Delmer
E
Taylor:—These
are
appeals
from
income
tax
reassessments
for
the
year
1973.
It
was
agreed
between
counsel
for
the
appellants
and
for
the
respondent
that
the
appeals
would
be
heard
on
common
evidence.
The
Minister,
in
reassessing,
disallowed
the
deduction
provided
under
section
125.1
of
the
Income
Tax
Act
and,
in
conjunction
therewith,
transferred
certain
depreciable
property
from
Class
29
to
Class
8,
on
the
basis
that
the
appellants
were
not
“manufacturing
or
processing
in
Canada
goods
for
sale”.
The
appellants
relied,
inter
alia,
on
section
125.1
of,
and
Class
29
of
Schedule
B
of
the
Regulations
to,
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended.
The
respondent
contended
that
the
property
referred
to
was
not
property
described
in
Class
29
of
Schedule
B
to
the
Income
Tax
Regulations,
and
that
the
activities
of
the
appellants
were
not
“qualified
activities”
within
the
meaning
of
section
5202
of
the
Income
Tax
Regulations
which
would
permit
the
deduction
claimed
under
section
125.1
of
the
Act.
Jarmain
Cable
TV
Limited
(hereinafter
called
“Jarmain”)
is
a
company
engaged
in
the
cable
television
industry
in
the
Brantford/Paris
and
Newmarket/Holland
Landing
areas
in
the
Province
of
Ontario.
London
Cable
TV
Limited
(hereinafter
called
“London”)
is
similarly
engaged
in
London
in
the
Province
of
Ontario.
The
appellants
claimed
their
business
consisted
of
selectively
gathering
and
purifying
electromagnetic
waves
which
were
then
sold
to
customers.
The
respondent
accepted
only
that
during
the
course
of
their
activities
the
appellants
performed
functions
(gathering
and
purifying)
which
could
be
defined
as
processing.
For
reference
purposes
the
relevant
portions
of
Income
Tax
Regulations
5201
and
5202
are
quoted
hereunder:
5201.
Small
Manufacturers'
Rule.—For
the
purpose
of
paragraph
125.1
(3)(a)
of
the
Act,
‘Canadian
manufacturing
and
processing
profits’
of
a
corporation
for
a
taxation
year
are
hereby
prescribed
to
be
equal
to
the
corporation’s
adjusted
business
income
for
the
year
where
(a)
the
activities
of
the
corporation
during
the
year
were
primarily
manufacturing
or
processing
in
Canada
of
goods
for
sale
or
lease,
5202.
In
this
Part,
except
as
otherwise
provided
.
.
.,
“qualified
activities”
means
(a)
any
of
the
following
activities,
when
they
are
performed
in
Canada
in
connection
with
manufacturing
or
processing
(not
including
the
activities
listed
in
subparagraphs
125.1
(3)(b)(i)
to
(ix)
of
the
Act)
in
Canada
of
goods
for
sale
or
lease:
(i)
engineering
design
of
products
and
production
facilities,
(ii)
receiving
and
storing
of
raw
materials,
(iii)
producing,
assembling
and
handling
of
goods
in
process,
(iv)
inspecting
and
packaging
of
finished
goods,
(v)
line
supervision,
(vi)
production
support
activities
including
security,
cleaning,
heating
and
factory
maintenance,
(vii)
quality
and
production
control,
(viii)
repair
of
production
facilities,
and
(ix)
pollution
control,
Counsel
for
the
appellants,
through
two
witnesses,
Mr
Latimer,
a
chartered
accountant,
and
Mr
Hamilton
Piercy,
a
professional
engineer,
introduced
evidence
both
verbal
and
documentary
in
support
of
the
following
positions:
(a)
that
the
activities
of
the
appellants
in
“processing”
were
“qualified
activities”
under
Regulation
5202;
(b)
that
the
appellants
gathered
and
processed
the
broadcast
signal,
not
a
television
program;
(c)
that
such
broadcast
signal
was
electricity,
and
that
electricity
had
been
held
previously
to
be
a
“good”;
and
(d)
that
the
broadcast
signal
was
public
property
at
the
time
it
was
interrupted
and,
thus
having
been
captured,
became
the
property
of
the
appellants
to
sell.
A
description
of
the
nature
of
the
cable
television
industry
provided
by
the
witness
for
the
appellants,
Mr
Hamilton
Piercy,
is
very
helpful
and
is
quoted:
Q.
(by
Mr
Pilling)
Then,
would
you
read
the
next
statement,
which
is
a
statement
of
a
a
“Description
of
Telecasting”?
THE
WITNESS:
I
thought
It
It
was
appropriate
to
add
this
to
the
description,
to
help
explain
the
nature
of
the
electromagnetic
waves
and
what
their
composite
parts
are:
Description
of
Telecasting:
The
studio
camera
converts
the
viewed
image
into
a
series
of
electrical
impulses
known
as
a
video
signal
which
is
passed
along
to
a
a
modulator
which
imposes
the
electrical
impulses
containing
the
video
signal
on
carrier
waves
which
are
produced
by
an
oscillator.
The
reason
for
the
modulation
is
that
the
video
signals
themselves
have
an
oscillation
or
frequency
and
wave
length
that
make
them
unsuitable
to
be
radiated
by
themselves
from
a
television
transmitting
antenna.
The
electrical
impulses
resulting
from
modulation
are
known
as
a
a
modulated
radio
frequency
carrier.
This
modulated
carrier
is
amplified
by
broadcast
transmitter
amplifiers
and
then
transmitted
by
an
antenna
through
space
as
a
broadcast
signal.
In
a
similar
manner
the
sound
portion
of
a
television
program
is
converted
in
the
studio
to
another
series
of
electrical
impulses
known
as
an
audio
Signal
which
is
passed
along
to
a
modulator
and
by
a
similar
process
of
modulation
and
amplification
the
electrical
impulses
are
converted
to
a
second
modulated
radio
frequency
carrier
and
broadcast
through
space
as
a
broadcast
signal.
These
broadcast
signals
are
intercepted
by
the
home
antenna
and
by
a
process
of
demodulation
and
application
to
a
picture
tube
and
loudspeaker
are
converted
by
the
TV
set
into
sight
and
sound.
MR
PILLING:
Q.
Could
you
Carry
on,
Mr
Piercy?
A.
“The
Tap-Off
delivers
the
broadcast
signals
to
individual
customers
which
then
pass
through
a
transformer
owned
by
the
cable
television
company
located
on
the
customer’s
TV
set.”
Q.
So,
the
transformer
is
owned
by
the
cable
TV
company,
but
it
is
physically
on
the
customer’s
TV
set.
Is
that
right?
A.
That
is
so.
Q.
Okay.
A.
“The
broadcast
Signals
are
then
separated
by
demodulators
and
the
resulting
.
.
.”
This
is
within
the
TV
set,
this
last
part:
“The
broadcast
signals
are
then
separated
by
demodulators
and
the
resulting
audio
and
video
signals
are
passed,
in
the
case
of
the
audio
Signal
to
a
loudspeaker,
and
in
the
case
of
the
video
Signal
to
a
picture
tube,
where
they
are
reconverted
to
audible
sound
and
visible
image.”
Q.
This
process
of
demodulation
you
said
is
done
in
the
TV
set.
That
is
done
on
the
equipment
obviously
owned
by
the
customer?
A.
That
is
part
of
the
customer’s
own
equipment.
Q.
Now,
where
exactly
does
this
broadcast
signal
pass
to
the
customer?
A.
At
the
terminals
of
the
transformer
which
is
in
the
customer’s
home.
Q.
Those
are
attached
to
the
TV
set?
A.
They
are
attached
to
the
antenna
terminals
on
the
TV
set.
Q.
And
what
the
customer
actually
receives
is
the
broadcast
signal
which
you
have
described?
A.
Yes.
An
excerpt
from
the
cross-examination
of
Mr
Latimer
by
counsel
for
the
respondent
regarding
the
relationship
between
the
appellants
and
a
customer
is
also
particularly
informative:
Q.
Now,
the
terms
and
conditions
of
service
which
are
printed
here,
they
really
do
not
explain
what
kind
of
service
the
customer
is
going
to
get.
Is
there
any
other
information
booklet
or
any
other
outlet
through
which
you
inform
the
public
as
to
what
kind
of
service
they
get?
A.
!
suppose
it
is
word
of
mouth
in
the
first
instance,
or
the
advertising
message
that
has
been
—or
the
sales
message,
as
you
will,
that
has
been
used
initially.
If
it
it
is
a
newspaper
advertisement
they
might
be
emphasizing
the
number
of
channels,
the
clarity
of
the
signal,
the
consistency
of
the
signal.
Often,
you
know,
a
good
technique
is
after
an
ice
storm
has
come
along
and
has
brought
down
a
lot
of
aerials,
a
a
good
technique
is
to
publish
a
picture
of
an
aerial
that
has
come
down
in
an
ice
storm.
The
message
being
the
fidelity
of
the
signal
and
its
constancy.
It
It
does
not
fade
in
and
out
as
might
if
if
the
home
owner
relied
upon
his
own
antenna.
Q.
In
other
words,
what
they
are
getting
is
better
reception
and
perhaps
a
larger
range
of
TV
channels,
is
that
correct?
A.
Better
signals,
more
signals,
stronger
signals,
cleaner
[sic]
signals,
signals
freer
of
distortion
or
interference,
noise
as
it
might
be
called.
Signals
that
they
perhaps
could
get
themselves
or
maybe
could
not
get
themselves
and
the
signais,
of
course,
are
used
at
the
television
set
to
produce
the
program.
Counsel
for
the
appellants,
in
argument,
pointed
out:
Now,
under
section
3(c)
of
the
Broadcasting
Act
which
governs
the
cable
television
industry
it
is
stated:
“The
right
of
persons
to
receive
programs
subject
only
to
general
applicable
statutes
and
regulations
is
unquestioned.”
What
the
cable
television
company
does,
I
submit,
is
it
intercepts
broadcast
signals
in
the
air
and
at
that
point
in
time
they
are
not
owned
by
anyone,
they
are
not
owned
by
the
broadcast
companies,
they
are
public
property
as
set
out
in
the
Broadcasting
Act.
They
are
much
like
fish
in
the
sea.
Counsel
for
the
respondent
in
argument
stated:
(1)
that
previous
legal
action
regarding
alleged
theft
of
broadcast
signals
had
been
under
the
Copyright
Act,
not
under
an
act
dealing
with
the
conversion
or
theft
of
goods;
(2)
that
where
charges
under
the
Criminal
Code
had
been
laid
in
any
alleged
theft
of
broadcast
signals,
such
charges
had
been
under
a
specific
section
dealing
with
the
theft
of
communication
services;
(3)
that
assuming
the
broadcast
(electromagnetic)
signals
were
goods,
the
sale
still
would
be
not
of
the
goods,
but
of
the
services;
(4)
that
if
the
broadcast
signals
were
considered
like
electricity,
they
would
be
analogous
to
electrical
energy,
not
electricity
itself;
(5)
that
the
appellants’
business
consisted
of
providing
a
service;
and
(6)
that
the
concept
of
property
should
not
be
confused
with
assets.
Also
in
argument,
counsel
for
the
respondent
made
the
following
two
specific
comments:
I
would
submit
that
the
cable
TV
companies
did
not
have
the
title
to
those
TV
signals
as
property,
because
the
property
in
this
sense
and
the
title
means
having
the
highest
interest
in
that
particular
item,
which
should
enable
the
owner
thereof
to
duplicate,
reproduce
and
to
sell.
I
would
submit
that
one
can
sell
only
what
one
owns.
The
signals
are
not
owned
by
anyone.
They
are
in
the
air
free
for
anyone
to
catch
and
there
is
no
property
in
signals.
With
reference
to
the
four
positions
put
forward
by
counsel
for
the
appellants,
the
following
are
the
views
of
the
Board:
(a)
Sufficient
evidence
regarding
the
nature
of
processing
has
been
brought
forward
that
it
should
not
be
excluded
from
the
description
of
“qualified
activities”.
To
the
degree
that
the
issue
would
turn
on
this
point
the
Board
would
rule
in
favour
of
the
appellants.
(b)
The
Board
points
out
that
paragraph
3(c)
of
the
Broadcasting
Act,
RSC
1970,
c
B-11,
reads
as
follows:
(c)
all
persons
licensed
to
carry
on
broadcasting
undertakings
have
a
a
responsibility
for
programs
they
broadcast
but
the
right
to
freedom
of
expression
and
the
right
of
persons
to
receive
programs,
subject
only
to
generally
applicable
statutes
and
regulations,
is
unquestioned;"’
This
may
not
be
determinative,
but
neither
is
it
Supportive
of
the
appellants’
contention
that
broadcast
signals
(not
television
programs)
were
processed.
The
Board
reserves
further
comment
on
this
point.
(c)
The
evidence
that
the
broadcast
signal
is
identical
to
electricity,
or
even
to
electrical
energy,
is,
at
the
least,
ambiguous.
Further,
the
Classification
of
electricity
as
“goods”
is
not
certain,
as
it
would
be
applied
for
purposes
of
this
section
of
the
Act
since,
to
the
degree
electricity
has
been
described
at
all,
the
term
“a
good”
rather
than
“goods”
has
been
generally
applied.
The
Board
reserves
further
comment
on
this
point.
(d)
“Ownership
and
sale”,
however,
is
the
main
point
as
the
Board
sees
the
matter.
Whatever
might
be
the
nature
and
characteristics
of
the
broadcast
Signals
(whether
intellectual
or
real
property,
goods,
electricity
or
electrical
energy),
counsel
were
apparently
agreed,
for
purposes
of
this
hearing,
that
at
the
time
of
interruption
by
the
appellants,
such
signals
were
not
owned
by
anyone.
The
Board
points
out
that
paragraph
3(a)
of
the
Broadcasting
Act
reads
in
part
as
follows:
(a)
broadcasting
undertakings
in
Canada
make
use
of
radio
frequencies
that
are
public
property
..
.
.
There
are
also
some
definitions
provided
in
section
2
of
the
same
Broadcasting
Act,
two
of
which
are:
2.
In
this
Act
“broadcasting
undertaking”
includes
a
broadcasting
transmitting
undertaking,
a
broadcasting
receiving
undertaking
and
a
network
operation,
located
in
whole
or
in
part
within
Canada
or
on
a
Ship
or
aircraft
registered
in
Canada;
“radiocommunication”
means
any
transmission,
emission
or
reception
of
Signs,
signals,
writing,
images,
sounds
or
intelligence
of
any
nature
by
means
of
electromagnetic
waves
of
frequencies
lower
than
3,000
Gigacycles
per
second
propagated
in
space
without
artificial
guide:
The
terms
“broadcast
signals”
and
“electromagnetic
waves”
have
apparently
been
used
interchangeably
at
this
hearing
by
counsel
for
the
appellants;
and
the
terms
“radio
frequencies”
and
“electromagnetic
waves
of
frequencies
lower
than
3,000
Gigacycles
per
second”
as
used
in
the
Broadcasting
Act,
apparently
describe
the
Same
transmission
mechanism.
There
are
probably
fine
technical
distinctions
which
can
be
made
among
these
four
terms,
but
the
evidence
available
to
the
Board
points
strongly
to
the
conclusion
that
for
purposes
of
this
hearing
they
refer
to
one
and
the
same
thing.
The
evidence
of
Mr
Hamilton
Piercy
indicates
that
the
television
program
is
the
constituent
element
in
the
broadcast
signal.
The
video
signal
and
audio
signal
forming
the
television
program,
in
the
form
of
an
electrical
impulse,
are
first
modulated
and
then
amplified
to
produce
a
broadcast
signal
suitable
for
transmission
through
space.
The
Board
concludes
that,
for
all
practical
purposes,
the
“radio
frequencies”
described
as
public
property
in
the
Broadcasting
Act
are
in
essence
the
programs
produced
by
the
originator.
There
is
no
indication
in
the
Broadcasting
Act
that
this
public
property
element
in
the
programs
is
extinguished
by
virtue
of
interruption,
processing
or
further
transmission,
or
that
such
public
property
becomes
private
property
at
any
time.
Indeed,
to
take
the
position
that
the
interruptor
of
a
broadcast
signal,
consisting
of
these
programs,
becomes
the
owner
thereof
appears
to
the
Board
to
be
quite
contrary
to
the
direction
and
intent
of
the
Broadcasting
Act
in
that
“the
right
of
persons
to
receive
programs
.
.
.
is
unquestioned”.
In
practice,
a
cablevision
company
has
the
same
right
as
any
person,
but
such
a
company
acquires
no
additional
right
by
interrupting
the
broadcast
signal
and
then,
after
certain
functions
described
as
“processing”,
passing
the
signal
along
to
the
customer.
That
customer
pays
a
fee
and
receives
the
signal
from
the
cablevision
company
hopefully,
in
a
more
technically
suitable
condition
than
he
is
able
to
receive
it
directly.
The
unquestioned
right
of
the
customer
to
receive
the
program
may
not
be
entitled
“ownership”
but
however
termed
it
is
equal
in
all
respects
to
any
right
held
by
the
appellants.
If
the
appellants
claim
“ownership”,
then
such
equivalent
“ownership”
must
also
be
held
by
ttre
customer.
The
appellants,
therefore,
could
hardly
expect
to
sell
to
a
customer
that
which
the
customer
could
justifiably
claim
he
already
owns.
The
Board
holds
that
the
interruption,
and
the
treatment
of
the
broadcast
signals
by
the
appellant
companies,
Jarmain
Cable
TV
Limited
and
London
Cable
TV
Limited,
did
not
attribute
to
the
appellants
any
specific
rights
in
such
broadcast
signals,
distinguishable
from
the
rights
of
the
customer;
and
that
the
appellant
companies
were
in
no
position
as
a
result
of
such
interruption
to
“sell
or
lease”
such
broadcast
signals,
as
would
be
required
for
consideration
under
the
provisions
of
section
125.1
of
the
Income
Tax
Act
and
the
relevant
Income
Tax
Regulations
5201
and
5202.
The
appeals
are
dismissed.
Appeals
dismissed.
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