WALSH,
J.:—Appellant
appeals
from
a
notice
of
re-assessment
with
respect
to
income
for
its
1962
taxation
year
dated
June
19,
1967
whereby
tax
in
the
amount
of
$10,404.64
was
levied
on
it
arising
out
of
profits
on
the
sale
of
property
owned
by
it
on
Industrial
Avenue
in
the
City
of
Ottawa.
Appellant
was
incorporated
by
Ontario
letters
patent
dated
December
2,
1959
and
in
January
1960
it
acquired
the
property
on
Industrial
Avenue
comprising
Lots
13
to
17
for
$42,000,
which
property
had
previously
been
acquired
in
trust
for
it
prior
to
its
incorporation
by
one
of
its
shareholders.
The
shareholders
were
members
of
the
Addleman
and
Betcherman
families
who
had
long
enjoyed
an
intimate
and
friendly
business
association,
each
family
holding
50
%
of
the
shares.
Funds
to
acquire
the
property
were
provided
by
the
shareholders
and
by
the
assumption
of
a
mortgage.
Appellant
claims
that
the
site
was
acquired
with
the
sole
intention
of
renting
same
to
industrial
concerns
for
whom
they
would
erect
buildings
in
accordance
with
the
requirements
of
the
tenants.
Between
the
period
from
1959
until
December
1962
attempts
were
made
by
the
officers
and
directors
to
locate
tenants
for
the
building
or
buildings
to
be
erected
and
offers
were
received
from
various
industrial
concerns
and
negotiations
entered
into
regarding
the
type
of
building
required,
the
terms
of
lease,
the
amount
of
rent
payable,
and
other
pertinent
matters,
but
no
such
arrangement
was
ever
successfully
concluded.
Finally,
appellant
received
an
unsolicited
offer
to
purchase
the
property
for
$110,000
from
International
Harvester
Company
of
Canada
Limited
and
this
was
discussed
at
an
informal
meeting
of
the
board
of
directors
and,
in
spite
of
the
opposition
from
some
of
them,
the
offer
was
accepted,
in
view
of
appellant’s
inability
to
lease
the
property
in
accordance
with
its
intentions,
and
considering
the
mounting
costs
of
maintaining
it
with
no
immediate
prospect
of
leasing
and
the
fact
that
the
member
of
the
group
who
had
been
attempting
to
promote
the
development
of
the
property
was
obliged
to
move
to
Toronto,
and
by
deed
dated
November
28,
1962
the
property
was
sold.
By
notice
of
re-assessment
dated
July
11,
1966
respondent
added
to
appellant’s
income
the
sum
of
$59,988.22
computed
as
profit
on
the
sale
of
the
land.
Notice
of
objection
to
this
was
taken
on
August
11,
1966
and
by
the
notice
of
re-assessment
dated
June
19,
1967
from
which
the
present
appeal
is
taken,
respondent
confirmed
the
1966
re-assessment
for
the
purpose
of
effecting
technical
adjustments,
which
adjustments
are
irrelevant
to
the
present
appeal.
Appellant
denies
that
it
has
at
any
time
carried
on
the
business
of
dealing
in
real
estate
and
claims
that
respondent
erred
in
concluding
that
the
appellant,
either
for
itself
or
through
the
policies
of
its
officers,
directors
or
shareholders,
intended
at
the
time
of
the
acquisition
of
the
said
property
to
resell
same
at
a
profit,
maintaining
that
the
said
property
was
acquired
as
a
capital
asset
and
at
no
time
did
it
acquire
the
characteristics
of
inventory
so
that
the
eventual
sale
thereof
by
virtue
of
appellant’s
inability
to
deal
with
same
in
accordance
with
its
original,
unchanged
intention
was
a
transaction
on
capital
account
and
not
subject
to
taxation
under
the
provisions
of
Sections
3,
4
and
139(1)
(e)
of
the
Income
Tax
Act.
tespondent
for
his
part
contends
that
the
appellant
acquired
the
said
land
for
the
purpose
of
dealing
with,
trading
in
or
otherwise
turning
it
to
account
and
that
the
purchase
of
the
land
and
its
subsequent
sale
to
International
Harvester
Company
of
Canada
Limited
constituted
an
adventure
in
the
nature
of
trade
within
the
meaning
of
Section
139(1)
(e)
of
the
Income
Tax
Act
and
that
the
profit
realized
by
the
appellant
on
the
sale
of
the
land
was
income
from
a
business
of
the
appellant
within
the
meaning
of
Sections
3
and
4
of
the
Act.
The
evidence
discloses
that
the
Betcherman
and
Addleman
families
had
had
business
connections
for
some
time.
Alex
Betcherman
controls
Betcherman
Iron
and
Metal
Company
in
Ottawa
and
also
an
associated
company,
McKay
Smelters,
which
operated
in
Ottawa
at
the
time
of
the
purchase
of
the
property
in
question
and
which
manufactures
copper
alloys,
supplying
raw
materials
to
the
former
company
with
whom
it
at
that
time
shared
office
space.
Another
connected
company
was
Ingot
Metals
in
Toronto.
Harry
and
Abraham
Addleman
are
in
the
steel
business
under
the
name
of
Beechwood
Steel
Company
which
also
did
business
with
McKay
Smelters,
and
Alex
Betcherman
is
associated
with
them
in
Bond
Brass
Limited
and
at
one
time
the
Betcherman
family
had
had
an
interest
in
the
Beechwood
Steel
Company.
The
Betchermans
have
never
traded
in
real
estate
although
the
family
has
had
some
real
estate
investments.
One
of
these
is
the
Capital
Apartments
Limited
which
commenced
business
about
1940,
one-third
of
the
stock
being
owned
by
Alex
Betcherman,
one-third
by
his
brother
A.
D.
Betcherman,
and
one-third
by
the
estate
of
Myer
Betcherman,
the
father
of
Dr.
Irving
Betcherman,
a
metallurgist,
who
was
the
principal
witness
and
the
active
member
of
the
group
in
the
dealings
relating
to
the
subject
property.
Capital
Apartments
has
owned
and
operated
an
apartment
building
in
Ottawa
for
30
years.
The
family
group
also
formerly
had
a
property
consisting
of
a
warehouse
on
Sussex
Drive
on
which
they
had
built
and
leased
to
Gamble
Robertson
Limited
until
it
was
expropriated
in
connection
with
one
of
the
access
roads
for
the
new
MacDonald-Cartier
bridge.
The
Addleman
family,
for
its
part,
had
been
traders
in
real
estate
as
well
as
owners
of
real
estate
for
investment
purposes,
although
their
real
estate
dealings
were
by
no
means
their
principal
business.
They
own
property
on
Beechwood
Avenue,
east
of
the
St.
Patrick
Street
bridge,
in
connection
with
the
Beechwood
Steel
Company
business,
part
of
which
has
been
rented
for
apartments
and
stores
since
1955.
They
also
own
some
commercial
properties
in
Pembroke,
one
of
which
has
been
held
for
35
years
and
one
for
10
to
12
years,
both
of
which
are
leased
to
various
tenants.
In
1955
a
company
they
owned,
McArthur
Realties,
had
bought
a
property
on
the
Conroy
Road,
part
of
which
consisted
of
a
gravel
pit
and
part
of
which
they
hoped
to
eventually
develop.
The
sold
gravel
from
the
pit
to
the
Dibblee
Construction
Company
and
others
who
extracted
same
on
a
royalty
basis
at
so
much
a
ton.
This
property
was
eventually
expropriated
by
the
National
Capital
Commission
and
a
claim
was
made
for
income
tax
on
the
profits
arising
out
of
the
expropriation
which
claim
was,
however,
settled
out
of
court
on
the
basis
that
the
profits
attributable
to
the
portion
which
had
been
operated
as
a
gravel
pit
were
capital
gains
but
that
the
tax
would
be
paid
on
the
profits
arising
out
of
the
sale
of
the
other
portion
of
the
property
which
they
had
hoped
to
eventually
develop.
Through
McArthur
Realties,
they
had
also
bought
in
1957
100
acres
of
raw,
unsubdivided
land
at
the
corner
of
Greenbank
Road
and
Knoxdale
Avenue
in
Ottawa
which
had
no
commercial
development
or
services
at
the
time
so
that
the
development
of
same
appeared
to
be
a
long
term
proposition.
They
had
plans
made
by
a
town
planner
for
the
subdivision
of
this
property
known
as
the
Brooks
Farm
Property
for
which
they
had
paid
$52,500.
Part
of
it
was
sold
to
Ontario
Hydro
as
the
result
of
an
expropriation
for
$61,625
in
1963,
another
part
in
the
same
year
to
the
Separate
School
Trustees
of
Nepean
Township
for
$24,000
and
a
third
portion
to
the
Church
Extension
Committee
of
the
United
Church
of
Canada
for
$14,640
and
the
balance
of
the
property
was
finally
sold
in
January
1965
for
$575,000
although
they
gave
the
purchaser
a
mortgage
on
a
$525,000
balance
for
15
years
at
only
414%.
In
any
event,
McArthur
Realties
paid
tax
on
the
proceeds
of
these
sales
even
though
the
first
three
sales
had
been
made
pursuant
to
the
plan
for
development
of
the
property.
There
was
also
another
property
bought
in
Eastview
in
1955
for
$10,000
with
some
buildings
on
it
which
were
rented
to
an
auto
body
repair
shop,
which
property
was
sold
in
1959
for
$20,000.
It
was
not
always
the
same
brothers
who
were
in
these
dealings
and
none
of
them
were
real
estate
dealers,
two
of
them
being
in
the
steel
business,
one
being
in
the
fur
business
in
Pembroke
now
retired,
and
another
being
a
doctor
in
Montreal.
At
the
time
the
Industrial
Avenue
property
was
purchased
it
already
appeared
likely
that
the
Union
Station
might
be
built
in
the
area.
It
had
become
a
very
desirable
area
for
industrial
development,
having
railroad
sidings
and
good
road
connections.
There
were
already
five
or
six
industrial
buildings
of
the
warehouse
type
on
the
street,
mostly
built
on
leasing
arrangements
including
the
M.
Loeb
&
Company
warehouse
across
the
road
from
their
property
and
one
built
by
Pure
Spring
Beverages,
which
it
had
leased
to
another
company.
The
Betchermans
had
had
some
slight
experience
in
such
arrangements
as
a
result
of
the
Gamble
Robertson
property,
and
the
group
as
a
whole
felt
that
this
was
a
good
type
of
investment.
It
was
Harry
Addleman
who
learned
that
the
property
was
for
sale
and
A.
D.
Betcherman
then
got
Dr.
Irving
Betcherman
to
look
at
it.
The
purchase
price
called
for
a
$14,000
down
payment
with
a
balance
of
$28,000
on
the
mortgage
and
the
Betcherman
family
portion
of
the
down
payment
amounting
to
$7,000
was
advanced
by
its
company
Capital
Apartments
Limited.
As
there
were
several
members
of
each
family
involved
they
felt
it
would
have
been
cumbersome
to
operate
as
a
partnership
so
they
decided
to
incorporate.
The
appellant
company
was
then
formed
and
took
over
the
property
from
Harry
Addleman
in
whose
name
it
had
been
bought
in
trust.
It
was
their
hope
to
build
five
different
plants,
one
on
each
lot
but
their
plans
were
flexible
enough
that
if
a
potential
lessee
wanted
a
larger
building
they
could
build
it
on
two
or
three
or
all
five
of
the
lots
if
necessary.
The
rental
to
be
charged
would
be
based
on
the
value
of
the
raw
land
plus
the
cost
of
the
buildings
and
a
net
net
lease
would
be
entered
into
with
the
lessee
paying
all
taxes,
insurance
and
other
charges.
They
were
aware
that
their
rental
rates
would
have
to
be
competitive
with
those
prevailing
in
the
area
but
felt
that,
nevertheless,
this
could
be
a
successful
type
of
investment
and
that
it
was
something
they
could
manage
themselves
with
Dr.
Irving
Betcherman
being
the
active
negotiator.
They
therefore
rejected
the
offer
of
F.
H.
Toller
Ltd.,
real
estate
agent,
who
had
handled
the
purchase
of
the
property
by
Harry
Addleman
from
Massey-Ferguson,
and
who
had
solicited
the
exclusive
right
to
develop
the
property
for
them
and
dispose
of
same
on
a
lease
basis
or
on
a
sale
on
completion
of
construction
for
a
commission
of
7
7%
of
the
total
cost
of
the
land
and
buildings.
Both
the
Betcherman
and
Addleman
families
had
very
good
lines
of
credit
with
their
bankers
so
there
would
be
no
problem
with
the
temporary
financing
of
a
building
on
the
property
which
could
subsequently
be
mortgaged
on
a
long-term
basis
when
a
tenant
was
found.
Both
families
had
considerable
contacts
in
business
circles
and
rather
than
formally
advertise
the
property
as
being
available
for
construction
of
a
building
to
suit
the
requirements
of
a
tenant
and
lease
same
to
it
on
a
long-term
lease,
they
felt
that
word-of-mouth
would
make
this
sufficiently
known
and
that
it
was
common
knowledge
in
real
estate
circles
that
the
property
was
available
for
this
purpose.
They
merely
invested
in
one
small
signboard,
4’
x
8’,
costing
$40
which
they
had
installed
on
the
property
in
November
1960,
a
year
after
the
property
had
been
acquired,
to
indicate
that
the
site
was
available
for
building
for
rental
purposes.
They
did
enter
into
communications,
however,
with
various
prospective
tenants,
including
Mussens
Canada
Limited,
Montreal
Ottawa
Express,
Nesbitt
Orange
and,
through
an
indirect
contact,
with
McCormicks
Biscuits.
The
proposal
to
Montreal
Ottawa
Express
proceeded
to
the
stage
where
they
had
their
architect,
Morris
Wolfson,
draw
a
sketch
for
a
transport
building
120’
x
85’
for
one
of
the
lots,
dated
March
30,
1960
but
no
agreement
was
concluded.
In
1961
they.
made
a
proposal
to
Nesbitt
Orange
which
had
advanced
sufficiently
that
they
had
Mr.
Wolfson
draw
a
sketch
plan
for
a
bottling
plant
120’
x
60’
dated
April
27,
1961.
This
deal
also
fell
through
and
in
the
summer
of
1961
they
negotiated
with
Mussens
Canada
Limited
and
by
letter
dated
September
1,
1961
offered
to
construct
a
building
to
comply
with
its
plans
and
specifications
for
a
net
rental
of
$500
a
month
for
a
20
year
lease,
all
expenses
to
be
paid
by
the
lessee.
The
negotiations
went
on
for
some
months
but
Mussens
eventually
located
in
Hull.
In
June
1962
there
were
some
negotiations
with
Laidlaws
who
had
seen
their
sign
on
the
property
but
Laidlaws
eventually
bought
land
for
themselves
immediately
to
the
west
of
the
subject
property.
McCormicks
Buiscuits
eventually
rented
property
on
the
other
side
of
Ottawa
on
Scott
Street.
Appellant
also
tried
to
interest
M.
Loeb
&
Company,
offering
to
build
an
additional
warehouse
for
them
in
the
event
that
the
one
they
had
built
across
the
road
proved
insufficient
for
their
needs.
The
witnesses
testified
that
at
no
time
during
this
period
did
anyone
attempt
to
buy
the
property
from
appellant
and
it
never
offered
it
for
sale.
The
architect,
Mr.
Wolfson,
was
not
paid
for
the
plans
although
he
had
spent
about
35
hours
on
each
according
to
his
evidence
and
they
were
sufficiently
detailed
to
enable
cost
estimates
to
be
made.
He
did
not
expect
payment
as
he
had
done
former
work
for
the
family
and
anticipated
future
work
when
and
if
the
buildings
were
built.
He
had
been
given
sufficient
details
as
to
the
requirements
of
the
potential
lessees
before
he
prepared
the
plans
to
satisfy
him
that
there
must
have
been
discussions
in
some
depth
between
appellant
and
them
prior
to
this.
While
the
plans,
which
were
filed
as
exhibits,
show
considerable
detail,
he
stated
that
they
were
not
sufficient
to
enable
construction
to
be
commenced,
but
merely
to
give
an
indication
to
a
potential
tenant
of
the
nature
of
the
building
they
could
expect.
While
appellant
held
the
property
it
derived
no
income
from
it
and
paid
the
taxes
and
other
experses
by
advances
made
to
the
company
from
the
shareholders
by
way
of
interest-free
loans.
Eventually
the
National
Capital
Commission
advised
McKay
Smelters
that
the
spur
line
serving
it
would
be
removed
in
1961
or
1962.
McKay
Smelters
opposed
this
application
before
the
Board
of
Transport
Commissioners
but
was
unsuccessful
and
it
was
at
that
time
that
they
decided
that
it
would
be
impossible
to
carry
this
business
on
successfully
in
Ottawa
without
this
and
that
they
would
therefore
expand
their
associated
company,
Ingot
Metals
in
Toronto,
and
close
the
Ottawa
operation.
Dr.
Irving
Betcherman,
who
managed
it,
then
moved
to
Toronto.
As
already
indicated,
it
was
ne
who
had
handled
all
the
negotiations
for
financing
and
attempting
to
lease
the
Industrial
Avenue
property,
his
uncles
being
elderly
and
semi-retired
and
away
for
considerable
periods
in
the
winter.
Apparently,
the
Addlemans
were
prepared
to
leave
everything
to
him
and
the
Betcherman
family
preferred
it
this
way.
On
August
31,
1962,
the
Fitzsimmons
Realty
Company
submitted
an
offer
to
appellant
on
behalf
of
an
undisclosed
purchaser
to
buy
the
property
for
$110,000
including
the
condition
that
the
vendors
would
pay
their
commission,
and
that
the
purchaser
would
have
a
thirty
day
option
so
that
test
drillings
could
be
made
on
the
soil.
The
property
had
never
been
listed
for
sale
before
this
or
even
for
rental
with
any
real
estate
agent.
Alexander
Fitzsimmons
testified
that
he
knew
Harry
Addleman
and
that
he
was
aware
that
he
and
his
associates
were
interested
in
a
lease-back.
He
had
acted
for
the
purchaser,
International
Harvester,
who
had
just
sold
its
building
on
Carling
Avenue
and
was
looking
for
a
smaller
plant,
and
he
thought
of
this
property.
When
he
approached
Addleman
about
the
sale
he
asked
him
to
try
to
interest
the
proposed
purchaser
in
a
leasing
arrangement
but
they
were
not
interested,
so
he
then
submitted
the
purchase
offer
subject
to
the
results
of
soil
tests
to
be
taken.
It
was
Dr.
Irving
Betcherman
who
persuaded
the
other
shareholders
to
accept
the
offer,
in
view
of
his
move
to
Toronto,
although
other
reasons
given
by
the
witness
included
the
fact
that
all
their
attempts
to
construct
buildings
for
long-term
rental
on
the
property
had
been
unavailing
and
that
meanwhile
it
was
producing
no
revenue
and
taxes
and
carrying
charges
on
the
investment
were
mounting
up.
After
the
sale
the
company
made
interest-free
loans
to
its
shareholders
in
the
amount
of
$45,000
approved
at
a
meeting
on
January
21,
1963
but
at
a
meeting
on
November
18,
1964
it
was
decided
to
demand
repayment
of
these
loans
to
avoid
taxation
problems
which
would
otherwise
arise.
The
money
still
remains
invested
in
the
trust
account
of
the
company
at
the
bank
and
no
attempt
has
been
made
to
acquire
other
property
or
assets.
The
first
two
objects
clauses
in
appellant’s
letters
patent
read
as
follows
:
(a)
TO
acquire
by
purchase,
lease,
exchange
or
otherwise
and
to
own,
operate,
maintain,
rent
and
lease
lands
and
premises
or
any
part
or
parts
thereof;
(b)
TO
purchase
or
otherwise
acquire
for
the
purpose
of
investment
only
real
estate
and
personal
property
and
rights
of
all
kinds
and
in
particular
options,
contracts,
business
concerns
and
undertakings
and
to
improve,
alter
and
manage
the
said
lands
and
buildings
and
business
concerns
and
undertakings
and,
in
the
event
of
the
sale
thereof,
to
take
and
hold
mortgages
for
the
unpaid
balance
of
any
purchase
money,
and
to
sell,
mortgage
or
otherwise
dispose
of
the
said
mortgages;
As
has
been
held,
however,
the
objects
clauses
set
out
in
the
letters
patent
are
of
little
significance
and
it
is
the
actual
conduct
of
the
corporation
which
is
relevant
for
taxation
purposes.
In
the
case
of
Regal
Heights
Ltd.
v.
M.N.R.,
[1960]
S.C.R.
902;
[1960]
C.T.C.
384,
Mr.
Justice
Judson
stated
at
page
907
[390]
:
Throughout
the
existence
of
the
appellant
company,
its
interest
and
intentions
were
identical
with
those
of
the
promoters
of
this
scheme.
One
of
the
objects
stated
in
the
memorandum
of
association
of
the
company
was
“To
construct
and
operate
apartment
houses,
blocks,
shopping
centres
and
to
otherwise
carry
on
any
business
which
may
be
conveniently
carried
on
in
a
shopping
centre.”
Nothing
turns
upon
such
a
statement
in
such
a
document.
The
question
to
be
determined
is
not
what
business
or
trade
the
company
might
have
carried
on
but
rather
what
business,
if
any,
it
did
in
fact
engage
in.
That
case,
on
which
respondent
primarily
relies,
dealt
with
the
doctrine
of
secondary
intent.
This
was
well
set
out
in
the
judgment
of
Judson,
J.
where
he
stated
at
pages
905-906
[388-89]
:
There
is
no
doubt
that
the
primary
aim
of
the
partners
in
the
acquisition
of
these
properties,
and
the
learned
trial
judge
so
found,
was
the
establishment
of
a
shopping
centre
but
he
also
found
that
their
intention
was
to
sell
at
a
profit
if
they
were
unable
to
carry
out
their
primary
aim.
It
is
the
second
finding
which
the
appellant
attacks
as
a
basis
for
the
taxation
of
the
profit
as
income.
The
Minister,
on
the
other
hand,
submits
that
this
finding
is
just
as
strong
and
valid
as
the
first
finding
and
that
the
promoters
had
this
secondary
intention
from
the
beginning.
It
can
perhaps
be
distinguished
from
the
present
case,
however,
in
that
it
was
essential
to
the
development
of
the
shopping
centre
that
a
lease
be
obtained
from
a
large
department
store.
While
the
company
did
have
some
sketches
made
of
a
promotional
nature
and
entered
into
discussions
with
four
department
stores,
although
the
evidence
indicated
that
there
was
only
one
which
might
possibly
be
interested,
Judson,
J.
found
that
the
venture
was
entirely
speculative
and
that
if
it
failed
the
property
was
a
valuable
property
in
any
event.
While
the
facts
in
the
present
case
closely
resemble
this,
the
appellant
was
not
dependent
on
concluding
a
lease
with
any
one
particular
lessee
or
type
of
lessee
but
was
in
an
entirely
flexible
position
and
able
to
make
such
an
arrangement
with
any
one
of
a
considerable
number
of
industrial
or
business
firms
who
might
be
locating
in
Ottawa
or
changing
their
location.
Neither
was
there
any
problem
with
respect
to
the
financing
of
the
project
nor
any
counter
proposal
by
appellant
itself
to
sell
same
as
in
the
case
of
Bel-Conn
Ltd.
v.
M.N.R.,
[1969]
C.T.C.
1,
which
was
also
based
on
the
doctrine
of
secondary
intention.
Neither
can
this
case
be
brought
within
the
finding
in
Edgeley
Farms
Limited
v.
M.N.R.,
[1968]
C.T.C.
240,
in
which
Jackett,
P.,
as
he
then
was,
stated
at
page
241:
Clearly,
as
I
have
said,
the
land
was
acquired
because
it
was
a
good
“buy”.
Its
potential
value
was
obvious.
What
the
appellant
would
do
with
it
was
not
decided
at
the
time
of
acquisition.
The
incorporators
were
well
to
do
and
could
afford
to
bide
their
time.
What
the
appellant
would
do
with
the
land
would
depend
on
what
opportunities
presented
themselves.
I
have
no
doubt
that,
if
the
guiding
mind
of
the
appellant
were
to
have
frankly
answered
questions
at
the
time
of
acquisition,
he
would
have
agreed
that
the
appellant
might
itself,
at
an
appropriate
time,
erect
on
the
land
buildings
suitable
for
the
developing
neighbourhood,
with
a
view
to
renting
them
or
selling
them:
he
would
also
have
agreed
that,
if
the
right
opportunity
or
opportunities
arose,
the
appellant
might
sell
some
or
all
of
the
property,
and
he
would
also
have
agreed
that
really
attractive
bare
land
leasing
proposal
would
receive
careful
consideration
by
the
appellant.
In
other
words,
the
land
was
not
dedicated
at
the
time
of
acquisition
to
any
particular
use.
It
might
end
up
as
stock-in-trade
of
a
trading
business
or
as
the
subject
of
a
venture
in
the
nature
of
trade.
It
might
end
up
as
the
site
for
an
income-producing
building.
It
might
end
up
as
revenue-producing
bare
land.
In
those
circumstances,
had
the
acquisition
merely
been
followed
by
the
1962
sale,
I
should
have
had
no
doubt
that
the
resultant
profit
was
a
profit
from
a
business
within
the
extended
meaning
of
that
word
as
used
in
the
Income
Tax
Act.
In
effect,
the
appellant
would
have
dedicated
the
land,
or
at
least
that
part
of
it
that
it
sold,
to
the
carrying
on
of
a
trading
business
or
a
venture
in
the
nature
of
trade.
His
finding
that
the
disposal
of
the
property
by
a
25-year
lease
with
an
option
to
purchase,
which
was
soon
after
executed
in
part
by
the
lessee,
resulting
in
a
profit
to
the
lessors,
constituted
a
capital
gain
was
reversed
in
the
Supreme
Court
(
[1969]
S.C.K.
603;
[1969]
C.T.C.
313)
which
judgment
quoted
the
above
extract,
but
reversed
the
finding
solely
on
the
ground
that
when
the
company
gave
the
lessee
an
option
to
buy,
its
earlier
indecision
was
resolved
and
this
was
not
a
bare
land
leasing
proposal
but
the
method
adopted
by
the
company
in
putting
through
its
real
estate
transaction
so
that
the
company
was
really
selling
its
lands
in
the
course
of
the
operation
of
a
business
for
profit.
In
the
present
case
there
was
no
indecision
on
the
part
of
the
eroup
controlling
the
appellant
as
to
the
purpose
for
which
the
property
was
acquired,
and
nothing
to
contradict
their
evidence
that
this
was
for
the
construction
of
a
building
or
buildings
on
it
to
the
specifications
of
a
potential
tenant
or
tenants
to
whom
these
buildings
would
then
be
rented
on
long-term
leases
so
as
to
produce
income.
The
promoters
were
in
a
financial
position
to
readily
arrange
the
necessary
financing
and
their
course
of
conduct
was
in
no
way
inconsistent
with
their
intentions
as
expressed
in
their
evidence
and
set
out
in
the
objects
clauses
of
the
company.
They
did
not
have
to
pay
for
the
plans
they
had
made
because
of
the
nature
of
their
relationship
with
their
architect
but
these
plans
were
not
merely
promotional
sketches
such
as
one
sometimes
sees
in
connection
with
a
community
or
housing
development
but
were
sketches
that
were
specifically
drawn
to
suit
the
express
needs
of
two
potential
tenants.
The
fact
that
they
did
not
advertise
in
the
newspapers
that
they
had
property
available
on
which
they
would
construct
buildings
to
suit
the
requirements
of
the
tenant,
nor
did
they
place
large
billboards
on
the
property,
is
not,
in
my
view,
of
great
significance.
The
fact
that
they
had
such
property
available
was
known
in
real
estate
circles
in
the
city
and
direct
contact
was
made
with
a
number
of
industrial
firms
who
might
be
interested.
A
potential
tenant
for
a
project
of
this
sort
is
not
apt
to
be
found
merely
because
he
has
seen
an
advertisement
in
a
newspaper
or
noticed
a
sign
on
the
property
when
he
is
driving
by.
The
sort
of
tenants
appellant
was
seeking
would
be
more
apt
to
retain
an
agent
to
seek
suitable
property
for
them
as
the
eventual
purchaser,
International
Harvester
Company,
did,
although
as
it
turned
out
in
this
case
it
was
interested
in
buying
and
not
in
leasing
arrangements.
It
is
also
significant
that
at
no
time
did
appellant
offer
the
property
for
sale.
The
eventual
sale
was
made
as
the
result
of
an
unsolicited
offer,
and
then
only,
according
to
the
evidence
of
the
agent
Fitzsimmons,
after
he
had
been
asked
to
endeavour
to
see
whether
his
at
that
time
unnamed
client
would
not
consider
a
leasing
arrangement
rather
than
an
outright
purchase
of
the
property.
It
has
been
held
in
a
number
of
cases
that
the
mere
fact
that
a
property
is
acquired
for
ne
purpose
of
selling
it
at
a
profit
(even
if
this
were
so,
which
the
evidence
does
not
disclose
in
the
present
case)
does
not
of
itself
make
the
profit
from
such
sale
taxable
as
an
adventure
in
the
nature
of
trade
if
nothing
has
been
done
to
advance
or
foster
the
sale
of
it.
In
two
cases
closely
resembling
the
present,
namely,
M.N.R.
v.
Valclair
Investment
Co.
Ltd.,
[1964]
C.T.C.
22,
and
M.N.R.
v.
Cosmos
Inc.,
[1964]
C.T.C.
34,
where
an
investment
company
had
bought
farm
land
from
which
it
received
minimal
revenue
from
a
tenant,
admittedly
with
the
view
of
seeking
capital
gain
and
had
then
sold
as
a
result
of
an
unsolicited
offer,
Kearney,
J.
held
that
land
was
different
from
a
mere
commodity
which
can
become
the
object
of
trade,
as
it
is
capable
of
producing
an
annual
yield
even
though
it
has
not
actually
been
used
productively.
He
compared
the
purchase
of
it
for
future
sale
at
a
profit
with
the
purchase
of
growth
stocks
paying
no
dividends
but
being
capable
of
doing
so,
and
considered
that
the
holding
of
it
was
not
an
undertaking
or
adventure
and
that
it
lacked
the
badges
of
trade,
the
speculation
or
risk
being
negligible.
He
relied
on
the
Supreme
Court
case
of
Irrigation
Industries
Ltd.
v.
M.N.R.,
[1962]
S.C.R.
346;
[1962]
C.T.C.
215,
in
which
Martland,
J.
in
rendering
the
majority
judgment,
discussed
the
positive
tests
set
out
in
the
well
known
judgment
of
Thorson,
P.,
as
he
then
was,
in
M.N.R.
v.
James
A.
Taylor,
[1956]
C.T.C.
189,
namely,
1.
whether
the
person
dealt
with
the
property
purchased
by
him
in
the
same
way
as
a
dealer
would
ordinarily
do;
and
2.
whether
the
nature
and
quantity
of
the
subject
matter
of
the
transaction
may
exclude
the
possibility
that
its
sale
was
the
realization
of
an
investment
or
otherwise
of
a
capital
nature
or
that
it
could
have
been
disposed
of
otherwise
than
as
a
trade
transaction.
He
concluded
that
neither
test
was
applicable
in
the
Irrigation
Industries
case
(supra)
in
which
the
appellant,
acting
entirely
outside
the
nature
of
its
regular
business,
purchased
stock
in
another
company
which
it
sold
soon
thereafter
at
a
substantial
profit.
In
the
present
case
it
appears
that
appellant
did
not
deal
with
the
property
the
way
a
dealer
seeking
the
sale
of
same
would
have
done,
nor
does
the
nature
of
the
transaction
exclude
the
possibility
that
the
sale
of
the
property
was
a
realization
of
an
investment.
This
was
certainly
not
the
only
way
in
which
the
property
could
have
been
disposed
of
or
used.
Justice
Martland
states
at
pages
355-56
[223-24]
:
The
only
test
which
was
applied
in
the
present
case
was
whether
the
appellant
entered
into
the
transaction
with
the
intention
of
disposing
of
the
shares
at
a
profit
so
soon
as
there
was
a
reasonable
opportunity
of
so
doing.
Is
that
a
sufficient
test
for
determining
whether
or
not
this
transaction
constitutes
an
adventure
in
the
nature
of
trade?
I
do
not
think
that,
standing
alone,
it
is
sufficient.
I
agree
with
the
views
expressed
on
this
very
point
by
Rowlatt,
J.
in
Leeming
v.
Jones
(supra)
at
page
284.
That
case
involved
the
question
of
the
taxability
of
profits
derived
from
purchase
and
sale
of
two
rubber
estates
in
the
Malay
Peninsula.
The
Commissioners
initially
found
that
there
was
a
concern
in
the
nature
of
trade
because
the
property
in
question
was
acquired
with
the
sole
object
of
disposing
of
it
at
a
profit.
Rowlatt,
J.
sent
the
case
back
to
the
Commissioners
and
states
his
reasons
as
follows:
“I
think
it
is
quite
clear
that
what
the
Commissioners
have
to
find
is
whether
there
is
here
a
concern
in
the
nature
of
trade.
Now,
what
they
have
found
they
say
in
these
words
(I
am
reading
it
in
short)
:
That
the
property
was
acquired
with
the
sole
object
of
turning
it
over
again
at
a
profit,
and
without
any
intention
of
holding
the
property
as
an
investment.
That
describes
what
a
man
does
if
he
buys
a
picture
that
he
sees
going
cheap
at
Christie’s,
because
he
knows
that
in
a
month
he
will
sell
it
again
at
Christie’s.
That
is
not
carrying
on
a
trade.
Those
words
will
not
do
as
a
finding
of
carrying
on
a
trade
or
anything
else.
What
the
Commissioners
must
do
is
to
say,
one
way
or
the
other,
was
this—I
will
not
say
carrying
on
a
trade,
but
was
it
a
speculation
or
a
venture
in
the
nature
of
trade?
I
do
not
indicate
which
way
it
ought
to
be,
but
I
commend
the
Commissioners
to
consider
what
took
place
in
the
nature
of
organizing
the
speculation,
maturing
the
property,
and
disposing
of
the
property,
and
when
they
have
considered
all
that,
to
say
whether
they
think
it
was
an
adventure
in
the
nature
of
trade
or
not.”
The
case
was
returned
to
the
Commissioners,
who
then
found
as
a
fact
that
there
had
not
been
a
concern
in
the
nature
of
trade.
Ultimately
it
reached
the
House
of
Lords,
[1930]
A.C.
415,
where
the
main
issue
was
as
to
whether
the
profits
were
taxable
under
Case
VI
of
Schedule
D
of
the
Income
Tax
Act,
1918.
There
is,
however,
a
general
statement
of
principle
by
Lord
Buckmaster,
at
page
420,
which
aptly
applies
to
the
present
case,
when
he
says:
.
.
.
an
accretion
to
capital
does
not
become
income
merely
because
the
original
capital
was
invested
in
the
hope
and
expectation
that
it
would
rise
in
value;
if
it
does
so
rise,
its
realization
does
not
make
it
income.”
In
the
same
judgment,
Martland,
J.
stated
at
page
350
[219]
:
It
is
difficult
to
conceive
cf
any
case,
in
which
securities
are
purchased,
in
which
the
purchaser
does
not
have
at
least
some
intention
of
disposing
of
them
if
their
value
appreciates
to
the
point
where
their
sale
appears
to
be
financially
desirable.
It
is
true
that
this
case
deait
with
the
purchase
and
sale
of
securities
but
I
see
no
reason
why
the
same
principle
should
not
be
extended,
as
was
done
by
Kearney,
J.
in
the
Valclair
and
Cosmos
cases
(supra),
to
land
or
other
assets
capable
of
producing
income
whether,
in
fact,
they
had
done
so
to
any
substantial
extent
or
not
by
the
time
of
the
sale.
A
similar
finding
was
made
by
Noel,
J.,
as
he
then
was,
in
the
ease
of
Paul
Racine,
Amédée
Demers
and
François
Nolin
v.
M.N.R.,
[1965]
C.T.C.
150;
[1965]
DTC
5098,
in
which
the
three
appellants
purchased
the
assets
of
a
bankrupt
company,
forming
a
new
company
to
acquire
most
of
them
but
retaining
the
real
estate
in
their
personal
names
and,
after
operating
and
improving
the
business
for
a
few
months,
sold
both
the
real
estate
and
the
shares
in
the
new
company
at
a
profit.
The
judgment
held
that
these
were
capital
gains
from
the
realization
of
an
investment
and
that
the
transaction
was
essentially
the
purchase
of
a
business
and
its
subsequent
resale
at
a
profit.
In
commenting
on
the
doctrine
of
secondary
intention,
the
judgment
states
at
page
5103
of
the
DTC
report:
It
is
not,
in
fact,
sufficient
to
find
merely
that
if
a
purchaser
had
stopped
to
think
at
the
moment
of
the
purchase,
he
would
be
obliged
to
admit
that
if
at
the
conclusion
of
the
purchase
an
attractive
offer
were
made
to
him
he
would
resell
it,
for
every
person
buying
a
house
for
his
family,
a
painting
for
his
house,
machinery
for
his
business
or
a
building
for
his
factory
would
be
obliged
to
admit,
if
this
person
were
honest
and
if
the
transaction
were
not
based
exclusively
on
a
sentimental
attachment,
that
if
he
were
offered
a
sufficiently
high
price
a
moment
after
the
purchase,
he
would
resell.
Thus,
it
appears
that
the
fact
alone
that
a
person
buying
a
property
with
the
aim
of
using
it
as
capital
could
be
induced
to
resell
it
if
a
sufficiently
high
price
were
offered
to
him,
is
not
sufficient
to
change
an
acquisition
of
capital
into
an
adventure
in
the
nature
of
trade.
In
fact,
this
is
not
what
must
be
understood
by
a
“secondary
intention”
if
one
wants
to
utilize
this
term.
The
present
case
also
resembles
the
cases
of
Elgin
Cooper
Realties
Ltd.
v.
M.N.R.,
[1969]
C.T.C.
426,
and
Point
Pleasant
Investments
Limited
v.
M.N.R.,
[1968]
Tax
A.B.C.
1227,
in
that
appellant
was
able
to
give
a
reasonable
and
credible
explanation
for
the
eventual
sale
of
the
property
at
a
profit
which
tends
to
negate
the
contention
that
it
had
this
as
a
secondary
intention
at
the
time
of
acquisition.
In
the
Elgin
Cooper
case
(supra)
the
controlling
shareholder
had
been
active
for
many
years
in
real
estate,
sometimes
as
developer
and
sometimes
as
an
investor,
and
in
this
respect
he
resembled
the
members
of
the
Addleman
family,
although
not
the
Betcherman
family
who
were
always
investors.
He
built
an
apartment
building
between
1958
and
1960
intending
it
as
an
investment
but
encountered
difficulties
and
faults
during
the
construction
which
caused
him
to
lose
confidence
in
it
so
he
sold
it
in
1961
at
a
substantial
profit,
which
was
held
not
to
be
taxable
as
an
adventure
in
the
nature
of
trade
as
the
developer’s
original
intention
had
been
altered.
In
the
Tax
Appeal
Board
judgment
in
the
Point
Pleasant
case
(supra)
three
persons,
a
contractor,
a
lawyer
and
a
businessman,
had
purchased
property
in
downtown
Halifax
which
they
conveyed
to
the
appellant
company
formed
for
this
purpose
to
construct
buildings
for
lease
thereon
in
multiple
housing
units.
As
a
result
of
amendments
made
to
the
zoning
regulations,
the
value
of
the
buildings
to
be
built
on
the
land
was
increased
and
part
of
the
land
was
restricted
to
single
family
houses
so
the
sort
of
development
they
had
proposed
had
become
impracticable.
They
also
encountered
a
lack
of
prospective
tenants
and
financing
problems
and
rising
taxes
and
finally
the
illness
of
one
of
the
principals,
and
the
contractor
disposed
of
his
share.
As
a
result
of
all
this
an
unsolicited
offer
for
the
sale
of
the
property
at
a
substantial
profit
was
eventually
accepted.
It
was
held
that
this
was
profit
arising
from
the
realization
of
an
investment
as
there
was
no
alternative
intention
to
sell
the
land
at
a
profit
at
the
time
that
it
was
acquired.
This
judgment
seems
to
be
very
much
in
point
in
the
present
case.
Appellant’s
original
intention
was
by
no
means
an
unrealistic
one
or
one
which
at
the
time
seemed
incapable
of
being
carried
to
fruition
but
although
there
had
been
no
change
in
the
zoning
by-law
making
it
impossible
in
the
present
case,
it
had
nevertheless,
after
three
years’
effort,
been
unsuccessful
in
obtaining
a
suitable
tenant.
Meanwhile,
it
had
lost
interest
on
the
$42,000
it
had
invested
in
the
property
for
three
years,
and
had
had
to
pay
all
the
taxes
during
this
period,
and
finally
Dr.
Irving
Betcherman,
who
was
the
member
of
the
group
on
whom
they
all
relied
to
carry
out
their
development
plans,
was
moved
to
Toronto
as
a
result
of
events
beyond
his
control.
While
he
could
perhaps
have
continued
to
carry
out
the
project
by
correspondence
or
telephone
from
there,
it
was
certainly
less
convenient
when
he
was
no
longer
stationed
in
Ottawa.
Finally,
an
entirely
unsolicited
offer
was
received
which
would
result
in
a
very
substantial
profit
in
a
period
of
not
much
over
three
years,
which
offer
was
too
good
to
refuse.
This
is
exactly
the
sort
of
offer
referred
to
in
the
Judgment
of
Noel,
J.
in
Racine,
Demers
and
Nolan
(supra)
and
the
judgment
of
Martland,
J.
in
the
Irrigation
Industries
case
(supra).
I
therefore
do
not
find
that
the
acceptance
of
this
offer
and
sale
of
the
property
at
a
profit
converts
what
started
out
as
an
investment
in
real
estate
into
an
adventure
in
the
nature
of
trade
so
as
to
make
appellant
taxable
on
these
profits.
The
appeal
is
therefore
maintained
with
costs
and
the
notice
of
re-assessment
dated
June
19,
1967
for
appellant’s
1962
taxation
year
is
referred
back
to
the
Minister
to
delete
therefrom
the
sum
included
therein
as
profit
on
the
sale
of
the
land
in
question.
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