Minister of National Revenue v. Henry 8. Rosenberg, [1962] CTC 372, 62 DTC 1216

THORSON, P.:—This is an appeal from two decisions of the Tax Appeal Board, each sub nom. No. 631 v. M.N.R. (1959), 22 Tax A.B.C. 88, and dated June 2, 1959, one allowing the respondent’s appeals against his income tax assessments for 1949, 1950, 1951 and 1952 and the other allowing his appeal against his income tax assessments for 1953.

The issue in the appeal is whether certain amounts realized by the respondent in the years under review from mortgages and agreements for the sale of land which he, either by himself or in association with others, had purchased at a discount were properly included in the income tax assessments levied against him for the said years.

In re-assessing the respondent for these years the Minister added to the amounts of income respectively reported by him in his income tax returns the following amounts, namely, $3,531.92 for 1949, $15,225.29 for 1950, $11,357.82 for 1951, $12,981.65 for 1952 and $7,362.30 for 1953. These amounts represented in each year the total of the amounts of the discounts which the respondent realized in the year from the purchased mortgages and agreements on their maturity in such year. The respondent filed notices of objection to the assessments for 1949, 1950, 1951 and 1952 pursuant to Section 53 of The Income Tax Act, Statutes of Canada 1948, c. 52, and a notice of objection to the assessment for 1953 pursuant to Section 58 of the Income Tax Act, R.S.C. 1952,

e. 148. The Minister confirmed the assessments and notified the respondent accordingly. He appealed against them to the Tax Appeal Board, which heard all his appeals together. It allowed the appeals by the decisions referred to and it is from these decisions that the appeal to this Court was brought.

This is one of the sixteen appeals referred to in the reasons for judgment in M.N.R. v. Spencer, [1961] C.T.C. 109, in which the Minister has appealed from decisions of the Tax Appeal Board allowing taxpayers’ appeals against income tax assessments in the belief that it was bound to do so by reason of the decision of Cameron, J., in Cohen v. M.N.R., [1957] Ex. C.R. 236; [1957] C.T.C. 251.

The amounts which the Minister added to the amounts of the respondent’s declared income were profits realized by him in the years under review from the mortgages and agreements for sale that he, or he and his associates had purchased at a discount.

The details of the said purchases were set out in a schedule, filed as Exhibit 1. This shows the address of the mortgaged property and the name of the mortgagor, the type of the mortgage, that is to say, whether it was a first, second, third or fourth mortgage, the date of its purchase, its face value, that is to say, the amount remaining unpaid under it at the date of purchase, its cost, that is to say the amount that was paid for it by the respondent or by him and his associates, the rate of interest carried by it, the amount of the discount at which it was purchased and the amount realized by the respondent in the year in which it matured. Altogether there were 48 mortgages purchased between November 5, 1945, and December, 1951. In addition to the mortgages shown on Exhibit 1 there were the properties called the Searboro properties purchased in 1945, consisting of 2 unsold properties, 7 first mortgages and 48 agreements for the sale of land. The totals of the profits respectively realized by the respondent in the years under review, as shown by Exhibit 1, correspond with the amounts which the Minister added to the amounts of income declared by the respondent.

There is no dispute about the correctness of the figures. They were accepted by the respondent as set out in Exhibit 1. The issue in the appeal is a familiar one, namely, whether the profits realized by the respondent were capital accretions from investments as claimed by him and, therefore, not subject to income tax or profits from a business or an adventure or concern in the nature of trade as found by the Minister and, therefore, taxable income within the meaning of Sections 3 and 4 and Section 127(1) (e) of The Income Tax Act, as amended, or Sections 3 and 4 and Section 139(1) (e) of the Income Tax Act.

Sections 3 and 4 of the Acts referred to 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 for a taxation year from a business or property is the profit therefrom for the year. ’ ’

And Section 127(1)(e), later Section 139(1) (e), defines ^business ’ ’ as follows:

“(e) business’ includes a profession, calling, trade, manufacture

or undertaking of any kind whatever and includes an adventure or concern in the nature of trade but does not include an office or employment;”

The distinction between profits that are subject to income tax and those that are not, together with the test to be applied in determining on which side of the line they fall, was clearly stated in the well-known case of Californian Copper Syndicate (Limited and Reduced) v. Harris (1904), 5 T.C. 159. There the Lord Justice Clerk said, at page 165:

“It is quite a well settled principle in dealing with questions of assessment of Income Tax, that when 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 realization or conversion of securities may be so assessable, where what is done is not merely the realization or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business.’’

And then, at page 166, he made the famous statement of the test to be applied :

“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 realizing a security, or is it a gain made in an operation of business in carrying out a scheme for profit-making?”

The italics are mine.

It cannot be too strongly stressed that the answer to the question whether the profits realized by a taxpayer from transactions into which he has entered are subject to income tax or not must depend on the facts and surrounding circumstances of the case and the true nature of the transactions from which the profits were realized.

I had occasion to consider this question in the Spencer case (supra). There I referred to the decision of Cameron, J., in the Cohen case (supra) because of the difficult situation that had arisen due to the fact that the Income Tax Appeal Board had allowed so many taxpayers’ appeals in the belief that it was bound to do so by reason of the decision in that case and I expressed the following opinion, at page 124 :

“it is plainly erroneous to regard the decision in the Cohen case aS an authority governing the determination of the issues in the appeals from decisions of the Income Tax Appeal Board to which I have referred or as laying down a pattern of principles of general application in cases where a person had purchased mortgages at a discount or acquired them with a bonus and realized profits from them at their maturity. The decision did not purport to be such an authority or to lay down such a pattern. It was based on a conclusion reached by Cameron, J., as the result of inferences that he drew from the facts as he viewed them and its applicability is restricted accordingly.’’

The remarks that I made in the Spencer case relating to the Cohen case are as applicable in this case as they were in that one and are incorporated in these reasons without repetition of them.

After expressing the opinion in the Spencer case to which I have referred I went on to say, at page 125:

‘‘Indeed, there is no rule of general application in cases of the kind referred to except that in every ease the question whether the profits realized by a person who has purchased mortgages at a discount or acquired them with a bonus or enhancements of the value of investments or gains made ‘in an operation of business in a scheme for profit making’ or profits from an adventure or adventures in the nature of trade and, therefore, income within the meaning of sections 3 and 4 of the Income Tax Act is a question of fact and its determination must depend on the facts and surrounding circumstances of the case and the true nature of the transactions from which the profits were realized.”

I emphasize that the principle thus stated is the only principle sought to be enunciated in the Spencer case. And I went on to say, also at page 125:

“The statement thus made is merely a particular application of the well established principle that, in determining whether the profits realized from particular transactions, or a simple transaction, were capital accretions, or profits from a business or an adventure in the nature of trade and, therefore, taxable income, each case must be considered according to its facts’ as the Lord Justice Clerk said in the Californian Copper Syndicate case (supra).”’

In the Spencer case I referred, at page 115, to many cases in which the test laid down in the Californian Copper Syndicate case has been approved and, at page 125, I referred to numerous cases in which the principle that ‘‘each case must be considered according to its facts’’ has been stated by the Supreme Court of Canada. The citations referred to are incorporated in these reasons.

It follows, accordingly, that the decision in the present case must be made according to its own facts and surrounding circumstances so that the true nature of the transactions from which the respondent realized the profits which the Minister included in the assessments under review may be determined.

I, therefore, proceed with a review of the facts and surrounding circumstances of the case based on the evidence of the respondent himself. I should add that in the course of his testimony he, as might be expected, expressed personal opinions and made statements that were really matters of argument rather than of fact.

The respondent is a responsible barrister and solicitor of good standing in the City of Toronto. He has practised there since 1923 except for a period during the war years when he acted as deputy administrator of used goods for the Department of National War Services at Ottawa. In the years under review he was the head of the law firm of Rosenberg and Smith which his son Alvin joined in 1949. Since then his firm has grown and it is now Rosenberg, Walsh, Kroll, Smith and Paton. The firm carried on a general commercial law practice, dealing with such matters as corporations, estates, Income tax, real estate, mortgages and investments. There was some tendency towards organizing the work into departments, the son handling the real estate and mortgage transactions and the respondent looking after corporation and income tax matters, but there was no sharp division of duties. The respondent held staff meetings from time to time and generally kept abreast of the activities of the office. The real estate and mortgage work formed a substantial part of the firm’s business and its volume ran into some millions of dollars per year. It acted for vendors and purchasers of real estate, subdividers, builders, persons who wanted to put out money and persons who wished to borrow. The firm had a substantial staff engaged in collections, including the collection of mortgage payments owing to its clients.

I have already referred to the fact that a schedule of the mortgages and agreements purchased by the respondent or by him and his associates was filed as Exhibit 1. In this connection I shall refer first to the evidence relating to the so-called Scarboro properties, 97 in all. Mr. F. J. Cocksedge, a real estate agent in the Township of Scarboro, had put through a subdivision in the township. Lots in it on which working men’s houses had been built had been sold under agreements for sale. Mr. Cocksedge held the title to these lots and was entitled to receive the payments owing under the agreements. In 1945 he decided to retire and move back to England. Before doing so he negotiated with Mr. J. M. Bennett, who had been his solicitor, and made an arrangement with him whereby Mr. Bennett would take over his interest in the properties at an agreed price. His interest consisted of 2 unsold lots, 7 first mortgages and 48 agreements for sale under which there were still unpaid instalments. The houses on the lots were all small houses, mostly of frame construction. The average price at which the properties had been sold was around $2,500. The down payments were small and the balances were payable in instalments extending in some cases Over a period of 5 years, in others over a period of 10 years and in still others over a period of 15 years. After Mr. Bennett had made his arrangement with Mr. Cocksedge he approached the respondent and asked him, as the respondent put it, whether he had any clients that would like to make an investment in the Cocksedge properties. After some negotiations the respondent and three associates decided to take over Mr. Bennett’s interest in the properties. The associates were Mr. Arthur Cohen and Mr. Max Simon each of whom took a /3 share and Mr. Wolf Goldstein who took a % share, leaving a /6 share for the respondent. It was a condition of the joint purchase made by the respondent and his associates that Mr. Bennett should continue to manage the properties and handle the collections on the mortgages and agreements and remit the proceeds monthly to the joint purchasers in the proportions to which they were entitled. The purchasers did not inspect any of the properties. By a transfer of freehold land, dated July 6, 1945, Mr. Cocksedge transferred all the properties to Arthur Cohen, Wolf Goldstein, Henry S. Rosenberg, the respondent, and Max Simon and made an affidavit under the Land Transfer Tax Act in which he said “This conveyance is given to enable the purchasers to complete title when the balance of purchase money has been paid.’’ There was no evidence that any assignments of the agreements of sale to the purchasers were executed but the respondent stated that if there were any they would have been made to the purchasers. The respondent stated that the Scarboro properties transaction was a package deal and that he and his associates bought Mr. Cocksedge’s interest from Mr. Bennett for a lump sum which was paid to Mr. Bennett. Exhibit 1 shows that the amount remaining unpaid under the Scarboro mortgages and agreements was $97,327.41 and that the respondent and his three associates purchased them at a discount of $35,573.88. Mr. Bennett’s office made all the collections and remitted the proceeds to the purchasers monthly as payments were made. The respondent stated that the Scarboro agreements for sale were the only agreements for sale that he had purchased up to that time and that he had not purchased any agreements for the sale of land since then, either alone or in association with others. Exhibit 1 shows that the respondent received payments in respect of the Scarboro properties in each of the years under review.

The respondent stated that with the exception of the transactions relating to the Scarboro properties all the transactions listed in Exhibit 1 represented mortgages that had been purchased at a discount and had been paid at their maturity. He said that there were no advances of money on the security of mortgages. Some of the mortgages were purchased by the respondent alone but most of them were purchased by him in association with another or others. Mr. Arthur Cohen, who was the successful appellant in the Cohen case to which I have referred, was his associate in many of the purchases and to that extent was his partner in such transactions.

The respondent said that no purchases of mortgages were made from clients of the firm. In every case the vendor of the mortgage had his own solicitor who submitted it to the respondent or the mortgage was submitted to him by a broker. When the respondent decided to purchase a mortgage, either by himself or with an associate or associates, his firm did all the necessary legal work, such as searching the title, drawing the mortgage, making the necessary adjustments and, indeed, doing the same kind of legal work that would be done if it were acting for a client.

I should say here that Exhibit 1 did not specify the type of mortgage in every case shown on it. The respondent supplied the missing particulars in many cases but there were several cases in which he could not recall whether the purchased mortgage was a first mortgage or a second or third one, but he did say that even if it was a first mortgage it would be a property or in an amount that would not have been acceptable to an ordinary loan company such as an insurance company.

The respondent did not always inspect the property covered by the mortgage being considered for purchase. Indeed, he seldom did so, but, as he put it, he always acquainted himself with sufficient information about the property in order to enable him to decide whether he should purchase the mortgage on it or not. He either inspected the property or analyzed the available figures relating to the likely income that might come from it.

Special mention should be made of the purchases of mortgages on hotels, all of which had licences to sell beer and wine and some also had licences for cocktail lounges, and the steps taken by the respondent before such mortgages were purchased. There are 15 of them listed in Exhibit 1 and the discounts at which they were purchased came to a total in excess of $75,000. Their purchase, therefore, formed a very substantial part of the mortgage purchase activities of the respondent and his associates. In these cases it was the practice of the respondent, before he decided on the purchase of the mortgage, to check with the Ontario Liquor Control Board for the records of the hotel’s purchases of beers and wines. Apparently, the valuation of such a hotel property is related to the gallonage of its sales of beer and wine. The respondent had some one make a check on the going prices for the sale of such hotels based on such gallonage sales in order to enable him to determine whether the owner of the hotel had a sufficient equity in it to carry the mortgage the purchase of which was being considered. In the case of two of the hotels referred to in the exhibit the mortgage that was purchased was a first one, a very short term one, and in the other cases the mortgages were second, third or even fourth mortgages. The respondent was generally not alone in purchasing these hotel mortgages. When he had made the checks to which I have referred and obtained the desired information he passed it on to his associates and if they had any relative information they gave it to him. The hotel mortgages were short term mortgages. Only one was for 5 years and there was one for 4 years. Most of them were for 3 years and three of them were for only one year.

The evidence indicated that neither the respondent nor his firm advertised that he or his firm had money to lend. The respondent’s son Alvin advertised in one year that a client of his had some money to lend but there is no indication that any of the mortgages listed in Exhibit 1 originated from these advertisements. It did, however, become known that the respondent’s firm had clients who would be willing to invest money in properties that the loan companies would not consider, but the respondent doubted whether it was known that he had money to put into such properties.

The respondent’s firm collected all the payments on the mortgages referred to in Exhibit 1 as they came in just as it made mortgage payment collections for its clients. It kept a ledger account for each mortgage and charged the same collection fees as it charged to its clients generally. Each month it sent the purchasers their proportion of the payments that it had collected for them.

Exhibit 1 shows that the interest rates carried by the mortgages listed in it ran from 314 per cent per annum up to 7 per cent. Evidence was given for the Minister by Mr. John MacLeod, the manager of the Canada Permanent Toronto General Trust Company, that the rates of interest on first mortgages of prime residential property in the Toronto area, where the amount of the loan did not exceed 60 per cent of the valuation of the property, were 5 per cent per annum from 1945 to 1950, 514 per cent to 6 per cent in 1951, 6 per cent in 1952 and 1953 and then 61% per cent. He was unable to give any information as to the going rate on second mortgages. The respondent expressed some opinions on the matter. It was his view that the interest rates on other than first class first mortgages were the same as on such first class first mortgages and that if there was any defect in a second or third mortgage as a security it was reflected in the form of a discount or bonus. That was the practice in Toronto, although there were cases of interest rates of 10 per cent plus a bonus. Ordinarily, the rate of interest was the going rate. This was an advantage to the borrower who preferred to have the going rate on his second mortgage even although he had not received the amount of its face value. He found it easier to sell his property if he wished to do so if his second mortgage carried the going rate than if it carried a rate of, say, 12 per cent.

When the respondent said that neither he nor his associates purchased mortgages from clients of the firm and that he and they purchased only existing mortgages from owners of them he qualified his statement in respect of some cases where the mortgagor had nominated some one of his office to become the mortgagee in the first instance and the mortgage was then assigned to a purchaser or purchasers. He gave three specific instances of such transactions. One of them related to the Westmoreland Hotel. In that case the mortgage was taken in the name of Miss

B. M. Roberts, an employee of the firm, and the mortgage was then assigned by her to Mr. Cohen, Mr. Simon, Mr. Alvin Rosenberg and the respondent. Two other instances were given and the respondent said that there were one or two others. There was one other case where the transaction, referred to in Exhibit 1 as the Rochel Realty Ltd., was really a transaction in which the respondent took a mortgage in payment of the contribution that he had made to the cost of a building.

I come finally, in this review, to the respondent’s statements of his intention and purpose in entering into the transactions from which he realized the profits that were included in the assessments under review and his view of them as part of the investment programme that he had set for himself. He did not borrow any money for the purpose of purchasing morgtages. He had set aside 10 per cent of his available investment funds for investment in this type of securities. The funds were his own. He had cashed his insurance policies when his children had grown up, had sold properties at a profit, had saved substantial sums from his law practice and had made money on the stock market, but basically the source of his funds had been his law practice. He had other investments, such as real estate holdings, long term first mortgages, blue chip shares in listed companies, interests in several companies and cash and bonds.

He decided that he could put a small portion of his investment funds into the purchase of mortgages that would not be acceptable to loan companies. He felt that in every case the amount that he put into the purchase of such a mortgage would be safe and that if it was paid up in full the excess of the amount that he would receive over what he had put in would make up for the capital risk that he had taken.

When he was asked by his counsel what his purpose in entering into the mortgage purchase transactions listed in Exhibit 1 had been he answered that the purchases formed part of his investment programme. He would receive a normal interest return on his money and there was the chance, if the security was paid in full, that he would make an additional capital amount. He entered into the transactions because he knew that he was sure to get interest on his money at the rate of 4 or 5 per cent and that if it turned out that the mortgagor paid in full he would also get an additional amount. He was buying a speculative security. If the mortgagor did not pay up he would suffer a capital loss but he took that chance. He entered into the transactions in the hope of making capital gains. He used the hotel mortgages as an example of what he had in mind. He took the risk of a capital loss if the manager should do something wrong and thereby lose his licence but he could afford to take the chance of loss involved in purchasing a speculative security because he had other securities that were not speculative.

When he was questioned about the short term nature of the hotel mortgages he expressed the opinion that a 3-year mortgage was a prudent investment. The owners might lose their licences and it would be preferable to have protection against inflation. It was his view that it was unwise for an individual to invest in any mortgage for a period longer than 5 years, for he could lose his capital as the result of inflation.

The respondent also stated that it was desirable to have short term mortgages in the interest of liquidity for succession duty purposes. It was also desirable to have a diversification of investments.

When the respondent was asked why he had purchased the mortgages in association with others his answer was that he would never have bought them by himself. It was his policy and intention to make the best use that he could of the surplus funds that he had and to earn income from them in addition to his earnings from his practice. It was to that end that he had devised an investment policy that he thought was right. He added that in the last 10 or 15 years it was pretty hard to go wrong. That’s why he said that he and his associates had been lucky, for there was only one mortgage that went bad but that loss did not fall in any of the years under review. Indeed, the respondent and his associates did very well out of their transactions for the total amount of the discounts at which the mortgages and agreements had been purchased came to $180,460.88.

I come now to the disposition of the appeal herein. I agree with the submissions of counsel for the respondent that the mere fact that the respondent and his associates had purchased mortgages at a discount did not put them into the category of conducting a business or entering upon an adventure in the nature of trade and that the mere fact that the respondent had entered into the mortgage purchase transactions with the expectation and hope of profits from them did not render his realized profits taxable: vide Jones v. Leeming, [1930] A.C. 415; M.N.R. v. Taylor, [1956] C.T.C. 189. And it may well be that the realization of a discount could be a return of capital. I have also considered the facts that the respondent did not borrow any money to put into the purchase of mortgages, that no advances were made to clients and no mortgages purchased from them and that neither the respondent nor his firm had advertised that he or it had money to lend. And I listened carefully to the respondent’s statements of his intention and purpose in entering into his mortgage purchase transactions and his explanation of his reasons for his course of conduct. Nor is the multiplicity of the transactions by itself a determining factor although it is important when combined with other factors. And I agree that the mere fact that the respondent was a solicitor did not make his mortgage purchase transactions a business or an adventure in the nature of trade.

Counsel for the respondent also pointed out the factual distinctions between the present case and the Spencer case to which I have referred and also the case of M.N.R. v. B. Minden, [1962] C.T.C. 79, but I need not enumerate the differences that he pointed out, for in applying the principle that ‘‘each case must be considered according to its facts’’ the Court must consider the facts in their totality. It must not consider them singly.

While the Lord Justice Clerk in the Californian Copper Syndicate case (supra) said that the line that separates the two classes of cases to which he had referred was difficult to define, I have had no difficulty in reaching the conclusion, after considering the facts of this case in their totality, that when the respondent realized his profits from his transactions they were gains made by him in operations of business in carrying out a scheme for profit making.

In my opinion, it would be unrealistic to think of the purchases of the mortgages and agreements for sale listed in Exhibit 1 as investments. They were certainly not ordinary investments of the kind contemplated by the Lord Justice Clerk in the Californian Copper Syndicate case (supra). This was not a case of a person acquiring an investment and then choosing to realize it and obtaining a greater price or enhancement of value at all. The respondent received exactly the amounts that were expected when the mortgages and agreements were purchased. Moreover, the agreements and mortgages were certainly not of the kind that would be considered for investment purposes by a prudent person who was primarily concerned with securing a fair return on his money. They were admittedly of a highly speculative nature. Here I might refer to the fact that in the Cohen case to which I have referred Cameron, J., said, in effect, at page 244, that he did not agree that the primary purpose of the taxpayer in the case before him was to secure the discounts. In the present case there is no doubt at all that the respondent entered into the transactions in the hope, as he put it, of making capital gains. That was plainly his purpose in purchasing what he called speculative securities. It was, as he said, his policy and intention to make the best use that he could of the surplus funds that he had and he was willing to take the chance of loss in order to make the profits that he expected to realize when his mortgages and agreements were paid up. And while he spoke of the risks of loss he took particular care to avoid them. Indeed, it was not very difficult to do so for, as he put it, ‘‘in the last 10 or 15 years it was pretty hard to go wrong’’.

The attraction of the transactions to the respondent was not the amount of the income return by way of interest that came from them but the prospect of the profits that he would make when the discounts at which the mortgages and agreements had been purchased were realized on their maturity. The mortgages and agreements were purchased for the purpose of making these profits.

Here I should refer to the so called “Searboro properties”. Certainly, the 7 mortgages and 48 agreements for sale were not of the kind that would ordinarily be considered for investment purposes. The houses were small frame houses and the instalment payments were small and spread over a large number of years. The respondent did not inspect any of the properties but he and his associates purchased all the mortgages and agreements in a package deal. It is true that Mr. Bennett was to continue to manage the properties and make the collections. While there is no evidence of how he was to be paid for his services it is not to be assumed that he rendered them for nothing. It is important to note that the respondent and his associates were willing to take the good with the bad for the discount was a very large one, over 39 per cent. If the purchase of the Scarboro properties should be regarded as an isolated transaction it should be regarded as an adventure or concern in the nature of trade. But, in my opinion, the transaction should not be regarded as an isolated one but rather as the commencement of the respondent’s scheme for profit making for it was very soon after the consummation of the Searboro properties transaction that the respondent embarked upon 'his course of purchasing mortgages at a discount either by himself or in association with others.

When I say that the mortgages and agreements for sale purchased by the respondent or by him and his associates were not ordinary investments of the kind contemplated by the Lord Justice Clerk in the Californian Copper Syndicate ease I should refer particularly to the hotel property mortgages which formed such a large part of the mortgage purchase activities. It would be unrealistic to think of these mortgages as investments. The respondent made it his special business to investigate the surrounding circumstances before he decided on the purchase of a hotel mortgage. Investigations such as he made would not ordinarily be made by an investor who was primarily concerned with securing a fair interest return on his money. The hotel mortgage purchases were not investments at all. They were plainly speculative transactions for profit making purposes. And the stakes for which the respondent and his associates played were, as I have indicated, very high. It is interesting to note that 5 of the 15 hotel mortgages listed in Exhibit 1 were paid off within about a year. That is certainly not indicative of an investment.

It may also be fairly considered that the fact that the respondent entered into many of the transactions referred to in partnership with associates indicated that they were joint ventures for profit making rather than Joint investments.

And I am also of the view that the short term nature of the mortgages is more indicative of a business venture than of an investment. Certainly, the purchase of mortgages that would mature at an early date would enable the respondent to realize his large discounts quickly and so make the best use that he could of the funds that he put into what he alled speculative securities.

And while I agree that the multiplicity of the transactions into which the respondent entered does not by itself determine that they were operations of business in carrying out a scheme for profit making it is a very important factor when it is considered in the light of the surrounding circumstances. In this ease the multiplicity of the transactions is a strong indication that the transactions were not entered into for investment purposes.

After consideration of the facts of ‘this case in their totality, I find without hesitation that the respondent for himself as well as for his associates devised and carried out a very effective scheme for profit making, that the mortgages and agreement of sale which were purchased at a discount were operations of business in carrying out the scheme and that the profits realized by him from the transactions constituted gains made in operations of business in carrying out a scheme for profit making and as such were subject to income tax under Sections 3 and 4 of the applicable Act. And, in any event, the transactions constituted an adventure or concern in the nature of trade within the meaning of the definition of “business” in Section 127(1) (e), later Section 139(1) (e), of the applicable Act.

I should perhaps say that my finding in this case does not imply any adverse comment on the respondent or on the manner in which he gave his evidence. I do not accept his argument, for that is what it was, but he had the right to advance it.

For the reasons given I find that the Minister was right in assessing the respondent as he did and his appeals from the assessments for 1949, 1950, 1951, 1952 and 1953 are all accordingly dismissed.

It follows, of course, that the Minister’s appeal herein must be allowed with costs.

Judgment accordingly.