THURLOW,
J.:—This
is
an
appeal
from
a
judgment
of
the
Income
Tax
Appeal
Board
(No.
374
v.
M.N.R.,
16
Tax
A.B.C.
195),
dismissing
an
appeal
by
the
appellant
against
an
assessment
of
income
tax
for
the
year
1953.
In
making
the
assessment,
the
Minister
brought
into
the
computation
of
the
appellant’s
income
a
net
profit
of
$24,912.78
which
the
appellant
had
realized
in
that
year
on
the
sale
of
a
parcel
of
real
estate,
and
the
question
in
the
appeal
is
whether
or
not
this
sum
was
income
or
a
capital
gain.
The
appellant
was
incorporated
in
November,
1951
under
the
Quebec
Companies
Act
by
letters
patent,
in
which
the
purposes
of
the
corporation
are
expressed
in
terms
wide
enough
to
include
dealing
in
real
estate.
On
December
31,
1951,
the
appellant
acquired
from
one
of
its
three
shareholders
a
parcel
of
undeveloped
land
at
Baie
d’Urfe,
some
miles
west
of
Montreal,
for
which
it
issued
to
the
three
shareholders
as
fully
paid
up
102
common
shares
of
$100
each
par
value
and
402
preferred
shares
of
$100
each
par
value
of
its
capital
stock.
The
appellant’s
plan,
in
purchasing
this
property,
and
the
purpose
for
which
the
company
was
incorporated
were
described
as
follows
by
Mr.
Ber-
covitch,
one
of
its
three
shareholders
and
directors
:
“A.
The
land—or
if
I
may
and
if
the
Court
would
permit,
sir
—the
whole
object
of
the
company
being
formed
was
to
develop
an
investment
situation
wherein
the
two
professional
men
would
participate
and
I,
as
a
business
man,
would
do
the
chasing
and
do
the
dog
spotting
work,
if
we
may
say
so.
That
was
the
intent
of
the
three
gentlemen
when
we
joined
hands.
To
implement
that
policy,
and
this
line
of
attack,
we
decided
that
we
would
buy
land;
we
would
build
houses;
we
would
hope
or
we
hoped
we
would
be
able
to
build
a
shopping
center
and
generally
go
into
two
types
of
real
estate,
income-producing
real
estate,
through
building
and
renting;
then
to
build
and
sell
houses
in
this
area
at
Baie
d’Urfe.
That
was
our
broad
interpretation
and
we
started
on
that
basis.
So
the
land,
to
answer
the
question,
was
purchased
to
implement
the
policy
of
the
three
members
of
the
corporation.”
The
appellant
obtained
the
approval
of
the
local
authorities
at
Baie
d’Urfe
for
a
subdivision
of
a
part
of
the
land
into
12
building
lots
but
was
unable
to
obtain
mortgage
moneys
to
finance
the
construction
of
so
much
as
one
dwelling
house
thereon.
Accordingly,
it
abandoned
this
scheme
and,
on
August
18,
1952,
accepted
an
offer
of
$63,200
for
about
half,
though
no
doubt
the
more
valuable
half,
of
the
property.
The
purchase
price
was
payable
as
to
$15,000
in
cash
and
as
to
$48,200
in
one
year
with
interest.
It
is
admitted
that
the
profit
realized
on
this
sale
was
income.
The
appellant
continued
to
hold
the
remaining
portion
of
the
land,
presumably
for
sale,
if
not
for
development
and
sale,
and
ultimately
sold
it
in
1956.
On
August
29,
1952,
the
appellant
purchased
for
$50,000
another
parcel
of
undeveloped
land,
this
one
being
located
in
Lachine
about
a
mile
east
of
Dorval
airport.
Of
the
purchase
price,
$1,000
was
paid
on
the
making
of
the
agreement,
$24,000
was
paid
on
the
transfer
of
the
property
to
the
appellant
on
October
27,
1952,
and
the
balance
was
payable
with
interest
on
April
27,
1953.
On
June
3,
1953,
the
appellant
sold
this
property
to
the
Shell
Oil
Company
of
Canada
Limited
for
$80,000
in
cash,
and
it
is
the
profit
realized
in
this
transaction
that
is
in
issue
in
this
appeal.
These
were
the
only
purchases
and
sales
of
real
estate
made
by
the
appellant
up
to
that
time,
and
none
save
the
sale
of
the
remaining
land
at
Baie
d’Urfe
have
been
made
since
then,
the
appellant
having
in
the
meantime
invested
its
funds
in
bonds
and
other
securities.
The
case
put
forward
on
behalf
of
the
appellant
is
that
the
land
at
Lachine
was
not
purchased
in
the
course
of
any
business
of
dealing
in
real
estate
but
was
acquired
for
the
sole
purpose
of
constructing
and
operating
a
motel
and
service
station
thereon,
that
it
was
only
when
such
purpose
failed
because
of
the
appellant’s
inability
to
borrow
the
moneys
required
to
carry
out
that
purpose
that
the
appellant
accepted
an
offer
for
the
property
and
realized
the
profit
in
question,
and
that,
in
these
circumstances,
the
profit
was
a
capital
gain
and
not
income.
There
is
ample
evidence
that
the
appellant
had
such
a
scheme
for
the
property
in
mind
both
before
and
at
the
time
when
the
property
was
purchased
and
for
some
time
thereafter,
and
I
think
it
is
also
clear
that
the
location
was
selected
as
one
suitable
for
such
a
project.
After
making
the
contract
to
purchase,
Mr.
Bercovitch
made
a
tour
of
motels
in
the
New
England
States
and
collected
information
as
to
their
operation
and
costs.
Another
director,
Mr.
Greenspoon,
an
architect,
had
some
time
earlier
made
a
study
of
motels
and
had
prepared
a
report
on
them,
and
in
September,
1952,
he
prepared
an
artist’s
sketch
and
a
floor
plan
of
the
proposed
building.
On
the
plan
part
of
the
property
was
indicated
as
the
site
of
a
proposed
service
station.
Besides
the
service
station
and
motel,
the
plan
included
a
proposed
restaurant
and
cocktail
lounge.
The
appellant
proposed
to
lease
the
service
station
to
an
oil
company
for
a
term
of
20
years
or
thereabouts
but
had
not
decided
whether
it
would
take
a
sub-
lease
from
the
oil
company
and
operate
the
station.
It
contemplated
operating
the
motel
but
had
no
settled
plan
for
operating
the
restaurant
or
cocktail
lounge
on
its
own.
Shortly
after
purchasing
the
property,
the
appellant
negotiated
with
the
British
American
Oil
Company
for
a
loan
of
$100,000
to
finance
the
building
of
the
motel
and
service
station,
but
after
a
time
these
negotiations
ended
abruptly
with
the
refusal
of
that
company
to
make
the
loan.
The
appellant
thereupon
applied
to
the
McColl-
Frontenac
Oil
Company
for
a
loan
of
similar
amount
to
finance
the
project.
The
application
was
strongly
recommended
by
Montreal
officials
of
that
company
but
was
turned
down
by
their
superiors
in
New
York.
When
this
occurred,
the
appellant
made
further
efforts
to
obtain
the
loan
from
the
Shell
Oil
Company,
an
insurance
company,
and
private
investors
in
turn
but
did
not
succeed
in
getting
the
money.
In
May
or
June
the
appellant
abandoned
the
scheme
and
put
the
property
up
for
sale.
The
property
in
question
was
an
area
of
3.86
arpents,
with
a
frontage
of
425.5
feet
on
Cote
de
Liesse
Road
and
511
feet
on
55th
Avenue,
Lachine.
Both
roads
were
heavily
travelled,
one
carrying
Montreal-New
York
traffic
and
the
other
Montreal-
Toronto
and
Montreal-Ottawa
traffic.
The
land
was
situated
in
a
rapidly
developing
area,
and
the
value
of
the
portion
at
the
corner
formed
by
the
intersection
of
the
roads
as
a
service
station
location
was
obvious.
When
acquiring
the
property,
the
directors
knew
that
oil
companies
were
interested
in
it
and
anxious
to
get
it.
At
the
same
time,
the
amount
of
the
purchase
price
paid
for
it
represented
the
bulk
of
the
appellant’s
resources,
both
of
invested
capital
and
debenture
borrowings,
and
the
appellant
could
not
finance
the
motel
and
service
station
project
without
a
loan
of
$100,000
or
thereabouts.
So
long
as
the
land
remained
undeveloped,
however,
it
would
produce
no
revenue
for
the
appellant.
That
the
whole
motel
and
service
station
project
was
conditional
upon
the
appellant’s
being
able
to
secure
such
a
loan
is
apparent
as
an
inference
from
the
circumstances,
and
it
appears
as
well
in
the
evidence
of
Mr.
Bercovitch
and
Mr.
Greenspoon.
On
that
point,
Mr.
Bercovitch
said:
“Q.
And
you
felt—did
you
feel
that
you
could?
A.
Providing
we
could
get
a
first
mortgage
loan,
there
was
no
reason
why
we
couldn’t.
Q.
But
you
needed
outside
help?
A.
Definitely.”
Mr.
Greenspoon
said:
“Q.
Well,
the
main
reason
you
did
not
go
ahead
with
this
building
of
the
motel
then
was
that
the
efforts
to
raise
one
hundred
thousand
dollars
($100,000.00)
failed?
A.
Our
first
mortgage
did
not
succeed,
that
is
right.
That
was
the
cardinal
sort
of
pivot
on
which
the
whole
thing
depended.
*
=)?
ak
Q.
Now,
this
whole
plan
hinged
on
the
obtaining
of
a
first
mortgage
loan?
A.
Yes,
sir.
Q.
Of
sufficient
size
to
finance
the
construction
of
the
motel?
A.
Yes.’’
The
same
witness,
when
asked
as
to
what
the
appellant
intended
to
do
with
the
property
in
the
event
of
failure
to
obtain
the
loan,
gave
the
following
evidence
:
“Q.
What
plan
did
your
company
have
for
the
property
if
it
could
not
get
the
loan?
A.
Frankly,
sir,
I
do
not
think
we
considered
it
in
that
light.
We
were
practically
so
sure
from
all
the
glowing
reports
and
all
the
encouragement
we
got
and
from
the
enthusiasm
that
we
never
even
gave
it
a
serious
thought
that
we
would
not
be
successful,
only
actually
when
we
were
turned
down
by
the
head
offices
of
Texaco
Company.
Q.
Was
that
possibility
not
discussed
amongst
the
Directors?
A.
Well,
if
it
was
discussed,
we
did
not
put
too
much
emphasis
on
it,
sir,
because
we
thought
we
were
almost
sure
to
succeed
with
that.
You
can
usually
tell
by
negotiations
whether
a
thing
is
going
to
work
or
is
not
going
to
work
out;
and
that
seemed
to
click
right
from
the
beginning.
Q.
You
say
the
optimism
was
such
that
you
did
not
seriously
consider
what
would
become
of
this
property?
A.
No,
sir.
Q.
If
the
financing
could
not
be
arranged?
A.
No,
sir,
I
don’t
think
in
our
records,
if
you
look
through
the
records,
there
was
too
much
emphasis
put
on
that
aspect
of
the
operation.
Q.
You
say
not
too
much
emphasis.
I
am
anxious
to
find
out
how
much?
A.
Well,
it
is
a
number
of
years
now
and
I
don’t
recall
us
discussing
that
at
any
great
length.
Q.
But
you
can
conceive
of
you
having
purchased
a
property
at
fifty
thousand
dollars
($50,000.00)
for
a
particular
purpose
for
which
the
money
was
not
yet
available
and
not
having
given
some
consideration
to
what
would
happen
if
you
did
not
get
the
money?
A.
As
I
say,
sir,
we
did
not
discuss
it
in
very
great
details.
Probably
in
the
back
of
our
minds
we
thought,
well,
perhaps,
when
the
time
came
we
could
put
another
type
of
building
on
the
property.
I
was
in
the
building
business,
the
architectural
end
of
it
;
and
we
felt
that
property
could
be
put
to
some
use
by
somebody
sometime.
We
did
not
spell
it
out.”
In
my
opinion,
the
substance
of
this
is
that,
when
purchasing
the
property,
the
directors
gave
some
little
consideration
to
what
course
was
to
be
followed
in
the
event
of
the
motel
scheme
failing
and
that
they
intended,
in
that
event,
to
turn
the
property
to
account
for
profit
in
some
way
but
that
the
course
that
might
be
taken
was
not
settled.
It
appears,
however,
from
the
evidence
of
Mr.
Bercovitch
that
the
only
course
actually
considered
when
it
became
obvious
that
the
loan
could
not
be
obtained
was
that
of
sale.
Speaking
of
this
decision,
he
said:
“A.
It
was
agreed,
after
considerable
time
had
elapsed,
I
would
say,
right
through
to
the
spring
of
the
following
year,
if
I
am
not
mistaken—sometime
in
May
or
June.
The
land
lay
dormant,
of
course,
throughout
the
entire
winter.
My
co-partners
and
associates
felt
that
I
just
was
not
able
to
find
the
financing.
Within
our
own
orbit,
we
did
not
have
it,
so
they
said
the
only
thing
left
to
do
was
put
the
land
up
for
sale.”
By
Section
3
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148,
the
income
of
a
taxpayer
is
declared
to
be
his
income
from
all
sources,
including
income
from
all
businesses,
and
by
Section
4
it
is
provided
that,
subject
to
the
other
provisions
of
Part
I
of
the
Act,
income
from
a
business
or
property
is
the
profit
therefrom
for
the
year.
‘‘Business’’
is
defined
in
Section
139(1)
(e)
as
including
‘‘a
trade,
manufacture
or
undertaking
of
any
kind
whatsoever
and
an
adventure
or
concern
in
the
nature
of
trade’’.
The
question
whether
or
not
the
profit
in
question
was
income
or
capital
turns
on
whether
or
not
the
profit
was
profit
from
a
business
as
so
defined.
The
Minister,
in
making
the
assessment,
has
proceeded
on
the
assumption
that
the
profit
in
question
arose
from
such
a
business,
and
in
this
appeal
the
onus
is
upon
the
appellant
to
satisfy
the
Court
that
this
assumption
is
wrong.
Johnson
v.
M.N.R.,
[1948]
S.C.R.
486;
[1948]
C.T.C.
195.
The
test
to
be
applied
in
determining
whether
the
profit
in
question
was
income
from
a
business
is
that
stated
by
the
Lord
Justice
Clerk
in
Californian
Copper
Syndicate
v.
Harris
(1904),
5
T.C.
159
at
p.
165.
Referring
to
that
test,
Lord
Buckmaster,
in
Ducker
v.
Rees
Roturbo
Development
Syndicate,
[1928]
A.C.
122,
said
at
p.
140:
“My
Lords,
I
think
it
is
undesirable
in
these
cases
to
attempt
to
repeat
in
different
words
a
rule
or
principle
which
has
already
been
found
applicable
and
has
received
judicial
approval,
and
I
find
that
in
the
case
of
the
Californian
Copper
Syndicate
v.
Harris,
5
Tax
Cas.
159,
it
is
declared
that
in
considering
a
matter
similar
to
the
present
the
test
to
be
applied
is
whether
the
amount
in
dispute
was
a
gain
made
in
the
operation
of
business
in
carrying
out
a
scheme
for
profit-making’.
That
principle
was
approved
in
a
judgment
of
the
Privy
Council
in
the
case
of
Commissioner
of
Taxes
v.
Melbourne
Trust,
[1914]
A.C.
1001,
and
it
is,
I
think,
the
right
principle
to
apply.”
In
applying
the
test
to
the
case
before
the
House,
Lord
Buckmaster
continued
at
p.
141
:
‘“These
reports
show
that
the
directors
were
contemplating
from
the
beginning
the
possibility
of
the
sale
of
some
of
these
patents.
It
is
quite
true
that
they
preferred
not
to
sell
them
if
a
sale
could
be
avoided,
but
the
statement
in
para.
11
of
the
case
is
quite
plain,
that
‘the
possibility
of
the
sale
of
the
foreign
patents
or
rights
has
always
been
contemplated
by
the
appellant
company
in
respect
of
such
interest
as
it
possessed
in
the
foreign
patents’.
It
is
one
of
the
foreign
patents
with
which
this
appeal
has
to
do,
and
the
agreements,
which
are
set
out,
showing
the
way
in
which
the
foreign
patents
in
the
case
of
France
and
of
Canada
have
also
been
dealt
with,
show
that
that
statement
was
not
a
statement
of
a
mere
accidental
dealing
with
a
particular
class
of
property,
but
that
it
was
part
of
their
business
which,
though
not
of
necessity
the
line
on
which
they
desired
their
business
most
extensively
to
develop,
was
one
which
they
were
prepared
to
undertake.’’
In
the
present
case,
the
evidence,
in
my
opinion,
points
to
the
conclusion
that
the
property
was
acquired
with
the
overall
intention
of
turning
it
to
account
for
profit.
The
method
favoured
by
the
directors
by
which
this
intention
was
to
be
carried
out
was
that
of
developing
the
property
as
the
site
of
a
motel
and
service
station
if
the
moneys
necessary
to
carry
out
that
purpose
could
conveniently
be
borrowed,
and
for
that
reason
they
turned
down
the
early
offers
received
for
the
property.
They
intended,
however,
if
such
moneys
could
not
conveniently
be
borrowed,
to
turn
the
property
to
account
for
profit
in
any
way
that
might
present
itself,
and
in
my
opinion
such
ways
included
sale
of
the
property.
In
purchasing
the
property,
the
directors
relied
on
their
own
knowledge
of
real
estate
and
acted
without
any
independent
appraisal
of
the
property,
and
in
the
transaction
they
committed
the
bulk
of
their
company’s
financial
resources
for
an
unproductive,
but
saleable,
property.
I
am
far
from
satisfied
that
men
of
their
ability
and
experience
would
have
done
this
for
the
purpose
of
building
a
motel
and
service
station
without
having
arranged
for
the
funds
to
finance
this
construction
and
without,
at
the
same
time,
having
in
mind
the
most
obvious
alternative
course
open
to
them
for
turning
the
property
to
account
for
profit.
Despite
their
optimism
the
possibility,
if
not
the
probability,
of
their
not
being
able
to
obtain
the
necessary
loan
must,
in
my
opinion,
have
been
present
in
their
minds,
and
the
experience
of
the
appellant’s
first
project
alone
would
have
suggested
both
the
necessity
for
an
alternative
course
which
was
in
fact
followed
less
than
a
year
after
the
property
was
purchased.
To
my
mind,
it
is
not
without
significance
that
that
course
was
the
only
alternative
course
considered
and
that
it
was
decided
upon
as
the
only
thing
left
to
do.
In
my
opinion,
the
sale
of
the
property
for
profit
was
one
of
the
several
alternative
purposes
for
which
the
property
was
acquired,
and
it
was
in
the
carrying
out
of
that
alternative
purpose,
when
it
became
clear
that
the
preferred
purpose
was
unattainable,
that
the
profit
in
question
was
made.
It
was,
accordingly,
a
profit
made
in
an
operation
of
business
in
carrying
out
a
scheme
for
profit-making
and
was
properly
assessed.
The
appeal
will
be
dismissed
with
costs.
Judgment
accordingly.
Email this Content