Cattanach,
J:—This
is
an
appeal
from
a
decision
of
the
Tax
Appeal
Board,
dated
May
21,
1971,
whereby
the
assessment
of
the
appellant
by
the
Minister
to
income
tax
for
its
1967
taxation
year
was
confirmed.
In
assessing
the
appellant
as
he
did,
the
Minister
had
included
as
income
to
the
appellant
an
amount
of
$21,677.08
realized
by
it
on
the
sale
of
a
small
shopping
centre
and
land
adjacent
thereto.
The
contention
of
the
appellant
is
that
it
sought
to
create,
and
did
create,
an
asset
from
which
it
would
derive
rental
income
so
that
the
asset
so
created
is
a
capital
asset
and
that
the
gain
realized
upon
the
disposition
of
that
asset
is
a
non-taxable
capital
gain.
On
the
other
hand
the
contention
of
the
Minister
is
twofold
(1)
that
the
amount
realized
is
income
arising
in
the
ordinary
course
of
the
appellant’s
business
and
accordingly
taxable
under
sections
3
and
4
of
the
Income
Tax
Act
and
(2)
that
the
amount
realized
is
profit
from
“an
adventure
or
concern
in
the
nature
of
trade”
within
the
extended
definition
of
“business”
in
paragraph
139(1)(e).
For
convenience
I
reproduce
sections
3
and
4
and
paragraph
139(1)(e):
3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purposes
of
this
Part
is
his
income
for
the
year
from
all
sources
inside
or
outside
Canada
and,
without
restricting
the
generality
of
the
foregoing,
includes
income
for
the
year
from
all
(a)
businesses,
(b)
property,
and
(c)
offices
and
employments.
4.
Subject
to
the
other
provisions
of
this
Part,
income
for
a
taxation
year
from
a
business
or
property
is
the
profit
therefrom
for
the
year.
139.
(1)
In
this
Act,
(e)
“business”
includes
a
profession,
calling,
trade,
manufacture
or
undertaking
of
any
kind
whatsoever
and
includes
an
adventure
or
concern
in
the
nature
of
trade
but
does
not
include
an
office
or
employment;
The
appellant
is
a
joint
stock
company
incorporated
pursuant
to
the
laws
of
the
Province
of
Alberta
on
June
28,
1962
under
the
name
of
Makoi
Holdings
Ltd
with
an
authorized
capital
consisting
of
20,000
shares
without
nominal
or
par
value
which
might
be
issued
for
a
consideration
not
exceeding
$20,000.
The
inclusion
of
the
word
“Holdings’
in
the
corporate
name
is
a
complete
misnomer
and
bears
no
relationship
whatsoever
to
the
objects
for
which
incorporation
was
obtained
nor
the
business
in
which
the
appellant
engaged.
The
memorandum
of
association
in
clause
III
sets
forth
in
12
paragraphs
lettered
(a)
to
(I)
the
objects
for
which
the
appellant
was
established.
Paragraph
(a)
authorizes
the
appellant
to
carry
on
the
business
of
dealers
in
building
materials.
Paragraph
(b)
authorizes
the
appellant
to
carry
on
the
business
of
general
contractors
and
builders
without
limitation
as
to
the
class
of
structures
to
be
built.
In
paragraph
(d)
the
appellant
is
authorized
to
carry
on
the
business
of
paving
construction
and
dealers
in
supplies
therefor.
By
paragraph
(j)
the
appellant
is
authorized
to
deal
in
real
property
and
sundry
rights.
The
four
foregoing
paragraphs,
along
with
paragraph
(c),
which
basically
authorizes
the
designing
of
private
and
public
works,
in
my
view,
constitute
what
may
be
properly
considered
as
the
“objects”
for
which
the
appellant
was
incorporated.
The
remaining
seven
paragraphs,
being
(e),
(f),
(g),
(h),
(i),
(k),
and
(I)
are
more
properly
“powers”
which
were
introduced
into
the
memorandum
to
enable
the
appellant
to
carry
out
its
“objects”
as
expressed
in
the
other
five
paragraphs.
Under
The
Companies
Act
of
Alberta,
RSA
1970,
c
60,
the
incorporation
of
companies
is
by
memorandum
of
association.
It
has
been
held
in
Ashbury
Carriage
Company
v
Riche
(1875),
LR
7
HL
653,
that
a
company
so
incorporated
has
no
inherent
common
law
rights
and
accordingly
is
restricted
in
its
activities
to
carrying
out
the
objects
and
exercising
the
powers
set
forth
in
the
Memorandum
of
Association.
Subsection
20(1)
of
The
Companies
Act
of
Alberta
provides,
that
for
the
purpose
of
carrying
out
its
objects
a
company
incorporated
under
that
Act
has
the
powers
enumerated
in
the
section
except
those
expressly
excluded
by
the
memorandum.
There
is
no
such
exclusion
in
the
memorandum
of
the
appellant.
Paragraph
17
of
subsection
20(1)
confers
the
power
to
sell,
improve,
manage,
develop,
exchange,
lease,
dispose
of,
turn
to
account,
or
otherwise
deal
with
all
or
any
part
of
the
property
and
rights
of
the
company,
Paragraph
18
of
subsection
20(1)
bestows
on
a
company
the
power
to
invest
and
deal
with
such
moneys
of
the
company
as
are
not
immediately
required,
in
such
manner
as
may
from
time
to
time
be
determined.
The
power
in
paragraph
18
of
subsection
20(1)
also
expressed
in
paragraph
(h)
of
the
memorandum
of
the
appellant
in
somewhat
different
language.
What
the
appellant
did
in
each
of
its
financial
years
following
in-
corporation
was
to
purchase
serviced
building
lots
from
a
land
developer
and
build
thereon
single
family
dwellings.
In
some
instances
the
houses
were
built
on
speculation
and
in
other
instances
the
houses
were
built
for
specific
customers.
The
number
of
houses
built
on
speculation
and
for
customers
was
approximately
equal.
The
appellant
was
described
in
evidence
as
a
young,
aggressive
and
progressive
company
but
sorely
in
need
of
working
capital.
In
its
1962
calendar
year,
the
year
of
its
incorporation,
the
appellant
built
five
houses,
in
1963
ten,
in
1964
and
1965
twenty,
in
1966
twenty-five,
in
1967
thirty,
in
1968
thirty-five
to
forty,
in
1969
sixty
to
seventy
and
in
1970
ninety
to
one
hundred.
At
the
present
time
it
builds
about
150
houses
annually.
In
its
fiscal
year
ending
June
30,
1963,
its
initial
year,
the
appellant’s
financial
statements
show
a
gross
revenue
of
$85,858
with
a
nil
profit.
In
its
next
year,
June
20,
1964
a
gross
revenue
of
$482,000
was
received
with
a
net
profit
of
$17,000.
For
the
year
ending
June
30,
1965
the
gross
revenue
was
$562,000
odd
with
a
profit
of
$9,000.
In
the
June
30,
1966
year
the
appellant’s
gross
revenue
was
$606,000
resulting
in
a
net
profit
of
$4,000,
whereas
in
the
next
year,
June
30,
1967
the
gross
revenue
was
$709,000
with
a
net
profit
of
$36,000.
In
setting
forth
the
foregoing
I
have
rounded
the
figures
rather
than
setting
forth
the
precise
figures
appearing
in
the
financial
statements
because
my
purpose
is
to
illustrate
the
extent
of
the
appellant’s
activities
and
its
resultant
profits.
There
were
only
three
shares
in
the
capital
stock
of
the
appellant
which
were
issued
and
these
shares
were
issued
for
a
total
consideration
of
$4.
One
share
was
held
by
Peter
Epp,
Jr
and
one
each
by
his
father
and
his
brother.
Mr
Epp
is
a
professional
engineer
and
has
had
extensive
experience
in
the
building
industry.
He
is
the
general
manager
and
secretary-treasurer
of
the
appellant.
His
brother
is
the
president
and
his
father
is
the
vice-president.
Mr
Epp,
Sr
had
been
in
the
house-building
business
for
some
years
but
his
interests
are
now
exclusively
concentrated
in
the
appellant.
Mr
Epp,
Jr
had
also
caused
the
incorporation
of
a
company
known
as
Makoi
Construction
Limited
in
1959,
some
two
and
one-half
years
prior
to
the
incorporation
of
the
appellant.
This
company
was
controlled
by
Mr
Epp
who
owned
two-thirds
of
the
issued
shares
at
all
relevant
times.
This
company
was
engaged
in
the
business
of
building
commercial
buildings
principally
apartment
buildings
and
small
shopping
centres.
This
it
did
for
customers
at
a
firm
price.
The
firm
price
for
small
shopping
centres
was
always
in
the
range
between
$30,000
to
$45,000
in
the
years
1962
and
1963.
Mr
Epp,
Jr
was
the
manager
of
both
Makoi
Construction
Ltd
and
the
appellant.
The
member
of
the
Tax
Appeal
Board
who
heard
this
matter
in
the
first
instance
found
that
the
appellant
and
Makoi
Construction
Limited
were
associated
corporations
within
the
meaning
of
paragraph
39(4)(d)
of
the
Income
Tax
Act
in
that
Makoi
Construction
Ltd
was
controlled
by
Peter
Epp,
Jr
who
was
also
a
member
of
the
group
of
persons
that
controlled
the
appellant.
If
it
should
become
material
in
the
determination
of
the
present
appeal
I
would
agree
with
that
finding.
Shortly
prior
to
1964
the
appellant
had
built
some
houses
on
lots
purchased
by
it
from
Kelwood
Corporation
Limited
in
a
development
known
as
the
Acadia
subdivision
in
the
south-east
area
of
the
City
of
Calgary.
An
area
in
the
subdivision
had
been
zoned
for
a
shopping
centre
and
not
for
housing
development.
The
housing
had
approached
the
northern
boundaries
of
the
area
so
zoned
and
was
in
the
process
of
development
beyond.
Mr
Epp’s
father
was
the
originator
of
the
thought
that
the
land
should
be
acquired
by
the
appellant
and
a
shopping
centre
erected
thereon.
The
appellant
obtained
a
feasibility
report
dated
January
22,
1964
from
a
real
estate
agent
at
a
cost
of
$280
the
purport
of
which
was
that
a
shopping
centre
on
that
location
would
be
successful.
The
appellant
obtained
a
verbal
option
from
Kelwood
Corporation
Limited
to
purchase
the
site
consisting
of
1.14
acres
for
$35,933.
The
appellant
then
began
negotiations
with
prospective
tenants
of
a
shopping
centre
to
be
built.
The
appellant
considered
it
essential
to
have
as
an
anchor
tenant
a
grocery
supermarket.
Negotiations
with
Western
Grocers
Limited
resulted
in
an
almost
certain
commitment
to
lease
premises
in
the
centre.
Mr
Epp,
Jr
also
negotiated
prospective
leases
with
compatible
tenants.
On
May
13,
1964
the
appellant
exercised
its
verbal
option
with
Kelwood
Corporation
Limited
and
purchased
the
land
for
$35,933.
On
September
4,
1964
it
obtained
a
commitment
from
Royal
Trust
Company
to
make
a
loan
of
$86,000
secured
by
a
first
mortgage.
In
the
meantime
the
appellant
had
entered
into
a
contract
for
the
construction
of
the
shopping
centre
with
its
affiliated
corporation,
Makoi
Construction
Ltd.
On
October
1,
1964
a
building
permit
was
obtained
and
construction
began
immediately
thereafter.
On
October
2,
1964
a
confirmation
of
its
intention
to
lease
was
received
from
Western
Grocers
Limited.
The
building
was
substantially
completed
on
December
18,
1964
when
Western
Grocers
Limited
occupied
its
premises.
In
January
1965
construction
was
completed
and
the
remaining
tenants,
whom
I
believe
to
have
been
five
in
number,
moved
in.
It
happened
that
some
of
the
tenants
were
not
successful
in
their
enterprises
and
were
obliged
to
vacate
the
premises
leased.
There
was
evidence
that
this
is
not
unusual
and
is
to
be
expected
in
new
areas.
The
unsuccessful
tenants
were
replaced
by
other
tenants.
The
projected
construction
costs
were
$95,513
inclusive
of
the
cost
of
the
land
at
$35,933.
By
the
simple
mathematical
process
of
subtraction
that
would
leave
the
estimated
cost
of
the
building
at
$59,580.
At
this
point
it
is
significant
to
note
that
Makoi
Construction
Limited,
prior
to
the
construction
of
this
shopping
centre,
had
designed
and
constructed
four
small
shopping
centres,
which
were
between
one-half
and
three-quarters
the
size
of
this
shopping
centre,
at
costs
of
$27,000
to
$45,000,
the
maximum
cost
being
‘about
$15,000
less
than
the
cost
of
this
shopping
centre.
The
difference
in
cost
was
not
attributable
to
an
inflationary
increase
in
costs.
All
the
buildings
were
constructed
within
three
years,
but
the
higher
cost
of
the
appellant’s
shopping
centre
was
due
to
its
greater
size
and
the
superior
quality
of
the
materials
used.
Heavier
sewage
and
conduit
lines
and
extra
water
facilities
were
installed
at
greater
cost
to
accommodate
an
extension
in
the
number
of
stores
if
the
need
should
subsequently
arise.
Further
Mr
Epp,
Jr
did
extensive
landscaping
to
make
the
shopping
centre
more
attractive
and
to
harmonize
with
the
residential
character
of
its
surroundings.
There
was
evidence
to
the
effect
that
these
additional
built-in
features
which
made
the
building
more
costly
would
not
attract
a
correspondingly
higher
price
on
the
sale
of
the
building.
The
actual
cost
of
the
construction
of
the
building
is
shown
in
the
financial
statements
of
the
appellant
as
$64,789.92
or
approximately
$65,000
which
is
extremely
close
to
the
projected
cost
of
approximately
$60,000.
This
cost
of
$64,789.92
when
added
to
the
cost
of
the
land
at
$35,933
results
in
a
total
cost
of
$100,722.92.
In
August
1965
the
appellant
had
the
building
appraised
by
Howard
P
Hamilton,
a
real
estate
agent
and
appraiser,
who
placed
a
valuation
on
the
land
and
building
of
$144,831.93.
The
project
was
financed
by
a
first
mortgage
loan
in
the
amount
of
$86,000
obtained
from
the
Royal
Trust
Company.
In
arranging
this
loan
Mr
Epp,
Jr
who
had
many
prior
dealings
of
like
nature
with
the
Royal
Trust
Company
in
the
course
of
the
business
of
the
appellant
and
Makoi
Construction
Limited,
presented
the
feasibility
report
that
had
been
obtained
from
Howard
P
Hamilton
in
which
the
market
value
of
the
shopping
centre
was
shown
to
be
$129,500.
By
statute
the
Royal
Trust
Company
is
limited
to
lending
money
on
a
first
mortgage
to
two-thirds
of
the
market
value
of
the
property
which
is
the
security
for
the
loan.
The
amount
of
the
mortgage
loan
approximates
two-thirds
of
the
estimated
market
value
of
the
property.
The
balance
of
the
cost,
being
the
difference
between
$100,722.92
and
$86,000
which
is
$14,722.92
was
borne
by
the
appellant
with
accommodation
financing
by
Makoi
Construction
Limited.
In
cross-examination
it
was
disclosed
that
the
cash
advance
made
by
the
appellant
towards
the
financing
of
the
project
was
$7,000
which
had
been
paid
for
a
formal
option
for
the
land
and
which
became
part
of
the
payment
of
the
purchase
price
when
the
option
was
exercised.
The
balance,
which
is
in
the
approximate
amount
of
$7,000,
was
advanced
by
way
of
accommodation
by
Makoi
Construction
Limited.
As
intimated
before,
the
building
was
fully
completed
and
fully
occupied
by
January
1965.
As
the
building
neared
completion
insurance
was
placed
on
it
in
the
amount
of
$90,000.
It
should
be
borne
in
mind
that
the
ultimate
construction
cost
was
approximately
$65,000.
Accordingly
the
amount
of
the
insurance
which
coincided
with
the
market
value
of
the
building
exceeded
the
actual
cost
by
about
$25,000.
In
the
appellant’s
1966
year
the
excess
of
rental
revenue
over
expenses
was
approximately
$3,000.
This
is
referred
to
as
a
“cash-flow”
in
paragraph
6
of
the
Notice
of
Appeal.
This
amount
would
appear
to
be
the
approximate
annual
income
from
the
shopping
centre.
Mr
Epp
in
his
search
for
an
anchor
tenant
also
had
in
mind
that
a
gasoline
service
station
would
be
a
most
desirable
tenant
on
the
site.
He
approached
all
major
oil
companies
and
learned
that
their
uniform
policy
in
that
area
was
that
they
should
own
‘the
land
and
building.
Accordingly
Mr
Epp
instructed
his
solicitors
to
proceed
with
subdivision
plans
of
the
appellant’s
shopping
centre
whereby
a
one
hundred
foot
strip
of
land
was
segregated
in
order
that
such
land
might
be
sold
if
occasion
arose.
Such
an
occasion
did
not
arise
prior
to
the
disposition
of
the
entire
site.
In
view
of
the
fact
that
Makoi
Construction
Limited
constructed
the
building
with
its
employees
and
provided
the
financing
not
covered
by
the
first
mortgage
and
the
minimal
cash
contribution
of
the
appellant
it
seemed
incongruous
that
the
project
should
be
undertaken
by
the
appellant
bearing
in
mind
the
close
affiliation
of
the
two
corporations.
Mr
Epp,
Jr
gave
the
explanation
in
his
testimony.
The
idea
of
building
a
shopping
centre
originated
with
his
father.
His
father
was
a
shareholder
in
the
appellant
but
not
in
Makoi
Construction
Limited.
As
I
mentioned
at
the
outset
the
appellant
was
a
young
and
aggressive
company
engaged
in
the
speculative
and
custom
business
of
building
single
residential
dwellings
for
sale
at
a
profit.
The
appellant
carried
on
this
business
by
use
of
a
line
of
credit
advanced
by
its
banker.
The
manager
of
the
branch
at
which
the
appellant
did
its
banking
business
was
limited
in
extending
a
line
of
credit
to
the
customer
to
an
amount
of
$15,000.
For
amounts
in
excess
of
$15,000
the
branch
manager
was
required
to
make
application
for
approval
to
the
district
office.
This
was
done
on
behalf
of
the
appellant
and
its
line
of
credit
was
fixed
at
$35,000.
Because
this
amount
was
in
excess
of
the
branch
manager’s
discretion,
and
I
assume
the
line
of
credit
was
reviewed
annually
by
the
district
office,
it
followed
that
the
branch
manager
reviewed
the
affairs
of
the
appellant
each
year
usually
in
the
three
months
following
the
close
of
the
appellant’s
financial
year
on
June
30.
This
practice
was
followed
by
the
branch
manager
in
late
September
or
early
October
in
1965.
At
this
time
the
appellant
wished
to
increase
its
line
of
credit
from
$35,000
to
$50,000.
Because
the
amount
exceeded
the
local
manager's
discretion
he
submitted
an
application
to
the
district
office
which
refused
to
increase
the
credit
extended
to
the
appellant
but
maintained
that
credit
at
its
previous
level
of
$35,000.
Some
two
months
later,
in
December
1965,
the
branch
manager
renewed
the
application
to
increase
the
appellant’s
credit
to
$50,000.
This
time
the
extension
of
the
appellant’s
credit
to
$50,000
was
approved
subject
to
the
condition
that
the
additional
$15,000
of
credit
could
only
be
used
at
peak
periods
when
the
building
activity
of
the
appellant
required
extra
resources.
When
the
appellant
undertook
the
construction
of
the
shopping
centre
the
bank
manager
took
no
objection
to
the
appellant
applying
its
resources
in
this
manner.
In
the
following
year,
that
is
subsequent
to
June
30,
1966,
the
bank
manager
discussed
the
working
capital
of
the
appellant
with
its
officers.
At
this
time
he
expressed
the
opinion
to
the
appellant
that
its
working
capital
was
extremely
low
and
unduly
strained.
As
it
was
his
duty
to
do
he
reported
this
opinion
to
his
superiors.
He
did
this
because
he
was
aware
of
the
heavy
emphasis
placed
by
his
employer,
the
bank,
and
its
officers
to
whom
he
must
apply
for
renewal
and
increase
of
credit,
on
the
working
capital
position
of
a
customer
in
determining
what
credit
is
to
be
extended
to
the
customer.
Further
it
was
the
opinion
of
the
branch
manager
that
the
rental
income
from
the
shopping
centre
would
accumulate
too
slowly
to
improve
the
working
capital
position
of
the
appellant.
in
his
view,
which
view
was
shared
by
his
superiors,
if
the
increase
in
the
line
of
credit
requested
by
the
appellant
was
to
be
forthcoming
there
must
be
an
infusion
of
working
capital
forthwith.
With
this
purpose
in
mind
he
recommended
to
the
appellant
that
the
shopping
centre
should
be
sold.
The
branch
manager
was
insistent
that
his
advice
to
sell
the
shopping
centre
was
a
recommendation
only
and
most
certainly
was
not
put
as
an
ultimatum.
There
was
no
suggestion
that
the
appellant’s
tine
of
credit
would
be
reduced
below
the
amount
of
$35,000
which
it
enjoyed
although
that
might
have
been
a
possibility
due
to
the
tight
money
situation
prevailing.
On
the
other
hand
it
was
the
manager’s
view
that
there
was
no
prospect
for
the
appellant’s
credit
being
extended
to
$50,000
on
a
permanent
basis
unless
there
was
an
immediate
increase
in
its
working
capital.
The
most
effective
way
to
do
this,
in
the
manager’s
view,
was
to
sell
the
shopping
centre.
The
appellant
concurred
that
this
would
be
the
most
practicable
way
to
increase
its
working
capital.
While
the
sale
of
the
shopping
centre
was
merely
a
recommendation
by
the
bank
manager
and
not
an
ultimatum,
nevertheless,
in
my
view,
the
appellant
was
presented
with
a
Hobson’s
choice.
If
the
appellant
was
to
get
the
increase
it
wished
the
bank
would
increase
that
credit
only
if
the
shopping
centre
was
sold.
During
cross-examination
the
manager
conceded
that
if
he
had
known
that
the
appellant
had
only
advanced
$7,000
in
cash
toward
the
shopping
centre,
that
fact
might
have
made
a
difference.
I
fail
to
follow
how
this
fact
would
change
the
situation
accepting
as
I
do
the
bank’s
basic
premise
that
there
must
have
been
an
infusion
of
working
capital
to
justify
an
increase
in
the
credit
extended
to
the
appellant.
In
1965
the
bank
manager
had
stressed
the
fact
to
the
appellant
that
the
bank’s
loanable
funds
were
under
pressure
and
that
preference
upon
those
available
funds
would
be
given
to
customers
with
adequate
working
capital.
In
October
1966
the
definite
recommendation
was
made
by
the
bank
manager
that
the
appellant
sell
its
shopping
centre
to
secure
an
increase
in
its
bank
credit.
The
appellant
acceded
to
that
recommendation.
In
October
1966
the
bank
manager
so
reported
to
the
district
office.
On
October
7,
1966
the
district
office
approved
an
increase
in
the
appellant’s
line
of
credit
to
$50,000.
In
the
spring
of
1966,
prior
to
its
discussion
with
the
branch
manager
of
its
bank,
the
appellant
had
listed
the
shopping
centre
for
sale
with
a
real
estate
agent,
for
an
asking
price
of
$145,000.
This
asking
price
coincided
with
the
appraised
value
made
by
Howard
P
Hamilton
and
at
which
property
was
carried
on
the
appellant’s
balance
sheet
subject
to
the
auditor’s
notation
as
to
the
cost.
in
June
1966
the
land
was
subdivided
into
two
parcels,
one
parcel
was
that
on
which
the
shopping
centre
was
built
together
with
parking
facilities,
and
the
other
parcel
was
a
100
foot
strip
of
unoccupied
land.
An
enquiry
from
a
prospective
purchaser,
who
turned
out
to
be
the
ultimate
purchaser,
was
received
on
September
24,
1966.
On
October
24,
1966
the
appellant
received
its
first
and
only
definite
offer.
However
that
offer
was
for
the
shopping
centre
and
the
land
on
which
it
was
built
and
was
in
the
amount
of
$114,000,
although
there
had
been
negotiations
prior
to
October
24,
1966
but
the
negotiations
culminated
on
that
date.
On
November
1,
1964
two
agreements
were
entered
into
by
the
appellant,
one
for
the
sale
of
the
shopping
centre
proper
for
$114,000
and
the
second
for
the
sale
of
the
100
foot
strip
of
land
for
$16,000,
making
a
total
purchase
price
of
$130,000
or
$15,000
less
than
the
initial
asking
price.
These
sales
resulted
in
a
gain
to
the
appellant
in
the
amount
of
$21,677.68
which
the
Minister
included
as
part
of
the
appellant’s
income
and
assessed
tax
accordingly.
It
is
this
assessment
that
gives
rise
to
the
present
appeal.
On
one
particular
aspect
the
evidence
of
the
bank
manager
did
not
emerge
with
the
clarity
I
would
have
hoped
for.
There
is
no
doubt
that
in
the
interview
with
the
officers
of
the
appellant
which
took
place
in
October
1966
the
bank
manager
made
the
very
definite
recommendation
that
the
shopping
centre
be
sold.
However
the
evidence
is
that
in
the
spring
of
1966
which
is
well
prior
to
the
interview
with
the
bank
manager
in
October
1966
the
appellant
had
listed
the
shopping
centre
for
sale.
Following
on
the
appellant’s
previous
annual
interview
with
its
bank
manager,
that
is
the
one
that
took
place
in
October
1965,
the
appellant’s
request
for
an
increase
in
credit
was
first
refused,
but
later,
in
December
1965,
it
was
approved
for
peak
periods.
There
does
not
appear
to
have
been
a
recommendation
in
definite
terms
by
the
bank
manager
at
that
time
that
the
shopping
centre
be
sold.
He
did
say
that
the
“concern”
about
the
appellant’s
low
working
capital
was
not
so
great
at
that
time
as
it
was
in
October
1966.
I
assume
that
“concern”
meant
the
bank
manager’s
concern
and
that
of
the
District
office.
That
the
“concern”
was
not
so
great
as
it
later
was
must
have
been
so
because
the
appellant’s
credit
was
increased
for
its
peak
periods.
It
is,
therefore,
logical
to
conclude
that
no
definite
recommendation
was
made
by
its
branch
to
the
appellant
to
sell
its
shopping
centre
in
1965.
That
recommendation
was
made
in
October
1966
at
which
time
the
appellant
had
already
listed
the
shopping
centre
for
sale.
It
follows
logically
from
these
facts
that
the
appellant
was
not
influenced
by
the
recommendation
of
its
bank
manager
in
October
1966
because
it
had
made
the
decision
to
sell
prior
to
that
time.
It
may
well
have
been
that
the
bank
manager
had
deplored
to
the
appellant
its
inadequate
working
capital
but
even
if
that
was
so
the
decision
to
increase
that
working
capital
by
the
sale
of
the
shopping
centre
in
the
spring
of
1966
must
have
been
on
the
appellant’s
initiative
and
could
not
have
been
influenced
by
the
recommendation
of
its
bank
manager
made
in
October
1966
which
appears
to
have
been
the
only
time
that
he
made
a
recommendation
to
that
effect.
Again,
as
stated
at
the
outset,
the
rival
contentions
between
the
parties
are,
on
behalf
of
the
appellant,
that,
at
the
time
of
its
acquisition
of
the
shopping
centre,
it
had
the
intention
of
obtaining
rental
income
therefrom
to
the
exclusion
of
any
intention
of
a
subsequent
disposition
at
a
profit
and,
on
behalf
of
the
Minister,
that
what
the
appellant
did
falls
precisely
within
the
appellant’s
business
or
in
any
event
the
appellant
acquired
the
land
and
built
the
shopping
centre
thereon
with
the
intention
and
for
the
purpose
of
selling
the
property.
With
respect
to
the
first
contention
on
behalf
of
the
Minister,
that
is,
that
the
construction
and
sale
of
the
shopping
centre
was
the
appellant’s
business
Duff,
J
(as
he
then
was)
said
in
Anderson
Logging
Co
v
The
King,
[1925]
SCR
45
at
56;
[1917-27]
CTC
198
at
207;
52
DTC
1209
at
1214:
The
sole
raison
d’être
of
a
public
company
is
to
have
a
business
and
to
carry
it
on.
If
the
transaction
in
question
belongs
to
a
class
of
profit-making
operations
contemplated
by
the
memorandum
of
association,
prima
facie,
at
all
events,
the
profit
derived
from
it
is
a
profit
derived
from
the
business
of
the
company.
While
Sir
Lyman
P
Duff
specifically
mentioned
a
“public”
company
his
remarks
are
equally
applicable
to
a
“private”
company
which
status
the
appellant
had
under
its
articles
of
association.
There
is
no
doubt
that
the
objects
of
the
appellant
as
set
out
in
its
memorandum
of
association,
particularly
paragraphs
(b),
(c)
and
(i)
specifically
authorize
the
appellant
to
build
and
sell
a
shopping
centre.
The
fact
that
a
particular
transaction
falls
within
the
objects
contemplated
by
the
memorandum
of
association
is
merely
a
prima
facie
indication
that
a
profit
so
derived
is
profit
from
the
business
of
the
company.
Being
a
presumption
it
may
be
rebutted.
In
Sutton
Lumber
&
Trading
Co,
Ltd
v
MNR,
[1953]
2
SCR
77;
[1953]
CTC
237;
53
DTC
1158
Locke,
J
said
at
page
83
[244,
1161]:
The
question
to
be
decided
is
not
as
to
what
business
or
trade
the
company
might
have
carried
on
under
its
memorandum,
but
rather
what
was
in
truth
the
business
it
did
engage
in.
.
.
.
Accordingly
one
is
not
entitled
to
infer
from
the
circumstances
that
because
the
appellant
was
incorporated
for
the
purpose
of
building
structures
for
sale
at
a
profit
that
the
transaction
whereby
the
appellant
built
a
shopping
centre
and
subsequently
sold
it,
necessarily
constitutes
that
transaction
as
part
of
the
appellant’s
business
with
the
consequence
that
the
gain
realized
is
income
from
its
business
and
therefore
taxable.
The
question
resolves
itself
into
one
of
fact.
By
virtue
of
Article
Ill,
paragraph
(h)
of
its
memorandum
of
association
the
appellant
has
the
power
to
invest
its
moneys
not
immediately
required
in
such
manner
as
is
from
time
to
time
determined.
The
position
of
the
appellant
is
that
is
just
what
it
did.
In
support
of
that
position
reliance
was
placed
on
the
fact
that
the
business
of
the
appellant
was
restricted
to
the
construction
and
sale
of
single
family
dwellings
and
that
in
no
instance,
other
than
that
of
the
shopping
centre,
did
it
retain
any
building
for
the
rental
revenue
that
could
be
derived.
The
position
of
the
appellant
is
that
there
is
no
impediment
to
a
trading
company
making
an
investment
and
realizing
an
enhanced
value
of
that
investment.
Such
a
proposition
so
stated
is
incontrovertible.
However
the
Minister
does
not
accept
the
appellant’s
premise
that
what
the
appellant
did
constituted
an
investment
but
contended
that
this
particular
transaction
was
precisely
within
the
objects
for
which
the
appellant
was
incorporated
and
accordingly
was
its
business
or
alternatively
that
the
transaction
was
an
adventure
or
concern
in
the
nature
of
trade
in
any
event.
I
propose
to
consider
the
Minister’s
second
contention,
that
is,
that
the
transaction
was
a
venture
in
the
nature
of
trade.
As
indicative
that
the
construction
of
the
shopping
centre
was
with
the
exclusive
intention
of
deriving
rental
income
therefrom,
the
appellant
points
to
the
fact
that
its
business
activities
had
been
restricted
to
building
single
dwelling
houses
for
sale
and
in
no
instance,
other
than
that
of
the
shopping
centre,
had
it
ever
constructed
and
retained
any
building
of
any
kind
for
rental
revenue.
From
this
it
follows
that
the
transaction
involving
the
shopping
centre
stands
isolated
and
alone.
However
the
profit
from
a
single
transaction
is
not
necessarily
by
way
of
accretion
to
capital
but
may
well
be
a
profit
of
a
revenue
or
income
nature
provided
it
bears
indicia
of
trade.
Lord
President
(Clyde)
has
observed
in
Balgownie
Land
Trust
Ltd
v
CIR
(1928-29),
14
TC
684,
that
“A
single
plunge
may
be
enough
provided
it
is
shown
to
the
satisfaction
of
the
Court
that
the
plunge
is
made
in
the
waters
of
trade”.
It
is
always
a
question
of
fact
if
a
particular
transaction
amounts
to
an
adventure
in
the
nature
of
trade
and
in
determining
the
matter
the
principal
consideration
is
the
intention
of
the
person
concerned.
if
it
was
the
appellant’s
exclusive
intention
at
the
time
of
acquisition
to
hold
the
shopping
centre
for
the
rental
revenue
therefrom
then
the
profit
from
the
sale
of
the
shopping
centre
on
the
abandonment
of
that
purpose
would
not
be
a
profit
from
a
business
or
an
adventure
in
the
nature
of
trade.
If
that
was
not
the
appellant’s
exclusive
intention
at
that
time
there
can
be
no
doubt,
in
the
circumstances,
that
the
purpose
of
the
acquisition
of
the
shopping
centre,
or
one
of
the
possible
purposes,
was
a
subsequent
disposition
thereof
at
a
profit,
then
the
resulting
profit
is
profit
from
a
business
or
an
adventure
in
the
nature
of
trade
and
is
therefore
taxable.
The
onus
of
establishing
that
the
former
circumstance
was
the
case
falls
on
the
appellant.
The
appellant’s
declaration
at
trial
that
the
intention
was
to
hold
the
shopping
centre
for
revenue
producing
purposes
is
only
part
of
the
evidence.
Statements
now
given
as
to
the
intention
at
the
time
of
acquisition
must
be
considered
along
with
the
objective
facts
and
the
question
of
fact
as
to
what
the
appellant’s
intention
was
in
acqutring
the
shopping
centre
must
be
decided
after
considering
all
the
evidence.
The
construction
of
the
shopping
centre
was
completed
in
December
1965.
It
was
listed
for
sale
in
the
spring
of
1966,
some
15
or
16
months
later.
There
was
no
long
tenure.
Transactions
of
sale
are
characteristic
of
trade
but
not
necessarily
distinctive
of
it.
Much
depends
on
the
circumstances
and
a
circumstance
present
in
the
present
case
especially
indicative
of
trading
is
that
of
a
comparatively
quick
sale
if
that
quick
sale
is
not
satisfactorily
explained.
The
explanation
proffered
was
that
the
sale
was
made
on
the
recommendation
of
the
appellant’s
bank
manager
to
improve
its
strained
working
capital
to
justify
an
increase
of
the
appellant’s
line
of
credit
to
expand
its
dwelling
house
construction
activities.
For
the
reasons
outlined
above
that
recommendation
by
the
appellant’s
bank
could
not
have
been
the
factor
which
dictated
the
appellant’s
decision
to
sell
the
shopping
centre.
That
decision
must
have
been
on
the
appellant’s
initiative.
The
fact
that
the
appellant
was
incorporated
for
the
object
of
carrying
on
the
business
of
building
contractors
with
the
power
to
invest
its
surplus
funds
is
not
conclusive
of
the
matter
but
the
appellant’s
professed
objects
are
not
to
be
left
out.
On
the
contrary
the
objects
must
be
kept
in
mind
when
considering
the
transaction
in
question.
The
objects
of
the
appellant
as
set
forth
in
its
memorandum
are
to
carry
on
the
business
of
a
building
contractor.
For
the
most
part
it
limited
its
activities
to
building
residential
‘houses.
There
is
little
distinction
between
building
houses
for
sale
and
the
building
of
a
shopping
centre
for
the
same
purpose.
In
CIR
v
Fraser
(1940-42),
24
TC
498,
the
Lord
President
(Clyde)
said
that,
in
general,
it
follows
that
a
single
transaction
amounts
to
an
adventure
in
the
nature
of
trade
when
entered
into
by
an
individual
in
the
line
of
his
own
trade
than
when
outside
that
line.
The
appellant
also
had
the
power
in
its
memorandum
to
invest
moneys
not
immediately
required.
The
question
to
be
determined
is
what
was
the
appellant
doing
when
it
built
and
sold
the
shopping
centre,
was
it
carrying
out
its
business
of
building
a
shopping
centre
in
speculation
of
sale
or
was
it
exercising
its
power
of
investing
funds
surplus
to
its
immediate
requirements.
Much
evidence
was
directed
to
establishing
the
young
and
aggressive
nature
of
the
appellant
and
its
difficulty
in
realizing
a
much
larger
enterprise
because
of
a
dearth
of
working
capital.
That
being
the
case
it
would
follow
that
the
appellant
had
no
funds
not
immediately
required
for
its
business,
in
which
event
the
logical
inference
is
that
the
shopping
centre
was
inventory
rather
than
a
capital
asset.
The
appellant
advanced
only
a
minimal
amount
of
cash
towards
the
construction
of
the
shopping
centre.
There
was
a
first
mortgage
of
$86,000,
a
cash
advance
by
the
appellant
of
$7,000
and
accommodation
to
a
like
amount
by
Makoi
Construction
Limited.
At
the
very
outset
of
the
undertaking
the
appellant
projected
the
market
value
on
completion
to
be
$129,500
and
the
amount
of
the
first
mortgage
loan
advanced
was
predicated
upon
that
market
value.
The
estimated
cost
of
construction,
inclusive
of
the
cost
of
the
land,
was
$95,000.
Therefore
the
estimated
market
value
exceeded
the
estimated
cost
by
$34,500.
During
the
construction
of
the
shopping
centre
insurance
in
the
amount
of
$90,000
was
placed
on
the
building.
The
amount
of
the
insurance
coverage
coincided
with
the
market
value.
The
actual
cost
of
the
buttding
was
approximately
$65,000
so
market
value
of
the
building
exceeded
the
cost
of
construction
by
$25,000.
Therefore
the
appellant
had
an
asset
the
market
value
of
which
was
$130,000
which
had
cost
the
appellant
approximately
$100,000.
The
difference
was
characterized
by
counsel
for
the
Minister
as
a
built-in
profit
of
$30,000,
a
circumstance
which
was
well
known
to
the
officers
of
the
appellant.
There
was
also
an
appraised
value
of
$145,000.
It
was
equally
well
known
to
the
appellant
from
its
inception
that
it
was
vital
to
the
conduct
of
its
business
to
have
a
line
of
credit
with
its
bank.
Because
of
the
emphasis
put
by
the
appellant’s
bank
manager
on
adequate
working
capital
in
determining
the
credit
to
be
extended
to
a
customer
I
think
it
can
be
inferred
that
this
fact
was
communicated
to
the
appellant
at
an
early
stage.
Therefore
what
the
appellant
had
was
an
asset
which
the
appellant
knew
had
a
market
value
between
$129,500
and
$145,000
which
it
had
acquired
at
a
cost
of
approximately
$100,000
and
with
a
minimal
cash
outlay
by
the
appellant.
To
businessmen
with
the
acumen
of
the
officers
of
the
appellant
the
logical
inference
is
that
they
knew
from
the
outset
that
the
appellant
was
possessed
of
an
asset
with
a
so
called
“built-in
profit”
which
could
be
realized
when
circumstances
might
dictate.
In
so
inferring
I
have
not
overlooked
the
circumstance
that
the
appellant
was
virtually
certain
that
an
anchor
tenant
before
construction
was
begun,
that
the
entire
complex
was
rented
on
its
completion
and
that
the
net
income
from
rentals
was
approximately
$3,000
annually
which
represents
a
high
return
on
the
appellant’s
outlay.
This
fact
did
not
influence
the
conclusion
of
the
appellant’s
bank,
in
October
1966,
that
this
return
would
not
increase
the
appellant’s
working
capital
quickly
enough
but
an
infusion
of
working
capital
was
required
before
it
would
increase
the
appellant’s
credit.
The
fact
that
the
centre
was
fully
rented
is
also
susceptible
of
making
a
more
advantageous
sale
more
easily
obtainable
and
this
fact
has
the
further
advantage
of
providing
the
appellant
a
return
in
the
interval.
In
its
search
for
a
tenant
the
appellant
considered
that
a
service
station
would
be
an
advantage.
On
learning
that
every
major
oil
company
would
insist
on
freehold
ownership
the
appellant
was
willing
to
sell
and
subdivided
its
land
for
that
purpose.
This
fact
is
not
conclusive
one
way
or
the
other,
but
it
does
illustrate
the
willingness
of
the
appellant
to
sell
part
of
the
realty.
After
having
given
careful
attention
to
all
the
evidence,
I
am
not
satisfied
that
there
is
a
balance
of
probability
that
the
appellant
constructed
the
shopping
centre
with
the
sole
intention
of
retaining
‘and
operating
it
as
a
revenue
producing
property
to
the
exclusion
from
the
outset
of
any
purpose
of
disposition
at
a
profit.
That
being
so
the
appellant
has
failed
to
discharge
the
onus
cast
upon
it.
In
view
of
the
conclusion
I
have
reached
on
the
second
contention
of
the
Minister
that
the
transaction
was
an
adventure
or
concern
in
the
nature
of
trade,
I
do
not
find
it
necessary
to
reach
a
conclusion
on
the
alternative
contention
of
the
Minister
that
the
transaction
was
one
within
the
appellant’s
ordinary
course
of
business
as
authorized
in
its
memorandum
of
association.
The
appeal
is
dismissed
with
costs.
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