Jackett,
CJ
(concurred
in
by
Thurlow,
J)
(delivered
from
the
Bench):—This
is
an
appeal
from
a
decision
of
the
Trial
Division
dismissing
an
appeal
by
the
appellant
from
its
assessment
under
Part
I
of
the
Income
Tax
Act
for
the
1961
taxation
year.
Two
questions
had
to
be
dealt
with
by
the
Trial
Division;
one
was
the
validity
of
a
claim
for
capital
cost
allowance
under
paragraph
11
(1
)(a)
of
the
Income
Tax
Act
and
the
other
was
the
validity
of
a
claim
in
respect
of
a
loss
sustained
by
a
subsidiary
in
providing
housing
for
the
appellant’s
employees.
This
appeal
concerns
only
the
claim
for
capital
cost
allowance.
Cattanach,
J,
in
giving
his
reasons
for
the
judgment
of
the
Trial
Division,
has
fully
outlined
the
relevant
facts
and
there
is
no
need
to
repeat
them.
Paragraph
11
(1)(a)
of
the
Income
Tax
Act
authorizes
a
deduction,
in
computing
the
income
of
a
taxpayer
for
a
taxation
year,
of
such
part
of
the
“capital
cost”
to
the
taxpayer
of
“property”
as
may
be
allowed
by
regulation.
Cattanach,
J
disallowed
the
taxpayer’s
claim
for
capital
cost
allowance
because,
in
his
view,
the
expenditures
in
respect
of
which
the
claim
was
made
were
“current
operating
expenses
laid
out
as
an
integral
part
of
the
profit-making
activity
of
the
company”
and
were
not,
therefore,
“capital
cost”
of
“property”.
We
agree
with
that
conclusion
but,
out
of
deference
to
the
argument
of
counsel
in
this
court,
we
will
endeavour
to
explain
briefly,
in
our
own
words,
our
reasons
for
having
reached
it.
The
appellant’s
business
consists
of
extracting
ore
from
an
underground
mine,
processing
such
ore
and
disposing
of
it.
The
appellant
has
a
very
large
mine,
which
will
probably
continue
in
operation
for
many
years.
Having
regard
to
the
nature
of
its
mine,
the
appellant
has
planned
its
extraction
so
that,
during
the
first
phase,
it
removes
only
part
of
the
ore
from
the
areas
encountered
as
the
miners
move
out
from
the
mine
shaft
so
that
the
ore
that
is
left
will
be
support
for
the
“ceiling”’
of
rock
above
the
ore
body.
This
is
necessary
so
that
the
miners
may
get
back
and
forth
to
the
mine
shaft
as
the
first
phase
extraction
operation
moves
further
from
the
mine
shaft
and
during
subsequent
phases
of
the
total
extraction
process.
The
part
of
the
ore
body
that,
in
pursuance
of
the
appellant’s
plan,
is
so
left
for
support
during
this
first
phase
of
the
extraction
process
is
left
in
the
form
of
walls
(called
“pillars”),
which
(a)
are
so
arranged
as
to
leave
throughways
through
the
ore
that,
as
the
process
continues,
lead
from
the
mine
shaft
to
the
outer
limits
of
the
mine,
and
(b)
create
rectangular
spaces
(called
“rooms”).
The
overall
operation
results
in
many
such
“throughways”,
some
of
which
subdivide
into
branches
as
they
extend
towards
the
boundary
of
the
mine
and
most
of
which
travel
alongside
a
series
of
“rooms”.
The
result
is
that,
as
the
extraction
operation
moves
further
from
the
mine
shaft
a
“throughway”,
created
by
earlier
extraction,
is
available
for
moving
ore
back
to
the
shaft
as
it
is
currently
extracted
from
“rooms”
and
from
extensions
of
the
throughway,
is
available
for
other
movements
required
by
the
extraction
operation,
and
is
available
for
ventilation.
This
use
of
the
throughways
is
contemplated
by
the
appellant’s
plan
of
operation
until
the
various
throughways
have
reached
the
outer
limits
of
the
mine.
In
addition,
it
is
contemplated
that
they
will
serve
a
similar
purpose
when
ore
is
removed
from
higher
levels
and
when,
during
subsequent
phases,
ore
in
the
original
walls
or
pillars
is
extracted
by
one
process
or
another.
The
appellant’s
claim
for
capital
cost
allowance
is
based
upon
the
fact
that,
as
a
result
of
the
way
in
which
the
ore
was
extracted
during
the
first
part
of
the
first
phase,
these
throughways
have
been
created
for
a
use
during
subsequent
operations
that
is
intended
to
continue
long
into
the
future.
The
jumping-off
point
for
the
appellant’s
claim
for
capital
cost
allowance
is
its
contention
that
these
throughways
are
Capital
assets
of
the
mining
operation
that
are
commonly
known
as
haulageways.
Not
only
is
the
validity
of
its
claim
based
on
the
validity
of
that
contention
but
it
is
also
essential
to
its
argument
that
it
succeed
in
its
further
contention
that
the
expense
of
removing
the
ore
from
the
space
where
the
haulageways
are
is
the
“capital
cost”
of
such
“assets”.
As
far
as
the
ore
removed
from
the
“rooms”
is
concerned,
there
is
no
difference
between
the
parties
as
to
the
position
under
the
Income
Tax
Act.
It
is
common
ground
that
the
proceeds
of
disposition
of
such
ore
less
the
costs
of
its
extraction
is
profit
from
the
operation
of
the
mine.
With
reference
to
the
ore
removed
from
the
“haulageways”,
however,
while
the
respondent
says
that
the
position
is
the
same
(ie
that
the
proceeds
of
disposition
of
such
ore
less
the
costs
of
its
extraction
is
profit
from
the
operation
of
the
mine),
the
appellant
says
(a)
that
the
proceeds
of
disposition
of
such
ore
without
any
deduction
in
respect
of
its
extraction
is
profit
from
the
operation
of
the
mine,
and
(b)
that
the
cost
of
extraction
of
such
ore
is
the
“capital
cost”
of
the
haulageways
that
resulted
from
its
removal.
Prima
facie,
this
would
seem
to
be
an
unlikely
position
for
a
taxpayer
to
take
as,
if
it
is
sustained,
it
would
force
the
appellant
to
give
up
a
deduction
of
expenses
in
the
year
incurred
in
favour
of
capital
cost
allowance,
which,
in
principle,
is
deductible
over
a
period
of
years.
In
the
peculiar
circumstances
of
this
case,
however,
that
disadvantageous
position
would
not
arise
if
the
appellant
is
correct
in
its
further
claim,
which
is
that
it
is
entitled
to
take
a
capital
cost
allowance
in
one
year
of
100%.
This
would
mean
that
the
full
cost
of
extraction
could
be
taken
in
the
year
incurred
where
it
is
desirable.*
Moreover,
if
correct,
the
appellant’s
contention
has
the
advantage,
from
its
point
of
view,
that,
during
a
period
of
three
years
when
income
from
operating
the
mine
was
“exempt”,
it
will
have
been
building
up
capital
cost
to
be
taken
as
a
deduction
in
subsequent
years.
In
our
view,
the
correctness
of
the
appellant’s
position
must
be
determined
by
sound
business
or
commercial
principles
and
not
by
what
would
be
of
greatest
advantage
to
the
taxpayer
having
regard
to
the
idiosyncrasies
of
the
Income
Tax
Act.
In
considering
that
question,
it
must
be
emphasized
that,
as
far
as
appears
from
the
pleadings
or
the
evidence,
no
more
money
was
spent
on
extracting
the
ore
the
extraction
of
which
resulted
in
the
haulageways
than
would
have
been
spent
if
no
long
term
continuing
use
had
been
planned
for
them.
One
business
or
commercial
principle
that
has
been
established
for
so
long
that
it
is
almost
a
rule
of
law
is
that
“The
profits
.
.
.
of
any
transaction
in
the
nature
of
a
sale
must,
in
the
ordinary
sense,
consist
of
the
excess
of
the
price
which
the
vendor
obtains
on
sale
over
what
it
cost
him
to
procure
and
sell,
or
produce
and
sell,
the
article
vended
.
.
.
”
(see
The
Scottish
North
American
Trust,
Ltd
v
Farmer
(1910),
5
TC
693,
per
Lord
Atkinson
at
705).
Our
difficulty,
at
the
outset,
with
the
appellant’s
claim
for
capital
cost
allowance
is,
therefore,
that
we
cannot
accept
the
submission
of
the
appellant
that,
while
the
profit
from
the
mining
operation,
as
far
as
the
ore
taken
from
its
rooms
is
concerned,
is
the
net
of
proceeds
of
disposition
over
costs
of
extraction,
the
profit
from
the
mining
operation,
as
far
as
the
ore
taken
from
the
“haulageways”
is
concerned,
is
the
proceeds
of
disposition
without
deducting
the
costs
of
extraction
of
such
ore.
That
submission
is
contrary
to
a
long
line
of
authority.*
In
the
second
place,
if
we
are
correct
in
our
view
that
the
deduction
of
such
costs
is
required
in
preparing
the
profit
and
loss
account
for
the
year
in
which
they
are
incurred,
it
would
not
seem
that
any
sound
system
of
accounting
could
show
them
also
as
a
“capital
cost”
of
something
other
than
the
ore.
No
single
disbursement
can
be
reflected
twice
in
the
accounts,
if
the
result
is
to
be
an
accurate
reflection
of
the
state
of
the
businessman’s
affairs.
That
conclusion
is
sufficient
to
dispose
of
the
appeal
because
if
there
is
no
“capital
cost”
of
property,
paragraph
11(1)(a)
does
not
authorize
capital
cost
allowance.
There
is,
however,
a
further
question
that
should
be
discussed.
If
the
appellant
is
correct
in
its
contention
that
removal
of
the
ore
from
the
spaces
in
question
brought
into
existence
capital
assets
known
as
haulageways,
how
can
one
avoid
the
conclusion
that
there
was
a
sub-
tantial
capital
cost
of
such
assets?
In
the
first
place,
it
should
be
said
that
we
are
not
convinced
that
there
is
involved
any
acquisition
or
creation
of
property.
The
situation
is,
we
assume,
that
the
appellant
already
owned
the
property
in
question
with
the
ore
in
situ
and
it
did
nothing
except
that
it
removed
the
ore
so
that
there
was
remaining
the
waste
rock
bed
that
it
previously
owned.
We
doubt
that
it
can
be
said
that
that
brought
into
existence
any
property
that
did
not
previously
exist
and,
as
it
would
seem
to
us,
if
no
new
property
was
created
or
acquired,
there
cannot
be
any
“cost”
of
“property”
within
the
meaning
of
paragraph
11(1)(a)
of
the
Income
Tax
Act.*
On
the
other
hand,
if
we
assume
for
sake
of
argument
thai
the
removal
of
the
ore
in
question
brought
into
existence
something
that
did
not
previously
exist,
namely
a
haulageway,
in
our
view
the
cost
of
removing
the
ore
is
not
a
cost
to
the
appellant
of
that
property.
We
recognize
that
there
are
cases
where
a
single
operation
has
two
objectives
and
two
results
and
that
the
cost
of
such
an
operation
would
normally
be
divided
in
a
sound
system
of
accounts.
If,
for
example
here,
there
were
merged
into
one
operation
the
activities
necessary
to
remove
the
ore
and
the
activities
necessary
to
bring
in
and
instal
some
plant
and
equipment
of
a
permanent
character,
the
cost
of
that
operation
would
have
to
be
appropriately
divided.
Where,
however,
a
businessman
does
nothing
but
carry
on
his
ordinary
current
operations
but
so
plans
those
operations,
without
increasing
the
costs
of
those
operations,
that
he
has
an
asset
of
an
enduring
nature
at
the
end
of
a
period
of
operation,
we
are
of
the
view
that
the
situation
is
of
a
different
kind.
Where,
for
example,
a
business
man
deliberately
plans
his
operations
so
as
to
acquire
a
very
valuable
goodwill
(both
by
his
advertising
and
by
his
manner
of
doing
business),
we
should
have
no
hesitation
in
saying
that
ordinary
business
principles
would
nevertheless
require
the
deduction
of
all
the
costs
of
his
operations
that
are
ordinarily
regarded
as
current
costs
in
determining
his
annual
profits
and
would
attribute
none
of
such
costs
to
the
acquisition
of
his
goodwill.
Similarly,
we
are
of
the
view
that,
even
though
the
appellant
planned
his
extraction
operations
so
as
to
leave
it
in
the
result
with
“haulageways”
that
are
of
enduring
benefit
to
its
business,
the
cost
of
such
extraction
operations
is,
in
accordance
with
ordinary
business
principles,
the
costs
of
earning
the
profits
made
by
selling
the
ore
extracted
from
them.
If
that
is
right,
there
was
no
cost,
and
therefore
no
“capital
cost”,
of
acquiring
the
haulageways.
For
the
aforesaid
reasons,
we
are
of
opinion
that
the
appeal
should
be
dismissed
with
costs.
Sweet,
DJ:—Respectfully,
I
agree
with
the
reasons
of
My
Lord
the
Chief
Justice,
and
My
Lord
Thurlow
and
with
their
result.
However
I
would
add
something
by
way
of
comment.
In
my
view
the
extraction
by
the
appellant
of
ore
from
what
has
been
referred
to
as
haulageways
was
a
mining
operation,
and
apparently
a
profitable
one,
by
a
mining
company
carried
on
in
the
ordinary
course
of
its
business.
The
appellant
extracted
the
ore,
processed
it
and
sold
the
resulting
product.
Following
the
completion
of
that
mining
Operation
there
were
channels
through
the
ore-body
which
remained
because
of
that
mining.
Those
channels
are
now
designated
by
the
appellant
as
haulageways
and
they
are
usable
and
used
as
haulageways.
To
mine
the
quantity
of
ore
produced
from
those
channels
it
had,
necessarily,
to
be
taken
from
some
part
of
the
ore-body.
The
appellant
chose
to
remove
it
from
areas
where
those
channels
now
are.
There
is
no
significant
evidence
that
the
cost
of
mining,
so
that
those
channels
would
be
in
their
present
position,
resulted
in
any
greater
cost
than
mining
in
other
areas
as,
for
example,
the
“rooms”.
There
is
no
significant
evidence
that
there
was
any
cost
because
of
the
formation
of
those
channels
as
they
now
exist
in
addition
to
the
cost
of
merely
mining
in
those
areas.
It
would
seem
clear
enough
that
the
mining
was
done
as
it
was
so
that
the
haulageways
would
be
in
their
present
position
and
have
usefulness
as
haulageways.
Nevertheless,
and
even
if
it
may
reasonably
be
said
that
a
considerable
part,
if
not
all
of
them,
are
of
enduring
benefit
to
the
mining
operation,
the
essential
character
of
the
manner
by
which
they
came
into
existence
remains
the
same.
The
fact
is
that
they
are
something
remaining
after
the
mining
operation
was
completed.
They
are
residua
from
the
utilization
of
a
part
of
the
ore-body.
Notwithstanding
the
use
to
which
those
channels
may
be
put
and
notwithstanding
any
purpose
which
may
have
been
planned
for
them
they
did
not
come
into
existence
as
a
result
of
capital
expenditures.
The
expenditures
associated
with
their
creation
were
solely
revenue
costs
to
produce
the
goods
the
appellant
was
in
business
to
sell.
There
is
no
provision
in
the
relevant
legislation
which
permits,
when
computing
income,
a
deduction
based
on
the
usefulness
or
the
utilitarian
value
of
haulageways.
There
is
only
provision
for
deductions
based
on
the
capital
cost
of
main
haulageways,
if
any
capital
cost
there
be.
Since
in
my
view
there
was
no
capital
cost
in
the
creation
of
the
channels,
now
by
the
appellant
designated
and
used
as
haulageways,
it
is
my
opinion
that
on
this
ground
alone
the
appeal
must
be
dismissed.
Accordingly
would
dismiss
this
appeal
with
costs.