Minister of National Revenue, Appellant,, [1973] CTC 345, 73 DTC 5281

The Chief Justice (orally):—This is an appeal from a decision of the Trial Division holding that the respondent was entitled, in respect of its 1967 taxation year, to the exemption provided for by subsection 83(5) of the Income Tax Act, which, in so far as relevant and as applicable to that taxation year, read as follows:

83. (5) . . . there shall not be included in computing the income of a corporation income derived from the operation of a mine during the period of 36 months commencing with the day on which the mine came into production.

The respondent, following its incorporation in 1955, engaged in mining exploration activities on its extensive holdings of mineral properties in the Highland Valley of British Columbia. As a result of such activities, at least two ore bodies were discovered.

Plans were developed for the necessary operations whereby the respondent would remove the ore from such ore bodies, convert the ore into concentrates and sell the concentrates.

In carrying out these plans, one of the ore bodies, which is known as “East Jersey”, was prepared for the extraction of ore by the open pit method and a mill was erected for conversion of the ore into concentrates so that, on December 1, 1962, ore was being produced in commercial quantities and was being fed into the mill for conversion into concentrates.

At that time, the appellant recognized that the respondent had a “mine” that came into production on: December 1, 1962, and was, therefore, entitled to the benefit of subsection 83(5).

In February, 1965 a rock slide terminated the operation on the East Jersey ore body, a month or so before the respondent would have, in accordance with its plans, stopped taking ore from that ore body.

In the meantime, however, the other ore body that had been discovered by the respondent’s exploration activities, which is called “Jersey”, had been prepared for the extraction of ore by the open pit method and the respondent was able to start extracting ore from it a month earlier, than had been planned. During that time, also, arrangements had been made for expansion of the mill to handle the larger production of ore to be expected from the Jersey ore body.

The issue between the parties in this appeal is whether a “mine came into production” within the meaning of subsection 83(5) when the respondent started to produce ore from the Jersey ore body.

Certain things, are, I think, not in dispute, viz:

1. While East Jersey and Jersey are close together, they are not physically connected and the operation of extracting ore from one was physically quite independent of the operation of extracting ore from the other.

2. The operation of extracting ore from either East Jersey or Jersey would, if it had been the sole business of the respondent, have been “the operation of a mine” within the meaning of those words in subsection 83(5).

As I understand the argument put forward by the appellant, its contention is that a mine did not “come into production” when the respondent started to extract ore from the Jersey ore body because the extraction of ore from that ore body was merely a part of “the operation of a mine” that started when the respondent started to extract ore from the East Jersey ore body. I believe the appellant’s argument is best summarized by that part of paragraph 33 of its Memorandum of Fact and Law filed in this Court that reads as follows:

33. The Appellant submits that in determining whether the Jersey pit was or was not by itself a mine separate and apart from the East Jersey pit the Trial Judge ought to have regarded as a mine that which the Respondent . . . obviously regarded as a mine, that is to say, the Respondent’s Highland Valley profit making enterprise comprising the Respondent’s property, the ore bodies and workings therein, the Respondent’s mill and the organization, equipment and labour force used from 1962 to 1967 and thereafter to extract ore and produce copper concentrate therefrom in a continuous unified and integrated operation.

in a nutshell, as I understand this submission, it is that the word “mine”, applied to the circumstances of this case, means a “profit making enterprise . . . used . . . to extract ore and produce copper concentrate” and includes not only the ore bodies and workings therein but also the mill used to convert the ore into concentrates. If that submission is correct, in my opinion, the appeal should succeed. If, on the other hand, that submission is not correct, we are left with no alternative basis in support of the appellant’s position.

The position that the appellant takes, as I understood counsel, is that “mine” in subsection 83(5) means an enterprise used to extract ore “and produce copper concentrate”. This is, in effect, an integration of two business operations, namely, (a) extraction of ore, and

(b) milling of concentrates. In my view, the authorities do not support such a wide ambit for the exemption in subsection 83(5). In 1958, Cartwright, J, as he then was, discussing the predecessor of subsection 83(5),* [1] said, in effect, that he inclined to the view that the word “mine” meant “a mining concern taken as a whole, comprising mineral deposits, workings, equipment and machinery, capable of producing ore”, and the passage in which he did so was quoted with approval by the Supreme Court of Canada, in a judgment delivered by Pigeon, J in MNR v MacLean Mining Co Ltd, [1970] SCR 877 at 882-3; [1970] CTC 264 at 268; 70 DTC 6199 at 6201. Moreover, in the latter case, Pigeon, J said at page 882: [267,6201], “Mining itself is complete by the production and hoisting of the ore . . .” In my view, “operation of a mine” in subsection 83(5) refers only to the extraction of ore from an ore body and does not include processing of the ore after it has been produced.! [2]

My conclusion is, therefore, that the appellant’s submission that the extraction of ore from the Jersey ore body is only part of the operation of a mine consisting of the whole of the extraction and processing activities carried on by the respondent must be rejected.

I am further of opinion that, having regard to the fact that the trial was conducted on the basis that what was in issue was whether that which was superficially a separate mining operation was not an operation of a mine within subsection 83(5) because “mine” in this context means an enterprise for extracting ore and producing concentrates therefrom, the question does not arise on this appeal as to whether, within the ordinary meaning of words, and having due regard to the definition quoted by Cartwright, J, the operation of these two open pits was really the operation of only a single “mining concern” and was not, therefore, the operation of two separate “mines”. I can conceive of very difficult questions of fact in applying these concepts, particularly where there are varying degrees of physical separation in the time and mode of operation. In respect of such questions, both parties should be on notice, before trial, of the nature of the issue that has been raised so that they may have an opportunity to prepare their re- spective cases on the evidence. The trial of this matter was not conducted on any such issue and, in my view, the matter cannot justly be considered from that point of view on this appeal.

I am therefore in agreement with the view of the matter adopted by the learned trial judge. I am, however, with respect, of the view that there is a technical deficiency in the actual judgment of the Trial Division, which simply refers the assessment back to the appellant. In my view, the judgment should be revised to provide that the assessment appealed from is referred back to the Minister of National Revenue for reassessment on the basis that, by virtue of subsection 83(5), there is not to be included, in computing the respondent’s income, that part of the respondent’s income that was derived from the extraction of ore from the Jersey ore body during the period of 36 months commencing with the day on which it came into production. As, however, the appeal failed on the substantive question involved, I am of the view that the appellant should pay the respondent’s costs of the appeal.