CATTANACH,
J.:—These
are
appeals
by
the
appellant
herein
against
its
assessments
to
income
tax
for
the
taxation
years
1957,
1958,
1959
and
1960,
by
reason
of
the
inclusion
by
the
Minister
in
the
appellant’s
taxable
income
the
sums
of
(1)
$15,000
for
the
1957
taxation
year
as
a
forfeited
consideration
for
an
option
to
buy
land
from
the
appellant,
(2)
$10,000
for
the
1958
taxation
year
also
as
forfeited
considerations
for
an
option
to
buy
land
from
the
appellant,
(3)
$15,000
for
the
1960
taxation
year
as
a
forfeited
consideration
for
an
option
to
buy
land,
and
$93,312.88
as
a
profit
realized
from
a
sale
of
land
by
the
appellant
in
the
same
taxation
year.
(4)
For
the
taxation
year
1959
the
Minister
added
the
sum
of
$4,793.55,
which
had
been
paid
for
legal
fees
respecting
the
land
transactions,
to
the
deductible
business
expenses
of
the
appellant
rather
than
permitting
them
to
be
charged
against
the
amounts
realized
by
the
appellant
which
the
appellant
had
done
on
the
assumption
that
the
amounts
so
realized
were
capital
gains.
The
foregoing
figures
are
not
in
dispute
but
rather
the
dispute
is
as
to
the
taxability
thereof.
The
rival
contentions
of
the
parties
hereto
on
this
question
can
be
stated
quite
succinctly.
On
behalf
of
the
Minister
it
is
contended
that
the
appellant,
being
a
trading
company,
realized
the
above-mentioned
sums
as
profits
from
acts
done
in
what
was
truly
the
carrying
on
of
a
business
or
an
adventure
in
the
nature
of
trade.
On
behalf
of
the
appellant
it
is
contended
that
it
was
not
a
trading
company
but
a
realization
company,
that
certain
lands
acquired
by
the
appellant
were
not
acquired
as
inventory
of
a
venture
in
the
nature
of
trade
but
as
a
capital
asset
to
be
liquidated
in
an
orderly
manner
and
that,
until
such
liquidation,
the
farming
operations,
as
previously
carried
on
by
the
former
owners
of
the
land,
were
to
be
continued
so
long
as
practicable.
The
principle
of
law
involved
is
that
profits
derived
from
a
business
or
an
adventure
or
concern
in
the
nature
of
trade
are
assessable
to
income
tax
while
the
proceeds
from
a
mere
realization
of
or
from
an
enhancement
of
capital
are
not
income
and
accordingly
not
assessable
to
income
tax.
The
appellant
is
a
joint
stock
company
incorporated
pursuant
to
the
laws
of
the
Province
of
Manitoba
by
letters
patent
dated
May
9,
1955
with
an
authorized
capital
stock
of
40,000
shares
of
no
par
value
which
might
be
issued
for
a
consideration
not
exceeding
in
the
aggregate
the
sum
of
$400,000.
The
purposes
and
objects
of
the
company
are
set
out
in
the
letters
patent
as
follows
:
“To
carry
on
in
any
capacity
the
business
of
farming
and
the
raising
of
animals
for
any
purpose.’’
Forthwith
upon
its
incorporation
the
appellant
purchased
from
Mr.
J.
T.
LePage
and
Mrs.
J.
T.
LePage
approximately
1,030
acres
of
farm
land
which
they
had
acquired
during
the
period
between
1944
to
1953
and
which
lands
had
been
continuously
farmed
on
a
crop
share
basis
by
tenants
from
the
dates
of
their
acquisition
by
Mr.
and
Mrs.
LePage.
In
addition
the
appellant
also
assumed
an
obligation
of
Mrs.
LePage
to
purchase
4
lots
comprising
22
acres
which
gave
access
to
a
larger
parcel
owned
by
her.
Of
the
total
1,052
acres
purchased
by
the
appellant,
663
acres
were
purchased
from
Mr.
LePage
and
the
remaining
389
acres
were
purchased
from
Mrs.
LePage.
The
lands
comprised
four
separate
parcels
in
two
different
areas.
Three
of
such
parcels
are
in
the
Rural
Municipality
of
Assini-
boia
and
the
fourth
is
in
the
Rural
Municipality
of
North
Kildonan.
Mrs.
LePage
owned
two
parcels
in
Assiniboia.
One
parcel
was
river
lots
100
and
101
in
St.
Charles
Parish
containing
approximately
149
acres
plus
the
four
lots
containing
approximately
22
acres
which
she
had
contracted
to
purchase
and
which
afforded
access
to
this
particular
parcel.
The
other
parcel
was
river
lots
90
and
91
also
in
St.
Charles
Parish
containing
approximately
218
acres.
These
two
parcels
were
purchased
by
Mrs.
LePage
on
May
9,
1945
and
August
13,
1953
at
a
cost
of
approximately
$44.50
and
$68.50
per
acre
respectively.
The
lands
owned
by
Mr.
LePage
were
also
in
two
parcels.
One
parcel
was
also
in
the
Rural
Municipality
of
Assiniboia
being
river
lots
97
and
98
containing
106
acres
which
was
purchased
by
Mr.
LePage
on
June
9,
1944
at
a
cost
of
approximately
$42.00
per
acre.
The
other
parcel
owned
by
Mr.
LePage
was
situate
in
the
Rural
Municipality
of
North
Kildonan
and
consisted
of
557
acres
which
were
purchased
in
two
transactions,
the
first
of
which
was
the
purchase
of
154
acres
on
December
14,
1944
at
an
approximate
cost
of
$19.40
per
acre
and
the
second
was
the
purchase
of
403
acres
on
November
19,
1950
at
a
cost
of
$32
per
acre.
All
four
parcels
were
farm
land
and
used
as
such
but
because
of
their
location
on
the
fringe
of
the
the
residential
and
industrial
development
area
of
Greater
Winnipeg
the
particular
location
of
each
parcel
had
a
direct
bearing
on
its
market
value.
The
Rural
Municipality
of
Assiniboia,
in
which
three
of
the
parcels
of
land
are
located,
is
on
the
Western
outskirts
of
Greater
Winnipeg
and
North
of
the
Assiniboine
River.
The
parcels
are
about
nine
miles
west
of
the
corner
of
Portage
and
Main
which
is
the
business
and
geographic
centre
of
the
City
of
Winnipeg.
The
municipality
is
not
a
part
of
the
Greater
Winnipeg
Water
District,
nor
the
Greater
Winnipeg
Sanitary
District
and
lacked
the
facilities
provided
by
the
boards
of
such
districts.
While
water
was
purchased
from
the
Water
District,
sewage
facilities
were
not
available
and
would
be
expensive
to
install.
However
the
City
of
Winnipeg
had
been
expanding
rapidly
particularly
in
the
western
suburban
municipality
of
St.
James
which
lies
between
Assiniboia
and
Winnipeg
City
proper.
The
Rural
Municipality
of
North
Kildonan,
in
which
the
fourth
parcel
of
land
is
situated,
like
Assiniboia,
is
not
part
of
the
Greater
Winnipeg
Water
or
Sanitary
District
and
likewise
lacks
the
facilities
provided
for
such
districts.
The
property
is
approximately
5
miles
east
of
the
corner
of
Portage
and
Main
but
borders
on
the
town
of
Transcona
which
has
a
population
of
approximately
7,000.
While
the
greatest
growth
and
development
in
the
Winnipeg
area
has
been
westerly,
nevertheless,
the
town
of
Transcona
has
experienced
some
development
but
to
a
lesser
degree.
In
May
1955,
the
date
the
appellant
acquired
the
lands
in
question,
Mr.
LePage
was
76
years
of
age
and
his
wife
was
two
years
older.
In
1947,
when
he
was
68
years
of
age,
Mr.
LePage
was
advised
by
his
physician
to
restrict
his
business
activities
and
physical
exertion
because
at
that
time
he
had
a
coronary
ischaemia
with
angina
pectoris.
Later
in
1951
his
condition
worsened
and
he
was
advised
by
his
physician
to
stop
work
entirely
or
to
restrict
his
activities
most
drastically.
However,
despite
his
physican
afflictions
and
advancing
years,
he
was
mentally
alert
at
all
material
times.
The
state
of
Mrs.
LePage’s
health
was
much
more
critical
than
that
of
her
husband.
She
was
suffering
from
a
variety
of
ailments
in
1954
which
caused
mental
confusion.
In
1957
her
condition
worsened
to
such
a
point
that
she
required
constant
care
and
attention.
She
died
on
March
9,
1959
and
Mr.
LePage
died
in
1961.
Prior
to
1955
Mr.
LePage
was
acutely
aware
of
the
state
of
his
own
health
and
that
of
his
wife.
During
his
actual
business
life,
in
addition
to
his
farming
operations
on
the
lands
above
described,
he
was
also
engaged
in
the
business
of
a
lumber
broker
carried
on
by
a
joint
stock
company
of
which
he
was
the
president
and
majority
shareholder.
The
lumber
company
owned
a
five-acre
plot
of
land
some
twenty
miles
from
the
City
of
Winnipeg
upon
which
a
mink
ranch
was
operated
with
variable
and
uncertain
success.
However,
the
bulk
of
his
estate
and
that
of
his
wife
consisted
of
the
1,052
acres
of
farm
land.
About
1955
Mr.
LePage
optimistically
valued
this
land
at
$1,000
an
acre.
There
is
no
question
that
the
land
had
appreciated
in
value
subsequent
to
the
original
purchases
and
there
was
every
reasonable
expectation
that
the
value
of
the
land
would
increase
still
further.
Because
of
the
imminent
possibility
of
the
death
of
himself
or
his
wife,
Mr.
LePage,
who
recognized
the
inevitability
of
succession
duties
which
could
only
be
paid
from
a
sale
of
the
land
or
a
portion
thereof
under
circumstances
disadvantageous
to
the
vendor,
sought
professional
advice
respecting
the
planning
of
his
own
and
his
wife’s
estates.
He
consulted
Archie
W.
Bell,
the
manager
of
the
Winnipeg
branch
of
the
Canada
Trust
Company,
James
W.
Abbott,
a
chartered
accountant
who
had
acted
as
auditor
in
Mr.
LePage’s
enterprises,
and
Walter
C.
Newman,
Q.C.,
his
solicitor.
Mr.
LePage
obtained
the
advice
of
these
three
persons
individually
without
consultation
among
them.
All
three
persons
recommended
the
incorporation
of
a
company
to
acquire
the
farm
lands
but
with
variations
in
share
ownership
and
like
differences.
Mr.
Newman,
on
becoming
aware
of
Mr.
LePage’s
habit
of
obtaining
proposals
from
each
of
his
advisers
independently
and
then
seeking
advice
of
the
others
on
any
proposal
so
made,
suggested
a
meeting
of
all
three
advisers
with
Mr.
LePage
to
pool
their
suggestions
and
resolve
upon
an
acceptable
solution.
A
meeting
took
place
in
1954,
the
outcome
of
which
was
that
a
concerted
plan
was
decided
upon
and
was
subsequently
implemented.
First,
two
appraisals
were
obtained
from
two
independent
appraisers
of
the
value
of
the
farm
lands.
One
appraiser
valued
the
land
at
$132,000
and
the
other
at
$148,000.
The
appellant
company
was
then
incorporated
and
four
shares
were
subscribed
and
paid
for
by
the
applicants
for
incorporation.
Of
the
authorized
capital
stock
100
shares
were
issued,
34
shares
in
the
name
of
A.
W.
Bell
as
trustee
for
Inez
Marguerite
Fidler,
a
daughter
of
Mr.
and
Mrs.
LePage
and
her
children,
50
shares
in
the
name
of
Leroy
Francis
Findlay,
a
son-in-law
of
Mr.
and
Mrs.
LePage
of
which
34
were
held
in
trust
by
him
for
his
wife,
Minnie
Evelyn
Findlay
and
her
children
and
16
shares
were
held
in
trust
for
the
Missionary
Fund
of
the
United
Church,
8
shares
in
the
name
of
James
W.
Abbott
as
trustee
for
the
Pension
Fund
of
the
United
Church
and
8
shares
in
the
name
of
Walter
C.
Newman
also
as
trustee
for
the
Pension
F'und
of
the
United
Church.
Each
of
the
four
shareholders
executed
a
unilateral
irrevocable
declaration
of
trust
acknowledging
that
the
shares
in
question
were
held
on
behalf
of
the
above
named
beneficiaries,
that
the
beneficiaries
were
entitled
to
all
dividends
and
capital
proceeds
of
the
shares,
that
the
trustee
should
exercise
the
voting
rights
in
the
shares
held
by
him
in
his
absolute
discretion
and
provision
was
made
that
in
the
event
of
any
interference
of
the
beneficiary
with
the
trustee’s
absolute
voting
discretion
the
beneficial
interest
in
the
shares
would
cease
and
the
interest
would
then
be
held
for
the
other
beneficiaries.
Provision
was
also
made
for
the
appointment
of
a
new
trustee
by
the
surviving
trustees
in
the
event
of
the
death
of
a
trustee
as
well
as
for
the
disposition
of
the
funds
in
the
event
any
beneficiary
should
be
a
minor.
The
shareholders
paid
no
consideration
for
the
shares
issued
to
them.
None
of
the
trustees,
who
were
also
the
shareholders
and
who
also
became
the
directors
of
the
appellant,
communicated
the
purport
of
the
declarations
of
trust
entered
into
by
them
to
the
beneficiaries
named
therein
until
the
lands
were
eventually
disposed
of
or
in
one
instance
upon
the
death
of
Mrs.
LePage.
The
beneficiaries
named
in
the
declarations
of
trust
were
also
the
beneficiaries
under
the
last
will
and
testament
of
Mr.
LePage
and
in
the
same
proportions.
The
lands
were
transferred
to
the
appellant
at
a
valuation
of
$144,000,
that
is
at
the
amount
of
the
higher
of
the
two
independent
appraisals
received
of
$143,000
plus
$1,000.
No
cash
was
paid
by
the
appellant
for
the
farm
lands
but
the
lands
were
charged
with
a
trust
deed
upon
the
basis
of
which
debentures
were
issued
to
Mr.
and
Mrs.
LePage
in
the
amounts
of
$80,000
and
$60,000
respectively
payable
upon
demand
with
interest
at
5
per
cent
to
begin
six
months
after
demand
having
been
made.
In
addition
the
appellant
gave
a
promissory
note
to
Mrs.
LePage
in
the
amount
of
$1,000
and
three
promissory
notes
to
Mr.
LePage
in
the
total
amount
of
$3,000.
No
personal
guarantees
or
other
security
was
given
with
respect
to
the
acquisition
of
the
lands
by
the
appellant.
It
was
common
ground
that
if
demand
were
made
for
payment
of
the
debentures
then
the
appellant
would
be
obliged
to
sell
the
lands
or
a
portion
thereof
to
meet
that
demand
because
the
land
was
the
only
asset
it
possessed.
In
May
1955
the
appellant
also
purchased
the
mink
ranch
which
had
been
operated
by
the
lumber
company
which
was
owned
and
controlled
by
Mr.
LePage
at
a
cost
of
$41,727.45
being
the
book
value
of
the
assets.
The
appellant
gave
Mr.
LePage
a
promissory
note
for
that
amount.
The
farm
lands
continued
to
be
farmed
by
the
appellant
on
a
crop
share
basis
which
provided
funds
to
meet
current
expenses
but
yielded
no
substantial
profits.
The
operation
of
the
mink
ranch,
which
had
in
some
of
the
previous
years
yielded
a
profit
and
which
the
directors
considered
as
a
possible
source
of
income,
was
discontinued
because
of
a
disaster
which
struck
the
mink
and
because
of
the
hazardous
nature
of
the
undertaking
and
the
land
was
thereafter
held
by
the
appellant
merely
as
land.
On
March
15,
1956
the
appellant
was
approached
by
Sarah
Diamond
with
an
offer
to
purchase
277
acres
of
the
farm
lands
in
the
Rural
Municipality
of
Assiniboia
at
$1,250
an
acre
and
requested
an
option
for
a
period
of
one
year.
The
directors
of
the
appellant,
conscious
of
their
obligations
as
trustees,
considered
it
expedient
to
ascertain
if
any
other
persons
were
interested
in
purchasing
the
lands
at
a
higher
price,
inserted
a
small
advertisement
in
the
classified
section
in
one
issue
of
a
local
newspaper
which
resulted
in
two
enquiries.
The
advertisement
read
as
follows:
“Balstone
Farms
Ltd.
must
sell
all
or
part
of
two
large
blocks
of
farm
acreage.
Kirkfield
Park
district,
496
acres,
Transcona
district,
557
acres
more
or
less.
Details
of
land
and
buildings
can
be
obtained
at
401
Somerset
Bldg.
Options
will
be
considered.”
Having
received
the
request
from
Sarah
Diamond
for
an
option
on
a
portion
of
the
lands,
Mr.
Bell,
on
the
letterhead
of
The
Canada
Trust
Company
and
as
manager
thereof
wrote
to
Mr.
and
Mrs.
LePage
advising
them
that
it
would
be
in
their
best
interests
to
make
a
demand
upon
the
appellant
for
payment
of
the
debentures
held
by
them.
Mr.
and
Mrs.
LePage
both
did
so
on
March
26,
1956.
The
other
directors
were
aware
of
Mr.
Bell’s
letter
to
Mr.
and
Mrs.
LePage
and
had,
in
fact,
concurred
in
the
advice
conveyed
and
delegated
Mr.
Bell
to
convey
it.
On
April
18,
1956
the
appellant
entered
into
an
option
with
Sarah.
Diamond
the
consideration
therefor
being
$15,000.
The
option
expired
on
May
1,
1957
without
being
exercised.
In
accordance
with
the
terms
of
the
option
the
consideration
therefor
of
$15,000
became
forfeit
to
the
appellant
and
was
taken
into
its
books
of
account
as
a
surplus
item
and
not
as
income.
However,
in
assessing
the
appellant
for
its
1957
taxation
year
the
Minister
brought
this
amount
into
the
appellant’s
income
for
that
year
which
gives
rise
to
the
first
item
in
the
present
appeals.
On
January
3,
1957
the
appellant
executed
an
option
on
the
557
acres
Transcona
and
in
the
Rural
Municipality
of
Kildonan
in
consideration
of
$5,000
at
a
price
of
$1,250
an
acre
to
Model
Homes
Limited
for
a
period
of
two
years.
Model
Homes
Limited
was
a
reputable
company
possessed
of
the
resources
to
conduct
a
subdivision
and
housing
development
operation.
An
option
for
two
years
was
an
inordinately
long
period,
the
usual
period
of
options
in
accordance
with
the
custom
of
the
trade
in
Winnipeg
being
normally
six
months.
The
option
agreement
represented
the
best
terms
obtainable
after
considerable
negotiation.
The
option
expired
on
December
1,
1958
without
being
exercised
and
the
consideration
therefor
of
$5,000
became
forfeit
to
the
appellant
which
amount
was
taken
into
its
accounts
as
surplus.
In
re-assessing
the
appellant
for
its
1958
taxation
year
the
Minister
added
the
amount
of
$5,000
to
the
appellant’s
income.
On
June
25,
1958
the
appellant
entered
into
an
agreement
for
the
sale
of
171
acres
situated
in
the
Rural
Municipality
of
Assiniboia
(part
of
the
land
previously
under
the
option
to
Sarah
Diamond)
to
Philip
Ricci.
A
deposit
of
$5,000
was
made.
Apparently
Ricci
and
his
associates
attempted
to
sell
lots
ille-
gaily
and
before
a
subdivision
of
the
lands
had
been
approved.
The
appellant,
therefore,
began
a
court
action
to
set
aside
the
agreement
for
sale.
During
the
currency
of
this
litigation
an
option
was
asked
for
by,
and
given
by
the
appellant
to,
Metro
Subdivisions
Limited
dated
July
15,
1959
on
the
lands
which
were
the
subject
matter
of
the
litigation
at
$2,100
an
acre.
A
settlement
of
the
action
against
Ricci
was
effected
whereby
the
deposit
of
$5,000
was
retained
by
the
appellant
which
the
Minister
added
to
the
appellant’s
income
for
its
1958
taxation
year.
The
foregoing
two
amounts
totalling
$10,000
constitute
the
second
item
in
the
present
appeals.
On
June
30,
1959
the
appellant
gave
an
option
to
Urban
Home
Builders
Land
Development
Limited
to
purchase
106
acres
in
the
Rural
Municipality
of
Assiniboia
(which
land
was
also
part
of
the
lands
which
were
previously
under
option
to
Sarah
Diamond)
at
a
price
of
$2,000
an
acre
for
a
consideration
of
$10,000.
The
option
expired
on
January
2,
1960.
An
extension
of
that
option
was
granted
by
the
appellant
to
May
30,
1960
for
a
consideration
of
$5,000.
A
further
extension
was
requested
and
refused.
Accordingly
the
considerations
for
the
option
and
for
the
extension
thereof
were
forfeited
to
the
appellant.
On
May
24,
1960
Metro
Subdivisions
Limited
exercised
its
option
dated
July
15,
1959
to
purchase
171
acres
as
a
result
of
which
sale
the
appellant
realized
a
profit
in
the
amount
of
$93,312.88.
In
assessing
the
appellant
for
its
1960
taxation
year
the
Minister
added
to
the
appellant’s
income
the
considerations
for
the
option
and
extension
thereof,
in
the
total
amount
of
$15,000
which
were
forfeited
to
the
appellant
and
the
amount
of
$93,312.88
as
profit
realized
on
the
sale
to
Metro
Subdivision
Limited.
These
amounts
constitute
the
third
item
in
the
present
appeals.
The
proceeds
of
the
sale
to
Metro
Subdivision
Limited
were
used
by
the
appellant
to
pay
off
the
balance
owing
on
the
debentures
held
by
Mr.
LePage
and
the
estate
of
Mrs.
LePage,
Mrs.
LePage
having
died
on
March
9,
1959.
The
debentures
were
paid
off
in
June
1961
having
been
in
default
since
the
demand
for
payment
made
on
March
26,
1956.
Subsequent
to
the
taxation
years
now
under
review
because
the
appellant
could
not
farm
the
remaining
lands
on
a
profitable
basis
due
to
increased
taxes
and
similar
reasons
all
the
lands
were
sold
on
July
25,
1961
to
LePage
Foundation
Land
Development
Co.,
Limited
which
was
incorporated
for
the
express
purpose
of
buying
the
said
lands
and
disposing
of
them.
In
assessing
the
appellant
as
he
did
the
Minister
did
so
on
the
assumption
that
the
appellant
acquired
the
lands
owned
by
Mr.
and
Mrs.
LePage
in
1955
with
a
view
to
trading
in,
dealing
with,
or
otherwise
turning
it
to
account
at
a
profit.
If
the
Minister’s
assumption
is
correct
it
follows
that
the
appellant
realized
a
profit
of
$93,312.88
from
the
sale
of
a
portion
of
the
lands
in
1960
to
Metro
Subdivision
Limited
which
profit
would
be
taxable
as
income
from
a
business
within
the
meaning
of
the
Income
Tax
Act.
If
the
view
of
the
Minister
is
correct
in
this
respect,
I
would
then
be
of
the
opinion
that
the
amounts
of
$15,000,
$10,000
and
$15,000
received
by
the
appellant
in
its
1957,
1958
and
1960
taxation
years
from
the
options
forfeited
in
those
years
would
likewise
constitute
taxable
income
as
profits
from
a
business.
However
the
appellant,
as
has
been
previously
mentioned,
challenges
the
basic
assumptions
of
the
Minister
upon
which
the
assessments
were
made
and
contends
that
the
lands
in
question
were
acquired
as
a
capital
asset
for
the
ultimate
purpose
of
orderly,
and
I
might
add
advantageous,
liquidation
in
accordance
with
a
carefully
preconceived
plan.
There
is
no
question
whatsoever
in
my
mind
that
the
lands
in
the
hands
of
Mr.
and
Mrs.
LePage
were
capital
assets
and
if
sold
by
them
any
gain
which
might
have
been
made
would
be
a
realization
of
an
enhancement
in
value.
It
would
not
be
a
gain
made
in
an
operation
of
business
in
carrying
out
a
scheme
of
profit
making
and
accordingly
not
subject
to
income
tax.
But
Mr.
and
Mrs.
LePage
are
not
the
appellants
herein.
They
sold
the
lands
to
a
company,
which
is
the
appellant,
in
consideration
for
debentures,
secured
by
a
trust
deed,
and
promissory
notes.
They
were
not
shareholders
in
the
company
and
were
entirely
devoid
of
any
voice
in
its
affairs.
It
is
not
uncommon
to
hear
it
said
that
a
company
is
only
the
alter
ego
or
the
agent
of
an
individual
and
that
its
activities
are
so
coloured
by
his
interests
and
directions
and
intentions.
This
was
the
root
of
the
unsuccessful
argument
in
Salomon
v.
Salomon
&
Co.,
[1897]
A.C.
22,
which
established
the
legal
nature
of
a
company.
Lord
Halsbury,
L.C.
said
at
page
30:
“.
.
.
it
seems
to
me
to
be
essential
to
the
artificial
creation
that
the
law
should
recognise
only
that
artificial
existence—
quite
apart
from
the
motives
or
conduct
of
individual
corporators
.
.
.
short
of
such
proof
(that
is
that
the
company
had
no
real
existence)
it
seems
to
me
impossible
to
dispute
that
once
the
company
is
legally
incorporated
it
must
be
treated
like
any
other
independent
person
with
its
rights
and
liabilities
appropriate
to
itself,
and
that
the
motives
of
those
who
took
part
in
the
promotion
of
the
company
are
absolutely
irrelevant
in
discussing
what
those
rights
and
liabilities
are.’’
(The
words
in
brackets
are
mine.)
In
Commissioner
of
Taxes
v.
The
Melbourne
Trust,
Limited,
[1914]
A.C.
1001,
three
Australian
banks
went
into
liquidation.
Their
respective
assets
were
transferred
to
three
asset
companies,
each
of
which
issued
debentures
and
shares
to
the
creditors
of
the
bank
concerned.
These
companies
realized
their
assets
to
an
extent
sufficient
to
redeem
the
debentures.
Melbourne
Trust
Limited
was
then
formed
to
take
over
and
dispose
of
the
remaining
assets
of
the
three
companies.
An
assessment
to
income
tax
was
made
in
respect
of
the
surplus
realized.
A
special
case
was
referred
to
the
Full
Court
of
the
Supreme
Court
of
Victoria.
The
Court
(Hood
and
a’Beckett,
JJ.,
Madden,
C.J.
dissenting)
held
that
the
respondent
was
incorporated
with
the
object
of
selling
the
assets
acquired
and
if
possible
making
a
profit
for
the
benefit
of
the
shareholders;
that
it
was
immaterial
that
the
creditors
of
the
banks
could
never
be
paid
in
full;
that,
under
these
circumstances,
the
surplus
realized
was
liable
to
income
tax
as
profits
earned.
Madden,
C.J.,
in
dissenting,
was
of
opinion
that,
the
three
vendor
companies
were
a
mere
agency
or
device
for
realizing
the
assets
for
the
benefit
of
the
banks’
customers,
and
that
the
respondent
was
the
amalgamation
of
the
three
companies,
standing
in
the
same
positions
as
they
did,
and
that
there
could
be
no
profits
liable
to
income
tax
until
the
shareholders
had
received
an
amount
equal
to
the
indebtedness
of
the
banks
to
their
creditors.
On
appeal
Griffith,
C.J.
and
Barton,
J.
took
a
similar
view
to
that
held
by
Madden,
C.J.
while
Isaacs,
J.
concurred
with
the
view
of
Hood,
J.
and
a’Beckett,
J.
In
a
broad
sense
the
majority
took
the
view
that
the
respondent
was
doing
practically
what
a
liquidator
would
have
done.
However
the
Privy
Council,
looked
upon
the
transactions
in
the
same
light
as
Isaacs,
J.
in
his
dissenting
judgment
in
the
Court
below.
Lord
Dunedin
said,
‘*.
.
the
whole
object
of
the
company
was
to
hold
and
nurse
the
securities
it
held,
and
to
sell
them
at
a
profit
when
convenient
occasion
presented
itself.’’
The
main
question
was,
as
I
see
it,
whether
the
nature
of
the
profits
made
by
a
company
in
the
ordinary
course
of
its
business
is
to
be
determined
by
the
purpose
which
led
to
its
incorporation.
The
decision
of
the
Privy
Council
rested
on
the
principle
that
the
nature
of
a
company’s
profits
depends
on
the
nature
of
its
operations.
The
legal
position
of
the
company
and
its
share-
holders
could
not
be
affected
by
circumstances
which
took
place
prior
to
the
company’s
incorporation.
However
one
is
not
entitled
to
infer
from
the
circumstance
that
a
company
has
been
incorporated
for
trading
purposes
that
a
particular
transaction
in
which
it
engages
necessarily
constitutes
a
part
of
the
company’s
trading
operations.
The
fact
that
a
particular
transaction
falls
within
the
objects
contemplated
by
the
letters
patent
is
merely
a
prima
facie
indication
that
a
profit
so
derived
is
a
profit
derived
from
the
business
of
the
company;
see
Sutton
Lumber
&
Trading
Co.
Ltd.
v.
M.N.R.,
[1953]
2
S.C.R.
77
at
83;
[1953]
C.T.C.
237
at
244.
The
question
to
be
determined
is
what
did
the
company
do
and
whether
what
it
did
was
a
business.
In
the
circumstances
of
the
present
appeals
it
is
of
no
consequence
that
the
objects
and
purposes
stated
in
the
letters
patent
incorporating
the
appellant
are
far
removed
from
what
the
appellant
actually
did.
In
Institution
Mechanical
Engineers
v.
Cane,
[1960]
3
All
E.R.
715,
Lord
Denning
took
the
view
that
in
cases
of
a
body
incorporated
by
charter
and
an
unincorporated
body,
regard
must
be
had
to
what
purposes
the
corporation
or
society
actually
carries
on
regardless
of
those
stated
in
its
constating
instruments.
He
said
at
page
728
:
“I
do
not
think
that
this
question
is
to
be
solved
by
looking
at
the
royal
charter
alone
and
construing
it
as
if
you
were
sitting
aloft
in
an
ivory
tower,
oblivious
of
the
purposes
which
the
institution
has,
in
fact,
pursued.”’
If
you
are
considering
a
statutory
limited
liability
company
incorporated
by
memorandum
of
association
and
articles
of
agreement
you
know
that
the
purposes
are
determined
exclusively
by
its
memorandum
of
association.
No
fresh
purpose
can,
in
law,
be
pursued,
even
with
the
consent
of
all
the
shareholders;
see
Ashbury
Railway
Carriage
&
Iron
Co.
v.
Riche
(1875),
L.R.
7
H.L.
653.
But
when
you
are
dealing
with
a
limited
liability
company
incorporated
by
the
exercise
of
the
royal
prerogative
delegated
to
a
Minister
of
the
Crown
either
in
the
right
of
Canada
or
one
of
the
provinces,
as
in
the
case
of
a
company
incorporated
by
letters
patent,
the
doctrine
of
ultra
vires
has
no
place.
The
appellant
was
so
incorporated
pursuant
to
the
laws
of
the
Province
of
Manitoba.
Such
a
company
has
in
law
the
self-same
capacity
as
a
natural
person.
The
‘‘divers
clauses,”
as
Lord
Coke
said,
‘‘are
not
of
necessity,
but
only
declaratory,
and
might
well
have
been
left
out;’’
see
Sutton
Hospital
Case
(1612),
10
Co.
Rep.
at
306.
If
it
should
pursue
purposes
other
than
those
set
out
in
its
letters
patent,
its
activities
are
perfectly
valid.
It
is
true
(at
common
law
and
in
many
instances
in
the
statutes
governing
the
incorporation
of
companies
by
letters
patent)
that
any
shareholder
or
person
who
is
injured
by
a
violation
of
the
letters
patent
can
take
proceedings
in
the
name
of
the
Crown
to
revoke
the
letters
patent
(see
Attorney-General
of
Canada
v.
Hellenic
Colonization
Association,
[1946]
3
D.L.R.
840).
But
if
the
Crown
takes
no
such
steps,
it
does
not
lie
in
the
mouth
of
the
company
to
say
that
the
purposes
which
it
in
fact
pursues
are
ultra
vires
or
beyond
its
powers;
see
Blackburn,
J.
in
Riche
v.
Ashbury
Railway
Carriage
&
Iron
Co.
(1874),
L.R.
9
Exch.
at
pp.
263,
264.
Isaacs,
J.
in
his
dissenting
opinion
in
Ruhamah
Property
Co.
Ltd.
v.
Federal
Commissioner
of
Taxation
(1928),
41
C.L.R.
148,
said
at
page
165
:
“It
seems
to
be
thought,
and
this
in
my
opinion
is
one
of
the
fallacies
in
the
appellant’s
contention,
that
once
established
that
there
is
a
realization
or
change
of
investment
and
there
is
an
end
of
the
matter.
That
is
not
so:
it
may
be
all
that
and
something
more.
If
a
company
does
that,
and
what
is
done
is
also
‘an
act
done
in
what
is
truly
the
carrying
on,
or
carrying
out
of
a
business’
(Commissioner
of
Taxes
v.
Melbourne
Trust
Ltd.)
then
the
profits
resulting
are
proceeds
liable
to
income
tax
as
proceeds
of
a
business.”
Here
what
the
appellant
did
was
to
acquire
real
property
and
turned
it
to
account
by
disposing
of
it
to
advantage,
which
was
its
avowed
purpose
and
in
my
view,
applying
the
foregoing
authorities,
those
acts
amount
to
the
conduct
of
a
business.
Counsel
for
the
appellant,
during
his
argument
cited,
and
placed
great
reliance
on,
Hudson’s
Bay
Co.
v.
Stevens,
5
T.C.
424;
C.
H.
Rand
v.
Alberni
Land
Co.,
7
T.C.
629;
and
Glasgow
Heritable
Trust,
Ltd.
v.
C.I.R.,
35
T.C.
196,
as
well
as
other
cases.
He
also
pointed
out
that
the
desired
end
sought
to
be
achieved
by
the
financial
and
legal
advisers
of
Mr.
and
Mrs.
LePage,
by
the
incorporation
of
the
appellant
and
the
sale
of
land
to
it,
was
to
secure
for
them
an
immediate
accretion
in
the
value
of
their
land,
to
fix
the
value
thereof
for
succession
duties,
to
facilitate
the
disposition
of
a
particular
parcel
to
pay
succession
duties
in
the
event
of
the
death
of
either
Mr.
or
Mrs.
LePage
and
to
ensure
that
the
beneficiaries
under
the
last
will
of
Mr.
LePage
would
receive
any
further
appreciation
in
the
value
of
the
lands.
The
mink
ranch,
owned
by
a
company
which
Mr.
LePage
controlled,
was
included
in
the
land
acquired
by
the
appellant,
I
believe,
as
a
convenience
and
as
an
afterthought.
I
accept
the
foregoing
objectives
as
being
the
motives
which
actuated
the
advisers
of
Mr.
and
Mrs.
LePage
to
advise
them
as
they
did
and
which
advice
was
accepted
and
acted
upon
by
them.
The
plan
as
outlined
above
was
conceived
by
the
solicitor
for
Mr.
and
Mrs.
LePage
with
the
full
knowledge
of
the
decisions
in
the
cases
cited
immediately
above
and
with
the
incidence
of
income
tax
also
in
mind.
There
is
no
impediment
to
a
taxpayer
so
ordering
his
affairs
as
to
escape
or
reduce
tax
but
the
substance
of
a
transaction
must
be
determined
from
the
legal
rights
which
flow
therefrom
ascertained
upon
ordinary
legal
principles
;
see
Duke
of
Westminster
v.
C.I.R.,
[1936]
A.C.
1.
I
have
concluded
from
the
authorities
before
mentioned
that
the
motives
which
led
to
the
incorporation
of
the
appellant
and
the
purposes
and
objects
set
out
in
it
are
to
be
disregarded
and
what
must
be
looked
at
is
the
nature
of
its
operations.
It
is
incontrovertible
that
in
cases
of
this
nature
the
question
to
be
decided
is
one
of
fact.
In
the
three
cases
above
cited
the
Court
found,
in
each
instance,
that
on
their
respective
facts
there
was
no
evidence
that
the
companies
there
involved
were
engaged
in
trading.
In
the
Hudson’s
Bay
case
(supra)
the
property
sold
had
not
been
acquired
in
trade,
but
as
part
of
a
consideration
for
the
surrender,
by
the
company,
of
all
their
rights
and
territories
within
Rupert’s
Land.
It
was
not
the
case
of
a
purchase
with
a
view
to
resale,
the
property
was
an
“inheritance”,
and,
when
disposed
of
it
was
in
law
simply
a
“patrimony”
turned
into
cash.
The
facts
of
the
Hudson’s
Bay
case
are
distinguishable
from
those
in
the
present
case
in
that
there
was
no
purchase
of
land
with
a
view
to
resale
as
there
was
here.
In
C.
H.
Rand
v.
Alberni
Land
Co.
(supra)
Rowlatt,
J.
based
his
decision
on
the
fact
that
all
the
company
had
done
was
to
provide
machinery
for
carrying
out
the
projects
of
other
people.
Subsequently
in
Alabama
Coal,
Iron,
Land
and
Colonization
Company,
Limited
v.
Mylam,
11
T.C.
232,
Rowlatt,
J.
said
at
page
256,
and
I
think
correctly,
that
the
Hudson’s
Bay
case
was
‘‘a
very
special
case,
owing
to
the
antecedents
of
the
land
for
one
thing,
and
that
the
Alberni
case,
was
again
a
very
special
case.’’
He
also
said
of
the
appellant
in
the
Alabama
Coal
case
at
page
299,
“but
on
the
whole
I
think
they
have
conducted
a
trading
concern,
as
opposed
to
mere
realization,
which
prescribes
a
very
special
state
of
facts
in
the
case
of
a
company.”
I
do
not
think
that
the
basis
of
the
decision
in
the
Alb
er
ni
case
can
survive
the
criticism
of
Lord
Sumner
in
Gas
Lighting
Improvement
Company,
Limited
v.
C.I.R.,
[1923]
A.C.
728,
where
he
said
at
page
741
:
‘‘
Assuming,
of
course,
that
the
company
is
duly
formed
and
is
not
a
sham
(of
which
there
is
no
suggestion
here)
the
idea
that
it
is
mere
machinery
for
effecting
the
purposes
of
the
shareholders
is
a
layman’s
fallacy.’’,
nor
that
Warrington,
L.J.
who
said
in
C.I.R.
v.
The
Westleigh
Estates,
Co.,
Ltd.,
12
T.C.
657
:
“It
was
contended
that
the
company
was
merely
in
the
position
of
an
ordinary
landowner
dealing
with
his
land
and
granting
leases
thereof
and
so
receiving
rents
and
profits.
But,
assuming
that
in
the
case
of
an
individual
to
do
such
things
would
not
be
to
carry
on
a
trade
or
business,
it
does
not
at
all
follow
that
the
conclusion
would
be
the
same
in
the
case
of
a
company
the
end
and
object
of
whose
being
is
to
transact
the
business
in
question.’’
In
my
view
the
Glasgow
Heritable
Trust
Ltd.
case
(supra)
is
also
a
very
special
case.
A
company
was
formed
to
acquire
tenement
properties
previously
owned
by
a
partnership
of
speculative
builders.
The
shares
of
the
company
were
taken
by
the
former
partners
or
members
of
their
families.
Sales
of
flats
took
place
to
sitting
tenants
or
when
flats
became
vacant.
The
question
was
whether
the
company
was
engaged
in
trade
or
merely
realized
some
of
its
capital
assets.
The
Court
of
Session,
after
two
remits
to
the
Commissioners,
found
that
the
purpose
which
‘‘informed’’
the
partnership
was
to
carry
on
for
profit
a
speculative
builder’s
business
in
tenements.
The
purpose
which
‘‘informed’’
the
company
was
to
salve
something
from
the
wreck
of
a
type
of
trading
enterprise
which
had
ended.
The
Lord
President
(Cooper)
outlined
the
basic
underlying
facts
at
page
213
as
follows:
“The
findings
disclose
that
prior
to
1909
the
now
defunct
firm
of
Duncanson
&
Henderson
were
engaged
in
the
trade
or
business
of
speculative
builders,
constructing
in
Glasgow
tenements
of
flatted
houses
for
sale.
They
had
being
doing
so
since
the
early
1890’s
and
it
is
common
knowledge
that
in
those
days
the
enterprise
was
a
familiar
one,
for
‘stone
and
lime’
was
then
regarded
as
a
favoured
investment.
The
legislation
of
1909
paralysed
this
form
of
enterprise,
which
received
its
death
blow
from
the
outbreak
of
war
in
1914
and
the
subsequent
introduction
of
rent
restriction.
As
is
evident
from
many
successive
statutes
and
the
Bill
now
before
Parliament,
most
tenements
in
Glasgow
and
certain
other
centres
have
long
ceased
to
be
marketable
as
tenements
and
the
unfortunate
owners
of
such
properties
have
in
many
instances
found
their
assets
transformed
into
ruinous
liabilities.
The
letting
market
for
individual
houses
in
the
tenements
survived
and
survives
(subject
to
rent
restriction),
and
sales
of
individual
houses
could
sometimes
be
effected
with
vacant
possession
or
to
sitting
tenants:
but
it
is
hardly
too
much
to
say
that
during
the
First
War
tenements
as
such
became
extra
commercium,
as
they
still
are
forty
years
later
and
are
likely
to
remain
for
an
indefinite
time
to
come.
..
.”
Previously
he
had
said
at
page
210:
“.
.
.
Under
the
old
regime
the
trade
consisted
of
the
erection
of
tenements
and
the
sale
of
these
tenements
at
a
profit.
Under
the
new
regime
the
position
has
been
transformed
as
a
result
of
changed
conditions
which
have
notoriously
resulted
in
making
tenement
dwelling-house
property
in
Glasgow
all
but
extra
commercium,
and
in
extinguishing
the
business
of
the
speculative
builder
of
such
property.
The
Company
took
over
46
tenements
each
burdened
with
a
bond,
the
bonds
aggregating
over
£100,000,
and
the
46
bonds
were
until
1937
real
burdens
on
each
of
the
46
tenements.
The
only
way
in
which
this
large
capital
debt
could
be
paid
off
was,
we
are
told,
by
realising
assets
:
but
the
Company
never
were
able
to
sell
whole
tenements
and,
so
far
as
appears,
never
even
tried
to
do
so,
but
contrived,
as
opportunity
offered,
to
dispose
of
single
flats
in
some
of
the
tenements,
each
sale
reducing
the
security
for
the
bond
over
the
whole
tenement
and
exposing
the
debtor
to
the
necessity
of
making
a
fresh
bargain
with
the
creditor
of
the
bond.
It
is
found
that
no
profits
from
such
sales
were
ever
distributed,
and
that
no
entry
is
found
in
the
profit
and
loss
accounts
as
respects
the
sales
of
the
flats.
It
appears
to
me
that
this
was
correct
accounting,
the
sales
being
truly
transactions
on
capital
account
and
the
proceeds
not
being
profits
available
for
dividend.
After
1937
the
outstanding
bonds
were
combined
in
a
single
omnibus
bond
for
£70,000
of
which
£23,500
was
still
outstanding
at
the
close
of
the
relevant
accounting
periods.
Until
at
any
rate
the
whole
of
the
heritable
debt
was
paid
off,
the
proceeds
of
the
successive
sales
of
flats
properly
fell
to
be
treated
as
receipts
on
capital
account
and
not
as
profits.
To
put
the
matter
in
another
way,
the
tenements
were
stock-in-trade
in
the
hands
of
the
partnership
but
they
were
capital
assets
in
the
hands
of
the
Company,
to
be
held
as
investments
or
fractionally
realised,
as
circumstances
might
dictate.
In
point
of
fact,
the
Company
has
been
holding
these
assets,
so
far
as
not
realised
by
sales
of
flats,
as
revenueearning
investments
for
upwards
of
35
years.”
As
I
understand
the
above
quoted
passages,
the
Court
is
saying
that
in
the
hands
of
the
partnership
the
tenements
were
its
stock-in-trade.
The
partnership
built
tenements
with
the
view
to
their
sale.
Because
of
the
circumstances
referred
to
in
the
above
extracts
that
business
case
to
an
end.
The
properties
came
into
the
hands
of
the
Company
as
revenue
earning
assets.
The
revenue,
by
way
of
rentals
received,
was
applied
in
the
reduction
of
the
outstanding
liabilities.
As
such
the
tenements
were
capital
assets
in
the
hands
of
the
Company
and
any
subsequent
dispositions,
when
circumstances
permitted,
were,
therefore,
the
disposition
of
a
capital
asset
and
incidental
to
the
Company’s
principal
purpose
of
receiving
rental
income.
The
facts
in
the
Glasgow
Heritable
Trust
case
(supra),
in
my
opinion
differ
radically
from
those
in
the
present
appeals.
Here
the
lands
were
purchased
by
the
appellant
with
the
view
to
their
resale
and
any
income
received
during
the
interval
prior
to
their
sale
was
incidental
to
that
principal
and
acknowledged
purpose.
The
lands
in
the
hands
of
the
appellant
were
its
inventory
rather
than
capital
assets
which
is
the
direct
opposite
to
the
facts
as
found
in
the
Glasgow
Heritable
Trust
case.
As
was
stated
by
Rowlatt,
J.
in
the
Alabama
Coal
case
(supra)
a
mere
realization
prescribes
a
very
special
state
of
facts
in
the
case
of
a
company,
which
state
I
do
not
think
prevails
in
these
appeals.
The
only
way
in
which
I
could
accede
to
the
appellant’s
contention
would
be
to
treat
the
appellant
company
as
mere
machinery
for
the
purposes
of
those
instrumental
in
securing
its
incorporation
which,
on
the
authorities
above
quoted,
I
am
not.
entitled
to
do.
Neither
can
I
treat
the
appellant
as
a
sham
as
that
is
not
in
accordance
with
the
facts.
Accepting
the
principle
that
the
nature
of
the
appellant’s
gains
depends
on
the
nature
of
its
operations,
it
follows
that
the
activities
of
the
appellant
amount
to
the
conduct
of
a
business
and
the
profits
so
derived
are
profits
from
a
business
and
so
subject
to
income
tax
in
accordance
with
Sections
3
and
4
of
the
Income
Tax
Act.
In
my
opinion
the
Minister
was,
therefore,
right
in
assessing
the
appellant
as
he
did
from
which
it
follows
that
the
appeals
are
dismissed
with
costs.
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