Mahoney,
J:—As
a
resuit
of
a
consent
to
judgment
filed
herein
July
25,
1975
there
remain
three
issues
to
be
dealt
with
in
these
reasons,
namely
the
issues
raised
under
the
headings
“Bituminous
Sands
Leases”,
paragraphs
3
to
5
inclusive;
“Conjuring
Creek
Lease”,
paragraphs
6
to
11
inclusive,
and
“Wilkinson
Sublease”,
paragraphs
12
to
17
inclusive,
of
the
Statement
of
Claim.
The
issue
raised
under
the
heading
“Bituminous
Sands
Leases”
is
whether
the
proceeds
of
the
sale
by
the
plaintiff
of
its
undivided
15%
interest
in
Bituminous
sands
Leases
Nos
6,
7,
8,
9,
11,
12,
33,
34
and
82,
covering
103,375
acres
and
granted
by
Her
Majesty
the
Queen
in
right
of
the
Province
of
Alberta
(hereinafter,
for
convenience,
called
“Alberta”)
were
properly
included
in
the
plaintiff’s
income
by
virtue
of
subsection
83A(5b)
of
the
Income
Tax
Act.
83A.
(5b)
Where
a
right,
license
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
and
before
October
23,
1968,
(a)
by
a
corporation
described
in
subsection
(3b),
any
amount
received
.
.
.
as
consideration
for
the
disposition
thereof
shall
be
included
in
computing
its
income
for
its
fiscal
period
in
which
the
amount
was
received
unless
.
.
.
There
follow
certain
exceptions
which
have
no
application
in
this
case.
The
plaintiff
was,
at
all
material
times,
a
corporation
described
in
subsection
83A(3b).
What
was
disposed
of
was
disposed
of
in
1966
and
the
consideration
of
$368,832.16
was
received
in
that
year
and
has
been
assessed
to
the
plaintiff
as
income
for
the
fiscal
period
in
which
it
was
received.
However,
subsection
83A(5d)
provides,
inter
alia,
that
section
83A(5b)
does
not
apply
unless
such
right,
license
or
privilege
was
acquired
.
.
.
under
an
agreement,
contract
or
arrangement
described
in
subsection
(5a).
The
material
portions
of
subsection
(5a)
follow:
83A.
(5a)
Where
.
.
.
a
corporation
has,
after
April
10,
1962,
acquired
under
an
agreement
or
other
contract
or
arrangement
a
right,
license
or
privilege
to
explore
for,
drill
for
or
take
in
Canada
petroleum,
natural
gas
or
other
related
hydrocarbons
(except
coal)
under
which
agreement,
contract
of
arrangement
there
was
not
acquired
any
other
right
to,
over
or
in
respect
of
the
land
in
respect
of
which
such
right,
license
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,
license
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.
The
nine
bituminous
sands
leases
in
question
are
on
three
different
lease
forms.
Lease
No
8
(Exhibit
P-15),
dated
March
12,
1956
granted
the
plaintiff,
as
lessee,
for
a
term
of
21
years
from
May
7,
1954
“the
exclusive
right
and
privilege
to
win
and
work
all
beds
and
seams
of
bituminous
sands
within
and
under”
1393
acres,
more
or
less,
in
the
Province
of
Alberta.
The
other
leases
granted
the
same
basic
right
and
privilege
for
the
same
term,
but
commencing
on
various
dates,
to
certain
other
companies
in
respect
of
other
lands
in
Alberta.
All
but
one,
Lease
No
82
(Exhibit
P-21)
dated
December
19,
1962
granting
The
Atlantic
Refining
Company
a
21
year
lease
from
that
date,
were
dated,
and
the
lease
terms
commenced
to
run,
prior
to
April
10,
1962.
The
plaintiff
did
not
argue
that
any
of
the
rights
it
disposed
of
in
the
transaction
in
issue
had
been
acquired
by
it
on
or
before
April
10,
1962.
By
an
agreement
(Exhibit
P-10)
made
as
of
December
31,
1964
the
then
current
lessees
of
the
nine
leases
entered
into
an
agreement
whereby
they
pooled
their
rights
under
the
leases
and
agreed
to
exploit
those
rights
in
concert.
The
plaintiffs
100%
ownership
of
the
rights
and
privileges
granted
by
Alberta
under
Lease
No
8
was
thereby
converted
to
an
undivided
15%
interest
in
what
was
described
in
the
agreement
as
the
“Project
Property”.
By
definition,
the
Project
Property
included:
(a)
the
deposits
made
by
the
lessees
and
held
by
Alberta;
(b)
the
interests
granted
under
the
leases;
(c)
all
assets
acquired
or
developed
for
the
joint
account
of
the
parties,
prior
to
December
31,
1964,
relating
to
the
interests
granted
under
the
leases;
and
(d)
all
assets
thereafter
acquired
or
developed,
relating
to
such
interests.
The
agreement
further
provided
for
the
immediate
assignment,
by
the
lessees,
of
their
interests
in
the
individual
leases
to
one
of
the
parties,
designated
the
“Operator”
who
thereafter
held
them
in
trust
for
all
the
parties
in
accordance
with
the
terms
of
the
agreement.
On
January
25,
1966
the
plaintiff,
for
$400,000,
sold
its
interest
in
the
Project
Property
to
three
of
the
other
parties.
Of
the
$400,000,
$31,167.84
was
attributable
to
the
deposits.
That
is
not
disputed.
The
plaintiff
suggests
that
some
value
should
be
ascribed
to
the
results,
to
the
date
of
disposition,
of
the
developmental
work
undertaken
for
the
account
of
the
joint
venture.
The
evidence
on
this
point
is
so
vague
and
indefinite
that,
bearing
in
mind
the
onus
of
proof
that
rests
with
the
plaintiff
in
this
action,
I
have
no
option
but
to
find
that
the
only
thing
of
value,
other
than
the
deposits,
which
the
plaintiff
sold
was
its
undivided
15%
interest
in
the
rights
and
privileges
granted
by
Alberta
under
the
nine
leases.
Those
were
certainly
to
be
exercised
or
enjoyed
only
in
Canada.
Further
the
evidence
clearly
establishes
that
“bituminous
sands”
are
not
petroleum
or
natural
gas;
neither
are
they
coal.
I
do
not
intend
to
recite
the
provisions
of
the
leases
that
allude
to
mining
or
quarrying
nor
to
review
the
extensive
evidence
as
to
the
mode
of
removing
bituminous
sands
from
the
earth.
I
am
entirely
satisfied
that
the
taking
of
bituminous
sands
involves
a
mining
or
quarrying
operation.
That
said,
subsection
83A(5b)
does
not
specify,
nor
does
it
require
for
its
sensible
application
that
one
infer,
the
employment
or
exclusion
of
any
particular
means
of
taking.
The
crucial
issues,
as
I
see
them,
are
whether
or
not
the
rights
granted
by
Alberta
under
the
leases
were
rights
to
explore
for,
drill
for
or
take
hydrocarbons
related
to
petroleum
and
natural
gas
and,
if
so,
whether
any
further
right
or
rights,
in
respect
of
the
land
in
question,
beyond
those
specified
in
paragraphs
(a)
and
(b)
of
subsection
83A(5a),
were
also
granted.
Following
are
the
portions
of
Lease
No
8
which
I
consider
to
be
material
to
the
determination
of
just
what
it
was
that
the
leases
gave
the
lessees.
First
the
general
granting
provision:
.
.
.
in
consideration
of
the
rents
and
royalties
hereinafter
reserved
and
subject
to
the
conditions,
covenants,
provisoes,
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:
Together
with
the
right
to
search
for,
mine,
quarry,
drill
for,
remove
and
treat
the
said
bituminous
sands
and
recover
products
therefrom
and
dispose
of
the
said
bituminous
sands
and
products;
and
for
that
purpose
to
construct
and
place
such
buildings,
structures,
tanks,
pipe
lines,
machinery
and
equipment
upon
the
said
lands
as
shall
from
time
to
time
be
necessary
and
proper
for
the
efficient
working
of
the
said
bituminous
sands
and
recovering
products
therefrom;
and
in
the
lawful
exercise
of
any
of
the
rights
aforesaid
.
.
.
Then,
after
providing
for
the
term
of
the
lease
and
a
right
of
renewal,
and
an
annual
rental
on
an
acreage
basis,
the
lease
provides
for
royalty
payments
in
the
following
terms:
.
.
.
and
also
rendering
and
paying
therefor
unto
Her
Majesty
a
royalty
at
such
rate
as
may
be
prescribed
from
time
to
time
by
the
Lieutenant
Governor
in
Council
on
the
said
bituminous
sands
taken
from
the
lands
herein
described
which
are
sold
or
otherwise
disposed
of
without
processing
or
treatment,
and
a
royalty
at
such
rate
as
may
be
prescribed
from
time
to
time
by
the
Lieutenant
Governor
in
Council
on
each
of
the
products
extracted
from
the
said
bituminous
sands;
.
.
.
Portions
of
paragraph
1
of
the
lessee’s
covenants
and
paragraph
9
of
the
mutual
covenants
are
material:
1.
That
the
lessee
at
all
times
shall
perform,
observe
and
comply
with
all
the
provisions
of
The
Mines
and
Minerals
Act,
and
the
regulations
made
under
the
authority
of
the
said
Act
or
any
Act
or
Acts
passed
in
substitution
therefor,
and
all
such
provisions
and
regulations
which
prescribe,
relate
to
or
affect
the
rights,
obligations,
privileges
and
restrictions
of
and
upon
lessees
of
bituminous
sands
rights
the
property
of
the
Crown,
shall
be
deemed
to
be
incorporated
into
these
presents
and
shall
bind
the
lessee
in
the
same
manner
and
to
the
same
extent
as
if
the
same
were
set
out
herein
as
covenants
on
the
part
of
the
lessee;
provided
that
each
and
every
provision
or
regulation
hereafter
made
shall
be
deemed
to
be
incorporated
into
these
presents
and
shall
bind
the
lessee
as
and
from
the
date
it
is
made,
and
in
the
event
of
conflict
between
any
regulation
hereafter
made
and
any
regulation
previously
made
the
regulation
last
made
shall
prevail.
9.
That
.
.
.
the
expressions
“bituminous
sands”
and
“bituminous
sands
rights”
shall
have
the
meaning
given
to
them
in
The
Mines
and
Minerals
Act.
While,
as
indicated,
three
different
forms
of
lease
were
used
in
respect
of
the
nine
leases
in
issue,
and
there
are
differences
among
them
from
some
of
the
provisions
quoted
from
Exhibit
P-15,
I
cannot
see
that
any
of
those
differences
alter
the
effect
of
the
leases
in
which
they
appear
insofar
as
the
questions
to
be
determined
in
this
action
are
concerned*.
The
Mines
and
Minerals
Act,
1962
S/A
1962,
c
49,
and
the
regulations
thereunder
(Alta
Reg
342/62),
entitled
“Bituminous
Sands
Regulations,
1962”,
were
in
effect
in
1966.
The
Act
contained
the
following
material
provisions:
2.(1)
In
this
Act,
(b)
“bituminous
sands”
means
the
oil
sands
and
all
other
mineral
substances
in
association
therewith
being
within
townships
84
to
104
inclusive
in
ranges
4
to
18
inclusive,
west
of
the
4th
meridian
and
occurring
in
the
McMurray
formation,
being
the
stratigraphic
formation
lying
above
the
upper
Devonian
carbonate
sediments
and
below
the
Clearwater
formation:
PART
VI
BITUMINOUS
SANDS
AND
OIL
SANDS
171.
(1)
If
any
question
arises
as
to
the
meaning
of
bituminous
sands
given
in
clause
(b)
of
subsection
(1)
of
section
2,
the
question
shall
be
referred
to
the
Minister
whose
decision
thereon
is
final.
(2)
In
this
part,
(a)
“bituminous
sands
rights”
means
(i)
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
(ii)
the
right
to
dispose
of
bituminous
sands,
and
any
products
recovered
therefrom;
The
regulations
ascribe
the
same
meaning
to
the
terms
“bituminous
sands”
and
“bituminous
sands
rights”
as
is
given
them
by
the
Act
and,
inter
alia,
provide:
20.
A
lease
grants
the
bituminous
rights
in
the
location,
but
subject
to
any
exceptions
expressed
in
the
lease.
The
actual
taking
of
bituminous
sands
involves
first
the
removal
of
overburden.
The
bituminous
sands
in
their
natural
state
are
then
excavated
and
an
extraction
process
results
in
the
production
of
what
is
called
crude
bitumen.
The
crude
bitumen
is
then
further
processed
to
produce
gas,
naphtha,
light
gas
oil,
heavy
gas
oil
and
butanes,
all
of
which
are
hydrocarbons
and
all
of
which,
except
the
gas,
are
then
combined
into
a
liquid
petroleum
substance
called
synthetic
crude
oil.
In
addition,
coke
and
sulphur
are
produced.
Coke
and
sulphur
are
not
hydrocarbons
but
they
are
clearly
byproducts
of
the
production
of
gas
and
synthetic
crude
oil.
They
are
produced
in
association
with
the
hydrocarbons.
In
addition
to
the
hydrocarbons,
sulphur
and
coke,
after
completion
of
the
operations,
there
may
remain
any
or
ail
of
the
following
materials
and
substances:
topsoil,
overburden,
sand,
clay,
fine
mineral
matter,
muskeg,
gypsum
and
water.
The
plaintiff
characterizes
these
as
representing
the
main
material,
or
mined
ore,
from
which
the
commercially
valuable
materials
have
been
derived
and
argues
that
they
ought
not
properly
to
be
considered
as
being
produced
in
association
with
the
hydrocarbons.
This
does
not
help
the
plaintiff.
To
the
extent
that
they
are
produced
at
all,
they
are
produced
in
association
with
the
hydrocarbons.
To
the
extent
that
they
are
mere
natural
waste
necessarily
generated
in
the
process
of
recovering
the
hydrocarbons,
they
are
generated
by
virtue
of
the
exercise
of
the
right
to
take
the
hydrocarbons
and
not
otherwise.
Alberta
did
not
grant
the
lessees
under
the
bituminous
sands
leases
the
right
to
produce,
for
example,
gypsum,
except
in
association
with
the
hydrocarbons.
A
fair
reading
of
the
leases
themselves
and
of
the
provisions
of
the
provincial
Act
and
regulations
pertaining
to
them,
leads
to
the
conclusion
that
they
did
not
purport
to
grant
any
rights
to,
over
or
in
respect
of
the
land
to
which
they
referred
beyond
the
rights
specified
in
paragraphs
(a)
and
(b)
of
subsection
83A(5a).
The
further
provisions
of
the
provincial
Act
and
regulations
do
not
modify
the
basic
definition
of
bituminous
sands
contained
in
subsection
2(1)
of
the
Act,
namely:
“the
oil
sands
and
other
mineral
substances
in
association
therewith”.
Having
regard
to
the
terms
of
the
leases,
the
provincial
legislation
and
regulations
governing
them
and
the
realities
of
what
in
fact
is
done
in
the
exercise
of
the
lessee’s
rights
thereunder,
I
am
of
the
opinion
that
the
bituminous
sands
leases
in
question
constituted
rights
to
take
hydrocarbons
related
to
petroleum
and
natural
gas
and
that
the
proceeds
of
their
disposition
do
fall
within
subsection
83A(5b).
Further,
in
this
particular
instance,
none
of
the
exceptions
or
exclusions
provided
in
the
Income
Tax
Act
apply
and,
therefore
the
in-
clusion
of
the
$368,832.16
in
the
plaintiff's
taxable
income
for
1966,
pursuant
to
subsection
83A(5b),
was
mandatory.
The
issues
raised
under
the
headings
“Conjuring
Creek
Lease”
and
“Wilkinson
Sub-Lease”
are,
for
all
practical
purposes,
identical
notwithstanding
that
they
arise
out
of
different
transactions,
namely:
whether
certain
payments
made
by
the
plaintiff
were
drilling
and
exploration
expenses
for
purposes
of
section
83A
of
the
Income
Tax
Act.
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
(!
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
A
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)
A
sconsideration
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.
Subsection
83A(1)
provides,
in
part,
as
follows:
83A.
(1)
A
corporation
whose
principal
business
is
production,
refining
or
marketing
of
petroleum,
petroleum
products
or
natural
gas
or
exploring
or
drilling
for
petroleum
or
natural
gas
may
deduct,
in
computing
its
Income
under
this
part
for
a
taxation
year,
the
lesser
of
(a)
the
aggregate
of
such
of
the
drilling
and
exploration
expenses,
Including
all
general
geological
and
geophysical
expenses,
Incurred
by
it
on
or
In
respect
of
exploring
or
drilling
for
petroleum
or
natural
gas
In
Canada
as
were
incurred
during
the
calendar
years
1949
to
1952,
to
the
extent
that
they
were
not
deductible
in
computing
income
In
a
previous
taxation
year,
or
(b)
.
.
.
The
plaintiff
seeks
a
declaration
that
the
payments
made
on
account
of
the
$50,000
and
$64,058.74
were
exploration
and
drilling
expenses
with
certain
further
declarations
consequent
upon
such
declaration.
We
are
not
concerned
here
with
the
provisions
of
clause
(b)
that
limit
the
amount
deductible
under
clause
(a).
For
the
period
after
calendar
year
1952
until
April
11,
1962,
the
deduction
of
prospecting,
exploration
and
development
expenses
by
companies
whose
principal
business
was
mining
or
mining
exploration
was
also
permitted.
This
led
to
the
enactment
of
subsection
83A(3);
however,
for
the
purpose
of
this
action,
I
see
no
distinction
between
the
provisions
of
the
two
sections
and
do
not
propose
to
recite
any
part
of
subsection
83A(3).
Similarly,
a
further
extension
of
the
allowable
deduction
to
corporations
in
yet
other
businesses
effective
after
April
10,
1962,
which
resulted
in
the
enactment
of
subsection
83A(3b),
did
not
alter
the
law
in
so
far
as
the
plaintiff
was
concerned.
The
only
issue
is
whether
or
not
the
$50,000
paid
to
Michelberry
and
Naylor
and
the
$64,058.74
paid
to
Schultz
and
Bell
were
‘‘drilling
and
exploration
expenses
.
.
.
incurred
.
..
on
or
in
respect
of
exploring
or
drilling
for
petroleum
or
natural
gas”.
It
is
clear
that
the
contingent
obligations
to
make
these
payments
were
incurred
in
consideration
of
the
plaintiff
obtaining
the
right
to
explore
and
drill
for
oil
and
gas
on
particular
pieces
of
property
and
in
the
second
case
perhaps
in
further
consideration
of
the
arrangement
of
financing.
The
fact
that
the
obligations
were
contingent
upon
the
success
of
the
exploration
and
drilling
program
and
the
fact
that
they
were
to
be
paid
off
at
rates
directly
related
to
the
production
does
not
alter
their
basic
nature.
They
were
payments
for
the
right
to
drill
and
explore,
not
for
expenses
incurred
in
drilling
or
exploring.
The
payments.
were
correctly
reflected
in
the
plaintiff’s
accounts
when
they
were
originally
entered
and
the
errors
in
their
recording
which
the
plaintiff
now
perceives
is
illusory.
Subject
to
the
consent
to
judgment
filed
herein,
the
action
is
dismissed
with
costs.
The
defendant
may
prepare
and
submit
a
draft
judgment
in
accordance
with
these
reasons
and
the
consent
to
judgment.
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