GIBSON,
J.:—This
is
an
appeal
from
the
judgment
of
the
Tax
Appeal
Board,
29
Tax
A.B.C.
150,
which
dismissed
the
appel-
lant’s
appeal
from
a
re-assessment
made
by
the
Minister
for
the
1957
taxation
year
wherein
the
Minister
included
in
the
appellant’s
income,
inter
alia,
the
sum
of
$58,685.69,
which
the
Minister
assessed
as
being
profit
constituting
income
arising
out
of
the
acquisition
and
sale
by
the
appellant
of
certain
petroleum
interests
in
Western
Canada.
The
appellant
company
was
incorporated
in
July,
1954.
Under
letters
patent
issued
pursuant
to
provisions
of
the
Alberta
Companies
Act,
it
had
as
its
objects
to
prospect,
explore,
drill,
produce
and
accumulate
petroleum,
natural
gas
and
related
hydrocarbons
and
to
open,
drill,
develop,
improve,
maintain
and
manage
petroleum
and
natural
gas
wells
and
natural
gas
property
generally.
The
owners
of
all
the
issued
shares
of
this
company
belonged
at
all
material
times
to
Mr.
Harris
Cox,
his
wife
and
son.
The
issued
capital
stock
originally
had
a
value
only
of
$4
and
any
money
this
company
received
initially
to
carry
on
its
activities
was
supplied
to
it
by
way
of
loans
from
its
president
and
major
shareholder,
Mr.
Harris
Cox.
Mr.
Harris
Cox
said
he
caused
this
company
to
be
incorporated
with
the
intent
to
build
up
an
independent
oil
company;
and
to
do
so
it
was
necessary
for
him
after
this
incorporation
to
acquire
properties
which
had
a
probability
of
containing
oil,
and
to
cause
these
properties
to
be
drilled
for
oil
and
get
the
wells
as
drilled
into
production.
In
order
to
accomplish
this,
he
made
various
deals
in
respect
to
which
he
gave
evidence.
According
to
the
evidence
the
deals
were
made
in
the
manner
described
because
the
oil
industry
in
its
discovery
and
development
stages
requires
huge
risks
to
be
taken
and
requires
huge
amounts
of
capital
to
be
expended
to
develop
producing
wells,
and
at
the
same
time
relatively
there
are
small
quantities
of
land
available
for
such
development.
These
facts
caused
oil
companies,
big
and
small,
to
spread
risks
with
other
persons
and/or
companies
so
that
in
the
business
practically
all
oil
wells
are
developed
by
more
than
one
person
or
company,
under
contractual
arrangements
among
themselves,
which
are
varied,
sometimes
complicated
and
almost
never
uniform.
This
is
sometimes
true
in
the
case
of
proven
lands
but
always
true
in
the
case
of
unproven
lands.
In
connection
with
the
latter,
the
acquisition
and
drilling
of
unproven
lands
is
sometimes
referred
to
in
the
oil
industry
as
“wild-catting”.
According
to
the
evidence
the
activities
of
certain
individuals
in
obtaining
leases
in
unproven
lands
have
caused
them
to
be
called
in
the
industry,
in
some
cases,
“lease
hounds’’.
Such
persons,
if
they
carried
on
this
kind
of
activity
in
real
estate
transactions,
would
be
looking
for
what
is
sometimes
called
“finder’s
fees’’.
It
was
stated
that
so-called
‘
lease-hounds
’
’
do
not
participate
in
any
way
in
the
development
of
the
property
after
obtaining
leases,
as
for
example
in
the
way
of
drilling
and
otherwise
developing
the
properties,
but
instead
they
receive
only
a
fee
for
their
services.
The
evidence
also
is
that
such
persons
seldom,
if
ever,
receive
any
shares
of
any
interests
in
the
properties
for
their
services,
but
instead,
as
stated,
receive
money
for
their
Services.
In
making
these
deals
concerning
properties
which
potentially
may
contain
oil
or
gas,
it
appears
that
the
first
thing
that
has
to
be
provided
for
is
a
royalty
to
the
land
owner
who
is
usually
a
farmer
or
the
Crown.
It
is
usually
1214%
and
is
payable
from
the
gross
revenues
obtained
from
the
property
whether
or
not
the
proceeds
from
the
property
result
in
a
profit
from
operations
or
not.
Then,
sometimes,
in
respect
to
a
given
property
there
is
an
interest
called
a
“carried
interest’’.
In
such
a
case
the
party
owning
the
‘‘carried
interest’’
puts
up
no
money
for
drilling
costs
or
other
expenses
for
the
development
of
the
mine.
If
such
well
or
mine
becomes
profitable
after
it
gets
into
production,
then
the
costs
that
the
other
participating
interests
incurred
for
drilling
and
other
charges
are
recouped
first
out
of
the
revenues,
and
then
after
the
‘‘carried
interest’’
shares
with
the
participating
interests
in
the
net
profit
according
to
the
respective
proportions
of
their
ownership.
At
this
stage
the
‘‘carried
interest’’
becomes
a
‘‘
working
interest”
and
its
owner
becomes
liable
for
the
expenses
subsequently
incurred
in
the
development
and
operation
of
the
mine,
but
also,
of
course,
entitles
the
owner
of
it
to
participate
in
the
management
proportionate
to
its
relative
share
interest
in
the
mine.
In
this
way,
the
carried
interest
then
becomes
subject
to
what
is
called
the
‘‘
working
agreement’’
which
is
the
main
agreement
spelling
out
all
the
details
of
how
the
development
and
operation
of
the
mine
is
to
be
done
and
what
costs
may
be
incurred
and
so
forth.
Then
there
is
sometimes
what
is
called
a
“working
interest”
which
is
a
full
participating
interest,
which
bears
at
all
times
its
proportionate
share
of
the
expenses
of
development
and
operation
of
the
mine.
There
is
also
another
interest
which
is
carried
and
it
is
units
in
a
royalty
agreement.
Royalty
units
usually
belong
to
the
owner
of
the
minerals
who
is
usually
the
farmer
or
the
Crown.
The
evidence
indicates
that
any
of
the
interests
in
mining
properties
outlined
above
may
be
earned
in
many
ways,
other
than
by
putting
up
cash;
and
the
largest
of
oil
companies
try
to
avoid
putting
up
money
or
incurring
drilling
costs
in
unproven
lands
and
often
obtain
interests
in
such
lands
without
the
expenditure
of
monies
by
them.
The
result
of
all
the
activity
by
the
appellant
(which
is
detailed
below)
was
that
it
did
obtain
some
interests
in
unproven
lands
and
that
in
the
acquisition
of
these
interests
the
appellant
neither
put
up
nor
paid
any
money
but
instead
earned
them
by
providing
certain
technical
services
and
‘‘know-how’’.
The
four
transactions
which
resulted
in
the
appellant
obtaining
petroleum
interests
were
prescribed
in
certain
agreements
and
documents
which
are
filed
in
this
appeal
and
are
Exhibits
2
to
16.
The
evidence
of
the
president
of
the
appellant,
Mr.
Harris
Cox,
however,
was
that
the
preparation
and
execution
of
each
of
these
documents
followed
the
actual
events
and
that
in
certain
respects
these
documents
do
not
tell
exactly
what
took
place.
However,
the
end
result
was
that
they
show
that
the
appellant
did
receive
interests
in
oil
and
gas
properties
out
of
these
four
transactions
and
the
precise
nature
of
these
interests
which
it
obtained
is
accurately
described
in
these
documents.
The
situation
was
that
prior
to
July,
1954,
when
Mr.
Harris
Cox
caused
the
appellant
company
to
be
incorporated,
he
was
employed
in
certain
other
endeavours.
From
1931
until
1954,
save
and
except
for
war
service,
he
was
employed
by
a
company
known
as
Geophysical
Services
Inc.,
of
Dallas,
Texas,
which
employment
lasted
until
the
war
years,
and
after
that
he
was
employed
by
Western
Geophysical
Company.
With
the
former
company,
he
did
seismograph
work,
which
is
a
service
rendered
to
oil
companies
who
are
interested
in
finding
oil.
This
service
is
rendered
complementary
to
the
services
rendered
by
geologists
;
and
as
a
result
of
putting
together
the
information
obtained
from
the
rendering
of
such
services,
a
recommendation
is
made
to
oil
well
clients
advising
them
of
the
probable
best
places
to
drill
for
oil.
Mr.
Cox
performed
his
services
with
these
two
companies
in
the
United
States,
in
North
America,
the
Indian
Netherlands,
and
in
Canada.
In
1954
Mr.
Cox
was
employed
by
Western
Geophysical
Company
in
Canada,
and
at
that
time
decided
to
leave
that
company
to
set
up
his
own
oil
company,
the
appellant
herein.
The
first
transaction
that
the
appellant
company
entered
into
was
with
Canadian
Superior
Oil
of
California
Ltd.,
and
this
took
place
in
July
of
1954.
For
the
appellant,
Mr.
Harris
Cox
made
a
verbal
agreement
with
that
company
to
drill
a
minimum
of
ten
wells
on
property
which
the
latter
held
on
lease,
and
in
return
the
appellant
received
a
50%
interest
subject
to
the
royalty
in
favour
of
the
owner
of
the
land.
This
verbal
agreement
was
consummated
after
he
had
visited
the
properties
with
representatives
of
Canadian
Superior
Oil
of
California
Ltd.
Mr.
Cox
then
arranged
with
Dome
Exploration
Ltd.
to
put
up
50%
of
the
drilling
costs,
with
Ross
H.
Chamberlain
to
put
up
25%
of
these
costs
and
with
Welton
Becket
to
put
up
25%
of
these
costs.
In
other
words,
he
arranged
with
these
three
persons
to
take
over
and
put
up
all
the
cash
obligations
in
the
drilling
contract
he
had
made
with
Canadian
Superior
Oil
of
California
Ltd.
In
the
result,
therefore,
subject
to
a
1214%
royalty
to
be
paid
to
the
owner
of
the
land,
there
resulted
the
following
percentage
interests
in
this
farm-out
property
from
Superior
Oil
of
California
Ltd.
:
50%
to
Canadian
Superior
Oil
of
California
Ltd.,
25%
to
Dome
Explorations
Ltd.,
12%%
to
Ross
H.
Chamberlain,
and
12%%
to
Welton
Becket.
However,
from
the
interests
sold
to
Ross
H.
Chamberlain
and
Welton
Becket,
the
appellant
retained
a
12%%
‘
‘carried
interest”.
In
the
net
result
when
the
appellant
ended
up
with
a
334%
interest
in
the
property
which
was
a
‘‘carried
interest’’.
These
arrangements
are
supported
in
evidence
by
Exhibits
2,
3,
4,
5,
6,
7
and
8
filed
in
this
appeal.
The
second
transaction
the
appellant
entered
into
was
with
Imperial
Oil
Ltd.
in
1954
and
it
concerned
the
Midale
field
in
Southern
Alberta,
and
consisted
of
a
quarter
section
or
160
acres.
Imperial
Oil
Ltd.
held
the
lease
from
the
farmer-owner
in
this
unproven
property
and
it
was
subject
to
a
12^%
royalty
to
the
owner.
Originally,
Imperial
Oil
Ltd.
in
the
negotiations
with
the
appellant
wanted
a
straight
10%
royalty,
which
in
the
opinion
of
the
appellant
would
have
been
most
uneconomie
for
it
and
as
a
result
there
were
further
negotiations
which
ended
in
different
arrangements
being
made.
The
final
arrangements
made
with
Imperial
Oil
Ltd.
required
the
appellant
to
drill
the
property
and
there
was
reserved
to
Imperial
Oil
Ltd.
a
2^%
royalty.
This
resulted
in
a
15%
royalty
payable,
being
12^%
to
the
farmer-owner
and
214%
to
Imperial
Oil
Ltd.
The
appellant
at
the
same
time
also
obtained
an
option
to
drill
on
some
Canadian
Superior
of
California
Ltd.
property
nearby,
which
in
the
event
that
the
option
was
exercised
by
the
appellant
would
give
Canadian
Superior
Oil
of
California
Ltd.
214%
royalty.
The
appellant
then
arranged
with
Dome
Exploration
Ltd.
and
the
said
Ross
H.
Chamberlain
and
Welton
Becket
to
assume
these
costs
of
the
drilling
of
these
properties
and
also
reserved
to
itself
a
15%
carried
interest
out
of
the
interests
sold
to
Chamberlain
and
Becket.
This
resulted
in
the
interests
in
these
properties
being
as
follows,
namely,
50%
to
Dome
Exploration
Ltd.,
25%
to
Ross
H.
Chamberlain,
25%
to
Welton
Becket;
and
out
of
each
of
the
interests
of
Chamberlain
and
Becket
there
was
reserved
to
the
appellant
a
15%
carried
interest;
so
that
in
the
whole
of
this
transaction
the
appellant
obtained
a
714%
interest
in
the
whole
which
was
a
carried
interest.
The
third
transaction
concerned
property
in
the
Province
of
Saskatchewan
and
was
made
in
the
fall
of
1956
and
was
a
reservation
of
land
obtained
by
way
of
bid
from
the
Province
of
Saskatchewan.
This
bid
was
made
on
a
net
royalty
basis
and
in
this
bid
the
appellant
joined
with
West
Canadian
Petroleum
Ltd.
and
Westburne
Oil
Development
Ltd.
so
that
in
the
result
each
obtained
a
one-third
in
this
reservation
of
land.
In
this
case
the
bid
was
such
that
an
8714%
interest
was
to
belong
to
the
Crown
once
the
property
became
a
working
property.
In
other
words
the
Crown
in
this
arrangement
was
to
receive
a
121/2%
gross
royalty
immediately
on
production,
and
then
if
and
when
the
property
became
profitable,
the
Crown
would
receive
8714%
of
the
net
income.
The
appellant
in
respect
to
this
third
transaction
again
went
to
Dome
Exploration
Ltd.
and
to
Welton
Becket
who
were
not
interested
in
buying
this
one-third
interest
of
the
appellant,
but
Ross
H.
Chamberlain
was
interested
and
did
assume
the
whole
of
the
cash
obligation
of
this
one-third
interest
and
reserved
to
the
appellant
a
25%
carried
interest
therein.
The
fourth
transaction
took
place
in
December,
1956,
and
concerned
property
near
the
Virden
Airport
on
which
B-A
Oil
Company
Ltd.
had
a
lease
and
in
respect
to
which
lands
it
was
reluctant
to
develop
by
way
of
drilling
because
of
danger
to
the
airport
facilities
and
adverse
publicity
if
anything
untoward
should
happen,
and
the
appellant
made
a
deal
with
it
to
drill
which
agreement
was
subject
to
a
50%
carried
interest
in
favour
of
B-A
Oil
Company
Ltd.
In
other
words,
the
appellant
assumed
100%
of
the
drilling
costs
in
this
arrangement.
Then
the
appellant
arranged
with
Ross
H.
Chamberlain
to
put
up
all
the
funds
for
this
100%
of
the
drilling
costs
but
reserved
to
the
appellant
a
25%
carried
interest.
The
result
was
that
this
whole
transaction
was
subject
to
a
50%
carried
interest
in
favour
of
B-A
Oil
Company
Ltd.
and
a
25%
carried
interest
in
favour
of
the
appellant;
and
Ross
Chamberlain
had
the
other
25%
which
was
the
only
and
full
participating
interest.
The
evidence
was
that
Mr.
Cox
for
the
appellant
acquired
all
these
interests
in
the
four
transactions
and
made
deals
with
the
other
parties
involved,
namely,
Dome
Exploration
Ltd.,
Ross
H.
Chamberlain
and
Welton
Becket;
that
in
these
transactions
Mr.
Cox
as
president
of
the
appellant
company
worked
with
Dome
Exploration
Ltd.
which
latter
company
was
the
operator
company,
in
getting
these
properties
drilled
(and
some
of
them
into
production
as
mentioned
hereafter)
and
also
successfully
negotiated
contributions
from
other
persons
or
corporations
who
had
leases
in
the
various
adjoining
areas
where
such
drilling
was
done,
obtaining
from
them
what
is
known
as
‘‘dry
hole
money’’,
being
a
contribution
towards
the
drilling
costs.
In
all
these
efforts
in
working
with
Dome
Exploration
Ltd.,
thirty-three
wells
were
drilled
and
twelve
of
these
were
dry
holes
and
nineteen
were
producers.
The
appellant
through
its
president
Mr.
Harris
Cox
was
involved
in
the
full
program
which
caused
these
wells
to
be
producers,
In
some
cases
the
wells
had
his
name
Joined
in
them,
as,
e.
g.,
Harris
Cox-Dome
Well
No.
so-and-so.
The
evidence
was
that
the
drilling
costs
for
the
cheapest
well
from
$15,000
to
$20,000
to
a
high
for
the
most
expensive
of
$75,000.
Subsequently,
the
interests
in
the
transactions
which
were
reservation
lands
from
the
Province
of
Saskatchewan
the
appellant
disposed
of
in
circumstances
which
are
not
relevant
in
this
appeal;
but
in
respect
to
the
profit
on
the
realization
of
which
the
appellant
paid
income
tax.
The
appellant
subsequently
did
also
sell
the
‘‘carried
interests”
which
he
had
received
from
Ross
H.
Chamberlain
and
the
issue
in
this
appeal
is
how
the
profit
realized
on
this
sale
should
be
categorized
with
reference
to
the
provisions
of
the
Income
Tax
Act.
The
appellant
still
owns
the
carried
interests
which
it
obtained
from
Welton
Becket.
The
circumstances
under
which
the
carried
interests
which
the
appellant
obtained
from
Ross
H.
Chamberlain
were
sold
are
briefly
as
follows:
The
brokerage
and
underwriting
firm
of
Dougherty,
Roadhouse
&
Co.
of
Toronto
incorporated
a
company
known
as
Humber
Oils
Ltd.
and
were
anxious
to
acquire
proven
oil
and
gas
properties
for
Humber
Oils
Ltd.
in
order
to
make
it
a
producing
company.
It
was
necessary
before
the
shares
of
this
company
could
be
listed
on
the
Toronto
Stock
Exchange
for
it
to
own
interests
in
proven
properties.
Mr.
Darcy
Dougherty
approached
Mr.
Harris
Cox
to
find
out
whether
the
Chamberlain
interests
were
for
sale
and
Mr.
Cox
referred
him
to
Mr.
Ross
H.
Chamberlain
who
at
that
time
resided
in
San
Francisco
and
was
a
broker
and
underwriter,
and
there
subsequently
was
a
meeting
in
San
Francisco
of
all
interested
parties.
(Ross,
H.
Chamberlain,
as
is
patent
from
the
summary
of
the
evidence
recorded
above,
had
been
a
short
of
financial
‘‘angel’’
of
the
appellant
and
had
taken
up
and
assumed,
at
all
material
times,
a
substantial
part
of
the
drilling
cost
obligations
of
the
appellant
in
respect
to
all
the
transactions
which
are
above
recited.
The
appellant
was
dependent
to
a
large
extent
on
him
for
these
costs;
and
had
received
for
what
it
contributed
to
these
transactions
the
carried
interests
above
referred
to.)
As
a
result,
Humber
Oils
Ltd.
(after
the
conference
in
San
Francisco
at
which
were
present
representatives
of
Dougherty,
Roadhouse
&
Co.
certain
officers
of
the
Humber
Oils
Ltd.,
Ross
H.
Chamberlain
and
certain
of
his
associates,
and
the
appellant)
purchased
the
Chamberlain
interests
in
the
first
two
transac-
tions
recited
above,
and
also
the
carried
interests
of
the
appellant
which
the
latter
had
received
from
the
Chamberlain
interests.
The
purchase
price
was
determined
by
negotiation
after
an
appraisal
had
been
made
for
Humber
Oils
Ltd.
of
the
market
value
of
these
interests;
and
the
offer
made
and
accepted
was
substantially
less
than
that
suggested
as
the
proper
price
in
the
so-called
Sproule
Valuation
Report,
which
Chamberlain
had
obtained
valuing
these
properties.
The
evidence
was
that
the
Sproule
report
did
not
separate
on
a
valuation
basis
the
interests
of
the
appellant
from
the
Chamberlain
interests;
and
the
whole
negotiations
were
carried
on
by
Chamberlain
on
the
basis
that
the
carried
interests
of
the
appellant
would
be
included
in
the
sale.
It
is
a
fair
inference
from
the
evidence
to
conclude
that
Ross
H.
Chamberlain
wished
to
sell
to
Humber
Oils
Ltd.
at
this
material
time
and
he
unquestionably
was
the
dominant
figure
in
the
proposal
and
the
arrangements
to
sell
to
Humber
Oils
Ltd.
;
and
that
while
there
may
not
have
been
too
great
reluctance
on
the
part
of
the
appellant
to
sell
its
carried
interests,
nevertheless,
because
of
the
history
of
the
assistance
given
to
the
appellant
by
Chamberlain
it
would
have
been
impractical
and
unrealistic
for
the
appellant
not
to
have
concurred
in
the
decision
made
by
Chamberlain
to
sell.
It
is
relevant
to
observe
also
that
what
was
sold
were
properties
which
were
proven,
which
is
what
Humber
Oils
Ltd.
needed
so
that
its
underwriters
could
list
its
shares
on
the
Toronto
Stock
Exchange
and
sell
them
to
the
public.
Humber
Oils
Ltd.
was
not
interested
in
buying
nor
did
it
buy
unproven
properties.
In
other
words,
what
the
Humber
Oils
Ltd.
did
acquire
was
in
effect
a
business
as
a
going
concern;
and
it
acquired
it
by
way
of
purchasing
the
investment
interests
of
Chamberlain
and
the
appellant
in
the
two
properties
referred
to
in
the
first
two
transactions
recited
above.
This
conclusion
is
arrived
at
by
considering
the
whole
of
the
evidence
given
by
Mr.
Louis
Diehl,
secretary-treasurer
of
Hitchcock
and
Chamberlain
Ltd.
(of
which
Ross
H.
Chamberlain
was
the
major
owner),
and
who
was
familiar
with
the
sales
transaction
with
Humber
Oils
Ltd.,
Dr.
EK.
D.
Alcock
who
acted
as
a
geologist
advisor
and
who
had
very
considerable
experience
in
the
oil
industry
and
who
appraised
for
Humber
Oils
Ltd.
the
interests
of
Chamberlain
and
the
appellant
in
these
producing
wells
and
who
also
gave
evidence
that
Humber
Oils
Ltd.
tried
to
buy
the
Becket
interest
in
these
properties
but
was
unsuccessful,
and
also
the
evidence
of
the
appellant.
Counsel
for
the
appellant
submitted
that
these
transactions
resulted
in
a
capital
gain
and
the
transactions
should
not
be
considered
solely
from
the
intention
of
the
party
but
their
characterization
should
also
be
determined
from
what
the
appellant
actually
did
;
and
in
this
particular
case
what
the
appellant
actually
did
was
more
important.
Counsel
submitted
that
Cox,
president
of
the
appellant,
was
a
trained
engineer
in
the
oil
industry;
that
he
left
his
employment
and
formed
a
small
company,
the
appellant,
whose
objects
are
set
out
in
the
memorandum
of
association
filed
as
Exhibit
1,
referred
to
above;
that
the
appellant
showed
what
it
did
in
acquiring
these
interests
and
demonstrated
that
it
obtained
these
carried
interests
for
the
purpose
of
obtaining
future
income
from
producing
wells,
which
corresponded
with
its
declared
intention;
and
that
in
this
business,
the
high
cost
of
drilling
was
so
important
that
even
though
the
appellant
did
not
have
money
to
drill
the
evidence
was
that
this
was
not
a
great
criterion,
because
oil
companies,
big
or
small,
always
tried
to
get
someone
else
to
incur
the
drilling
costs
in
“wild-cat”
drilling
in
unproven
areas
;
that
the
appellant
made
these
deals
with
Canadian
Superior
Oils
Co.
of
California
and
Imperial
Oil
Ltd.
and
the
subsequent
deals
with
Dome
Exploration
Ltd.
and
Chamberlain
and
Becket,
and
from
the
two
latter
he
got
these
small
carried
interests;
that
Chamberlain
was
the
financial
‘‘angel’’
of
the
appellant
during
this
period;
and
that
what
the
appellant
got
was
nothing
like
a
‘‘finder’s
fee’’
but
instead
were
interests
in
future
income
and
these
interests
became
valuable
because
the
appellant
worked
to
get
the
mines
into
operation;
that
when
Mr.
Dougherty
of
Dougherty,
Roadhouse
&
Co.
contacted
the
president
of
the
appellant,
he
immediately
referred
him
to
Ross
H.
Chamberlain,
and
although
Mr.
Cox
attended
the
negotiating
meetings
in
San
Francisco
‘‘the
situation
was
delicate”
(as
Mr.
Cox
put
it)
and
that
Mr.
Cox
thought
that
Chamberlain
wanted
to
sell,
and
the
appellant
really
had
no
practical
alternative
but
to
sell.
From
this
evidence
the
appellant
submits
that
it
was
reasonable
for
it
to
sell
when
Chamberlain
saw
the
opportunity
and
wished
to
sell
because
the
appellant
did
not
want
to
frustrate
Chamberlain’s
effort
especially
in
view
of
his
history
as
a
financial
backer,
and
as
a
consequence
the
appellant
did
sell
its
securities,
but
this
did
not
make
the
appellant
a
trader
in
securities.
Up
to
that
time
it
had
been
a
developer
of
these
properties,
working
closely
with
Dome
Exploration
Ltd.,
the
operator,
and
that
this
transaction
in
which
the
appellant
concurred
in
Chamberlain’s
resolution
to
sell,
under
the
circumstances,
did
not
change
the
appellant
from
being
a
small
operator
of
mines
doing
reasonably
well
into
a
trader
in
security
interests
in
such
mines.
In
this
latter
connection,
Mr.
Cox
for
the
appellant
stated
that
the
appellant
is
currently
receiving
a
small
income
of
about
$300
a
month
from
the
‘‘carried
interests’’
obtained
through
the
Becket
interests
in
these
properties.
Counsel
for
the
appellant
also
stated
that
in
effect
the
appellant
exchanged
one
form
of
investment
for
another
in
this
transaction,
that
is,
it
exchanged
the
carried
interests
for
shares
in
Humber
Oils
Ltd.
and
some
cash,
and
on
evidence,
its
intent
and
conduct
go
together
to
substantiate
that
it
was
not
a
trader
of
securities.
Counsel
for
the
respondent
to
the
contrary
argued
that
the
profit
from
the
transactions
was
income
within
the
meaning
of
Section
3
of
the
Income
Tax
Act;
that
the
property
was
not
being
taxed,
but
it
was
the
taxpayer
who
was
being
taxed;
that
in
a
given
case
the
receipt
of
an
asset
exchanged
can
be
capital
in
one
company
and
income
in
the
other
company
with
whom
the
former
dealt;
that
there
was
only
one
business
that
Talon
was
engaged
in
and
that
was
to
make
money;
that
the
only
time
the
appellant
made
any
money
was
when
it
sold
assets
it
had
acquired;
that
the
only
thing
the
appellant
had
to
offer
at
any
material
time
was
the
knowledge,
experience
and
the
contribution
that
its
president
could
make;
that
what
it
did
was
put
several
deals
together
as
a
promoter
and
therefore
a
dealer
;
that
this
was
the
business
of
the
company,
namely,
putting
transactions
together;
that
with
respect
to
the
contract
which
is
the
subject
of
this
appeal,
the
appellant
negotiated
with
Canadian
Superior
Oils
of
California
and
with
Imperial
Oils
Ltd.
and
then
went
to
Dome
Exploration
Ltd.
and
Chamberlain
and
Becket
and
that
it
did
not
matter
whether
the
interest
received
by
the
appellant
came
only
from
Becket
or
Chamberlain,
the
important
thing
was
that
it
received
an
asset
in
the
production
of
these
properties;
that
what
the
appellant
got
for
its
services
and
contributions
was
an
interest
in
the
production
of
the
wells
and
it
was
that
interest
that
the
appellant
sold
and
converted
into
cash;
that
the
company
in
order
to
make
a
profit
must
receive
cash;
and
the
only
way
that
the
appellant
could
get
cash
was
to
sell
what
it
had
acquired
and
it
did
not
matter
what
method
was
followed
if
that
was
the
business
of
the
company,
as
was
the
case
here.
On
these
facts
and
submissions
I
am
of
the
opinion
following:
In
the
consideration
of
this
matter,
the
applicable
sections
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148,
in
the
determination
of
this
appeal
are
Sections
38,
4
and
139(1)
(e)
which
read
as
follows
:
41
3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purposes
of
this
Part
is
his
income
for
the
year
from
all
sources
inside
or
outside
Canada,
and,
without
restricting
the
generality
of
the
foregoing,
includes
income
for
the
year
from
all
(a)
businesses,
(b)
property,
and
(c)
offices
and
employments.
4.
Subject
to
the
other
provisions
of
this
Part,
income
for
a
taxation
year
from
a
business
or
property
is
the
profit
therefrom
for
the
year.
139.
(1)
In
this
Act,
(e)
‘business’
includes
a
profession,
calling,
trade,
manufacture
or
undertaking
of
any
kind
whatsoever
and
includes
an
adventure
or
concern
in
the
nature
of
trade
but
does
not
include
an
office
or
employment
;
’
’
The
issue
to
be
decided
here
is
whether
the
purchase
or
acquisition
in
1954
of
the
carried
interests
of
the
appellant
from
Ross
H.
Chamberlain
and
their
sales
in
conjunction
with
the
interests
of
Ross
H.
Chamberlain,
in
1957,
was
an
adventure
or
concern
in
the
nature
of
trade
so
that
the
profit
therefrom
constituted
taxable
income,
or
whether
what
was
done
was
the
realization
at
an
enhanced
price
of
capital
assets
or
investments
and
as
a
consequence
did
not
constitute
an
adventure
or
concern
in
the
nature
of
trade.
The
respondent
in
his
Reply
to
the
notice
of
appeal
sets
out
the
issue
in
this
way
(pleading
that
it
re-assessing
he
acted
on
the
following
assumptions).
Paragraph
15:
“15.
In
re-assessing
the
Appellant
for
its
1957
taxation
year,
notice
of
which
was
posted
on
the
15th
day
of
April,
1959,
wherein
he
included
in
the
Appellant’s
income,
inter
alia,
the
sum
of
$58,685.69,
the
Respondent
acted
on
the
following
assumptions,
inter
alia:
(a)
that
in
the
course
of
its
business
the
Appellant
acquired
interests
in
certain
petroleum
and
natural
gas
properties
in
Canada,
or
in
the
proceeds
of
production
therefrom
;
(b)
that
the
acquisition
of
interests
in
petroleum
or
natural
gas
properties
or
in
the
proceeds
of
production
therefrom
and
the
turning
to
account
thereof
at
a
profit
constituted
a
business
of
the
Appellant;
(c)
that
in
the
course
of
the
Appellant’s
business,
the
Appellant,
in
the
taxation
year
1957,
disposed
of
the
following
interests
at
a
profit
of
$58,685.69
:
(i)
15%
of
the
25%
interest
acquired
by
one
Ross
H.
Chamberlain
in
a
farmout
agreement
dated
July
2nd,
1954,
made
between
Superior
Oil
of
California
Ltd.
and
Dome
Exploration
(Western)
Limited
;
(ii)
15%
of
the
interest
acquired
by
the
said
Ross
H.
Chamberlain
in
a
farmout
agreement
dated
October
2181:,
1954,
made
between
Imperial
Oil
Limited
and
Dome
Exploration
(Western)
Limited;
(iii)
15%
of
the
interest
acquired
by
the
said
Ross
H.
Chamberlain
in
a
farmout
agreement
dated
November
1st,
1954,
made
between
Canadian
Superior
Oil
of
California
Ltd.
and
Dome
Exploration
(Western)
Limited;
(iv)
a
25%
interest
in
the
share
of
the
said
Ross
H.
Chamberlain
in
the
gross
proceeds
of
the
production
from
certain
properties
in
which
the
Appellant
had
had,
together
with
West
Canadian
Petroleums
Ltd.
and
Westburne
Oil
Development
Ltd.,
a
beneficial
interest,
which
interest
the
Appellant
had
assigned
to
the
said
Ross
H.
Chamberlain
by
agreement
dated
July
1st,
1956;
(v)
a
1214%
interest
in
the
petroleum
substances
produced
from
wells
drilled
on
certain
leased
property
in
which
the
Appellant
had
assigned
its
interest
to
the
said
Ross
H.
Chamberlain
by
agreement
dated
September
14th,
1956.
(d)
that
the
said
profit
constituted
income
from
the
appellant’s
business
for
the
1957
taxation
year.”
In
respect
to
this
pleading,
as
Cattanach,
J.
said
in
M.N.k.,
v.
Pillsbury
Holdings
Limited,
[1964]
C.T.C.
294:
“The
respondent
could
have
met
the
Minister’s
pleadings
that,
in
assessing
the
.
.
.
(appellant),
he
assumed
the
facts
set
out
in
paragraph
(15)
of
the
Notice
of
Appeal
by:
(a)
challenging
the
Minister’s
allegation
that
he
did
assume
those
facts,
(b)
assuming
the
onus
of
showing
that
one
or
more
of
the
assumptions
was
wrong,
or
(c)
contending
that,
even
if
the
assumptions
were
justified,
they
do
not
of
themselves
support
the
assessment.
’
’
The
appellant
in
this
appeal
adopted
the
course
outlined
in
(b)
above.
As
a
result
from
the
evidence
adduced
the
question
to
be
decided
might
be
put
in
several
ways,
as
for
example
:
Was
the
appellant
in
the
business
of
trading
in
securities
when
it
acquired
and
disposed
of
these
carried
interests?
Did
these
transactions
constitute
dealing
in
mining
securities?
Is
the
proper
inference
to
be
drawn
from
these
transactions
that
the
appellant
was
not
a
developer
but
instead
a
trader
?
As
a
guide
in
matters
such
as
this,
certain
tests
were
laid
down
by
the
learned
former
President
of
this
Court
in
the
case
of
M.N.R.
v.
Taylor,
[1956]
C.T.C.
189.
At
page
214,
Thorson,
P.,
after
prescribing
these
certain
guides,
stated
:
‘
‘.
.
.
that
the
question
whether
a
particular
transaction
is
an
adventure
in
the
nature
of
trade
depends
on
its
character
and
surrounding
circumstances
and
no
single
eriterion
can
be
formulated.’’
And
in
Edwards
v.
Bairstow,
[1956]
A.C.
14,
Lord
Radcliffe
stated
at
page
38:
“Dealing
is,
I
think,
essentially
a
trading
adventure,
and
the
respondents’
operations
were
nothing
but
a
deal
or
deals
in
plant
or
machinery.
’
’
In
this
case
in
brief,
therefore.
was
this
then
a
deal
or
deals
in
purchasing
mining
securities?
Or
was
the
transaction
simply
this—Was
the
acquisition
of
these
carried
interests
by
the
appellant
at
the
material
times
made
for
the
purpose
of
obtaining
revenue
and
therefore
in
the
nature
of
capital
investments
within
the
meaning
of
the
Irrigation
Industries
Ltd.
v.
M.N.R.,
[1962]
S.C.R.
346;
[1962]
C.T.C.
215
and
Montreal
Trust
Company
v.
M.N.R.,
[1962]
S.C.R.
570;
[1962]
C.T.C.
418
cases
and
was
the
gain
or
profit
on
the
realization
of
such
capital
assets
or
investments
capital
?
The
evidence
adduced
by
the
appellant
in
my
opinion
proves
that
in
substance
the
assumptions
of
the
Minister
contained
in
paragraph
15
of
the
Reply
in
the
pleadings
are
wrong.
The
evidence
established
that
these
carried
interests
were
acquired
by
the
appellant
as
potential
income
producing
assets;
that
the
appellant
with
Dome
Exploration
Ltd.
had
developed
the
properties,
in
which
there
were
these
carried
interests,
so
that
nineteen
wells
were
brought
into
production;
that
Humber
‘Oils
Ltd.,
the
purchaser
of
these
carried
interests
was
only
interested
at
the
material
time
in
buying
proven
properties,
i.e.,
income
producing
properties;
and
that
Chamberlain
was
the
dominant
person
who
made
the
effective
decision
to
sell
to
Humber
Oils
Ltd.
;
and
that
in
the
circumstances
it
would
have
been
impractical
and
unrealistic
for
the
appellant
not
to
have
gone
along
with
or
concurred
in
Chamberlain’s
decision
to
sell.
In
my
opinion,
therefore,
the
evidence
proves
that
the
acquisitions
and
sales
of
these
carried
interests
of
the
appellant
were
transactions
in
capital
assets,
and
neither
were
an
adventure
or
concern
in
the
nature
of
trade
within
the
meaning
of
Section
139(1)
(e)
of
the
Income
Tax
Act
and
therefore
any
profit
or
gain
is
not
income
within
the
meaning
of
Section
3
of
the
Act.
The
appeal
is
therefore
allowed
with
costs.
Judgment
accordingly.
Email this Content