THURLOW,
J.:—These
are
appeals
from
re-assessments
of
income
tax
which
were
heard
together
on
common
evidence
pursuant
to
an
order
of
the
Court
made
prior
to
the
trial.
In
the
ease
of
Construction
Aggregates
Corporation
(hereinafter
referred
to
as
Construction
Aggregates)
the
appeal
is
in
respect
of
its
1962
taxation
year.
In
the
case
of
Sensibar
Dredging
Corporation
Limited
(hereinafter
referred
to
as
Sensibar
Dredging),
which
is
a
wholly
owned
subsidiary
of
Construction
Aggregates,
the
appeal
is
in
respect
of
its
1961
taxation
year.
In
both
cases,
however,
the
broad
issue
is
whether
the
appellant
is
liable
for
income
tax
in
respect
of
the
same
amount,
a
profit
of
$1,093,-
996.35
realized
on
or
about
June
23,
1961,
in
a
transaction
involving
inter
alia
the
sale
to
McNamara
Suction
Dredging
Limited
of
a
dredge
known
as
the
Fleur
de
Ins.
The
Minister’s
position
is
that
the
amount
in
question
is
a
taxable
profit
and
that
Construction
Aggregates
made
the
profit
and
is
liable
for
the
tax,
but
that
if
Construction
Aggregates
did
not
realize
the
profit
Sensibar
Dredging
did
realize
it
and
is
liable
for
tax
in
respect
of
it.
Both
appellants
take
the
position
that
the
profit
was
a
capital
gain
but
that
if
it
is
taxable
it
was
Sensibar
Dredging
and
not
Construction
Aggregates
which
realized
the
profit
and
is
liable
for
the
tax.
Construction
Aggregates
is
a
Delaware
corporation
which
was
incorporated
in
1939
and
since
then
has
carried
on
a
business
formerly
carried
on
by
a
predecessor
corporation
consisting
mainly
in
dredging
and
land
reclamation
work.
It
also
owns
an
area
in
the
state
of
Michigan
from
which
it
produces
sand
and
gravel
which
it
processes
and
sells
in
the
Great
Lakes
area.
The
dredging
business
is
carried
on
in
various
parts
of
the
world
but
principally
in
the
United
States.
It
includes
the
supplying
under
charter
and
the
operating
of
dredges
owned
by
Construction
Aggregates
in
the
performance
of
contracts
for
dredging
work
and
it
has
included
as
well
the
performance
of
contracts
for
the
designing
and
supervision
of
the
construction
of
dredges
for
others
and
the
operation
of
them
for
their
owners
on
a
fee
basis.
Under
such
a
contract
with
Steep
Rock
Iron
Mines
Ltd.
made
in
1949
the
company
designed
and
supervised
the
building
of
two
dredges
and
thereafter
operated
them
in
Canada
for
about
twelve
years
for
their
owner.
Under
a
further
contract
made
in
1953
the
company
designed
and
supervised
the
building
of
another
two
dredges
for
Caland
Ore
Company
Limited
and
operated
them
for
that
company
for
about
nine
years.
And
under
a
further
contract
made
in
1954
the
company
designed
and
supervised
the
construction
of
the
Fleur
de
Lis
for
Lake
Asbestos
of
Quebee
Limited
(hereinafter
referred
to
as
Lake
Asbestos),
a
subsidiary
of
American
Smelting
and
Refining
Company
and
thereafter
operated
it
for
its
owner
for
about
five
years.
In
each
of
these
cases
from
the
point
of
view
of
the
owner
the
purpose
of
the
contract
and
operation
was
to
secure
the
removal
of
underwater
material
so
as
to
uncover
ore
bodies
and
in
each
case
the
contract
contained
a
provision
giving
Construction
Aggregates
an
opportunity
to
buy
the
dredge
when
no
longer
required
by
its
owner
at
any
price
offered
by
another
party
which
the
owner
would
be
prepared
to
accept.
Until
the
events
to
be
related
these
were
the
only
operations
ever
carried
out
by
Construction
Aggregates
in
Canada.
In
the
case
of
the
Fleur
de
Lis
the
work
for
which
the
dredge
was
designed
and
constructed
was
completed
in
September
1959
and
shortly
thereafter
conversations
took
place
which
resulted
in
engineering
personnel
of
Construction
Aggregates
preparing
at
the
request
of
Lake
Asbestos
an
estimate
of
the
value
of
the
dredge
and
the
equipment
associated
with
it.
The
estimate
so
produced
was
$828,000
and
this
was
regarded
by
Lake
Asbestos
as
a
fair
valuation
though
the
evidence,
so
far
as
it
goes,
indicates
that
it
was
on
the
high
side.
In
January
1960
a
verbal
understanding
was
reached
that,
subject
to
Lake
Asbestos
obtaining
offers
of
a
higher
amount
in
the
meantime,
when
Lake
Asbestos
was
ready
to
dispose
of
the
dredge
Construction
Aggregates
might
acquire
it
at
the
amount
at
which
it
had
been
valued
less
the
value
attributed
to
any
portions
of
the
equipment
which
Lake
Asbestos
might
dispose
of
or
decide
to
keep.
Construction
Aggregates
thereupon
began
looking
for
work
for
the
dredge
in
the
course
of
which,
in
March
1960,
it
bid,
unsuccessfully,
on
a
substantial
job
to
be
done
in
Detroit.
Later
it
negotiated
with
the
International
Nickel
Company
for
the
dredging
work
on
a
project
at
Thompson
Lake
in
Manitoba
but
this
fell
through
when
the
Nickel
Company
deferred
the
project
indefinitely.
By
mid-July
another
project
was
in
the
offing
for
work
to
be
done
near
Quebec
on
a
National
Harbours
Board
project
under
a
subcontract
for
dredging
to
be
let
by
the
Raymond
International
Company
Limited
(hereinafter
referred
to
as
Raymond),
but
it
is
not
clear
on
the
evidence
whether
Construction
Aggregates
knew
of
this
job
or
not
when
near
the
end
of
July
it
received
a
letter
from
A.
L.
Quinlan,
the
general
manager
of
McNamara
Marine
Limited,
one
of
a
family
of
McNamara
companies
(hereinafter
referred
to
as
the
McNamara
organization),
asking
for
an
opportunity
to
discuss
either
at
Chicago
or
elsewhere
the
possibility
and
means
by
which
it
might
purchase
one
of
the
five
dredges
which
had
been
or
were
being
operated
by
Construction
Aggregates
for
their
owners
in
Canada
on
terms
mutually
satisfactory
to
both
parties.
Thereafter
on
August
9
a
conference
took
place
at
Chicago
between
Quinlan
and
Ezra
Sensibar,
the
senior
vice-president
of
Construction
Aggregates,
following
which
Sensibar
circulated
to
several
officials
of
Construction
Aggregates
a
memorandum
the
first
paragraph
of
which
read
as
follows:
His
firm
is
interested
in
acquiring
the
“FLEUR
DE
LIS”
and
would
like
to
work
out
something
with
us.
I
told
him
that
we
had
already
reached
an
agreement
in
principle
with
AS&R
under
which
we
would
buy
the
“FLEUR
DE
LIS”
and
were
entirely
agreeable
to
working
out
some
joint
arrangement
with
them
and
also
that
we
did
not
close
the
door
on
an
outright
sale.
The
remainder,
and
by
far
the
greater
part,
of
the
memo
recites
information
which
Sensibar
obtained
from
Quinlan
about
the
equipment
held
by
a
number
of
companies
engaged
in
dredging
in
Canada.
There
is
evidence
that
at
this
time
Construction
Aggregates
regarded
the
opportunity
for
expanding
its
operations
into
eastern
Canada
to
be
favourable
and
intended
to
bid
for
Canadian
jobs
and
to
use
the
Fleur
de
Lis,
when
acquired,
to
do
them.
The
Fleur
de
Lis
was
a
30-inch
suction
cutter
dredge
and
was
then
at
Black
Lake
near
Thetford
Mines
in
the
Province
of
Quebec
where
it
had
been
in
use
by
Lake
Asbestos.
In
order
to
use
it
elsewhere
it
would
be
necessary
to
dismantle,
remove
and
rebuild
it,
which
would
be
a
substantial
undertaking,
but
it
seems
to
be
common
ground
that
once
removed
to
the
St.
Lawrence
River
and
rebuilt
it
would
be
far
more
efficient
than
any
dredge
controlled
by
competitors
in
eastern
Canada
from
which
I
would
suppose
that
it
would
put
its
possessor
in
a
very
favourable
position
to
compete
for
work
which
it
was
capable
of
executing.
Save
for
a
letter
thanking
Sensibar
for
his
hospitality
and
saying
that
he,
Quinlan,
would
write
at
a
later
date
in
the
event
that
any
concrete
proposition
could
be
made
concerning
the
Fleur
de
Las
there
is
no
further
communication
to
or
from
the
McNamara
organization
until
the
following
January.
In
the
meantime
Construction
Aggregates
bid
for
and
obtained
the
Raymond
subcontract
to
be
performed
by
the
use
of
the
Fleur
de
Lis,
arranged
to
buy
the
dredge
from
Lake
Asbestos
on
a
long
term
payment
plan
for
$725,000
(this
being
the
difference
between
$828,000
and
the
value
of
equipment
disposed
of
or
to
be
retained
by
Lake
Asbestos)
and
prepared
specifications
for
and
called
for
bids
for
the
work
of
dismantling,
moving
to
the
St.
Lawrence
River
and
rebuilding
and
refitting
the
dredge
for
work
on
the
Raymond
subcontract.
Early
in
December
Construction
Aggregates
learned
that
it
would
be
necessary
to
have
the
dredge
registered
under
the
Canada
Shipping
Act
and
on
December
30
instructed
its
Toronto
solicitors
to
organize
a
Canadian
subsidiary
corporation
the
purpose
of
which
was
to
be
limited
to
a
general
contracting
business
with
particular
emphasis
on
dredging
activities.
The
subsidiary
corporation,
Sensibar
Dredging,
was
incorporated
under
the
Companies
Act,
R.S.C.
1952,
c.
53,
on
January
24,
1961,
by
letters
patent
which
fixed
its
capital
at
$10,000
and
stated
its
objects
as
being
‘‘to
own
and
operate
dredges
and
dredging
equipment,
apparatus
and
vessels
and
to
undertake
and
perform
construction
work
and
material
moving
contracts’’.
By
an
agreement
dated
February
15,
1961,
which
recited
that
this
company
had
been
designated
as
the
nominee
of
Construction
Aggregates
to
take
title
to
the
dredge
and
equipment
purchased
from
Lake
Asbestos,
Sensibar
Dredging
agreed
with
Lake
Asbestos
to
assume
the
obligations
of
Construction
Aggregates
under
the
contract
to
purchase
the
dredge
and
equipment
and
by
a
bill
of
sale
dated
March
1,
1961,
Lake
Asbestos
conveyed
the
dredge
and
equipment
to
Sensibar
Dredging.
Thereafter
by
a
formal
contract
dated
March
3,
1961
for
the
dredging
work
to
be
done
near
Quebec,
Construction
Aggregates,
representing
that
it
controlled
the
dredge,
let
it
to
Raymond
under
a
charter
arrangement
in
which
Construction
Aggregates
agreed
to
provide
the
dredge
and
‘‘all
supervision,
crew,
master,
labour,
materials,
fuel
provisions,
supplies,
tools
and
equipment’’
and
to
perform
the
dredging
work.
In
the
meantime
on
January
24,
1961
Construction
Aggregates
had
accepted
by
letter
the
tender
of
Geo.
T.
Davie
&
Sons
Ltd.
to
dismantle,
remove
and
rebuild
the
dredge
for
an
amount
somewhat
in
excess
of
$340,000.
A
formal
contract
for
this
work
dated
March
16,
1961
was
later
entered
into
by
Construction
Aggregates
in
its
own
name.
The
same
company
between
February
2
and
March
24
made
three
payments
of
about
$34,000
each
to
the
Davie
company
and
on
or
about
March
23
it
also
arranged
for
the
issue
of
an
irrevocable
letter
of
credit
from
its
banker
to
the
Davie
company
to
secure
further
progress
payments
totalling
$241,980
all
on
account
of
the
work
being
done
or
to
be
done
on
the
dredge.
While
these
events
were
under
way
the
McNamara
organization
in
the
fall
of
1960
had
been
making
a
study
of
what
would
be
required
to
dismantle,
remove
and
rebuild
the
Fleur
de
Lis
at
Whitby,
Ontario
for
its
own
purposes
and
on
this
basis
had
also
made
estimates
of
the
value
of
the
dredge
at
Black
Lake,
and
of
what
amount
it
ought
to
be
prepared
to
offer
for
it.
I
would
infer
from
Exhibits
V.52
and
A
that
it
had
intended
to
make
its
offer
to
Lake
Asbestos
but
left
it
too
late
and
then
learned
that
Construction
Aggregates
had
already
bought
the
dredge.
It
does
not
appear
that
McNamara
had
heard
at
this
stage
of
the
Raymond
subcontract
or
that
it
had
been
interested
in
bidding
for
it.
On
the
other
hand
Construction
Aggregates
was
not
aware
that
the
McNamara
organization
was
engaged
in
making
its
study
of
the
value
of
the
dredge
and
of
the
costs
of
removing
and
refitting
it.
Early
in
January
1961
George
McNamara
of
the
McNamara
organization
telephoned
Ezra
Sensibar
and
arranged
to
meet
him
on
January
19
at
the
office
of
Construction
Aggregates
in
New
York.
The
meeting
took
place
and
according
to
Sensibar,
the
gist
of
what
occurred
was
that
McNamara
indicated
that
his
organization
was
interested
in
some
kind
of
a
deal,
preferably
in
buying
the
Fleur
de
Lis,
and
asked
for
a
figure
to
discuss,
that
Sensibar
told
him
that
the
figure
would
be
based
on
cost
of
replacement
which
would
be
in
the
vicinity
of
$2,500,000,
that
Construction
Aggregates
was
not
interested
in
selling
and
preferred
a
joint
project
but
that
it
was
up
to
McNamara.
McNamara
indicated
that
he
regarded
the
figure
as
unduly
high.
Sensibar’s
evidence
is
that
his
company
was
not
in
fact
interested
in
selling
the
dredge
and
that
it
was
reluctant
but
willing
to
consider
joint
operation
or
joint
ownership.
About
the
middle
of
February
McNamara
called
again
and
asked
for
another
meeting.
This
was
held
in
Chicago
on
February
28,
when
McNamara
indicated
that
his
organization
continued
to
be
interested
in
acquiring
some
ownership
of
the
Fleur
de
Ins,
but
that
he
thought
the
price
unreasonably
high
and
suggested
that
a
means
of
bridging
the
gap
might
be
to
combine
his
organization’s
equipment
with
the
Fleur
de
Ins
in
a
new
company
to
be
organized.
The
Construction
Aggregates
repre-
sentatives
were
not
much
interested
in
this
proposal,
did
not
think
the
three
small
dredges
owned
by
McNamara
equivalent
to
the
Fleur
de
Lis
or
that
the
scheme
would
be
likely
to
be
profitable
and
the
meeting
broke
up
to
give
the
parties
an
opportunity
to
think
about
it
and
to
meet
again
in
Toronto.
Sensibar
and
a
Mr.
Peebles,
who
was
general
counsel
and
a
member
of
the
executive
committee
of
Construction
Aggregates,
met
representatives
of
the
McNamara
organization
in
Toronto
on
March
7,
were
shown
about
their
premises,
decided
that
they
did
not
wish
to
accept
McNamara’s
proposal
and
so
informed
McNamara.
McNamara
was
also
informed
that
if
he
still
wished
to
buy
the
Fleur
de
Lis
Construction
Aggregates
was
willing
to
do
business
at
$2,400,000
but
not
otherwise.
No
written
memo
of
what
transpired
at
any
of
these
meetings
was
made
but
there
is
evidence
that
the
prices
mentioned
were
for
the
dredge
and
associated
equipment
and
did
not
include
the
Raymond
subcontract.
Around
the
beginning
of
April,
McNamara
called
again
and
a
further
meeting
took
place
at
Chicago
on
April
6
when
several
alternative
propositions
were
discussed.
A
memo
of
these
propositions
was
afterwards
circulated
and
reads
as
follows:
It
was
agreed
that
the
McNamara
interests
are
to
have
an
option
until
April
30,
1961,
to
accept
any
one
of
four
alternative
propositions.
All
of
the
propositions
are
based
upon
the
complete
“FLEUR
DE
LIS”
dredge
plant
as
it
will
be
just
before
starting
the
Quebec
contract
(for
Raymond
International)
or
just
after
completing
the
work
on
the
site.
The
plant
will
consist
of
the
following:
(a)
The
Dredge
“FLEUR
DE
LIS”.
(b)
1500’
of
pontoon
line.
(c)
8000'
of
30”
shoreline.
(d)
One
derrick
barge.
(e)
One
cable
reel
barge
together
with
cable.
(f)
Two
tugs.
(g)
One
lot
of
spare
parts
and
operating
supplies
and
tools.
(h)
Six
1600
H.P.
G.M.
diesel
engines
in
the
warehouse
in
Baltimore.
The
alternative
propositions
are
as
follows:
1.
CAC
will
sell
to
McNamara
the
dredge
plant
together
with
the
Raymond
Sub-contract,
before
starting
work,
for
$2,400,000.
Sixty
per
cent
(60%)
of
this
price
is
to
be
paid
in
cash
and
the
remainder
is
to
be
paid
by
means
of
five
serial
notes
bearing
interest
at
the
rate
of
five
per
cent
(5%),
and
due
at
one
year
intervals
over
a
period
of
five
years.
2.
CAC
will
sell
to
McNamara
the
dredge
plant
as
above
upon
completion
of
the
work
under
the
Raymond
contract
or
any
extensions
of
it
for
$2,000,000.
This
is
the
be
paid
sixty
per
cent
(60%)
in
cash
and
the
balance
by
means
of
five
notes
drawing
interest
at
five
per
cent
(5%),
and
due
at
one
year
intervals
over
a
period
of
five
years.
8.
McNamara
and
CAC
will
form
a
Canadian
company
which
will
buy
the
dredge
plant,
or
the
dredge
plant
and
the
Raymond
contract.
McNamara
will
pay
in
sixty
per
cent
(60%)
of
the
capital
of
this
company
and
CAC
will
pay
in
forty
per
cent
(40%).
The
new
company
will
buy
the
“FLEUR
DE
LIS”
plant
together
with
the
Raymond
contract
just
before
work
is
commenced
for
the
sum
of
$2,200,000.
An
agreement
will
be
made
between
the
parties
so
that
either
one
may
at
any
time
post
a
price
at
which
he
would
either
buy
or
sell
his
stock.
The
other
party
will
then
have
sixty
(60)
days
during
which
he
may
exercise
the
right
to
buy
or
sell
at
this
price.
If
he
fails
to
act,
then
at
the
end
of
this
period
the
first
party
must
buy
his
stock.
4.
The
provisions
under
“3”
above
are
modified
only
to
the
extent
that
the
dredge
plant
will
be
purchased
after
the
completion
of
the
work
at
the
Raymond
site
and
the
price
would
be
$1,800,000.
It
was
agreed
that
on
or
before
April
30th,
McNamara
will
notify
CAC:
a.
That
the
deal
is
off;
—or—
b.
That
it
chooses
one
of
the
four
alternative
propositions.
In
the
meantime
McNamara
may
inspect
the
dredge
in
the
George
T.
Davie
Shipyard
at
Quebec.
None
of
these
propositions
was
ever
accepted
and
Construction
Aggregates
did
not
even
hear
from
McNamara
until
the
middle
of
May
when
McNamara
called
by
telephone
and
indicated
that
he
wanted
to
take
up
the
option
even
though
it
had
expired
and
that
he
was
ready
to
close
on
the
basis
of
the
purchase
of
the
dredge
with
the
Raymond
subcontract
immediately
before
the
dredging
was
to
begin,
but
that
the
price
would
have
to
be
reduced
to
$2,000,000,
that
this
was
his
final
offer
and
that
Construction
Aggregates
could
either
take
or
leave
it,
that
there
would
be
no
further
negotiations
in
the
matter.
A
meeting
was
thereupon
arranged
for
May
24
in
Toronto
when,
after
lengthy
discussions,
a
deal
was
made
and
McNamara
paid
a
deposit
of
$100,000.
In
essence,
the
deal
was
for
the
sale
for
$2,000,000
of
the
dredge
with
the
Raymond
subcontract
as
well,
but
not
including
one
of
the
two
tugs
referred
to
in
the
memorandum
of
April
6
and
not
including
as
well
the
six
diesel
engines
referred
to
in
the
memorandum.
McNamara
was
given
an
option
to
purchase
the
diesel
engines
for
an
additional
$200,000
but
did
not
exercise
it.
Up
to
this
time
dredging
in
performance
of
the
Raymond
subcontract
had
not
yet
been
started
though
expenses,
referred
to
as
‘‘job
costs’?
in
the
vicinity
of
$100,000
had
been
incurred
in
organizing
and
preparing
to
carry
out
the
work.
As
part
of
the
transaction,
which
purports
to
have
been
made
between
Sensibar
Dredging
and
George
McNamara
on
behalf
of
a
company
to
be
incorporated,
McNamara
agreed
to
pay
these
expenses
and
to
assume
responsibility
for
performance
of
the
contract
and
in
turn
became
entitled
to
the
amounts
payable
by
Raymond
under
it.
The
closing
of
the
transaction
was
set
for
June
23
and
it
was
provided
that
until
that
time
Sensibar
Dredging
should
perform
the
contract
as
agent
for
McNamara
and
should
continue
to
perform
it
on
the
same
basis
thereafter
in
the
event
that
Raymond
should
fail
to
consent
to
the
assignment.
On
its
part
Sensibar
Dredging
undertook,
subject
to
the
consent
of
Raymond,
to
assign
the
contract
and
to
cause
Construction
Aggregates
to
concur
in
such
assignment.
There
is
evidence
that
it
had
been
intended
to
perform
the
dredging
in
the
name
of
Sensibar
Dredging,
that
an
operating
account
and
a
payroll
account
had
been
opened
in
its
name
at
a
bank
in
Quebee
and
that
the
sign
on
the
office
on
the
job
site
bore
that
name
but
up
to
that
time
there
had
been
no
assignment
to
Sensibar
Dredging
of
the
contract
or
of
the
amounts
to
be
paid
by
Raymond
under
it.
The
transaction
was
finalized
on
or
about
June
23
when
McNamara
paid
an
amount
of
$840,000
together
with
certain
adjustments
on
closing,
assumed
liability
to
the
extent
of
$360,000
for
the
work
done
under
the
Davie
contract
in
rebuilding
the
dredge
and
gave
a
mortgage
on
the
dredge
in
favour
of
Sensibar
Dredging
to
secure
the
remaining
$700,000.
The
documents
delivered
included
as
well
a
bill
of
sale
of
the
dredge
from
Sensibar
Dredging
to
McNamara
Suction
Dredging
Limited
and
assignments
of
the
Davie
and
Raymond
contracts.
By
the
last
mentioned
assignment,
in
which
Construction
Aggregates
joined,
that
company
assigned
the
contract
to
McNamara
Suction
Dredging
Limited,
Sensibar
Dredging
assumed
responsibility
for
the
obligations
of
Construction
Aggregates
under
it
and
McNamara
assumed
responsibility
for
the
obligations
of
both
Construction
Aggregates
and
Sensibar
Dredging
under
it.
Thereafter
the
performance
of
the
contract,
which
had
been
begun
in
the
meantime
on
or
about
June
5
in
the
name
of
Sensibar
Dredging,
was
undertaken
by
McNamara
itself.
Raymond,
however,
declined
to
release
Construction
Aggregates
from
its
responsibility
under
the
contract
and
did
not
formally
consent
to
the
assignment;
though
it
appears
to
have
been
aware
of
the
transaction
and
that
the
work
was
actually
being
done
by
McNamara
it
issued
its
cheques
in
payment
for
the
work
in
favour
of
Construction
Aggregates
which
thereupon
endorsed
them
to
McNamara.
As
part
of
the
arrangements
an
engineer
in
the
employ
of
Construction
Aggregates
continued
to
supervise
the
work
at
the
expense
of
McNamara
throughout
the
performance
of
the
contract.
In
the
course
of
a
year
following
the
completion
of
this
transaction
Construction
Aggregates
acquired
the
dredges
which
it
had
been
operating
for
Steep
Rock
Iron
Mines
Ltd.
and
Caland
Ore
Company
Limited
and
still
held
all
four
of
them
at
the
time
of
the
trial.
Sensibar
Dredging
appears
to
have
let
to
McNamara
Suction
Dredging
Limited
for
a
time
the
tug
which
had
been
excepted
from
the
sale
and
to
have
earned
some
revenue
therefrom
and
some
interest
on
amounts
belonging
to
it
but
it
carried
on
no
dredging
or
other
business
operations
after
the
transaction
in
question
and
on
May
15,
1962
its
directors
met
and
resolved
that
the
company
dispose
of
its
property,
distribute
its
assets
rateably
among
its
shareholders
and
proceed
to
wind
up
its
affairs.
In
the
course
of
the
argument
counsel
for
the
appellants
as
well
as
counsel
for
the
Minister
approached
the
matter,
and
suggested
that
I
do
so
as
well,
by
considering
first
the
question
whether
the
amount
in
question
was
income
within
the
meaning
of
the
Income
Tax
Act
and
thereafter
the
question
of
which
of
the
two
appellants,
if
either,
is
assessable
in
respect
of
it.
However,
while
the
answer
in
one
case
may
be
affected
to
some
extent
by
the
answer
in
the
other,
as
I
see
it,
the
basic
question
in
each
case
is
whether
the
particular
appellant
realized
a
gain
of
the
amount
in
question
which
in
its
hands
was
income
for
the
purposes
of
the
Income
Tax
Act
and
I
have
not
found
it
convenient
to
consider
the
nature
of
that
amount
apart
from
the
facts
pertaining
to
the
particular
appellant.
I
propose
therefore
to
consider
first
the
nature
of
the
gain
on
tl.e
assumption
that
it
was
realized
by
Construction
Aggregates,
thereafter
the
nature
of
the
gain
on
the
assumption
that
it
belonged
to
Sensibar
Dredging
and
finally
the
question
which
of
the
two
should
be
regarded
for
the
purposes
of
the
Income
Tax
Act
as
having
realized
it.
The
question
with
respect
to
the
nature
of
the
gain
for
the
purposes
of
the
Income
Tax
Act
is
whether
the
gain
was
profit
from
a
‘‘business’’
within
the
meaning
of
that
term
which,
as
defined
in
the
Act,
includes
‘‘a
trade,
manufacture
or
undertaking
of
any
kind
whatsoever’’
and
‘‘an
adventure
or
concern
in
the
nature
of
trade’’.
This
issue
is
frequently
stated
as
being
whether
profit
realized
from
a
transaction
was
income
or
a
capital
gain
but
while
this
may
be
a
convenient
way
of
posing
it
the
relevant
question
for
the
purpose
of
the
act
is
whether
the
profit
arose
from
a
business
as
defined
in
it.
If
so
the
profit
is
taxable
as
income
whether
or
not
by
some
standards
it
might
be
regarded
as
a
capital
gain.
On
the
other
hand
if
the
profit
is
not
profit
from
a
business—and
is
not
otherwise
income—it
matters
not
what
name
may
aptly
characterize
it.
The
test
to
be
applied
for
determining
the
question
as
propounded
in
Californian
Copper
Syndicate
v.
Harris
(1904),
5
T.C.
159,
and
as
since
applied
in
cases
arising
under
the
Income
Tax
Act
is
whether
the
gain
in
question
was
‘‘a
gain
made
in
an
operation
of
business
in
carrying
out
a
scheme
for
profit
making”.
In
the
present
case
assuming
that
the
profit
from
the
transaction
in
question
was
realized
by
Construction
Aggregates
it
appears
to
me
to
have
been
a
profit
that
arose
from
and
in
the
course
of
its
business.
As
might
be
expected
in
a
case
such
as
this
counsel
for
the
appellants
stressed
the
scope
of
the
ordinary
operating
activities
of
Construction
Aggregates,
the
nature
of
a
dredge
as
capital
equipment
in
that
operation,
that
the
Fleur
de
Lis
was
acquired
for
use
in
the
business
and
that
the
transaction
was
a
fortuitous
and
isolated
one.
These
are
undoubtedly
matters
to
be
weighed
in
determining
the
question
but
they
are
not
inconsistent
with
the
transactions
from
which
the
gain
arose:
having
been
transactions
of
the
appellant’s
business
and
there
appear
to
me
to
be
other
features
of
the
situation
which
taken
together
outweigh
them
and
point
to
the
conclusion
which
I
have
reached.
It
is
of
course
perfectly
clear
that
a
dredge
may
be
an
item
of
capital
equipment
for
a
person
engaged
in
the
dredging
business
and
it
is
also
clear
that
the
Fleur
de
Lis
might
have
become
an
item
of
capital
equipment
in
the
hands
of
Construction
Aggregates
if
it
had
been
held
and
put
to
use
as
such
but
the
fact
that
it
was
acquired
to
some
extent
through
Construction
Aggregates
having
a
right
to
do
so
obtained
under
a
contract
made
in
the
course
of
its
business
together
with
the
fact
that
the
company
had
similar
rights
under
two
other
contracts
under
which
in
due
course,
and
possibly
not
very
long
afterwards,
for
other
dredges
might
become
available
seems
to
me
to
militate
against
and
to
offset
the
prima
facie
character
as
capital
equipment
which
a
dredge
in
the
hands
of
a
corporation
engaged
in
the
dredging
business,
by
its
nature
would
otherwise
suggest.
In
these
circumstances
the
intention
with
which
the
dredge
was
acquired
appears
to
me
to
become
particularly
important.
On
the
evidence
I
see
no
reason
to
doubt
that
Construction
Aggregates
in
negotiating
for
the
dredge
did
so
with
the
intention,
which
it
may
well
have
had
from
the
outset
and
no
doubt
had
for
some
time
before
the
Lake
Asbestos
dredging
contract
was
completed,
of
acquiring
the
dredge
for
use
in
its
business
if
it
could
do
so
on
satisfactory
terms.
I
see
no
reason
to
think,
moreover,
that
it
would
not
have
acquired
the
dredge
at
or
about
the
time
when
it
did
acquire
it
even
if
it
had
not
in
the
meantime
heard
of
or
from
the
McNamara
organization.
The
real
state
of
Construction
Aggregates
purpose,
however,
is
I
think
apparent
from
the
memorandum
which
Ezra
Sensibar
wrote
following
his
meeting
with
Quinlan
on
August
9,
1960.
The
company
at
that
point
appears
to
me
to
have
intended
to
turn
its
rights
with
respect
to
the
dredge
and
the
dredge
itself
to
account
by
acquiring
and
using
or
disposing
of
it
in
any
way
that
might
be
likely
to
yield
a
satisfactory
profit
whether
alone
or
in
concert
with
others,
which,
as
I
see
it,
might
have
been
done
through
a
partnership
or
by
selling
the
dredge
to
a
company
owned
by
the
partnership
or
perhaps
in
other
conceivable
ways,
or
even
by
outright
sale.
There
is
evidence
that
resale
of
the
Fleur
de
Lis
was
neither
considered
nor
discussed
by
the
directors
of
Construction
Aggregates
but
there
is
also
evidence
that
from
that
time
on
the
possibility
of
working
out
terms
for
the
outright
sale
of
the
dredge
was
in
the
mind
of
Ezra
Sensibar,
who
appears
to
have
been
the
person
chiefly
concerned
on
behalf
of
both
appellants
in
the
transactions
in
question,
and
in
the
minds
of
those
to
whom
he
reported.
Nor
do
I
see
any
reason
to
think
that
the
purpose
had
changed
by
the
time
the
contract
to
purchase
the
dredge
was
made
even
though
by
that
time
Construction
Aggregates
required
it
and
intended
to
use
it
to
perform
the
Raymond
subcontract.
The
appellant’s
willingness
to
talk
terms
shortly
afterwards
to
a
person
principally
interested
in
purchasing
rather
than
in
any
kind
of
joint
venture
together
with
the
subsequent
dealings
between
them
appear
to
me
to
confirm
that
the
intention
of
Construction
Aggregates
remained
constant
throughout.
With
respect
to
the
appellant’s
intention
the
situation
seems
to
me
to
be
the
same
in
principle
as
that
in
Ducker
v.
Rees
Roturbo
Development
Syndicate,
[1928]
A.C.
132
at
141,
where
Lord
Buckmaster
said:
Turning
to
the
findings
of
the
Commissioners,
I
find
that
they
set
out
in
detail
the
circumstances
connected
with
the
working
of
this
company,
and,
in
particular,
the
reports,
which
begin
in
1907
and
continue
down
to
1918.
These
reports
show
that
the
directors
were
contemplating
from
the
beginning
the
possibility
of
the
sale
of
some
of
these
patents.
It
is
quite
true
that
they
preferred
not
to
sell
them
if
a
sale
could
be
avoided,
but
the
statement
in
para.
11
of
the
case
is
quite
plain,
that
“the
possibility
of
the
sale
of
the
foreign
patents
or
rights
has
always
been
contemplated
by
the
appellant
company
in
respect
of
such
interest
as
it
possessed
in
the
foreign
patents”.
It
is
one
of
the
foreign
patents
with
which
this
appeal
has
to
do,
and
the
agreements,
which
are
set
out,
showing
the
way
in
which
the
foreign
patents
in
the
case
of
France
and
of
Canada
have
also
been
dealt
with,
show
that
that
statement
was
not
a
statement
of
a
mere
accidental
dealing
with
a
particular
class
of
property,
but
that
it
was
part
of
their
business
which,
though
not
of
necessity
the
line
on
which
they
desired
their
business
most
extensively
to
develop,
was
one
which
they
were
prepared
to
undertake.
Next
there
is
the
fact
that
the
considerations
which
influenced
Construction
Aggregates
to
make
the
deal
were
to
my
mind
trading
considerations.
On
this
point,
according
to
my
note,
Mr.
Peebles
said
that
there
had
been
no
change
in
value
of
the
dredge
from
the
time
Construction
Aggregates
bought
it
in
November
1960
until
June
of
1961
but
that
eastern
Canada
was
regarded
as
an
area
in
which
dredging
activity
was
developing
rapidly,
that
the
company
intended
to
engage
in
dredging
in
that
area
and
that
it
was
important
to
keep
the
dredge
out
of
the
hands
of
a
competitor.
He
went
on
to
say
that
the
reason
for
departure
from
the
previous
position
was
that
the
sale
afforded
Construction
Aggregates
the
opportunity
to
arrive
at
a
profit
figure
of
$1,000,000
taxable
at
25
per
cent
(in
the
United
States)
as
a
capital
gain
whereas
they
took
into
account
that
in
operations
one
does
not
get
continuity
and
assurance
of
profit
and
the
opportunity
to
capture
in
a
short
time
a
capital
gain
profit
of
$1,000,000
was
just
too
appealing.
The
evidence
of
Mr.
Ezra
Sensibar
is
I
think
to
the
same
effect.
He
said
that
in
August
1960
on
the
occasion
of
his
first
conference
with
Mr.
Quinlan
he
told
Quinlan
that
Construction
Aggregates
had
an
agreement
in
principle
to
buy
the
dredge
from
Lake
Asbestos,
that
their
object
was
to
go
into
the
dredging
business
in
eastern
Canada
which
he
regarded
as
an
excellent
market,
that
they
regarded
the
Fleur
de
Lis
as
a
most
efficient
dredge
and
had
no
special
interest
in
selling
but
in
operating
it,
that
Quinlan
pointed
out
that
the
McNamara
organization
could
be
of
great
help
to
Construction
Aggregates
because
of
their
contacts
and
that
he,
Sensibar,
said
that
Construction
Aggregates
would
consider
some
sort
of
joint
operation
but
had
very
little
interest
in
selling.
He
also
said
that
he
knew
very
little
about
the
competitive
situation
at
that
time,
in
fact
had
never
heard
of
the
McNamara
organization,
and
that
he
took
the
opportunity
to
get
the
information
about
the
dredges
owned
by
the
persons
engaged
in
the
business
in
Canada
and
to
circulate
it
to
his
associates
by
the
memo
which
he
wrote.
With
respect
to
the
reason
for
sale
he
said
that
it
is
not
often
they
had
an
opportunity
to
earn
$1,000,000
as
a
capital
gain
as
a
sure
profit,
that
it
took
many
years
of
successful
hazardous
operation
to
earn
$2,000,000
which
would
be
equivalent
to
$1,000,000
as
a
capital
gain,
and
that
the
opportunity
was
more
than
they
could
resist.
Viewed
against
the
background
of
the
company’s
widespread
activities
in
the
dredging
business
in
various
parts
of
the
world,
the
considerations
mentioned
by
the
witnesses
as
the
basis
for
their
decision
to
sell
the
dredge
and
abandon
the
particular
field
to
a
competitor,
appear
to
me
to
be
distinctly
related
to
the
company’s
trading
rather
than
to
its
capital
structure,
and
this
conclusion
is,
I
think,
enhanced
when
it
is
considered
that
a
substantial
trading
contract
which
was
regarded
as
being
a
valuable
one
was
included
in
the
deal.
Finally,
the
negotiations
leading
up
to
the
transaction
appear
to
me
to
be
characteristic
of
trading
rather
than
of
mere
realization
of
a
capital
asset.
Counsel
for
the
appellants
pointed
to
the
fact
that
it
was
McNamara
throughout
who
was
seeking
a
deal
while
Construction
Aggregates
was
forging
ahead
with
its
plans
to
put
the
dredge
to
work
in
its
business
and
that
the
deal
ultimately
made
was
unsought
and
unsolicited
on
the
part
of
Construction
Aggregates.
However,
the
persons
who
represented
Construction
Aggregates
in
the
negotiations,
and
particularly
Mr.
Ezra
Sensibar,
were
skilled
and
experienced
individuals
with
a
wide
knowledge
of
the
dredging
business
as
well
as
of
the
usefulness
and
value
of
dredges
to
persons
engaged
or
proposing
to
engage
in
it.
They
were
in
a
position
to
estimate
and
I
think
did
estimate
very
well
from
time
to
time
the
strength
of
McNamara’s
determination
to
acquire
or
participate
in
the
control
of
the
Fleur
de
Lis
and
this
I
think
put
them
in
a
position
to
suggest
as
a
basis
for
negotiations
a
price
far
beyond
what
the
dredge
had
cost
their
company.
They
then
proceeded
to
yield
somewhat
from
time
to
time
whether
by
reduction
of
the
price
or
otherwise.
The
price
was
first
reduced
from
$2,500,000
to
$2,400,000
for
the
dredge
without
the
Raymond
contract
and
later
to
$2,400,000
for
the
dredge
with
the
Raymond
contract
or
$2,000,000
without
the
contract.
Though
they
suggested
on
the
occasion
in
Toronto,
when
the
McNamara
proposal
for
a
new
company
was
rejected,
that
it
was
up
to
McNamara
to
purchase
at
their
price
or
not
as
he
wished,
they
nevertheless
used
the
next
occasion
as
one
for
further
bargaining
in
which
no
less
than
four
different
propositions
were
made
available
to
McNamara.
Even
after
these
had
expired
and
McNamara
had
made
a
Hake
it
or
leave
it’’
offer
of
$2,000,000
for
the
dredge
and
the
Raymond
contract
they
hammered
out
a
deal
at
$2,000,000
for
the
dredge
and
the
contract
but
not
including
some
of
the
equipment
included
in
the
earlier
offer.
To
my
mind
such
activities
are
of
the
kind
normally
associated
with
trading
with
a
view
to
profit.
I
am
accordingly
of
the
opinion
that,
on
the
assumption
that
it
was
realized
by
Construction
Aggregates,
the
amount
in
ques-
tion
was
profit
from
that
company’s
business
and
was
income
for
the
purposes
of
the
Income
Tax
Act.
I
turn
now
to
the
question
whether
the
amount,
assuming
it
to
have
been
realized
by
Sensibar
Dredging,
was
income
in
its
hands.
In
this
case
as
I
view
it
the
first
consideration
which
I
have
mentioned
in
the
case
of
Construction
Aggregates
does
not
apply
since
Sensibar
Dredging
was
not
party
to
and
never
did
have
any
interest
in
the
contracts
by
which
Construction
Aggregates
obtained
rights
in
respect
of
the
purchase
of
the
dredges
which
they
had
designed
and
operated
for
their
owners.
When,
however,
one
comes
to
the
question
of
the
company’s
intention
in
assuming
the
purchase
of
the
Fleur
de
Lis,
notwithstanding
the
narrow
expression
of
the
objects
of
its
incorporation
contained
in
its
letters
patent,
I
see
no
reason
to
differentiate
the
intention
of
Sensibar
Dredging
from
that
which
existed
in
the
ease
of
Construction
Aggregates.
The
real
object
of
Sensibar
Dredging,
as
I
see
it,
was
to
carry
out
the
will
of
Construction
Aggregates
and
the
latter’s
intentions
and
those
of
the
persons
who
directed
it
were
also
those
of
Sensibar
Dredging.
The
same
applies
to
the
activities
by
which
the
deal
was
accomplished.
This
company
had
no
previous
or
world-wide
business
activities
which
might
have
provided
a
setting
or
context
by
which
the
nature
of
the
transaction
might
be
determined
but
whether
the
acquisition
and
sale
of
the
dredge
and
contract
are
regarded
either
with
or
apart
from
the
events
which
preceded
the
company’s
incorporation
in
the
light
of
its
intention
in
acquiring
the
dredge
at
a
time
when
a
price
had
already
been
put
on
it
in
negotiations
with
McNamara
and
of
the
activities
leading
up
to
its
disposition
some
two
and
a
half
months
later
the
profit
from
the
sale
appears
to
me
to
have
been
one
realized
‘‘in
an
operation
of
business
in
carrying
out
a
scheme
for
profit
making’’
and
to
have
been
income
for
the
purposes
of
the
Income
Tax
Act.
There
remains
the
question
which
of
these
two
corporations
should
be
regarded
for
the
purposes
of
the
Income
Tax
Act
as
having
realized
the
profit
in
question.
There
is,
in
my
view,
nothing
in
the
evidence
of
what
occurred
prior
to
May
24,
1961,
when
the
deal
with
McNamara
was
struck,
which
is
necessarily
inconsistent
with
the
profit
belonging
to
either.
When
offering
by
its
letter
of
October
17,
1960
to
buy
the
dredge
Construction
Aggregates
proposed
that
it
or
a
subsidiary
would
do
so.
Subsequently
Construction
Aggregates
made
the
down
payment
and
executed
a
formal
contract
to
purchase.
It
subsequently
designated
Sensibar
Dredging
‘‘as
its
nominee
to
take
title”
and
that
company
by
a
formal
contract
with
Lake
Asbestos
assumed
responsibility
for
the
purchaser’s
obligations
to
the
vendor.
Thereafter
Construction
Aggregates
in
its
own
name
let
the
contract
for
the
work
to
be
done
on
the
dredge
and
provided
the
financing
therefor
and
it
conducted
the
negotiations
with
McNamara
as
if
Sensibar
Dredging
did
not
exist.
In
the
circumstances,
however,
all
this
appears
to
me
to
be
equivocal.
Next
there
is
the
fact
that
the
Raymond
subcontract
both
initially
and
up
to
the
time
of
the
sale
was
in
fact
the
contract
of
Construction
Aggregates.
On
the
other
hand
the
evidence
also
shows
that
it
was
intended
to
have
Sensibar
Dredging
perform
it
though
on
what
basis
is
not
clear
and
may,
it
seems,
have
been
left
undecided.
There
is
also
the
fact
that
by
the
end
of
Sensibar
Dredging’s
first
fiscal
period
the
bulk
of
the
profit
from
the
transaction
was
in
the
hands
of
Construction
Aggregates
and
appears
in
the
former’s
balance
sheet
as
a
debt
owed
to
it
by
the
parent
company.
On
the
evidence
taken
as
a
whole
and
on
the
last-mentioned
features
in
particular
there
is
I
think
something
to
be
said
for
the
submission
on
behalf
of
the
Minister
that
Sensibar
Dredging
was
a
mere
convenience
and
never
did
in
fact
own
the
dredge
or
realize
the
profit
in
question.
On
the
other
hand,
there
is
evidence
of
Mr.
Peebles,
which
I
accept
as
reliable,
that
Sensibar
Dredging
was
formed
with
the
intention
that
it
would
hold
title
to
the
dredge
and
perform
the
Raymond
contract.
There
is
also
evidence
of
Mr.
Ezra
Sensibar
which
I
regard,
as
well,
as
reliable
that
the
preliminary
work
at
the
site
was
carried
out
in
the
name
of
and
for
the
account
of
Sensibar
Dredging.
There
is
also
the
fact
that
so
far
as
appears
Sensibar
Dredging
alone
committed
itself
to
and
became
party
to
the
sale
to
McNamara
and
received
the
consideration.
Prima
facie
this
seems
to
me
to
indicate
that
the
transaction
which
resulted
in
the
profit
in
question
was
that
of
Sensibar
Dredging
and
there
does
not
appear
to
me
to
be
anything
in
the
evidence
pointing
unequivocally
to
the
conclusion
that
the
acts
of
Sensibar
Dredging
in
connection
with
the
transaction
were
or
were
intended
to
be
in
fact
those
of
the
parent
company.
There
is
also
the
consideration
that
as
between
a
parent
and
its
wholly
owned
subsidiary
what
is
in
fact
to
be
done
as
the
act
of
the
subsidiary
as
distinguished
from
that
of
the
parent
is
very
much
a
matter
of
internal
arrangement
and
of
decision
by
the
parent.
In
the
present
case
the
particular
transaction
from
which
the
profit
in
question
arose,
besides
being
carried
out
in
the
name
of
the
subsidiary
appears
from
the
audited
statements
attached
to
the
income
tax
returns
of
both
parent
and
subsidiary
to
have
been
treated
as
the
transaction
of
Sensibar
Dredging
and
I
am
unable
to
see
any
compelling
reason
why
this
should
not
be
recognized.
I
shall
therefore
hold
that
the
profit
in
question
was
realized
by
Sensibar
Dredging.
In
the
case
of
Construction
Aggregates
the
Minister’s
reply
included
a
plea
that
that
company
had
transferred
to
Sensibar
Dredging
its
right
to
receive
the
consideration
for
the
dredge
and
was
liable
for
tax
in
respect
of
the
profit
from
the
transaction
under
Section
16(1)
of
the
Act.
At
the
trial
this
plea
was
neither
pressed
nor
abandoned
but
in
view
of
the
conclusion
I
have
reached
that
the
transaction
from
which
the
profit
arose
was
Sensibar
Dredging’s
there
is,
In
my
opinion,
no
scope
for
the
application
of
Section
16(1).
The
appeal
of
Sensibar
Dredging
therefore
fails
and
it
will
be
dismissed
with
costs.
In
the
circumstances
the
course
taken
by
the
Minister
of
assessing
both
appellants
and
contesting
both
appeals.
was
in
my
opinion
a
proper
one
and
the
costs
to
be
paid
by
Sensibar
Dredging
will
include
the
Minister’s
costs
in
the
Construction
Aggregates
appeal.
The
appeal
of
Construction
Aggregates
will
be
allowed
without
costs
and
the
re-assessment
will
be
referred
back
to
the
Minister
to
be
revised
in
accordance
with
these
reasons.
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