SPENOE,
J.:—This
is
an
appeal
from
the
judgment
of
the
Exchequer
Court
delivered
on
September
30,
1965
which
dismissed
the
appeal
from
the
decision
of
the
Tax
Appeal
Board
delivered
on
September
24,
1963.
By
that
decision
the
Tax
Appeal
Board
had
confirmed
the
assessment
of
the
Minister
as
to
the
1958,
1959
and
1960
income
tax
payable
by
the
appellant.
The
Minister
in
his
assessment
had
added
to
the
taxable
income
of
the
appellant
income
from
short
term
investments
received
in
each
of
the
said
years.
The
following
were
the
circumstances.
The
appellant,
or
perhaps
one
might
more
correctly
say
the
appellant’s
predecessor
Gunnar
Mines
Limited,
was
developing
a
very
large
uranium
ore
open
pit
mine
at
Beaver
Lodge
in
the
Lake
Athabasca
area
of
Saskatchewan.
The
ore
had
been
sold
to
Eldorado
Mining
&
Refining
Limited
under
a
contract
providing
for
total
payments
of
nearly
$77,000,000.
Gunnar
Mines
Limited
determined
to
borrow
on
debenture’
a
capital
sum
of
$19,500,000
and
for
such
purposes
issued
5%
debentures
in
that
sum,
The
Canada
Permanent
Trust
Company
was
the
trustee
for
the
debenture
holders
and
as
such
received
the
net
proceeds
of
the
sale
of
the
debentures
in
the
sum
of
$18,700,000.
The
said
proceeds
were
held
by
the
said
trust
company
and
paid
out
to
Gunnar
Mines
Limited
from
time
to
time
upon
the
latter’s
certificates
‘a
to
the
payment
of
the
costs
of
construction
of
the
proposed
mine.
Those
parts
of
the
proceeds
of
the
debentures
issued
which
were
not
immediately
required
by
Gunnar
Mines
Limited
for
the
purpose
of
expenditure
upon
the
construction
of
the
mine
were
kept
invested
by
the
trustee
in
short
term
securities
and
the
income
therefrom
in
the
amount
of
$104,000
was
used
by
Gunnar
for
construction
purposes.
That
item
of
$104,000
was
charged
against
the
5%
interest
payable
on
the
outstanding
debentures.
In
making
its
1954
and
1955
income
tax
returns,
Gunnar
divided
the
sum
of
$104,000
between
these
two
taxation
years
and
deducted
the
two
amounts
from
the
interest
paid
on
the
5%
sinking
fund
debenture.
That
process
was
permitted
by
the
Minister
in
the
two
years
mentioned.
The
mine
was
completed
in
Oetober
1955
and
all
the
proceeds
of
the
debentures
were
paid
out
by
the
trustee
to
Gunnar
on
or
before
that
time.
The
income
tax
authorities
agreed
to
consider
the
period
between
October
1955
and
February
28,
1956
as
a
run-in
period
and
to
take
the
following
day,
i.e.,
March
1,
1956,
as
the
first
day
upon
which
production
of
the
mine
commenced.
This:
was
for
the
purpose
of
applying
the
36-month
taxation
exemption
under
Section
83(5)
of
the
Income
Tax
Act
to
which
reference
shall
be
made
hereafter.
Production
of
uranium
from
the
mine
was
so
successful
that
the
taxpayer
was
able
to
accumulate
profits
therefrom
at
such
a
rate
that
they
exceeded
the
requirements
for
the
payment
of
interest
on
the
debentures
and
also
the
requirements
for
repayment
in
instalments
of
the
said
debentures.
Under
the
trust
deed,
those
debentures
were
to
be
redeemed
as
follows
:
October
1,
1956
|
$
2,500,000
|
October
1,
1957
|
4,250,000
|
October
1,
1958
|
4,250,000
|
October
1,
1959
|
4,250,000
|
October
1,
1960
|
4,250,000
|
Total
|
$19,500,000
|
The
company,
therefore,
had
to
determine
its
course.
It
could
use
these
funds
to
redeem
the
sinking
fund
debentures
prior
to
their
due
date
or
the
company
could
go
out
into
the
market
and
purchase
for
cancellation
the
said
sinking
fund
debentures
or
it
could
invest
its
profits
in
such
short
term
securities
as
would
permit
it
to
redeem
the
sinking
fund
debentures
in
accordance
with
the
terms
of
the
trust
deed.
Had
the
company
called
the
sinking
fund
debentures
for
redemption
prior
to
their
due
date
it
would
have
been
required
to
pay
a
premium.
It
was
informed
by
its
financial
advisers
that
if
it
sought
to
go
into
the
market
to
purchase
the
said
sinking
fund
debentures
for
cancellation
the
market
would
immediately
react
so
that
the
price
would
increase
to
equal
the
premium
for
redemption
prior
to
the
due
date
and
the
company
therefore
determined
to
invest
its
profits
in
short
term
securities.
In
the
three
years
under
consideration,
i.e.,
1958,
1959
and
1960,
this
resulted
in
the
taxpayer
receiving
an
income
from
the
said
short
term
securities
as
follows
:
1958
|
$231,197.94
|
1959
|
412,852.85
|
1960
|
504,763.64
(as
adjusted
by
the
|
|
Minister
in
his
re-assessment)
|
During
the
same
years,
the
liability
for
interest
upon
the
5%
sinking
fund
debentures
of
the
taxpayer
was
in
these
amounts
:
The
36-month
exemption
period
allowed
by
Section
83(5)
to
which
I
have
referred
above,
having
commenced
on
March
1,
1956
ended
on
that
day
in
1959,
and
therefore
the
1959
figures
must
be
divided
so
that
the
first
two
months
showed
an
income
from
short
term
investments
of
$68,922.28
and
the
remaining
ten
months
in
the
next
exemption
period
showed
an
income
from
such
short
term
investments
of
$343,930.57,
while
the
interest
payable
on
the
5%
sinking
fund
debentures
in
the
first
two
months
was
$60,152
and
in
the
remaining
ten
months,
i.e.,
the
non-exempt
period,
was
$175,940.
That
the
financial
advisers’
opinion
was
a
sound
one
is
demonstrated
by
the
fact
that
during
those
three
years
the
interest
payable
on
the
5%
sinking
fund
debentures
totalled
$836,572.90
while
the
income
received
on
the
short
term
investments
made
by
the
company
out
of
its
profits
in
the
same
three
years
totalled
$1,148,814.20,
a
credit
of
$312,241.30.
1958
|
$485,878.00
|
1959
|
263,092.00
|
1960
|
114,603.00
|
Mr.
Richard
M.
Parkinson,
a
chartered
accountant,
described
before
Gibson,
J.
in
the
Exchequer
Court
the
method
used
by
the
company
in
its
accounting.
His
evidence
is
summarized
by
the
learned
Exchequer
Court
Judge
as
follows:
The
evidence
of
Mr.
Parkinson
in
brief
was
that
it
was
proper
from
a
commercial
and
business
point
of
view
for
the
Appellant,
or
indeed
for
any
business,
to
differentiate
in
its
statement
of
income
and
expenditures
between
what
he
refers
to
as
"operating
items”
and
“non-operating
items”.
The
figure
obtained
by
considering
only
operating
items,
this
witness
said,
results
in
arriving
at
a
figure
of
“operating
income”.
This
is
done
by
first
obtaining
the
figure
of
gross
sales
less
returns,
allowances,
etc.,
and
subtracting
from
that
sum
the
cost
of
sales
to
arrive
at
a
figure
for
gross
profit.
From
this
figure
is
then
deducted
selling
expenses
and
general
and
administrative
expenses
from
which
the
figure
of
operating
income
is.
obtained.
Then
this
witness
said
it
is
proper
to
consider
the
non-operating
items
in
the
business.
These
non-operating
items
the
witness
said
are
categorized
as
“other
income”,
and
include
interest
and
dividends
and
miscellaneous
items
on
the
receipt
side
and
also
on
the
disbursement
side;
and
from
which
there
is
computed
the
figure
of
income
before
federal
and
other
taxes.
Then
the
witness
said
that
it
is
proper
to
make
a
computation
of
federal
and
other
taxes
and
subtract
the
figure
so
found
from
the
figure
of
income
above
referred
to,
in
order
to
obtain
the
figure
of
“net
income”
of
the
business
for
the
fiscal
year.
The
learned
Exchequer
Court
Judge
in
his
reasons
said
:
I
accept
Mr.
Parkinson’s
evidence
in
so
far
as
it
describes
a
method
currently
recommended
as
good
practice
and
employed
by
many
accountants
in
determining
the
profit
or
loss
of
a
company
from
its
business
operations
including
miscellaneous
revenues
of
investments
of
surplus
cash.
His
method
no
doubt
is
not
only
good
accounting
practice,
but
is
also
acceptable
as
a
method
of
determining
the
company’s
income
for
the
purpose
of
the
Income
Tax
Act
for
a
fiscal
year
(when
the
company
is
taxable
on
its
income
from
all
sources)
in
that
it
is
not
contrary
to
any
particular
statutory
direction.
In
the
matter
under
appeal,-
however,
what
is
being
considered
is
not
income
for
the
year
from
all
sources
but
income
from
a
source
other
than
the
company’s
mining
business,
namely,
the
income
from
its
short
term
investments/’
(The
italics
are
my
own.
)
I
am
in
agreement
with
that
comment.
Section
83(5)
of
the
Income
Tax
Act
provides
:
83.
(5)
Subject
to
prescribed
conditions,
there
shall
not
be
included
in
computing
the
income
of
a
corporation
income
derived
from
the
operation
of
a
mine
during
the
period
of
36
months
commencing
with
the
day
on
which
the
mine
came
into
production.
Section
11(1)
(c)
of
the
said
Income
Tax
Act
provides:
11.
(1)
Notwithstanding
paragrahs
(a),
(b)
and
(h}
of
subsection
(1)
of
section
12,
the
following
amounts
may
be
deducted
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
:
(c)
an
amount
paid
in
the
year
or
payable
in
respect
of
the
year
(depending
upon
the
method
regularly
followed
by
the
taxpayer
in
computing
his
income),
pursuant
to
a
legal
obligation
to
pay
interest
on
'-
(i)
borrowed
money
used
for
the
purpose
of
earning
income
from
a
business
or
property
(other
than
borrowed
money
used
to
acquire
property
the
income
from
which
would
be
exempt),
(ii)
an
amount
payable
for
property
acquired
for
the
purpose
of:
gaining
or
producing
income
therefrom
or
for
the
purpose
of
gaining
or
producing
income
from
a
business
(other
than
property
the
income
from
which
would
be
exempt),
or
(iii)
an
amount
paid
to
the
taxpayer
under
was
entitled
:
C
Section
11
The
appellant,
therefore,
was
entitled
under
Section
11
of
the
Income
Tax
Act
to
deduct
from
its
incomie
the
interest
which
it
would
be
required
by
law
to
pay
on
the.
5%
sinking
fund
debentures.
That
amount
in
the
year
1958
was
$485,878,
in
the
year
1959
was
$236,092,
and
in
the
year
1960
was
$114,603.
The
appellant
did
not
deduct
those
amounts
from
its
taxable
income
but
in
each
year
a
smaller
amount
which
resulted
from
crediting
against
that
interest
payable
the
income
received
from
its
short
term
investments.
In
fact
in
1959
and
1960
that.-
income
far
exceeded
the
interest
payable.
The
result
in
the
tax
exempt
period
which
covers
the
whole
of
the
year
1958
and.
the
first
two
months
of
1959
was
that
those
amounts
of
income
from.short
term
investments
were
thrown
into
the
income
from
the
operation
of
the
mine
and
therefore
claimed
as
exempt
under
Section
83(5)
of
the
Income
Tax
Act.
What
is
exempt
under
the
latter
section
is
"‘income
derived
from
the
operation
of
a
mine’
The
income
from
the
short
term
investments
was
not
income
derived
from
the
operation
of
the
mine
but
was
income
derived
from
the
investment
of
the
profits
of
the
mine.
This
income
from
the
short
term
investments
cannot
be
regarded
as
incidental
income
in
the
operation
of
the
mine
any
more
than
any
other
income
gained
from
use
of
the
profits
of
the
mine
could
be
so
considered.
As
the
learned
member
of
the
Tax
Appeal
Board
noted
in
his
reasons
:
Even
if
Gunnar
had
held
the
surplus
revenue
from
its
mine
on
deposit,
the
bank
interest
could
not
be
said
to
be
derived
from
the
operation
of
its
mine.
Counsel
for
the
appellant
stressed
the
circumstance
that
in
the
tax
exempt
period
the
corporation
also
showed
as
incidental
income
rental
which
it
received
from
the
letting
of
certain
houses
at
the
mine
property
and
argued
that
the
income
from
the
short
term
securities
was
just
another
form
of
income
incidental
to
the
mining
operation.
I
do
not
think
that
the
argument
can
be
accepted.
Those
houses
were
built
by
the
company
so
that
its
workers
at
the
mine
might
reside
therein.
Certainly
their
construction
and
letting,
and
the
receipt
of
rental
therefrom,
was
incidental
to
the
operation
of
the
mine.
To
put
it
perhaps
colloquially,
during
the
tax
exempt
period
the
appellant
was
operating
two
businesses—firstly,
a
mining
businses,
and
secondly,
an
investment
business,
and
the
fact
that
its
purpose
in
operating
the
second
business
was
so
that
it
might
accumulate
funds
in
a
readily
realizable
form
with
which
it
could
pay
off
the
5%
sinking
fund
debentures
if
they
became
due
makes
it
nonetheless
the
operation
of
a
second
business.
In
my
view,
this
is
sufficient
to
dispose
of
the
appellant’s
appeal
in
reference
to
the
tax
exempt
period
ending
on
February
28,
1959.
The
appellant’s
appeal
as
to
the
non-exempt
period,
being
the
last
ten
months
of
the
year
1959
and
the
last
eleven
months
of
the
year
1960
(the
fiscal
year
having
been
altered
to
end
on
November
30)
deals
with
the
Minister’s
refusal
to
allow
the
quantum
of
the
depletion
allowance
claimed
by
the
appellant
as
authorized
by
Section
1201(2)
of
the
Regulations
made
under
the
Income
Tax
Act.
The
said
regulation
provides
:
1201.
(2)
Where
a
taxpayer
operates
one
or
more
resources,
the
deduction
allowed
is
331%
of
(a)
the
aggregate
of
his
profits
for
the
taxation
year
reasonably
attributable
to
the
production
of
oil,
gas,
prime
metal
or
industrial
minerals
from
all
of
the
resources
operated
by
him
The
appellant
claimed
a
depletion
allowance
upon
its
total
income
including
income
from
these
short
term
investments.
As
the
learned
Exchequer
Court
Judge
remarked
:
In
the
matter
under
appeal,
however,
what
is
being
considered
is
not
income
for
the
year
from
all
sources
but
income
from
a
source
other
than
the
company’s
mining
business,
namely,
the
income
from
its
short
term
investments.
It
would
seem
that
the
income
from
such
short
term
investments
could
not
possibly
be
considered
as
"profits
for
the
taxation
year
reasonably
attributable
to
the
production
of
.
.
.
prime
metal
or
industrial
minerals
.
.
.”.
I
am,
therefore,
of
the
opinion,
that
the
Minister’s
limitation
on
the
depletion
allowance
as
confirmed
by
the
Tax
Appeal
Board
and
the
Exchequer
Court
was
a
proper
one.
For
these
reasons,
I
would
dismiss
the
appeal
with
costs.
CAPITAL
MANAGEMENT
LIMITED,
Appellant,
and
MINISTER
OF
NATIONAL
REVENUE,
Respondent.
Supreme
Court
of
Canada
(Cartwright,
C.J.C.
and
Abbott,
Hall,
Spence
and
Pigeon,
JJ.),
January
29,
1968,
on
appeal
from
a
judgment
of
the
Exchequer
Court,
reported
[1967]
C.T.C.
150.
Income
tax—Federal—Income
Tax
Act,
R.S.C.
1952,
c.
148—Section
11(1)
(a)—Income
Tax
Regulations—Section
1100(1)
(c),
Schedule
B,
Class
14—Capital
cost
allowance—Franchise,
concession
or
licence
for
limited
period—Whether
right
to
manage
and
to
exercise
other
privileges
for
period
of
10
years
“depreciable
property”
of
Class
14.
In
1959,
for
an
outlay
of
$1,913,060,
the
appellant
acquired
the
right
to
manage
two
mutual
funds
for
a
period
of
10
years
and
to
receive
specified
commissions
in
respect
thereof.
In
the
appellant’s
view
it
thereby
acquired
depreciable
property
of
Class
14
(franchise,
consession
or
licence
for
a
limited
period)
and
was
therefore
entitled
to
amortize
its
cost,
as
a
capital
cost
allowance,
over
the
relevant
period
of
years.
The
Exchequer
Court,
concurring
in
the
Minister’s
view,
held
that
the
rights
acquired
did
not
represent
a
franchise,
concession
or
licence
as
those
terms
were
understood
on
this
continent
and
were
not
“in
respect
of
property”.
HELD
(per
curiam)
:
As
held
by
Jackett,
P.
in
The
Investors
Group
v.
M.N.R.,
a
“franchise,
concession
or
licence”
referred
to
some
right,
privilege
or
monopoly
that
enabled
the
holder
to
carry
on
his
business,
or
facilitated
the
carrying
on
of
his
business,
and
did
not
refer
to
a
contract
under
which
a
person
was
entitled
to
remuneration
for
the
performance
of
specified
services.
Appeal
dismissed.
R.
deWolfe
MacKay,
Q.C.,
and
C.
C.
Locke,
Q.C.,
for
the
Appellant.
G.
W.
Ainslie,
for
the
Respondent.
CASE
REFERRED
to
:
The
Investors
Group
v.
M.N.R.,
[1965]
Ex.
C.R.
520;
[1965]
C.T.C.
192.
SPENCE,
J.:—This
is
an
appeal
from
the
judgment
of
Gibson,
J.
in
the
Exchequer
Court
of
Canada
pronounced
on
April
5,
1967
wherein
he
dismissed
the
appellant’s
appeal
against
its
1960
assessment.
The
Minister
had
refused
to
permit
the
appellant,
in
computing
its
income,
to
deduct
the
sum
of
$191,466.50.
By
indentures
dated
October
1,
1954
between
a
corporation
known
as
Capital
Management
Corporation
Limited
and
the
Montreal
Trust
Company,
the
All
Canadian
Dividend
Trust
Fund
and
The
All
Canadian
Compound
Fund
mutual
fund
Operations
were
established.
These
agreements
designated
the
Capital
Management
Corporation
as
the
manager
of
the
trust
funds
and
the
Montreal
Trust
as
the
custodian
of
the
assets
thereof.
Under
that
agreement,
the
Capital
Management
Corporation
was
entitled
to
a
fee
of
not
less
than
one-tenth
of
one
per
cent
and
not
more
than
one-fifth
of
one
per
cent
of
the
capital
of
the
trust
fund
payable
quarterly.
There
was
no
limitation
on
the
period
of
time
during
which
the
Capital
Management
Corporation
Limited
was
entitled
to
act
as
manager
of
the
fund
and
receive
the
said
fee
although
it
might
retire
upon
notice.
The
appellant
company
was
incorporated
under
the
provisions
of
the
British
Columbia
Companies
Act
on
October
23,
1959.
On
October
31,
1959
the
appellant
entered
into
an
agreement
with
Capital
Management
Corporation
Limited,
i.e.,
the
existing
manager
under
the
trust
deeds,
whereby
it
purchased
from
the
latter
all
its
rights
under
the
said
trust
deeds
of
October
1,
1954.
The
conveyance
of
such
rights
in
the
agreement
of
October
31,
1959
appears
in
paragraph
1
thereof
as
follows:
1.
The
Vendor
hereby
sells,
transfers
and
assigns
unto
the
Purchaser
and
the
Purchaser
hereby
accepts
the
sale,
transfer
and
assignment
of
all
the
vendor’s
exclusive
right
and
concession
under
the
Indentures
for
and
in
consideration
of
the
price
of
one
million,
nine
hundred
and
thirteen
thousand
and
sixty
dollars
($1,913,060.00)
payable
upon
the
execution
hereof.
Immediately
prior
to
that
agreement
of
sale
between
Capital
Management
Corporation
Limited
and
the
appellant,
the
former
had
entered
into
amending
agreements
with
the
Montreal
Trust
Company
which
agreements
were
approved
by
the
unit
holders
in
both
the
All
Canadian
Dividend
Fund
and
the
All
Canadian
Compound
Fund.
By
the
agreements
which
were
made
on
October
16,
1959
the
manager,
1.e.,
at
that
time
the
Capital
Management
Corporation
Limited,
was
given
the
exclusive
right
and
concession
to
manage
all
moneys
and
securities
held
by
the
trustees
subject
to
the
terms
of
the
trust
agreement
for
the
period
from
October
16,
1959
to
October
15,
1969.
Also
by
those
agreements
the
fees
which
the
manager
was
to
receive
from
the
trustees
were
fixed
at
one-eighth
of
one.per
cent
of
the
capital,
again
payable
quarterly.
It
is
the
contention
of
the
appellant
that
it
is
entitled
to
claim
a
capital
cost
allowance
of
an
amount
equal
to
one-tenth
of
the
purchase
price
of
$1,913,060,
as
set
out
in
paragraph
1
of
the
agreement
quoted
above.
under
the
provisions
of
the
Income
Tax
Act
and
Regulations.
Section
11(1)
of
the
Income
Tax
Act
provides
:
11.
(1)
Notwithstanding
paragraphs
(a),
(b)
and
(h)
of
subsection
(1)
of
section
12,
the
following
amounts
may
be
deducted
in
computing
the
income
of
a
taxpayer
for
the
taxation
year:
(a)
such
part
of
the
capital
cost
to
the
taxpayer
of
property,
or
such
amount
in
respect
to
the
capital
cost
to
the
taxpayer
of
property,
if
any,
as
is
allowed
by
regulation;
Section
1100(1)
of
the
Income
Tax
Regulations
provides:
(1)
Under
paragraph
(a)
of
‘subsection
(1)
of
section
11
of
the
Act,
there
is
hereby
allowed
to
a
taxpayer,
in
computing
his
income
from
a
business
or
property,
as
the
case
may
be,
deductions
for
each
taxation
year
equal
to
Patent,
Franchisé,
Concession
or
Licence
(c)
Such
amount
as
he
may
claim
in
respect
of
property
of
class
14
in
Schedule
B
not
exceeding
the
lesser
of
(i)
the
aggregate
of
the
amounts
for
the
year
obtained
by
apportioning
the
capital
cost
to
him
of
each
property
over
the
life
of
the
property
remaining
at
the
time
the
cost
was
incurred,
or
(ii)
the
undepreciated
capital
cost
to
him
as
of
the
end
of
the
taxation
year
(before
making
any
deduction
under
this
subsection
for
the
taxation
year)
of
property
of
the
class
;
Class
14
of
Schedule
B
reads:
.
;
Property
that
is
a
patent,
franchise,
concession
or
licence
for
a
limited
period
in.
respect
of
property
but
not
including
(the
exclusions
are
irrelevant).
.
•,2!
!2i..
The
parties
agree
that
Gibson,
J.
correctly
stated
that
the
determination
of
the
issue
as
to
whether
the
appellant
is
entitled
to
such
capital
costs
deduction
is
dependent
upon
the
answer
to
the
question
:
Are
the
rights
or
obligations
obtained
and
assumed
by
the
appellant
pursuant
to
the
agreement
between
it
and
the
Capital
Management
Corporation
Ltd.
dated
October
31st,
1959,
"property
that
is
a
patent,
franchise,
concession
or
licence
for
a
limited
period
in
respect
of
property”?
Of
course,
such
rights
are
not
a
patent
SO
the
question
narrows
down
to:
whether
they
were
à
franchise,
concession
or
licence,
and
also
whether
they
were
"‘in
respect
of
property’’.
-
Gibson,
J.
held
that
the
rights
which
the
appellant
received
from
its
predecessor
under
the
said
agreement
were
essentially
the
right
to
act
as
a
managing
agent
for
a
set
fee
and
that
such
right
could
not
be
described
as
a
franchise,
concession
or
licence
in
relation
to
property,
and
he
therefore
dismissed
the
appellant’s
appeal
from
the
assessment
made
by
the
Minister.
The
appellant
in
its
submission
to
Gibson,
J.
and
to
this
Court
emphasized
that
its
rights
under
the
trust
agreements
which
it
purchased
on
October
31,
1959
were
much
more
than
the
rights
to
act
as
manager
for
a
fee,
in
that
it
had
the
sole
right
to
designate
the
brokers
who
could
sell
the
units
in
the
two
funds
and
was
entitled
to
an
acquisition
fee
of
2%
of
the
proceeds
of
the
sale
of
any
of
those
units.
In
addition,
the
broker
or
selling
agent
was
entitled
to
a
commission
of
6%
although
sometimes
less
than
6%
was
paid
as
discounts
were
given
for
large
purchases.
Under
the
trust
agreements,
the
appellant
was
entitled,
in
the
words
of
Article
XVII,
Section
5:
5.
The
Manager
or
any
company
in
or
with
which
it
or
its
stockholders
may
be
interested
or
affiliated
or
any
officer
or
director
of
the
Manager
or
of
any
such
company
may
buy,
sell,
hold,
own
or
deal
in
any
of
the
certificates
with
the
same
rights
as
other
holders
thereof.
The
appellant
never
did
buy,
sell,
hold
or
deal
in
any
of
the
certificates
but
it
did
purchase
all
the
shares
of
an
existing
corporation
known
as
General
Mutual
Funds
Ltd.
and
that
entity
then
sold
a
large
number
of
units
and
obtained
the
6%
commission
aforesaid.
The
appellant
obtained
the
2%
acquisition
fee
on
the
units
sold
by
General
Mutual
Funds
Ltd.
as
well
as
on
the
units
sold
by
a
very
large
number
of
brokers
all
of
whom
it
had
chosen
under
its
power
in
the
trust
deed.
It
is
the
appellant’s
submission
that
these
rights
are,
therefore,
a
"‘franchise,
concession
or
licence’’
within
the
aforesaid
Class
14
and
Section
1100
of
the
Regulations.
The
respondent
submits
that
those
words,
‘‘franchise,
concession
or
licence
in
respect
of
the
property’’
must
be
interpreted
in
the
sense
used
by
ordinary
businessmen
on
this
continent.
Counsel
for
the
respondent
agrees
that
the
words
extend
not
only
to
certain
kinds
of
privileges
or
monopolies
conferred
by
virtue
of
statutory
enactment
but
may
also
extend
to
rights
created
by
contract
between
private
parties.
The
respondent,
however,
submits
that
the
English
authorities
dealing
with
similar
words
when
used
in
contracts
in
reference
to
property
are
not
helpful
in
interpreting
the
words
used
in
income
tax
legislation
on
this
continent.
Counsel
for
the
respondent,
therefore,
cites
American
dictionaries,
and,
particularly
Webster’s
International
Dictionary
f
3rd
edition,
which,
at
p.
902,
defines
‘
‘franchise”
as
3
a:
a
right
or
privilege
conferred
by
grant
from
a
sovereign
or
a
government
and
vested
in
an
individual
or
group;
specif
:
a
right
to
do
business
conferred
by
a
government—see
FRANCHISE
TAX
b:
a
constitutional
or
statutory
right
or
privilege;
esp:
the
right
to
vote—usu.
used
with
the
c(l)
:
the
right
granted
to
an
individual
or
group
to
market
a
company’s
goods
or
services
in
a
particular
territory
(2)
:
the
territory
involved
in
such
a
right
d:
a
contract
for
public
works
or
public
services
granted
by
a
government
to
an
individual
or
company
e(l)
:
the
right
of
membership
granted
by
certain
professional
sports
leagues
(2)
:
such
membership
itself
(8):
a
team
and
the
professional
organization
operating
it
having
such
membership
f:
the
right
to
present,
broadcast,
or
televise
the
events
put
on
by
a
sports
league
or
organization
.
.
.
And
at
p.
470,
where
"
concession”
is
defined
as:
a.
a
grant
of
land
or
other
property
esp.
from
a
government
in
return
for
services
rendered
or
proposed
or
for
a
particular
use;
specif:
a
tract
granted
to
a
foreign
power
in
a
Chinese
treaty
port
or
other
trading
center
and
permitted
rights
or
extraterritoriality
and
local
self-government
b:
a
usu.
exclusive
right
to
undertake
and
profit
by
a
specified
activity
[a
—
to
build
a
canal]
[conflicting
—s
in
the
oil
fields]
c:
a
lease
of
premises
or
a
portion
of
premises
for
a
particular
purpose,
esp.
for
some
purpose
supplementary
to
another
activity
(as
the
storing
of
wraps
of
patrons
of
a
theatre)
or
for
providing
entertainment;
often:
the
premises
covered
by
such
a
concession
or
the
activities
for
which
it
is
granted
[it
was
reported
that
some
of
the
—s
at
the
fair
were
not
honest]
.
.
.
And
at
p.
1304,
where
""licence”
1
defined
as
:
38
a(l)
:
a
right
or
permission
granted
in
accordance
with
law
by
a
competent
authority
to
engage
in
some
business
or
occupation,
to
do
some
act,
or
to
engage
in
some
transaction
which
but
for
such
licence
would
be
unlawful
[a
—
to
sell
liquor]
[a
marriage
—]
[a
—
to
practice
medicine]
(2)
:
a
document
evidencing
a
licence
granted
.
.
.
There
seems
to
have
been
only
one
decision
i
in
courts
in
Canada
which
has
any
direct
application
to
the
present
situation:
The
Investors
Group
v.
M.N.R.,
[1965]
2-
Ex.
C.R.
520;
[1965]
C.T.C,
192,
where
Jackett,
P.
considered
a
like,
appeal
and
expressed
the
view
that
the
words
"
franchise,
concession
or
licence”
in
the
statute
were
used
to
refer
to
some
right,
privilege
or
monopoly
that
enables
the
concessionaire
or
franchise
holder
to
carry
on
his
business
or
that
facilitates
the
carrying
on
of
his
business
and
that
they
were
not
used
to
refer
to
a
contract
under
which
a
person
was
entitled
to
remuneration
for
the
performance
of
specific
services,
Gibson,
J.
adopted
this
view
in
dismissing
the
appellant’s
appeal.
Counsel
for
the
appellant
submits
that
the
present
case
should
be
distinguished
from
The
Investors
Group
v.
M.N.R.
on
the
ground
that
in
that
case
all
the
taxpayer
obtained
under
the
agreement
was
a
power
to
procure
and
recommend
salesmen
with
a
duty
to
finance
their
expenditures
and
that
there
was
nothing
to
show
that
such
power
was
an
exclusive
power.
It
is
true
that
in
the
report
of
the
case
in
35
Tax
A.B.C.
413,
Mr.
St-Onge
dealt
with
those
circumstances
but
I
did
not
find
that
the
learned
President
in
considering
the
appeal
in
the
Exchequer
Court
placed
any
reliance
whatsoever
upon
them.
On
the
other
hand,
he
based
his
decision
solely
on
a
consideration
of
the
proper
interpretation
to
be
given
to
the
words
franchise,
concession
or
licence’’
in
business
practice
on
this
continent.
Counsel
for
the
respondent
submits
that
the
appellant
in
relying
on
the
power
which
it
alleges
it
had
to
deal
with
the
units
and
advancing
that
power
as
one
reason
in
interpreting
its
rights
as
a
franchise,
is
misconstruing
the
power
granted
to
it
in
the
two
trust
deeds.
Counsel
for
the
respondent
points
out
that
the
trust
deeds
themselves
carefully
distinguished
between
shares
and
certificates
for
shares,
so
in
the
trust
deed
setting
up
the
All
Canadian
Dividend
Fund
it
is
provided
in
Article
IV,
paragraph
2,
"‘shares
may
be
purchased
by
or
through
persons
authorized
by
the
manager’’,
and
in
paragraph
3,
"‘upon
receipt
of
the
purchase
price
of
a
share
or
shares
by
the
trustee,
the
trustee
shall
issue
to
each
such
purchaser
of
such
share
or
shares
a
certificate
representing
the
number
of
shares
purchased
by
him’’,
while
in
Article
XVII,
paragraph
5,
it
is
provided:
5.
The
Manager
or
any
company
in
or
with
which
it
or
its
stockholders
may
be
interested
or
affiliated
or
any
officer
or
director
of
the
Manager
or
of
any
such
company
may
buy,
sell,
hold,
own
or
deal
in
any
of
the
certificates
with
the
same
rights
as
other
holders
thereof.
(The
italics
are
my
own.)
And
by
Article
XVI,
paragraph
2,
the
same
exact
right
is
given
to
the
trustee.
I
am
in
agreement
with
this
submission
of
counsel
for
the
respondent
that
the
power
given
to
the
manager
and,
as
I
have
said,
also
to
the
trustee,
to
deal
in
certificates
is
not
a
power
by
which
it
may
purchase
shares
from
treasury,
but
merely
a
power
permitting
it
to
buy
and
sell
on
the
market
certificates
for
such
shares
once
they
have
been
issued,
a
power
which,
of
course,
is
a
very
frequent
one
in
contracts
appointing
trustees
of
a
fund
or
managing
agents
of
a
fund
when
those
trustees
or
managing
agents
are
in
the
business
of
dealing
in
securities
and
holding
investments.
Once
this
interpretation
is
accepted
then
the
position
of
the
appellant
is
reduced
to
that
of
a
managing
agent
with
a
right
to
designate
selling
agents
and
to
obtain
a
2%
acquisition
fee
on
sales
of
all
shares
by
such
agents.
It
is
difficult
to
distinguish
between
that
position
and
the
position
of
the
appellant
in
The
Investors
Group
v.
M.N.R.,
and
I
have
already
expressed
my
agreement
with
the
view
of
the
learned
President
in
that
decision.
This
is
sufficient
to
dispose
of
the
appeal.
I,
therefore,
find
it
unnecessary
to
refer
to
another
submission
made
by
counsel
for
the
respondent,
i.
e.,
that
whether
the
rights
of
the
appellant
are
or
are
not
a
franchise,
concession
or
licence’’
they
are
not
"‘in
respect
of
property’’.
I
prefer
to
express
no
opinion
on
that
submission.
For
these
reasons,
I
would
dismiss
the
appeal
with
costs.
FURNESS,
WITHY
&
COMPANY,
Appellant,
and
MINISTER
OF
NATIONAL
REVENUE,
Respondent.
Supreme
Court
of
Canada
(Cartwright,
C.J.C.
and
Abbott,
Judson,
Ritchie
and
Pigeon,
J
J.),
January
29,
1968,
on
appeal
and
cross-appeal
from
a
judgment
of
the
Exchequer
Court,
reported
[1966]
C.T.C.
482.
Income.
tax—Federal—Income
Tax
Act,
R.S.C.
1952,
c.-148—Section
The
appellant
was
incorporated
in
the
U.K.
and
resident
in
that
country
and
not
in
Canada.
In
Canada
it
carried
on
the
business
of
general
agent
or
ship-broker
and,
in
relation
to
ships
owned
by
it,
performed
the
duties
and
functions
normally
performed
by
a
general
agent
or
ship-broker.
It
also
carried
on
the
business
of
stevedoring
in
Canada
and,
in
relation
to
ships
owned’
by
it,
performed
the
duties
and
functions
normally
performed
by
a
stevedore.
Similar
services
were
provided
for
a
number
of
subsidiary
and
affiliated
companies.
In
issue
were
(1)
whether
income
earned
in
Canada
by
the
appellant
as
general
agent
or
stevedore
was
income
attributable
to
the
operation
of
ships
within
the
meaning
of
the
Act
and
Canada-U.K.
Agreement,
and
(2)
whether
income
earned
in
Canada
in
respect
of
servicing
or
stevedoring
the
appellant’s
own
ships
whilst
in
Canada
was
likewise
so
attributable.
The
Exchequer
Court
had
held
as
to
(1)
that
neither
the
Act
nor
the
Canada-U.K.
Agreement
exempted
earnings
from
managing
or
agency
or
stevedoring
services
rendered
in
Canada
to
other
corporations,
and
as
to
(2)
that
the
appellant
was
entitled
to
exemption
under
those
provisions
in
respect
of
amounts
attributable
to
agency
or
stevedoring
services
to
ships
owned
or
chartered
by
the
appellant
and
operated
in
its
own
service.
From
the
first
finding
the
appellant
appealed
and
from
the
second
the
Minister
cross-appealed.
HELD
(per
curiam)
:
The
reasons
for
judgment
of
the
Exchequer:
Court
were
adopted
except
that
no
reliance
was
placed
on
the
French
text
of
the
Canada-
U.K.
Agreement.
Appeal
and
cross-appeal
dismissed.
H.
Howard
Stikeman,
Q.C.,
W.
David
Angus
and
Peter
F.
Cumyn,
for
the
Appellant.
@.
W.
Ainslie
and
M.
A.
Mogan,
for
the
Respondent.
ABBOTT,
J.
(all
concur)
:—This
is
an
appeal
and
cross-appeal
from
a
judgment
of
Mr.
Justice
Thurlow
of
the
Exchequer
Court
of
Canada,
which
allowed
in
part
the
appellant’s
appeal
from
income
tax
assessments
made
for
its
taxation
years
1957
to
1963
inclusive.
The
principal
issue
on
both
the
appeal
and
cross-appeal,
is
the
meaning
to
be
ascribed
to
the
phrase,
"
income
.
..
.
earned
in
Canada
from
the
operation
of
a.
ship’’
found
in
paragraph
(c)
of
subsection
(1)
of
Section
10
of
the
Income
Tax
Act,
R.S.C.
1952,
ce.
148,
and
the
phrase
“profits
which
a
resident
.
.
.
derives
from
operating
ships’’
found
in
Article
V
of
the
Tax
Convention
of
June
5,
1946,
between
Canada
and
the
United
Kingdom
of
Great
Britain
and
Northern
Ireland;
Statutes
of
Canada
1946,
c.
38.
This
raises
two
questions,
namely
:
(1)
Whether
income
which
the
appellant
earned
in
Canada
in
its
character
as
a
general
agent
or
stevedore
is
""
income
..
.
.
earned
in
Canada
from
the
operation
of
a
ship’’
or
"‘profits
which
.
.-(the
,
(the
appellant)
derives
from
operating
ships’’;
and
(2)
Whether
income
which
the
appellant
earned
in
Canada
in
respect
of
servicing
or
stevedoring
its
own
ships
whilst
in
territorial
waters
in
Canada
is
‘‘income
.
.
.
earned
in
Canada
from
the
operation
of
a
ship’’
or
"‘profits
which
.
.
,
(the
appellant)
derives
from
operating
ships’’.
Section
10(1)
(c)
of
the
Income
Tax
Act
provides:
10.
(1)
There
shall
not
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
(c)
the
income
for
the
year
of
a
non-resident
person
earned
in
Canada
from
the
operation
of
a
ship
or
aircraft
owned
or
operated
by
him,
if
the
country
where
that
person
resided
grants
substantially
similar
relief
for
the
year
to
a
person
resident
in
Canada.
Article
V
of
the
Canada-U.K.
Tax
Convention
provides
:
Notwithstanding
the
provisions
of
Articles
III
and
IV,
profits
which
a
resident
of
one
of
the
territories
derives
from
operating
ships
or
aircraft
shall
be
exempt
from
tax
in
the
other
territory.
There
is
no
serious
dispute
between
the
parties
as
to
the
relevant
facts.
The
appellant
was
incorporated
under
the
laws
of
the
United
Kingdom
and
has
its
registered
office
in
London.
It
operates
branch
offices
at
various
Canadian
ports
and
its
chief
Canadian
office
is
at
Montreal.
It
is
common
ground
that
appellant
is
resident
in
the
United
Kingdom
and
is
not.
resident
in
Canada.
In
Canada,
the
appellant
carries
on
the
business
of
a
general
agent
or
ship-broker
and,
in
relation
to
ships
owned
by
it,
performs
the
duties
and
functions
which
would
normally
be
performed
by
a
general
agent
or
ship-broker.
Also,
the
appellant
carries
on
the
business
of
stevedoring
in
Canada
and,
in
relation
to
some
ships
owned
by
it,
performs
the
duties
and
functions
which
would
normally
be
performed
by
a
stevedore.
It
also
performs
similar
services
as
agent,
ship-broker
or
stevedore
for
ships
owned
by
other
companies,
in
many
of
which
appellant,
as
a
shareholder,
holds
either
a
majority
or
minority
interest.
The
learned
trial
judge
held
:
1.
That
neither
Section
10(1)
(c)
of
the
Income
Tax
Act
nor
Article
V
of
the
Tax
Convention
exempts
earnings
of
the
appellant
from
managing
or
agency
or
stevedoring
services
which
it
renders
in
Canada
to
other
corporations:
2.
That
appellant
is
entitled
to
exemption
under
these
provisions
in
respect
of
the
portions
of
the
amounts
treated
as
income
by
the
Minister,
which
arose
from
entries
of
charges
made
by
the
branches
for
‘‘agency’’
and
stevedoring
services
to
ships
which
were
owned
or
chartered
by
the
appellant
and
were
operated
in
its
own
service.
3.
That
appellant
is
entitled
to
deduct,
in
computing
its
income
from
business
carried
on
in
Canada,
that
portion
of
general
head
office
administration
expenses
properly
chargeable
to
its
operations
in
Canada.
Appellant
appealed
to
this
Court
from
the
first
finding
and
the
Minister
cross-appealed
as
to
the
second.
There
is
no
crossappeal
from
the
third
finding.
There
is
nothing
that
I
can
usefully
add
to
the
able
and
exhaustive
reasons
for
judgment
of
Thurlow,
J.,
with
which
I
am
in
agreement,
and
I
am
content
to
adopt
them
with
one
minor
exception.
In
interpreting
Article
V
of
the
Canada-U.K.
Tax
Convention,
I
do
not
rely
upon
the
translation
of
the
Convention,
which
appears
as
a
Schedule
to
the
French
text
of
the
Statutes
of
Canada
1946,
c.
38.
I
would
therefore
dismiss
the
appeal
and
the
cross-appeal
with
costs.