THURLOW,
J.:—This
is
an
appeal
from
the
judgment
of
the
Income
Tax
Appeal
Board
(18
Tax
A.B.C.
381)
dismissing
an
appeal
by
the
appellant
from
income
tax
re-assessments
for
the
years
1958
and
1954.
The
matter
in
issue
is
whether
sums
of
$19,662.46
and
$12,907.48,
respectively
realized
on
the
sale
of
two
parcels
of
land
by
a
partnership
of
which
the
appellant
was
a
member,
were
income
for
the
purposes
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148,
or
capital
gains.
Under
Sections
3
and
4
of
the
Income
Tax
Act,
the
sums
in
question
are
to
be
regarded
as
income
if
they
are
profit
for
a
taxation
year
from
a
business,
and
the
term
“business”
is
defined
by
Section
139(1)
(e)
as
including
a
profession,
calling,
trade,
manufacture,
or
undertaking
of
any
kind
whatsoever
and
an
adventure
or
concern
in
the
nature
of
trade.
The
question
to
be
determined
is
one
of
fact,
the
onus
being
on
the
defendant
to
satisfy
the
Court
that
the
sums
in
question
were
not
profits
from
a
business
as
so
defined.
The
partnership
was
known
as
Enterprising
Developments.
It
was
formed
in
February,
1951
and
continued
to
the
end
of
1954,
its
partners
being
the
appellant,
a
young
man
who
had
been
educated
as
a
chemical
engineer,
and
Dr.
Allan
Sharp,
a
physician.
There
was
no
written
partnership
agreement
setting
forth
its
objects,
but
these
were
described
by
the
appellant
as
“basically
building
and
perhaps
acquiring
apartment
buildings
for
investment
purposes’’.
The
activities
carried
on
in
partnership
are
summarized
as
follows
in
paragraph
8
of
the
notice
of
appeal,
which
was
admitted
in
the
Minister’s
reply:
“3.
During
the
taxation
years
1951
to
1954
inclusive,
the
partnership
engaged
in
the
business
of
buying
land
suitable
for
residential
housing,
building
houses
and
seling
the
land
and
houses
so
purchased
and
built.
Approximately
15
parcels
of
land
or
blocks
of
residential
housing
lots
were
purchased
by
the
partnership
in
that
period.
A
total
of
19
houses
were
built
and
sold,
and
on
8
occasions
the
land
purchased
in
order
to
build
houses
was
sold
without
the
houses
having
been
built,
by
reason
of
the
fact
that
on
those
occasions
the
partnership
found
itself
unable
to
secure
the
mortgage
loans
necessary
to
finance
the
intended
construction.
The
profits
earned
on
these
transactions
were
included
in
the
income
of
the
partnership
for
the
relevant
taxation
years
and
income
tax
was
paid
thereon
by
the
Taxpayer
and
the
said
Sharp,
with
the
exception
of
two
transactions
upon
which
a
loss
was
incurred
and
the
same
was
in
each
case
deducted
from
the
otherwise
taxable
income
of
the
partnership.”
The
evidence
further
indicates
that
no
dwelling
houses
were
constructed
after
July,
1953,
though
some
parcels
of
land
suitable
for
dwellings
were
acquired
and
sold
at
a
profit
after
that
time.
In
July,
1953,
the
partners
undertook
the
construction
of
a
47-suite
apartment
building
which
they
completed
in
March,
1954.
When
it
was
completed,
the
partners
had
a
one-third
interest
in
it,
which
they
held
until
the
end
of
1954,
when
they
transferred
their
interest
to
Enterprising
Developments
Limited,
a
company
incorporated
to
assume
the
undertaking
of
the
partnership.
The
shares
of
this
company
are
held
by
the
appellant
and
Dr.
Sharp.
The
remaining
two-thirds
of
the
apartment
building
were
owned
by
David
Hecht
and
Sam
Rosen.
In
March,
1954,
the
partners
commenced
construction
of
another
large
apartment
building,
this
one
having
51
suites.
The
building
was
completed
in
September,
1954
and
was
held
by
the
partners
until
transferred
by
them
to
Enterprising
Developments
Limited.
The
cost
of
these
buildings
was
approximately
$380,000
each,
most
of
which
was
financed
on
mortgages,
the
equity
capital
being
remarkably
small.
In
each
ease,
the
builder
was
the
partnership,
and
after
completion
the
partnership
obtained^
rental
revenue
from
the
property.
In
January,
1951,
prior
to
or
at
the
time
of
the
formation
of
the
partnership,
Dr.
Sharp
had
entered
into
an
agreement
to
purchase
for
$40,000
four
parcels
of
land
in
the
Township
of
North
York
containing
a
total
of
25
building
lots,
as
shown
on
a
subdivision
plan.
One
of
these
parcels
contained
five
lots
numbered
6
to
10
inclusive,
and
another
similar
parcel
contained
five
lots
numbered
84
to
88
inclusive.
In
the
contract
of
sale,
the
vendor
had
warranted
to
Dr.
Sharp
that
building
permits
would
be
issued
for
the
erection
of
apartment
buildings
on
these
ten
lots
and
for
the
erection
of
dweling
houses
on
the
others,
and
it
was
further
provided
that
the
vendor
should
refund
the
purchase
moneys
paid
in
respect
of
any
of
the
lots
for
which
such
building
permits
could
not
be
obtained.
The
25
lots
so
acquired
by
Dr.
Sharp
apparently
became
or
were
assets
of
the
partnership
and
were
subsequently
sold
by
it,
and
no
question
arises
as
to
the
proceeds
of
sale
of
any
of
them
(other
than
6
to
10
and
84
to
88)
having
been
receipts
of
a
revenue
nature.
Lots
84
to
88
were
held
until
December
4,
1953,
when
they
were
sold
to
a
single
purchaser
at
a
profit
of
$19,662.46,
this
being
one
of
the
sums
in
issue
in
the
appeal.
On
November
4,
1953,
prior
to
that
sale,
the
partners
had
sold
an
undivided
two-thirds
interest
in
lots
6
to
10
to
David
Hecht
and
Sam
Rosen
for
a
sum
in
excess
of
the
cost
of
the
lots,
and
on
or
about
December
23,
1953,
they
accepted
an
offer
and
sold
these
lots,
including
their
remaining
interest
in
them,
to
another
purchaser.
This
sale
was
completed
in
February,
1954,
and
in
it
they
realized
a
further
profit.
The
total
profit
realized
by
the
partners
from
these
lots
was
$12,907.48,
and
this
is
the
other
sum
in
issue
in
the
appeal.
On
these
facts,
it
seems
clear
that
the
business
of
the
partnership
was
not
limited
to
that
of
constructing
buildings
for
sale
but
included,
as
well,
at
least
as
an
incident
of
that
process,
dealing
in
vacant
land
suitable
for
buildings.
Prima
facie,
therefore,
it
would
seem
that
the
profits
from
the
sales
of
lots
6
to
10
and
84
to
88
were
profits
of
the
partnership’s
business
and
liable
to
be
taxed
accordingly.
The
appellant,
however,
maintains
that
lots
6
to
10
and
lots
84
to
88
were
acquired
with
the
sole
intention
of
constructing
on
them
apartment
buildings
to
be
held
by
the
partnership
as
investments,
that
the
sales
in
question
were
made
simply
to
realize
the
partnership
investment
in
those
lots,
the
intention
with
which
they
were
acquired
having
been
frustrated
by
the
passage
of
a
by-law
which
rendered
impossible
the
,
construction
thereon
of
apartment
buildings
of
the
kind
desired,
and
that
the
profits
realized
therefrom
were
accordingly
capital
and
not
income.
In
support
of
this
contention,
evidence
given
by
the
appellant
before
the
Income
Tax
Appeal
Board
was
read
by
consent
on
the
trial
of
the
appeal
to
this
Court.
In
it,
the
appellant
stated
that
the
sole
purpose
for
which
the
lots
in
quesion
were
purchased
was
to
erect
apartment
buildings
thereon
for
investment
and
to
derive
rental
income
therefrom,
and
that
in
April,
1952,
an
architect
was
employed
to
prepare
plans
for
them.’
Blue-
prints
of
several
drawings
made
by
the
architect,
some
dated
3/4/52
and
others
dated
3/6/52,
were
put
in
evidence.
The
buildings
so
planned
did
not,
however,
comply
with
By-law
7625
of
the
Township
of
North
York,
which
required
that
there
be
provision
for
certain
minimum
parking
space
and
certain
minimum
garage
space
on
the
premises
and
that
the
building
be
situate
at
least
25
feet
from
the
curb.
This
by-law
had
been
read
a
first
and
second
time
on
January
30,
1952
and
finally
passed
on
June
25,
1952
after
the
plans
had
been
completed.
The
partners
had
known
as
early
as
January,
1951
that
it
was
likely
that
certain
restrictions
as
to
minimum
parking
space
and
distance
of
the
buildings
from
the
curb
line
would
be
imposed
but
not
that
there
would
be
a
minimum
garage
space
requirement
as
well.
They
became
aware
at
some
stage
that
the
proposed
construction
would
not
comply
with
the
by-law
as
finally
passed
but,
even
after
that,
they
proceeded
for
a
time
with
their
scheme
in
the
hope
and
expectation
that
the
by-law
would
be
waived
in
their
favour.
During
the
summer
of
1953,
they
approached
a
number
of
financial
institutions
with
a
view
to
borrowing
the
funds
necessary
to
put
up
the
building
or
buildings
but
were
turned
down.
It
was
said
that
the
reason
for
selling
the
two-
third
interest
in
lots
6
to
10
to
Messrs.
Hecht
and
Rosen
was
to
enlist
their
financial
resources
in
the
project
and
that
the
sale
to
them
was
made
below
the
market
price
in
order
to
get
them
interested
in
it.
On
December
2,
1953,
however,
a
public
meeting
of
the
Committee
of
Adjustments
of
the
Township
of
North
York
was
held,
when
some
thirty
citizens
appeared
to
oppose
any
waiver
of
the
by-law,
and
it
then
became
apparent
that
the
scheme
to
build
the
particular
buildings
as
planned
could
not
succeed.
Both
parcels
of
land
were
accordingly
sold,
the
sale
of
one
of
them
being
made
two
days
later
and
the
sale
of
the
other
three
weeks
after
the
meeting.
It
may
be
noted
in
passing
that
permits
for
one
or
more
larger
apartment
buildings
might
have
been
obtained,
but
in
that
case
fireproofing
would
have
been
required
and
would
have
substantially
increased
the
cost
of
the
buildings.
Permits
might
also
have
been
obtained
for
smaller
apartment
buildings,
but
the
partners
did
not
regard
the
probable
return
from
such
buildings
as
satisfactory.
Assuming
that
the
lots
in
question
were
purchased
with
the
possible
erection
and
holding
of
apartment
buildings
thereon
in
mind,
the
evidence
leaves
me
far
from
satisfied
that
that
ever
was
the
partners’
sole
intention
with
respect
to
them.
This
land
was
but
part,
though
no
doubt
a
part
with
its
own
characteristics,
of
the
whole
group
of
lots
purchased
at
or
before
the
commencement
of
the
partnership.
Some
lots
of
this
same
group
were
sold
as
vacant
land,
and
some
may
have
been
used
as
sites
for
dwellings
and
then
sold.
There
is
no
reason
to
doubt
that
the
returns
from
such
other
lots
were
revenue
receipts,
just
as
were
the
receipts
from
other
lands
subsequently
acquired,
which
were
dealt
with
in
the
same
way.
The
pattern
of
the
partnership’s
business
was
to
purchase
land
suitable
for
building,
build
on
it
for
sale
if
that
was
feasible,
and
sell
the
land
with
the
building
on
it;
and
if,
for
any
reason,
the
building
could
not
be
built,
sell
the
vacant
land
at
a
profit,
if
possible.
When
there
were
good
reasons
for
disposing
of
land,
even
though
at
a
loss,
the
course
was
to
sell
it,
and
in
such
cases
the
loss
became
a
deduction
against
revenue.)
Here
the
only
difference
from
the
other
lands
acquired
by
the
partnership
was
one
of
a
conditional
intention;
that
is,
that
if
the
proposed
buildings
could
be
built
they
were
to
be
held
with
a
view
to
making
profit
through
renting
them
to
tenants,
rather
than
by
selling
them.
But
if
the
proposed
buildings
could
not
be
built,
whether
for
lack
of
funds
or
for
failure
to
obtain
permits
for
the
buildings
desired,
a
contingency
of
which
the
partners
must
have
been
aware,
the
intention,
as
I
see
it,
and
the
course
to
be
followed
were
precisely
the
same
as
applied
in
the
case
of
any
other
parcels
of
land
which
the
partnership
had,
namely,
to
turn
them
to”
account
for
profit
by
building
on
them
for
sale
or
by
sale
of
the
vacant
land
itself,
as
might
appear
expedient.
On
the
evidence,
I
do
not
think
that
the
lots
in
question
were
at
any
time
solely
a
capital
investment
in
the
sense
urged
by
the
appellant,
as
distinct
from
a
revenue
asset.
When
purchased,
they
were
not
producing
rental
revenue
and,
while
the
partners
held
them,
they
never
produced
revenue
of
that
kind.
Moreover,
while
the
appellant
says
that
they
were
acquired
for
a
particular
purpose,
that
purpose
was
conditional
on
the
partners’
obtaining
both
building
permits
and
money
and
was
hemmed
in,
as
well,
by
limitations
imposed
by
the
partners
as
to
the
kind
of
buildings
to
be
built
on
them.
In
my
view,
the
utmost
that
can
be
said
in
favour
of
the
appellant’s
position
is
that
these
lots
were
acquired
generally
for
the
purposes
of
the
partnership
business,
with
an
intention
to
turn
them
into
an
income-producing
investment
if
that
could
be
done
in
the
way
the
partners
desired,
and
otherwise
to
deal
with
them
in
the
same
way
as
other
lands
acquired
in
the
same
and
other
transactions
were
to
be
dealt
with
in
the
course
of
the
partnership
business.
In
this
view,
they
were
not
an
investment
in
the
sense
urged
at
the
time
they
were
acquired,
nor
did
they
acquire
that
character
from
anything
that
occurred
thereafter,
for
such
expenditures
of
money
and
effort
as
were
made
in
seeking
to
carry
out
that
purpose
were,
in
my
opinion,
quite
insufficient
to
give
them
such
a
character
to
the
exclusion
of
any
other,
and
it
was
always
open
to
the
partners
to
carry
out
the
alternative
plan
for
obtaining
profit
from
these
properties
by
selling
them
in
the
course
of
their
business.
Even
if
the
buildings
had
been
erected
by
the
partnership,
let
for
a
time,
and
subsequently
sold,
I
should
have
regarded
it
as
unlikely
so
long
as
the
business
was
being
carried
on
and
no
unequivocal
event
had
occurred
to
deprive
the
properties
of
their
revenue
character,
that
they
could
be
treated
as
having
been
solely
investments
in
the
sense
urged
or
that
any
gain
made
on
the
sale
of
them
should
be
treated
otherwise
than
as
income
from
the
partnership
business.
The
test
applicable
in
a
matter
of
this
kind
is
that
stated
as
follows
by
the
Lord
Justice
Clerk
in
Californian
Copper
Syndicate
v.
Harris
(1904),
5
T.C.
159
at
p.
165:
“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
realise
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
thereby
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
Ducker
v.
Rees
Roturbo
Development
Syndicate,
[1928]
A.C.
182,
Lord
Buckmaster,
at
p.
141,
after
referring
to
the
test
stated
in
Californian
Copper
Syndicate
v.
Harris
(supra),
applied
it
to
the
case
then
before
the
House
as
follows:
‘‘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,
it
may
well
be
that
the
partners
preferred,
as
the
course
by
which
profit
should
be
made
from
these
particular
lots,
to
carry
out
their
scheme
for
building
apartments
on
them
and
that,
with
this
in
mind,
they
held
them,
preferring
not
to
sell
them
even
at
a
profit
so
long
as
any
hope
for
the
success
of
that
scheme
remained.
But
that
is
far
from
saying
that
the
erection
of
apartment
buildings
to
be
held
as
income-producing
investments
was
the
sole
purpose
for
which
the
lots
in
question
were
acquired.
Sale
of
the
other
lots
included
in
the
same
purchase,
as
well
as
of
lands
acquired
in
other
transactions,
whether
such
lands
had
been
built
on
or
not,
was,
from
the
commencement
of
the
partnership,
one
of
the
means
by
which
profits
from
their
business
were
to
be
realized,
and,
since
the
scheme
for
apartments
on
the
lots
in
question
was
both
contingent
and
limited,
I
see
no
reason
to
think
that
sale
of
these
lots,
as
well,
was
not
also
contemplated
as
one
of
the
alternative
ways
in
which
they
would
be
turned
to
account
for
profit
if
the
scheme
for
building
apartments
thereon
should
fail.
In
my
opinion,
it
makes
no
difference
for
the
present
purpose
that,
if
the
apartment
buildings
had
been
built
as
planned,
profit
might
have
been
obtained
from
them
in
the
form
of
rentals.
The
material
facts
are
simply
that
the
partnership
business
included
dealing
in
building
lots
and
that
two
properties,
bought
generally
for
the
purpose
of
that
business,
were
sold
at
a
profit
in
the
course
of
carrying
it
on
and
as
an
incident
of
it.
The
profits
in
question,
in
my
opinion,
were
accordingly
profits
from
that
business
and
were
properly
assessed.
The
appeal
will
be
dismissed
with
costs.
Judgment
accordingly.