Osler, Hammond & Nanton Limited v. Minister of National Revenue, [1961] CTC 462, 61 DTC 1291

THORSON, P.:—This is an appeal against the appellant’s income tax assessments for 1956 and 1957. The issue in the appeal is a narrow one. The appellant realized a gain of $19,250 in 1956 on the sale of 5,500 common shares of Trans-Prairie Pipelines Ltd. and a further gain of $57,032.88 in 1957 on the sale of 2,000 common shares of the said company and the question for determination is whether these gains were realizations of an enhancement in the value of an investment by the appel lant and, therefore, not subject to income tax, as claimed by it or income from the appellant’s business within the meaning of Sections 8 and 4 and the definition of business in Section 139(1) (e) of the Income Tax Act, R.S.C. 1952, Chapter 148, and, therefore, taxable as such, as submitted on behalf of the Minister

When the Minister assessed the appellant for the years in question he added the amounts of the said gains to the amounts of income respectively reported by it in its income tax returns for the said years. The appellant objected to the assessments thus made but the Minister confirmed them and the appellant then brought its appeal to this Court.

Sections 3 and 4 of the Act, on which the Minister relies, provide as follows:

“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 from a business or property is the profit therefrom for the year. ’ ’

and Section 139(1) (e) defines ‘‘business’’ as follows:

“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.”

Evidence for the appellant was given by Mr. P. Osler, its president since 1952, Mr. G. Whicker, its accountant, Mr. D. J. McDonald, the manager of its underwriting department, and Mr.

D. R. Brandt, the president of Trans-Prairie Pipelines Ltd. No witnesses were called on behalf of the Minister.

The appellant was incorporated in 1924 by letters patent under the Companies Act, R.S.C. 1906, Chapter 79, as amended, but its predecessor, the partnership firm of Osler, Hammond & Nanton, hereinafter called the partnership, had carried on business in Winnipeg since 1883. Originally, the partnership represented English interests in placing mortgage moneys on the prairies but its business grew. In 1891, it opened up a wholesale coal department and, in 1899, an insurance department. About 1900, it opened a stock department to handle stock transactions. One of the objects stated in the letters patent by which the appellant was incorporated was ‘‘to purchase, take over, or otherwise acquire and carry on as a going concern the several businesses, agencies, and undertakings of the partnership’’. The appellant acted under this object but the partnership has continued, with changes in its membership, for certain purposes. Mr. McDonald explained that the appellant does all its listed stock business through the partnership for the reason that until recently limited companies could not be members of stock exchanges. In 1929, the appellant opened an oil department and managed several companies, including Security Freehold Petroleums Limited and Calgary & Edmonton Corporation, but in 1957 the latter corporation had its own management and moved to Calgary. The appellant invested funds in several of the companies managed by it.

In 1950, the appellant began another activity, namely, the underwriting of issues of securities by other corporations. This meant that it purchased all the securities issued by the corporation, whatever their nature was, and then sold them to its clients, either individuals or institutions. Its function was that of providing finances to the corporations whose issues it underwrote. As Mr. Osler put it, the appellant viewed this function as that of bringing together people who had money and corporations that needed it. There were two ways in which the appellant received remuneration for its underwriting services if the issue that was underwritten was one of bonds. One was that it purchased the bonds at par and received a commission and the other that it bought the bonds at less than par and sold them at par. In the case of an issue of shares the appellant bought them at an agreed price and then disposed of them as advantageously as it could.

The first corporate underwriting undertaken by the appellant was in 1950 when it underwrote an issue of common shares by Security Freehold Petroleum Limited. In that year the directors of the company, which the appellant still manages, decided to raise $1,250,000 to enable it to engage in the oil business and to issue common shares for the purpose. The appellant purchased the shares and re-sold them to the public. This was, as I have said, the appellant’s first underwriting. It was also the first occasion, as Mr. Osler put it, on which it purchased for what he called its investment account securities of a corporation whose issue it had underwritten.

Mr. Osler stated that in the period 1950-1954 the appellant underwrote six issues of securities but put shares into its investment account only from two of them, namely, Security Freeholds Petroleum Limited and Trans-Prairie Pipelines Ltd. Here I should say that when I refer to the appellant’s investment account I mean the account which the appellant’s witnesses called its investment account, a description which counsel for the Minister disputed.

I now come to a matter of importance in this case. Mr. Osler said that the appellant’s directors had five guide posts which formed their policy in deciding whether the appellant’s investment account should, as Mr. Osler put it, buy securities from issues which it had underwritten. He put the five guide posts in the form of questions which the directors asked themselves, namely, (1) Was it a good long term investment? (2) Did the appellant have surplus funds that it could prudently invest?

(3) Would an investment help the appellant in securing the management of the company ? Mr. Osler said that this consideration was unique with the appellant. (4) Is the company of such a type and in an industry of such a type that if it is successful it is likely to require additional funds from time to time and would an investment in it by the appellant help it to secure the underwriting of funds that it might wish to raise in the future?

(9) Because the appellant was new and small and could not get underwritings of issues by the big companies and it was dealing with smaller ones often in new ventures with managements untried in the fields in which they were operating, would an investment in such companies give the appellant a larger say in their management since the appellant’s clients would look to it to protect their interests? These were the basic pillars of the appellant’s policy. It was not set out anywhere but was evolved as the years went by. In essence, the appellant asked itself (1) Is it a good investment? and (2) What will it do for the appellant in the way of securing additional business?

Mr. Osler gave an illuminating illustration of an instance when, pursuant to its policy, the appellant decided that it would not put certain securities into its investment account. In 1952, the American Drilling Company which was operating in Canada decided to incorporate its Canadian enterprise as the Parker Drilling Company and the appellant underwrote an issue of its securities but did not put any of them into its investment account. The company had a record of earnings. The appellant felt that the securities were a good long term investment and it had surplus funds. But an investment by the appellant in the shares of the company could not help it in securing management of it. Moreover, in the normal course the company would never require additional outside funds. It was a ‘‘one shot’’ deal. And the appellant was satisfied with the management of the company. Of the five guides only two were applicable. Although the securities would have been a good investment and the appellant had the necessary surplus funds, it was not interested for the so-called investment would do it no good from a business point of view.

Before I refer to Mr. Osier’s evidence of what happened to the securities that the appellant put into its investment account I should mention that until 1946 the appellant’s only investment department was in its stock department. But in 1946 it opened a branch brokerage office in Calgary and then broadened its business. It became an investment dealer as well as a stock broker, that is to say, it traded in securities as a principal as well as executing stock exchange orders for its clients. The securities purchased by it as a principal were held in its inventory in its trading department, so that it could supply demands for them.

Mr. Osler explained the procedure followed by the appellant after the board had followed its five guides and decided to put securities into its investment account. The board’s secretary informed the trading department and the accounting department of the board’s decision and the securities referred to were then segregated in the appellant’s books out of the inventory of its trading department and into its investment account. Mr. Whicker, the appellant’s accountant, stated that after he was informed of the board’s decision relating to the securities he made the necessary entries in the books and he also said that the board’s secretary instructed the securities clerk to have the securities registered in the appellant’s name and that when this was done the necessary documents were placed in safe keeping.

After the board had decided to put the securities into the appellant’s investment account its trading department had no control over them and they could be dealt with only as the board ordered. It was not always possible to bring the members of the board together for a particular order and the practice developed of obtaining its approval for dealing with securities in its investment account by polling its individual members and then subsequently ratifying their action by a formal resolution. Mr. Osler stated that the board of directors reviewed its investments quarterly and he set out the factors which it considered before it decided to realize an investment. The board asked itself the following questions, namely (1) Is it still a good long term investment? (2) Is the price of the stock too high, in our judgment, in relation to the worth of the company as we see it? (3) Do we need money which is otherwise available for other corporate purposes? (4) Do we still see eye to eye with the management of the company? and (5) Is the price of the shares too high in dollars in relation to the worth of our own firm ? The dominating considerations were whether the investment was still a good one and whether the appellant needed money for other corporate purposes. The latter consideration could be the dominating one.

I now come to the appellant’s underwriting of the securities issued by Trans-Prairie Pipelines Ltd., hereinafter called simply Trans-Prairie, in 1954. Mr. McDonald, who has been the manager of the appellant’s underwriting department since its inception in 1950, gave the details of the circumstances leading up to it and the particulars of its accomplishment, but it is not necessary to do more than set out the main features of the transaction. Early in 1954, there were negotiations between Mr. McDonald and Mr. P. D. Bowlen, a controlling shareholder of Northern Development Company Limited which had acquired the physical assets of Virden Pipeline Ltd. including a pipeline intended to serve the Daly oil field south of Virden. It was proposed to form a public company to be called Trans-Prairie Pipelines, Ltd. to purchase the pipeline referred to and extend it to the Virden- Roselea field which had recently been developed. The negotiations took a considerable time but the upshot was that Trans-Prairie was incorporated and issued 140,000 preference shares at $5 per share and 190,000 common shares of no par value. The appellant, in pursuance of its underwriting agreement, purchased these issues, the 140,000 preference shares for $700,000 and the 190,000 common shares for $140,000 which worked out at a cost to it of 73.7 cents per share. For the purchase of the preference shares it received a commission of $37,500, being at the rate of 514 per cent. The preference shares were sold with a bonus of one common share for each five preference shares. The appellant sold 140,000 common shares for $140,000, leaving it with a balance of 50,000 shares. Of these 28,000 were needed to bonus the preference shares, leaving 22,000 shares as the appellant’s commission on the purchase of the common shares.

Prior to the signing of the underwriting agreement Mr. Bowlen and Mr. McDonald worked out the proposed distribution of the common shares in such a way as to ensure control of Trans- Prairie by Northern Development Company Limited, acting through Mr. Bowlen, and the appellant, acting through Mr. McDonald. The details need not be set out beyond saying that the appellant’s 22,000 shares in Trans-Prairie which it had purchased as part of the issue of 190,000 shares at 73.7 cents per share made it the second largest shareholder in the company. Mr. Bowlen was anxious to have as much control for his company as possible and wanted an option on the appellant’s 22,000 shares. On August 20, 1954, prior to the actual underwriting, the appellant wrote to Mr. Bowlen saying ‘‘we undertake not to sell or dispose of the said 22,000 common shares for a period of one year from the date of payment and delivery referred to in the underwriting agreement without giving you first opportunity to purchase such shares’’. The underwriting was closed in September of 1954. The appellant had two directors, including Mr. McDonald, on the board of Trans-Prairie. The appellant has acted for the company in two private placements of bond issues since 1954, one in 1956 and the other in 1957 and there were further underwritings this year which gave the appellant $70,000 in commissions. Mr. McDonald expressed the opinion that the appellant’s ownership of shares in Trans-Prairie was of great assistance to it in retaining its underwriting connection.

I should now refer to Mr. Osier’s reasons for the appellant’s association with Trans-Prairie. When counsel for the appellant asked him why the appellant decided to invest in Trans-Prairie, his answer was that the appellant had gone back to the five criteria that have been referred to and that, in the board’s judgment, (1) it was a good long term investment, which has proven correct, (2) the appellant had surplus moneys available that it thought it could invest, (3) it felt that by reason of the nature of the industry and the business of the company if the pipe line was successful the company would expand and require additional funds and it felt that if it had an investment in the Company this would help it to secure the underwriting of additional issues and he said that the association had been a profitable one from the underwriting point of view and (4) it was an unusual venture for several reasons, namely, firstly, it was the first pipe line in Canada to be financed without ‘‘through put’’ agreements with producers or other producer guarantees, secondly, it was also the first pipe line to be built by public finances that dealt with only one oil area and, thirdly, the management group was young and inexperienced in pipe lines and the appellant felt that an investment of 22,000 shares would give it a substantial share in the management which turned out to be a fact and his conclusion was that the board had decided that it would be in the appellant’s interest to invest in the company and it did so. At a meeting of the board on December 29, 1954, it was resolved that 22,000 common shares of Trans-Prairie be transferred from the appellant’s bond department inventory to its head office investment account. I shall refer to this portion of Mr. Osier’s evidence later.

The circumstances under which the appellant realized its gain of $19,250 in 1956 by the sale of 5,000 common shares of Trans- Prairie may be stated briefly. In January of 1956 Trans-Prairie had decided to redeem the preference shares that it had issued in 1954. Mr. McDonald explained the reason for this decision. The company had been growing at a faster rate than had been anticipated and found that some of the conditions of the preference shares were awkward to live with, especially the sinking fund provisions which made too great a demand on its working capital. Its board of directors decided to raise the necessary funds for the redemption of the preference shares by an offer of rights to its common shareholders. This was done on January 22, 1956. The common shareholders of record on January 19, 1956 were given the right to purchase additional common shares at $6.50 per share for every four common shares held by them. The rights had to be exercised by February 9, 1956. Mr. Osler stated that the board of directors, after having been polled, had decided to sell the rights to which it was entitled. This action was approved and confirmed by a resolution of the board, dated February 15, 1956, which recited that ‘‘the directors had not considered it advisable to increase the Company’s investment in Trans-Prairie Pipelines, Ltd. and had agreed that the rights be sold at the best market available”. It was then resolved ‘‘that the sale of 9,900 rights of Trans-Prairie Pipelines Ltd. be and is hereby formally approved and confirmed’’. The decision to sell the rights had been made by the directors after they had been polled on the question and was communicated to Mr. McDonald on February 7, 1956. This presented him with a problem for the rights would expire on February 9, 1956. He, therefore, decided, without rechecking with the board, to exercise the rights, acquire the shares and sell them. He chose this course of action rather than to sell the rights as the board had decided because there were only 36 hours left in which to act and this course would allow an orderly marketing of the shares. He, therefore, exercised the appellant’s rights and acquired 5,500 shares of Trans-Prairie at $6.50 per share. All the shares thus acquired were sold between February 7, 1956, and February 25, 1956 on the Toronto Stock Exchange by the appellant’s stock department. It would, in Mr. McDonald’s opinion, have ruined the value of the rights if 5,500 rights had been dumped on the market so close to their expiration date. The shares which had been purchased at $6.50 per share were sold at prices ranging from $10.25 per share to $10.50. At any rate the profit realized by the appellant from the sale of the 5,500 shares was $19,250.

Mr. Osler stated that the decision of Trans-Prairie to redeem its preference shares had an effect on the appellant’s decision not to increase its investment in Trans-Prairie. It was interested in its clients who had purchased preference shares and concerned with seeing that they were properly looked after and since it knew that the shares were going to be redeemed its worries over its preference shareholders were over.

I have no hesitation in finding that the appellant’s profit of $19,250 from the sale of the 5,500 common shares was a trading profit from its business and taxable as such. The acquisition of the shares was not an investment and the profit from their sale could not possibly be considered as a realization of the enhancement in value of an investment and, consequently, an accretion of capital. The appellant did not wish to increase its so-called investment in Trans-Prairie and it did not have to exercise its rights to acquire the shares. It had to pay for the shares. It never put them into its so-called investment account. They were disposed of immediately and sold on the market in the same way as other shares in which the appellant traded. There is, in my opinion, no room for doubt that the 1956 profit of $19,250 was an ordinary trading profit made by the appellant in the course of its business. The Minister was, therefore, right in including it in his assessment of the appellant for 1956.

The question whether the profit of $57,032.88 realized by the appellant in 1957 from the sale of 2,000 common shares of TransPrairie out of the 22,000 which it had acquired in 1954 was taxable or not presents more difficulty. The sale was made in the fall of 1957 with the approval of the board of directors after they had been informally polled. Mr. Osler gave two basic reasons for the sale. One was that the appellant needed funds for other corporate purposes. It had heavy commitments and was looking for a source of funds. The second reason was that in turning to a source of funds the appellant looked at its investment account and concluded that relative to other investments the sale of the common shares of Trans-Prairie was the best one in that, in its judgment, the price of the shares was higher than the true worth of the company as compared with other securities that the appellant had. The 2,000 shares were sold, pursuant to the approval referred to, between August 2, 1957 and September 16, 1957 at an average price of $29.25 per share. It will be remembered that they were part of the 22,000 common shares that the appellant had acquired in 1954 as its commission on the underwriting of the common shares of Trans-Prairie. After the sale had been completed the board formally approved of it by a resolution at a meeting held on February 12, 1958. The relevant extract from the minutes of the meeting is important. It reads as follows:

“TRANS-PRAIRIE PIPE LINES LTD.

2,000 shares of Trans-Prairie Pipe Lines Ltd. held in the Company’s investment account has been sold and profit therefrom held in suspense pending the decision of the Board. It was pointed out to the Board that these shares provided a ready source of capital in a year of heavy capital expenditure and at the time the price appeared attractive. After reviewing the circumstances prompting the sale the Board decided that this sale was not consistent with their original intention in respect of the investment in Trans-Prairie Pipe Lines Ltd.

Therefore, upon MOTION duly proposed and seconded it was resolved :

That the profit on the sale of 2,000 shares of Trans-Prairie Pipe Lines Ltd. during the past year not be treated as capital profit but recorded as part of the Company’s normal earnings.’’

Mr. Osler was asked to explain what was meant by the expression “not consistent with their original intention’’ in the minute and said that he thought that what was meant was that the appellant had purchased the shares in 1954 and had understood that this was to be a long term investment but circumstances had arisen that necessitated the finding of funds and that the sale of the shares was the best place to find them. The operative part of the resolution was not carried out, that is to say, the profit from the sale was not recorded as part of the appellant’s normal earnings. Its auditors and legal advisers, subsequently to the date of the resolution, recommended that the profit be treated as a partial realization of an investment and put into surplus and this wase done in the financial statement, dated March 13, 1958, filed with the appellant’s income tax return for 1957. Subsequently, on December 1, 1960, after the appellant had been assessed for 1956 and 1957, the board of directors resolved that the minute of February 12, 1958, be rescinded.

Mr. McDonald’s evidence on the sale of the 2,000 common shares in 1957 was brief. After the board had approved of the sale it instructed him to dispose of them and he did so through the partnership Osler, Hammond & Nanton which sold the shares for the appellant on the Toronto Stock Exchange. He agreed that the sale of the shares had been an orderly marketing of them for the two-fold object of getting the best price for them and of preventing the remaining shares from taking a nose dive.

Before I express my opinion on whether the profit of $57,032.88 realized by the appellant in 1957 was taxable income I should refer to certain rulings made during the course of the hearing. Counsel for the Minister sought to introduce the appellant’s financial statements for the years 1958, 1959 and 1960 in support of the Minister’s inclusion of the appellant’s profits in 1956 and 1957 in his assessments for such years and stated that he intended to adduce evidence by way of cross-examination of the appellant’s witnesses or by his own witnesses with a view to establishing that in respect of the securities that were earmarked by the appellant as investments and formally segregated from its trading inventory its activities in them had been such as to show that it was a trader in them. Objection was taken to the admission of the statements by counsel for the appellant on the grounds that the Minister has included in the appellant’s assessments for 1958 and 1959 the profits made by it on the sale of securities in the said years, that the appellant has objected. to the assessments, that the circumstances under which the securities in question were acquired and sold are entirely different from those in the present case, that the Minister has not yet replied to the appellant’s objections, and that what counsel for the Minister was, in effect, seeking to do was to have the assessments for 1958 and 1959 examined by the Court in advance. After further consideration of a ruling that the statements might be admitted subject to the objection of counsel for the appellant I concluded that the fact that certain securities held by the appellant in its so-called investment account were sold at a profit in 1958, 1959 and 1960 had no bearing on whether the appellant’s profits in 1956 or 1957 from the sales of common shares of Trans-Prairie were taxable or not, that the question whether the profits realized by the appellant in 1958, 1959 and 1960 are taxable will depend on the facts and surroundings circumstances and the true nature of the transactions from which the profits arose and that I should not explore that situation in the present proceedings. I, therefore, ruled that the statements are not admissible.

The question arose again in the course of the hearing. Counsel for the Minister cross-examined Mr. McDonald with regard to certain securities included in the appellant’s investment account and appearing in its financial statements for years prior to 1958. One of these related to shares in Quebec Natural Gas Corporation which were eventually sold in 1959 with a profit of $66,050 which the appellant reported as a capital gain. Counsel also sought to inquire into transactions relating to certain shares of TransCanada Pipe Lines which were shown in the appellant’s statements for 1954, 1955, 1956 and 1957 as being in its investment account. Some of these shares were sold in 1958 and 1959 and substantial profits were realized by the appellant which it claimed as capital gains. There was also a reference to certain common shares of W. G. McMahon Ltd. which were sold in 1960 with a profit claimed as a capital gain. When the hearing of the case was resumed on Monday of this week, after the adjournment of Friday of last week, counsel for the appellant, speaking particularly with regard to the shares in Trans-Canada Pipe Lines, which were in the appellant’s investment account, took the position that he could not deal with the suggestion that the transactions in respect of Trans-Canada Pipe Lines were similar to those in respect of Trans-Prairie without a full enquiry into the circumstances of the appellant’s acquisition of shares in Trans-Canada Pipe Lines and that he was not ready to present the full facts. He stated that the appellant’s shares in TransCanada Pipe Lines were not shares acquired in the course of an underwriting as in the case of Trans-Prairie and asked for time in which to prepare all the evidence relating to Trans-Canada Pipe Lines. Counsel for the Minister submitted that the Court should go into the history of the Trans-Canada Pipe Lines transaction in order to determine the true nature of the appellant’s investment account and whether the gains made in transactions relating to securities in it are enhancement of the value of the investments or trading profits. I concluded that if I went into these transactions I would, in effect, be ruling whether the appellant’s profits in 1958, 1959, and 1960 from its sales of shares in companies such as Trans-Canada Pipe Lines, Quebec Natural Gas Corporation and W. G. McMahon Ltd. were taxable income or not and that I should not do so. I ruled, therefore, that I would not go into the history of the appellant’s dealings with Trans-Canada Pipe Lines or deal with the evidence relating to it or any other company that could affect the question whether the appellant was subject to income tax in respect of gains realized by it subsequently to 1957 in any year. It will be time enough to do so at such time as the appellant’s income tax assessments for such years may come before the Court for consideration.

After as careful a consideration of the facts and the surrounding circumstances and the true nature of the transaction from which the appellant realized its profit of $57,032.88 in 1957, I have come to the conclusion that it was properly included in its assessment for 1957.

In my opinion, the appellant’s five-point policy was inseparably connected with its underwriting activity. This has been part of its business since 1950 and the profits realized from it, whether immediate or deferred, are subject to income tax. This is so whether they were realized on the sale of the common shares ta the public in 1954 or on the sale of any of them subsequently, even of such common shares as it had transferred from its inventory in its trading department into its so-called investment account for various business reasons.

The appellant was, as I have said, in the business of underwriting the issues of corporations and it was part of such business to put some of the shares or securities acquired under the underwriting in its investment account for the business purposes referred to in the policy. Consequently, if the placing of securities in the investment account for the purposes referred to could be called an investment, it could be fairly said that the appellant was in the business of making such investments for business purposes and that the profits therefrom, whenever made, are taxable.

The acquisition of the 22,000 common shares of Trans-Prairie by the appellant was not an investment by it and their transfer from the inventory in its trading department to its so-called investment account did not make them an investment. This was not a case of the appellant buying shares for its investment account at all. The shares came to it as its commission on its underwriting of the common shares of Trans-Prairie and formed part of its profit from its underwriting activity. Their acquisition resulted from the appellant’s speculative venture of an unusual nature into its association with Trans-Prairie and was inseparably connected with and part of its underwriting of the issues of Trans-Prairie and as such they were acquired in the course of the appellant’s business as income from it.

The evidence establishes that Mr. McDonald, who was the manager of the appellant’s underwriting department and responsible for the success of its underwriting of the securities issued by Trans-Prairie, played a very important part in the management of Trans-Prairie. He attended meetings of its directors, approved its capital expenditures in excess of $1,000, acted as its financial adviser and appeared on its behalf before various bodies. On his cross-examination he stated that he thought that he had contributed more than anyone else to the financial success of the company. Mr. Brandt, the president of Trans-Prairie, paid tribute to Mr. McDonald, as was properly his due, and said that he had been his right hand man. Here I should refer to an important statement by Mr. McDonald. When he was asked by counsel for the appellant what benefits had accrued to the appellant through his association with Trans-Prairie his answer was, ‘This was a successful underwriting account.’’ And so, indeed, it was. And it will be remembered that Mr. Osler stated that the association of the appellant with Trans-Prairie had been a profitable one from an underwriting point of view. There is no doubt in my mind that the holding of 22,000 shares of Trans-Prairie by the appellant was part of its underwriting agreement in respect of the securities issued by it.

Indeed, the financial success of Trans-Prairie was the result of a joint venture between the appellant on the one hand through the participation of Mr. McDonald and Northern Development Company Limited on the other and the holding by the appellant of its 22,000 common shares of Trans-Prairie Pipelines Ltd. instead of selling them was part of such joint venture.

There is another fact to which reference should be made. Mr. Osler stated that the appellant’s total commission on the underwriting of the securities issued by Trans-Prairie in 1954 was $53,714, made up of $37,500 as its commission on the purchase of the 140,000 preference shares at $5 per share, and $16,214 as the cost to it of the 22,000 shares which it transferred into its investment account at 73.7 cents per share. This amount of $53,714 was included in the computation by the appellant of its business profits for 1954 and it paid income tax on it. By the end of 1954 the market price of the common shares had risen to $2.50 per share. It is obvious that if the appellant had sold its 22,000 common shares at their market value at the end of 1954 and thus completed its underwriting the profits realized by it would have been increased by the difference between 73.7 cents per share and $2.50 for 22,000 shares, or $38,786. The question then presents itself: Can the appellant which received part of its profit from its underwriting in 1954 in the form of 22,000 common shares of Trans-Prairie lessen the amount of its profit from the underwriting by holding some of the shares instead of selling them and then in a subsequent year sell some of the shares and validly claim that the gain on their sale is the realization of an enhancement of the value of an investment and, therefore, an accretion of capital? The answer to the question is clearly in the negative. What the appellant did was to defer the full realization of its profit from its 1954 underwriting enterprise until a later date. When the appellant sold 2,000 common shares of Trans-Prairie in 1957 out of the 22,000 common shares that it had received as part of its commission in 1954, their average price, as I have stated, was $29.25 per share with the result that it made a profit of $57,032.88 on the sale. In my opinion, this profit was simply a deferred realization by it of part of its profits from its underwriting activity commenced in 1954 but which has not yet been fully completed. It is thus a profit from its underwriting, which is part of its business, and as such it is taxable as profit from its business, within the meaning of Section 3 and 4 of the Act.

There is no doubt that the appellant’s underwriting of the securities issued by Trans-Prairie was a speculative transaction for business purposes and so was its retention of the 22,000 shares for the purposes for which they were retained. There is likewise no doubt that the appellant expected that with the success of Trans-Prairie its shares would increase in value and in this it was not disappointed. As a matter of fact the increase in the market price of the common shares has been spectacular. Some of this was undoubtedly due to the efforts of Mr. McDonald who spent a good deal of his time on its business. Consequently, if the retention by the appellant of its 22,000 shares of Trans- Prairie could be regarded separately from its other business, it could fairly be regarded as an adventure or concern in the nature of trade and, therefore, within the definition of business in Section 139(1) (e).

I find, therefore, that the profit of $57,033.82 realized by the appellant in 1957 on the sale of 2,000 of its 22,000 shares in Trans-Prairie was taxable income within the meaning of the sections of the Act to which I have referred. The Minister was, therefore, right in including the amount in his assessment of the appellant for 1957.

t follows that the appellant’s appeal against its assessments for 1956 and 1957 must be dismissed with costs.