CAMERON,
J.:—This
is
an
appeal
from
a
decision
of
the
Income
Tax
Appeal
Board
dated
May
24,
1957,
dismissing
the
appellant’s
appeals
from
re-assessments
made
upon
him
for
the
years
1952
and
1953.
The
decision
of
the
Board
was
based
on
its
finding
in
another
matter
heard
as
a
test
case
at
the
same
time,
namely,
Kidd
v.
M.N.R.,
17
Tax
A.B.C.
180.
Similarly,
in
the
hearing
of
this
appeal
before
me,
it
was
agreed
that
the
evidence
tendered
should
apply
to
a
number
of
other
cases
and
that
the
decision
which
I
shall
now
give
would
apply
to
all
such
appeals.
In
each
of
the
years
in
question,
the
appellant
was
a
member
of
and
the
owner
of
a
number
of
units
in
the
Drumheller
Leaseholds
Syndicate.
In
1952
and
1953,
the
Minister
added
to
his
declared
income
the
amounts
received
by
him
from
that
syndicate,
namely,
$16,493.83
and
$21,318.39,
and
re-assessed
him
accordingly.
There
is
no
dispute
as
to
the
actual
amounts
so
added,
it
being
admitted
that
if
they
constituted
taxable
income
in
his
hands,
the
re-assessments
in
each
year
are
valid.
For
the
appellant
it
is
contended
that
they
were
merely
the
realization
of
a
capital
asset
and
as
such
were
not
taxable.
For
the
Minister
it
is
submitted
that
the
sums
were
in
the
nature
of
income
from
a
business
and
therefore
within
Sections
3,
4
and
139(1)
(e)
of
The
Income
Tax
Act;
and
that
they
also
fall
within
the
provisions
of
Section
6(j)
of
the
Act
as
being
amounts
received
which
were
dependent
on
production
from
property
as
well
as
within
Section
6(c)
as
being
income
from
a
syndicate.
Before
considering
the
legal
problems
involved,
I
think
it
advisable
to
set
out
in
detail
the
circumstances
surrounding
the
formation
of
Drumheller
Leaseholds
Syndicate
and
the
nature
of
the
operations
which
resulted
in
the
payment
of
the
amounts
in
question.
The
main
witness
on
behalf
of
the
appellant
was
Mr.
Russell
Kidd.
He
appears
to
have
taken
a
leading
part
in
the
formation
of
all
the
syndicates
and
in
all
their
operations.
In
1950
he
was
a
garage
proprietor
in
Drumheller,
Alberta.
It
appears
that
he
and
a
number
of
friends
in
the
area,
who
met
regularly
in
a
restaurant
for
coffee,
had
discussions
about
the
discovery
of
oil
and
gas
in
Alberta
and
eventually
came
to
the
conclusion
that
as
citizens
of
the
area
they
themselves
should
take
a
part
in
the
“oil
boom’’
and
participate
in
such
benefits
as
might
accrue
therefrom.
Accordingly,
the
group
decided
to
take
up
petroleum
and
natural
gas
leases
in
the
area
from
the
provincial
Government,
if
such
leases
were
available.
Certain
individuals
applied
for
and
were
granted
such
leases
from
the
province.
Exhibit
1
is
an
agreement
dated
November
10,
1950
between
three
such
individuals
(called
the
‘‘Trustees’’)
who
had
acquired
leases
for
a
twenty-one
year
period
from
August,
1950
over
960
acres,
or
6
quarter
sections—and
twelve
persons
(including
the
said
three
Trustees),
called
the
Beneficiaries.
By
that
agreement,
it
was
declared
that
the
Trustees
held
the
leases
in
trust
for
the
twelve
beneficiaries
in
equal
shares
and
that
the
parties
thereto
were
to
be
known
as
the
‘‘Drumheller
Leaseholds’’,
the
said
Russell
Kidd
to
be
the
secretary
thereof.
Exhibit
2
is
a
similar
agreement
dated
November
23,
1950,
and
thereby
Glen
Phillips,
who
had
secured
a
similar
lease
for
twenty-one
years
from
August
19,
1950,
over
640
acres
(4
quarter-sections)
in
the
same
locality,
declared
himself
as
trustee
thereof
for
five
named
beneficiaries
to
be
known
as
the
‘‘
Munson
Leaseholds’’.
Exhibit
3
is
an
agreement
dated
April,
1952,
and
by
its
provisions
the
individuals
who
were
then
members
of
the
two
syndicates
above
mentioned,
agreed
to
join
together
in
a
new
syndicate
to
be
called
the
‘‘
Drumheller
Leaseholds’’.
The
capital
of
the
new
syndicate
consisted
of
1,600
units
and
clause
3
of
the
agreement
sets
out
the
respective
beneficial
interests
of
the
individuals
therein,
189
units
being
allotted
to
the
appellant.
Bylaws
governing
the
operations
of
the
Syndicate
were
passed
and
therein
provision
was
made
for
the
appointment
of
officers
consisting
of
a
chairman
(Mr.
Kidd),
the
secretary-treasurer
and
three
directors,
who
together
formed
‘‘the
Management
Committee”
of
the
Syndicate.
On
April
25,
1952,
the
new
Syndicate
gave
to
one
Louis
Diamond
of
Calgary
a
15-day
option
‘
on
the
petroleum
and
natural
gas
rights’’
in
all
its
properties
(Exhibit
8).
If
the
option
were
taken
up,
Diamond
was
to
drill
a
well
to
be
selected
by
Phillips
—one
of
the
members
of
the
Syndicate—the
expense
of
such
well
to
be
paid
in
the
first
instance
by
Diamond.
He
was
entitled
to
recoup
such
expense
out
of
production
and
thereafter
‘‘the
production
is
to
be
split
equally
between
Diamond
and
the
Syndicate”.
Then,
following
the
completion
of
the
well,
‘‘the
rest
of
the
acreage
is
to
be
split
equally
between
the
Syndicate
and
Diamond’’.
Provision
was
made
for
a
more
formal
agreement
if
the
option
were
exercised.
Diamond
exercised
the
option
and
on
June
17,
1952
(Exhibit
9),
a
formal
agreement
was
signed
and
by
its
terms
Diamond
agreed
to
drill
a
test
well.
All
the
leases
held
by
the
Syndicate
were
to
be
deposited
with
a
trust
company,
together
with
assignments
thereof
as
to
5
quarter-sections
(800
acres)
to
Diamond,
who,
upon
registration
thereof,
was
to
be
the
absolute
owner
of
all
the
Syndicate’s
rights
therein,
provided
proof
was
given
that
the
test
well
had
been
drilled
to
contract
depth.
As
provided
in
the
option,
Diamond
had
the
right
to
recover
his
drilling
costs
out
of
production
and
thereafter
the
proceeds
from
production
from
the
test
well
were
to
be
divided
equally
between
the
Syndicate
and
Diamond.
The
general
result
of
the
agreement
was
that
Diamond
and
the
Syndicate
had
equal
and
joint
rights
in
two
legal
subdivisions
(40
acres
each),
Diamond
and
the
Syndicate
each
owning
separately
5
quarter-sections
less
one
legal
subdivision.
Diamond
wanted
further
rights
in
the
properties
retained
by
the
Syndicate
and
by
a
further
agreement
of
the
same
date
(Exhibit
10)
it
was
provided
that
if
the
Syndicate,
after
the
drilling
of
the
test
well,
should
receive
any
offer
for
the
acquisition
of
any
rights
therein,
Diamond
should
have
an
option
to
take
up
such
offer
according
to
its
terms.
Trident
Drilling
Co.
Ltd.
made
such
an
offer
on
October
20,
1952
(Exhibit
12).
Diamond
decided
to
exercise
his
rights
under
the
second
agreement
of
June
17,
1952,
and
to
enter
into
the
same
agreement
as
had
been
offered
by
Trident.
Accordingly,
Exhibit
11
(an
agreement
dated
November
4,
1952)
was
entered
into
with
the
Syndicate.
By
its
terms,
Diamond
agreed
to
drill
a
well,
or
wells,
on
the
Syndicate’s
property
and
to
pay
$200,000
in
cash
for
the
first
producing
well
and
$25,000
for
all
other
wells
brought
under
production.
In
addition,
the
Syndicate
was
to
receive
a
gross
royalty
of
12^
per
cent
of
all
production
of
leased
substances.
In
the
result,
eleven
legal
subdivisions
were
drilled
out
on
the
properties
and
the
Syndicate
received
$200,000
for
the
first
well
in
1952
and
$250,000
for
the
remaining
ten
producing
wells
in
1953.
The
appellant
in
1952
and
1953
received
from
the
Syndicate
his
proportion
of
these
payments
and
it
is
the
nature
of
these
receipts
which
is
now
in
question.
Certain
royalties
were
also
received
but
these
were
included
in
the
appellant’s
tax
returns
and
therefore
no
question
arises
in
regard
thereto.
One
other
transaction
should
be
noted.
Prior
to
the
forma-
tionof
the
new
Drumheller
Leaseholds
Syndicate,
the
members
of
the
former
syndicates—the
Munson
group
and
the
Drumheller
group—entered
into
an
agreement
on
June
30,
1951
(Exhibit
5)
with
Great
Plains
Development
Co.
of
Canada,
Ltd.,
by
the
terms
of
which
the
latter
was
within
ninety
days
to
commence
a
seismic
survey
of
the
lands
and
was
to
have
the
option
of
drilling
wells
thereon.
If
producing
wells
were
found,
Great
Plains
out
of
production
would
recover
its
costs
and
the
balance
of
production
would
be
divided
equally
between
it
and
the
members
of
the
Syndicate.
In
addition,
if
crude
oil
were
discovered
in
the
first
well,
each
member
of
both
syndicates
would
receive
$1,000,
or
a
total
of
$14,000.
It
was
a
term
of
the
said
agreement
that
all
the
leases
held
by
the
Syndicate
and
covering
1,600
acres
should
be
assigned
outright
to
Great
Plains.
The
seismic
survey
was
duly
carried
out
and
in
the
result
Great
Plains
on
February
14,
1952,
notified
the
Syndicate
that
it
did
not
choose
to
exercise
its
option
to
drill
wells
(Exhibit
6).
That
letter
also
stated
that
Great
Plains
would
take
steps
‘‘to
re-assign
the
Drumheller
Syndicate
leases
to
the
persons
as
provided
for
in
the
agreement’’.
It
was
following
that
notice
that
the
Syndicate
gave
to
Diamond
the
option
of
April
25,
1952
(Exhibit
8).
It
is
abundantly
clear
from
the
evidence
as
a
whole
that
from
the
formation
of
the
two
original
syndicates
onwards,
the
members
of
the
Syndicate
were
in
business.
Officers
and
a
management
committee
were
appointed;
many
meetings
were
held
and
the
minutes
duly
recorded;
legal
transactions
were
entered
into,
properties
were
acquired
and
options
granted.
Admittedly,
they
were
in
business
for
the
purpose
of
making
a
profit.
It
is
urged,
however,
that
from
the
inception,
the
intention
was
to
acquire
the
oil
leases
and
to
hold
them
for
the
benefit
of
the
members
by
exploring,
drilling
wells,
and
operating
them,
on
their
own
account
;
that
there
was
no
intention
to
trade
in
leases.
Now
there
is
some
oral
evidence
to
support
this
view
and
there
is
also
evidence
of
letters
written
on
behalf
of
the
Syndicate
indicating
that
it
was
not
anxious
to
part
with
the
leases
by
sale.
Apparently,
it
hoped
to
enter
into
an
agreement
with
a
well
driller
who
would
undertake
to
drill
wells
at
his
own
expense,
take
a
share
of
production
in
compensation
and
permit
the
Syndicate
to
retain
ownership
of
the
leases.
In
this
it
was
totally
unsuccessful.
Now
it
must
be
kept
in
mind
that
the
members
of
the
Syndicate
had
no
experience
in
exploration
or
drilling
for
oil
or
in
the
operation
of
oil
wells.
They
were
amateurs
in
this
field
and
possessed
of
relatively
little
capital.
It
is
said
that
the
cost
of
drilling
the
first
successful
well
which
came
into
production
in
September
1952,
was
$112,000.
In
any
event,
the
members
of
the
Syndicate
did
not
at
any
time
take
any
steps
on
their
own
behalf
to
acquire
any
equipment
for
drilling
purposes,
or
anything
of
that
sort.
All
that
they
contributed
was
a
small
amount
necessary
to
pay
the
annual
fee
of
one
dollar
per
acre
to
the
provincial
government,
nothing
being
contributed
for
the
purpose
of
drilling.
The
unlikelihood
of
the
Syndicate
ever
drilling
a
well
on
its
own
account
was
expressed
very
clearly
by
Kidd,
who,
when
asked
if
the
Syndicate
had
ever
considered
drilling
a
well,
said,
“We
talked
if
it
come
to
the
worst
we
would
drill
a
well
because
we
had,
a
few
of
us
had
a
few
dollars,
we
have
businesses
and
farms’’.
On
the
whole
of
the
evidence,
I
am
satisfied
that
the
leases
were
acquired
with
the
intention
of
turning
them
to
account
for
the
benefit
of
the
members
in
the
best
manner
possible.
There
is
nothing
in
any
of
the
Syndicate’s
agreements
which
evidenced
the
intention
of
the
members
to
hold
and
operate
the
leases
themselves,
and
while
they
may
have
considered
that
the
most
desirable
method,
it
is
obvious
they
were
willing
to
consider
other
methods,
including
the
disposal
of
the
leases
themselves.
The
original
syndicates
were
formed
in
November
1950,
and
the
minutes
of
all
syndicate
meetings
are
found
in
Exhibit
4.
The
first
meeting
of
the
Drumheller
Leaseholds
was
held
on
December
19,
1950,
and
the
minutes
show
that
the
members
authorized
the
officers
and
directors
‘‘to
consider
any
deals
and
carry
out
correspondence
with
all
interested
parties
in
connection
with
our
holdings’’.
The
next
meeting
of
the
two
original
syndicates
was
held
on
April
18,
1951,
and
authorization
was
then
given
to
enter
into
the
agreement
with
Great
Plains
Development
Co.,
the
terms
of
which
had
been
apparently
negotiated
in
the
meantime.
That
agreement,
it
will
be
recalled,
provides
for
the
assignment
to
Great
Plains
of
all
the
leases
outright
and
apparently
that
was
done.
A
consideration
of
the
whole
of
the
evidence
and
particularly
that
relating
to
the
Great
Plains
option,
the
Trident
offer
which
the
Syndicate
was
prepared
to
accept
if
Diamond
had
not
exercised
his
prior
rights
in
regard
thereto,
and
the
several
contracts
entered
into
with
Diamond,
leads
me
to
the
conclusion
that
almost
from
the
time
the
leases
were
acquired,
the
Syndicate
was
prepared
to
dispose
of
some
or
all
of
the
leases
by
sale.
All
were
assigned
to
Great
Plains,
but
were
later
re-assigned.
In
the
final
result,
it
did
dispose
of
8
quarter-sections
in
that
manner,
retaining
only
two
on
which
it
has
expended
nothing
for
development.
The
relevant
sections
of
The
Income
Tax
Act
applicable
on
this
point
are
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
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.”
As
stated
in
Minerals
Ltd.
v.
M.N.R.,
[1958]
C.T.C.
236—a
decision
of
the
Supreme
Court
of
Canada—the
test
to
be
applied
in
resolving
the
issue
as
to
whether
such
receipts
represent
taxable
income
or
a
capital
increment,
is
the
frequently
cited
statement
of
the
Lord
Justice
Clerk
in
Californian
Copper
Syndicate
v.
Harris
(1904),
5
T.C.
159
at
165.
4
It
is
quite
a
well
settled
principle
in
dealing
with
questions
of
assessment
of
Income
Tax,
that
where
the
owner
of
an
ordinary
investment
chooses
to
realize
it,
and
obtains
a
greater
price
for
it
than
he
originally
acquired
it
at,
the
enhanced
price
is
not
profit
in
the
sense
of
Schedule
D
of
the
Income
Tax
Act
of
1842
assessable
to
Income
Tax.
But
it
is
equally
well
established
that
enhanced
values
obtained
from
realisation
or
conversion
of
securities
may
be
so
assessable,
where
what
is
done
is
not
merely
a
realisation
or
change
of
investment,
but
an
act
done
in
what
is
truly
the
carrying
on,
or
carrying
out,
of
a
business.
The
simplest
case
is
that
of
a
person
or
association
of
persons
buying
and
selling
lands
or
securities
speculatively,
in
order
to
make
gain,
dealing
in
such
investments
as
a
business,
and
therefore
seeking
to
make
profits.
There
are
many
companies
which
in
their
very
inception
are
formed
for
such
a
purpose,
and
in
these
cases
it
is
not
doubtful
that,
where
they
make
a
gain
by
a
realisation,
the
gain
they
make
is
liable
to
be
assessed
for
Income
Tax.
What
is
the
line
which
separates
the
two
classes
of
cases
may
be
difficult
to
define,
and
each
case
must
be
considered
according
to
its
facts;
the
question
to
be
determined
being—
Is
the
sum
of
gain
that
has
been
made
a
mere
enhancement
of
value
by
realising
a
security,
or
is
it
a
gain
made
in
an
operation
of
business
in
carrying
out
a
scheme
for
profit-making
?
’
’
In
Sutton
Lumber
and
Trading
Co.
Ltd.
v.
M.N.R.,
[1953]
2
S.C.R.
77
at
83;
[1953]
C.T.C.
237
at
244,
Locke,
J.,
in
delivering
the
judgment
of
the
Court,
said
:
“The
question
to
be
decided
is
not
as
to
what
business
or
trade
the
company
might
have
carried
on
under
its
memorandum,
but
rather
what
was
in
truth
the
business
it
did
engage
in.
To
determine
this,
it
is
necessary
to
examine
the
facts
with
care.”
The
same
point
was
emphasized
by
the
learned
President
of
this
Court
in
M.N.R.
v.
Taylor,
[1956]
C.T.C.
189
at
212,
where
he
stated
:
‘
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.’’
In
this
case,
when
one
considers
the
evidence
as
a
whole,
particularly
what
the
Syndicate
actually
did
with
its
leases,
the
conclusion
is
inescapable
that
there
never
was
a
firm
and
fixed
intention
on
the
part
of
the
members
of
the
Syndicate
to
regard
these
assets
as
an
investment
which
the
Syndicate
would
retain
and
develop
on
its
own
account.
They
may
have
hoped
to
do
so,
but
were
prepared
very
shortly
after
the
acquisition
of
the
leases,
and
at
the
first
joint
meeting
of
the
two
syndicates,
to
dispose
of
them
in
their
entirety
as
evidence
by
the
Great
Plains
agreement,
as
well
as
by
the
later
ones.
The
sales
made
were
entirely
voluntary,
were
carried
out
in
a
business
manner
and
in
accordance
with
the
normal
practice
of
those
engaged
in
the
buying
and
selling
of
leases.
I
find,
therefore,
that
the
Syndicates
were
formed
for
the
purpose
of
carrying
on
a
business
for
profit;
that
the
acquisition
of
leases
and
the
sale
thereof
was
one
of
the
contemplated
modes
of
carrying
on
its
business
in
its
scheme
for
profit-making
and
that
the
profits
realized
and
now
in
question
were
acquired
in
the
operation
of
such
business.
Such
profits
are,
therefore,
income
from
a
business
within
the
meaning
of
Section
3(a)
of
the
Act,
or
at
least
within
the
extended
meaning
of
‘‘business’’
as
found
in
Section
139(1)
(e).
In
view
of
this
finding,
it
becomes
unnecessary
to
consider
whether,
as
contended
on
behalf
of
the
Minister,
the
receipts
also
fall
within
subsections
(c)
and
(j)
of
Section
6.
The
appeals
for
both
years
will
therefore
be
dismissed
and
the
re-assessments
made
upon
the
appellant
affirmed.
The
respondent
is
entitled
to
his
costs
after
taxation.
Judgment
accordingly.