DUFF,
J.:—The
appellant
company
is
incorporated
under
the.
Agricultural
Associations
Act
of
the
Province
of
British
Columbia.
The
Association
has
share
capital.
Persons
may
be
admitted
to
membership,
who
are
resident
of
the
Fraser
Valley,
west
of
Yale,
producers
of
milk
and
subscribers
for
at
least
ten
shares,
and
who
execute
the
Association’s
agreement
respecting
the
sale
of
milk
and
cream
through
the
Association.
No
shareholder
may
hold
less
than
ten
or
more
than
three
hundred
shares.
A
shareholder
may
withdraw
from.
the
Association,
with
the
consent
of
the
directors,
if
he
ceases
to
produce
in
the
territory,
and,
on
the
surrender
of
his
certificate,
is
entitled
to
a
refund
of
the
amount
paid
up
on
his
shares.
Shares
are
to
be
paid
for
in
cash,
and
the
directors
are
entitled
to
make
calls
in
respect
of
unpaid.
balances
on
shares.
The
dividends
received
by
shareholders
are
proportioned
to
the
amounts
paid
on
their
shares.
The
contract
executed
by
producers
is
in
the
following
words
:—
^Whereas
the
Producer
has
requested
the
Association
to
accept
for
distribution
and
sale
on
his
behalf,
all
the
milk
and/or
cream
produced
by
the
Producer
during
the
life
of
this
agreement,
which
the
Association
has
agreed
to
do.
“Now
therefore
this
Agreement
witnesseth:
That
in
consideration
of
the
outlays
and
expenses
incurred
and
to
be
incurred
by
the
Association
in
providing
means
for
handling,
manufacturing
and
marketing
the
milk
and
dairy
products
of
the
Producer
as
mentioned
herein,
the
said
parties
have
agreed
to,
and
do
hereby
agree
as
follows
:—
.
"‘1.
The
Producer
agrees
to
forward
to
the
Association,
or
as
it
may
direct,
all
milk
and/or
cream
produced
by
the
Producer
other
than
that
retained
by
him
for
his
own
personal
or
family
use,
for
a
continuous
period
from
the
date
hereof
until
he
shall
retire
absolutely
from
the
dairy
business,
in
the
lower
mainland
of
British
Columbia,
subject
to
cancellation
by
a
twelve
months’
notice
which
may
be
given
by
either
party
to
the
other
to
terminate
this
agreement
while
the
Producer
is
still
carrying
on
dairying
in
the
aforementioned
district,
the
contract
to
terminate
at
the
expiration
of
said
notice:
Provided
always
that
the
Producer
will
endeavour
to
follow
the
instructions
of
the
Association
as
to
the
proportionate
quantities
of
milk
to
be
produced
during
the
several
months
of
the
year,
in
order
that
the
natural
surplus
in
the
spring
may
be
reduced
as
much
as
possible.
"12.
The
Producer
agrees
to
deliver
the
said
milk
and/or
cream
to
such
plant
or
other
place
as
the
Association
may
from
time
to
time
require
and
that
he
will
be
responsible
for
the
condition
of
the
said
milk
and/or
cream
until
the
same
is
accepted
at
such
plant
or
other
place
by
the
Association,
or
by
such
person
or
persons
as
may
be
appointed
by
the
Association
in
that
behalf.
.3.
The
Association
agrees
with
the
Producer
to
receive
from
him
all
the
said
milk
and/or
cream
produced
by
him
and
to
sell
the
same,
as
may
be
deemed
by
the
management
of
the
Association
to
be
most
advantageous
to
all
members
thereof
and
to
pool
the
proceeds
of
all
sales
on
behalf
of
all
Producers
delivering
to
the
Association
and
to
distribute
the
same
to
such
Producers
on
the
basis
of
the
butter
fat
content
f.
0.
b.
Vancouver
(reducing
the
price
of
such
butter
fat
content
f.o.b.
Vancouver
where
the
amounts
paid
for
delivery
have
been
less
than
the
cost
of
delivery
at
Vancouver,
by
an
equitable
difference
(according
to
market
prices
obtained
for
sour
cream,
sweet
cream,
and
whole
milk
Provided
always
that
from
and
out
of
the
moneys
realized
from
the
sale
of
milk
and/or
cream
during
the
term
of
this
agreement
the
Association
may
deduct
and
retain
from
month
to
month
such
amounts
for
the
purposes
of
the
Association
as
its
Directors
may
from
time
to
time
decide,
which
amounts
shall
not
exceed
in
all
10
per
cent.
of
the
amount
realized
from
the
sale
of
the
said
milk
and/or
cream,
and
said
amounts
so
deducted
and
retained
by
the
Association
together
with
similar
amounts
deducted
and
retained
by.
the
Association
from
all
other
Producers
delivering
to
the
Association
shall
be
a
fund
in
the
hands
of
the
Association
to
be
expended
as
follows:—
"
4
(a)
To
provide
for
all
losses,
costs,
charges
and
expenses
incurred
by
the
Association
in
carrying
on
its
business
together
with
a
reasonable
allowance
for
depreciation
of
all
plants
and
equipment.
(b)
To
establish
a
reserve
fund
as
may
be
required
by
the
provisions
of
the
((
Co-operative
Associations
Act’?
as
in
force
here
from
time
to
time.
il
(e)
For
the
purpose
of
paying
a
cash
dividend
on
the
paid-up
shares
in
the
capital
stock
of
the
Association
at
such
rate
as
may
be
fixed
by
the
said
Association
in
annual
general
meeting,
such
dividend
not
to
exceed
eight
per
centum
per
annum.
1
‘(d)
The
directors
may
retain
from
such
fund,
after
the
foregoing
subsections
have
been
complied
with,
such
amounts
as
the
directors
may
deem
advisable
for
the
purpose
of
purchasing
any
land,
buildings,
machinery
or
equipment,
or
in
making
any
other
investment
or
investments
which
they
may
deem
for
the
benefit
of
the
Association,
Provided
always
that
such
expenditure
in
any
year
shall
not
exceed
21
per
cent.
of
the
total
amount
realized
from
all
sales
of
milk
and/or
cream
during
each
year
;
unless
the
expenditure
of
a
larger
amount
be
authorized
by
a
special
general
meeting
of
the
Association
called
for
that
purpose,
in
which
case
the
Producer
hereby
agrees
to
be
bound
by
the
decision
of
such
meeting
whether
he
be
present
or
not.
Upon
the
completion
of
any
such
purchase
or
investment
the
Association
shall
issue
paid-up
shares
to
the
extent
of
the
capital
sum
expended
and
shall
issue
to
each
Producer
and
each
Producer
agrees
to
accept
his
proportion
of
said
shares
being
that
proportion
which
the
value
of
the
butter
fat
calculated
f.
o.
b.
Vancouver,
shipped
by
him
during
such
year
bears
to
the
total
amount
expended
by
the
Association
under
this
subsection.
"‘(e)
Any
balance
remaining
over,
shall
be
disposed
of
in
such
manner
as
shall
be
decided
by
the
members
of
the
Association
in
Annual
General
Meeting,
and
the
Producer
hereby
agrees
to
be
bound
by
the
decision
of
such
meeting,
whether
he
be
present
or
not.
"4.
The
tests
for
butter
fat
content
shall
be
made
by
persons
holding
Government
-certificates
of
qualification
and.
shall
be
subject
to
the
provisions
of
the
Creameries
and
Dairies
Regulation
Act.
"‘5.
The
Association
agrees
to
make
payment
semi-monthly
for
all
milk
and/or
cream
received,
subject
to
the
provisions
herein
contained,
about
the
middle
and
end
of
each
and
every
month
during
the
life
of
this
agreement,
or
at
such
periods
as
may
be
fixed
by
the
Association
in
annual
general
meeting.
(‘6.
While
doing
its
best
to
provide
sufficient
empty
cans
to
every
member
for
use
in
shipping
milk
and/or
cream,
the
Association
is
not
to
be
held
responsible
for
the
failure
of
any
transportation
company
or
milk
hauler
to
leave
the
requisite
number
of
empty
eans
for
this
purpose.
"7.
The
Producer
hereby
covenants
with
the
Association
that
should
the
said
Producer
fail
to
carry
out
the
terms
of
this
agreement
by
making
default
in
the
supply
or
delivery
of
the
milk
and/or
cream
within
contracted
for,
he
will
pay
to
the
Association
the
sum
of
twenty
cents
(20
cents)
for
each
pound
of
butter
fat
not
delivered
by
reason
of
the
said
milk
and/or
cream
being
not
delivered,
and
such
amount
shall
be
held
to
be
liquidated
damages
for
such
non-
delivery
and
not
as
a
penalty.”
The
financial
report
of
the
company,
for
the
year
1925,
showed
that
there
was,
from
the
operations
of
the
company
for
that
year,
a
balance
of
$39,953.34,
which
admittedly
has
been
distributed
among
the
shareholders.
In
respect
of
the
sum
of
$32,000
odd,
which
is
arrived
at
by
deducting
certain
allowances
from
this
balance,
it
has
been
held
by
Audette
J.
[1928]
Ex.
C.R.
215
that
the
appellants
are
assessable
to
income
tax
as
taxable
income
received
during
the
year
1923.
From
this
judgment
the
appellants
now
appeal.
The
judgment
of
Audette
J.
is
assailed
on
two
grounds
:
First,
that
this
sum
was
not
received
by
the
appellants
in
the
year
1923
;
and,
secondly,
if
so
received,
it
is
not
assessable
to
income
tax.
To
deal
first
with
the
second
of
these
contentions.
Both
the
statute,
under
which
the
appellants
are
organized,
and
the
appellants’
own
rules
contemplate
the
distribution
of
profits
to
the
shareholders
of
the
Association
as
such.
Section
13
of
the
Co-operative
Associations
Act,
1920
(B.C.),
c.
19,
is
in
these
words
:—
"‘13.
(1)
The
profits
from
the
business
of
an
association
shall
be
apportioned
as
follows
:—
"‘(a)
By
setting
aside
such
sum
as
its
rules
may
provide,
not
being
less
than
ten
per
cent.
of
the
net
profits,
as
a
reserve
fund,
until
such
fund
is
equal
to
at
least
thirty
per
cent.
of
the
share
capital
paid
up
at
the
date
of
the
apportionment.
"‘(b)
By
payment
of
such
dividend
as
its
rules
may
provide,
not.
exceeding
eight
per
cent
per
annum,
on
the
share
capital
paid
up
at
the
date
of
the
apportionment.
"‘(c)
By
distributing,
in
accordance
with
the
rules
of
the
association,
among
its
patrons,
whether
members
or
not
and
whether
vendors
to
or
purchasers
from
the
association,
the
remaining
profits,
or
such
portion
thereof
as
the
association
may
provide.”
The
statute
treats
the
Association
as
a
profit-making
concern,
and
as
a
profit-making
concern
it
is
contemplated
by
the
contract.
The
contract’
provides
for
the
deduction
for
moneys,
realized
from
the
sale
of
milk
and
cream,
and
the
retention
by
the
Association,
from
month
to
month,
of
such
amounts
not
exceeding
ten
per
cent.
of
the
sums
so
realized,
as
the
directors
may
from
time
to
time
decide,
for
the
purposes
of
the
Association.
These
moneys
deducted
and
retained
by
the
Association
"
‘for
the
purposes
of
the
Association’’
are
to
be
expended
:—_
(1)
In
providing
for
all
losses,
costs,
charges
and
expenses
of
the
business
of
the
Association,
including
an
allowance
for
depreciation
of
plant
and
equipment,
(2)
in
establishing
a
reserve
fund
in
compliance
with
the
statute,
(3)
in
payment
of
a
‘‘cash
dividend’’
to
the
shareholders
of
the
Association,
at
such
rate
as
shall
be
‘‘fixed
by
the
said
Association,
not
exceeding
eight
per
cent.
per
annum,
‘
‘
(4)
as
to
any
surplus,
after
providing
for
these
requirements,
in
paying
a
sum,
not
to
exceed
21%
per
cent.
of
the
total
moneys
realized,
in
the
purchase
of
lands,
buildings,
machinery
or
equipment,
or
‘‘
in
making
any
other
investment/’
deemed
to
be
"‘for
the
benefit
of
the
Association”
;
and
in
disposing
of
any
balance
of
the
surplus
in
such
manner
as
the
Association
may
determine
in
annual
general
meeting.
Moneys.
distributed
among
the
shareholders
by
way
of
dividend,
pursuant
to
the
terms
of
this
contract,
are
moneys
paid
out
of
profits—profits
assessable
to
income
tax.
The
contention
of
the
appellants,
however,
is
that
the
scheme
as
a
whole
is
a
co-operative
scheme;
and
that
the
Association
is
incorporated
for
the
purpose
of
providing
convenient
machinery
for
putting
this
scheme
into
effect.
The
appellants
are,
it
is
said,
a
mere
agency,
and,
the
profits,
so
called,
distributed
among
the
shareholders,
constitute,
in
part,
the
returns
received
by
the
appellants
in
that
character,
which,
in
the
form
of
dividends,
or
interest
on
paid-up
capital,
are
handed
over
to
the
producers.
It
seems
impossible
to
accept
this
view.
It
is
quite
clear
that
the
moneys
distributed,
as
dividends,
or
among
shareholders
as
interest
on
paid-up
capital,
are
not
divided
among
the
producers,
unless
by
accident,
in
the
same
proportion
as
the
share
of
moneys
realized
from:sales,
which
is
paid
directly
to
producers
from
month
to
month,
under
the
terms
of
the
contract.
The
share
of
each
producer
in
the
moneys
so
distributed
is
determined
by
the
butter
fat
content
of
his
product;
while
his
share
of
moneys
distributed,
by
way
of
dividend
or
interest,
is
determined
by
the
amount
he
has
paid
on
his
shares.
Moreover,
while
it
is
intended,
no
doubt,
that
the
number
of
shares
held
shall
bear
a
definite
relation
to
the
number
of
cans
of
milk
supplied
by
the
shareholder
to
the
Association,
that
relation
is
not
necessarily
maintained,
as
the
following
evidence
shows
:—
"‘Q.
Supposing
we
had
a
shipper
who
shipped’one
can
of
milk
but
he
only
held
five
shares,
and
we
have
another
who
ships
one
can
of
milk
but
he
has
three
hundred
shares;
you
say
the
money
all
goes
to
the
shipper
and
they
are
synonymous
?
"‘A.
Yes.
‘IQ.
Do
they
get
the
same
amount
of
money
?
"A.
No.
"‘Q.
Where
is
the
difference
?
"‘A.
The
man
with
bigger
shipments
would
get
more.
"‘Q.
The
shipments
are
both
the
same?
"‘A.
The
man
who
has
more
capital
in
the
company
would
get
more
interest.”
On
the
whole
it
seems
impossible
to
treat
the
distribution
of
moneys
under
clause
3
(c)
of
the
contract
as
a
mere
accounting
by
the
appellants,
as
agents,
to
their
principals.
Admittedly,
by
the
contract,
the
moneys
realized
from
the
sale
of
milk
and
cream,
were
to
be
distributed
"
4
about
the
middle
and
the
end
of
each
month,’’
or
at
such
periods
as
might
be
fixed
by
the
Association,
subject
to
the
monthly
deduction
above
mentioned,
which
is
not
to
exceed
ten
per
cent.
of
the
total
amount
realized
from
sales.
Moneys
retained,
which
remained
in
the
hands
of
the
Association
at
the
end
of
the
year
1923,
could
only
be
retained
in
virtue
of
the
proviso
to
the
third
paragraph
of
the
agreement,
which
authorized
the
retention
of
moneys
‘‘for
the
purposes
of
the
Association.’’
The
destination
of
the
moneys,
so
retained,
is
explicitly
fixed
by
the
terms
of
the
agreement
•itself.
Only
in
payment
of
a
cash
dividend
is
the
distribution
of
any
part
of
such
moneys
among
the
shareholders
authorized,
and
this
only
after
the
expenses,
incurred
by
the
Association
“in
carrying
on
its
business,’’
have
been
provided
for.
As
to
the
first
contention.
The
terms
of
the
contract
seem
to
conclude
the
point
against
the
appellants.
The
appellants’
argument
is
that
the
balance
of
$39,000
odd,
which
was
distributed
after
the
annual
meeting
of
February,
1924,
consisted
of.
the
undistributed
proceeds
of
sales
in
the
year
1923.
These
moneys,
as
part
of
such
proceeds,
could
only
be
retained
rightfully
under
the
terms
of
the
proviso,
paragraph
3;
and,
therefore,
we
are
entitled,
and
indeed
bound,
to
presume
that
they
were,
from
month
to
month,
deducted
and
retained
by
the
Association,
pursuant
to
those
terms,
that
is
to
say,
“‘for
the
purposes
of
the
Association,’’
and,
moreover,
that
the
distribution
among
the
shareholders
was
made
in
conformity
with
the
obligations
of
the
appellants
under
the
contract.
The
proper
inference,
therefore,
is
that
these
moneys
were
received
by
the
appellants,
for
their
own
purposes,
in
the
year
1923.
The
appeal
is
to
be
dismissed
with
costs.
Appeal
dismissed.
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