CATTANACH,
J.:—This
is
an
appeal
from
a
judgment
of
the
Tax
Appeal
Board
(34
Tax
A.B.C.
429)
dated
January
31,
1964,
whereby
an
appeal,
by
the
respondent
against
his
income
tax
assessment
for
its
taxation
year
1961,
was
allowed
and
the
pertinent
assessment
was
ordered
vacated.
The
appellant,
in
assessing
the
respondent
for
its
1961
taxation
year,
added
to
the
respondent’s
income
for
that
year
an
amount
of
$55,018.08
realized
as
profit
on
the
sale
of
land
as
being
income
from
an
adventure
or
concern
in
the
nature
of
trade.
The
respondent,
on
whom
the
onus
lies,
does
not
dispute
the
accuracy
of
the
amount
of
profit
so
realized,
but
does
contend
that
such
gain
does
not
constitute
taxable
income,
but
was
rather
a
‘‘capital
gain’’.
The
respondent
says
that
it
had
been
incorporated
for
the
sole
purpose
of
erecting
and
carrying
on
the
business
of
a
shopping
centre
to
obtain
rental
income
therefrom
;
that
real
property
was
acquired
for
the
sole
purpose
of
securing
an
advantageous
site
for
the
proposed
shopping
centre;
that
definite
and
unequivocal
steps
were
taken
towards
that
end
;
that
a
well
established
competitor
had
subsequently
decided
to
locate
in
the
identical
area
and
subjected
the
respondent
to
irresistible
pressure
to
sell
the
site
to
it.
Accordingly
the
respondent
says
that
it
was
frustrated
in
its
project
of
developing
a
shopping
centre
and
had
no
alternative
but
to
sell
to
its
competitor
and
that
the
transaction
was,
therefore,
not
an
adventure
or
concern
in
the
nature
of
trade.
The
question
for
determination
is,
therefore,
whether,
in
the
light
of
all
the
surrounding
circumstances,
the
transaction
in
question
is
‘‘an
adventure
in
the
nature
of
trade”
and
the
profit
therefrom
is
income
from
a
business
for
the
purposes
of
the
Income
Tax
Act
under
Sections
3,
4
and
139(1)
(e)
thereof,
or
whether
the
sale
of
the
real
property
was
the
realization
of
a
capital
asset
and
the
proceeds
of
such
realization
were,
therefore,
capital
and
not
income
within
the
meaning
of
the
Income
Tax
Act.
The
prime
motivator
of
the
proposal
to
erect
a
shopping
centre
was
Allan
E.
Facey
who
was
also
the
principal
witness
for
the
respondent.
Mr.
Facey
had
considerable
experience
in
the
construction
trade,
having
been
14
years
with
a
well
known
construction
company,
his
function
being
to
estimate
building
costs.
Latterly
he
spent
7
years
as
general
manager
of
a
company
engaged
in
the
development
of
properties
such
as
office
buildings
and
shopping
centres.
In
the
course
of
his
employment
he
was
responsible
for
the
supervision
of
the
construction
of
three
neighbourhood
shopping
centres
which
entailed
engaging
architects
and
consulting
engineers,
arranging
for
sanitary
sewers,
lighting
of
parking
lots
and
the
like.
From
his
association
with
the
trade
he
became
aware
that
Dominion
Stores
Limited,
which
operated
a
number
of
grocery
supermarkets,
(hereinafter
referred
to
as
Dominion)
was
particularly
anxious
to
have
a
shopping
centre
erected
contiguous
to
one
of
its
existing
supermarkets
located
in
the
Village
of
Aldershot,
which
was
on
a
main
highway
in
close
proximity
to
the
metropolitan
area
of
Hamilton,
Ontario.
A
brief
and
superficial
investigation
of
the
site
convinced
Mr.
Facey
that
it
offered
eminently
suitable
prospects
for
the
construction
of
a
successful
shopping
centre.
He,
therefore,
saw
an
opportunity
for
setting
out
a
potentially
prosperous
project
on
his
own
behalf,
in
a
field
for
which
his
experience
best
suited
him.
While
Mr.
Facey
had
limited
capital
of
his
own,
which
included
a
possible
loan
of
about
$25,000
to
$30,000
from
his
late
father’s
estate
which
he
valued
at
$300,000,
nevertheless
he
could
not
carry
the
project
on
his
own.
Accordingly,
he
enlisted
the
participation
of
James
Bitove,
a
former
schoolmate
who
operated
a
number
of
coffee
shops,
John
Bitove,
brother
of
James,
Bruce
Kinsella
(John
Bitove
and
Kinsella
were
shareholders
of
a
company
known
as
Kinsella
Design
Associates
Limited,
which
company
was
engaged
in
the
design
and
manufacture
of
store
fronts
and
fixtures),
and
David
Fine,
a
chartered
accountant.
Later
Nicholas
Bitove,
the
father
of
James
and
John,
who
was
retired
but
possessed
some
means,
was
induced
to
join
the
project.
These
persons
were
instrumental
in
obtaining
the
incorporation
of
the
respondent
company
under
the
name
of
Aldershot
Shopping
Plaza
Limited,
pursuant
to
the
laws
of
the
Province
of
Ontario
by
letters
patent
dated
September
28,
1960
for
the
following
objects:
“TO
purchase,
lease,
take
in
exchange
or
otherwise
acquire
lands
or
interests
therein
together
with
any
buildings
or
structures
that
may
be
on
the
said
lands
or
any
of
them
and
to
hold,
enjoy,
manage,
improve
and
assist
in
improving
such
lands
and
to
construct,
develop
and
operate
shopping
centres
in
all
their
aspects
;”’
Prior
to
the
incorporation
of
the
respondent,
the
participants,
with
the
exception
of
Nicholas
Bitove
who
joined
the
project
at
a
later
time,
met
to
consider
the
project
in
July
or
August
of
1960.
They
had
before
them
an
analysis
of
the
site,
prepared
for
another
party,
and
the
benefit
of
Mr.
Facey’s
examination
of
the
site
and
his
experience.
They
decided
that
the
site
was
a
promising
one.
It
is
true
there
was
a
sewer
problem
but
it
seemed
capable
of
solution.
It
was
estimated
that
the
cost
of
the
project
would
be
$1,200,000
inclusive
of
the
cost
of
the
land
which
was
$240,000.
The
construction
of
the
building
and
other
improvements
would
be
approximately
$1,000,000.
The
building
would
contain
35
stores,
the
rental
of
which
would
yield
an
estimated
15
per
cent
return
on
the
monies
expended.
It
was
anticipated
that
financing
of
construction
would
be
by
means
of
a
first
mortgage
in
the
amount
of
$750,000.
Secondary
financing
was
also
contemplated
as
necessary
and
any
balance
remaining,
when
the
amount
of
the
secondary
financing
available
was
known,
would
be
put
up
proportionately
by
the
participants.
The
participation
in
the
project
was
to
be
one-sixth
each
by
James
Bitove,
John
Bitove,
David
Fine
and
Allan
Facey
and
two-sixths
by
Bruce
Kinsella.
A
mortgage
broker
was
consulted
who
was
optimistic
about
obtaining
a
first
mortgage
in
the
required
amount
predicated
upon
the
successful
negotiation
of
leases
for
the
premises
before
construction
began,
However,
no
steps
appear
to
have
been
taken
to
obtain
secondary
financing
although
several
possible
sources
were
mentioned
by
Mr.
Facey
with
whom
he
had
had
previous
dealings.
The
preliminary
financing
was
in
the
amount
of
$15,000.
James
Bitove,
John
Bitove,
Fine
and
Facey
each
put
up
$1,000
and
Kinsella
put
up
$2,000,
making
a
total
of
$6,000.
The
remaining
$9,000
was
put
up
by
Kinsella
Design
Associates
Ltd.,
and
was
advanced
as
required.
An
offer
to
purchase
was
submitted
to
Dominion
(which
incidentally
had
been
attempting
to
dispose
of
the
land
for
between
five
and
seven
years,
to
someone
who
would
build
a
shopping
centre
on
it)
by
Kinsella
Design
Associates
Limited
which
was
acceptable
to
Dominion.
Accordingly,
on
August
12,
1960
Dominion
entered
into
an
agreement
for
sale
with
Kinsella
Design
Associates
Limited
as
trustee
for
a
company
to
be
formed,
being
the
respondent
herein.
This
agreement
provided
for
the
sale
of
the
land
owned
by
Dominion
contiguous
to
its
existing
supermarket
building,
consisting
of
approximately
17.96
acres,
with
a
frontage
of
1200
feet
and
an
arterial
highway,
at
a
price
of
$240,000
to
be
paid
by
(1)
a
deposit
of
$1,000
on
the
signing
of
the
agreement,
(2)
$49,000
by
certified
cheque
on
closing,
the
closing
date
being
fixed
in
the
agreement
as
November
1,
1960,
and
(3)
the
balance
of
$190,000
by
giving
back
to
the
vendor
a
first
mortgage
covering
the
entire
property
to
mature
two
years
after
the
date
of
completion.
The
mortgage
was
to
contain
a
provision
whereby
the
mortgagor
was
entitled
to
obtain
partial
discharges
at
any
time
before
maturity.
It
was
also
provided
that
if,
on
or
before
the
closing
date,
the
respondent
should
not
have
obtained
(a)
all
necessary
permits
from
governmental
and
administrative
bodies
allowing
the
erection
and
operation
of
a
retail
shopping
centre,
(b)
all
necessary
permits
from
the
Department
of
Highways
allowing
access
from
the
adjacent
public
highway,
or
(c)
approval
of
Dominion’s
engineers
to
a
site
plan,
then
the
respondent
may
either
complete
or
terminate
the
agreement
at
its
discretion.
In
the
event
of
the
agreement
being
terminated
for
any
of
the
foregoing
reasons,
the
deposit
was
to
be
retained
by
the
vendor.
It
was
further
provided
that
should
the
respondent
not
be
able
to
obtain
permission
to
connect
the
storm
sewers
or
water
mains
or
should
it
be
unable
to
arrange
for
sanitary
sewer
facilities
to
be
brought
to
the
perimeter
of
the
property
to
service
the
shopping
centre
in
due
time
for
the
completion
thereof,
the
respondent
at
its
option
might
also
terminate
the
agreement.
By
a
schedule
to
the
agreement
Dominion
was
granted
certain
easements
permitting
of
access
and
maintenance
and
by
a
further
schedule
Dominion
reserved
the
right
to
exercise
control
over
the
construction
of
all
buildings
within
600
feet
of
its
existing
building,
the
respondent
undertook
to
maintain
an
access
road
until
dedicated
and
accepted
as
a
public
highway
and
the
respondent
also
undertook
not
to
permit
the
erection
of
any
building
on
the
land
which
would
be
used
to
compete
with
Dominion
for
30
years.
The
respondent
thereupon
began
its
efforts
to
bring
the
proposed
shopping
centre
into
existence.
Brochures
were
prepared,
printed
and
circulated
to
prospective
tenants
at
a
cost
of
$1,227.50,
engineers’
fees
were
incurred
to
the
extent
of
$1,082,
architects’
fees
in
the
amount
of
$1,756,
and
survey
fees
amounting
to
$212.
The
respondent
arranged
to
share
office
space
with
David
Fine
at
a
monthly
rental
of
$175,
employed
secretarial
assistance
and
undertook
to
pay
Facey
a
salary.
Mr.
Facey
was
willing
to
accept
only
one-half
of
the
agreed
salary
and
to
wait
for
the
balance
and
the
respondent’s
solicitor
also
agreed
to
defer
payment
of
his
fees
until
the
affairs
of
the
respondent
prospered.
It
was
a
condition
precedent
to
obtaining
a
mortgage
commitment
that
firm
lease
commitments
be
obtained
from
reliable
tenants
for
the
shopping
centre
when
erected.
Voluminous
correspondence
was
therefore
entered
into
with
various
prospective
lessees,
but
only
one
signed
lease
was
obtained
although
optimistic
negotiations
were
being
conducted
with
other
tenants
who
expressed
definite
interest.
F.
W.
Woolworth,
a
variety
store,
was
willing
to
sign
a
lease,
in
a
form
approved
by
it,
which
contained
a
clause
that,
should
Dominion
sell
or
abandon
its
grocery
market,
then
Woolworth
could
terminate
its
proposed
lease.
The
respondent
unsuccessfully
tried
to
have
this
provision
removed
because
it
was
informed
and
foresaw
that
the
amount
of
first
mortgage
monies
that
could
be
obtained
might
be
reduced
as
a
consequence.
The
respondent
was
unable
to
close
on
the
agreed
date
and
Dominion
readily
agreed
to
an
extension.
In
January
1961
Dominion
also
gave
its
approval
to
a
site
plan
as
contemplated
by
the
agreement
for
sale
dated
August
12,
1960,
but
the
respondent
never
did
obtain
the
permits
necessary
to
begin
construction
as
were
also
contemplated
in
the
above
agreement,
nor
was
construction
of
the
proposed
shopping
centre
ever
begun.
Towards
the
end
of
January
1961,
Mr.
Facey
was
informed
by
the
property
manager
of
Dominion
that
Towers
Marts
of
Canada
Limited
(hereinafter
called
Towers)
had
decided
to
establish
a
large
discount
departmental
store
in
this
area
and
was
particularly
anxious
to
have
the
respondent’s
site
which,
because
of
its
prior
agreement
with
the
respondent,
Dominion
could
not
sell
to
Towers.
This
was
no
idle
threat
as
one,
H.
B.
Sussman,
acting
as
agent
for
Towers,
was
also
negotiating
for
available
property
just
across
the
highway.
In
addition
there
is
no
doubt
that
the
advent
of
a
Towers
discount
store
in
such
close
proximity
to
the
respondent’s
site
effectively
destroyed
the
prospect
of
a
successful
shopping
centre
being
established
on
the
site.
Towers
was
introducing
a
new
form
of
merchandising,
and
had
unlimited
resources
to
do
so.
It
had
completed
its
first
store
in
Metropolitan
Toronto
and
it
had
enjoyed
a
phenomenal
success
and
caused
concern
among
retail
merchants,
particularly
operators
and
tenants
of
traditional
shopping
centres.
Further,
Towers
was
negotiating
with
Dominion
for
the
acquisition
of
a
number
of
other
locations
adjacent
to
Dominion’s
other
supermarkets.
The
directors
of
the
respondent,
being
the
persons
already
mentioned,
met
and
decided
to
negotiate
a
sale
to
Towers,
After
some
negotiation,
directed
mainly
to
price,
during
which
the
realities
of
the
situation
were
forcefully
brought
to
the
respondent’s
attention,
the
sale
of
1214
acres
was
agreed
upon
at
a
price
of
$805,000.
Towers,
having
achieved
its
purpose
in
acquiring
the
site
it
wished,
could
afford
to
be
magnanimous.
It
permitted
the
respondent
to
continue
negotiations
already
begun
with
prospective
tenants
for
which
it
agreed
to
pay
a
commission.
Towers
paid
the
real
estate
agent’s
commission
which
by
custom
in
the
area
was
normally
paid
by
a
vendor
and
Towers
was
also
agreeable
to
some
compensation
being
paid
to
the
respondent
for
its
efforts
which
was,
of
course,
reflected
in
the
sale
price.
The,
respondent
forthwith
closed
the
agreement
with
Dominion
and
on
the
same
day
transferred
title
to
Towers,
the
purchase
price
to
Dominion
being
paid
by
the
respondent
from
the
proceeds
of
the
sale
to
Towers.
Towers
purchased
only
121%
acres
of
the
17
acres
which
the
respondent
had
agreed
to
purchase
from
Dominion,
since
these
121%
acres
constituted
the
area
which
Towers
desired
for
the
erection
of
its
discount
store.
The
remaining
acreage
which
did
not
front
on
the
public
highway
but
was
situated
in
a
ravine
so
that
it
was
of
doubtful
utility,
was
retained
by
the
respondent
which
disposed
of
it
subsequently.
It
was
from
the
sale
to
Towers
that
the
respondent
realized
its
gain
of
$55,018.08
which
the
appellant
added
to
its
declared
income
for
the
1961
taxation
year.
On
the
evidence
adduced,
I
am
of
the
opinion
that
the
respondent,
when
it
entered
into
the
agreement
of
purchase
and
sale
with
Dominion
had
for
its
sole
purpose
the
erection
of
a
shopping
centre
on
the
land
to
be
acquired
and
to
derive
rental
income
therefrom.
In
so
concluding
I
have
not
overlooked
the
fact
that
the
respondent
was
faced
with
a
hard
and
tortuous
path
to
bring
its
project
to
completion,
primarily
because
of
the
limitation
of
its
financial
resources.
However
there
was
a
real
possibility
of
all
obstacles
being
overcome
and
of
the
objective
being
achieved.
The
fact
that
the
respondent
had
not
completed
the
mortgage
financing
and
other
arrangements
for
its
shopping
centre
at
the
time
it
sold
to
Towers
does
not
warrant
an
inference
that
it
had,
from
the
beginning,
contemplated
resale
of
the
property,
inasmuch
as
such
sale
occurred
before,
in
the
ordinary
course
of
events,
such
arrangements
would
have
been
made.
The
amount
of
the
deposit,
which
the
respondent
stood
to
lose
if
it
terminated
the
agreement
for
purchase
was
$1,000
which
is
negligible
in
relation
to
a
project
of
this
magnitude.
However
the
respondent
did
expend
approximately
$5,000
for
architects
and
engineers
fees,
surveys
and
the
like,
which
were
directed
exclusively
to
the
construction
of
a
shopping
centre
on
the
site.
Further
the
agreement
for
sale
with
Dominion
was
subject
to
such
conditions
as
Dominion
considered
necessary
to
ensure
the
erection
of
a
shopping
centre
adjacent
to
its
supermarket
in
which
Dominion’s
advantage
laid
most.
Although
the
mortgage
was
to
contain
a
provision
for
partial
discharge,
such
provision
is
consistent
with
the
erection
of
the
shopping
centre
in
stages
and
allowed
the
respondent
to
dispose
of
such
part
of
the
land
as
might
be
unnecessary
for
its
shopping
centre.
If
the
land
was
capital
in
the
hands
of
the
respondent
then
the
surplus
over
its
requirements
would
also
be
capital
(see
Sterling
Paper
Mills
Inc.
v.
M.N.R.,
[1960]
Ex.
C.R.
401;
[1960]
C.T.C.
215).
The
conditions
imposed
by
the
provisions
in
the
agreement
with
Dominion
were
designed
to
ensure
that
a
shopping
centre
would
be
built
and
are
inconsistent
with
speculation
in
the
lands
for
any
other
purpose.
In
addition
to
direct
costs,
as
above
mentioned,
other
obligations
were
incurred
incidental
to
the
completion
of
a
shopping
centre.
I
have
in
mind
legal
fees,
the
establishment
of
an
office
with
secretarial
assistance,
although
on
a
modest
scale,
and
the
preparation
and
circulation
of
promotional
literature,
all
designed
to
secure
tenants
upon
which
the
availability
of
first
mortgage
money
depended
and
which
could
have
no
possible
effect
on
a
subsequent
sale.
The
short
existence
of
the
respondent
was
not
sufficient
to
put
it
into
the
business
of
dealing
in
shopping
centres.
In
my
view,
therefore,
the
agreement
for
sale
between
Dominion
and
the
respondent
constituted
a
capital
asset
rather
than
a
revenue
asset
and
I
can
see
no
valid
reason
for
not
considering
the
land
which
was
the
subject
of
the
agreement
for
sale
to
be
in
the
same
category.
Counsel
for
the
appellant
in
argument,
pointed
out
that
the
respondent
resold
the
land
before
it
was
under
any
obligation
to
buy
the
same
because
permits
contemplated
the
agreement
for
sale
had
not
been
obtained.
The
provision
in
question
reads:
“It
is
understood
and
agreed
that
if
on
or
before
the
date
provided
herein
for
completion
of
the
sale
and
purchase
the
Purchaser
shall
not
(a)
have
obtained
all
necessary
permits
from
all
governmental
or
administrative
bodies
having
jurisdiction
in
the
premises
allowing
the
erection
and
operation
on
the
lands
which
are
the
subject
of
this
agreement
of
a
retail
shopping
centre,
the
buildings
of
which
shall
have
a
minimum
ground
floor
area
of
25%
of
the
lands
covered
by
this
agreement
and
a
maximum
height
of
35
feet,
and
(b)
have
obtained
from
the
Department
of
Highways
all
permits
required
for
such
a
shopping
centre
allowing
access
to
the
same
directly
from
the
adjacent
public
highway,
(c)
have
obtained
the
approval
of
the
Grantor’s
engineers
to
a
site
plan
as
described
in
Schedule
C
’
herein
hereto
annexed,
which
approval
shall
not
be
unreasonably
withheld,
the
Purchaser
may
either
complete
the
purchase,
in
which
case
it
shall
have
no
claim
against
the
Vendor
for
the
fulfilment
of
the
above
conditions
(a)
and
(b)
and
(c)
or
otherwise,
or
the
Purchaser
may
by
notice
given
on
or
before
the
said
date
of
completion
terminate
this
agreement.
.
.
.”?
The
effect
of
such
provision,
as
I
see
it,
is
to
permit
the
purchaser
to
avoid
the
agreement
if
permits
essential
to
the
construction
and
operation
of
a
shopping
centre
were
not
forthcoming
after
reasonable
and
conscientious
efforts
to
obtain
them,
so
that
the
purchaser’s
enterprise
was
frustrated.
However,
the
provision
leaves
a
discretion
in
the
purchaser
either
to
terminate
the
agreement
in
the
eventuality
contemplated
or
to
complete
the
agreement.
It
is
not,
in
my
opinion,
a
condition
precedent
to
the
respondent’s
obligation
to
buy
the
property.
Counsel
for
the
appellant,
having
assumed
that
there
was
no
binding
obligation
between
the
parties,
then
submitted
that
even
if
the
agreement
between
Dominion
and
the
respondent
of
August
12,
1960,
which
he
construed
as
analogous
to
an
option,
was
entered
into
for
capital
purposes,
if
the
subject
matter
of
the
option,
or
in
this
case
the
subject
matter
of
the
agreement,
were
sold
before
the
exercise
of
the
option
or
the
completion
of
the
agreement,
then
that
transaction
is
a
concern
or
adventure
in
the
nature
of
trade.
As
authority
for
such
proposition
he
cites
the
decision
of
Thurlow,
J.
in
Hill-Clark-Francis
Lid.
v.
M.N.R.,
[1961]
Ex.
C.R.
110;
[1960]
C.T.C.
308.
During
the
course
of
the
argument
I
was
impressed
with
what
appeared,
superficially,
to
be
an
analogy
between
the
facts
of
the
present
case
and
these
under
review
by
Mr.
Justice
Thurlow
in
the
Ilill-Clark-Francis
case.
However
upon
subsequent
consideration
I
do
not
think
the
facts
are
actually
analogous,
nor
do
I
believe
that
the
decision
of
Mr.
Justice
Thurlow
is
authority
for
the
submission
advanced
on
behalf
of
the
appellant.
In
the
Hill-Clark-Francis
case
the
appellant
acquired
an
option
to
purchase
shares
of
a
company
which
was
the
source
of
lumber
supply
to
make
it
a
subsidiary
company.
It
was
found
as
a
fact
that
the
option
had
been
acquired
as
a
capital
asset,
but
the
shares
represented
by
the
option,
which
were
bought
and
sold,
were
regarded
differently
because
in
the
meantime
different
circumstances
intervened,
so
that
the
shares
in
question
became
a
revenue
asset.
Thurlow,
J.
had
this
to
say
:
“It
should
not,
I
think,
be
overlooked
that
what
the
appellant
acquired
for
a
capital
purpose
was
not
shares
at
all
but
an
option
for
which
it
paid
$100.
Had
the
appellant
gone
on
and
acquired
the
shares
with
the
same
purpose
in
mind
and
carried
out
its
plan
to
make
Poitras
Freres
Inc.
a
subsidiary,
the
shares
might
well
have
constituted
in
the
appellant’s
hands
assets
of
a
capital,
as
opposed
to
a
revenue
nature.
What
happened
in
fact
was,
however,
quite
different,
and
I
do
not
regard
it
as
in
any
real
or
practical
sense
the
equivalent
of
a
mere
realization
of
the
capital
asset
represented
by
the
option.
’
’
Much
more
than
the
option
and
its
value
was
involved.
The
sale
of
the
shares
also
involved
the
appellant
giving
up
its
right
to
a
lumber
supply.
In
the
present
case
the
circumstances
are
not
similar
to
those
in
the
Hill-Clark-Francis
case.
I
do
not
regard
the
sale
of
the
lands
that
were
the
subject
of
the
respondent’s
agreement
with
Dominion
as
being
in
any
real
or
practical
sense
other
than
the
realization
of
a
capital
asset.
The
appeal
is,
therefore,
dismissed
with
costs.
Judgment
accordingly.
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