Roman Corporation Limited; v. Minister of National Revenue, [1972] CTC 2321, 72 DTC 1280

J O Weldon:—The appeal of the present appellant Roman Corporation Limited (hereinafter referred to as “Third Roman” for reasons which will hereinafter be made clear) was heard at Toronto, Ontario on December 6, 7, 8 and 9 under the Tax Appeal Board as it was then constituted. The Tax Review Board Act constituting the present Board came into force on December 15, 1971, ie six days after the hearing of this appeal. The parties were represented by counsel as follows: W Z Estey, Esq, QC and A Englander, Esq for the appellant and L R Olsson, Esq for the Minister.

The original Roman Corporation Limited (hereinafter referred to as “First Roman”) was incorporated by letters patent under The Corporations Act, 1953 of the Province of Ontario on August 10, 1956 for the following objects, that is to say:

(a) TO carry on in all its branches the business of mining, milling, reduction, oil producing and development;

(b) TO acquire, own, lease, prospect for, open, explore, develop, work, improve, maintain and manage mines and mineral lands, and deposits, including oil and gas lands and deposits, and to dig for, raise, crush, wash, smelt, assay, analyze, reduce, amalgamate, refine, pipe, convey and otherwise treat ores, metals and minerals, whether belonging to the Company or not, and to render the same merchantable and to sell or otherwise dispose of the same or any part thereof or interest therein;

(c) TO take, acquire and hold as consideration for ores, metals or minerals, including oil and gas, sold or otherwise disposed of or for goods supplied or for work done by contract or otherwise, shares, debentures or other securities of or in any other company having objects similar, in whole or in part, to those of the Company hereby incorporated and to sell and otherwise dispose of the same; and

(d) TO subscribe for, underwrite, purchase, invest in or otherwise acquire, offer for public subscription, sell, assign or otherwise deal in stocks, bonds, debentures, shares and other securities of any government or municipal or school corporation or of any chartered bank or of any industrial, commercial or mining corporation or of any other duly incorporated company.

On November 27, 1964 First Roman and Trans-Canada Explorations Limited (“Trans-Canada”) were amalgamated to form a new corporation also known as Roman Corporation Limited (hereinafter referred to as “Second Roman”). About two years later, on November 22, 1966, Second Roman and Rockwin Mines Limited were amalgamated to form a new corporation also known as Roman Corporation Limited (hereinafter referred to as “Third Roman”).

At the commencement of the hearing of this appeal, Mr Estey stated, in effect: that the several issues raised in the appellant’s (Third Roman’s) Notice of Appeal had been reduced to four in number, namely, one item in each of four separate assessments all dated January 23, 1967 which will hereinafter be referred to as assessment “A”, “B”, “C” and “D”; that assessments “A” and “B” involve First Roman, assessment “C” involves Trans-Canada and assessment “D” involves Second Roman, and that in this appeal Third Roman was accepting the respective tax obligations of its predecessor corporations, First Roman, Trans-Canada and Second Roman. Several of the particulars contained in each of the above assessments “A”, “B”, “C” and “D” are set out in the following table:

The following are the particulars of the aforesaid single items in dispute herein as they are spelled out in the above-mentioned assess- ments “A”, “B”, “C” and “D”:

Assessment

(Primeau Argo Block Company Ltd)	$ 31,940.00
“B” Add: Income from trading in securities
(Minerales Inndustriales Del Peru)	$140,000.00
“C” Add: Profit on disposal of mineral leases	$ 72,380.57
“D” Add: Income from trading in securities
(Black Hawk Mining Limited)	$320,588.81

seemed to me that it was more desirable to get out my decision herein at this time supported only by short reasons general in nature than to hold up the completion of the matter somewhat indefinitely to enable me to summarize the voluminous facts of the matter and to prepare more adequate reasons. There is; of course, the further consideration that this appeal goes back almost 10 years to First Roman’s 1962 taxation year. Accordingly, I now propose to state the conclusions reached by me as aforesaid with respect to the four items in issue herein and give only short general reasons therefor.

It should be observed that the profit mentioned in assessment “A” arose out of First Roman’s alleged trading in shares of Primeau Argo Block Limited; that, while that is a very superficial explanation of the source of the profit in question in that it does not indicate how deeply involved First Roman had been in the matter and what plausible reasons it had for selling its shares, the fact remains that First Roman did engage in a business transaction with a corporation the business of which was not mining but the manufacture of cement blocks from which it (First Roman) did emerge with a modest profit (ie having in mind the substantial amount of money involved) within a short space of time. Accordingly, it should be concluded, as. contended by the Minister, that the profit made on the sale of shares of Primeau Argo Block Limited does appear to have arisen in an adventure in the nature of trade and is, therefore, taxable in First Roman’s 1963 taxation year.

It should be further observed that, while the profits stated in assessments “B”, “C” and “D” allegedly arose out of the dealings of First Roman, Trans-Canada and Second Roman (ie the three predecessor corporations of the appellant Third Roman) in shares of mining corporations and mineral leases, it is, obviously, more accurate to say — on the basis of the evidence and material before me in this matter — that the above-mentioned profits arose out of the realization of certain capital assets by the three corporations mentioned above in the ordinary course of carrying on the operation of their respective mining businesses. Accordingly, it should be concluded that the profits mentioned in assessments “B”, “C” and “D” were made by First Roman, Trans-Canada and Second Roman, respectively, in transactions of a capital nature in the ordinary course of conducting their primary businesses as active mining corporations in close liaison with certain other mining corporations with whom they had been accustomed to co-operate in mining development work and with whom there were certain common interests by way of shareholdings, and that the said profits should, accordingly, be treated as non-taxable capital profits.

In reaching the above-mentioned conclusion with respect to the issues raised in assessments “B”, “C” and “D”, I had very much in mind the Board’s reasons for judgment in the case of Consolidated Mogul Mines Limited v MNR, 37 Tax ABC 363; 65 DTC 156, which was later confirmed by both the Exchequer Court of Canada and the Supreme Court of Canada — see [1968] CTC 429; 68 DTC 5284. The following quotation taken from the Board’s reasons for judgment in the Consolidated Mogul case (37 Tax ABC 363 at 380) — the part thereof marked off by quotation marks having been later quoted with approval by Mr Justice Spence of the Supreme Court of Canada — appears to be singularly applicable and helpful to First Roman, Trans-Canada and Second Roman in this appeal in connection with their 1962, 1964 and 1965 taxation years, respectively:

While these comments are based on my own personal observations, I think it is perfectly correct to say that one very important phase of the mining business is the extensive network of connecting links which exists between the various mining companies making up the industry in the form of: option agreements, escrow agreements, voting trust agreements, pooling agreements, agreements for services, assignments and management contracts, to name only a few of the many types of arrangements which are regularly entered into between mining companies. Each one of those connecting links involves the dealing in blocks of shares. “So, it would appear to be reasonable to assume that the multiplicity of arrangements which exist between mining companies and the constant juggling of shareholdings. for various necessary purposes is just part and parcel of the mining business. In my view, it shows lack of understanding of the mining business to point to the financing arrangements of a mining company as a separate business activity to that of mining. Obviously, the financing function of a mining company is an integral part of its business”.

To sum up, it is my firm opinion that the profits sought to be taxed by the said assessments “B”, “C” and “D” were not made by First Roman, Trans-Canada and Second Roman, respectively, in the course of what is described in paragraph 139 (1)(e) of the Act as an adventure or concern in the nature of trade, as alleged by the Minister, but arose as accretions to capital as part and parcel of the mining business as carried on by each of the said corporations in their 1962, 1964 and 1965 taxation years, respectively, as outlined in the quotation from the Consolidated Mogul case set out above.

In the result, as indicated earlier herein: the appeal of First Roman with respect to its 1963 taxation year should be dismissed and the relevant assessment “A” — 1458091-2 confirmed; the appeal of First Roman with respect to its 1962 taxation year should be allowed and the amount of $140,000 covering income from trading in securities (Minerales Industriales Del Peru) deleted from the relevant assessment “B” — 1458089-2; the appeal of Trans-Canada with respect to its 1964 taxation year should be allowed and the amount of $72,380.57 covering profit on disposal of mineral leases deleted from the relevant assessment “C” — 1458088-2, and the appeal of Second Roman with respect to its 1965 taxation year should be allowed and the amount of $320,588.81 covering income from trading in securities (Black Hawk Mining Limited) deleted from the relevant assessment “D” — 1458094-2.

Appeal allowed in part.