of
the
$50,000
were
debited
to
a
leasehold
account
at
the
same
time
as
the
corresponding
revenue
was
recorded.
It
appears
that,
in
fact,
the
plaintiff
did
not
actually
receive
and
pay
out
the
$50,000;
it
was
disbursed
direct
by
the
trust
company
in
pursuance
of
the
terms
of
an
agreement
(Exhibit
P-26)
made
between
the
plaintiff
and
the
trustee
after
a
producing
well
had
been
drilled
and
an
agreement
for
the
sale
of
the
production
entered
into
by
the
plaintiff
with
a
major
oil
company.
The
relevant
circumstances
of
the
Wilkinson
sublease
are
very
similar.
There
the
plaintiff
acquired
a
lessee’s
interest
in
certain
petroleum
and
natural
gas
rights
upon
entering
into
a
sub-lease
(Exhibit
P-28)
with
one
Wilkinson,
dated
January
6,
1948.
The
plaintiff
assumed
Wilkinson’s
drilling
commitment
on
terms
providing
the
equal
division
of
the
net
production
between
the
plaintiff
and
Wilkinson,
himself
a
sublessee.
Two
persons,
Schultz
and
Bell,
had
made
the
arrangements
with
Wilkinson
and
had
also
arranged
for
a
major
oil
company
to
finance
the
drilling
of
the
well
needed
to
fulfil
the
drilling
commitment.
Also
on
January
6,
1948,
the
plaintiff
entered
into
an
agreement
(Exhibit
P-27)
with
Schultz
and
Bell.
This
agreement,
after
reciting
that
Schultz
and
Bell
had
arranged
for
the
sub-lease
to
issue
to
the
company
and
their
arrangement
of
the
financing,
goes
on
to
provide,
in
part,
as
follows:
“(1)
As
consideration
for
the
acquisition
of
a
Sub-lease
of
the
petroleum
and
natural
gas
rights
with
respect
to
the
said
lands
in
the
name
of
Continental
.
.
.
Continental
covenants
and
agrees:
(b)
In
the
event
that
production
of
oil
is
obtained
in
commercial
quantities
from
the
first
well
on
the
said
lands
(commercial
quantities
being
defined
to
mean
.
.
.)
to
pay
to
Schultz
and
Bell
jointly
the
sum
of
$100,000.00
out
of
Continental’s
50%
share
of
net
production
and
at
the
rate
of
10%
of
the
net
production
in
each
well
on
the
said
lands
until
the
said
sum
of
$100,000.00
has
been
paid.’
Production
in
commercial
quantities,
as
defined,
was
obtained
from
the
first
well
and,
again,
an
arrangement
(Exhibit
P-29)
was
made
with
a
trust
company
to
receive
and
disburse
the
proceeds
from
the
sale
of
the
production.
A
total
of
$64,058.74
was
paid
to
Schultz
and
Bell
during
the
years
1949
to
1964
inclusive.
The
arrangement
was
then
terminated.
Again
the
money
did
not
actually
pass
through
the
plaintiff’s
hands
but
was
included
in
its
revenue
and
simultaneously
debited
to
a
leasehold
account.
It
is
the
appellant’s
contention
that
the
sums
of
$50,000
and
$64,058.74
should
not
have
been
included
in
the
computation
of
its
income
for
the
years
in
which
those
sums
were
paid.
Those
payments,
it
was
submitted,
were
in
the
nature
of
production
payments
reserved,
in
the
one
case,
by
Michelberry
et
al,
and,
in
the
other
case,
by
Schultz
et
al.
Those
sums,
said
counsel,
were
never
received
or
paid
by
the
appellant
which
had
divested
itself
in
favour
of
Michelberry
et
al
and
Schultz
et
al
of
its
right
to
part
of
the
production
of
the
lands
covered
by
the
Conjuring
Creek
Lease
and
the
Wilkinson
Sublease.
In
my
view,
this
argument
cannot
stand.
The
record,
as
I
read
it,
shows
that
the
appellant,
when
it
entered
into
contracts
with
Michelberry
et
al
and
Schultz
et
a/,
assumed
personal
obligations
towards
these
persons.
I
cannot
interpret
those
contracts
as
effecting
the
alienation
of
part
either
of
the
production,
or
of
the
proceeds
of
the
production,
of
the
land
covered
by
the
leases.
When
the
appellant
entered
into
the
trust
agreements,
it
merely
established
mechanisms
ensuring
that
the
appellant’s
income
would
be
applied
towards
the
satisfaction
of
its
obligations.
For
these
reasons,
rather
than
those
given
by
the
trial
judge,
I
am
of
the
view
that
the
second
and
third
issue
raised
by
the
appellant
must
also
be
resolved
in
favour
of
the
respondent.
I
would,
therefore,
dismiss
this
appeal
with
costs.
Smith,
DJ
(concurring):—I
have
had
the
advantage
of
reading
the
reasons
for
judgment
of
my
brothers
Pratte,
J
and
Primrose,
DJ
in
this
appeal.
On
the
issues
arising
out
of
the
Conjuring
Creek
Lease
and
the
Wilkinson
Sublease
they
both
came
to
the
conclusion
that
the
appeal
should
be
dismissed.
I
agree
with
that
conclusion.
On
the
issue
arising
out
of
the
Bituminous
Sands
Leases,
Pratte,
J
decided
that
the
appeal
should
be
dismissed,
but
Primrose,
DJ
concluded
that
it
should
succeed.
The
answer
to
this
issue
turns
on
the
meaning
to
be
ascribed
to
certain
provisions
in
the
Income
Tax
Act
of
Canada
and
The
Mines
and
Minerals
Act
of
Alberta
and
regulations
made
thereunder,
considered
in
relation
to
the
terms
of
the
nine
Bituminous
Sands
leases
granted
by
Alberta
to
the
appellant
and
other
companies
severally,
the
rights
under
which
leases
had
been
pooled
by
an
agreement
by
which
the
plaintiff
acquired
an
undivided
15%
interest
in
the
nine
leases
and
related
assets
in
exchange
for
its
100%
interest
in
the
one
lease
(No
8)
Originally
granted
to
it.
The
relevant
provisions
of
The
Income
Tax
Act
are
found
in
section
83A,
more
particularly
in
subsections
(5a),
(5b)
and
(5d)
of
that
section.
These
provisions
are
concerned
in
part
with
tax
liability.
They
read
as
follows:
EXPLORATION
AND
DRILLING
RIGHTS;
PAYMENTS
DEDUCTIBLE
83A.
(5a)
Where
an
association,
partnership
or
syndicate
described
in
subsection
(4)
or
a
corporation
or
individual
has,
after
April
10,
1962,
acquired
under
an
agreement
or
other
contract
or
arrangement
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
under
which
agreement,
contract
or
arrangement
there
was
not
acquired
any
other
right
to,
over
or
in
respect
of
the
land
in
respect
of
which
such
right,
licence
or
privilege
was
so
acquired
except
the
right
(a)
to
explore
for,
drill
for
or
take
materials
and
substances
(whether
liquid
or
solid
and
whether
hydrocarbons
or
not)
produced
in
association
with
the
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
or
found
in
any
water
contained
in
an
oil
or
gas
reservoir,
or
(b)
to
enter
upon,
use
and
occupy
so
much
of
the
land
as
may
be
necessary
for
the
purpose
of
exploiting
such
right,
licence
or
privilege,
an
amount
paid
in
respect
of
the
acquisition
thereof
shall,
for
the
purposes
of
subsections
(3b),
(3d),
(4a),
(4b)
and
(4c),
be
deemed
to
be
a
drilling
or
exploration
expense
on
or
in
respect
of
exploring
or
drilling
for
petroleum
or
natural
gas
in
Canada
incurred
at
the
time
of
such
payment.
RECEIPTS
FOR
EXPLORATION
OR
DRILLING
RIGHTS
INCLUDED
IN
INCOME
(Sb)
Where
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
is
disposed
of
after
April
10,
1962,
(a)
by
a
corporation
described
in
subsection
(3b),
(b)
by
a
corporation,
other
than
a
corporation
described
in
subsection
(3b),
that
was
at
the
time
of
acquisition
of
such
right,
licence
or
privilege
a
corporation
described
in
subsection
(3b),
or
(c)
by
an
association,
partnership
or
syndicate
described
in
subsection
(4),
any
amount
received
by
the
corporation,
association,
partnership
or
syndicate
as
consideration
for
the
disposition
thereof
shall
be
included
in
computing
its
income
for
its
fiscal
period
in
which
the
amount
was
received
unless
the
corporation,
association,
partnership
or
syndicate
(d)
acquired
such
right,
licence
or
privilege
by
inheritance
or
bequest,
or
(e)
acquired
such
right,
licence
or
privilege
before
April
11,
1962
and
disposed
of
it
before
November
9,
1962.
(Sd)
Subsections
(5b)
and
(5c)
do
not
apply
to
any
disposition
by
an
association,
partnership
or
syndicate
described
in
subsection
(4)
or
a
corporation
or
an
individual
of
any
right,
licence
or
privilege
described
in
subsections
(5a)
or
(5b)
unless
such
right,
licence
or
privilege
was
acquired
by
the
association,
partnership,
syndicate
or
corporation
or
individual,
as
the
Case
may
be,
under
an
agreement,
contract
or
arrangement
described
in
subsection
(5a).
Prior
to
1966
paragraph
(a)
of
subsection
(5a)
had
not
been
enacted.
The
critical
words
in
subsection
(5a)
are
those
relating
to
an
agreement,
contract
or
arrangement
under
which
there
was
acquired
“a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)”
and
the
effect
of
paragraph
(a)
of
the
subsection.
Subsection
(5b)
requires
that
where
such
a
right,
licence
or
privilege
is
disposed
of,
any
amount
received
as
consideration
for
the
disposition
shall
be
included
as
income
in
the
fiscal
year
in
which
it
was
received.
There
are
two
exceptions
to
this
rule,
not
relevant
to
the
facts
of
this
case.
By
subsection
(5d),
subsection
(5b)
does
not
apply
to
any
disposition
of
such
a
right,
licence
or
privilege
unless
it
had
been
acquired
under
an
agreement,
contract
or
arrangements
described
in
subsection
(5a).
The
nine
leases
had
been
granted
by
the
Lieutenant
Governor
in
Council
under
the
provisions
of
The
Mines
and
Minerals
Act
of
Alberta.
There
were
some
minor
differences
in
the
provisions
of
the
leases,
but
those
of
Lease
No
8
were
apparently
accepted
by
the
parties
and
the
Court
as
satisfactory
for
the
consideration
of
issues
arising
in
this
case.
By
Lease
No
8
the
appellant
lessee
was
granted
“the
exclusive
right
and
privilege
to
win
and
work
all
beds
and
seams
of
bituminous
sands”
within
the
land
described
in
the
lease.
The
lease
does
not
use
the
words
“petroleum,
natural
gas
or
other
related
hydrocarbons”
or
any
words
other
than
“beds
and
seams
of
bituminous
sands”.
Clause
2(1
)(c)
of
The
Mines
and
Minerals
Act
of
Alberta
defines
bituminous
sands
as
follows,
in
part:
(c)
“bituminous
sands”
means
the
oil
sands
and
all
other
mineral
substances
in
association
therewith.
.
.
.
This
is,
it
seems,
the
only
place
in
the
Act
where
the
word
“oil”
is
used
in
connection
with
bituminous
sands,
but
the
definition
clearly
means
that
bituminous
sands
contain
oil.
I
cannot
think
that
the
Minister,
to
whom,
under
subsection
304(1)
any
question
as
to
the
meaning
of
“bituminous
sands”
as
given
in
clause
2(1)(c)
is
to
be
referred
for
final
decision,
would
come
to
any
other
conclusion.
In
fact,
as
was
stated
in
argument
on
this
appeal
the
whole
purpose
of
acquiring
bituminous
sands
leases
is
to
extract
the
oils
and
gases
they
contain
in
the
hope
of
making
a
commercial
profit
from
their
sale.
Subsection
304(2)
defines
bituminous
sands
rights
as
follows:
304.
(2)
In
this
Part
“bituminous
sands
rights”
means
(a)
the
right
to
mine,
quarry,
work,
remove,
treat
or
process
bituminous
sands
including
the
recovery
of
any
products
therefrom
whether
above
or
below
the
surface,
and
(b)
the
right
to
dispose
of
bituminous
sands
and
any
products
recovered
therefrom.
I
cite
one
other
statutory
provision.
Paragraph
83(6)(a)
of
the
Income
Tax
Act
of
Canada,
1966
enacts:
(a)
“mine”
does
not
include
an
oil
well,
gas
well,
brine
well,
sand
pit,
gravel
pit,
clay
pit,
shale
pit
or
stone
quarry
(other
than
a
deposit
of
oil
shale
or
bituminous
sand),
.
.
.
It
is
clear
that
what
was
granted
by
Lease
No
8
was
a
right
to
mine
bituminous
sands
and
to
extract
therefrom,
first
the
bitumen
and
from
it
the
oils,
gases
and
anything
else
contained
therein.
There
is
a
weighty
argument,
as
is
clear
from
the
reasons
for
judgment
of
my
brother
Primrose,
for
holding
that
what
the
appellant
got
under
Lease
No
8
was
the
right
to
carry
on
a
mining
operation,
that
Parliament
in
enacting
section
83A
of
the
Income
Tax
Act
was
considering
only
the
traditional
process
of
obtaining
oil
by
well-drilling
operations,
and
not
of
a
mining
operation,
that
the
words
“explore
for,
drill
for
or
take’’
do
not
express
with
sufficient
clarity
an
intention
to
include
a
mining
operation
within
the
purview
of
the
section,
that
the
words
of
a
taxing
statute
must
be
interpreted
strictly,
and
accordingly
that
section
83A
does
not
apply
in
the
context
of
this
case.
On
the
other
hand
there
are
facts
which
in
my
opinion,
arrived
at
after
reviewing
the
facts
and
the
law
with
great
care
and
finally
resolving
some
lingering
doubts,
tend
even
more
strongly
to
the
opposite
conclusion.
Obviously
section
83A
is
designed
to
make
gains
realized
on
the
sale
of
rights
under
oil
leases
subject
to
income
tax.
It
seems
most
unlikely
that
Parliament
would
intend
to
tax
such
gains
only
when
they
arose
out
of
a
lease
for
an
oil
drilling
operation
and
not
where
the
lease
contemplated
another
method
of
obtaining
the
oil.
Turning
to
the
words
in
the
Income
Tax
Act,
subsection
83A(5b),
“explore
for,
drill
for
or
take’’,
I
consider
the
word
“take’’
to
be
of
great
import.
Its
ordinary
meaning
is
quite
broad.
It
clearly
means
something
other
than
“drill
for’’,
and
to
my
mind
there
is
no
basis
for
applying
the
ejusdem
generis
rule.
I
see
no
solid
reason
for
holding
that
this
word
should
not
be
given
its
ordinary
meaning,
and
in
my
view
this
ordinary
meaning
is
broad
enough
to
include
a
taking
by
means
of
a
mining
operation.
On
the
facts
of
this
case,
I
have
come
to
the
conclusion
that
paragraph
(a)
of
subsection
(5a)
of
section
83A
does
not
take
the
proceeds
of
the
disposition
by
the
appellant
of
its
rights
under
Lease
No
8
out
of
the
income
tax
liability
imposed
by
subsection
(5a).
Whatever
is
in
the
bituminous
sands,
if
produced
at
all,
is
necessarily
produced
in
association
with
the
petroleum,
natural
gas
or
other
related
hydrocarbons
extracted.
All
that
is
granted
by
the
lease
is
the
right
to
search
for,
mine,
quarry,
drill
for,
remove
and
treat
the
bituminous
sands
and
recover
products
therefrom
and
dispose
of
the
bituminous
sands
and
products.
The
right
of
the
lessee
does
not
extend
beyond
what
is
found
in
the
bituminous
sands.
These
sands,
in
addition
to
sand
and
crude
bitumen,
from
which
oils
and
gases
are
produced
contain,
as
stated
by
the
learned
trial
judge,
coke
and
sulphur,
which
are
by-products
of
the
production
of
gas
and
oil
and
thus
clearly
produced
in
association
with
the
hydrocarbons.
They
may
contain
several
other
substances,
such
as
gypsum,
which
remain
after
the
sand,
oils
and
gases
have
been
removed.
They
too
are
not
produced
otherwise
than
in
association
with
the
oils
and
gases.
In
the
result,
for
reasons
very
similar
to
those
expressed
by
the
learned
trial
judge,
Mahoney
J,
I
have
come
to
the
conclusion
that
the
assessment
for
income
tax
in
respect
of
the
Bituminous
Sands
Leases
was
in
accordance
with
the
Act.
I
would,
therefore,
dismiss
the
appeal
on
this
item
as
well
as
the
others,
with
costs.
Primrose,
DJ
(dissenting):—In
this
appeal
there
are
three
issues,
referred
to
as
(A)
Bituminous
Sands
Leases;
(B)
Conjuring
Creek
Lease;
(C)
Wilkinson
Sublease.
(A)
Bituminous
Sands
Leases
The
appellant
owned
a
number
of
bituminous
sand
leases
by
virtue
of
leases
from
the
Province
of
Alberta,
which
were
similar
in
terms,
and
for
the
purposes
of
the
appeal
the
one
referred
to
is
Lease
No
8,
dated
March
12,
1956
(Exhibit
P-15,
vol
Il,
p
278).
It
commences:
NOW
THEREFORE
THIS
INDENTURE
WITNESSETH
that
in
consideration
of
the
rents
and
royalties
hereinafter
reserved
and
subject
to
the
conditions,
covenants,
provisions,
restrictions
and
stipulations
hereinafter
expressed
and
contained,
Her
Majesty
doth
grant
unto
the
lessee
in
so
far
as
the
Crown
has
the
right
to
grant
the
same
the
exclusive
right
and
privilege
to
win
and
work
all
beds
and
seams
of
bituminous
sands
within
and
under
the
lands
more
particularly
described
as
follows,
namely:
All
those
parcels
or
tracts
of
land,
situs
to,
lying,
and
being
in
the
Ninetyseventh
(97)
Township,
in
the
Eleventh
(11)
Range,
West
of
the
Fourth
(4),
Meridian,
in
the
Province
of
Alberta,
Canada,
and
being
composed
of:
Sections
Ten
(10)
and
Eleven
(11)
and
that
portion
of
the
West
half
of
Section
Twelve
(12)
lying
North
and
West
of
the
left
bank
of
the
Athabasca
River
all
of
the
said
Township;
By
an
agreement
dated
December
31,
1964
(P-10,
vol
Il,
p
163)
the
appellant
reserved
15%,
the
remaining
interests
going
to
Canadian
Fina
Oil
Limited
28.365,
Pacific
Petroleums
Limited
26.258,
Calumet
14.588,
Murphy
Oil
Company
Limited
8.914,
Delhi
6.875
for
the
sum
of
$400,000
of
which
$31,167.84
represented
its
share
of
the
deposit.
The
sum
of
$368,832.16
represented
the
proceeds
of
sale
of
its
interest
in
the
leases.
By
a
Notice
of
Reassessment
for
the
appellant’s
1966
taxation
year,
the
respondent
as
represented
by
the
Minister
of
National
Revenue,
hereinafter
called
the
Minister,
included
in
its
income
the
sale
proceeds
of
its
interest
in
the
said
Bituminous
Sands
Leases,
the
sum
of
$368,832.16.
The
Minister
treated
the
sum
of
$368,832.16
as
an
amount
received
for
the
disposition
of
a
“right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)”,
within
subsection
(5b)
of
section
83A
of
the
Income
Tax
Act,
on
the
basis
that
the
leases
and
the
appellant’s
interest
therein
constituted
a
‘right,
licence
or
privilege’’
acquired
by
the
appellant
under
an
“agreement,
contract
or
arrangement’’
described
in
subsection
(5a)
of
section
83A,
and
assessed
the
said
sum
as
taxable
income.
The
learned
trial
judge
held
that
the
Minister
was
right
in
so
doing.
The
appellant
also
argues
that
of
the
consideration
in
the
Bituminous
Sands
Leases
$140,000
of
it
was
allocated
to
exploration
costs,
geophysical
work,
etc
which
increased
the
value
of
the
“project
property”;
described
in
Exhibit
10,
vol
Il,
p
165;
that
there
was
something
more
than
just
the
right
to
take
petroleum
contained
in
the
agreement
P-10
and
that
a
portion
of
it,
ie
$140,000,
should
not
be
taxable
even
if
section
83A
of
the
Income
Tax
Act
applies.
It
was
pointed
out
by
the
respondent
that
this
was
not
an
issue
in
the
trial
and
was
not
raised
in
the
pleadings
and
the
evidence
as
to
it
is
less
than
satisfactory.
The
relevant
portions
of
section
83A
of
the
Income
Tax
Act
in
effect
in
1966
were
as
follows:
EXPLORATION
AND
DRILLING
RIGHTS;
PAYMENTS
DEDUCTIBLE
83A.
(5a)
Where
an
association,
partnership
or
syndicate
described
in
subsection
(4)
or
a
corporation
or
individual
has,
after
April
10,
1962
acquired
under
an
agreement
or
other
contract
or
arrangement
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
under
which
agreement,
contract
or
arrangement
there
was
not
acquired
any
other
right
to,
over
or
in
respect
of
the
land
in
respect
of
which
such
right,
licence
or
privilege
was
so
acquired
except
the
right
(a)
to
explore
for,
drill
for
or
take
materials
and
substances
(whether
liquid
or
solid
and
whether
hydrocarbons
or
not)
produced
in
association
with
the
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
or
found
in
any
water
contained
in
an
oil
or
gas
reservoir,
or
(b)
to
enter
upon,
use
and
occupy
so
much
of
the
land
as
may
be
necessary
for
the
purpose
of
exploiting
such
right,
licence
or
privilege,
an
amount
paid
in
respect
of
the
acquisition
thereof
shall,
for
the
purposes
of
subsections
(3b),
(3d),
(4a),
(4b)
and
(4c),
be
deemed
to
be
a
drilling
or
exploration
expense
on
or
in
respect
of
exploring
or
drilling
for
petroleum
or
natural
gas
in
Canada
incurred
at
the
time
of
such
payment.
RECEIPTS
FOR
EXPLORATION
OR
DRILLING
RIGHTS
INCLUDED
IN
INCOME
(Sb)
Where
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
is
disposed
of
after
April
10,
1962,
(a)
by
a
corporation
described
in
subsection
(3b),
(b)
by
a
corporation,
other
than
a
corporation
described
in
subsection
(3b),
that
was
at
the
time
of
acquisition
of
such
right,
licence
or
privilege
a
corporation
described
in
subsection
(3b),
or
(c)
by
an
association,
partnership
or
syndicate
described
in
subsection
(4),
any
amount
received
by
the
corporation,
association,
partnership
or
syndicate
as
consideration
for
the
disposition
thereof
shall
be
included
in
computing
its
income
for
its
fiscal
period
in
which
the
amount
was
received
unless
the
corporation,
association,
partnership
or
syndicate
(d)
acquired
such
right,
licence
or
privilege
by
inheritance
or
bequest,
or
(e)
acquired
such
right,
licence
or
privilege
before
April
11,
1962
and
disposed
of
it
before
November
9,
1962.
(5d)
Subsections
(5b)
and
(5c)
do
not
apply
to
any
disposition
by
an
association,
partnership
or
syndicate
described
in
subsection
(4)
or
a
corporation
or
an
individual
of
any
right,
licence
or
privilege
described
in
subsection
(5a)
or
(5b)
unless
such
right,
licence
or
privilege
was
acquired
by
the
association,
partnership,
syndicate
or
corporation
or
individual,
as
the
case
may
be,
under
an
agreement,
contract
or
arrangement
described
in
subsection
(5a).
(5e)
For
the
purposes
of
subsections
(5b)
and
(So),
(a)
where
an
association,
partnership
or
syndicate
described
in
subsection
(4)
or
a
corporation
or
an
individual
has
disposed
of
any
interest
in
land
that
includes
a
right
licence
or
privilege
described
in
subsection
(5a)
that
was
acquired
under
an
agreement,
contract
or
arrangement
described
in
that
subsection
the
proceeds
of
disposition
of
such
interest
shall
be
deemed
to
be
proceeds
of
disposition
of
the
right,
licence
or
privilege;
and
(b)
where
an
association,
partnership
or
syndicate
described
in
subsection
(4)
or
a
corporation
or
an
individual
has
acquired
a
right,
licence
or
privilege
described
in
subsection
(5a)
under
an
agreement,
contract
or
arrangement
described
in
that
subsection
and
subsequently
disposes
of
any
interest
(i)
in
such
right,
licence
or
privilege,
or
(ii)
in
the
production
of
wells
situated
on
the
land
to
which
such
right,
licence
or
privilege
relates,
the
proceeds
of
disposition
of
such
interest
shall
be
deemed
to
be
proceeds
of
disposition
of
the
right,
licence
or
privilege.
The
relevant
portions
of
section
83A
in
effect
in
1964-65
were:
EXPLORATION
AND
DRILLING
RIGHTS;
PAYMENTS
DEDUCTIBLE
83A.
(5a)
Where
an
association,
partnership
or
syndicate
described
in
subsection
(4)
or
a
corporation
or
individual
has,
after
April
10,
1962,
acquired
under
an
agreement
or
other
contract
or
arrangement
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
under
which
agreement,
contract
or
arrangement
there
was
not
acquired
any
other
right
to,
over
or
in
respect
of
the
land
in
respect
of
which
such
right,
licence
or
privilege
was
so
acquired
except
the
right
to
enter
upon,
use
and
occupy
so
much
of
the
land
as
may
be
necessary
for
the
purpose
of
exploiting
such
right,
licence
or
privilege,
an
amount
paid
in
respect
of
the
acquisition
thereof
shall,
for
the
purpose
of
subsections
(3b),
(3d),
(4a),
(4b)
and
(4c),
be
deemed
to
be
a
drilling
or
exploration
expense
on
or
in
respect
of
exploring
or
drilling
for
petroleum
or
natural
gas
in
Canada
incurred
at
the
time
of
such
payment.
RECEIPTS
FOR
EXPLORATION
AND
DRILLING
RIGHTS
INCLUDED
IN
INCOME
(5b)
Where
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
is
disposed
of
by
a
corporation
described
in
subsection
(3b)
or
an
association,
partnership
or
syndicate
described
in
subsection
(4)
after
April
10,
1962,
any
amount
received
by
the
corporation,
association,
partnership
or
syndicate
as
consideration
for
the
disposition
thereof
shall
be
included
in
computing
its
income
for
its
fiscal
period
in
which
the
amount
was
received
unless
the
corporation,
association,
partnership
or
syndicate
(a)
acquired
such
right,
licence
or
privilege
by
inheritance
or
bequest,
or
(b)
acquired
such
right,
licence
or
privilege
before
April
11,
1962
and
disposed
of
it
before
November
9,
1962.
The
leases
cover
portions
of
the
Athabasca
tar
sands
in
Alberta.
The
appellant
argues
that
a
Bituminous
Sands
Lease
is
a
mining
lease,
and
is
different
in
nature
from
a
petroleum
and
natural
gas
lease,
to
which
section
83A
is
applicable.
The
Lease
No
8,
vol
Il,
p
279
recites:
WHEREAS
under
and
by
virtue
of
The
Mines
and
Minerals
Act,
being
chapter
66
of
the
Statutes
of
Alberta,
1949
Lieutenant
Governor
in
Council
is
empowered
to
make
regulations
governing
disposition
by
lease;
license
or
permit
of
bituminous
sands
rights;
and
WHEREAS
in
exercise
of
the
above
recited
power
by
order
of
the
Lieutenant
Governor
in
Council
dated
the
14th
day
of
December,
1955,
and
numbered
OC
1600-55,
regulations
were
made
governing
disposition
of
bituminous
sands
rights
the
property
of
the
Crown,
a
copy
of
which
regulations
is
hereto
annexed;
and
WHEREAS
the
lessee
having
applied
for
a
lease
of
bituminous
sands
rights
in
the
lands
hereinafter
described,
the
Minister
has
granted
such
application
under
the
provisions
of
The
Mines
and
Minerals
Act
and
the
said
regulations
upon
the
terms
and
conditions
herein
contained.
It
is
clear
from
the
evidence
of
Mr
Brusset
(transcript
pp
59-62
and
affidavit
vol
I,
p
116)
that
a
bituminous
lease
operation
involves:
1.
mining
the
sands;
2.
extracting
the
crude
bitumen;
and
3.
processing
the
crude
bitumen
to
obtain
synthetic
crude
oil.
This
perhaps
is
not
entirely
accurate
as
it
might
be
said
to
involve:
1.
removing
the
overburden;
2.
taking
out
the
ore
(ie
sand
and
bitumen);
3.
extracting
the
bitumen
from
the
sand;
and
4.
processing
the
bitumen
for
the
net
result
namely,
crude
oil.
According
to
the
evidence,
there
is
nothing
produced
in
association
with
the
petroleum
or
the
crude
bitumen,
as
in
some
petroleum
and
natural
gas
leases,
eg
where
substantial
amounts
of
sulphur
are
found
and
produced
in
association
with
the
petroleum.
Here,
the
lessee
simply
takes
the
sand
containing
the
bitumen,
from
which
the
crude
bitumen
is
extracted,
and
the
sand
then
becomes
“gaspillage”
or
waste.
Consequently,
how
can
it
be
said
that
this
lease
is
within
subsection
(5a)
of
section
83A
of
the
Income
Tax
Act?
Unless
the
lease
falls
within
that
section,
subsection
(5b)
has
no
application
and
the
proceeds
of
disposition
are
not
taxable
as
income
under
this
section.
In
reading
the
definitions
of
bituminous
sands
in
the
Alberta
statutes
and
regulations
that
are
set
out
in
the
Appeal
Books,
one
reads
such
expressions
as:
“bituminous
sands”
in
The
Mines
and
Minerals
Act,
RSA
1955,
c
204,
s
304(a)
[sic]
which
was
later
substituted
by
1957,
c
51,
clause
2(a):
2.
Section
2,
subsection
(1)
is
amended
(a)
by
striking
out
clause
(c)
and
substituting
the
following:
“(c)
‘bituminous
sands’
means
the
oil
sands
and
all
other
mineral
substances
in
association
therewith
being
within
townships
eighty-four
to
one
hundred
and
four
inclusive
in
ranges
four
to
eighteen
inclusive,
west
of
the
fourth
meridian
and
occurring
in
the
McMurray
formation,
being
the
Stratigraphic
formation
lying
above
the
upper
Devonian
carbonate
sediments
and
below
the
Clearwater
formation.”
Section
35
reads
as
follows:
35.
Section
304
is
struck
out
and
the
following
substituted:
“304.
(1)
If
any
question
arises
as
to
the
meaning
of
bituminous
sands
given
in
clause
(c)
of
subsection
(1)
of
section
2,
the
question
shall
be
referred
to
the
Minister
whose
decision
thereon
is
final.
(2)
In
the
Part
‘bituminous
sands
rights’
means
(a)
the
right
to
mine,
quarry,
work,
remove,
treat
or
process
bituminous
sands
including
the
recovery
of
any
products
therefrom
whether
above
or
below
the
surface,
and
(b)
the
right
to
dispose
of
bituminous
sands
and
any
products
recovered
therefrom.”
In
The
Mines
and
Minerals
Act,
1962,
SA
1962,
c
49,
clause
2(m),
minerals
are
defined
as:
(m)
“minerals”
means
all
naturally
occurring
minerals,
and
without
restricting
the
generality
of
the
foregoing,
includes
(i)
gold,
silver,
uranium,
platinum,
pitchblende,
radium,
precious
stones,
copper,
iron,
tin,
zinc,
asbestos,
salts,
sulphur,
petroleum,
oil,
asphalt,
bituminous
sands,
oil
sands,
natural
gas,
coal,
andydrite,
barite,
bauxite,
bentonite,
diatomite,
dolomite,
epsomite,
granite,
gypsum,
limestone,
marble,
mica,
mirabilite,
potash,
quartz
rock,
rock
phosphate,
sanstone,
serpentine,
shale,
slate,
talc,
thenardite,
trona,
volcanic
ash,
sand,
gravel,
clay
and
marl,
but
(ii)
does
not
include
(A)
sand
and
gravel
that
belong
to
the
owner
of
the
surface
of
land
under
The
Sand
and
Gravel
Act,
(B)
clay
and
marl
that
belong
to
the
owner
of
the
surface
of
land
under
The
Clay
and
Marl
Act,
or
(C)
peat
on
the
surface
of
land
and
peat
obtained
by
stripping
off
the
overburden,
excavating
from
the
surface,
or
otherwise
recovered
by
surface
operations;
A
provision
to
be
found
in
subsection
83(6)
of
the
Income
Tax
Act,
1966
reads
as
follows:
(a)
“mine”
does
not
include
an
oil
well,
gas
well,
brine
well,
sand
pit,
gravel
pit,
clay
pit,
shale
pit
or
stone
quarry
(other
than
a
deposit
of
oil
shale
or
bituminous
sand),
.
.
.
This
language
is
rather
significant
and
does
indicate
a
differentiation
between
an
oil
well
and
the
deposits
of
oil
shale
or
bituminous
sand,
which
supports
the
appellant’s
contention
that
bituminous
sand
should
be
treated
as
a
mine.
After
considerable
argument
as
to
relevance
and
counsel
agreeing
that
the
Court
might
give
it
such
weight
if
any
as
the
Court
considered
proper,
a
report
to
the
Lieutenant
Governor
in
Council
in
the
matter
of
an
application
by
certain
companies
under
Part
VIII
of
The
Oil
and
Gas
Conservation
Act,
published
in
December
1974
by
the
Energy
Resources
Conservation
Board,
was
put
in
as
Exhibit
P-34.
Such
a
report
was
required
as
a
condition
precedent
to
a
development
scheme
relating
to
some
of
the
Bituminous
Sands
Leases
in
question
here.
While
it
is
a
very
lengthy
report,
and
without
accepting
any
particular
aspect
as
evidence,
it
can
be
said
that
the
report
illustrates
the
manner
in
which
bituminous
sands
leases
are
developed
of
which
there
was
other
evidence
at
the
trial,
ie
excavators
for
overburden
removal,
and
mining
of
the
oil
sand
or
body,
stripping
and
stockpiling
along
the
pit
perimeters
for
later
use
as
reclamation
material,
temporary
disposal
of
overburden,
etc.
The
mining
system
is
described,
using
drag
lines
and
multiple
belt
conveyors
to
transport
the
ore
to
the
processing
plant.
There
is
other
evidence
given
in
the
verbal
testimony
also
that
at
the
extraction
plant
primary
separation
is
carried
out
by
using
a
hot
water
process
and
so
on;
finally,
the
extracted
bitumen
being
upgraded
and
treated.
This
report
supports
the
verbal
testimony
that
the
operation
of
extracting
the
oil
from
the
bituminous
sands
is
strictly
a
mining
operation
and
a
complicated
one,
requiring
a
great
deal
of
advance
preparation
and
expense
for
plant
equipment
in
order
eventually
over
a
period
of
years
to
have
a
plant
that
will
produce
conventional
and
synthetic
crude
oil.
It
seems
incontrovertible
that
such
an
operation
as
described
in
the
report
and
in
the
verbal
testimony
is
something
far
different
from
a
petroleum
and
natural
gas
lease.
In
interpreting
a
section
such
as
83A
of
the
Income
Tax
Act
it
has
been
held
many
times
that
a
statute
imposing
a
tax
should
always
be
strictly
construed
.
.
.
,
in
case
of
doubt,
the
tax
should
not
be
levied.
Foss
Lumber
Co
v
The
King
(1912),
3
WWR
110;
47
SCR
130;
8
DLR
437,
reversing
14
Ex
CR
53.
A
section
in
a
taxing
statute
has
to
be
given
a
strict
verbal
construction—a
mode
of
construction
not
merely
permissible,
but
made
imperative
by
authorities.
Ex
parte
Lewin
(1885),
11
SCR
484,
reversing
23
NBR
591.
That
is
not
to
say
that
the
canons
of
construction
to
be
applied
to
it
should
be
different
from
those
applicable
to
any
other
Act.
In
all
cases
the
true
intent
of
the
Act
must
be
ascertained.
It
has
been
held
that
in
interpreting
a
taxing
statute
the
courts
should
not
stretch
the
language
used
therein
to
bring
within
its
scope
those
objects
sought
to
be
taxed.
Re
Burrard
Dry
Dock
Co
(1955),
17
WWR
92
(BC).
In
Cornwall
v
Ottawa
&
New
York
Railway
(1915),
52
SCR
466,
Chief
Justice
Duff
held:
It
is
a
long
settled
rule
that
a
given
subject
is
not
to
be
held
to
be
a
subject
of
taxation
unless
the
intention
to
include
it
among
the
subjects
of
taxation
is
expressed
in
“clear
and
unambiguous
language’’.
The
appellant
points
out
that
the
leases
grant
the
right
to
search
for,
mine,
quarry,
drill
for,
remove
and
treat
or
process
bituminous
sands,
and
recover
products
therefrom,
and
the
right
to
dispose
of
products
recovered
therefrom,
and
says
that
bituminous
sands
are
not
related
hydrocarbons.
Section
83A,
subsection
(5a)
was
amended
in
1965
as
above
but
the
appellant
says
the
purpose
was
to
ensure
that
conventional
petroleum
and
natural
gas
leases
which
grant
the
right
to
produce
substances
such
as
sulphur,
in
association
with
the
petroleum,
are
covered
by
section
83A,
ie
that
the
amendment
does
not
have
the
effect
of
extending
the
subsection
to
include
the
Bituminous
Sands
Leases.
Having
regard
to
the
differentiation
between
the
usual
petroleum
and
natural
gas
leases
and
the
leases
in
question
here,
the
Court
is
of
the
view
that
the
language
of
section
83A
is
not
sufficiently
clear
to
embrace
the
Bituminous
Sands
Leases
in
question
in
this
appeal.
(B)
Conjuring
Creek
Lease;
(C)
Wilkinson
Sublease
The
other
two
issues
in
the
appeal,
namely
the
Conjuring
Creek
Lease
and
the
Wilkinson
Sublease
are
in
essence
the
same.
The
facts
in
the
Conjuring
Creek
Lease
are
that
by
an
option
agreement
dated
November
22,
1947
(Exhibit
P-22,
vol
3,
p
382)
one
Hamula
gave
to
Messrs
Naylor
and
Michelberry
an
option
to
acquire
an
oil
and
gas
lease
on
the
Northwest
7-50-26-W4th.
The
option
was
exercised
and
a
P
&
NG
Lease
dated
December
20,
1947,
was
granted
by
Hamula
to
Naylor
and
Michelberry.
The
latter
entered
into
an
agreement
with
the
appellant
whereby
the
appellant
acquired
the
right
to
drill
on
the
lands.
Under
that
agreement,
the
net
proceeds
of
production
were
to
be
shared
50%
to
the
appellant
and
50%
to
Michelberry
and
Naylor.
By
letter
dated
December
19,
1947
(Exhibit
P-23,
vol
III,
p
291)
the
appellant
agreed
with
Michelberry
and
Naylor
to
pay
them
a
sum
of
$50,000
at
the
rate
of
10%
of
the
proceeds
of
net
production
of
each
well
drilled
on
the
lands
which
payment
was
to
be
only
out
of
production.
Michelberry
and
Naylor
assigned
1/5
of
the
production
payment
to
Hamula
but
that
is
not
in
issue
in
this
appeal.
The
Prudential
Trust
Company
became
trustee
for
distribution
of
the
net
proceeds
of
production
and
in
due
course
distributed
proceeds
out
of
which
Michelberry
and
Naylor
and
Hamula
eventually
got
$50,000.
The
appellant
originally
showed
this
amount
in
its
books
as
income
but
later
reversed
the
entry
and
charged
it
to
lease
acquisition
costs
and
now
insists
that
it
is
not
income.
The
fact
that
it
was
originally
charged
as
income
and
later
changed
to
lease
acquisition
costs
is
not
a
determining
factor.
The
issue
is
to
determine
whether
in
fact
it
is
income
as
the
respondent
claims.
The
appellant
did
not
receive
the
actual
sum
of
$50,000
but
this
fact
of
itself
simply
means
that
instead
of
being
paid
to
the
company
and
then
to
Michelberry
and
Naylor
it
was
handled
through
a
trustee.
The
Minister
included
the
sum
of
$50,000
in
the
appellant’s
income
for
previous
years,
the
effect
of
which
was
to
reduce
the
drilling
and
exploration
expense
remaining
available
to
the
appellant,
by
the
same
amount,
and
this
determination
was
confirmed
by
the
learned
trial
judge.
It
is
clear
that
the
12
/2%
royalty
to
an
original
lessor,
in
this
case
(Hamula),
never
becomes
part
of
the
proceeds
of
the
lease,
and
he
is
entitled
to
it
forever,
ie
it
is
not
income
in
the
hands
of
a
lessee.
Any
subsequent
assignment
or
agreement,
such
as
the
one
Michelberry
and
Naylor
entered
into
with
the
appellant,
reserving
a
fraction
of
the
proceeds
of
gross
production,
is
income.
The
Calgary
and
Edmonton
Corporation
Ltd
v
MNR,
[1955]
Ex
CR
213;
[1955]
CTC
161;
55
DTC
1099.
The
statement
of
the
Lord
Chancellor
in
the
case
of
Mersey
Docks
and
Harbour
Board
v
Lucas
(1883-90),
2
TC
25
(HL),
adopted
in
the
case
of
Salada
Foods
Limited
v
The
Queen,
[1974]
CTC
201;
74
DTC
6171,
is
applicable
where
it
is
stated
at
page
31:
The
mode
of
the
application
makes
no
difference
whatever
to
the
question
of
what
is
profit
and
what
is
gain.
The
application
of
part
of
the
production
proceeds
to
satisfy
the
contractual
obligation
of
the
appellant
does
not
change
the
character
of
those
proceeds
and
as
indicated
earlier
the
intervention
of
the
trust
company
as
distributor
is
artificial
and
does
nothing
more
than
facilitate
the
payment
out
of
the
proceeds,
quite
a
usual
procedure
in
cases
of
this
kind.
Consequently,
although
the
proceeds
as
a
whole
did
not
pass
through
the
appellant’s
hands
the
proceeds
nevertheless
bear
the
character
of
income.
Applying
these
principles
the
amounts
in
issue
in
both
the
Conjuring
Creek
and
Wilkinson
Leases
is
income.
In
the
net
result
the
appellant’s
interest
in
the
Bituminous
Sands
Leases
in
the
sum
of
$368,832.16
should
not
be
included
in
the
taxpayer’s
income
for
its
1966
taxation
year.
However,
the
disputed
$50,000
in
the
Conjuring
Creek
Lease
and
the
$64,058.74
in
the
Wilkinson
Sublease,
are
to
be
included
in
the
taxpayer’s
income
for
its
1966
taxation
year.
The
appeal
is
therefore
allowed
in
respect
to
the
Bituminous
Sands
Leases,
and
the
appellant
will
have
its
costs.