DUMOULIN,
J.:—This
is
an
appeal
from
a
decision
rendered
on
June
18,
1965,
by
the
Tax
Appeal
Board
(38
Tax
A.B.C.
346)
affirming
an
assessment
of
$12,404,35
levied
in
respect
of
one
Louis
Reitman’s
income
for
taxation
year
1960.
A
most
tangled
skein
of
documentary
transactions,
some
of
which
do
not
even
properly
relate
in
names
or
dates
to
preceding
deeds
allegedly
referred
to,
painfully
depicts
the
throes
of
financial
agony
that
a
speculative
enterprise,
Principal
Investments
Limited,
vainly
sought
to
overcome.
After
the
usual
convulsions
of
mortgages,
leases,
lease-backs,
borrowings,
this
company
was
finally
laid
to
its
rest
in
the
melancholy
ledgers
of
receivership.
Somewhat
belatedly
the
Court
is
entrusted
with
the
post-mortem
task
of
analyzing
the
legal
nature
of
such
pecuniary
antidotes
as
were
fruitlessly
administered
to
Principal
Investments
by,
amongst
others,
the
actual
appellant.
Any
attempts
to
recite
at
length
the
involved
sequence
of
indentures
and
covenants
that
plague
the
case
would
be
a
waste
of
time
and
paper;
I
must
for
clarity’s
sake
(if
this
be
not
too
presumptuous
an
expectation),
have
recourse
to
the
summarization
of
facts
appearing
in
the
Minister’s
Reply
to
the
Notice
of
Appeal.
Before
so
doing,
it
should
be
said
that
Louis
Reitman,
the
appellant,
in
a
‘‘Declaration
of
Trust’’,
dated
at
Montreal,
December
22,
1960,
agrees
that
‘
Carlingwood
Properties
Limited,
a
body
corporate
and
politic,
duly
incorporated
under
The
Corporations
Act
of
the
Province
of
Ontario
.
.
.”
acts
as
his
nominee
and
for
certain
other
persons;
his
own
share
in
the
alleged
leasehold
interest
in
the
said
land
and
premises’’
being
one-quarter
of
45
per
cent
(14
of
45%),
(ef.
Ex.
A-12).
Both
parties
admit
this
statement.
And
now,
the
long
but
indispensable
recital
given
under
paragraph
5
of
the
previously
mentioned
Reply:
5.
In
assessing
the
Appellant
for
his
1960
taxation
year
he
[the
respondent]
assumed
inter
alia
that:
(a)
Carling
Shopping
Ltd.,
the
owner
of
a
certain
parcel
of
land
and
premises
in
the
City
of
Ottawa,
leased
it
to
Principal
Investments
Ltd.
for
a
term
of
99
years
from
the
1st
day
of
July,
A.D.
1954
for
the
30th
day
of
June
A.D.
2053,
at
a
yearly
rental
of
$16,500.00.
(b)
There
was
a
covenant
in
the
said
lease
that
Principal
Investments
Ltd.
would
erect
a
shopping
centre
on
the
said
land
and
premises
and
the
said
lease
also
provided
inter
alia
that
(i)
the
lessee
would
not
demolish
or
remove
any
buildings
or
appurtenances
in
or
upon
the
premises
which
would
not
increase
the
value
thereof
without
the
consent
of
the
lessor;
(ii)
the
lessee
would
repair,
maintain
and
keep
in
good
and
tenantable
repair
the
buildings,
structures
and
appurtenances
from
time
to
time
on
the
demised
premises;
(iii)
at
the
end
of
the
term
the
lessee
would
yield
up
to
the
lessor
the
demised
premises
together
with
all
buildings
erected
thereon,
and
fixtures
affixed
thereto
during
the
term
of
the
lease,
[vide
ex.
A-1,
vol.
1,
pp.
12-13,
clauses
1-3-4]
(c)
By
about
the
end
of
1956,
Principal
Investments
Ltd.
had
erected
a
shopping
centre
known
as
Carlingwood
Plaza
Shopping
Centre
on
the
said
land
and
premises.
(d)
Principal
Investments
Ltd.
granted
and
assigned
to
Carlingwood
Properties
Ltd.
its
interest
in
the
lease
referred
to
in
subparagraph
(a)
hereof
and
Carlingwood
Properties
Ltd.
[in
which
the
appellant
holds
a
of
45%
share]
agreed
inter
alia
to
pay
the
rent
[$16,500
per
annum]
and
perform
the
covenants
of
Principal
Investments
Ltd.
under
the
head
lease
referred
to
in
subparagraphs
(a)
and
(b)
hereof.
[Ex.
A-5,
vol.
1,
pp.
29
and
ff.]
(e)
Subsequently
[Sept.
1,
1960]
Carlingwood
Properties
Ltd.
subleased
the
said
lands
and
premises
back
to
Principal
Investments
Ltd.
for
a
term
of
25
years
from
September
1st,
1960
to
August
31st,
1985.
[This
is
the
lease-back
already
mentioned,
and
is
Ex.
A-2,
vol.
1,
pages
35
to
82.]
Despite
this
transfusion
of
financial
blood,
Principal
Investments
Ltd.
failed
to
survive,
so
I
was
told,
and,
henceforth,
disappears
from
the
scene,
leaving
merely
two
antagonists
confronting
one
another,
the
appellant
and
the
respondent.
The
former’s
contention
is
accurately
stated
in
the
opening
paragraph
(para.
1)
of
The
Minister’s
Written
Argument
in
Reply
to
the
Appellant’s
Notes’’;
I
quote:
1.
It
was
the
Appellant’s
contention
at
the
hearing
of
this
appeal,
inter
alia,
(a)
that
its
interest
in
the
building,
material
to
this
appeal,
was
that
of
an
owner
;
(b)
that
consequently
it
was
entitled
to
treat
that
building
as
property
included
in
Class
3
of
Schedule
B
of
the
Income
Tax
Regulations;
(c)
subsidiarily,
that
by
virtue
of
Sections
1102(4)
and
1102(5)
of
the
Income
Tax
Regulations,
the
aforementioned
building
was
deemed
to
be
property
included
in
Class
3
of
Schedule
B.
Denying
the
appellant’s
interpretation
of
the
facts
and
law,
the
respondent,
in
paragraph
2
of
the
same
written
argument,
retorts
as
follows:
2.
It
was
the
Respondent’s
submission
at
the
hearing
of
this
appeal.
(a)
that
the
interest
of
the
Appellant
in
the
building
was
a
leasehold
interest;
(b)
that
in
common
law
whatever
is
affixed
to
land
becomes
part
thereof
for
purposes
of
determining
ownership,
and
that
consequently
the
Appellant
could
not
claim
to
be
lessee
of
the
land
and
owner
of
the
building;
(c)
that
the
aforesaid
interest
was
not
property
included
in
Class
3
of
Schedule
B
of
the
Income
Tax
Regulations
for
the
purpose
of
capital
cost
allowance;
(d)
that
the
Appellant’s
interest
was
property
included
in
Class
13
of
Schedule
B,
and
that
the
Appellant
was
entitled
to
capital
cost
allowance
thereon
pursuant
to
Section
11(1)
(a)
of
the
Income
Tax
Act
and
Section
1100(1)
(b)
of
the
Income
Tax
Regulations.
If,
as
I
hope,
the
essential
factors
of
the
debate
now
appear
with
sufficient
clearness,
the
questions
to
be
answered
relate
to,
firstly,
the
nature
of
appellant’s
interest,
ownership
or
leasehold,
and,
secondly,
the
class
of
amortization
applicable.
A
subsidiary
matter
could
be
added
to
the
two
main
points:
the
feasibility
of
granting
an
ownership
classification
on
sublessees
of
a
99-year
lease.
Easier
cases,
fortunately,
are
not
lacking
in
our
judicial
annals,
nor
would
it
seem
unbecoming
flattery
to
claim
for
the
legislator
more
than
a
few
instances
in
which
his
paramount
will
was
enshrouded
in
thinner
mists.
Be
that
as
it
may,
the
law
must
be
resorted
to
as
it
appears
in
the
statute,
the
pertinent
texts
of
which
are
hereunder
reproduced,
in
accordance
with
the
enabling
Section
11(1)
(a),
that
allows
the
taxpayer
to
deduct
from
his
income
tax
such
part
of
the
capital
cost
of
property,
‘‘or
such
amount
in
respect
of
the
capital
cost
to
the
taxpayer
of
property,
if
any,
as
is
allowed
by
regulation’’.
Conformably
to
Section
11(1)
(a),
Section
1100(1)
(a)
of
the
Regulations
contains
a
list
of
fifteen
classes
of
capital
cost
deductions
with
their
respective
percentages.
Thereafter,
instead
of
describing
in
simple
terms
and
consecutive
sections
the
deductions
extended
to
ownership
and
leasehold
interests,
the
Income
Tax
Act
devises
something
in
the
nature
of
a
criss-cross
exercise,
leaping
from
regulations
to
classifications
and
from
the
latter
back
again
to
the
former,
all
the
while
avoiding
to
plainly
express
its
intent.
Paragraph
(b)
of
Section
1100(1)
of
the
Regulations
provides
the
permissible
deduction
where:
(b)
.
.
.
a
taxpayer
has
property
of
class
13
in
Schedule
B
which
was
acquired
by
him
for
the
purpose
of
gaining
or
producing
income,
such
amount
as
he
may
claim
not
exceeding,
in
respect
of
each
item
of
the
capital
cost
thereof
to
him,
the
lesser
of
(i)
one-fifth
of
the
capital
cost
thereof
to
him,
or
(ii)
the
amount
for
the
year
obtained
by
apportioning
the
capital
cost
thereof
to
him
equally
over
the
period
of
the
lease
unexpired
at
the
time
the
cost
was
incurred,
.
.
.
The
remainder
is
irrelevant,
but
subsection
(7)
of
Section
1100
specifies
that
:
(7)
Where
under
the
terms
of
a
lease
the
period
of
the
lease
unexpired
at
the
time
the
costs
were
incurred
is
greater
than
40
years,
for
the
purpose
of
subparagraph
(ii)
of
paragraph
(b)
of
subsection
(1),
the
period
of
the
lease
unexpired
at
the
time
the
costs
were
incurred
shall
be
deemed
to
be
40
years.
The
opening
line
of
subparagraph
(b)
of
Section
1100(1)
alludes
to
Class
13
in
Schedule
B,
reading
as
follows
:
CLASS
13
Property
that
is
a
leasehold
interest
except
(a)
...
(b)
that
part
of
the
leasehold
interest
that
is
included
in
another
class
by
reason
of
subsection
(5)
of
section
1102
wherein
we
see
that
:
1102.
.
.
.
(5)
Where
the
taxpayer
has
a
leasehold
interest
in
a
property,
a
reference
in
Schedule
B
to
a
property
that
is
a
building
or
other
structure
shall
be
deemed
to
include
a
reference
to
that
part
of
the
leasehold
interest
acquired
by
reason
of
the
fact
that
the
taxpayer
has
(a)
erected
a
building
or
structure
on
leased
land,
(b)
made
an
addition
to
a
leased
building
or
structure,
or
(c)
made
alterations
to
a
leased
property
which
substantially
change
the
nature
or
character
of
the
property.
Going
backwards,
we
find
at
subsection
(4)
that
the
capital
cost
of
a
property
being
a
leasehold
interest
also
includes
amounts
expended
on
an
‘‘improvement
or
alteration’’
to
the
leased
property
other
than
those
specifically
mentioned
in
paragraphs
(a),
(b)
and
(c)
of
subsection
(5)
just
cited.
We
have
now
singled
out
the
requirements,
four
(4)
in
number,
which
by
a
fiction
of
the
fiscal
law
extend
to
a
purely
leasehold
title
advantages
similar
to
ownership
status,
namely
an
annual
capital
cost
deduction
of
5%
foreseen
by
Class
3,
over
a
possible
maximum
period
of
20
years
(5%
x
20),
as
against
40
in
subsection
(7)
(1/40
per
annum
during
40
years).
Those
conditions
are
prescribed,
if
I
may
be
pardoned
this
repetition,
paragraphs
(a),
(b)
and
(c)
of
subsection
(5)
of
Section
1102
and
its
preceding
subsection
(4),
none
of
which
it
should
be
stated
right
now,
were
accomplished
by
the
appellant,
Louis
Reitman,
who
only
participated
in
a
monetary
loan
to
the
builders
of
Carlingwood
Plaza
Shopping
Centre,
the
erstwhile
Principal
Investments
Ltd.
Moreover,
all
of
the
several
deeds
and
agreements
of
record
entered
into
by
Carlingwood
Properties
Limited,
duly
consti-
tuted
nominees
of
Louis
Reitman,
are
covenants
of
lease
and
declare
nothing
else
than
a
leasehold
interest.
It
could
not
be
otherwise
as
the
building
itself
was
erected
by
Principal
Investment
Ltd.
and
terminated
around
the
end
of
1956.
The
first
appearance
of
appellant’s
agents,
Carlingwood
Properties
Ltd.,
occurred
approximately
four
years
later,
on
September
1,
1960
(cf.
Ex.
A-2).
So
much
then
for
the
facts
of
the
case
vesting
in
the
appellant
an
irrefutable
leasehold
interest.
There
now
remains
to
be
determined
whether
a
leasehold
title,
in
the
language
of
the
Income
Tax
Regulations
can,
nevertheless,
be
treated
as
straight
ownership
for
purposes
of
capital
cost
deductions
under
Class
3.
The
appellant’s
learned
counsel
filed
exhaustive
notes
in
which
he
takes
the
view
that:
.
.
.
Determination
of
the
[capital
cost]
allowance
is
stated
[in
the
regulations]
to
be
based
upon
the
objective
nature
of
the
“property”
and
not
on
the
subjective
characteristics
of
the
taxpayer
seeking
the
deduction.
In
Schedule
B
of
the
regulations,
detailing
the
different
classes,
the
opening
word
of
every
single
class
of
capital
cost
allowance
is:
“Property”.
The
usual
phrase
is:
“Property
that
is
.
.
.”.
It’s
the
property,
the
thing
or
the
building,
that
falls
into
one
class
or
another.
On
page
2,
it
is
stated
that:
Section
1102(2)
of
the
regulations
makes
it
clear
that
the
classes
of
property
described
in
Schedule
B
“shall
be
deemed
not
to
include
the
land
upon
which
a
property
described
therein
was
constructed
or
is
situated”.
In
effect,
you
look
at
the
building
without
the
land.
At
page
2,
third
paragraph:
In
buying
the
rights
of
Principal
Investments
Ltd.
for
$3,000,000
Louis
Reitman
et
al.
did
not
expend
this
amount
“on
an
improvement
or
alteration
to
a
leased
property”
any
more
than
they
expended
it
on
“the
construction
of
a
building
or
other
structure”.
From
the
above
“starting
point’’
appellant’s
Notes
reach
the
following
conclusion
:
It
is
common
ground
between
both
parties
that
the
shopping
centre
properties
erected
by
Principal
Investments
Ltd.
on
the
leased
land
constituted
Class
3
properties.
Where
we
part
company
is
in
the
allegation
by
the
Respondent
that
the
Class
3
properties
in
the
hands
of
Principal
Investments
Ltd.
when
it
transfers
its
right
to
Louis
Reitman,
et
al.,
become
in
the
hands
of
the
acquirers
Class
13
property.
I
cannot
adopt
such
assumptions
for
the
obvious
reasons
that
throughout
the
entire
affair
each
and
every
legal
obligation
(even
those
of
the
builders,
Principal
Investments
Ltd.),
assumed
by
Louis
Reitman
and
associates,
were
of
a
leasehold
kind,
as
the
exhibits
produced
convincingly
prove.
Also
because,
the
key
or
general
rule
giving
access
to
Class
3
consists
in
the
ownership
title,
and
leasehold
interest
may
claim
the
same
benefit
as
an
exception
solely
if
and
when
it
complies
with
specific
conditions
stipulated
in
paragraphs
(a),
(b),
(c)
of
subsection
(4)
and
(a),
(b),
(c)
of
subsection
(5)
of
Section
1102.
And
we
have
read,
a
few
lines
past,
appellant’s
admission
of
not
being
within
the
purview
of
these
enabling
exceptions.
A
builder,
shouldering
the
burden
and
manifold
risks
of
a
construction,
deserves,
not
unreasonably,
a
certain
degree
of
fiscal
abatement;
one
might
conjecture
that
Class
3
was
meant
for
such
a
purpose.
Conversely,
a
lessee
or
tenant
cannot
lay
claim,
outside
of
the
exception,
to
anything
of
this
kind.
Another
conjecture
could
account
for
the
exclusion
of
the
cost
of
the
land
upon
which
a
property,
described
in
Schedule
B,
“was
constructed
or
is
situated”
as
decreed
in
subsection
(2)
of
Section
1102.
In
urban
centres,
or
their
vicinity,
land
becomes
the
object
of
intense
speculation
and,
in
any
case,
vacant
or
“unbuilt”
land
usually
is
of
little
interest
to
assessors
of
all
vintages.
Finally,
a
time-honoured
maxim
of
fiscal
law
interpretation
was
laid
down
as
long
ago
as
1869
by
Lord
Cairns
in
Partington
v.
The
Attorney-General
(1869),
L.R.
4
H.L.
100
at
122
it
is
formulated
thus:
If
the
person
sought
to
be
taxed
comes
within
the
letter
of
the
law
he
must
be
taxed,
however
great
the
hardship
may
appear
to
the
judicial
mind
to
be.
On
the
other
hand,
if
the
Crown,
seeking
to
recover
the
tax,
cannot
bring
the
subject
within
the
letter
of
the
law,
the
subject
is
free,
however
apparently
within
the
spirit
of
the
law
the
case
might
otherwise
appear
to
be.
In
other
words,
if
there
be
admissible,
in
any
stature,
what
is
called
an
equitable
construction,
certainly
such
a
construction
is
not
admissible
in
a
taxing
statute,
where
you
can
simply
adhere
to
the
words
of
the
statute.
Directives
of
so
stringent
a
nature,
and
of
persisting
application,
leave
small
room
indeed
for
the
admissibility
of
the
subtle
but
specious
dissertation
attempted
in
his
Notes
by
appellant’s
learned
counsel.
A
last
and
significant
aspect
of
this
case
must
now
be
disposed
of.
On
June
2
of
the
current
year,
Mr.
Justice
Noël
of
this
Court
handed
down,
in
the
matter
of
Nathan
Cohen
&
Hyman
Zalkind
v.
M.N.R.,
[1967]
C.T.C.
254,
a
decision
with
which
the
undersigned
is
in
complete
accord,
taking
into
account
the
all-important
fact
that
the
latter
suit
was
adjudged
according
to
the
Civil
Code
of
the
Province
of
Quebec,
the
pertinent
lex
loci
contractus,
whilst
the
actual
one
comes
under
the
common
law.
The
circumstances
of
the
Quebee
case
were,
in
brief,
that
in
June
1910,
the
Ecclesiastics
of
the
Montreal
St-Sulpice
Seminary
‘‘entered
into
a
deed
of
lease
and
agreement
with
respect
(to
certain
property)
with
The
Transportation
Building
Company
Ltd.’’
for
a
period
of
99
years,
the
ultimate
duration
allowed
by
law
to
emphyteutie
leases.
The
original
lessees
had
obligated
themselves
to
construct
a
large
office
building
on
the
demised
land
and
by
1912
this
had
been
done.
On
July
4,
1952,
The
Transportation
Building
Company
“sold,
conveyed,
transferred
and
made
over
to
Hyman
Zalkind
and
to
Nathan
Cohen
all
its
right,
title
and
interest
in
and
to
the
aforesaid
Lease
and
Agreement
and
in
and
to
the
building
.
.
.’’
erected,
at
a
time
when
the
1910
emphyteutic
covenant
still
had
some
58
years
to
run.
The
distinction
between
those
two
systems
of
law
was
earmarked
by
my
learned
brother
Judge
as
giving
rise
to
essential
consequences,
and
a
review
of
the
relevant
Civil
Code
provisions
will
readily
prove
it
is
so;
for
instance:
Art.
567
enacts
that:
Emphyteusis
or
emphyteutic
lease
is
a
contract
by
which
the
proprietor
of
an
immovable
conveys
it
for
a
time
to
another,
the
lessee
subjecting
himself
to
make
improvements,
to
pay
the
lessor
an
annual
rent,
and
to
such
other
charges
as
may
be
agreed
upon.
Art.
568
:
The
duration
of
emphyteusis
cannot
exceed
ninety-nine
years
and
must
be
for
more
than
nine.
Art.
569
:
Emphyteusis
carries
with
it
alienation;
so
long
as
it
lasts,
the
lessee
enjoys
all
the
rights
attached
to
the
quality
of
a
proprietor.
He
alone
can
constitute
it
who
has
the
free
disposal
of
his
property.
Art.
570
:
The
lessee
who
is
in
the
exercise
of
his
rights,
may
alienate,
transfer
and
hypothecate
the
immovable
so
leased,
without
prejudice
to
the
rights
of
the
lessor;
.
..
Art.
571
:
Immoveables
held
under
emphyteusis
may
be
seized
as
real
property,
under
execution
against
the
lessee
by
his
creditors,
who
may
bring
them
to
sale
with
the
formalities
of
a
sheriff’s
sale.
Emphyteusis
“carries
with
it”
ownership
full
and
complete
of
land
and
buildings
in
contradistinction
to
the
common
law,
which
the
respondent’s
learned
counsel,
unchallenged
on
that
score,
repeatedly
expounded
at
the
hearing
as
‘
automatically
vesting
the
landlord
with
the
ownership
of
all
buildings
a
lessee
may
have
erected
on
the
land
during
the
life
of
the
lease’’.
In
support
of
this
averment
reference
was
made
to
several
passages
of
Anger
and
Hornberger’s
treatise
The
Law
of
Real
Property,
from
which
I
quote
the
undergoing
one:
The
law
of
fixtures
is
based
upon
the
old
maxim
quidquid
plan-
tatur
solo,
solo
cedit,
planted
being
used
in
the
broad
sense
of
attached,
and
soil
including
anything
attached
in
turn
to
the
soil
so
as
to
become
part
of
it
in
the
eyes
of
the
law.
The
maxim
has
been
freely
translated
as
“whatever
is
fixed
to
the
freehold
of
land
becomes
part
of
the
freehold
or
inheritance”
(per
Lord
Cairns,
L.C.,
in
Bain
v.
Brand,
1876,
1
App.
Cas.
762
at
p.
767,
H.L.).
_.
All
this
goes
to
show
that
Cohen
and
Zalkind,
or
their
assigns,
in
their
capacity
of
emphyteutic
lessees,
enjoyed
during
the
life
of
their
lease,
i.
e.,
58
years,
ownership
of
land
and
constructions
conveyed
by
the
deed
of
1952,
and
were,
therefore,
eligible
to
claim
capital
cost
allowance
under
Class
3,
when,
on
the
other
hand,
Louis
Reitman
never
was
invested,
either
at
common
law
or
in
virtue
of
the
pertinent
provisions,
oft
alluded
to
herein,
of
the
Income
Tax
Act,
with
anything
else
than
a
simple
leasehold
title.
FOR
THE
REASONS
AFORESAID,
the
appeal
is
dismissed,
the
respondent
being
entitled
to
all
taxable
costs.
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