THURLOW,
J.:—These
are
appeals
from
reassessments
of
income
tax
and
excess
profits
tax
for
the
years
1944
and
1945
and
of
income
tax
for
the
years
1949,
1950,
1951,
and
1952,
all
of
which
reassessments
were
made
by
the
Minister
of
National
Revenue
in
respect
of
the
appellant’s
income
for
the
years
in
question
on
or
about
May
31,
1955,
and
all
of
which
were
confirmed
by
him
on
March
9,
1956.
The
appeals
were
heard
together.
The
question
raised
is
whether
profits
realized
by
the
appellant
on
sales
of
its
British
Columbia
timber
licences,
in
the
circumstances
hereinafter
set
out,
are
income
or
capital
gains.
Upon
its
incorporation
in
1944
the
appellant
purchased
(with
certain
immaterial
exceptions)
all
the
assets
and
undertaking
of
Gillies
Brothers
Ltd.,
a
firm
which
had
been
engaged
for
many
years
in
the
manufacture
and
sale
of
timber
and
lumber
in
Ontario
and
Quebec.
Included
in
the
assets
which
the
appellant
then
acquired
were
some
thirty-eight
timber
licences
held
by
Gillies
Brothers
Ltd.,
authorizing
the
holder
to
cut
and
remove
timber
from
about
thirty-eight
square
miles
of
timber
lands
in
British
Columbia.
At
the
time
of
the
transfer
some
of
the
licences
were
being
exercised
by
loggers
under
contractual
arrangements
with
Gillies
Brothers
Ltd.,
whereby
the
logger
was
required
to
cut
the
whole
of
the
merchantable
timber
on
the
tract
upon
which
he
was
authorized
to
operate,
to
pay
the
licensee
certain
fixed
stumpage
fees
based
on
the
quantity
of
merchantable
timber
cut
from
the
tract,
and
also
to
pay
the
licensee
a
percentage
of
the
sale
price
of
the
logs.
These
contracts
have
been
known
as
pay
as
cut
contracts.
The
appellant
acquired
both
the
licences
and
the
benefit
of
these
contracts.
In
1944
and
subsequent
years
the
appellant
entered
into
further
similar
contracts.
Three
of
the
licences
transferred
to
the
appellant
were
under
contract
of
sale,
the
purchase
price
being
payable
in
instalments
and
not
entirely
accrued
due.
These
sales
have
been
known
as
en
bloc
sales.
In
1946,
1947,
1948,
1949,
and
1950
the
appellant
also
made
a
number
of
en
bloc
sales
of
licences
for
lump
sum
prices
not
dependent
on
the
market
price
of
the
timber
on
the
tract
or
the
cutting
of
any
of
it.
In
some
cases,
under
the
terms
of
the
contract
of
sale
the
price
was
payable
immediately,
and
in
others
it
was
payable
over
periods
of
several
years.
It
is
the
assessments
of
profits
on
these
sales
that
have
given
rise
to
the
appeals.
The
appeal
in
respect
of
the
reassessment
for
the
year
1951
also
involved
the
question
whether
profit
realized
by
the
appellant
in
that
year
on
the
sale
of
certain
Ontario
timber
limits,
known
as
the
McConnell
and
MacKelkin
limits,
was
income
or
a
capital
gain,
but
the
appellant’s
contention
in
respect
of
this
transaction
was
conceded
at
the
opening
of
the
trial
by
an
admission
which
has
been
incorporated
by
an
amendment
in
the
respondent’s
reply.
The
correctness
of
the
figures
set
forth
in
the
reassessment
notices
was
admitted
at
the
opening
of
the
trial
and
accordingly
the
only
remaining
issue
is
whether
or
not
the
appellant
is
liable
to
be
taxed
in
respect
of
the
whole
or
any
part
of
the
profits
made
on
en
bloc
sales
of
British
Columbia
timber
licences.
The
appellant
contends
that
the
profits
realized
on
these
sales
are
capital
gains
and
are
not
subject
to
income
tax
or
excess
profits
tax.
The
respondent
takes
the
position
that
these
profits
are
income,
those
realized
in
1944
and
1945
being
income
from
a
trade
or
business
as
defined
in
Section
3
of
the
Income
War
Tax
Act,
R.S.C.
1927,
c.
97,
which
definition
is
also
applicable
under
the
Excess
Profits
Tax
Act,
S.C.
1940,
c.
32,
and
those
realized
in
1949
and
later
years
being
income
from
a
business
within
the
meaning
of
Sections
3
and
4
of
the
Income
Tax
Act,
S.C.
1948,
c.
52.
Section
3
of
the
Income
War
Tax
Act
is
as
follows:
"
‘3.
For
the
purposes
of
this
Act,
‘income’
means
the
annual
net
profit
or
gain
or
gratuity,
whether
ascertained
and
capable
of
computation
as
being
wages,
salary,
or
other
fixed
amount,
or
unascertained
as
being
fees
or
emoluments,
or
as
being
profits
from
a
trade
or
commercial
or
financial
or
other
business
or
calling,
directly
or
indirectly
received
by
a
person
from
any
office
or
employment,
or
from
any
profession
or
calling,
or
from
any
trade,
manufacture
or
business,
as
the
case
may
be
whether
derived
from
sources
within
Canada
or
elsewhere
;
and
shall
include
the
interest,
dividends
or
profits
directly
or
indirectly
received
from
money
at
interest
upon
any
security
or
without
security,
or
from
stocks,
or
from
any
other
investment,
and,
whether
such
gains
or
profits
are
divided
or
distributed
or
not,
and
also
the
annual
profit
or
gain
from
any
other
source
including
.
.
.’’
Sections
3
and
4
of
the
Income
Tax
Act,
applicable
to
the
years
1949,
1950,
1951,
and
1952,
are
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.”’
By
Section
127(1)(e)
of
the
same
Act,
it
is
further
provided:
"127.
(1)
In
this
Act,
(e)
‘business’
includes
a
profession,
calling,
trade,
manufacture
or
undertaking
of
any
kind
whatsoever
and
includes
an
adventure
or
concern
in
the
nature
of
trade
but
does
not
include
an
office
or
employment
;
’
’
The
problem
is
to
determine
whether
or
not
the
profits
in
question
fall
within
the
description
of
profits
in
these
definitions.
In
these
appeals
the
burden
of
proving
facts
showing
that
the
profits
in
question
are
not
profits
of
the
kind
mentioned
in
these
sections
rests
on
the
appellant.
In
Johnston
v.
M.N.R.,
[1948]
S.C.R.
486;
[1948]
C.T.C.
195,
Rand,
J.,
puts
the
matter
thus
at
p.
489
:
“Notwithstanding
that
it
is
spoken
of
in
section
63(2)
as
an
action
ready
for
trial
or
hearing,
the
proceeding
is
an
appeal
from
the
taxation;
and
since
the
taxation
is
on
the
basis
of
certain
facts
and
certain
provisions
of
law
either
those
facts
or
the
application
of
the
law
is
challenged.
Every
such
fact
found
or
assumed
by
the
assessor
or
the
Minister
must
then
be
accepted
as
it
was
dealt
with
by
these
persons
unless
questioned
by
the
appellant.
If
the
taxpayer
here
intended
to
contest
the
fact
that
he
supported
his
wife
within
the
meaning
of
the
Rules
mentioned
he
should
have
raised
that
issue
in
his
pleading,
and
the
burden
would
have
rested
on
him
as
on
any
appellant
to
show
that
the
conclusion
below
was
not
warranted.
For
that
purpose
he
might
bring
evidence
before
the
Court
notwithstanding
that
it
had
not
been
placed
before
the
assessor
or
the
Minister,
but
the
onus
was
his
to
demolish
the
basic
fact
on
which
the
taxation
rested.’’
What,
then,
is
the
basic
fact
on
which
these
assessments
rest?
In
my
opinion,
the
assessments
rest
on
the
factual
assumptions
that
the
trade
or
business—that
is
to
say,
the
profit-earning
activities—carried
on
by
the
appellant
company
included
the
process
or
practice
of
trading
or
dealing
in
timber
licences
with
a
view
to
making
profit
from
them
by
selling
them,
and
that
the
profits
in
question
arose
in
carrying
out
that
process
or
practice.
If
these
assumptions
are
true,
I
think
it
follows
that
the
profits
in
question
are
income
within
the
definitions
contained
in
both
statutes.
If
either
of
the
assumptions
is
not
true,
it
may
be
that
the
profits
in
question
are
not
income
as
defined
in
the
Income
War
Tax
Act,
applicable
to
the
reassessments
for
1944
and
1945,
but,
in
theory
at
least,
the
profits
may
still
be
income
from
a
business
as
defined
in
the
Income
Tax
Act,
applicable
to
the
reassessments
for
1949,
1950,
1951,
and
1952.
The
meaning
of
business”
as
defined
in
Section
127(1)
(e)
of
the
Income
Tax
Act
is
not
co-extensive
with
that
of
the
expression
‘‘trade
or
commercial
or
other
business’’
in
Section
3
of
the
Income
War
Tax
Act.
The
former
includes
the
expression
‘‘adventure
or
concern
in
the
nature
of
trade’’,
which
gives
a
wider
import
to
the
meaning
of
business”
and
brings
within
the
definition
transactions
which,
while
for
one
reason
or
another
not
falling
within
the
ordinary
meaning
of
trade,
nevertheless
partake
of
the
qualities
of
trade
to
a
sufficient
extent
to
be
classified
as
being
ventures
in
the
nature
of
trade.
M.N.R.
v.
James
A.
Taylor,
[1956]
C.T.C.
189.
However,
in
view
of
the
conclusion
to
which
I
have
come
on
the
facts,
it
will
not
be
necessary
to
consider
whether
or
not
any
of
the
profits
in
question
arose
from
a
venture
in
the
nature
of
trade
outside
or
beyond
the
scope
of
trade
itself.
Nor,
for
the
same
reason,
is
it
necessary
to
consider
how
much
wider
is
the
meaning
of
the
word
‘‘business’’
than
the
meaning
of
the
word
‘‘trade’’
for,
if
the
transactions
in
question
formed
part
of
the
appellant’s
trade,
I
think
it
follows
that
they
also
formed
part
of
its
business.
In
determining
whether
or
not
the
process
or
practice
which
gave
rise
to
the
profits
in
question
was
a
part
of
the
appellant’s
trade
or
business,
it
is
clear
that
neither
the
number
of
transactions
involved,
nor
the
fact
that
profit
was
made
on
the
sales,
nor
the
combination
of
both
these
features
is
sufficient
alone
to
make
the
transactions
part
of
the
appellant’s
trade
or
business.
Nor
do
the
facts
that
the
profit
was
made
by
a
trading
company
whose
sole
purpose
is
to
make
profits
for
its
shareholders
or
that
the
company
invested
in
the
property
in
the
expectation
of
realizing
profit
from
it
by
selling
it
at
a
higher
price
conclude
the
matter.
These
features
are
all
matters
to
be
taken
into
account
and
some
of
them
are
of
the
utmost
importance,
but
none
of
them
is,
by
itself,
sufficient
to
answer
the
question.
The
test
for
answering
the
question,
as
expressed
by
the
Lord
Justice
Clerk
in
Californian
Copper
Syndicate
v.
Harris
(1904),
5
T.C.
159
and
subsequently
quoted
and
approved
in
Canada
as
well
as
elsewhere,
is
as
follows:
‘“It
is
quite
a
well
settled
principle
in
dealing
with
questions
of
assessment
of
Income
Tax,
that
where
the
owner
of
an
ordinary
investment
chooses
to
realise
it,
and
obtains
a
greater
price
for
it
than
he
originally
acquired
it
at,
the
enhanced
price
is
not
profit
in
the
sense
of
Schedule
D
of
the
Income
Tax
Act
of
1842
assessable
to
Income
Tax.
But
it
is
equally
well
established
that
enhanced
values
obtained
from
realisation
or
conversion
of
securities
may
be
so
assessable,
where
what
is
done
is
not
merely
a
realisation
or
change
of
investment,
but
an
act
done
in
what
is
truly
the
carrying
on,
or
carrying
out,
of
a
business.
The
simplest
case
is
that
of
a
person
or
association
of
persons
buying
and
selling
lands
or
securities
speculatively,
in
order
to
make
gain,
dealing
in
such
investments
as
a
business,
and
thereby
seeking
to
make
profits.
There
are
many
companies
which
in
their
very
inception
are
formed
for
such
a
purpose,
and
in
these
cases
it
is
not
doubtful
that,
where
they
make
a
gain
by
a
realisation,
the
gain
they
make
is
liable
to
be
assessed
for
Income
Tax.
"What
is
the
line
which
separates
the
two
classes
of
cases
may
be
difficult
to
define,
and
each
case
must
be
considered
according
to
its
facts;
the
question
to
be
determined
being—
Is
the
sum
of
gain
that
has
been
made
a
mere
enhancement
of
value
by
realising
a
security,
or
is
it
a
gain
made
in
an
operation
of
business
in
carrying
out
a
scheme
for
profit-making
?
‘
‘
The
way
in
which
the
Lord
Justice
Clerk
applied
the
test
is
also
of
interest.
After
discussing
the
objects
contained
in
the
company’s
memorandum
of
association,
he
said
at
p.
166:
‘‘These
are
shortly
some
of
the
main
purposes
of
the
Company,
and
they
certainly
point
distinctly
to
a
highly
speculative
business,
and
the
mode
of
their
actual
procedure
was
in
the
same
direction.
Of
the
£28,332
realised
by
shares
which
were
subscribed
for,
£24,000
was
invested
in
a
copper-bearing
field
in
the
United
States,
and
the
balance
was
spent
in
development
of
the
field,
and
in
preliminary
and
head
office
expenses.
The
Company
then
were
successful
in
selling
the
property
to
the
Fresno
Company—£300,000
in
fully
paid
up
shares
being
given
by
the
Fresno
Company
for
the
property.
Although
that
was
a
sale,
the
price
to
be
paid
in
shares,
I
feel
compelled
to
hold
that
this
Company
was
in
its
inception
a
Company
endeavouring
to
make
profit
by
a
trade
or
business,
and
that
the
profitable
sale
of
its
property
was
not
truly
a
substitution
of
one
form
of
investment
for
another.
It
is
manifest
that
it
never
did
intend
to
work
this
mineral
field
with
the
capital
at
its
disposal.
Such
a
thing
was
quite
impossible.
Its
purpose
was
to
exploit
the
field,
and
obtain
gain
by
inducing
others
to
take
it
up
on
such
terms
as
would
bring
substantial
gain
to
themselves.
This
was
that
the
turning
of
investment
to
account
was
not
to
be
merely
incidental,
but
was,
as
the
Lord
President
put
it
in
the
case
of
the
Scottish
Investment
Company,
the
essential
feature
of
the
business,
speculation
being
among
the
appointed
means
of
the
Company’s
gains.’’
It
will
be
observed
that,
in
that
case,
the
sale
of
the
property
in
question
was
the
main
operation
carried
out
by
the
company
and,
as
the
company
was
formed
to
make
profit
by
trading
and
the
sale
in
question
was
the
main
way
in
which
it
had,
in
fact,
carried
out
its
object,
the
inference
was
readily
drawn
that
making
profit
by
selling
the
property
was,
in
fact,
the
company’s
trade.
A
more
complicated
situation
in
which
to
apply
the
test
arose
in
Atlantic
Sugar
Refineries
Ltd.
v.
M.N.R.,
[1949]
8.C.R.
706;
[1949]
C.T.C.
196,
where
the
company’s
profit-making
procedure
was
to
buy
raw
sugar,
refine
it,
and
sell
the
finished
product.
Because
of
unusual
developments
which
threatened
the
company
with
a
loss
in
its
usual
operations,
the
company
undertook
a
somewhat
different
operation
of
buying
and
selling
raw
sugar
futures
and
earned
profits
thereby.
These
profits
were
assessed
as
income
under
the
Income
War
Tax
Act,
and
the
assessment
was
upheld
in
this
Court
and
in
the
Supreme
Court
of
Canada.
There
Kerwin,
J.
(as
he
then
was),
delivered
the
judgment
of
the
majority
of
the
Court
and
at
p.
709,
in
applying
the
test,
said:
The
company
finding
itself
in
an
abnormal
situation
because
of
the
various
factors
mentioned,
Mr.
Seidensticker
decided
to
protect
the
appellant’s
financial
interests
by
the
operations
on
the
Exchange.
The
company
was
not
investing
idle
capital
funds
nor
was
it
disposing
of
a
capital
asset.
In
no
sense
may
it
be
said
that
the
operations
were
unconnected
with
the
appellant’s
business
and
it
is
at
least
an
added
circumstance
that
the
speculation
was
made
in
raw
sugar.
Even
if
it
were
the
only
transaction
of
that
character,
it
should
be
held,
in
the
light
of
all
the
evidence,
that
it
was
part
of
the
appellant’s
business
or
calling
and
therefore
a
profit
from
its
business
within
section
3
of
the
Act.’’
From
this,
it
appears
that
if
a
trading
company
has
an
established
type
of
operation
and
engages
in
transactions
of
a
different
nature,
which
transactions
on
their
own
do
not
afford
a
clear
answer
to
the
question
whether
or
not
they
are
a
part
of
the
company’s
trade,
points
of
connection
or
relationship
between
the
transactions
in
question
and
the
company’s
established
trade
may
serve
to
show
that
transactions
of
the
kind
in
question
are
part
of
the
company’s
trade.
Another
and
wider
approach
for
determining
the
question
is
set
out
by
Duff,
J.,
in
Anderson
Logging
Co.
v.
The
King,
[1925]
S.C.R.
45
at
pp.
49
and
55,
where
he
said
:
‘*.
..
It
is
difficult
to
discover
any
reason
derived
from
the
history
of
the
operations
of
the
company
for
thinking
that
in
buying
these
timber
limits
the
company
did
not
envisage
the
course
it
actually
pursued
for
turning
these
limits
to
account
for
its
profit
as
at
least
a
possible
contingency;
and,
assuming
that
the
correct
inference
from
the
true
facts
is
that
the
limits
were
purchased
with
the
intention
of
turning
them
to
account
for
profit
in
any
way
which
might
present
itself
as
the
most
convenient,
including
the
sale
of
them,
the
proper
conclusion
seems
to
be
that
the
assessor
was
right
in
treating
this
profit
as
income.
‘
‘.
.
.
The
essential
conditions
of
assessability
(where
a
profit
proposed
to
be
assessed
is
the
profit
derived
from
a
sale
of
part
of
the
company’s
property)
appear
to
be
that
the
company
is
dealing
with
its
property
in
a
manner
contemplated
by
the
memorandum
of
association
as
a
class
of
operation
in
which
the
company
was
to
engage,
and,
moreover,
that
the
governing
purpose
in
acquiring
the
property
had
been
to
turn
it
to
account
for
the
profit
of
the
shareholders,
by
sale
if
necessary.”
The
same
approach
is
evident
in
the
judgment
of
the
House
of
Lords
in
Ducker
v.
Rees
Roturbo
Development
Syndicate,
[1928]
A.C.
182,
but
with
the
added
fact
that
the
method
used
to
make
profit
from
property
of
the
company
was
not
the
line
on
which
the
directors
would
have
preferred
their
business
to
develop.
It
was
held
that
this
additional
feature
did
not
prevent
the
transaction
from
being
one
entered
into
in
the
course
of
the
company’s
trade.
Lord
Buckmaster
says
at
p.
140:
“My
Lords,
I
think
it
is
undesirable
in
these
cases
to
attempt
to
repeat
in
different
words
a
rule
or
principle
which
has
already
been
found
applicable
and
has
received
judicial
approval,
and
I
find
that
in
the
case
of
the
Californian
Copper
Syndicate
v.
Harris,
5
T.C.
159,
it
is
declared
that
in
considering
a
matter
similar
to
the
present
the
test
to
be
applied
is
whether
the
amount
in
dispute
was
‘a
gain
made
in
an
operation
of
business
in
carrying
out
a
scheme
for
profit-
making.’
That
principle
was
approved
in
a
judgment
of
the
Privy
Council
in
the
case
of
Commissioner
of
Taxes
v.
Melbourne
Trust,
[1914]
A.C.
1001,
and
it
is,
I
think,
the
right
principle
to
apply.’’
At
p.
141
Lord
Buckmaster
applies
the
test
as
follows:
"‘Turning
to
the
findings
of
the
Commissioners,
I
find
that
they
set
out
in
detail
the
circumstances
connected
with
the
working
of
this
company,
and,
in
particular,
the
reports,
which
begin
in
1907
and
continue
down
to
1918.
These
reports
show
that
the
directors
were
contemplating
from
the
beginning
the
possibility
of
the
sale
of
some
of
these
patents.
It
is
quite
true
that
they
preferred
not
to
sell
them
if
a
sale
could
be
avoided,
but
the
statement
in
para.
11
of
the
case
is
quite
plain,
that
‘the
possibility
of
the
sale
of
the
foreign
patents
or
rights
has
always
been
contemplated
by
the
appellant
company
in
respect
of
such
interest
as
it
possessed
in
the
foreign
patents.
’
It
is
one
of
the
foreign
patents
with
which
this
appeal
has
to
do,
and
the
agreements,
which
are
set
out,
showing
the
way
in
which
the
foreign
patents
in
the
case
of
France
and
Canada
have
also
been
dealt
with,
show
that
that
statement
was
not
a
statement
of
a
mere
accidental
dealing
with
a
particular
class
of
property,
but
that
it
was
part
of
their
business
which,
though
not
of
necessity
the
line
on
which
they
desired
their
business
most
extensively
to
develop,
was
one
which
they
were
prepared
to
undertake.”
I
think
it
is
clear
that,
in
each
of
these
cases,
the
Court
treated
the
transactions
in
question
on
the
basis
of
their
being
part
of
the
trade
or
business
of
the
company
within
the
ordinary
meaning
of
the
word
‘‘trade’’
rather
than
as
being
beyond
the
ordinary
meaning
of
the
word
but
within
the
meaning
as
extended
by
the
expression
‘‘adventure
or
concern
in
the
nature
of
trade”
or
any
similar
expression
contained
in
the
particular
statute
to
be
applied.
In
the
Atlantic
Sugar
Refineries
case,
the
expression
‘‘adventure
or
concern
in
the
nature
of
trade’’
was,
of
course,
not
in
the
statute
under
consideration.
With
these
considerations
in
mind,
I
propose
to
deal
first
with
the
nature
of
the
licences
in
question
and
thereafter
to
consider
the
objects
with
which
the
appellant
acquired
them
and
what
it
was
that
the
appellant
did
with
them.
The
licences
are
known
as
timber
licences.
They
are
in
standard
form
and
are
issued
pursuant
to
the
Land
Act,
Statutes
of
British
Columbia,
1908,
c.
30,
as
amended
by
1910,
c.
28,
and
pursuant
to
the
Forest
Act,
Statutes
of
British
Columbia,
1912,
ce.
17.
In
each
case,
the
licence
covers
an
area
of
approximately
one
square
mile
and,
by
it,
in
consideration
of
an
annual
renewal
fee
and
a
royalty
on
the
timber
taken,
the
holder
is
authorized
to
cut,
fell,
and
carry
away
timber
upon
all
the
particular
tract
of
land
described
in
the
licence.
The
authority
is
for
one
year
only
but
is
renewable
from
year
to
year,
as
provided
by
the
statutes
upon
payment
of
annual
renewal
fees.
By
virtue
of
the
statutes
above
mentioned
and
of
the
licence
issued
pursuant
to
it,
the
holder
becomes
entitled
to
the
timber
on
the
limit
when
it
is
cut
and
by
whomsoever
it
may
be
cut.
Until
the
timber
is
cut,
it
remains
part
of
the
realty
which
still
belongs
to
the
Crown.
If
timber
has
not
been
cut
when
the
licence
expires,
the
title
to
it
never
vests
in
the
licensee.
The
licensee
does
not
own
the
timber
unless
it
is
cut
within
the
year
and,
of
course,
in
any
case
he
owns
not
all
the
trees
but
only
the
trees
that
are
cut.
The
owner
of
a
licence
may
make
use
of
it
in
several
ways.
He
himself
may
cut
the
trees,
in
which
case
they
become
his
property
and
he
can
sell,
manufacture,
or
otherwise
deal
with
them
as
he
sees
fit.
Or
he
may
authorize
some
other
party
to
cut
and
remove
the
whole
or
part
of
the
timber
under
any
of
a
variety
of
contractual
arrangements
between
himself
and
the
logger.
Upon
the
cutting,
the
property
in
the
timber
becomes
that
of
the
licensee,
and
through
such
contractual
arrangements
it
may
immediately
or
later
become
the
property
of
the
logger
or
other
persons.
But
whether
the
licensee
himself
cuts
the
timber
or
authorizes
some
other
party
to
do
so,
the
nature
of
the
process
is
that
the
licensee’s
rights
under
the
licence
are
exercised;
the
licence
itself
is
used.
To
my
mind,
it
makes
little
difference,
for
the
purposes
of
this
appeal,
whether,
after
cutting
the
timber
or
having
it
cut,
the
licensee
intends
to
saw
the
timber
himself
or
to
have
it
sawed
or
simply
to
sell
the
logs,
or
whether
the
licensee
sells
the
timber
on
a
stumpage
basis.
In
any
of
these
cases,
what
the
licensee
is
doing,
insofar
as
the
licence
is
concerned,
is
making
use
of
it
in
his
business
to
earn
profits.
While
the
trees,
when
cut,
may
be
used
or
dealt
within
many
different
ways,
the
only
way
the
licence
itself
can
be
used
is
by
cutting
the
trees.
When
being
so
used,
it
will,
in
most
cases,
have
the
character
of
a
capital
asset.
In
this
process
the
licence
itself
may
become
valueless,
and
ultimately
it
may
be
allowed
to
lapse.
But
it
is
not
sold.
What
is
sold
is
the
timber
which
is
the
fruit
or
product
of
the
licence.
There
is,
in
my
opinion,
a
distinction
between
making
profit
by
use
of
a
licence
in
any
of
the
ways
above
mentioned
and
mak-
ing
profit
by
selling
the
licence
itself.
Profit
can,
of
course,
be
made
in
both
ways;
by
cutting
the
timber
either
personally
or
through
another,
or
by
trading
in
the
licences—buying
them
and
selling
them
at
a
profit.
Moreover,
the
same
person
may
make
profit
in
both
ways
and
from
the
same
licence.
But
the
two
profit-earning
processes
are
quite
different.
One
is
a
making
use
of
the
licence
to
earn
profit,
the
other
is
the
treatment
of
the
licence
itself
as
a
stock-in-trade
in
an
ordinary
process
of
buying
and
selling
for
profit.
It
will
be
seen
that
the
appellant
made
use
of
some
of
its
licences
and
made
profit
thereby.
This
was
done,
in
general,
through
contracts
of
the
kind
previously
mentioned
with
loggers
who
undertook
to
cut
timber
from
the
tracts
and
to
pay
the
appellant
certain
stumpage
payments
and
a
percentage
of
the
sale
price
of
the
logs
cut.
These
are
the
contracts
which
have
been
known
as
pay
as
cut
contracts,
and
the
profits
realized
by
the
appellant
through
them
were
treated
as
income
and
assessed
accordingly.
No
question
as
to
such
profits
arises
on
these
appeals.
But
the
appellant
also
sold
a
number
of
its
licences
and
thereby
made
profits
which
are
involved
in
these
appeals.
Of
the
licences
so
sold,
some
had
been
or
were
being
used
in
pay
as
cut
contracts
and
some
had
not
been
so
used.
It
accordingly
becomes
necessary
to
examine
the
facts
closely
to
determine
whether
or
not
the
appellant’s
trade
or
business
in
the
years
in
question
included
the
acquiring
of
timber
licences
with
a
view
to
making
profit
from
them
in
ways
which
included
that
of
selling
them.
The
appellant
was
incorporated
in
1944
under
the
Dominion
Companies
Act
with
objects
and
powers
wide
enough
to
embrace
all
the
activities
to
be
mentioned
and
many
other
kinds
of
activities
which
have
never
been
pursued.
As
previously
mentioned,
upon
incorporation
the
appellant
acquired
the
assets
and
undertaking
of
Gillies
Brothers
Ltd.,
and
it
has
proceeded
to
carry
on
that
undertaking.
In
the
discussion
of
the
facts
which
follows,
Gillies
Brothers
Ltd.
is
referred
to
as
"‘the
company’’.
The
purpose
of
the
new
incorporation,
transfer
of
assets,
and
winding
up
of
the
company
was
to
provide
a
method
of
withdrawing
capital
from
the
company.
In
the
transaction,
the
appellant
simply
took
the
place
of
the
company
so
far
as
the
business
and
undertaking
were
concerned,
with
the
same
shareholders
each
holding
in
the
same
proportions,
with
the
same
directors
and
officers,
and
with
the
same
policies
and
designs.
In
my
view,
the
question
to
be
determined
must
be
resolved
on
the
basis
of
what
the
business
and
undertaking
of
the
appellant
was
and
included
in
1944
and
subsequent
years,
rather
than
what
the
business
and
undertaking
of
the
company
may
have
been
at
any
earlier
time,
but
the
history
of
the
business
and
undertaking
of
the
company,
its
acquisition
of
the
licences,
and
its
policies
and
conduct
in
regard
to
them
afford
evidence
of
what
the
business
and
undertaking
included
in
1944
when
the
appellant
acquired
them.
The
company
was
incorporated
in
1893
and
at
that
time
acquired
a
timber
and
lumber
manufacturing
business
which
had
been
started
many
years
earlier
and
had
been
operated
and
built
up
in
the
meantime
in
the
provinces
of
Ontario
and
Quebec.
Its
principal
place
of
business
was
at
Braeside
in
Ontario.
For
the
purposes
of
its
operations
from
time
to
time
it
acquired
timber
limits
in
those
two
provinces
and
on
occasion,
though
rarely,
it
disposed
of
limits
by
selling
them,
in
most,
if
not
in
all
cases,
after
the
timber
required
by
the
company
had
been
removed.
Between
1902
and
1919
it
made
four
sales
of
limits,
all
of
which
had
been
purchased
prior
to
1900.
In
1927
it
transferred
a
tract
to
the
Ontario
government
as
part
of
a
transaction
by
which
it
acquired
another
tract,
and
in
1951
the
appellant
sold
two
limits
which
had
been
purchased
by
the
company
in
1922
with
a
view
to
supplying
the
new
mill
which
the
company
was
then
planning
to
set
up
and
operate.
These
were
the
only
sales
or
disposals
of
timber
lands
in
Ontario
and
Quebec
by
the
company
and
the
appellant
since
1900.
In
the
meantime,
between
1904
and
1956,
the
company
and
the
appellant
made
purchases
of
twelve
additional
limits.
In
my
opinion,
it
is
clear
on
the
evidence
that
the
acquiring
of
timber
limits
by
both
companies
in
Ontario
and
Quebec
was
for
the
sole
purpose
of
making
use
of
them
in
its
manufacturing
operations,
and
at
no
time
was
either
the
company
or
the
appellant
engaged
in
the
practice
of
acquiring
limits
in
those
provinces
with
a
view
to
making
profits
from
them
by
selling
them.
It
may
be
added
that
throughout
the
existence
of
the
company
and
of
the
appellant,
from
1944
to
the
present
time,
the
business
and
undertakings
in
these
provinces
have
been
by
far
the
main
business
and
undertakings
of
the
respective
companies.
In
comparison
with
the
eastern
operations,
the
activities
in
British
Columbia
have
been
of
minor
importance
and
extent.
However,
in
1910
and
later
years
the
company,
with
an
eye
to
the
future,
became
interested
in
the
prospects
of
expansion
and
development
of
the
lumbering
industry
in
British
Columbia.
In
1913,
following
correspondence
between
the
company
and
Messrs.
Clark
and
Lyford,
a
firm
of
forest
engineers
operating
in
British
Columbia,
the
company
invested
approximately
$17,000
in
acquiring
an
interest
in
13
British
Columbia
timber
licences.
The
remaining
interest
was
held
by
Messrs.
Clark
and
Lyford,
and
the
terms
on
which
the
venture
was
undertaken
appear
fully
from
the
correspondence
and
contracts
relating
to
them
which
are
in
evidence.
To
my
mind,
it
is
clear
beyond
doubt
that
the
method,
and
the
only
method,
then
contemplated
of
deriving
profit
from
this
venture
was
through
the
sale
of
the
licences.
One
of
them
was,
in
fact,
sold
in
1916
at
a
profit.
No
further
sale
of
any
of
this
group
of
licences
was
made
until
1941,
when
the
company
made
an
agreement
to
sell
one
of
them.
This
sale
resulted
in
a
loss.
The
only
other
sale
of
any
of
the
group
made
by
the
company
was
on
December
31,
1943,
shortly
before
the
transfer
of
the
appellant.
One
additional
licence,
referred
to
as
the
Seabird
licence,
had
been
acquired
outright
by
the
company
in
1914
and
sold
in
1917,
whether
or
not
at
a
profit
does
not
appear.
Between
1920
and
1940
the
market
for
timber
fell
and
during
most
of
the
period
continued
so
low
that
no
profit
could
be
made
from
sales
of
the
licences,
if
indeed,
sales
of
them
could
be
made
at
all.
The
carrying
charges,
however,
mounted
annually
during
the
period.
In
each
of
the
years
1924,
1925,
1927,
1928,
1930,
1931,
and
1932
some
money
was
derived
from
the
limits
under
pay
as
cut
contracts,
but
the
company
found
the
contracts
very
unsatisfactory
as
they
afforded
insufficient
protection
against
cutting
only
the
best
of
the
timber
on
the
limits
and
for
the
recovery
of
the
money
payable
to
the
licensees.
Early
in
1933
the
profit-sharing
feature
of
the
arrangements
between
the
company
and
Messrs.
Clark
and
Lyford
was
abrogated
by
mutual
agreement,
it
being
the
opinion
of
the
parties
that
no
profit
was
likely
to
acerue
to
Messrs.
Clark
and
Lyford.
The
licences
then
became
the
sole
property
of
the
company.
It
may
be
noted
that
at
that
time
the
company
was
still
contemplating
sale
of
the
licences
as,
before
taking
over
the
Clark
and
Lyford
interest,
it
inquired
as
to
the
prospects
of
selling
them
and,
upon
the
transfer,
made
an
arrangement
with
Clark
and
Lyford
for
payment
to
them
of
a
commission
on
sales
of
timber
or
licences
which
they
might
make.
At
the
same
time
the
company
expressed
its
preference
for
sale
of
these
limits
on
a
lump
sum
basis.
In
each
of
the
years
1933
to
1940
inclusive,
and
in
1943,
the
company
derived
money
from
pay
as
cut
contracts
relating
to
these
licences.
Three
of
the
licences
were
allowed
to
lapse,
one
in
1939,
one
in
1941,
and
one
in
1942,
in
each
case
following
pay
as
cut
contracts
relating
to
them.
In
the
case
of
one
of
these
three
licences,
the
company
realized
a
profit;
on
the
other
two,
it
sustained
losses.
As
previously
mentioned,
by
the
end
of
1948
three
of
the
13
licences
had
been
sold.
The
remaining
seven
were
transferred
to
the
appellant,
and
the
appellant
disposed
of
all
seven
of
them
by
selling
them,
three
in
1946,
one
in
1950,
one
in
1951,
and
two
in
1956.
Prior
to
sale,
it
entered
into
a
pay
as
cut
contract
in
regard
to
one
of
them.
So
much
for
the
history
of
what
are
known
as
the
Clark
and
Lyford
and
Seabird
licences.
I
come
now
to
another
group
of
licences
acquired,
held,
and
disposed
of
over
approximately
the
same
period
but
with
a
least
a
partially
different
object
in
mind.
These
are
the
Drury
Inlet
licences.
In
the
years
following
the
first
venture
of
the
company
in
acquiring
British
Columbia
timber
licences,
other
offers
were
made
to
it
which,
for
one
reason
or
another,
it
did
not
accept.
In
particular,
it
did
not
accept
any
further
offers
to
purchase
on
a
profit-sharing
basis,
as
the
directors
objected
to
this
arrangement.
It
will
be
apparent
that
acquiring
licences
for
sale
on
a
profit-sharing
basis
would
not
fit
into
a
design
which
the
directors
later
had
in
mind
to
acquire
timber
for
the
ultimate
purpose
of
supporting
a
lumber
manufacturing
operation
to
be
undertaken
by
the
company
in
British
Columbia.
They
considered,
but
did
not
accept,
offers
of
timber
licences
covering
tracts
in
Smith
Inlet
and
Rivers
Inlet.
The
correspondence
shows
that
they
were
aware
that
the
timber
was
inaccessible
in
that
it
would
either
have
to
be
towed
in
open
water,
which
involved
extra
risk,
or
it
would
have
to
be
manufactured
in
the
inlet,
and
they
directed
inquiries
as
to
the
quantity
of
timber
available
and
the
milling
opportunity.
I
regard
these
inquiries
as
being
related
to
ascertaining
the
value
of
the
licences,
rather
than
as
indicative
of
any
intention
on
the
part
of
the
directors
to
undertake
a
milling
operation.
There
is,
however,
other
evidence
that
they,
in
fact,
had
such
an
intention,
but
that
intention
was
developed
somewhat
later.
The
company
also
rejected
several
offerings
of
large
groups
of
licences
(one
of
which
included
a
mill)
for
several
reasons,
the
lack
of
sufficient
available
capital
to
finance
purchases
of
half
a
million
dollars
or
more
being
one
reason,
the
state
of
the
markets
for
lumber
being
another,
and
the
uncertainty
of
prospects
for
the
future
being
a
third.
In
correspondence
with
Clark
and
Lyford
in
September,
1917,
the
company
expressed
itself
as
not
interested
in
a
working
property
at
that
time
but
only
in
timber
at
low
price
which
could
be
held
for
investment,
and
as
late
as
October
28,
1918,
the
company,
in
making
an
offer
of
half
of
what
it
shortly
afterwards
paid
for
a
block
of
40
licences,
in
another
letter
to
Clark
and
Lyford
said
:
‘You
can
appreciate
our
difficulty
in
being
at
this
distance
and
not
in
touch
with
local
conditions
but
this
may
give
us
a
better
view
in
that
we
look
at
lumber
conditions
as
a
whole
and
not
from
the
B.C.
viewpoint
only,
and
consequently
that
only
offerings
which
are
unquestionably
cheap
would
be
advisable
for
us
as
a
holding
proposition.
‘
‘
Later
in
1918
the
company
accepted
an
offer
and
purchased
40
licences
on
Drury
Inlet
for
$200,000.
These
licences,
according
to
the
evidence
of
Mr.
D.
A.
Gillies,
who
was
a
director
of
the
company
from
1909
onward
and
president
of
it
and
subsequently
of
the
appellant
from
1938,
were
purchased
as
the
nucleus
of
timber
holdings
to
be
acquired
whenever
it
was
possible
to
do
so
on
favourable
terms,
to
build
up
a
sufficient
supply
to
support
a
manufacturing
operation
which
the
company
had
a
long
term
policy
to
undertake,
if
and
when
markets
and
future
prospects
became
bright
enough
to
justify
that
course.
According
to
Mr.
Gillies’
evidence,
this
purchase
was
the
initial
step
in
carrying
out
the
new
policy
in
regard
to
British
Columbia
timber.
He
said:
.
It
was
a
very
definite
and
a
very
big
decision
on
our
part
and
the
idea
was
and
my
idea
was
at
that
time
we
changed
from
the
idea
of
the
small
lot
to
formulate
a
policy
in
the
back
of
our
mind—and
this
group
formed
the
main
background
of
it—that
we
would
gradually
build
up
a
quantity
of
timber
through
purchase
on
the
British
Columbia
coast
sufficient
to
justify
our
entering
into
the
manufacture
of
lumber
on
the
Pacific
coast
as
we
had
done
in
the
east
over
several
generations.”
The
40
limits
were
all
in
one
block
and
bordering
on
tide
water
and
within
towing
distance
of
mills.
The
quantity
exceeded
five
hundred
millions
of
feet
but,
in
the
opinion
of
the
directors,
it
was
by
itself
insufficient
to
sustain
an
undertaking
of
the
kind
the
directors
had
in
mind
for
a
sufficient
number
of
years.
In
December,
1918,
shortly
after
the
purchase,
upon
receiving
an
inquiry
as
to
a
price
for
25
or
all
these
licences
the
directors
set
a
price
of
$10,000
per
licence,
but
no
sale
was
made.
The
wording
of
the
directors’
minute
regarding
this
incident
is
as
follows
:
“
Clark
and
Lyford
writing
re
40
cedar
limits
recently
purchased
and
stating
they
had
a
prospective
buyer
for
25
or
all
of
them
and
asking
bottom
price
we
would
accept.
As
these
were
bought
under
war
conditions
and
for
rise
in
value
after
times
became
normal,
decided
to
name
$10,000
per
limit
as
minimum
price
exclusive
of
5%
commission
to
Clark
and
Lyford
with
possibility
of
dropping
later
to
not
less
than
$8,000
at
lowest.
These
limits
were
under
option
at
$10,000
each
by
the
same
parties
before
we
bought
them
and
two
limits
were
sold
to
loggers
on
terms
of
$17,500
each.’’
When
asked
to
explain
how
the
figure
of
$10,000
per
limit
was
arrived
at,
Mr.
Gillies
replied:
"I
don’t
recall
it
except
that
it
shows
that
we
evidently
were
scotch
enough
that
we
are
not
going
to
sell
any
less
than
what
we
paid
for
it
and
I
might
also
add
that
it
was
in
a
special
case
if
you
got
100
per
cent
on
your
purchase
price
anyone
who
was
willing
and
open
to
make
a
deal
would
be
willing
to
accept
it,
you
would
get
the
new
money
and
you
would
be
in
a
position
to
go
out
and
buy
further
timber
at
probably
less
and
lower
prices
again
and
that
does
not
in
any
way
shape
or
form
change
the
general
idea
that
we
were
still
trying
to
build
up
a
block
of
timber
behind
the
possible
mill.
The
fact
that
we
were
willing
to
sell
some
of
the
40
licences
we
bought
does
not
mean
we
had
given
up
or
changed
our
general
policy
of
buying
a
block
of
timber
which
would
justify
the
construction
of
a
plant
later.”
About
a
year
after
the
purchase
of
the
40
limits,
the
company
in
a
letter
to
Clark
and
Lyford
said
:
"‘Re
Southern
Timber
Limits.
We
are
not
anxious
to
sell
the
Drury
Inlet
lot
immediately
but
bought
it
rather
for
holding.
"We
would,
however,
be
willing
to
sell
any
or
all
of
the
original
lot
of
limits
in
which
you
have
a
joint
interest,
provided
these
can
be
sold
at
a
profit.
Some
of
these
carry
considerable
cedar
and
at
the
present
time
pulpwood
should
be
in
good
demand.”
In
1925
the
company
purchased
one
additional
licence
on
Drury
Inlet.
The
purchase
of
timber
licences
as
an
investment
to
hold
is,
in
my
opinion,
consistent
with
a
number
of
different
designs
as
to
what
is
to
be
done
with
them.
So
long
as
they
are
simply
held,
they
are
burdensome
in
that
there
are
annual
expenses
to
be
paid
and
they
produce
no
revenue.
The
intention
to
hold
them
is,
I
think,
quite
consistent
with
an
intent
to
use
them
in
the
future
in
any
way
in
which
they
can
be
used,
that
is,
by
cutting
the
timber
or
having
it
cut,
or
to
sell
them
at
a
profit
or
with
no
other
intent
than
to
turn
them
to
account
for
profit
in
any
way
which
might
present
itself.
While
I
do
not
doubt
the
evidence
that
the
company
had
long-
range
intentions
of
undertaking
lumber
manufacturing
in
British
Columbia,
if
and
when
conditions
made
it
an
attractive
undertaking,
and
bought
these
limits
with
these
intentions
in
mind
as
a
source
of
supply
for
the
operation,
I
think
this
was
but
one
of
the
company’s
ideas
as
to
what
might
be
done
with
these
limits
to
turn
them
to
account
for
profit.
The
company’s
plan
for
manufacturing
lumber
in
British
Columbia
being
of
an
indefinite
character
and
still
in
its
earliest
stages,
I
cannot
but
think
that
in
purchasing
these
40
limits
for
rise
in
value
after
times
b
ecame
normal
the
directors
also
had
in
view
the
other
course
for
making
profit
from
them
by
selling
them.
And
this,
to
my
mind,
is
borne
out
by
their
setting
a
price
on
them
and
contemplating
a
lower
price
to
achieve
a
sale
of
them
very
shortly
after
they
had
been
purchased.
Even
though
they
may
not
have
been
anxious
to
dispose
of
them
and
even
though
selling
them
may
not
have
been
the
way
in
which
they
may
have
preferred
their
best
opportunity
in
respect
to
them
to
arise,
they
were
quite
prepared
to
sell
them
to
make
profit.
However,
none
of
them
were,
in
fact,
sold
until
1940,
and
by
that
time
the
decision
to
abandon
all
ideas
and
plans
for
a
manufacturing
operation
in
British
Columbia
had
been
made.
The
company
was
then
in
the
process
of
dis-
posing
of
its
British
Columbia
holdings
as
rapidly
as
possible,
consistently
with
disposing
of
them
at
a
profit,
and
in
concentrating
its
resources
for
an
expansion
of
its
eastern
operations.
Moreover,
until
this
decision
had
been
made,
that
is
to
say,
prior
to
1939,
cutting
under
these
licences
under
pay
as
cut
contracts
had
been
done
on
only
five
of
the
41
limits
and
the
returns
indicate
that
it
was
not
very
extensive.
They
are:
1919—
211.87
1921—
87.50
1929—
653.68
1933—
1,905.40
1934—
575.26
1935—
1,191.07
1936—
1,680.53
1937—
3,589.54
1938—
1,814.37
10,709.22
This,
with
certain
very
small
sums
for
trespasses,
was
all
the
company
recovered
in
twenty
years
from
an
investment
of
$200,000,
and
it
would
not
approach
the
amount
of
expenses
incurred
in
connection
with
holding
the
licences.
The
attitude
of
the
company
towards
these
licences
in
the
meantime
is
shown
in
several
minutes
of
the
directors
in
1928,
1929,
1936,
and
1937
and
in
a
letter
to
Mr.
P.
L.
Lyford
dated
February
15,
1933.
The
minutes
are:
December
11,
1928—
‘
Regarding
B.C.
limits.
""—Nothing
definite
from
J.
D.
Lacey
&
Company.
It
looks
as
if
immediate
prospects
of
sale
was
only
on
the
stumpage
basis
which
has
serious
drawbacks.”
January
14,
1929—
"‘B.C.
Limits
discussed.
"‘The
President
stated
nothing
further
to
report
as
to
possibility
of
selling
them
to
advantage.
The
only
enquiries
to
date
for
the
Drury
Inlet
limits
being
on
a
pay
as
you
cut
basis
which
as
stated
at
previous
meetings
carried
serious
disadvantages
with
it.—though
on
the
other
hand
if
successfully
and
amicably
operated
on
such
basis
greater
returns
could
be
obtained
than
on
a
cash
basis
.
.
.”
December
15,
1936—
"Some
offers
to
cut
some
limits
in
Drury
Inlet
on
pay
as
cut
basis
had
been
received
but
not
considered
as
our
experience
in
this
method
of
selling
timber
was
not
satisfactory.”
February
8,
1937—
“Clark
and
Lyford
has
two
prospects
for
buying
cedar
timber
on
Drury
Inlet
on
pay
as
cut
basis,
no
deposit,
or
guaranty
of
quantity
to
be
taken
out.
As
our
experience
in
this
type
of
timber
sale
was
far
from
satisfactory,
it
was
decided
not
to
consider
offers
of
this
kind
for
Drury
timber.”
The
letter
of
February
15,
1933
(ex.
25),
the
first
three
paragraphs
of
which
refer
to
the
Clark
and
Lyford
licences,
is
as
follows
:
“Dear
Sir:
Re:
Profit
Sharing
Limits.
"We
have
your
letter
of
the
4th
inst.
suggesting
a
fee
or
commission
of
5%
net
to
you
for
sales
of
timber
on
these
limits
including
general
over-sight
of
these
profit-sharing
limits,
negotiating
of
sales
and
administration
of
the
contracts
and
collection
of
stumpage,
and
we
are
agreeable
to
this.
“We
have
already
written
you
that
our
experience
with
selling
timber
on
a
pay
as
cut
basis
has
not
been
satisfactory
and
suggesting
improved
methods
of
accounting
to
which
you
refer
in
your
letter.
"‘We
would
prefer
to
sell
these
limits
on
a
lump
sum
basis
and
this
would
be
to
your
advantage
also
as
you
would
get
the
same
return
and
we
would
both
be
saved
the
difficulties
of
collecting
on
logs
as
cut.
"It
may
not
be
possible
to
sell
in
this
way
at
the
present
time
but
under
present
conditions
and
price
we
will
let
the
Drury
Inlet
timber
stand
rather
than
accept
the
prices
you
mention,
where
there
is
no
guarantee
as
to
the
quantity
the
buyer
would
take
off
the
limit.
Eventually
we
feel
that
stumpage
will
return
to
a
more
or
less
profitable
basis,
particularly
if
B.C.
can
improve
their
export
trade
in
the
future
as
much
as
they
have
been
doing
this
year.
"‘We
feel
that
in
spite
of
Mr.
Bennett’s
stand
that
the
Canadian
Exchange
is
likely
to
get
nearer
in
line
with
Sterling
and
further
away
from
the
United
States
in
view
of
the
deficit
both
in
the
Dominion,
Provincial
and
Municipal
budgets,
and
that
in
view
of
these
deficits
it
will
be
difficult
to
keep
our
exchange
in
line
with
the
United
States
and
this
will
make
it
still
easier
for
B.C.
export
trade
both
in
Britain
and
Asia.
"
Unies
you
can
get
something
worthwhile
on
the
Drury
Inlet
timber,
either
on
a
lump
sum
or
with
a
worthwhile
deposit
held
so
that
it
cannot
be
manipulated
like
the
McNaughton
one,
we
will
let
this
timber
stand
hoping
that
prices
will
pick
up
in
a
reasonable
period.
‘
‘
Yours
truly,
•
•
GILLIES
BROS.
Limited,
"J.
S.
Gillies.”
It
is,
of
course,
possible
to
sell
timber
on
a
lump
sum
basis,
as
well
as
to
sell
licences
on
that
basis,
and
it
is
also
possible
to
sell
licences
on
terms
of
payment
extended
over
the
period
of
cutting.
But
I
think
that
the
references
in
the
minutes
and
letter
to
lump
sum
sales
at
least
include
lump
sum
sales
of
licences,
if
indeed
they
do
not
mean
such
sales
alone,
rather
than
lump
sum
sales
of
timber.
The
third
paragraph
of
the
letter
states
that
the
company
prefers
to
sell
the
limits.
And,
as
far
as
the
evidence
discloses,
any
lump
sum
sales
made
were
lump
sum
sales
of
licences,
rather
than
of
timber,
except
in
one
case
(Ex.
40)
where
the
sale
purported
to
be
one
of
timber
but
the
contract
also
provided
for
transfer
of
the
licence
to
the
purchaser
upon
payment
of
the
purchase
price.
My
estimate
of
what
the
minutes
and
letter
above
quoted
show
is
that
in
this
period,
with
its
vision
of
a
milling
operation
of
its
own
fading,
the
company
was
left
with
en
bloc
sales
of
licences
and
stumpage
sales
of
timber
as
its
remaining
methods
of
realizing
profits
from
the
licences.
Because
of
its
unsatisfactory
experience
with
pay
as
cut
contracts,
the
company
favoured
en
bloc
sales
of
the
licences
and
would
hold
the
licences
for
disposal
on
a
lump
sum
basis
except
when
a
substantial
deposit
could
be
obtained
from
one
wishing
to
contract
on
a
pay
as
cut
basis.
In
any
event,
I
think
it
is
obvious
that
at
this
stage
these
licences
were
for
sale
if
a
profit
could
be
made
and
the
company
preferred
that
course
to
using
the
licences
in
pay
as
cut
arrangements.
Preference
for
one
type
of
contract
over
another
was,
however,
based
only
on
the
desire
to
secure
the
best
possible
return,
rather
than
on
any
desire
to
retain
the
subject
matter,
that
is,
the
licences,
for
future
use.
The
intent,
as
far
as
the
licences
were
concerned,
was
thus
to
turn
them
to
account
for
profit
in
the
best
way
that
might
present
itself.
From
1939
onward
prices
for
all
types
of
lumber
improved,
and
commencing
in
that
year
and
continuing
through
1940,
1941,
1942,
and
1943
the
company
entered
into
pay
as
cut
contracts
on
20
of
the
Drury
Inlet
limits
and
derived
substantial
sums
from
them.
By
the
end
of
1943,
14
of
them
had
been
allowed
to
lapse,
some
without
anything
being
recovered
from
the
investment,
and
some
after
all
merchantable
timber
had
been
removed.
Two
had
been
sold
in
a
single
transaction
in
1940.
The
remainder,
some
twenty-five
of
them,
were
transferred
to
the
appellant,
but
of
those
transferred
about
twelve
were
under
pay
as
cut
contracts.
The
appellant
also
entered
into
pay
as
cut
contracts
in
respect
of
four
or
more
of
the
licences.
Most
of
the
licences
under
pay
as
cut
contracts
were
ultimately
allowed
to
lapse,
but
some
were
sold.
In
all,
the
appellant
sold
13
of
this
group
of
licences,
five
in
a
single
transaction
in
1947,
five
more
in
a
single
transaction
in
1948,
one
in
another
transaction
in
1948,
and
two
in
separate
transactions
in
1950.
Besides
the
Clark
and
Lyford,
Seabird,
and
Drury
Inlet
licences,
the
company
in
1921
purchased
eight
licences
on
Seymour
Inlet.
These
were
situate
only
twelve
miles
or
thereabouts
to
the
northward
of
Drury
Inlet,
but
the
timber
on
them
was
commercially
more
inaccessible
in
that
it
would
have
to
be
sawn
in
the
inlet,
which
involved
setting
up
a
mill
there,
or
the
logs
would
have
to
be
towed
in
open
waters
of
the
Pacific
Ocean
to
take
them
to
other
mills,
and
this
involved
greater
risks
and
higher
towing
charges
than
towing
from
Drury
Inlet.
The
timber
on
these
limits,
when
cruised,
fell
far
short
of
the
rough
estimate
on
which
the
company
had
made
the
purchase,
and
in
a
letter
to
Clark
and
Lyford
dated
January
24,
1922
(ex.
H),
adverting
to
this
the
company,
among
other
things,
said:
"'This
timber,
owing
to
its
inaccessibility
was
bought
only
as
a
long
term
speculation
and
at
a
nominal
price,
and
the
matter
of
four
or
five
years’
carrying
charges
is
a
serious
item.
We
note
your
suggestion
to
take
over
limit
#8810
at
an
additional
cost
of
$1182.34,
say
20c
per
M,
but
before
putting
any
more
money
into
this
lot
we
should
be
glad
to
hear
from
you
as
to
what
would
be
the
prospect
of
selling
the
timber
on
some
of
the
lighter
timbered
berths
such
as
6608
and
6642
containing
say
14,000,000
feet
and
what
price
could
be
obtained
for
these
two
licenses
for
immediate
cutting.
If
the
Cedar
market
is
now
in
shape
these
would
be
sold
to
advantage
at
say
$1.50
per
M
or
over,
to
be
cut
now,
it
would
reduce
the
investment
and
enable
us
to
hold
the
more
desirable
licenses.”
Two
of
these
licences,
6608
and
6609,
were
in
fact
sold
in
1922
at
a
small
profit
and
6610
was
acquired
in
the
same
year.
The
remaining
seven
were
disposed
of
under
pay
as
cut
contracts
in
1940
and
1942,
and
no
question
as
to
the
proceeds
of
them
arises
on
this
appeal.
One
other
purchase
in
British
Columbia
made
by
Gillies
Brothers
Ltd.
should
be
mentioned,
that
of
the
Tyee
Crown
grant
in
1924.
As
to
this,
it
is
obvious
from
the
correspondence
in
evidence
that,
whether
or
not
it
may
have
also
figured
in
the
contemplated
manufacturing
operation
as
a
source
of
supply,
it
was
purchased
as
a
speculation
and
in
the
hope
of
realizing
profit
by
selling
it
or
the
timber
on
it
in
a
short
time.
In
a
letter
to
Clark
and
Lyford,
dated
June
13,
1924,
the
company
quoted
the
following
wire
it
had
sent
the
previous
day
:
‘Your
wire
twelfth.
Trade
quiet.
No
sales.
Money
tight
and
directors
averse
to
new
commitments.
But
willing
to
take
on
if
price
named
is
lowest
price
obtainable.
Willing
to
give
you
ten
per
cent
commission
on
any
reduction
from
purchase
price.
Purchase
contingent
on
resale
commission
of
ten
per
cent
applying
only
on
profit
or
difference
between
cost
including
carrying
charge
to
date
of
resale,
and
the
resale
price
as
conceivably
on
a
long
hold
the
commission
might
equal
the
profit.
Wire
amount
needed
and
when.”
Later
in
the
letter,
the
following
paragraph
appears
:
"We
note
your
suggestion
to
make
the
resale
price
a
minimum
of
$80,000.00
and
for
prompt
sale
we
would
be
agreeable
to
this.
You
of
course
to
get
as
much
higher
a
price
as
can
be
had.
Prices
should
advance
with
the
time
the
timber
is
held.’’
Another
letter,
dated
October
27,
1925
(ex.
K)
shows
the
same
intention
both
with
respect
to
the
Tyee
Crown
grant
and
one
of
the
Clark
and
Lyford
licences.
When
asked
if
the
correspondence
did
not
indicate
that
Gillies
Brothers
Ltd.
had
in
mind
a
quick
re-sale
of
the
Tyee
Crown
grant,
Mr.
Gillies
replied
:
‘A.
It
wasn’t
too
quick.
They
were
already
held
a
good
many
years.
Cutter
Creek
was
purchased
in
1913.
The
Cutter
Creek
was
one
of
the
14
licences.
I
know
that.
I
cruised
and
traveled
that
myself.
"‘Q.2.
Could
we
leave
Cutter
Creek
out
of
this
discussion
?
“A.
If
you
wish
to
reduce
it
to
the
one
with
Tyee
Crown
grant
probably
you
might
say
that
it
was
with
a
possible
sale.
We
hope
and
continue
to
hope
that
we
are
traders
and
if
you
can
get
a
big
and
quick
profit
on
anything
you
buy
you
are
foolish
not
to
accept
it.
That
is
my
idea
of
doing
business
Then
as
far
as
timber
goes
you
could
sell
it
tomorrow
and
get
a
profit
and
go
out
of
it
after
and
buy
an
additional
quantity
probably
at
a
lower
price
for
a
hold.’’
The
surface
rights
in
the
Tyee
grant
were
sold
for
a
small
sum
in
1927,
and
the
timber
was
disposed
of
to
a
number
of
loggers
over
the
period
from
1933-1943.
The
receipts
from
it
are
not
involved
in
these
appeals.
To
sum
up,
the
acquisitions
by
the
company
in
British
Columbia
from
1913
to
the
end
of
1943
consisted
of
six
purchases
between
1913
and
1925
and
the
transfer
to
the
company
in
1933
of
the
Clark
and
Lyford
interest
in
the
first
group
of
licences.
Its
sales
of
licences
consisted
of
one
transaction
in
1916,
one
in
1917,
one
in
1922,
none
in
the
next
eighteen
years,
one
in
1940,
one
in
1941,
and
one
in
1948.
The
remainder
of
its
transactions
consisted
of
sales
not
of
licences
but
of
timber
under
pay
as
cut
contracts,
and
these,
too,
were
of
only
minor
importance
and
extent
until
1939.
From
1939
onward,
extensive
sales
of
timber
from
these
licensed
tracts
were
made.
To
make
the
sales,
the
company
had
an
agent
in
British
Columbia
whose
remuneration
was
a
commission
based
on
the
selling
price,
whether
it
was
the
selling
price
of
timber
or
the
selling
price
of
the
licence.
The
agent’s
work
included
the
promotion
of
sales,
and
for
this
purpose
advertisements
were
also
published
from
time
to
time.
In
my
opinion,
the
Clark
and
Lyford
group
of
licences
was
purchased
to
be
sold
at
a
profit
and,
while
other
intentions
as
to
their
use
may
have
arisen
under
the
pressure
of
economic
circumstances,
the
scheme
to
make
profit
from
them
by
selling
them
was
never
lost
or
abandoned.
The
Drury
Inlet
group
was
purchased
to
hold
for
the
purposes
of
the
contemplated
mill,
this
being
the
favoured
purpose,
but
with
the
secondary
purpose
(and
this
whether
the
possible
mill
materialized
or
not)
of
deriving
profit
in
any
way
in
which
they
might
be
turned
to
account
at
a
profit,
including
sale
of
them.
The
Seymour
Inlet
group
was
purchased
with
the
same
purposes
in
mind
as
applied
to
the
Drury
Inlet
licences,
but
with
the
knowledge
that
there
was
less
possibility
of
using
them
in
the
contemplated
milling
operation.
The
Tyee
Crown
grant
was
purchased
to
be
turned
to
account
for
profit
by
sale
of
the
grant
or
the
timber
on
it.
These
original
purposes
were
substantially
frustrated
by
the
moribund
condition
of
timber
market
in
the
late
20’s
and
30’s
and
the
general
economic
depression,
and
when
the
markets
revived
the
company’s
plans
for
a
mill
in
British
Columbia
were
given
up
in
favour
of
expansion
in
eastern
Canada.
At
that
stage
the
residual
purpose
was
to
sell
either
the
timber
or
the
licences
as
expeditiously
as
this
could
be
done
at
a
profit,
and
this
is
what
was,
in
fact,
being
done
with
them
when
the
appellant
took
over
the
assets
and
undertaking
of
the
company.
Pausing
here,
I
am
of
the
opinion,
notwithstanding
the
very
small
number
of
sales
of
licences,
six
in
all,
made
over
the
years
from
1913
to
1943,
that
at
the
time
when
it
ceased
operations
and
transferred
its
assets
and
undertaking
to
the
appellant
at
or
about
the
end
of
1943
the
business
of
the
company
included
that
of
trading
or
dealing
in
British
Columbia
timber
licences.
It
had
acquired
licences
in
considerable
volume
with
a
view
to
turning
them
to
account
by
methods
which
included
sale
of
them,
it
had
sold
some
of
them,
it
had
an
agent
engaged
to
seek
purchasers
and
arrange
sales
on
a
commission
based
on
the
selling
price
of
either
timber
or
licence,
and
it
advertised
for
purchasers.
No
doubt
sales
of
licences
were
infrequent,
but
when
they
occurred
I
think
they
were
part
of
the
trade
rather
than
mere
realizations
of
investments.
This,
then,
was
the
situation
when
the
appellant
assumed
the
undertaking
and
acquired
the
remaining
British
Columbia
licences.
In
my
opinion,
the
appellant
acquired
them
for
the
purpose
of
making
profit
from
them
either
by
selling
the
timber
or
by
selling
the
licences,
and
it
carried
out
this
purpose
using
the
same
methods
as
the
company
had
used
until
it
had
disposed
of
all
of
them
in
one
or
the
other
of
these
ways.
In
so
doing,
I
think
it
too
engaged
in
the
business
of
trading
or
dealing
in
British
Columbia
timber
licences
as
part
of
its
scheme
for
turning
the
licences
to
account
for
profit
in
either
of
the
two
ways
which
it,
in
fact,
used.
When
the
appellant
acquired
the
licences,
there
was
no
thought
of
using
them
in
connection
with
a
milling
operation
of
its
own.
No
doubt,
having
abandoned
the
vision
of
a
mill
in
British
Columbia
and
having
made
definite
plans
for
an
expansion
of
the
Ontario
and
Quebec
operations,
the
directors
intended
from
the
outset
of
the
appellant’s
activities
to
wind
up
the
British
Columbia
part
of
the
undertaking.
There
was
need
for
capital
to
finance
the
expansion.
But
the
disposals
of
the
British
Columbia
timber
and
licences
were
carried
out
through
the
same
British
Columbia
agent,
in
the
same
way,
on
the
same
commission
arrangement,
and
with
the
same
oversight
and
direction
from
the
directors
as
had
been
followed
by
the
company
in
earlier
years.
And
they
were
not
all
disposed
of
at
once
or
all
in
the
same
way
but
at
such
times
and
by
such
methods
as
for
one
reason
or
another
appeared
to
the
directors
to
be
advantageous.
I
can
see
nothing
in
the
evidence
which
would
classify
such
disposals
as
other
than
the
final
sales
in
what
was
in
fact
the
carrying
on
of
a
trade
with
a
view
to
making
profit
therefrom.
A
passage
in
the
judgment
of
the
Privy
Council
in
C.Z.R.
v.
Melbourne
Trust,
[1914]
A.C.
1001
at
1010
seems
not
inappropriate
to
express
the
situation.
There
the
question
was
whether
or
not
the
company
was
a
trading
company,
and
Lord
Dunedin,
after
stating
and
approving
the
test
expressed
in
Californian
Copper
Syndicate
v.
Harris
(supra)
said
:
"‘In
the
present
case
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.
‘
‘
Their
Lordships
therefore
come
to
the
conclusion
that
there
is
ample
evidence
here
that
the
company
is
a
trading
company
and
that
the
surplus
realized
by
it
by
selling
the
assets
at
enhanced
prices
is
a
surplus
which
is
taxable
as
a
profit.
‘
‘
As
I
interpret
this
quotation,
the
company
referred
to
was
held
to
be
a
trading
company
because
what
it
was
doing
as
set
out
in
the
first
quoted
paragraph
was
trading.
Paraphrasing
the
paragraph
for
the
present
case,
it
might
read:
"‘In
the
present
case,
the
whole
object
of
the
appellant
with
respect
to
its
British
Columbia
timber
licences
was
to
hold
and
nurse
them
and
to
sell
them
or
the
timber
from
them
at
a
profit
whenever
convenient
occasion
presented
itself.’‘
In
this
view,
the
appellant’s
business
included
the
process
of
trading
in
British
Columbia
timber
licences
and
the
profits
in
question,
insofar
as
they
arose
from
sales
of
licences
made
by
the
appellant,
were
profits
arising
from
such
trading.
With
respect
to
them,
the
basis
of
the
assessments
has
thus
not
been
demolished.
This
feature
distinguishes
the
case,
so
far
as
the
profits
from
such
sales
are
concerned,
from
Sutton
Lumber
and
Trading
Company
v.
M.N.R.,
[1953]
2
S.C.R.
77;
[1953]
C.T.C.
237,
where
at
p.
94
Locke,
J.,
in
delivering
the
judgment
of
the
Court,
said:
“In
the
present
case,
the
Nootka
limits
which
were
sold
in
1946
were
assets
in
which
the
company
had
invested
with
a
view
to
cutting
the
merchantable
timber
into
lumber
in
a
mill
to
be
erected
by
it
in
the
Clayoquot
District
and
the
sale
merely
a
realization
upon
one
of
its
capital
assets
which
was
not
required
and
did
not
fit
in
to
the
company’s
plans
for
the
operation
of
its
main
property
and
one
which
was
not
made
in
the
course
of
carrying
on
the
business
of
buying,
selling
or
dealing
in
timber
limits
or
leases.”
I
find
that
the
profits
realized
from
the
en
bloc
sales
of
licences
made
by
the
appellant
were
profits
from
a
trade
or
other
business
within
the
meaning
of
Section
3
of
the
Income
War
Tax
Act
and
within
the
definition
of
business
contained
in
Section
127(1)
(a)
of
the
Income
Tax
Act.
Such
profits
were
accordingly
income
and
were
properly
assessed.
On
the
other
hand,
I
do
not
think
the
same
can
be
said
of
contracts
of
sale
made
by
the
company
prior
to
the
incorporation
of
the
appellant
and
later
transferred
to
the
appellant
as
such
sales
were
not
made
in
the
course
of
the
trading
or
business
of
the
appellant.
Nor
do
I
think
that
receipts
by
the
appellant
of
the
moneys
payable
under
such
contracts
were
receipts
from
its
trading
or
profit-earning
operations.
What
the
appellant
acquired
from
the
company
in
these
cases
was
a
debt
plus
a
licence
to
hold
as
security
until
the
debt
was
paid.
Sums
received
by
the
appellant
in
payment
of
such
debts
were,
in
my
opinion,
mere
realizations
of
what
was
assigned
to
the
appellant
by
the
company,
and
if
profit
was
realized
by
the
appellant
therefrom
it
was
not
income
but
a
capital
gain.
Two
of
such
contracts
(Exs.
40
and
46)
were
put
in
evidence
as
being
involved
in
the
appeals,
and
one
or
both
of
them
may
have
affected
the
assessments
for
1944
and
1945.
However,
the
extent
of
such
affection,
if
any,
is
not
clear
on
the
evidence.
If
the
parties
cannot
agree
on
this,
I
will
hear
them
as
to
it
on
the
application
of
either
party,
and
in
the
meantime
final
disposition
of
the
appeals
from
the
1944
and
1945
reassessments
will
be
reserved.
The
appeal
from
the
reassessment
for
the
year
1951,
so
far
as
it
is
based
on
profits
realized
on
sale
of
the
McConnell
and
Mac-
Kelkin
timber
limits,
will
be
allowed
with
costs
up
to
the
time
of
the
amendment
above
mentioned,
and
the
reassessment
will
be
referred
back
to
the
Minister
for
revision
accordingly.
The
appeals
from
the
reassessments
in
respect
of
the
years
1949,
1950,
and
1952
will
be
dismissed
with
costs.
Judgment
accordingly.