LOCKE,
J.:—This
is
an
appeal
from
a
judgment
delivered
in
the
Exchequer
Court
by
Cameron,
J.,
by
which
the
appeals
of
the
present
appellant
from
assessments
for
income
tax
for
the
taxation
years
1946,
1947,
1949
and
1950,
except
as
to
certain
matters
which
were
disposed
of
by
the
consent
of
the
parties
at
the
trial,
were
dismissed.
As
to
the
matters
last
mentioned
the
assessments
were
referred
back
to
the
respondent
to
enable
him
to
make
the
re-assessments
necessary
to
carry
out
the
agreement
made.
In
respect
of
the
taxation
years
1946
and
1947
the
present
appellant
had
appealed
to
the
Income
Tax
Appeal
Board
which,
by
a
decision
of
the
majority,
dismissed
the
appeals
and
the
appeal
from
that
judgment
was
disposed
of
by
Cameron,
J.:
in
respect
of
the
other
two
years,
the
appeals
were
taken
direct
to
the
Exchequer
Court
from
the
decision
of
the
Minister.
In
the
year
1943
Eric
L.
Harvie,
a
barrister
practising
in
Calgary,
acquired
the
right
to
a
conveyance
of
the
freehold
mineral
rights
in
some
496,000
acres
of
land
in
Alberta
from
the
British
Dominions
Lands
Settlement
Corporation
and
the
interest
of
Anglo-Western
Oils
Limited
which
held
a
999-year
lease
of
such
mineral
rights.
The
consideration
for
the
purchase
was
the
sum
of
$10,000
and
the
covenant
of
Mr.
Harvie
to
indemnify
the
said
vendors
from
any
liability
for
taxes
upon
the
property
so
agreed
to
be
transferred.
After
the
purchase
minority
interests
in
these
rights
were
sold
or
given
by
Mr.
Harvie
to
two
of
his
partners
in
the
legal
firm
of
which
he
was
the
senior
member,
a
member
of
his
office
staff,
certain
members
of
his
family
and
a
geologist
by
name
DeKoch.
The
majority
interest,
however,
at
all
times
remained
in
him.
In
April,
1944,
Mr.
Harvie
caused
to
be
incorporated
two
companies,
Western
Leaseholds
Limited,
the
present
appellant,
(hereinafter
referred
to
as
‘‘Leaseholds’’)
and
Western
Minerals
Limited
(hereinafter
referred
to
as
‘‘Minerals’’).
Each
of
these
companies
was
incorporated
by
a
Memorandum
of
Association
under
the
provisions
of
the
Companies
Act,
(R.S.A.
1942,
c.
240)
and
were
companies
limited
by
shares.
The
Memorandum
of
Association
and
the
Articles
of
Association
adopted
by
each
was
identical
and
each
was
authorized
to
issue
50,000
Class
‘‘
A
”
common
shares
and
50,000
Class
“B”
common
shares
without
nominal
or
par
value.
The
objects
stated
in
the
Memorandum
of
Association
of
the
appellant
are
to
be
considered.
These
were
stated
with
particularity
and
at
considerable
length.
They
included
the
objects
of
acquiring
by
purchase,
lease,
concession
or
licence
mineral
properties,
reservations,
concessions
or
any
interest
therein
and
to
lease,
place
under
licence,
sell,
dispose
of
and
otherwise
deal
with
the
same
or
any
interest
therein;
to
prospect
for
and
develop,
inter
alia,
petroleum
and
natural
gas
properties
and
to
sell
or
otherwise
dispose
of
the
same
or
any
part
thereof
and
to
produce
and
deal
in
petroleum
products.
In
view
of
the
wide
powers
vested
in
a
company
limited
by
shares
by
Section
19
of
the
Companies
Act,
except
such
as
may
be
expressly
excluded
by
the
Memorandum,
the
objects
of
the
company
might
have
been
expressed
with
much
greater
brevity
and
this
was
the
view
of
Mr.
K.
D.
Arnold,
one
of
Mr.
Harvie’s
partners,
who
drafted
the
Memorandum
and
who
acquired
an
interest
in
the
properties.
However,
on
the
direction
of
Mr.
Harvie,
the
objects
were
stated
at
length,
including
the
above
mentioned
specific
matters.
By
an
agreement
dated
July
7,
1944,
made
between
Mr.
Harvie
and
Minerals,
he
transferred
to
that
company
all
his
right,
title
and
interest
in
and
to
the
mineral
rights
purchased
by
him
as
aforesaid.
Minerals,
on
its
part,
agreed
to
assume
the
obligations
of
Mr.
Harvie
under
his
agreement
with
the
former
owners,
except
the
payment
of
taxes
against
any
of
the
said
lands,
and
to
grant
to
him
at
his
request
an
option
to
his
nominee
in
a
form
then
agreed
upon.
On
the
same
date
he
entered
into
an
agreement
with
Leaseholds
by
which
he
assigned
to
it
the
rights
acquired
by
him
under
his
agreement
with
Minerals,
except
as
to
the
shares
allotted
to
him,
in
consideration
of
the
allotment
to
him
or
his
nominees
of
all
its
authorized
capital,
perpetual
redeemable
debentures
of
the
face
value
of
$250,000
and
the
performance
by
it
of
all
its
obligations
under
a
document
referred
to
as
a
‘Document
for
Leases’’
which
was
made
bearing
the
same
date
between
Minerals,
described
as
the
‘‘Owner’’
and
Leaseholds,
described
as
the
‘‘Operator’’.
By
this
last
mentioned
agreement
Minerals
granted
to
Leaseholds
the
right
to
acquire
leases
of
the
said
minerals
in
a
form
agreed
upon,
each
lease
to
be
for
such
term
as
should
be
specified
by
Leaseholds,
provided
that
the
term
of
any
lease
so
granted
should
not
extend
beyond
December
31,
2940.
The
agreement
provided
that
Leaseholds
might
operate
under
any
lease
granted
to
it
either
on
its
own
behalf
of
by
subleasing
the
minerals
to
others.
The
royalty
payable
to
Minerals
was
ten
per
cent
of
the
current
value
of
the
production.
In
January,
1945,
the
British
Dominions
Lands
Settlement
Corporation
on
the
direction
of
Mr.
Harvie
conveyed
the
title
to
the
mineral
right
direct
to
Minerals
and
in
due
course
certificates
of
title
were
obtained
in
the
name
of
that
company.
In
the
case
of
the
majority
of
the
lands
the
certificates
showed
Minerals
to
be
the
owner
of
an
estate
in
fee
simple
in
all
mines
and
minerals
other
than
gold
and
silver
which
might
be
found
to
exist
within,
upon
or
under
the
lands
described.
In
the
case
of
some
of
the
titles,
however,
there
were
specific
reservations
of
other
minerals,
such
as
coal.
The
leasehold
rights
of
Anglo-
Western
Oils
Limited
were
apparently
also
transferred
or
surrendered
to
Leaseholds
at
the
same
time.
In
the
result,
at
the
time
of
the
transactions
hereinafter
referred
to
which
took
place
prior
to
December
31,
1950,
Minerals
was
the
registered
owner
of
an
estate
in
fee
simple
of
the
mineral
rights
and
Leaseholds
entitled
to
obtain
leases
of
such
rights
or
any
part
thereof
in
its
own
name
upon
the
agreed
terms.
It
is
necessary
for
the
determination
of
the
question
as
to
the
liability
of
the
appellant
to
taxation
in
these
years
to
examine
with
some
care
the
business
actually
carried
on
by
it.
On
October
4,
1944,
the
firm
of
Harvie
&
Arnold
wrote
to
A.
E.
Verner
of
Innisfree,
Alberta,
saying
that
they
had
been
instructed
by
Leaseholds
to
say
that
in
consideration
of
the
sum
of
$1,146.35
the
company
would,
up
to
June
1,
1945,
refrain
from
leasing
the
petroleum
or
natural
gas
rights
in
14
quarter
sections
of
land
in
Alberta
which
were
described
and
that
upon
application
by
Verner
at
any
time
up
to
the
date
mentioned
and
upon
his
submitting
evidence
that
he
had
actually
spudded
in
and
was
drilling
a
well
on
any
quarter
section
of
the
said
land
grant
to
him
a
lease
of
such
rights
upon
such
land
upon
the
terms
and
conditions
usually
contained
in
such
leases
by
the
Canadian
Pacific
Railway
Company
in
respect
of
its
lands,
the
royalty
reserved
to
be
1214
per
cent
and
an
annual
rental
of
$1
a
year.
The
letter
further
stated
that
if
the
option
to
obtain
a
lease
of
a
quarter
section
was
exercised
before
June
1,
1945,
the
company
would,
in
consideration
of
a
further
payment,
refrain
from
leasing
the
petroleum
and
natural
gas
rights
for
a
further
period,
and
in
the
event
of
this
option
in
turn
being
exercised
in
respect
of
any
quarter
section,
upon
consideration
of
a
further
payment,
to
extend
the
option
to
June
1,
1946.
On
October
10,
1945,
Leaseholds
wrote
to
George
Cameron
of
Vermilion,
Alberta,
saying
that
in
consideration
of
the
payment
of
a
sum
of
$682.30
it
agreed
to
refrain
for
a
period
of
nine
months
from
October
1,
1945,
from
leasing
the
petroleum
or
natural
gas
rights
in
seven
designated
sections
of
land
in
Alberta,
and
that
upon
application
at
any
time
during
the
said
period
the
company
would
cause
Minerals
to
grant
leases
of
these
rights
in
the
said
lands
or
any
part
of
them
upon
the
terms
and
conditions
contained
in
that
company’s
Standard
Form
of
Petroleum
and
Natural
Gas
Lease.
The
rights
given
by
these
two
letters
are
referred
to
in
the
evidence
as
reservations
and
at
some
time,
apparently
in
the
year
1944,
Leaseholds
granted
to
Rusylvia
Oils
Limited,
a
company,
all
the
shares
of
which
were
owned
by
Mr.
Harvie,
a
reservation
on
some
20,000
acres
of
the
lands
in
question.
The
evidence
does
not
disclose
what
amounts,
if
any,
were
paid
by
this
company
for
this
reservation
or
its
exact
nature,
but
the
auditor’s
report
of
June
21,
1948,
dealing
with
the
accounts
of
the
company
as
at
December
31,
1947,
stated
that
there
was
an
account
payable
by
Rusylvia
Oils
Limited
of
$1,059.05.
The
profit
and
loss
account
for
the
company
as
shown
in
the
auditor’s
report
shows
for
the
year
1944
income
from
reservations
of
land,
$1,228.92:
for
1945,
$1,185.24
and
for
1946,
$639.68
in
addition
to
an
amount
of
$79.60
referred
to
as
‘‘income
from
lease’’.
For
the
year
1947
nothing
is
shown
as
having
been
received
from
reservations,
but
$4,228.59
was
shown
as
‘‘income
from
oil
royalties’’
and
$3,137.70
from
‘‘gravel
lease
and
royalties”.
The
amounts
shown
received
from
these
four
years
were
simply
carried
into
the
general
accounts
of
the
company
as
receipts
from
its
operations
which
in
each
year
showed
a
loss.
By
an
agreement
dated
May
15,
1946,
Minerals
and
Leaseholds
granted
to
Shell
Oil
Company
of
Canada
Limited
the
right
to
purchase
in
fee
the
petroleum
and
natural
gas
and
related
hydrocarbons
other
than
coal
in
299,948.87
acres
of
the
lands
referred
to.
The
arrangement
had
theretofore
been
negotiated
by
Leaseholds
with
the
Shell
Company,
and
as
the
fee
of
the
mineral
rights
was
in
Minerals
and
the
Shell
Company
wished
to
have
an
option
to
purchase
the
said
rights
outright,
it
was
necessary
for
Minerals
to
join
in
the
agreement.
The
option
to
purchase
was
given
in
consideration
of
the
payment
of
$30,000
and
was
for
the
balance
of
the
calendar
year
1946,
but
provided
for
an
extension
for
four
further
years
upon
the
making
of
further
payments
and
provided
the
price
per
acre
to
be
paid
for
rights
purchased
during
the
term
of
the
option.
This
option
was
not
exercised
and
the
rights
of
the
Shell
Company
terminated
on
December
31,
1946.
The
amount
so
paid
by
it
was
shown
in
the
balance
sheet
of
the
company
for
1946
as
capital
surplus.
Contemporaneously
with
the
making
of
this
agreement,
Minerals
and
Leaseholds
entered
into
a
further
agreement,
reciting
the
circumstances
under
which
the
agreement
was
to
be
made
with
the
Shell
Company
and
stipulating
that
in
the
event
of
that
company
purchasing
any
mineral
rights
under
the
agreement,
Minerals
should
receive
out
of
the
purchase
price
$2
per
acre
in
full
settlement
of
its
interest
and
that
Leaseholds
should
be
entitled
to
any
balance.
On
November
1,
1946,
Leaseholds
granted
a
lease
of
the
petroleum
and
natural
gas
rights
in
three
quarter
sections
of
land
in
the
vicinity
of
Leduc,
Alberta,
to
Imperial
Oil
Limited.
This
lease
was
for
a
term
of
ten
years
certain
at
a
yearly
rental
of
$1
per
acre
and
a
royalty
of
12^
per
cent
of
any
production
obtained.
The
lease
obligated
the
lessee
to
commence
drilling
at
some
point
on
the
leased
area
within
six
months,
and
unless
production
was
obtained
to
drill
certain
further
wells
with
the
details
of
which
we
are
not
concerned.
On
the
same
date
Minerals
granted
to
Leaseholds
a
lease
of
these
three
quarter
sections
for
a
term
of
ten
years
certain
which
might
be
extended
in
certain
events
and
which
reserved
a
royalty
of
ten
per
cent
of
any
production
to
Minerals.
The
auditor’s
report
for
the
year
1947
does
not
give
any
detail
of
the
amounts,
if
any,
received
in
respect
of
this
lease,
a
lump
sum
being
shown
for
the
royalties
received,
and
it
does
not
appear
that
any
amount
was
paid
to
the
company
in
consideration
of
granting
the
lease.
The
report
gives
certain
particulars
of
the
amounts
shown
as
received
from
gravel
leases,
however,
$2,000
being
shown
as
received
from
Albert
Gaumont
as
settlement
for
the
years
1944,
1945
and
1946
in
respect
to
gravel
taken
from
the
properties
leased
by
the
company,
and
a
further
sum
of
$977.70
as
royalty
for
gravel
taken
in
1947.
This
amount
was
said
to
have
been
allocated
%ths
to
Minerals
and
/5th
to
Leaseholds.
By
letter
dated
February
4,
1947,
signed
by
Leaseholds
and
Minerals,
the
two
companies
granted
to
Imperial
Oil
Limited
an
option
exercisable
at
any
time
up
to
December
31,
1951,
to
purchase
the
petroleum
and
natural
gas
rights
and
related
hydrocarbons
other
than
coal
in
193,135
acres
of
the
lands
which
were
particularly
described
in
an
attached
schedule.
The
option
payments
were
to
be
$50,000
annually
with
the
privilege
to
the
optionors
to
require
prepayment
of
all
such
payments
on
or
before
June
1,
1947.
The
price
to
be
paid
per
acre
and
the
royalty
reserved,
without
any
drilling
commitment,
which
varied
in
each
year,
were
stipulated
and
it
was
provided
that
all
taxes
and
other
carrying
charges
were
to
be
paid
by
the
optionee
during
the
term
of
the
option
in
respect
to
acreage
covered
in
the
option
and
in
lands
purchased.
Prepayment
of
the
five
years’
option
payments
was
required
by
the
optionors
and
the
sum
of
$250,000
paid
and
shown
in
Leaseholds’
accounts
for
1947
as
capital
surplus.
By
a
letter
dated
December
31,
1947,
addressed
by
Leaseholds
to
Minerals
and
approved
by
that
company,
it
was
stated
that
the
parties
had
agreed
that
Leaseholds
was
entitled
to
retain
the
sum
of
$250,000
option
money
paid
by
Imperial
Oil
Limited
in
advance
and
that
as
the
royalties
payable
in
respect
of
any
rights
purchased
by
Imperial
Oil
Limited
were
less
than
the
ten
per
cent
royalty
payable
by
Leaseholds
under
its
agreement
with
Minerals,
Leaseholds
was
given
the
exclusive
option
of
purchasing
from
time
to
time
up
to
seven
per
cent
of
any
such
royalty
as
might
become
payable
upon
defined
terms.
By
an
agreement
dated
January
1,
1949,
made
between
Minerals
and
the
Barnsdall
Oil
Company
and
three
other
companies,
to
be
referred
to
hereafter
as
the
‘‘Barnsdall
group’’,
the
latter
acquired
certain
rights
in
the
petroleum,
natural
gas
and
related
hydrocarbons
in
146,279
acres
of
the
lands.
The
negotiations
leading
up
to
this
agreement
had
apparently
been
carried
on
by
Leaseholds
but
the
Barnsdall
group
wished
to
have
their
agreement
direct
with
the
registered
owner
of
these
rights
and
Minerals
entered
into
the
agreement
at
the
request
of
Leaseholds.
By
the
agreement
entered
into
which
was
referred
to
thereafter
by
the
appellant
as
a
“lease”,
Minerals
granted
to
the
Barnsdall
group
the
exclusive
right
and
privilege
to
explore
by
geological,
geophysical
and
other
means
and
to
drill,
produce
and
remove
from
the
lands
the
petroleum
substances
the
property
of
the
owner
which
might
be
found
to
exist
therein.
The
agreement
was
expressed
to
be
for
a
primary
term
of
20
years
from
December
31,
1948,
and
for
extended
terms
thereafter
upon
defined
conditions.
The
expressed
consideration
payable
by
the
lessees
was
the
sum
of
$10,
but
as
the
evidence
disclosed,
the
Barnsdall
group
paid
to
Leaseholds
a
further
sum
of
$914,-
243.75
as
consideration
for
the
granting
of
the
lease.
The
rights
leased
were
not
for
a
solid
block
of
land
but
were
for
individual
parcels
which,
throughout
the
area,
immediately
adjoined
parcels
in
which
Minerals
retained
the
petroleum
rights.
There
was
no
covenant
in
the
agreement
binding
the
lessees
to
drill
for
oil
other
than
a
covenant
which
appeared
under
a
subheading
“Offsets”
whereby
the
lessees
agreed
that
in
the
event
a
well
was
drilled
on
an
offset
location
and
petroleum
substances
were
produced
the
lessees
were
obligated
to
drill
a
well
on
the
unit
contiguous
to
the
drill
site
from
which
production
was
being
taken
to
a
depth
sufficient
to
penetrate
any
zone
within
the
same
geological
period
from
which
the
offset
well
has
obtained
production.
The
lessees
further
agreed
to
pay
a
royalty
of
1214
per
cent
of
all
petroleum
substances
taken
from
the
lands
or
the
proceeds
of
the
sale
thereof.
Presumably
it
was
agreed
as
between
Minerals
and
Leaseholds
at
the
granting
of
the
Barnsdall
lease
as
to
the
disposition
to
be
made
of
the
large
cash
payment
to
be
made
by
that
group,
but
this
was
not
reduced
at
the
time
to
writing.
Imperial
Oil
Limited,
by
a
series
of
letters
dated
respectively
February
2,
1949;
July
26,
1950;
October
3,
1950
and
November
29,
1950,
exercised
its
option
to
purchase
the
mineral
rights
in
approximately
6,000
acres
of
the
lands
and
by
letters
bearing
these
dates
made
the
payments
stipulated
for
by
the
agreement
of
February
4,
1947,
and
requested
conveyances
to
it
of
the
said
rights.
By
a
letter
dated
December
29,
1950,
the
company
exercised
its
option
upon
the
balance
of
the
rights
and
requested
a
conveyance.
The
$250,000
which
had
been
paid
as
consideration
for
the
granting
of
the
option
was
by
the
terms
of
the
agreement
applicable
upon
the
purchase
price
and
the
balance
remaining
payable
upon
the
exercise
of
the
option
on
December
29,
1950,
was
$1,902,041.65
which
was
then
paid.
While
Imperial
Oil
Limited
had
requested
conveyances
of
the
mineral
rights
in
each
of
these
letters,
that
company
apparently
decided
that
it
was
preferable
to
obtain
a
lease
from
Minerals,
this
was
agreeable
to
the
appellant
and
such
a
lease
for
the
entire
area
in
respect
of
which
the
option
had
been
given
and
which
was
determined
to
be
193,137.79
acres
in
extent
was
granted
bearing
date
December
30,
1950.
Such
lease
was
for
a
term
of
979
years
at
a
yearly
rent
of
$1
and
royalties
of
nine
per
cent
of
the
petroleum
and
natural
gas
produced
reserved
and
a
like
royalty
upon
what
were
referred
to
as
‘‘plant
products’’.
Other*
terms
of
this
lease,
of
importance
to
the
parties,
have
no
relevance
to
the
matter
under
consideration.
By
a
document
referred
to
as
“Agreement
of
Settlement
and
Adjustments’’
dated
December
30,
1950,
Minerals
and
Lease-
holds
settled
and
defined
their
respective
interests
in
the
lease
of
the
three
quarter
sections
granted
to
Imperial
Oil
Limited
at
Ledue
on
November
1,
1946,
the
lease
to
that
company
of
December
30,
1950,
and
the
Barnsdall
lease.
This
was
rendered
necessary
by
the
fact
that
while
Leaseholds
was
entitled
to
lease
all
of
these
lands,
the
actual
leases
made
had
been
made
at
its
request
by
Minerals.
As
to
these
three
leases
it
was
agreed
that
Leaseholds
should
retain
all
moneys
paid
by
Imperial
Oil
Limited
‘
‘
as
to
the
purchase
price
for
the
said
lease
under
the
terms
of
the
option
letter
dated
the
4th
of
February,
A.D.
1947”
excepting
the
sum
of
$234,394.68
which
was
said
to
be
the
amount
paid
by
Leaseholds
to
Minerals
as
consideration
for
reducing
the
royalty
payable
under
the
agreement
for
leases
from
ten
per
cent
to
nine
per
cent.
As
to
the
Barnsdall
lease
it
was
agreed
that
it
had
been
made
by
Minerals
at
the
request
of
Leaseholds
and
as
between
the
parties
was
to
be
considered
as
a
sublease
oranted
by
Leaseholds
under
a
further
lease
to
be
entered
into
on
that
date.
It
was
provided
that
Minerals
would
forthwith
enter
into
a
new
lease
in
an
agreed
form
covering
the
petroleum
and
natural
gas
rights
on
approximately
293,568
acres
which
included
the
lands
covered
by
the
Barnsdall
lease.
Leaseholds,
on
its
part,
agreed
to
surrender
to
Minerals
all
other
rights
and
interests
under
the
agreement
for
leases
of
July
7,
1944.
The
other
considerations
for
the
granting
of
the
new
lease
are
not
relevant
to
the
matters
to
be
considered.
The
questions
to
be
determined
are
as
to
the
liability
of
the
appellant
to
income
tax
upon
the
$30,000
received
from
Shell
Oil
Company
on
May
15,
1946
:
$250,000
received
from
Imperial
Oil
Company
Limited
on
February
4,
1947:
$27,606.25
received
from
that
company
in
1949:
$914,243.75
received
from
the
Barnsdall
group
on
February
22,
1949
and
$1,953,771.00
received
from
Imperial
Oil
Company
Limited
in
December
of
1950.
The
contention
of
the
appellant
put
briefly
is
that
these
amounts
were
received
from
the
sale
of
rights
which
in
its
hands
were
a
capital
asset.
The
respondent
contends
that
each
of
the
amounts
were
profits
from
a
business
carried
on
by
the
taxpayer
in
each
of
these
years.
The
statute
applicable
to
the
payments
received
in
1946
and
,
1947
is
the
Income
War
Tax
Act
(R.S.C.
1927,
ce.
97,
as
amended).
Section
3
of
that
statute
defines
“income”
as
including
the
annual
net
profit
or
gain
from
a
trade
or
commercial
business
or
calling.
The
payments
received
in
the
years
1949
and
1950
are
subject
to
the
provisions
of
The
Income
Tax
Act
(S.C.
1948,
c.
52).
The
following
sections
are
to
be
considered:
‘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.
’
’
Section
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
learned
trial
judge,
after
reviewing
the
evidence,
said
in
part:
“In
my
view,
no
distinction
can
be
drawn
between
the
five
items
of
profit
now
under
consideration.
They
are
all
gains
which
fall
within
the
test
laid
down
in
Californian
Copper
Syndicate
v.
Harris
(1904),
5
T.C.
159.
.
.
.
Generally
speaking,
a
business
is
operated
for
the
purpose
of
making
a
profit
and
the
pursuit
of
profits
may
be
carried
on
in
a
variety
of
ways
and
by
different
operations.
In
the
instant
case,
it
seems
to
me
that
the
business
of
Leaseholds
was
carried
out
in
two
stages
and
involved
two
different
operations.
While
the
purpose
of
ultimately
developing
its
own
resources
may
have
been
kept
in
mind
throughout,
the
first
operation
necessarily
consisted
of
the
acquisition
and
disposition
of
mineral
rights
so
as
to
acquire
funds
with
which
to
enter
into
the
second
stage,
namely,
the
drilling
for
and
operation
of
oil
and
gas
wells
on
its
own
account.
The
possibility
of
disposition
of
the
mineral
rights
had
been
contemplated
since
the
company
was
formed.
In
dealing
with
its
mineral
rights
in
this
fashion,
it
did
not
do
so
accidentally
but
as
part
of
its
business
operations,
and
although
possibly
that
line
of
business
was
not
of
necessity
the
line
which
it
hoped
ultimately
to
pursue,
it
was
one
which
it
was
prepared
to
undertake,
and,
by
its
character,
had
power
to
undertake.
In
my
opinion,
the
profits
here
in
question
were
gains
made
in
the
carrying
on
or
carrying
out
of
a
business
and
in
the
scheme
for
profit-making.
Those
relating
to
the
years
1946
and
1947
are
therefore
within
the
definition
of
income
as
found
in
Section
3(1)
of
the
Income
War
Tax
Act:
.
.
.
Those
profits
relating
to
the
years
1949
and
1950
fall
within
the
provisions
of
Sections
3
and
4
of
The
Income
Tax
Act,
1948,
and
are
therefore
taxable
profits.’’
These
findings
of
fact
as
to
the
nature
of
the
business
which
the
appellant
intended
to
carry
on
and
that
actually
carried
on
during
the
years
in
question
are,
in
my
opinion,
completely
supported
by
the
evidence.
As
the
evidence
discloses,
it
was
at
the
direction
of
Mr.
Harvie
that
the
Memorandum
of
Association
of
the
company
included
among
the
declared
objects
the
carrying
on
of
the
business
of
drilling
for,
producing
and
marketing
oil
and
also
the
acquiring
by
purchase,
lease,
concession
or
licence
mineral
properties
or
any
interest
therein
and
selling
and
disposing
of
or
otherwise
dealing
with
the
same
or
any
interest
therein.
In
Anderson
Logging
Company
v.
The
King,
[1925]
S.C.R.
56;
[1917-27]
C.T.C.
207,
Duff,
J.,
as
he
then
was,
said
that
if
the
transaction
in
question
belongs
to
a
class
of
profit-making
operations
contemplated
by
the
Memorandum
of
Association,
prima
facie
at
all
events
the
profit
derived
from
it
is
a
profit
derived
from
the
business
of
the
company.
That
presumption
may,
of
course,
be
negatived
by
the
evidence
as
was
done
in
the
ease
of
Sutton
Lumber
&
Trading
Company
v.
M.N.R.,
[1953]
S.C.R.
77
;
[1953]
C.T.C.
237.
In
the
present
case,
however,
the
evidence,
far
from
negativing
the
presumption,
appears
to
me
to
support
it.
The
evidence
given
by
the
witness
Harvie
which
was
accepted
by
the
learned
trial
judge
showed
that
it
was
his
intention,
and
the
intention
of
his
associates,
that
the
appellant
would
carry
on
the
business
of
drilling
for,
producing
and
marketing
oil.
Before
this
purpose
could
be
accomplished,
it
was
necessary
to
determine
whether
oil
was
present
in
the
area
in
paying
quantities.
It
is
made
manifest
by
the
evidence
that
it
was
also
contemplated
by
them
that
by
granting
subleases,
reservations
or
options
or
otherwise
turning
to
profitable
account
the
rights
held
under
its
contract
with
Minerals
moneys
might
be
realized
which
might
enable
it
eventually
to
produce
and
market
oil.
The
area
in
which
these
rights
were
held
was
some
775
square
miles
in
extent
and
to
adequately
explore
it
to
determine
whether
it
contained
oil
in
paying
quantities
required
an
expenditure
of
moneys
which
was
entirely
beyond
the
financial
capacity
of
the
appellant.
The
means
adopted
to
insure
the
exploration
of
the
large
area
covered
by
the
options
granted
to
the
Shell
and
Imperial
Oil
companies
and
that
leased
to
the
Barnsdall
group
was
to
require
payment
of
these
large
amounts
for
the
granting
of
the
options
and
the
lease
respectively.
The
increase
in
the
cost
to
the
optionees
of
acquiring
title
to
the
mineral
rights
from
year
to
year
during
the
term
of
the
options
was
designed
to
insure
that
the
work
of
exploration
would
be
done
with
at
least
a
greater
degree
of
expedition
than
if
the
price
from
year
to
year
remained
constant.
It
is
to
be
remembered
that
by
the
agreement
for
leases
made
between
Minerals
and
the
appellant
on
July
7,
1944,
the
appellant
was
entitled
to
the
grant
of
leases
in
its
own
name
and
that
it
was
given
the
privilege
of
subletting
the
rights
to
the
others.
This
appears
to
me
to
clearly
indicate
that
it
was
contemplated
that
the
appellant
might
turn
its
rights
to
profitable
account
by
granting
subleases
for
such
consideration
as
it
might
be
able
to
obtain
from
others
as
well
as
by
operating
on
its
own
account.
The
reservations
given
to
Verner
on
October
4,
1944;
to
George
Cameron
on
October
10,
1945,
and
to
Rusylvia
Oils
Limited
and
the
payments
received
for
these
reservations
were
treated
simply
as
part
of
the
business
of
the
appellant
and
the
moneys
received
carried
into
its
general
accounts
and
treated
as
receipts
from
its
business.
There
had
apparently
been
some
prior
commitment
to
Verner
by
the
former
owners
which
Mr.
Harvie
required
the
appellant
to
carry
out
by
granting
the
reservation
but
this
did
not
apply
to
the
case
of
Cameron.
The
evidence
as
to
the
arrangement
made
with
Rusylvia
Oils
Limited
for
a
reservation
of
20,000
acres
is
rather
vague
and
may
have
been
given
in
pursuance
of
a
commitment
by
the
former
owners
of
the
mineral
rights.
The
payments
received
from
that
company,
however,
were
apparently
carried
into
the
company’s
general
income
as
in
the
case
of
Verner
and
Cameron.
The
royalties
received
from
Imperial
Oil
Limited
under
the
lease
granted
by
the
appellant
of
November
1,
1946,
were
similarly
treated
as
part
of
the
company’s
business
receipts.
Similarly
the
$2,000
received
from
Albert
Gaumont
for
gravel
taken
from
the
properties
leased
during
the
years
1944,
1945
and
1946
and
the
further
amount
paid
in
1947
were
treated
as
business
receipts
of
the
company.
I
agree
with
the
learned
trial
judge
that
as
regards
the
liability
to
taxation
there
is
no
sound
distinction
to
be
drawn
between
the
five
items
of
profit
under
consideration.
The
fact
that
those
controlling
the
company
intended
at
the
outset
that
its
principal
or
one
of
its
principal
activities
should
be
the
production
and
sale
of
oil
does
not
really
touch
the
question
to
be
decided.
Before
a
start
could
be
made
in
carrying
out
that
purpose
it
was
necessary
to
determine
the
existence
of
oil.
That
the
appellant,
consistently
with
one
of
its
declared
objects,
carried
on
the
business
of
dealing
with
the
rights
it
had
acquired
from
Minerals
with
a
view
to
profit
appears
to
me
to
be
demonstrated
by
the
evidence.
In
my
view
the
moneys
received
from
Verner,
Cameron
and
Rusylvia
Oils
Limited
for
the
reservations
granted
to
them;
from
the
Shell
and
Imperial
Oil
companies
for
the
granting
of
the
options;
and
by
the
latter
company
for
the
granting
of
the
lease
and
the
amount
paid
by
the
Barnsdall
group
were
all
profits
realized
from
the
business
of
dealing
in
these
mineral
rights
equally
as
were
the
royalties
reserved
which
also
formed
part
of
the
consideration
for
the
granting
of
these
various
rights.
The
fact
that
it
was
intended
that
the
moneys
so
realized
would
be
utilized
to
finance
the
production
of
oil
is
an
irrelevant
circumstance
in
determining
whether
what
was
done
was
in
truth
the
carrying
on
of
a
business
for
the
purpose
of
making
profit.
I
would
dismiss
this
appeal
with
costs.
Appeal
dismissed.
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