Garage Henri Brassard Limitee v. Minister of National Revenue, [1960] CTC 321, 60 DTC 1205

FOURNIER, J.:—Dans cette cause, il s’agit d’un appel de la décision de la Commission d’Appel de l’impôt sur le Revenu en date du 15 juin 1959, confirmant la cotisation du Ministre du Revenu national du 3 mars 1958 par laquelle un impôt au montant de $13,690.40 a été établi à l’égard du revenu de l’appelante pour l’année d’imposition 1956.

L’appelante, dans Son rapport de revenu pour l’année d’imposition 1956, avait déclaré un profit net de $34,695.07 résultant de l’opération de son entreprise, mais elle avait déduit-de ce montant les pertes subies pendant les exercices financiers de 1954 et 1955. Par contre, l’intimé en cotisant le revenu de l’appelante n’a pas admis la déductibilité du montant des pertes subies. La Commission d’Appel de l’impôt sur le Revenu a confirmé cette cotisation. C’est l’appel de ce jugement qui est présentement devant la Cour.

Les parties basent leurs prétentions respectives sur les dispositions de l’article 27(1) (e) (iii) (A) de la Loi de l’impôt sur le revenu qui étaient en force en 1956. Ces dispositions se lisent comme suit:

^27. (1) Aux fins du calcul du revenu imposable d’un contribuable pour une année d’imposition, il peut être déduit du revenu pour l’année ceux des montants suivants qui sont applicables : . . .

(e) les pertes commerciales subies pendant les cinq années d’imposition qui précèdent, et dans l’année qui suit, l’année d’imposition mais . . .

(iii) aucun montant ne peut se déduire, à l’égard des pertes, sur le revenu d’une année quelconque sauf jusqu’à concurrence du moindre des montants suivants :

(A) le revenu du contribuable pour l’année d’imposition provenant des affaires dans lesquelles la perte a été subie,”

Les faits qui ont été admis et établis par la preuve verbale et écrite dans cette cause entrent-ils dans les cadres des dispositions citées et l’interprétation de cet article de la loi? C’est là la question qui est soumise à la Cour. Dans l’affirmative, les pertes subies en 1954 et 1955 seront déductibles dans le calcul de l’impôt sur le revenu de l’appelante. Dans le cas contraire, celle-ci faillira dans son appel.

Les faits d’abord. La Compagnie Ranger Motor Sales Ltd. fut incorporée en vertu de la Loi des Compagnies de Québec le 22 mars 1922. Le capital-actions fut fixé à $60,000, représenté en definitive par 450 actions privilégiées d’une valeur nominale de $100, 5%, non cumulatives et rachetables, et de 1,500 actions ordinaires de $10, total $60,000. Les principaux objets des lettres patentes étaient l’exploitation d’un commerce d’automobiles et d’un garage. Comme il appert des déclarations d’impôt sur le revenu, ce genre d’affaires fut exercé à Lachine, dans la province de Québec, avec profit de 1951 à 1953 et perte de $34,532.35 en 1954.

Le 18 décembre 1954, les directeurs de la compagnie, par résolution, ont décidé de vendre à Durocher Automobile Ltée les ‘‘stocks de marchandise comprenant les pièces et accessoires d’automobile et de camion, ainsi que l’essence, l’huile et autres fournitures et lubrifiants, les pneus et tubes neufs selon l’inventaire; l’équipement et outillage du garage, l’ameublement et les accessoires de bureau; aussi deux camions usagés’’. C’est sans doute pour cette raison que dans le bilan préparé par l’auditeur et approuvé par le conseil d’administration il est fait mention que la compagnie a cessé d’opérer le 20 décembre 1954 et que dans la déclaration d’impôt sur le revenue de 1954, en date du 3 octobre 1955, le président certifie qu’il a examiné le rapport, y compris les relevés et états y annexés, et qu’il est vrai, exact et complet. Selon la preuve, la mention ci-dessus aurait été faite pour avertir le Ministre du Revenu national que la compagnie avait cessé ses opérations. D’ailleurs, il ne restait plus à vendre qu’un certain nombre d’automobiles usagées, dont la dernière fut vendue à la fin de l’été 1955, ce qui compléta la liquidation de l’inventaire.

D'après la déclaration d’impôt de 1955, produite le 22 novembre 1956, les disponibilités se composaient seulement de comptes de banque s’élevant à $75.61; d’un fonds de réserve I.A.C. de $793.64; d’un fonds de réserve G.M.A.C. de $288 et de l’impôt fédéral à recevoir, soit $788.38. Selon l’état des profits et pertes, les pertes se seraient élevées à $3,369.02.

En somme, a la fin de l’année 1955 la compagnie avait tout liquidé. Elle n’avait plus d’inventaire, d’outillage, de mobilier de bureau, de marchandises, de fournitures, d’automobiles et elle avait abandonné le garage et son bureau d’affaires. En d’autres termes, la compagnie avait mis fin à son entreprise et commerce.

L’actif de la compagnie se composait des créances déjà énumérées; le passif, d’une dette pour avances faites par un des actionnaires. Le ou avant le 13 janvier 1956, la compagnie se départit de ses créances en faveur de son créancier pour le compenser de ses avances. Toutefois, les lettres patentes d’incorporation de la Compagnie Ranger Motor Sales étaient encore en vigueur, MM. Origène et Florian Ranger et Mlle Hélène Ranger étant les seuls propriétaires des actions émises, soit 1,147 actions ordinaires et 427 actions privilégiées.

Le 13 janvier 1956, ces actionnaires ont vendu leurs actions à M. Henri Brassard pour une somme de $1,500, ce dernier devenant le seul propriétaire des actions émises de Ranger Motor Sales Ltd. Le 24 janvier 1956, des lettres patentes supplémentaires sont émises changeant le nom de la compagnie en celui de Garage Henri Brassard Ltée et changeant, de Lachine, P.Q., au village de St-Marc des carrières, Co. Portneuf, P.Q., le lieu du siège social. Le lendemain, soit le 25 Janvier 1956, Henri Brassard a vendu, cédé et transporté à la Compagnie Garage Henri Brassard Ltée l’actif et le passif du commerce de garagiste et de vente d’automobiles qu’il exploitait à St-Mare des Carriéres moyennant une considération de $20,376.99, payable par l’émission de 23 actions privilégiées à $100 chacune, soit $2,300; 350 actions ordinaires à $10 chacune, soit $3,500, et des billets de l’acheteur représentant un montant de $14,576.99, au taux de 5% l’an, à Henri Brassard. L’actif et le passif de l’entreprise de Henri Brassard sont done devenus l’actif et le passif de la compagnie autrefois connue sous le nom de Ranger Motor Sales Ltd., devenue maintenant le Garage Henri Brassard Ltée. En achetant les actions d’une compagnie, Henri Brassard voulait perpétuer sa propre entreprise par l’entremise d’une corporation. Il croyait que cette manière de procéder serait plus avantageuse pour l’exploitation de son commerce. Il devint le président et gérant de la compagnie et prit charge de l’opération du garage et du commerce d’automobiles et de camions.

Il est admis que l’appelante fut la même entité juridique depuis sa création jusqu’à ce jour. Il est en preuve que l’appelante, de 1951 à 1954, alors qu’elle était connue sous le nom de Ranger Motor Sales Ltd. exploitait un garage et un commerce de voitures-automobiles et d’accessoires pour automobile. Il a été établi hors de tout doute qu’elle a cessé d’opérer son commerce le 20 décembre 1954 et que pendant 1954 et 1955 elle a vendu son actif. Lorsque les actions sont passées en d’autres mains, l’appelante a fait l’acquisition d’un autre commerce consistant dans l’opération d’un garage et d’une agence de vente d’automobiles et de camions. Elle a réalisé des profits en 1956, mais elle avait subi des pertes en 1954 et 1955. Il s’agit done de déterminer si le revenu de l’appelante pour l’année 1956 provenait des affaires au cours desquelles les pertes avaient été subies en 1954 et 1955.

Lorsque Henri Brassard fit l’acquisition des actions de Ranger Motor Sales Ltd., l’appelante avait tout liquidé; par conséquent, n’ayant plus de commerce, elle ne pouvait pas vendre une entreprise commercial qui avait cessé d’exister. En fait, la transaction ne faisait que transporter à l’acquéreur un certain nombre d’actions, ce qui lui permettait de se servir du nom et des pouvoirs d’une compagnie limitée pour exploiter son propre commerce. Il vendit done son commerce à l’appelante, recut, entre autres, la balance des actions non émises et souscrites et devint le seul actionnaire et propriétaire de la Compagnie.

En résumé, l’appelante sous un nouveau nom et ayant un nouveau siège social, fait l’acquisition d’une entreprise commerciale qu’elle commence à opérer avec de nouveaux actionnaires, directeurs et officiers. Elle ne pouvait pas recommencer ses affaires antérieures, ayant définitivement discontinué l’exploitation .de son commerce à Lachine et ayant disposé de tout son actif. C’est done une autre entreprise qu’elle commence à opérer à St-Marc des Carrières. Les pertes subies par l’appelante en 1954 et 1955 par suite de ses affaires sont-elles, d’après les dispositions de la Loi de l’impét sur le revenu et particulièrement de l’article 27(1) (e) (iii) (A), déductibles des profits qu’elle a réalisés en 1956 et qui découlaient de son entreprise commerciale ?

La Loi de l’impôt sur le revenu, R.S.C. 1952, c. 148, article 3, décrète :

3. Le revenue d’un contribuable pour une année d’imposition, aux fins de la présente Partie, est son revenu pour l’année de toutes provenances à l’intérieur ou à l’extérieur du Canada et, sans restreindre la généralité de ce qui précède, comprend le revenu pour l’année provenant

(a) d’entreprise ..."

Et l’article 4 dit :

4. Sous réserve des autres dispositions de la présente Partie, le revenu provenant, pour une année d’imposition, d’une entreprise ou de biens est le bénéfice en découlant pour l’année.”

Ainsi done, le revenue d’un contribuable pour une année d’imposition est son revenu pour cette année-la; et s’il provient d’une entreprise, c’est le bénéfice qui en découle pour l’année.

L’article 27(1) (e) (iii) (A) crée une exception à la règle générale et donne le droit au contribuable de déduire de son revenu pour l’année d’imposition les pertes subies pendant les cinq années d’imposition qui précèdent et l’année d’imposition qui suit; mais l’exception ne s’applique qu’en tant que les faits établis rencontrent les exigences des termes exprès de la disposition.

Autrefois, l’exception n’avait d’effet que si le contribuable durant l’année d’imposition exerçait la même entreprise que celle qu’il exerçait pendant l’année où la perte avait été subie. Aujourd’hui, sont déductibles les pertes subies lorsque le revenu du contribuable pour l’année d’imposition provient des affaires au cours desquelles les pertes ont été subies. Il ne s’agit plus, comme sous l’ancienne Loi de l’impôt de guerre sur le revenu, de l’exploitation de la même entreprise commerciale pour bénéficier de l’exception de déduction des pertes subies, mais du fait que le revenu du contribuable provient des affaires au cours desquelles les pertes ont été subies.

La cause du M.N.R. v. Eastern Textile Products Ltd., [1957] C.T.C. 48, a été citée, commentée et interprétée par les procureurs des deux parties. Les faits de cette cause et les remarques et conclusions de l’honorable J. T. Thorson, président de la Cour de l’Echiquier, seront certainement utiles à la solution du problème qui nous a été soumis.

Il s’agissait d’une compagnie qui manufacturait et vendait des produits textiles. Elle opérait dans un local privé. Peu après sa période fiscale en 1950, elle vendit son établissement et conclut un arrangement avec l’acheteur par lequel celui-ci entreprit de manufacturer ses produits, produits que la compagnie continua a vendre. Elle s’engagea ensuite, avec une autre compagnie, à acheter et à vendre des moteurs d’avions et des parties et en 1951 elle en a effectué la vente avec bénéfices. De plus, la compagnie a réalisé des bénéfices quant à ce qui concerne ses ventes de textiles. Pendant les années qui avaient précédé la vente de son usine, elle avait subi des pertes dans le cours de ses opérations ^t voulut déduire de ses profits de 1951 les pertes qu’elle avait subies durant les années précédentes. La Cour de l’Echiquier en arriva à la conclusion que la compagnie, ayant disposé de son entreprise et cessé ses opérations et affaires en 1950, n’avait pas droit aux déductions réclamées. A la page 58, le Président Thorson dit:

“. .. The right to deduct losses does not extend to a profit from an activity other than the business in which the loss was sustained. It seems to me that it is contrary to the policy as declared in the section that a taxpayer should have the right to deduct from his income for any taxation year a business loss sustained in another year in a case where his income is not from the business in which the loss was sustained. Thus, if he ceases to carry on the business in which the loss was sustained and, therefore, does not make any profit from it, the right to deduct a business loss does not enure to him. The purpose of the policy no longer exists.

Consequently, since the respondent ceased its manufacturing business prior to 1951 and that was the business in which its losses in 1947, 1948, 1949 and 1950 were sustained, and it did not in 1951 make any profit from such business but made it from something else, its case comes within the limitation of subsection (iii) of Section 26(d) and it is not entitled to deduct from its income for 1951, even its income from the sale of textiles in that year, any of the business losses sustained by it in 1947, 1948, 1949 and 1950.”

Si j’ai bien compris les remarques du savant juge interprétant les dispositions de l’article 26(d) (iii)—aujourd’hui l’article 27(1) (e) (iii) (A)—, il pose le principe suivant: une personne qui, opérant une entreprise commerciale, en fait la vente ou dispose de tout son actif et cesse ses opérations, ne peut réclamer la déduction des pertes découlant de l’opération de cette affaire des bénéfices qu’elle pourrait réaliser de l’exploitation d’une nouvelle ou autre industrie, même si cette dernière est semblable- à la première.

Je suis d’opinion que la règle indiquée par le Président dans. la cause citée supra, à l’effet que ‘‘the right to deduct losses does. not extend to a profit from an activity other than the business in which the loss was sustained’’, est bien l’interprétation des. termes exprès de la disposition de la loi qui est applicable au présent litige.

Ayant considéré tous les faits qui ont été admis et prouvés, j'en suis arrivé à la conclusion que l’appelante avait cessé l’opération de son entreprise à Lachine, sous le nom de Ranger Motor Sales Ltd., avant la fin de l’année 1955 et qu’elle avait disposé de tout son actif. Avant le changement de son nom et du lieu de son siège social, elle s’était départie de ses quelques créances en: règlement de ses dettes. Lorsque de nouveaux actionnaires eurent pris de contrôle de la compagnie, elle fit l’acquisition d’un nouveau commerce et en commença l’opération. Au sens des termes. de la disposition d’exception de la loi sous considération, qui doit être interprétée strictement, elle n’avait plus le droit de déduire des bénéfices résultant en 1956 de cette entreprise les. pertes subies dans l’opération du commerce qu’elle exerçait en. 1954 et 1955, parce que des bénéfices ne provenaient pas des. affaires au cours desquelles les pertes avaient été subies..

Pour ces raisons, l’appel est renvoyé avec dépens.

Jugement en conséquence. IRRIGATION INDUSTRIES LTD., Appellant,

and

MINISTER OF NATIONAL REVENUE, Respondent.

Exchequer Court of Canada (Cameron, J.), dated September 29, 1960, ‘on appeal from a decision of the Tax Appeal Board, reported in 22 Tax A.B.C. 335.

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148—Sections

The appellant was incorporated in 1947 to purchase farm property and to construct and operate an alfalfa mill in the Province of Alberta. This project was never carried out and the appellant remained dormant for some years. Immediately prior to the facts giving rise to this appeal, the appellant arranged for a loan from its banker for $50,000 to assist in the purchase of real estate in the City of Calgary. About February 6, 1953, the appellant corporation purchased 4,000 shares of the common stock in Brunswick Mining and Smelting Corporation Ltd., a company raising funds to “outline and test” ore bodies in a number of mining claims in New Brunswick. The appellant arranged to pay for these shares through its bank, which allowed an overdraft of nearly $40,000. The appellant had no other asset at this time.

The appellant’s president gave evidence that the bank called upon the appellant to pay up its overdraft within two or three weeks of the purchase of the shares and between March 10 and March 13, 1953, 2,400 shares of Brunswick Mining and Smelting Corporation Ltd. were sold and the resulting sum amounting to $38,513.50 was deposited with the bank paying the overdraft in full. The remaining 1,600 shares were sold in June, 1953, and the proceeds amounting to $28,345 were credited to a bank loan which the appellant had obtained to purchase certain property. The Minister taxed the appellant on the profits received from the purchase and sale of the stocks concerned. The appellant’s appeal was dismissed by decision of the Tax Appeal Board.

On appeal to the Exchequer Court of Canada,

HELD:

(i) That the onus is on the appellant to establish the existence of facts or law showing an error in relation to the imposition of taxation;

(ii) That declarations as to intention must be scrutinized with great care and the main consideration is what was actually done;

(iii) That the appellant has failed to discharge the onus raised by the allegations of the intention to retain the shares as an investment;

(iv) That the nature of the shares purchased indicates that they were purely speculative and no return on the investment could be expected ;

(v) That the transaction was entered into with the intention of disposing of the stock at a profit and was subject to tax as an adventure or concern in the nature of a trade;

(vi) That the appeal be dismissed.

EDITORIAL NOTE: Once again “an adventure” has become of the “nature of trade”. Here relatively isolated transactions attract tax because of the speculative intent behind them. Five weeks separated the first sale of Brunswick stock from the purchase, seven weeks the second. The appellant’s only other activity was the purchase of a building for rental purposes. All these acquisitions were financed from sources outside the company. From the outset, therefore, a. trading odour begins to rise “from the transactions”. This is intensified by the suspicion, undispelled by the evidence, that the principal motive in the offending sales of the Brunswick shares was profit. Further, the very nature of the stock precluded the expectation of dividend income in the foreseeable future. To these facts, which bring the matter to the threshold of trading proper, the concept of “an adventure or concern in the nature of trade” fits admirably from an assessing viewpoint. The Court is not concerned with the detailed considerations that were featured in the Taylor case. Here, all that was found was “that the purchase was not an investment, but a purely speculative purchase, and was entered into with the intention of disposing of the stock at a profit as soon as there was a reasonable opportunity of so doing. It was therefore an adventure or concern in the nature of trade.” Curiously absent is the test most often used in those circumstances: Was the transaction done in the same way and of the same kind that would constitute trading if done by a real trader in that commodity? Perhaps this is not needed where all other indicia point to the presence of commercial animus. An important case where most of the same considerations were present as in the case at bar, but where the Court found against the Crown, is Sterling Paper Mills Inc. v. M.N.R., [1960] C.T.C. 215. The difference between the two decisions is the presence here and the absence in the Sterling case of a commercial animus on the part of the taxpayer.

D. P. McLaws, Q.C., and T. D. Hetherngton, for the Appellant.

Myles Patterson and G. W. Ainslie, for the Respondent.

CAMERON, J.:—This is an appeal by the taxpayer from a decision of the Tax Appeal Board dated August 12, 1959, dismissing the appellant’s appeal from a re-assessment made upon it for its taxation year ending December 31, 1953. In the re-assessment dated July 28, 1953, the respondent added to the declared income of the appellant the sum of $26,897.50, being profits received by the appellant in that year from the purchase and sale of certain stocks, levied certain interest charges on the income so added, and (after making certain other adjustments which are not now in dispute) levied an additional tax of $12,639.38. Following a Notice of Objection by the taxpayer, the Minister, by his Notification dated December 31, 1958, affirmed the said assessment on the ground that it was in accordance with the Act and in particular on the ground that the profits from the sale of the shares had been properly taken into account in computing the appellant’s income in accordance with Sections 3 and 4 of the Income Tax Act.

The sole question now before the Court is whether the profits so realized constitute taxable income in the hands of the appellant as submitted by the respondent, or whether as submitted by the taxpayer, they are in the nature of capital accretions or gains in respect of investments made by the appellant. There is no dispute as to the amounts involved.

The only oral evidence at the hearing was that of Mr. C. E. Chesher who now, as well as in 1953, is the president and a director of the appellant company. It appears that at the time the company was incorporated in 1947, the intention was to purchase farm property and to construct and operate an alfalfa mill at Brooks, Alberta. But that project was never carried out as it was decided that it would not be profitable. For some years thereafter, the company appears to have been dormant.

The profits in question were realized as follows: About February 6, 1953, the appellant purchased 4,000 shares of common stock in Brunswick Mining and Smelting Corp. Ltd. (hereinafter called ‘‘Brunswick’’) at $10 per share. The appellant, as will appear later, had previously arranged a loan from its banker for $50,000 to assist in the purchase of property in Calgary, and when the stock in Brunswick was purchased, it had only $3,000 to its credit in the bank account. Arrangements were made with the bank to allow an overdraft to complete the purchase of the Brunswick stock, and accordingly on February 23, 1953, a cheque for $40,000 was issued in full payment for the stock. A few weeks later—namely, between March 10 and March 13, 1953—2,400 shares of Brunswick were sold and the full profits, amounting to $38,513.50, were deposited in the bank cn March 26, thus paying the overdraft in full. In June, 1953, the remaining 1,600 shares were sold and the proceeds, amounting to $28,345, were credited to the bank loan on June 23. From these sales, the appellant realized a profit of $26,897.50 and it is the nature of these profits that is now in question.

In the meantime, the appellant was engaged in another transaction, and it is alleged that the difficulties encountered therein forced the sale of its Brunswick shares. In 1952, the appellant arranged to purchase a large building in Calgary for $89,000. Apparently it had no funds to apply on the purchase price and the down-payment of $12,500 was advanced as a loan by certain shareholders. The shareholders advanced a further $26,500 in September, 1952, and that amount, together with a bank loan of $50,000 enabled the appellant to pay the balance of $76,500 in September, 1952. When the former tenants vacated, substantial repairs were made to the building and it appears to have been rented from about January 1, 1953, at $1,500 per month, to Locke Gray & Co., a firm with which Mr. Chesher seems to have been associated.

Mr. Chesher’s evidence is that the bank loan of $50,000 in 1952 was understood to be a temporary loan only and was to be paid off as soon as a mortgage for $50,000 could be arranged. Accord- ing to Mr. Chesher’s evidence, the appellant itself did nothing at any time to arrange for a mortgage, either then or later, the matter being left entirely to the manager of the bank to arrange.

Then Mr. Chesher states that at the time the bank agreed to finance the purchase of the Brunswick stock by way of an overdraft, it was agreed that the manager would endeavour to secure a mortgage on the building for $75,000, the proceeds of which would be applied first in payment of the overdraft, and secondly on the bank loan of $50,000, and that any unpaid portion of the loan should be secured by regular monthly payments from the rental of the building. Mr. Chesher says that about one month after the shares were purchased, the company was advised by the bank manager that a mortgage of $75,000 could not be secured, but that one for $40,000 was available. He demanded payment of the overdraft but agreed to carry the original loan of $50,000. Faced with the demand for payment of some $37,000 and having no liquid assets other than the Brunswick shares, Mr. Chesher states that the directors of the company at informal gatherings decided to sell 2,400 shares of that stock which had now increased by about $7 per share. That was done and, as I have said, the full proceeds were paid to the bank and the overdraft completely paid up.

In June, 1953, the bank loan still remained at $50,000. Mr. Chesher says that while the bank advised that a mortgage of $40,000 only was available, the directors feit that more money was needed. The market value of the Brunsiwek shares had increased in value to a point which, in the opinion of the appellant’s directors, was not justified by the Brunswick assets. Accordingly, at informal meetings of the directors, it was decided that the shares still held were no longer attractive as an investment and it was decided to sell them. That was done, and on June 23 the proceeds, amounting to $28,384, were paid to the bank in reduction of the principal of the bank loan.

On behalf of the appellant it is submitted that the Brunswick shares were purchased as an investment and that the profits in question were made upon a realization of that investment, brought about by the bank “calling” the overdraft and by the failure of the bank to secure a mortgage for an amount sufficient to pay the bank loan. The onus is on the taxpayer to establish the existence of facts or law showing an error in relation to the taxation imposed upon him (Johnson v. M.N.R., [1948] 8.C.R. 486; [1948] C.T.C. 195).

On the evidence as a whole, I have come to the conclusion that the appellant has failed to rid itself of the onus cast upon it. The only evidence that the Brunswick shares were intended to be an investment is the statement of Mr. Chesher, and in my opinion the facts and circumstances do not bear that out.

It is perfectly clear that the appellant had no funds of its own available for investment. The Calgary building—which appears to have been its only asset at the time the shares. were purchased—was financed entirely by loans from the bank or shareholders. Indeed, when the appellant purchased a farm at Stettler between March and June, 1953, for $11,000, the full purchase price was again advanced by shareholders.

Then the very nature of the Brunswick shares indicates that they were purely speculative in value and that no early return by way of income could be expected. The Brunswick assets, according to the evidence, consisted of a number of mining claims in New Brunswick. The area had been previously explored and found to be unprofitable. But in 1952, when iron ore was searee, geologists went into the area and found indications of certain minerals. Geophysical surveys followed and they indicated the possibility of very substantial deposits of lead, tin, sulphur and zine. The company then decided to issue 500,000 shares of stock at $10 per share to raise funds for its exploitation, development, and the construction of a mill. Mr. Chesher had heard of this company through trade journals and his associations with other mining interests. He knew that the funds were being raised to “outline and test’’ the ore bodies. The clear inference from this evidence is that the shares had a purely speculative value and that the dividends would not be available for years, if at all.

Mr. Chesher’s evidence that the bank called upon the appellant to pay up its overdraft within two or three weeks of the purchase of the shares, was not supported by any other evidence. It seems highly improbable that when the bank had permitted an overdraft of some $37,000, it would within two or three weeks: call in the overdraft when it held the shares as security—as. stated by Mr. Chesher—and when they had risen in value by 70 per cent. In my view, it seems more probable that the directors of the company, with their knowledge of market conditions, considered the shares when purchased to have a speculative value and that when, a short time after the purchase, they had increased in value by 70 per cent, it was decided to sell a sufficient amount to pay the overdraft in full, retaining the remaining 1,600 shares now fully paid for in the hope that the market might still further improve. When the remaining 1,600 shares were sold in June, there is no evidence of pressure on the part of the bank and a mortgage on the building for $40,000 was. still available. Mr. Chesher’s evidence makes it clear that he and. his associates at that time reached the conclusion that the shares were Over-priced on the market and accordingly they took advantage of that situation to realize by selling the balance. His statement that they then ‘‘needed money’’ was not explained.

On the evidence before me it is clear that the appellant’s Memorandum of Association does not expressly authorize it to buy and sell shares in companies other than those connected in some way with its main object—that of farming, dairying and fruit growing. Mr. Chesher’s evidence also establishes that with the exception of certain debentures purchased in 1955, after the sale of the Calgary building, the appellant purchased no securities other than the Brunswick shares. Its only assets at the present time consist of farming property.

These facts, however, do not prevent the proceeds from being profits from a business within Section 4 of the Income Tax Act, taking into consideration the definition of ‘‘business’’ as found in Section 139(1) (e), which includes ‘‘an adventure or concern in the nature of trade’’. That term was considered at length by the President of this Court in M.N.R. v. Taylor, [1956] C.T.C. 189, where, after a careful examination of the English and Canadian cases, he said at page 211 :

“And the two last mentioned cases are authority for saying that a transaction may be an adventure in the nature of trade even although nothing was done to the subject matter of the transaction to make it saleable, as in .1 .R. v. Livingston et al. (supra).

Likewise, the fact that a transaction is totally different in nature from any of the other activities of the taxpayer and that he has never entered upon a transaction of that kind before or since does not, of itself, take it out of the category of being an adventure in the nature of trade. What has to be determined is the true nature of the transaction and if it is in the nature of trade, the profits from it are subject to tax even if it is wholly unconnected with any of the ordinary activities of the person who entered upon it and he has never entered upon such a transaction before or since.

And a transaction may be an adventure in the nature of trade although the person entering upon it did so without any intention to sell its subject matter at a profit. The intention to sell the purchased property at a profit is not of itself a test of whether the profit is subject to tax for the intention to make a profit may be just as much the purpose of an investment transaction as of a trading one. Such intention may well be an important factor in determining that a transaction was an adventure in the nature of trade but its presence is not an essential prerequisite to such a determination and its absence does not negative the idea of an adventure in the nature of trade. The considerations prompting the transaction may be of such a business nature as to invest it with the character of an adventure in the nature of trade even without any intention of making a profit on the sale of the purchased commodity. And the taxpayer’s declaration that he entered upon the transaction without any intention of making a profit on the sale of the purchased property should be scrutinized with care. It is what he did that must be considered and his declaration that he did not intend to make a profit may be overborne by other considerations of a business or trading nature motivating the transaction.

Consequently, the respondent in the present case cannot escape liability merely by showing that his transaction was a single or isolated one, that it was not necessary to set up any organization or perform any operation on its subject matter to carry it into effect, that it was different from and unconnected with his ordinary activities and he had never entered into such a transaction before or since and that he purchased the lead without any intention of making a profit on its sale to the Company.”

As emphasized in that case, declarations as to intention must be scrutinized with great care and the main consideration js what was actually done. On the facts in evidence and drawing what I consider to be the proper inferences therefrom, I have reached the conclusion that the purchase in question was not an investment, but a purely speculative purchase, and was entered into with the intention of disposing of the stock at a profit as soon as there was a reasonable opportunity of so doing. It was therefore an adventure or concern in the nature of trade. Reference may be made to the well-known case of Edwards v. Bairstow, [1955] 3 All E.R. 48, where at page 58 Lord Radcliffe said that dealing is essentially a trading adventure. Further reference may also be made to McIntosh v. M.N.R., [1958] S.C.R. 119; [1958] C.T.C. 18.

For these reasons I have come to the conclusion that the purchase of the Brunswick shares was not an investment and that the profits realized on their sale constitute taxable income of the appellant.

Accordingly, the appeal will be dismissed and the re-assessment affirmed. The respondent is entitled to costs after taxation.

Judgment accordingly.