Collier, J:
1 The plaintiff (Texaco) appeals reassessments by the Minister of National Revenue of its income tax for the years 1964 to 1967 inclusive. There are two issues. The first is as to the amount of depletion allowance which Texaco is entitled to deduct, pursuant to paragraph 11(1)(b) of the Income Tax Act[FN1: <p>RSC 1952, c 148 and amendments up to and including 1967: the so-called“old Act”.</p>] and sections 1200 and 1201 of the Regulations. The second issue is as to the calculation of the amount of “branch tax” Texaco should pay for the years in question by virtue of subsection 110B(1). Specifically, the plaintiff contends subsection 808(2) of the Regulations is ultra vires, or so restrictive in its definition of “capital investment of the taxpayer in property” as to render nugatory those words “capital investment” set out in subparagraph 110B(1)(b)(iii).
2 I go to the first issue. Texaco (a non-resident corporation) describes itself in the amended statement of claim as in the business of oil and gas exploration and production with its principal office in Calgary, Alberta. The defendant admits those facts. For the taxation years in question Texaco sought to deduct depletion allowance “calculated on the basis of including in the profits reasonably attributable to production the aggregate of the profits from the entire operations of the gas plants in which the plaintiff had an interest, except for the portion of such profits related to fractionation in the Bonnie Glen gas plant”.[FN2: <p>The quoted words are taken from para 2 of the amended statement of claim.</p>] The defendant admits Texaco endeavoured to calculate the deduction in the manner stated. The Minister contends that “production” of oil, gas, and derivatives in the plaintiff's plants ceased at a certain point and “processing” commenced; profits derived from “processing” the oil or gas were not profits “reasonably attributable to the production” of oil or gas[FN3: <p>My italics.</p>] and are therefore excluded in the calculation of the amounts deductible as depletion allowances. It is convenient, at this juncture, to set out the relevant provisions of the Act and Regulations.
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 a taxation year:(b) such amount as an allowance in respect of an oil or gas well, mine or timber limit, if any, as is allowed to the taxpayer by regulation;
3 The following portions of the Regulations are reproduced as they read for the years in question (1964–67).
1200. For the purpose of paragraph (b) of subsection (1) of section 11 of the Act there may be deducted in computing the income of a taxpayer for a taxation year amounts determined as hereinafter set forth in this Part.
1201. (2) Where a taxpayer operates one or more resources, the deduction allowed is 33 1/3% 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 the resources operated by him,
(5) For the purpose of this section,(d) profits reasonably attributable to the production of oil or gas from a well or bituminous sands deposit shall not include profits derived from transporting or processing the oil or gas;
(f) “production profits” in relation to a taxpayer means the aggregate of his profits reasonably attributable to the production of oil, gas, prime metal or industrial minerals from all of the resources operated by him.[FN4: <p>This paragraph did not come into the Regulations until 1969. It isapplicable to the 1969 and subsequent taxation years. I have merely includedit here for reference purposes.</p>]
4 The method of calculation used by the plaintiff in its returns is the method which had been agreed upon in 1964 between Texaco and the National Revenue authorities in Calgary. The parties loosely called the point where production profits ceased the “fractionation point”. The method was particularly applicable to Texaco's Bonnie Glen gas plant, where there was in fact a fractionation unit.[FN5: <p>The point marked C on Exhibit 10.</p>] At that stage, butane and propane (liquefied petroleum gases—LPG's) were removed from the substance[FN6: <p>At this point in these reasons I have deliberately used the word“substance” rather than “well effluent” or“raw” or “wet” gas. I am here merely trying todescribe, in order to make the issues intelligible, the various points inpassing the “substance” through the plant at which it was ormight be contended “production” ceased.</p>] passing through the plant.
5 On this appeal, Texaco upholds the “fractionation” point calculation as an alternative, but argues that in the true meaning to be given to “production”, production of gas ceased not at the plant outlet where LPG's were removed, but at the final outlets in the plants where “sales” gas was sold, or made marketable, or in some cases was fed directly into pipelines (the point at which “transporting”[FN7: <p>Paragraph 1201(5)(d) of the Regulations.</p>] could be said to begin).
6 The revenue authorities in 1966 began to have doubts about the “fractionation” formula, and a new one was proposed. The reassessments in litigation here depict the Minister's formula: production of gas ceases at the point where marketable oil is separated or extracted from the effluent from a gas or oil well. In the case of Texaco, the Minister says that production of gas in its plants ceases at the outlet where oil is drawn off—at “the downstream side of the inlet separators”[FN8: <p>The “plant” side (as opposed to the “well” side)of the “separator” and “inlet separator” marked onExhibit 10. Also, the “plant” side of the inlet separator shownon the schematic diagram of Texaco's Bonnie Glen plant (Exhibit 3), of itsCynthia plant (#2 on Exhibit 4, and Exhibit 5) and of its Willesden Greenplant (Exhibit 6).</p>] in the plaintiff's plants. Generally speaking, and somewhat hypothetically, for the purposes of this particular case the inlet separator is the first piece of equipment or phase in the gas plant through which the substance, obtained from underground in the oil or gas field, passes. The Minister's contention, in essence, is that at that point production of oil or “gas” has ceased, processing has begun, and only the profits up to that point or stage are to be included in the calculation of depletion allowances.
7 So far, then, one of three points is urged as the stage at which “production profits” are to be computed. In my view there is a fourth position open in respect of the operations carried on by Texaco and described in the evidence in this case. It is that the profits from production cease once the oil or gas has been extracted from the well. In the operations carried on by Texaco, the cut-off point (for calculation of depletion allowances), on that interpretation, would be for practical purposes at the well-head, and at the well side (upstream) of any separator, be it an inlet separator in the plants, or a field separator in the field itself.
8 To appreciate fully the four possibilities as to where production ceases and processing or transporting begins the facts must be reviewed in more detail. The evidence in this case came mainly from well qualified engineers, all with experience in the oil and gas industry. Their testimony and opinions were based on the way in which Texaco carried on its resource operations in the years in question, the usual methods of operation carried on generally in the gas and oil industry, plus, of course, their own personal experience and opinions.
9 At the material times, Texaco operated or had an interest in approximately 20 gas plants. These plants were located in oil or gas fields in which Texaco and others had explored for, found, and developed wells which delivered substances from the ground from which oil, natural gas, and other saleable products are recovered. In some oil and gas fields there are field separators at or near the well heads. The substance from the well is put through the field separator. At that stage, oil is separated from the rest of the effluent. The remainder of the effluent is then taken to a plant such as those operated by Texaco. The first stage there through which the effluent passes is the inlet separator which I have earlier referred to. More oil may be drawn off at this point. The remainder of the effluent continues through the plant where LPG's, pentanes and sales gas or marketable gas are at various outlets, drawn off. Sulphur, as well, may be extracted.
10 In most oil and gas fields (certainly most gas fields) there is no field separator. The effluent, now outflowing from its source in the earth, is taken to the plant. The main portion of the crude or marketable oil is extracted or removed from the effluent at the inlet separator stage. The remains of the effluent stream follow the same course I have previously described.
11 The plaintiff called two experts, both very competent and very experienced. They described in detail the steps I have sketchily outlined above. In their view the effluent, before it passes through the field separator or the inlet separator, is not a marketable product.[FN9: <p>Texaco, at times, purchased effluent or raw gas from other operators whoowned wells in the same field. The raw gas or effluent was transported toTexaco's gas plants, and put through the separating procedures described. Theprice paid by Texaco to the vendors was dependent on Texaco's sale price, atany particular time, at the outlets. At first glance it would appear thosewell operators who sold the effluent or raw gas to Texaco ceased“production” when they had extracted the effluent from the groundor delivered it to Texaco. There may, however, be other facts (not inevidence at this hearing) which could lead to a different conclusion.</p><p>Mr Ross, called by the defendant, described the operations of Production Operators Ltd, of Saskatchewan, which owned gas decompression and dehydration facilities (a gas plant). The company did not own or operate wells. It installed the gathering facilities and the plant. It gathered and compressed the effluent and delivered the sales gas for the well owners and operators. It did not purchase the effluent. It merely charged a fee for the services rendered. Again, it would, at first sight, appear (on the skeletal facts in evidence) that company was not “producing” gas. There may be other facts, however, which could change that tentative opinion.</p><p>Effluent from a well-head is therefore, in a certain context, in fact marketable. It can be purchased (Texaco), or handled and serviced (Production Operators Ltd). Dr Lacey and Mr Welch (for the plaintiff) used the term marketable in the sense that, until the effluent had passed through the separating procedures at the plant, it had not become gas unless it met specifications of the purchasers, such as pipeline transmission companies, or the standards or qualities set by governments.</p>] When the oil is taken off at the inlet separator stage the oil is, generally speaking, after removal of additional water, up to specifications and therefore marketable. The remaining effluent according to them is not marketable until it has gone through further operations. These succeeding stages are, in their view, essentially production steps. They described them as the separation out of contaminents, LPG's, pentanes + and water. The final substance is sales gas or marketable gas. This separation is not, in their opinion, “processing” of gas. I think their professional view can be summarized as follows: in the Texaco plants (and in gas plants generally) a mixed well effluent stream is passed through the facility; by a series of simple separations, impurities are removed in order to produce a string of saleable or marketable products. From the time the effluent goes through the field separator or inlet separator until it reaches the various sales outlets (as shown for example on Exhibit 10), there is no molecular change. The equally competent expert called on behalf of the defendant agreed no molecular change occurs.
12 Dr Lacey and Mr Welch (the plaintiff's expert witnesses) take the view that for there to be processing there must be molecular change. They give as examples of processing in the petroleum industry plants which, from oil, produce tile and other petro-chemical materials. There molecular changes have taken place. Certain materials such as ammonia and fertilizer can be made from gas. This, say the plaintiff's witnesses, is done by molecular change. In their view it is “processing” of gas, in the true and correct technical sense.
13 Mr Ross, for the defendant, expressed his professional opinion that according to common usage in the oil and natural gas business in Canada, the word “processing” covers the things done to the effluent once it is brought into a gas plant. Production, in his view, ceases at the downstream side of the inlet separator. Dr Lacey and Mr Welch, on the other hand, assert production ceases only at the sales outlets.
14 Expert opinions such as those given by these three gentlemen are, of course, very helpful. In this case they point up, at the same time, an apparent difference of view in the oil and gas industry as to the meaning of “production”. My problem is, unfortunately, not to decide which of the two professional views is, in the industry and professions, the better one. It is to determine what the legislators meant by the words “profits reasonably attributable to the production ...” as they appear in Regulation 1201(2)(a).
15 I think it convenient to review some of the legislative history. The Income War Tax Act provided for an exhaustion allowance or deduction as the Minister might deem fair and just (paragraph 5(1)(a)). There was no mention of profits from production as the basis for calculation. The 1948 Income Tax Act,[FN10: <p>SC 1948, c 52.</p>] paragraph 11(1)(b) provided for the deduction of “... such amount as an allowance in respect of an oil or gas well ... as is allowed to the taxpayer by regulation ...”. Section 1201 (Part XII) of the S and R Consolidation of 1949 authorized an allowance of 331/3% of the “... profits ... reasonably attributable to the production of oil or gas from the well”. Effective September 22, 1954 the former Part XII was revoked and new regulations substituted. The material parts of Regulation 1201(1) authorized a deduction of 331/3% “of ... the aggregate of the profits ... reasonably attributable to the production of oil, gas ... from such wells ...”. Part XII was re- enacted once more (PC 1957-1718 dated December 23, 1957). The relevant parts of Part XII in force during 1964 to 1967 are the same as those enacted in 1957. I have set them out earlier in these reasons. The expression “production profits” did not find its way into the Regulations until 1969.
16 The defendant, in support of its contention that the separating functions performed in the gas plants were processing rather than production, relied on definitions found in The Oil and Gas Conservation Act of Alberta,[FN11: <p>SA 1957, c 63, as amended by SA 1963, c 42.</p>] particularly those relating to “gas”.
17 From the 1957 statute, I extract the following:
“gas” means natural gas both before and after it has been subjected to any processing, and includes all fluid hydrocarbons not defined as oil;
“oil” means crude oil and all other hydrocarbons, regardless of gravity, that are or can be recovered in liquid form from a pool through a well by ordinary production methods;
“processing plant” means any plant for the processing of gas produced from more than one well for the extraction from the gas of hydrogen sulphide, water vapour, natural gasoline, other hydrocarbons or other substances;
18 In the 1963 amendments, the following definitions appear:
“condensate” means a mixture mainly of pentanes and heavier hydrocarbons that may be contaminated with sulphur compounds, that is recovered or is recoverable at a well from an underground reservoir and that is gaseous in its virgin reservoir state but is liquid at the conditions under which its volume is measured or estimated;
“crude oil” means a mixture mainly of pentanes and heavier hydrocarbons that may be contaminated with sulphur compounds, that is recovered or is recoverable at a well from an underground reservoir and that is liquid at the conditions under which its volume is measured or estimated, and includes all other hydrocarbon mixtures so recovered or recoverable except raw gas or condensate;
“gas” means raw gas or marketable gas or any constituent of raw gas, condensate or crude oil that is recovered in processing and that is gaseous at the conditions under which its volume is measured or estimated;
“marketable gas” means a mixture mainly of methane originating from raw gas, if necessary through the processing of the raw gas for the removal or partial removal of some constituents, and which meets specifications for use as a domestic, commercial or industrial fuel or as an industrial raw material;
“natural gas liquids” means propane, butanes or pentanes plus, or a combination of them, obtained from the processing of raw gas or condensate;
“oil” means condensate or crude oil, or a constituent of raw gas, condensate or crude oil that is recovered in processing, that is liquid at the conditions under which its volume is measured or estimated;
“pentanes plus” means a mixture mainly of pentanes and heavier hydrocarbons which ordinarily may contain some butanes and which is obtained from the processing of raw gas, condensate or crude oil;
“processing plant” means a plant for the extraction from gas of hydrogen sulphide, helium, ethane, natural gas liquids or other substances, but does not include a well head separator, treater or dehydrator;
“raw gas” means a mixture containing methane, other paraffinic hydrocarbons, nitrogen, carbon dioxide, hydrogen sulphide, helium and minor impurities, or some of them, which is recovered or is recoverable at a well from an underground reservoir and which is gaseous at the conditions under which its volume is measured or estimated;
“separator” means an unfired apparatus specifically designed and used for separating gas and water from condensate or crude oil, but does not include a dehydrator;
19 The definitions in the Alberta legislation are of some assistance but they cannot be conclusive as to the meaning of the words “gas” or “production” or “processing” as used in the federal regulations in effect during the years under scrutiny here. I think one can say that if the general tenor of The Oil and Gas Conservation Act of Alberta definitions were imported into Part XII of the Income Tax Regulations, the procedures carried out in the Texaco plants could not be said to be “production” of gas.[FN12: <p>A number of the definitions found in the Alberta legislation were put bythe defence to witnesses for the plaintiffs. Most of them were from the 1963amendments. Part XII of the Income Tax Regulations (applicable to thetaxation years here) was enacted in 1957. If the drafter of the federalregulations had any provincial usages or statutes in mind at all, it couldonly be the relatively few definitions in the 1957 Alberta Act.</p>] The purpose of the Alberta legislation was, however, quite different from the taxing purposes (and allowances) of Part XII of the Regulations. Some of the other provinces have statutes and regulations concerning oil and gas activities. Their definitions of terms similar to those in the Alberta statute vary.[FN13: <ul>I have not traced the legislation in other provinces back to 1957. Imerely list the present statutes as illustrations of variations in thelegislative meaning to be given to many terms in the oil and gas business:<li><p><em>The Oil and Gas Conservation</em>Act, RSA 1970, c 267 and amendments (the definitions in the revision are substantially the same as those in the 1963 amendments);</p></li><li><p><em>Petroleum and Natural Gas Act</em>, SBC 1965, c 33 and amendments;</p></li><li><p><em>The Mines Act</em>, RSM 1970, c M 160 and amendments;</p></li><li><p><em>The Oil and Gas Conservation Act</em>, RSS 1965, c 360 and amendments;</p></li><li><p>Oil and Gas Conservation Regulations 1969 (Sask) and amendments;</p></li><li><p>Petroleum and Natural Gas Regulations 1969 (Sask) and amendments;</p></li><li><p><em>The Petroleum Resources Act</em>, SO 1971, c 94 and amendments;</p></li><li><p><em>The Ontario Energy Board Act</em>, RSO 1970, c 312 and amendments.</p></li></ul><ul>For examples of federal legislation, see:<li><p><em>National Energy Board Act</em>, RSC 1970, c N-6 (particularly the French and English definitions of “gas”).</p></li></ul>]
20 The purpose or object of each statute must be, as well, kept in mind.
21 I go back to the language used in paragraphs 1201(2)(a) and 1201(5)(d) of the Regulations. Applying it to this plaintiff and this case, the allowable deduction (1201(2)(a)) is calculated on the profits reasonably attributable to “the production of [the] oil ... [and] ... gas ... from ... the resources [oil or gas wells] ... operated by [Texaco]”. I note the language in the first paragraph referred to does not specifically include gas plants in the meaning of “resource”. In my view, plants such as those operated by Texaco, are not included by implication in resource, or oil or gas wells. When one is dealing with particular resources described as oil or gas wells, or bituminous sands deposits, paragraph 1201(5)(d) must be considered. Again applying it to this plaintiff and this case, the profits referred to must be reasonably attributable to “... the production of oil or gas from ... [the wells]”. There is no reference to production of gas or by means of gas plants. Again, I do not think the language used is capable of the inclusion of plants, by the test of plain ordinary meaning, or by necessary implication.
22 In my opinion, the “production of oil [or] gas”, in this suit, means the bringing forth, or into existence and human realization, from underground, a basic substance containing gas, and at the same time, other matter. Whether it is basically oil or basically gas that is discovered and brought forth, or whether it is an oil well as distinguished from a gas well, is, I think, perhaps a matter of measurement, or the bestowing of a sensible appellation on the particular substance (be it energy, or fuel, or something else) or source, which, or from which, the substance is recovered in the largest relative volume.
23 Counsel have not been able to refer me to any previous decisions of real assistance on the interpretation of these particular words in Regulation 1201. I, too, have been unable to find any cases. In Home Oil Company Ltd v Minister of National Revenue, [1955] S.C.R. 733, [1955] C.T.C. 192, 55 D.T.C. 1148, Regulation 1201 as it read in 1949 and 1950 was under consideration. The words “profits ... reasonably attributable to the production of oil or gas ...” were in the regulation. The Supreme Court did not have to deal with the particular point before me, but Rand, J did refer to “producing” wells in contradistinction to non-producing wells or dry holes. In the subsequent case, MNR v Imperial Oil Ltd, [1960] S.C.R. 735, [1960] C.T.C. 275, 60 D.T.C. 1219(where the words quoted were carried into the regulations applicable to 1951) Martland, J, dissenting in part, said at page 760 [294, 1227]:
The purpose of section 11(1)(b) of the Act is to provide a depletion allowance in respect of a wasting asset, one such asset being oil or gas produced from an operating well. Under Regulation 1201, in the case of an oil or gas well, such allowance is determined on the basis of a percentage of the profits reasonably attributable to the production of oil or gas from such a well.
As I see it, the purpose of subsection (5) of Regulation 1201 is to require that, in computing the profits attributable to the production of oil or gas from operating wells, account must be taken of any amounts expended for exploration and drilling in relation to such wells, which have been included in the aggregate of costs deducted by a taxpayer in computing income under the authority of Section 53.
24 In the Imperial Oil case, as in the Home Oil case, the Court was not called on, nor was it attempting to interpret “production of oil or gas”. While the language employed in those two decisions cannot be said to be authority for the meaning of “production” which I have ventured, it lends some weight to the popular usage of “production” in the sense of bringing in a successful well, obtaining from underground pools or reservoirs commercially marketable (at some stage) oil or gas, as opposed to water or nothing.
25 On this first issue I conclude, therefore, that production of gas by Texaco ceased at the well-head, or to put it another way, at the upstream side of any separator, be it a field separator, or an inlet separator in Texaco's gas plants.
26 My conclusion may, for all I know, cause difficulty in precise calculation of profits.[FN14: <p>I have not overlooked the words of Judson, J at page 749 [288, 1224] ofthe<em>Imperial Oil Ltd</em>case: “No company makes an actual profit merely by producing oil. There is no profit until the oil is sold.”</p>] It may be more convenient, and easier from an arithmetical point of view, to determine the profits attributable to production at the downstream side of the inlet separator (as contended by the defendant) or at the fractionation point or, alternatively, the sales outlets (as contended by the plaintiff). Convenience or ease in making arithmetical calculations cannot, however, influence the meaning to be assigned to the phrase here in controversy. It seems to me the drafter of the regulation had that imprecision of calculation in mind when he described the profits as “reasonably attributable to”. (My italics.)
27 The second issue, as I have recounted, is concerned with the calculation of the amount of “branch tax” the plaintiff should pay. The relevant section of the statute is subsection 110B(1):
110B. (1) Every non-resident corporation carrying on business in Canada at any time in a taxation year shall, on or before the day on or before which it is required to file a return of income under Part I for the year, pay a tax equal to 15% of the amount by which
Subparagraph (iii) is particularly material.28 In this case the problem arises by virtue of subsection 808(2) of the Regulations which purports to define “capital investment” of a taxpayer in property at a particular time. I set out only the relevant portion:
808. (2) For the purposes of this section, “capital investment of the taxpayer in property” at a particular time means an amount equal to the aggregate of(a) the aggregate of the undepreciated capital cost to the taxpayer of depreciable property of each prescribed class at that time,
(b) the cost to the taxpayer of land (except land the cost of which is or was deductible in computing the taxpayer's income or land that is included in the taxpayer's inventory), owned by it at that time that is not depreciable property, and
(c) the capital cost to the taxpayer of depreciable property owned by it at that time that is not included in paragraph (a), in respect of which a deduction has been allowed under Part XVII,
Paragraph (b) is particularly material.29 Before January 1, 1961 and up to December 31, 1967 the plaintiff had acquired oil and gas properties at considerable cost. In the years 1964 to 1967 inclusive a number of those oil and gas properties had been surrendered to their owners or abandoned. The plaintiff received nothing on the surrender or abandonment. For the taxation years in question the Minister, in calculating the allowance to the plaintiff in respect of net increases in its capital investment in property, deducted the value of the abandoned or surrendered properties. The result of that treatment was to decrease the plaintiff's net capital investment at the material times. The Minister relied on Regulation 808(2) in support of his view. The plaintiff's main attack on the Minister's position is that Regulation 808(2) is ultra vires because it is inconsistent with the intent of subsection 110B(1). In my view this objection is conclusively met by the decision in MNR v. Imperial Oil Ltd (supra). In that case it was argued that the Regulation determining the amount of deductible depletion allowance was not authorized by the statute and therefore ineffective. Judson, J in rendering the judgment of himself, Taschereau and Locke, JJ, approved the reasoning of the trial court as follows at pages 743–5 [284, 1222]:
... Consequently, it is argued, subsection (4) of the 1951 regulation, in purporting to require the deduction of the aggregate of losses reasonably attributable to the production of oil or gas from all wells operated by the taxpayer from the profits referred to in subsection (1), is not authorized by the statute and is ineffective. This argument was rejected in the following passage of the reasons for judgment of the learned President:
“The power to enact a regulation determining the amount of the deductible allowance permitted by Section 11(1)(b) of the Act and the base for its computation was granted in the broadest terms and I cannot see any limitation of it such as counsel suggests. The section of the Act does not specify what the base for the computation of the allowance should be or its amount. Thus, it was permissible to fix the profits reasonably attributable to the production of oil or gas as the base for the computation of the allowance and 33 1/3 per cent of such base as its amount, as subsection (1) did. But it was also permissible to define such profits for application in cases where a taxpayer operated more than one well and some of the wells were loss producing, even if such definition altered the base fixed by subsection (1), as subsection (4) did. It contains a statutory definition of the profits referred to in subsection (1) for use in the cases stated in it. I see no objection to such a definition for use in the circumstances specified. In my opinion, subsection (4) is within the authority of Section 11(1)(b) of the Act. That being so, it is unnecessary to consider the question of its severability.”
30 I agree with this in full and have nothing to add. Ritchie and Cartwright, JJ (dissenting in part) concurred on this point at page 756 [301, 1231].
31 In my opinion the impugned Regulation here is intra vires subparagraph 110B(1)(b)(iii). The power to define the amount of the allowance is unrestricted.
32 Alternatively, the plaintiff contends that if the Regulation is held to be intra vires then the Regulation should be interpreted to mean that in calculating a net increase in capital investment the ultimately surrendered lands should not be part of the initial year-end base balance and therefore not a part of the assets in any later years. It is said this interpretation would exclude “irrelevant surrenders of worthless lands” and “would not have the effect of eliminating true increases in capital investment and thereby nullifying the statutory intention”.
33 While the interpretation sought is ingenious, and has a certain amount of attraction, it necessitates, in my view, reading into Regulation 808(2) some language which is not there. The plaintiff would seek to add to paragraph (b) words so it would read (in effect) “the cost to the taxpayer of land[s] owned ... by it at that time that were also owned at the end of 1960”. In my view the words in paragraph (b) are plain and unambiguous and must be given their ordinary meaning. The interpretation sought by the plaintiff would destroy the plain meaning of that subparagraph.
34 The appeal in respect of the branch tax issue is therefore dismissed.
35 In the result therefore the action by the plaintiff is dismissed. The assessment by the Minister of National Revenue for the years in question is referred back to the Minister for reassessment, in respect of depletion allowances, on the basis set out in these reasons. The substantial success is that of the defendant. She is entitled to her costs.
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