ANGERS,
J.:—This
is
an
appeal
by
Wain-Town
Gas
&
Oil
Company
Limited,
a
body
corporate
having
its
office
at
Vermillion,
in
the
Province
of
Alberta,
against
the
decision
of
the
Minister
of
National
Revenue
affirming
an
assessment
for
income
and
excess
profits
tax
in
respect
of
the
taxation
years
ended
December,
1944,
and
December
31,
1945.
Formal
pleadings
were
ordered
and
filed.
In
its
statement
of
claim
the
appellant
says,
in
brief,
as
follows:
by
a
duly
authorized
franchise
agreement,
dated
September
19,
1938,
the
Town
of
Vermillion
granted
the
appellant
a
franchise
to
supply
the
town
with
natural
gas
for
the
period
and
subject
to
the
terms
and
conditions
contained
in
the
said
agreement
;
the
said
franchise
agreement
was
in
fact
and
in
law
a
capital
asset
;
by
an
agreement
in
writing
dated
January
6,
1940,
as
amended
by
a
further
agreement
dated
March
11,
1944,
the
appellant
sold,
assigned
and
transferred
the
said
franchise
to
Franco
Public
Service
Limited,
a
body
corporate
having
its
head
office
at
the
Town
of
Vermillion,
the
purchase
price
being
the
percentage
of
the
actual
gross
sales
of
gas
set
out
in
the
said
agreements;
the
respondent
did
assess
the
tax
claimed
by
him
to
be
payable
by
the
appellant
under
the
Income
War
Tax
Act
for
the
taxation
years
1944
and
1945
and
on
January
15,
1949,
did
mail
to
the
appellant
written
notices
of
such
assessments,
claiming
tax
as
follows
:
for
the
taxation
year
1944—
|
income
tax
|
$
60.81
|
|
excess
profits
tax
|
40.38
|
|
for
the
taxation
year
1945—
|
|
|
income
tax
|
715.04
|
|
excess
profits
tax
|
431.74
|
in
making
the
said
assessments
the
respondent
did
wrongfully
and
without
lawful
authority
treat
as
income
all
payments
received
by
the
appellant
on
account
of
the
said
sales
and
its
franchise
to
Franco
Public
Service
Limited,
relying
particularly
on
the
ground
that
the
payments
in
respect
of
the
franchise
were
income
within
the
meaning
of
paragraph
(f)
of
subsection
(1)
of
section
3
of
the
Income
War
Tax
Act;
the
said
payments
received
by
appellant
from
Franco
Public
Service
Limited
are
in
fact
principal
and
capital
axd
are
not
rents,
royalties,
annuities
or
other
like
periodical
receipts
nor
do
they
depend
upon
the
production
or
use
of
any
real
or
personal
property
;
in
the
alternative
the
appellant
alleges
if
the
payments
received
from
Franco
Public
Service
Limited
or
any
part
thereof
were
assessable
income
of
the
appellant
in
the
year
in
which
they
were
received
or
at
all,
which
is
denied,
the
respondent
failed
to
make
such
an
allowance
for
depletion
or
the
exhaustion
as
the
respondent
considered
just
and
fair
pursuant
to
the
provisions
of
section
5,
subsection
(1)
(a)
of
the
Income
War
Tax
Act.
In
his
statement
of
defence,
in
answer
to
the
statement
of
claim,
the
respondent
pleads
in
substance
as
follows:
he
admits
that
the
appellant
is
a
body
corporate
having
its
said
office
at
Vermillion,
Province
of
Alberta;
he
admits
that
the
respondent
assessed
the
tax
claimed
by
him
to
be
payable
by
the
appellant
under
the
Income
War
Tax
Act
for
the
taxation
years
1944
and
1945
and
that
on
January
15,
1949,
he
mailed
to
the
appellant
written
notices
of
such
assessments,
but
denies
that
the
excess
profits
claimed
for
the
taxation
year
1945
is
$431.74
and
says
that
the
tax
so
claimed
was
$455.10;
he
ignores.
or
denies
the
other
allegations.
À
brief
recapitulation
of
the
evidence
seems
convenient.
James
D.
Adam,
barrister
and
solicitor
of
Vermillion,
heard
as
witness
on
behalf
of
appellant,
testified
that
at
various
times
in
the
past
he
acted
in
the
capacity
of
solicitor
for
the
company
;
He
stated
that
he
incorporated
Franco
Public
Service
Limited
and
that
he
has
been
its
solicitor
since
the
incorporation,
nearly
ten
years
ago.
Shown
an
agreement
dated
September
19,
between
the
Town
of
Vermillion
and
the
appellant,
Adam
recognized
it
as
the
deed
by
which
the
appellant
acquired
a
franchise
to
supply
natural
gas
to
the
Town
of
Vermillion
and
its
inhabitants;
the
document
was
produced
as
exhibit
1.
Adam
declared
that
it
was
ratified
by
the
Town
Council
following
a
plebiscite
of
the
ratepayers
held
for
that
purpose
and
that
it
was
later
approved
by
the
Board
of
Public
Utility
Commissioners
for
the
Province
of
Alberta.
He
acknowledged
that
subsequently
there
were
negotiations
between
the
appellant
and
the
Franco
Public
Service
Limited
for
the
sale
of
that
franchise.
Exhibited
a
letter
from
Franco
Oils
Limited
to
J.
L.
Wilson,
dated
December
8,
1939
(exhibit
2),
Adam
said
that
it
relates
to
negotiations
which
were
then
pending
;
I
deem
it
apposite
to
quote
an
extract
of
this
letter:
"‘Confirming
our
conversation
of
this
date
we
agree
to
accept
assignment
of
your
gas
franchise
for
the
Town
of
Vermillion
and
supply
gas
according
to
the
terms
thereof
as
expeditiously
as
possible,
and
for
said
assignment
we
agree
to
pay
to
your
Company
a
royalty
on
gross
sales
in
the
following
manner:
for
the
first
three
years
of
the
term
of
the
franchise
you
will
receive
a
royalty
of
612
%
;
for
the
remaining
seven
years
of
the
term
you
will
receive
8-1/3%
royalty;
providing
the
franchise
is
renewed
for
a
second
term
of
ten
years,
for
that
ten-year
period
you
are
to
receive
1212%
gross
royalty.
In
the
event
that
the
Town
purchase
the
utility
at
the
end
of
the
present
existing
franchise
period
you
are
to
receive
25%
of
the
net
proceeds
therefrom.
In
the
event
that
a
third
franchise
is
obtained,
that
is
a
third
ten-year
period,
then
the
gross
royalty
payable
to
you
will
remain
at
1212%.
In
this
event,
no
further
liability
exists
respecting
the
proceeds
of
any
subsequent
sale.’’
Adam
pointed
out
that
the
last
paragraph
of
the
letter
says
all
this
is
preliminary
to
the
final
agreement,
adding
that
the
letter
was
varied
in
certain
respects.
He
declared
that,
as
solicitor
for
both
parties,
he
drew
the
agreement
between
Wain-Town
Gas
&
Oil
Company
Limited
and
Franco
Public
Service
Limited
and
the
Town
of
Vermillion
dated
January
6,
1940,
filed
as
exhibit
3,
in
virtue
of
which
the
appellant
assigned
its
natural
gas
franchise
to
Franco
Public
Service
Limited.
Clause
4
of
this
agreement
stipulates
that,
in
consideration
of
the
assignment
by
the
appellant
of
its
franchise
to
Franco
Public
Service
Limited,
the
latter
doth
hereby
covenant
and
agree
with
Wain-Town
Gas
&
Oil
Company
Limited
to
pay
to
the
latter
by
way
of
royalty,
from
the
proceeds
of
sales
of
natural
gas
under
the
said
franchise,
the
following
percentages
of
the
actual
gross
sales
of
gas
at
consumers’
prices
less
consumers’
discounts:
(a)
during
the
first
three
years
six
and
one
quarter
per
cent;
(b)
during
the
next
seven
years
eight
and
one
third
per
cent;
(c)
thereafter
during
the
currency
of
this
agreement
and
of
the
said
franchise
twelve
and
a
half
per
cent.
To
the
question
as
to
whether
at
the
time
the
agreement
was
executed,
namely
January
6,
1940,
the
appellant
owned
wells
producing
natural
gas
Adam
answered
negatively,
explaining
that
the
appellant
had
drilled
a
well
to
get
gas,
that
this
well
was
completed
after
the
grant
of
the
franchise
to
the
appellant
had
been
ratified
and
that
the
well
was
not
successful.
Adam
estimated
that
the
amount
which
the
appellant
spent
in
acquiring
its
franchise
and
seeking
a
supply
of
natural
gas
would
be
between
$20,000.00
and
$25,000.00.
He
asserted
that
the
appellant
does
not
own
any
natural
gas
wells
and
that
it
has
not
owned
any
since
the
agreement
exhibit
3.
He
added
that
the
natural
gas
distributed
by
Franco
Public
Service
Limited
comes
from
wells
(originally
one)
belonging
to
associate
companies
of
Franco
Oils
Limited,
the
parent
company
of
Franco
Public
Service
Limited,
in
which
the
appellant
has
no
interest.
Dealing
with
the
reason
why
the
appellant
had
sold
its
franchise,
Adam
stated
that
it
had
expended
all
its
available
funds,
including
those
it
could
raise
by
sale
of
more
shares
in
the
drilling
of
its
first
and,
in
fact,
its
only
well
or,
in
other
words,
that
it
had
run
out
of
money
and
had
no
prospect
of
raising
more
funds
for
further
drilling.
Adam
said
that
Franco
Public
Service
Limited
had,
through
its
associate
companies,
and
on
its
own
operations,
between
1938
and
the
end
of
1939,
developed
gas,
in
at
least
one
well,
in
large
quantities,
while
in
the
course
of
searching
for
oil.
He
summed
up
his
explanation
thus
(p.
9)
:
“But
since
Wain-Town
Gas
and
Oil
Company
Limited
had
the
franchise
and
no
gas
and
Franco
and
its
associated
has
the
gas
but
no
franchise
it
was
deemed
advisable
on
both
sides
to
get
together.”
He
declared
that
Franco
Public
Service
Limited
was
prepared
to
buy
the
franchise
of
Wain-Town
Gas
and
Oil
Company
Limited,
but
that,
since
the
latter
was
run-down
financially,
the
former
was
not
prepared
to
pay
very
much
cash.
He
said,
on
the
other
hand,
that
the
good
will
of
the
franchise
was
worth
a
considerable
amount
but
pointed
out
that,
if
Franco
Publie
Service
Limited
were
able
to
get
a
new
franchise
from
the
Town,
it
might
take
a
long
time.
He
added
that
Wilson,
in
his
capacity
of
Managing
Director
of
Wain-Town
Gas
&
Oil
Company,
with
the
concurrence
of
the
other
directors,
felt
that
it
was
proper
to
hold
out
for
a
substantial
sum
of
money.
He
concluded
that
it
was
agreed
that,
when
Franco
Public
Service
Limited
started
to
operate
under
the
franchise
and
makes
sales
of
gas,
the
company
would
give
Wain-Town
Gas
&
Oil
Company
Limited
a
percentage.
Further
on
Adam
observed
that
he
was
perhaps
as
much
responsible
as
any
other
person
for
the
use
of
the
word
‘‘royalty’’
in
the
agreement
because
he
was
looking
for
some
word
that
would
identify
the
percentage
payment
and
he
hit
on
the
word
‘‘royalty’’.
Asked
if
he
would
use
the
word
ordinarily
in
an
agreement
of
this
kind,
Adam
answered
(p.
11)
:
“After
this
case
I
will
not
use
it
in
a
case
of
this
kind,
but
it
is
only
fair
to
the
parties
to
say
that
the
word
‘royalty’,
I
was
the
draftsman
of
the
agreement
and
the
word
‘royalty’
just
occurred
to
me
as
a
means
of
expressing
shortly
what
was
intended.
‘
‘
He
asserted
that,
at
the
time
Wain-Town
Gas
and
Oil
Company
Limited
sold
its
franchise,
it
was
not
distributing
gas
in
the
Town
of
Vermillion;
he
specified
that
the
stage
at
which
the
company
was
then
considered
in
that
they
had
drilled
a
well
in
an
effort
to
obtain
gas,
that
it
did
not
get
it
and
that
it
had
no
money
to
drill
another
well.
According
to
him,
it
was
not
until
January,
1941,
that
gas
was
available
in
the
town.
Adam
said
that
a
by-law
was
adopted
by
the
Council
on
January
6,
1940,
approving
the
assignment
by
Wain-Town
Gas
and
Oil
Company
Limited
to
Franco
Public
Service
Limited
of
the
franchise
;
a
copy
of
this
by-law,
bearing
number
140,
was
filed
as
exhibit
4.
He
added
that
on
January
24,
1941,
the
assignment
was
approved
by
the
Board
of
Publie
Utility
Commissioners
for
the
Province
of
Alberta;
a
copy
of
this
approval
was
filed
as
exhibit
5.
He
related
that
at
the
time
of
the
assignment
of
the
franchise
it
was
anticipated
by
both
parties
that
"‘the
bulk
of
the
sales
of
gas
in
the
Town
of
Vermillion
would
be
for
ordinary
domestic
and
commercial
purposes.’’
He
declared,
however,
that
it
happened
that
the
Provincial
School
of
Agriculture
decided
to
become
a
purchaser
of
gas
from
Franco
Public
Service
Limited
in
Vermillion.
Going
into
details
of
the
matter,
Adam
made
the
following
comments
(p.
13)
:
“A
large
mill
which
had
burned
down,
re-opened
and
converted
to
gas
fuel.
There
was
at
that
time
a
municipally
owned
central
steam
heating
system
which
used
coal
for
fuel,
but
which
the
Council
afterwards
decided
should
use
gas
fuel,
and
the
increase
in
sales
of
gas
when
the
Town
municipally
owned
steam
heating
plant,
electric
light
and
steam
heating
plant
converted
to
gas
was
a
very
substantial
part
of
the
whole
sales.
More
lately
there
has
been
a
large
municipal
plant,
a
large
electric
power
and
light
plant
established
at
Vermillion
which
uses
larger
quantities
yet,
but
the
sale
of
gas
under
this
franchise,
I
can
say
with
confidence,
far
exceeded
the
expectations
of
anyone
who
had
a
part
in
the
original
development
and
organization.”
I
do
not
think
that
the
litigation
between
Wain-Town
Gas
and
Oil
Company
Limited
and
Franco
Publie
Service
Limited
as
to
whether
or
not
the
former’s
percentages
would
extend
to
instances
outside
the
limits
of
Vermillion,
raised
by
counsel
for
appellant,
is
material.
To
counsel
for
respondent’s
question
as
to
what
portion
of
the
$20,000.00
or
$25,000.00
was
expended
on
acquiring
the
franchise,
Adam
estimated
it
at
about
$1,500.
He
added
that
the
balance
of
the
$20,000.00
or
$25,000.00
was
spent
on
drilling
a
well
and
on
management
and
administration
expenses.
He
deemed
it
very
hard
to
say
how
much
was
allotted
to
management
and
administration.
To
the
intimation
by
respondent’s
counsel
that
the
amount
paid
for
management
and
administration
was
not
at
that
stage
very
large,
Adam
retorted
(p.
15)
:
"‘This
company
was
originally
a
company
from
Wainwright,
a
town
forty
miles
south
of
Vermillion,
and
those
who
were
managing
the
business,
Mr.
Wilson
particularly,
who
is
the
Managing
Director,
they—he
had
to
go
and
live
in
Vermillion
and
I
know
the
charge
to
the
company
as
his
expenses,
it
ran
to
something
like
$250.
a
month,
and
that
continued
for
probably
eighteen
months.”
He
said
that,
when
he
mentioned
$20,000.00
to
$25,000.00,
he
had
in
mind
that
there
might
be
$20,000.00
spent
in
the
drilling
and
$5,000.00
in
other
items.
He
specified
that
the
sum
of
$20,000.00
expended
in
the
drilling
of
the
well
included
"‘quite
a
lot
of
money
that
the
company
had
to
find
or
provide,
up
to,
I
would
think,
five
thousand
dollars,
raising
the
money
by
selling
the
shares
in
small
lots.
’
’
Regarding
his
expression
"‘good
will’’
of
the
franchise,
Adam
declared
that
what
he
meant
was
that,
as
long
as
Wain-Town
Gas
and
Oil
Company
Limited
held
the
franchise
and
inasmuch
as
it
was
granted
by
the
Council
to
a
company
in
which
a
number
of
the
local
citizens
were
interested,
it
would
be
difficult
for
anyone
else
to
get
a
franchise
in
the
Town
of
Vermillion.
To
the
question
by
counsel
for
respondent
as
to
whether
the
franchise
included
the
right
to
sell
natural
gas
to
the
Town
of
Vermillion,
Adam,
as
might
be
expected,
replied
in
the
affirmative,
adding
that
the
company
which
held
this
franchise,
which
was
exclusive,
"‘were
the
only
persons
and
still
are
the
only
persons
that
can
sell
gas
in
the
Town
of
Vermillion
and
even
in
the
environs
of
the
Town
of
Vermillion.’’
No
evidence
was
adduced
on
behalf
of
the
respondent.
The
question
arising
for
determination
is
governed
by
paragraph
(f)
of
subsection
(1)
of
section
3
of
the
Income
War
Tax
Act.
The
material
part
of
section
3
reads
thus:
"‘3(1)
For
the
purpose
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
ease
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
.
.
.
(f)
rents,
royalties,
annuities
or
other
like
periodical
receipts
which
depend
upon
the
production
or
use
of
any
real
or
personal
property,
notwithstanding
that
the
same
are
payable
on
account
of
the
use
or
sale
of
any
such
property”
DELLE
The
facts
are
simple
and
undisputed.
They
may
be
summarized
briefly.
.he
.7
*.
agreement
dated
September
19,
1938,
.
.
/
T,.
/•
..
By
an
agreement
dated
September
19,
1938,
Wain-Town
Gas
and
Oil
Limited
got
from
the
Town
of
Vermillion
an
exclusive
franchise
to
supply
natural
gas
to
the
town
and
its
inhabitants.
The
term
of
the
franchise
was
for
ten
years,
as
set
forth
in
clause
2,
the
company
having
the
option
of
renewing
it
for
a
further
period
of
ten
years
and
a
similar
option,
at
the
expiry
of
each
succeeding
ten-year
period
for
which
the
franchise
may
be
renewed.
The
clause
contains
a
proviso
which
is
not
material
herein.
Clause
16
stipulates
that
in
view
of
the
large
expenditure
incurred
by
the
company
the
Town
covenants
and
agrees
that
the
franchise
and
all
other
rights,
powers
and
privileges
granted
to
the
company
are
and
shall
be
granted
to
it
exclusively
for
a
period
of
ten
years,
subject
to
renewal
as
set
forth
in
clause
12,
and
that
during
the
said
period
or
renewal
thereof
the
Town
will
not
itself
supply
natural
gas
to
any
of
its
inhabitants
or
allow
any
other
person,
firm
or
corporation
using
the
streets,
lanes,
highways,
thoroughfares
and
other
publie
places
for
the
purpose
of
laying
gas
pipes
along,
through
or
under
the
same.
By
an
agreement
dated
December
8,
1939,
Wain-Town
Gas
and
Oil
Company
Limited
sold
the
franchise
aforesaid,
absolutely,
with
no
reversion,
to
Franco
Public
Service
Limited.
The
only
thing
sold
under
that
agreement
was
the
franchise
;
no
gas
wells,
pipes
or
conduits
were
included
in
the
assignment.
By
the
agreement
(exhibit
3),
i.e.,
the
assignment
by
appellant
to
Franco
Public
Service
Limited,
the
value
of
the
franchise
was
estimated
on
the
basis
of
a
percentage
of
the
natural
gas
distributed
by
Franco
Public
Service
Limited.
It
was
submitted
on
behalf
of
the
appellant
that
the
franchise
sold
was
capital.
It
is
idle
to
say
that
the
purpose
of
the
Income
War
Tax
Act
is
to
tax
income,
not
capital.
If
the
respondent
be
correct
in
his
assessment,
the
whole
of
the
appellant’s
capital
sum
will
be
taxed
as
income.
I
do
not
think
that
this
is
the
intention
of
the
Act.
Taxing
acts
must
be
construed
strictly
and
a
taxpayer
must
not
be
bound
liable
to
tax
unless
the
tax
be
imposed
expressly
and
clearly:
re
Micklethwait
(1885),
11
Ex.
456;
Partington
v.
Attorney-General
(1869),
L.R.
4
H.L.
109,
122;
Cox
v.
Rabbits
(1878),
3
App.
Cas.
473,
478;
Foley
v.
Fletcher
et
al.
(1859),
L.J.
Ex.
100;
Moore
&
Company
v.
Inland
Revenue
[1914-15]
S.C.
91;
Robert
Addie
&
Sons’
Collieries,
Limited
v.
Commissioners
of
Inland
Revenue
[1924]
S.C.
251
;
British
Insulated
and
Helsby
Cables
Limited
v.
Atherton
[1926]
A.C.
205;
Minister
of
National
Revenue
v.
Spooner
[1933]
A.C.,
684;
[1928-
341
C.T.C.
184;
Capital
Trust
Corporation
Limited
v.
Minister
of
National
Revenue
[1935]
C.T.C.
258;
Van
Den
Berghs,
Limited
v
.Clark
[1935]
A.C.
431,
440;
Inland
Revenue
Commissioners
v.
Ramsay
(1936),
154
L.T.R.
141;
Minister
of
National
Revenue
v.
Dominion
Natural
Gas
Company
Limited
[1941]
S.C.R.
19
;
[1940-41]
C.T.C.
155
;O
f
Connor
v.
Minister
of
National
Revenue
[1943]
Ex.
C.R.
168;
[1943]
C.T.C.
255;
Mahaffy
v.
Minister
of
National
Revenue
[1945]
C.T.C.
408,
415.
In
re
Tenant
v.
Smith,
at
p.
154,
we
find
the
following
observations
of
Halsbury,
L.C.:
"My
Lords,
to
put
this
case
very
simply,
the
question
depends
upon
what
is
Mr.
Tenant’s
income.
This
is
an
Income
Tax
Act,
and
what
is
intended
to
be
taxed
is
income.
And
when
I
say
‘what
is
intended
to
be
taxed’,
I
mean
what
is
the
intention
of
the
Act
as
expressed
in
its
provisions,
because
in
a
taxing
Act
it
is
impossible,
I
believe,
to
assume
any
intention,
any
governing
purpose
in
the
Act,
to
do
more
than
take
such
tax
as
the
statute
imposes.
In
various
cases
the
principles
of
construction
of
a
taxing
Act
have
been
referred
to
in
various
forms,
but
I
believe
they
may
be
all
reduced
to
this,
that
inasmuch
as
you
have
no
right
to
assume
that
there
is
any
governing
object
which
a
taxing
Act
is
intended
to
attain
other
than
what
which
it
has
expressed
by
making
such
objects
the
intended
subject
for
taxation,
you
must
see
whether
a
tax
is
expressly
imposed.
Cases,
therefore,
under
the
taxing
Acts
always
resolve
themselves
into
a
question
whether
or
not
the
words
of
the
Act
have
reached
the
alleged
subject
of
taxation.
Lord
Wensleydale
said,
in
In
re
Micklethwait,
11
Ex.
at
p.
456,
"
It
is
a
well-
established
rule,
that
the
subject
is
not
to
be
taxed
without
clear
words
for
that
purpose;
and
also
that
every
act
of
Parliament
must
be
read
according
to
the
natural
construction
of
its
words.
‘
‘
Reference
may
also
be
had
beneficially
to
Maxwell,
Interpretation
of
Statutes,
9th
ed.,
291;
Craies,
Treatise
on
Statute
Law,
4th
ed.
107;
Beal,
Cardinal
Rules
of
Interpretation,
3rd
ed.
492.
It
was
argued
by
appellant’s
counsel
that
the
payments
are
not
"‘royalties'',
as
such
payments
presuppose
to
continue
in
the
recipient
of
title
to
the
property
or
an
interest
therein,
such
as
exists
in
the
relationship
between
lessor
and
lessee
or
between
licensor
and
licensee.
The
appellant
is
being
paid
by
Franco
Public
Service
Limited
not
for
the
use
of
appellant’s
property
nor
for
the
production
from
it,
but
for
the
absolute
loss
of
such
property,
forever
assigned
to
Franco
Public
Service
Limited.
It
was
urged
by
counsel
that
the
payments
do
not
depend
upon
the
production
or
the
use
of
the
franchise,
but
on
the
production
or
use
of
natural
gas
obtained
by
Franco
Public
Service
Limited,
which
gas
is
in
no
means
the
property
of
appellant.
I
do
not
think
that
the
payments
stipulated
in
the
agreement
(exhibit
3)
are
royalties,
notwithstanding
the
words
"‘by
way
of
royalty”
used
erroneously
in
clause
4.
These
payments,
in
my
opinion,
are
instalments
on
the
purchase
price.
One
must
scrutinize
the
purpose
of
the
clause
in
a
deed
in
order
to
determine
its
meaning.
A
definite
price
[is]
set
once
and
for
all,
payable
by
yearly
instalments
calculated
on
the
proceeds
of
gross
sales
of
natural
gas
under
the
franchise
reckoned
at
consumers’
prices,
less
consumers’
discounts,
fixed
at
six
and
a
quarter
per
cent
during
the
first
three
years,
at
eight
and
one
third
per
cent
during
the
next
seven
years
and
at
twelve
and
one
half
per
cent
thereafter
during
the
currency
of
the
agreement
and
franchise.
After
carefully
listening
to
the
oral
evidence
and
reading
the
transcript
thereof,
examining
attentively
the
documents
produced,
perusing
the
verbal
and
written
arguments
of
counsel
and
studying
the
doctrine
and
the
precedents,
I
am
satisfied
that
the
payments
made
by
Franco
Public
Service
Limited
to
Wain-Town
Gas
and
Oil
Company
Limited
do
not
constitute
a
profit,
gain
or
gratuity
and
are
not
rents,
royalties
or
annuities
or
other
like
periodical
receipts
within
the
meaning
of
paragraph
(f)
of
subsection
(1)
of
section
3
of
the
Income
War
Tax
Act,
that
they
are
not
income
but
are
instalments
of
the
purchase
price.
A
brief
review
of
the
doctrine
and
decisions
seems
apposite.
In
the
case
of
Secretary
of
State
for
India
v.
Scoble
et
al.
(1903-
04),
89
L.T.R.
1,
the
following
observations
of
Halsbury,
Lord
Chancellor,
much
to
the
point,
are
very
interesting
(p.
3):
(6e
Still,
looking
at
the
whole
nature
and
substance
of
the
transactions
(and
it
is
agreed
on
all
sides
that
we
must
look
at
the
nature
of
the
transaction
and
not
be
bound
by
the
-.
mere
use
of
the
words),
I
cannot
doubt
that
in
this
contract—it
cannot
be
denied
that
what
was
done
and
agreed
to
in
one
sense
under
a
contract,
though
undoubtedly
it
is
not
a
case
of
the
purchase
of
an
annuity,
but
it
is
a
case
in
which
“under
powers
reserved
by
a
contract
one
of
the
parties
agrees
to
buy
from
the
other
party
that
which
is
their
property—I
cannot
doubt,
I
say,
that
what
is
called
an
‘annuity’
in
the
contract
between
the
parties,
and
in
the
statute,
was
a
mode
of
making
the
payment
for
that
which,
by
the
hypothesis
on
which
I
am
speaking,
had
become
a
debt
to
be
paid
by
the
Government.
If
it
was
a
debt
to
be
paid
by
the
Government
it
introduces
this
consideration:
Was
it
the
intention
of
the
Income
Tax
Acts
ever
to
tax
capital
as
if
it
was
income?
I
think
that
it
cannot
be
doubted,
both
upon
the
language
of
the
Act
itself
and
upon
the
whole
purport
and
meaning
of
the
Income
Tax
Acts,
that
it
never
was
intended
to
tax
capital,
at
all
events
as
income’’.
In
re
Foley
v.
Fletcher
and
Rose,
(1858)
H.
&
N.
769,
Pollock,
C.B.,
expressed
the
following
opinion
(p.
778)
:
"‘Mr.
Phipson
contended
that
they
were
profits,
because
when
the
value
of
money
and
the
effect
of
such
a
protracted
period
of
payment
are
considered,
we
could
not
assume
that
the
value
of
the
planitif’s
moiety
was
more
than
some
£23,000,
and
that
the
rest
must
be
considered
as
profit,
and
that
it
was
the
fault
of
the
plaintiff
that
she
has
so
mixed
up
profits
with
capital
that
they
cannot
be
distinguished;
and
that
therefore
the
whole
must
be
liable
to
income
tax:
But
there
is
nothing
on
this
record
to
shew
that
the
property
was
not
worth
more
than
£99,000,
nor
is
there
anything
to
shew
that
the
postponement
of
payment
was
not
a
mere
indulgence
on
the
part
of
the
seller.
But
if
we
were
at
liberty
to
speculate
on
the
matter,
and
could
come
to
the
conclusion
that
a
part
of
the
annual
payments
is
the
price
of
the
convenience
of
getting
the
payments
postponed,
we
could
not
say
that
the
payments
are
within
the
Act
because
a
part
of
them
consists
of
profit.
These
instalments
are
payments
of
money
due
as
capital:
the
Act
has
made
no
provision
for
such
a
case.
It
professes
to
charge
profits
only,
and
we
cannot
say
that
capital
is
liable
to
the
income
tax
because
found
in
company
with
profits.
If
payments
such
as
those
in
the
present
case
are
subject
to
income
tax,
wherever
any
debt
of
any
sort
is
to
be
repaid
by
annual
payments,
or
by
instalments
at
three
or
six
months,
it
would
be
subject
to
income
tax.’’
In
re
Inland
Revenue
Commissioners
v.
Ramsay
(ubr
supra)
it
was
held
by
the
Court
of
Appeal
(Lord
Wright,
M.R.,
Romer
and
Greene,
L.JJ.)
that
the
question
to
be
determined
was
whether,
under
the
terms
of
the
agreement
in
question,
the
consideration
for
the
purchase
of
a
dentist’s
practice
was
a
sum
of
money,
though
payable
in
instalments,
or
an
annuity;
that
the
sum
of
$15,000
was
made
the
purehase
price
from
beginning
to
end
and
the
fact
that
in
the
result
the
amount
paid
might
be
greater
or
less
than
the
primary
price
did
not
alter
the
legal
position;
that,
therefore,
the
instalments
were
not
annuities,
but
merely
the
manner
and
form
in
which
a
lump
sum
was
paid.
At
page
145,
Lord
Wright
states:
"The
question
involved
in
the
case
is
the
question
which
has
so
often
to
be
debated
where
property
has
been
sold,
namely,
whether
the
consideration
is
a
sum
of
money,
though
payable
in
instalments,
or
whether
it
is
an
annuity.
It
is,
of
course,
quite
clear
that
for
a
lump
sum
of
money
the
right
to
receive
periodical
payments
may
be
purchased,
and
in
that
case
if
the
transaction
constitutes
the
purchase
of
an
annuity
and
each
one
of
these
payments
is
in
the
nature
of
income
in
the
appropriate
hands
and
in
the
appropriate
manner,
it
is
taxable
as
such,
but
if
that
is
not
the
case
and
the
instalments
are
not
annuities
in
the
proper
sense
of
the
term,
but
are
merely
the
method
and
the
manner
and
the
form
in
which
a
lump
sum
is
paid,
then
the
position
is
different,
and
the
sums
in
question
are
not
to
be
deemed
income
but
capital,
and
accordingly
in
the
hands
of
the
payer
when
he
comes
to
make
his
returns
for
super
tax
cannot
be
deducted
under
the
provisions
of
sect.
27
of
the
Income
Tax
Act
of
1918.’’
The
learned
Judge
analyzes
certain
judgments.
I
do
not
deem
it
expedient
to
sum
up
his
comments,
since
I
have
annotated
or
will
hereafter
annotate
them
briefly.
In
the
case
of
Minister
of
National
Revenue
v.
Dominion
Natural
Gas
Company
Limited
(ubi
supra)
the
report
discloses
that
the
respondent
company
supplied
natural
gas
to
inhabitants
in
parts
of
the
city
of
Hamilton.
Its
right
to
do
so
was
attacked
in
an
action
in
which
there
were
claimed
a
declaration
that
it
was
wrongfully
maintaining
its
mains
in
the
streets
and
wrongfully
supplying
gas
to
the
inhabitants,
an
injunction
against
the
continuance
thereof,
a
mandatory
order
for
removal
of
the
mains,
and
damages.
Respondent
contested
the
action,
and
was
successful.
Its
legal
expenses
of
the
litigation
amounted
to
$48,560.94,
after
crediting
all
sums
recovered
from
the
other
party
as
taxed
costs.
The
question
in
dispute
was
whether
that
sum
paid
by
respondent
in
1934,
should
be
allowed
as
a
deduction
in
computing
respondent’s
taxable
income
for
that
year.
The
Supreme
Court,
reversing
the
judgment
of
Maclean,
J.,
[1940]
Ex.
C.R.
9
([1940-41]
C.T.C.
144)
held
that
the
sum
was
not
deductible.
This
judgment
is
evidently
not
applicable
herein.
There
is,
however,
in
the
reasons
for
judgment
of
Duff,
C.J.,
an
obiter
dictum
which
I
may
say
with
all
due
deference,
does
not
seem
to
me
pertinent;
it
is
worded
as
follows
(p.
24)
:
"‘Again,
in
my
view,
the
expenditure
is
a
capital
expenditure.
It
satisfies,
I
think,
the
criterion
laid
down
by
Lord
Cave
in
British
Insulated
v.
Atherton,
1926
A.C.
205
at
213.
The
expenditure
was
incurred
‘once
and
for
all’
and
it
was
incurred
for
the
purpose
and
with
the
effect
of
procuring
for
the
company
‘the
advantage
of
an
enduring
benefit'.
The
settlement
of
the
issue
raised
by
the
proceedings
attacking
the
rights
of
the
respondents
with
the
object
of
excluding
them
from
carrying
on
their
undertaking
within
the
limits
of
the
City
of
Hamilton
was,
I
think,
an
enduring
benefit
within
the
sense
of
Lord
Cave’s
language.”
In
re
The
Hudson
9
s
Bay
Company
Limited
v.
Stevens
(Surveyor
of
Taxes)
(1903-11),
5
R.T.C.
424,
the
headnote,
fairly
comprehensive
and
exact,
is
in
the
following
terms
:
“The
Appellants
are
a
Company
established
by
Charter,
who
prior
to
1869
were
the
owners
of
large
territories
in
Rupert’s
Land,
North
America.
In
1869
they
surrendered
to
the
Crown
their
territory
and
rights
of
government
in
exchange,
inter
alia,
for
a
money
payment
and
for
a
right
to
claim,
within
fifty
years,
a
twentieth
share
in
certain
lands
in
the
territory
as
from
time
to
time
the
lands
were
settled.
The
lands
granted
to
the
Company
in
pursuance
of
this
agreement
were
sold
by
the
Company
from
time
to
time,
and
the
proceeds
applied
partly
in
payment
of
dividends
and
partly
in
reduction
of
capital.
Held,
that
the
proceeds
of
the
sales
of
the
lands
so
granted
were
not
profits
or
gains
derived
by
the
Company
from
carrying
on
a
trade
of
dealing
in
land,
and
were
not
assessable
to
income
tax.”
See
also
William
M.
O’Connor
v.
The
Minster
of
National
Revenue
[1943]
Ex.
C.R.
168,
175
et
seq.,
([1943]
C.T.C.
255)
;
Samson
v.
Minister
of
National
Revenue
[1943]
C.T.C.
47,
72;
Inland
Revenue
Commissioners
v.
Wesleyan
Assurance
Society
[1948]
1
All
E.R.
555;
Wilder
v.
Minister
of
National
Revenue
[1949]
Ex.
C.R.
347;
([1949]
C.T.C.
302).
In
the
matter
of
Jones
v.
Commissioners
of
Inland
Revenue,
[1920]
1
K.B.
711,
it
appears
from
the
report
that
the
appellant
had
sold
his
interest
in
certain
inventions
and
letters
patent
for
a
sum
in
cash
and
percentage,
called
a
"‘royalty’’,
payable
for
ten
years
on
the
sale
of
all
machines
constructed
under
the
patent.
It
was
held
by
the
Court
of
King’s
Bench
that
the
sums
received
by
the
appellant
in
respect
of
the
royalty
were
taxable
income.
Rowlatt,
J.,
after
referring
to
the
judgments
in
Foley
v.
Fletcher
and
Secretary
of
State
for
India
v.
Scoble
Çul)i
supra)
made
the
following
statements
(p.
715)
:
11
On
the
other
hand,
a
man
may
sell
his
property
nakedly
for
a
share
of
the
profits
of
the
business.
In
that
case
the
share
of
the
profits
of
the
business
would
be
the
price,
but
it
would
bear
the
character
of
income
in
the
vendor’s
hands.
Chadwick
v.
Pearl
Life
Assurance
Co.,
[1905]
2
K.B.
507,
514,
was
a
case
of
that
kind.
In
such
a
case
the
man
bargains
to
have,
not
a
capital
sum
but
an
income
which
he
had
before.
I
think,
therefore,
that
what
I
have
to
do
is
to
see
what
the
sum
payable
in
this
case
really
it.
The
ascertainment
of
an
antecedent
debt
is
not
the
only
thing
that
governs,
although
in
many
cases
it
is
a
very
valuable
guide.
In
this
case
there
is
no
difficulty
in
seeing
what
was
intended.
The
property
was
sold
for
a
certain
sum,
and
in
addition
the
vendor
took
an
annual
sum
which
was
dependent
upon
the
volume
of
business
done
;
that
is
to
say,
he
took
something
which
rose
or
fell
with
the
chances
of
the
business.
When
a
man
does
that
he
takes
an
income;
it
is
the
nature
of
income,
and
on
that
point
I
decide
this
case.”
I
may
say
respectfully
that
I
cannot
agree
with
this
decision.
It
was
urged
on
behalf
of
respondent
that
the
sums
received
by
appellant
from
Franco
Public
Service
Limited
in
compliance
with
clause
4
of
the
agreement
(exhibit
3),
are
periodical
receipts,
dependent
upon
the
use
of
the
franchise,
that
they
are
like
royalties
and
are
income
of
the
appellant,
notwithstanding
that
they
are
payable
on
account
of
the
sale
of
the
franchise
to
Franco
Public
Service
Limited.
Counsel
pointed
out
that
in
virtue
of
clause
5
of
the
agreement
all
royalties
must
be
deposited
monthly
to
the
credit
of
Wain-Town
Gas
and
Oil
Company
Limited
;
this
provision
seems
to
me
immaterial
herein.
Respondent’s
contention
that
the
receipts
in
question
are
dependent
on
the
use
of
the
franchise
assigned
by
appellant
to
Franco
Public
Service
Limited
is
unfounded.
They
are
no
more
dependent
on
the
franchise
than
on
the
use
of
Wain-Town
Gas
and
Oil
Company
Limited’s
charter
or
on
its
certificate
to
carry
on
business.
Such
a
use
is
not
that
contemplated
by
the
Act;
the
use
thereby
considered
is
of
something
that
of
itself
produces.
In
the
present
case
the
receipts
may
be
dependent
on
the
use
of
gas
in
the
ground
or
in
Franco
Public
Service
Limited’s
transmission
lines,
but
not
on
the
use
of
the
franchise,
which
is
merely
a
means
whereby
Wain-Town
Gas
and
Oil
Company
Limited
is
put
in
a
position
to
gather
receipts
in
much
the
same
way
as
its
charter
does.
It
was
submitted
by
counsel
for
respondent
that
by
clause
4
of
the
agreement
(exhibit
3),
Franco
Public
Service
Limited
agreed
to
pay
to
the
appellant,
from
the
proceeds
of
all
sales
of
natural
gas
under
the
franchise,
certain
percentages
of
the
gross
sales
of
gas
reckoned
at
consumers’
price,
less
consumers’
discounts.
To
the
question
as
to
what
is
the
franchise
counsel
referred
to
the
observations
of
Stuart,
J.,
in
the
case
of
Northern
Alberta
Natural
Gas
Company
v.
Edmonton
[1920]
1
W.W.R.
31,
appearing
on
page
44
of
the
report:
"‘The
very
essence
of
a
franchise
is
the
right
to
use
streets
and
highways.
If
the
use
of
these
were
not
required,
a
company
could
act,
as
any
other
industrial
concern
does,
entirely
by
private
contract
and
as
a
private
trader,
and
sell
its
commodity,
e.g.,
gas,
to
the
householders
as
it
pleased.
It
is
the
unavoidable
necessity
of
using
the
public
streets
to
convey
the
commodity
that
forces
such
a
company
to
secure
the
right
to
use
them,
and,
it
is
this
right
which
in
substance
constitutes
the
‘franchise'
’’.
Counsel
further
submitted
that
the
‘‘receipts’’
of
appellant
are
‘‘dependent’’
upon
the
use
of
the
right
to
operate
pipe-lines
under
the
streets
of
the
town
to
convey
natural
gas
and
that
the
quantum
of
the
receipts
is
likewise
dependent
upon
the
extent
to
which
this
right
is
used.
He
specified
that
it
is
the
extent
of
operation
of
the
pipe-lines
which
determines
the
amount
of
gas
which
can
be
sold
and
hence
the
percentage
of
gross
sales
of
gas
which
the
appellant
will
receive.
He
intimated
that
it
cannot
be
too
strongly
emphasized
that
the
franchise
is
not
merely
the
right
to
lay
pipe-lines
but
the
right
to
use
them
for
the
purpose
of
supplying
natural
gas
to
the
town’s
inhabitants.
This
seems
elementary.
It
was
contended
for
respondent
that
a
franchise
is
real
or
personal
property.
In
support
of
this
contention
counsel
referred
to
the
reasons
for
judgment
of
Harrison,
J.,
in
New
Brunswick
Power
Co.
v.
Maritime
Transit
Company,
[1937]
4
D.L.R.
376.
A
brief
extract
from
these
reasons
may
be
useful
(p.
395)
:
té
.
.
The
defendant
argues
that
the
right
to
operate
street
cars
18
a
franchise,
but
he
says
a
franchise
is
not
property.
It
is,
I
think,
quite
proper
to
call
the
plaintiff’s
right
to
operate
its
street
railway
upon
the
streets
and
highways
a
franchise.’’
The
learned
Judge
then
refers
to
a
definition
of
a
franchise
by
Blackstone
and
continues
:
"‘In
later
years
the
term
‘franchise’
has
been
used
to
include
that
body
of
rights
or
privileges
conferred
by
a
Legislature
(with,
of
course,
the
assent
of
the
King)
upon
corporations
to
enable
them
to
supply
the
public
with
some
commodity
or
service
in
general
use
such
as
gas,
electricity
or
transportation.
’
’
Further
on
he
adds
(p.
396)
:
‘“In
Canada
no
private
person
can
establish
a
public
highway
or
a
publie
ferry
or
railroad
or
share
tolls
for
the
use
of
the
same
without
authority
from
the
Legislature
direct
or
derived,
and
the
power
given
to
invade
public
rights
by
the
establish.
ment
of
these
public
utilities
is
generally
referred
to
as
a
‘franchise’;
see
Calgary
v.
Can.
Western
Gas
Co.
(1917),
40
D.L.R.,
201.
A
francise
to
operate
a
street
railway
and
to
collect
tolls
for
such
service
is
a
property
right,
an
incorporeal
hereditament,
the
interference
with
which
is
a
private
nuisance,
and
the
party
wronged
may
have
the
nuisance
abated.”
In
answer
to
appellant’s
claim
that
a
franchise
is
a
‘‘chose
in
action’’
and
not
property,
counsel
for
respondent
stated
that
it
is
established
that
‘‘a
chose
in
action’’
is
personal
property
and
in
support
of
this
statement
he
cited
Williams
on
Real
Property,
23rd
ed.
pp.
3
to
6,
and
Halsbury’s
Laws
of
England,
2nd
ed.
vol.
25,
pp.
189
to
194.
Counsel’s
contention
in
this
regard
seems
to
me
well
founded.
The
next
argument
raised
by
counsel
for
respondent
is
that
the
receipts
are
like
royalties.
In
his
brief,
counsel
for
respondent
save
general
definitions
of
the
word
‘‘royalty’’,
gathered
from
Webster’s
New
International
Dictionary,
2nd
ed.,
The
Standard
Dictionary
of
the
English
Language
and
from
the
decisions
in
Perry
v.
Clergue
(1903),
5
O.L.R.
357
;
The
King
v.
Trusts
and
Guarantee
Co.
Ltd.
(1916),
15
Ex.
C.R.
403,
(1916),
54
8.C.R.
107
;
Attorney-General
for
British
Columbia
v.
The
King
(1922),
68
D.L.R.
106.
In
Web
sterns
Dictionary
we
find
the
following
definition
of
the
word
"‘royalty’’:
"‘7(a)
a
share
of
the
product
or
profit
(as
of
a
mine,
forest,
ete.)
reserved
by
the
owner
for
permitting
another
to
use
his
property.
(b)
A
duty
or
compensation
paid
to
the
owners
of
a
patent
or
a
copyright
for
the
use
of
it
or
the
right
to
act
under
it,
usually
at
a
certain
rate
for
each
article
manufactured,
used,
sold,
or
the
like
;
‘
‘
In
the
Imperial
Dictionary
of
the
British
[sic]
Language
we
read
this
definition
:
"‘4.
A
tax
paid
to
one
who
holds
a
patent
protected
by
government
for
the
use
of
the
patent,
generally
at
a
certain
rate
for
each
article
manufactured;
a
percentage
paid
to
the
owner
of
an
article
for
its
use.”
The
Standard
Dictionary
of
the
British
[sic]
Language
gives
this
definition
:
"‘3.
A
share
of
proceeds
paid
to
a
proprietor
by
those
who
are
allowed
to
develop
or
use
property,
or
operate
under
some
right
belonging
to
him,
as
to
the
owner
of
mining
lands
for
ore
taken
out,
to
the
owner
of
a
copyright
for
books
published
and
sold,
or
to
the
owner
of
a
patent
for
articles
manufactured
and
disposed
of
thereunder.’’
The
case
of
Perry
v.
Clergue,
in
which
it
was
held
(inter
alia)
that
the
right
to
create
and
license
a
ferry,
having
been
one
of
the
jura
regalia
or
royalties
belonging
to
the
Province
at
the
Union,
continued
to
belong
to
them
after
Confederation
according
to
section
109
of
the
British
North
America
Act,
1867,
notwithstanding
subsection
13
of
section
91
giving
the
Dominion
legislative
power
in
relation
to
ferries,
is,
to
my
mind,
irrelevant.
In
the
case
of
The
King
v.
Trusts
and
Guarantee
Co.
the
facts
were
briefly
these:
A
resident
of
the
Province
of
Alberta
was,
at
the
time
of
his
death,
the
registered
owner
of
a
parcel
of
land
in
that
province
under
a
patent
issued
to
him
by
the
Department
of
the
Interior
of
Canada.
He
died
leaving
no
heirs
or
next
of
kin.
Letters
of
administration
to
his
property,
real
and
personal,
were
granted
to
the
defendant.
The
land
was
subsequently
sold
by
the
latter
and
the
provincial
government
claimed
the
proceeds
and
administration
expenses,
as
belonging
to
it
under
the
Alberta
Statute
5
Geo.
V,
chap.
5,
section
1.
Upon
an
information
exhibited
by
the
Attorney-General
of
Canada
to
have
it
determined
that
such
proceeds
belong
to
the
Crown
in
right
of
Canada,
it
was
held
that
the
right
of
escheat
to
the
lands
in
question,
or
of
the
principle
of
escheat
did
not
apply
and
the
lands
were
to
be
treated
as
bona
vacantia,
the
right
to
them
belonged
to
the
Crown
in
right
of
the
Dominion
as
jura
regalia.
I
must
say
that
this
judgment
seems
to
me
beside
the
point
at
issue.
The
headnote
in
the
case
of
Attorney-General
for
British
Columbia
v.
The
King
is
in
the
following
terms:
"‘The
rights
of
bona
vacantia
in
regard
to
the
assets
of
a
defunct
English
corporation
which
previously
had
carried
on
business
in
British
Columbia
is
vested
in
the
Province
under
subsees.
102
and
109
of
the
British
North
America
Act,
being
comprised
in
the
word
‘royalties’
which
at
the
time
of
the
union
were
assigned
to
the
Province”.
I
do
not
think
that
this
judgment
has
any
more
bearing
on
the
present
case
than
the
two
previous
ones.
Counsel
for
respondent
drew
the
attention
of
the
Court
to
the
fact
that
no
specific
mention
is
made
in
the
dictionaries
regarding
sums
paid
to
the
owner
of
a
franchise.
He
specified
that
in
the
case
of
the
Attorney-General
v.
British
Museum,
[1903]
2
Ch.
612,
Farwell,
J.,
held
that
a
franchise
was
a
royal
privilege
or
a
branch
of
the
King’s
prerogative
subsisting
in
a
subject
by
a
grant
from
the
King
and
he
referred
to
the
reasons
for
judgment
of
Harrison,
J.,
in
New
Brunswick
Power
Company
V.
Maritime
Transit
Company
(ubi
supra).
Referring
to
the
definition
of
the
word
“patent”
in
The
Standard
Dictionary
of
the
English
Language
as
‘‘a
grant
of
any
privilege,
franchise,
etc.,
made
by
sovereign
authority”,
counsel
suggested
that
there
would
seem
to
be
equal
basis
for
saying
that
a
sum
paid
to
the
owner
of
a
franchise
for
the
use
of
it
was
a
“royalty”
as
for
saying
that
a
sum
paid
to
the
owner
of
a
patent
or
a
copyright
for
the
use
of
it
is
a
“royalty”.
He
concluded
that
the
respondent’s
submission
is
that
sum
paid
to
the
proprietor
of
a
franchise
for
the
right
to
use
it
is
a
“royalty”.
Counsel
for
respondent
further
submitted
that,
to
come
within
the
words
of
paragraph
(f)
of
subsection
1
of
section
8,
it
is
not
necessary
that
the
receipts’
‘
be
in
fact
"‘royalties'',
if
they
are
"like”
royalties.
The
question
of
what
constitutes
receipts
"‘like
royalties’’
was
considered
by
Mr.
Justice
Cameron
in
May
McDougall
Ross
v.
Minister
of
National
Revenue,
[1950]
C.T.C.
169.
At
page
176
the
learned
Judge
expressed
the
following
opinion:
"It
is
sufficient
to
brine
the
receipts
into
tax
if
they
are
‘like'
rents,
royalties
or
annuities,
provided,
of
course,
they
fulfil
the
other
requirements
of
the
subsection.
Royalties,
in
reference
to
mines
or
wells
in
all
the
definitions,
are
periodical
payments
either
in
kind
or
money
which
depend
upon
and
vary
in
amount
according
to
the
production
or
use
of.
the
mine
or
well,
and
are
payable
for
the
right
to
explore
for,
bring
into
production
and
dispose
of
the
oils
or
minerals
yielded
up.
All
these
conditions
exist
in
the
present
case.
Another
matter
which
may
not
exist
is
the
reservation
of
rights
at
the
time
of
the
grant
and
the
consequent
payment
to
the
appellant
as
owner
of
such
reserved
rights.
But
even
assuming
that
to
be
the
case
it
is
not
sufficient,
in
my
opinion,
to
prevent
the
‘receipts’
here
being
like
or
similar
to
royalties,
all
other
essential
requirements
being
fulfilled.
It
may
well
be
that
the
concluding
words
of
the
subsection
"
notwithstanding
that
the
same
are
payable
on
account
of
the
use
or
sale
of
such
property’
are
sufficient
in
themselves
to
do
away
with
any
requirement
that
the
receipts
must
be
paid
to
any
owner.
At
least
the
appellant
was
a
former
owner.
I
find,
therefore,
that
the
receipts
here
were
like
royalties,
if
not
royalties
themselves,
and
therefore
they
come
within
the
meaning
of
that
part
of
the
subsection.’’
The
facts
in
that
case
are
substantially
different
from
those
in
the
case
at
bar.
There
the
appellant,
who
on
June
30,
1938,
owned
certain
lands
in
the
Province
of
Alberta,
transferred
all
hydrocarbons,
except
coal,
in
said
lands
and
the
right
to
work
the
same
to
a
company
in
consideration
of
a
sum
in
cash
and
the
execution
of
an
incumbrance
to
secure
to
her
a
further
sum
of
$60,000.
payable
out
of
10%
of
oil
produced
from
the
lands,
with
the
option
to
the
company
to
pay
her
the
cash
market
value
of
such
production.
The
company
made
certain
payments
in
1944
and
1945
which
appellant
did
not
include
in
her
estate
returns
for
those
years.
The
respondent,
considering
these
payments
to
be
‘‘income’’,
allowed
a
deduction
of
25%
for
exhaustion
and
assessed
the
balance
to
tax.
These
payments
were
taxable
since
they
depended
not
only
for
their
existence,
but
also
for
their
quantum,
on
the
ownership
of
minerals;
they
depended
on
"‘the
use
or
production
of’’
the
property
transferred.
Counsel
contended
that,
while
it
is
true
that
Mr.
Justice
Cameron
"‘did
not
actually
decide
the
point’’,
he
has
intimated
that
"
receipts”
may
be
"‘like
royalties’’,
even
though
they
are
not
paid
to
an
owner.
Counsel
added
that
such
is
the
respondent’s
submission.
He
acknowledged
that,
if
real
or
personal
property
were
sold,
the
receipts
of
the
purchase
price
cannot
be
‘‘rents’’
or
‘‘royalties’’
in
their
true
meaning.
He
stated,
however,
that
Parliament
must
be
presumed
to
have
recognized
this
inconsistency
;
hence
the
use
of
the
words
"‘other
like
periodical
receipts.’’
The
respondent’s
last
claim
is
that
the
receipts
are
income
notwithstanding
that
they
are
payable
on
account
of
the
sale
of
the
franchise
to
Franco
Public
Service
Limited.
In
counsel’s
Opinion
it
is
apparent
from
the
concluding
words
of
paragraph
(f)
of
subsection
1
of
section
3
that
Parliament
intended
to
make
it
clear
that
certain
"‘receipts''
were
to
be
treated
as
^income”,
even
though
they
were
the
consideration
for
a
sale
of
real
or
personal
property.
He
relied
on
the
case
of
Spooner
v.
Minister
of
National
Revenue
(ubr
supra).
The
facts
in
this
case
are
simple.
The
respondent
sold
her
right,
title
and
interest
in
land
which
she
held
in
freehold
to
a
company
in
consideration
of
a
sum
in
cash,
shares
in
the
company
and
an
agreement
to
deliver
to
her
10%
(described
as
a
royalty)
of
oil
produced
from
the
land,
on
which
the
company
covenanted
carrying
out
drilling
and,
if
oil
was
found,
pumping
operations.
The
company
struck
oil
and
paid
to
respondent
in
1927
10%
of
the
gross
proceeds
of
the
oil
produced,
which
she
accepted
in
discharge
of
the
royalty.
At
page
690
we
find
the
following
observations
by
Lord
MacMillan,
who
delivered
the
judgment
of
the
Judicial
Committee
of
the
Privy
Council
:
‘Into
which
category,
then,
does
the
present
case
fall?
Their
Lordships
agree
with
Newcombe,
J.,
that
‘the
case
is
not
without
its
difficulties’,
as
all
cases
must
be
which
turn
upon
such
fine
distinctions,
but
they
are
not
prepared
to
differ
from
the
view
of
the
transaction
which
that
eminent
judge
took,
and
with
which
all
his
colleagues
agreed—namely,
that
‘the
respondent
has
converted
the
land,
which
is
capital,
into
money,
shares
and
10
per
cent
of
the
stipulated
minerals
which
the
company
may
win
.
.
.
there
is
no
question
of
profit
or
gain,
unless
it
be
as
to
whether
she
made
an
advantageous
sale
of
her
property.’
It
was
for
the
Minister
to
dis-
place
this
view
as
being
manifestly
wrong.
In
their
Lord-
ships’
opinion
he
has
failed
to
do
so.”
In
the
judgment
of
the
Supreme
Court
([1931]
S.C.R.
399;
[1928-34]
C.T.C.
178)
Neweombe,
J.,
speaking
for
the
Court,
expressed
this
opinion
(p.
406)
:
66
.
.
but
the
question
here
is,
does
a
man
take
an
income
within
the
meaning
of
the
Canadian
Act
when
he
sells
his
land
in
consideration
of
a
part
of
the
oil
and
gas
to
be
extracted
from
it
by
the
purchaser,
if,
as
is
stated
in
the
present
admissions,
‘the
appellant
was
not
and
is
not
a
dealer
in
or
in
the
business
of
buying
and
selling
oil
lands
and
leases’;
and,
when
there
is
no
provision
for
taxing
the
property
delivered
by
the
purchaser
to
the
appellant,
either
as
annuity
or
royalty;
neither
of
these
words
having
been
used
in
the
statute
to
describe
any
right
such
as
that
which
the
vendor
acquired
under
the
agreement.
The
case
is
not
without
its
difficulties,
but
I
am
not
satisfied
that
the
Crown
has
made
out
its
claim.
And,
inasmuch
as
it
is
the
duty
of
those
who
assert
and
not
of
those
who
deny,
to
establish
the
proposition
sought
to
be
established,
I
think
the
Crown
must
fail.’
Secretary
of
State
in
Couneil
of
India
v.
Scoble,
[1903]
A.C.
299.’’
Regarding
the
question
of
the
receipts
being
"‘like
royalties”,
counsel
for
appellant
pointed
out
that
the
issue
in
Jones
v.
Commissioners
of
Inland
Revenue
centred
around
royalties
dependent
to
the
thing
sold,
i.e.,
the
invention.
He
submitted
that
the
true
position
in
so
far
as
royalties
payable
on
account
of
the
user
of
a
patent
or
a
copyright
is
laid
down
in
the
decision
of
the
Court
of
Appeal
in
Withers
v.
Nethersole,
[1946]
1
All
E.R.
711,
where
Lord
Greene,
M.R.,
made
the
following
observations
(p.
715)
:
4
One
might
perhaps
have
expected
that
where
a
piece
of
property,
be
it
copyright
or
anything
else,
is
turned
to
account
in
a
way
which
leaves
in
the
owner
what
we
may
call
the
reversion
in
the
property
so
that
upon
the
expiration
of
the
rights
conferred,
whether
they
are
to
endure
for
a
short
or
a
long
period,
the
property
comes
back
to
the
owner
intact,
the
sum
paid
as
consideration
for
the
grant
of
the
rights,
whether
consisting
of
a
lump
sum
or
of
periodical
or
royalty
payments,
should
be
regarded
as
of
a
revenue
nature.
We
emphasize
the
word
‘intact’—salva
rei
substantia,
to
use
the
expression
adopted
by
Lord
Fleming
in
Trustees
of
Earl
Hag
v.
C'.I.R.
(22
Tax
Cas.
725,
at
p.
735)—since,
save
in
the
special
cases
of
wasting
property,
if
the
property
is
permanently
diminished
or
injuriously
affected,
it
means
that
the
owner
has
to
that
extent
realized
part
of
the
capital
of
his
property
as
distinct
from
merely
exploiting
its
incomeproducing
character.’’
The
decision
of
the
Court
of
Appeal
was
affirmed
by
the
House
of
Lords,
[1948]
1
All
E.R.,
400.
In
the
case
of
Perrin
v.
Dickson
(Inspector
of
Taxes),
[1929]
2
K.B.
85;
[1930]
1
K.B.
107,
the
facts
were
briefly
these.
By
a
policy
of
assurance
effected
by
the
appellant
with
an
Assurance
Society
to
provide
for
his
son’s
eduction,
the
Society,
in
consideration
of
six
premiums
of
£90
each,
paid
annually
between
1912
and
1917,
agreed
to
pay
him
an
annuity
of
£100
each
year
for
seven
years
as
from
September
29,
1920.
It
was
agreed
that,
if
the
son
should
die
before
the
expiry
of
this
period,
the
premiums
were
to
be
repaid
to
the
parent
or
his
representatives
less
any
annual
payments
already
made,
but
without
interest.
The
parent
also
effected
a
similar
policy
to
provide
for
his
daughter’s
education,
by
which
the
Society
agreed
to
pay
him
£50
a
year
during
a
period
of
five
years.
The
parent
duly
received
the
annual
payments
for
the
seven
years
(1920
to
1926)
and
assessments
were
made
on
him
for
income
tax
on
these
sums
as
on
an
annuity
for
these
years.
It
was
held
that
the
annual
payments
made
by
the
Society
did
not
constitute
an
annuity,
but
were
intended
to
effect
a
repayment
of
the
principal
sum
with
interest,
and
therefore
that
income
tax
was
only
payable
upon
such
part
of
them
as
consisted
of
interest.
The
judgment
of
Rowlatt,
J.,
in
the
King’s
Bench
Division
was
affirmed
by
the
Court
of
Appeal.
In
his
reasons
for
judgment
Lord
Hanworth,
M.R.,
expressed
the
following
opinion
(p.
119)
:
"The
view
that
I
have
taken
is
to
follow
what
I
conceive
to
be
the
method
directed
in
Scoble’s
case,
[1903]
1
K.B.
494.
Kach
case
must
be
examined
on
its
own
data.
I
do
not
feel
at
all
pressed
with
the
observations
that
the
effect
of
the
decision
will
be
to
release
all
annuities
for
a
fixed
term
of
years
from
income
tax.
The
immunity
will
be
given
only
in
proper
cases
in
which
an
attempt
is
being
made
wrongly
to
tax
capital
under
statutes
which
are
intended
to
charge
income
and
income
only,
for,
as
was
said
by
Bramwell,
B.,
in
Foley
v.
Fletcher
(3
II.
&
N.
788,
cited
by
Serutton,
L.J.,
in
Lord
IIowe
9
s
case,
[1919]
2
K.B.
336,
353),
it
cannot
be
taken
that
the
Legislature
meant
to
impose
a
duty
on
that
which
is
not
profit
derived
from
property,
but
the
price
of
it.
The
appeal
is
dismissed
with
costs.
’
Reference
may
also
be
made
advantageously
to
Halsl)ury
f
s
Laws
of
England,
2nd
edition,
volume
17,
p.
180,
paragraph
378
(an
fine),
and
the
decisions
therein
quoted;
Beal’s
Cardinal
Rules
of
Legal
Interpretation,
3rd
ed.,
pp.
92,
267,
318;
Craies,
Treatise
on
Statute
Law,
4th
ed.,
p.
154;
Maxwell,
The
Interpretation
of
Statutes,
9th
ed.,
pp.
19,
291
;
Shore
v.
Wilson,
(1842),
9
C.
&
F.
355,
565;
Burton
v.
Reevell
et
al.,
(1847),
16
M.
&
W.
307,
309
;
The
Queen
on
the
prosecution
of
J.
F.
Pemsel
v.
the
Commissioners
of
Income
Tax,
(1889),
22
Q.B.
296,
306.
Considering
the
nature
and
substance
of
the
transaction
involved
it
seems
to
me
that
the
agreement
(exhibit
3)
is
a
sale
and
not
a
deed
creating
annuities
or
royalties.
For
the
above
reasons
I
have
reached
the
conclusion
that
the
assessments
in
question
and
the
decision
of
the
Minister
affirming
the
same
are
ill
founded
and
must
be
set
aside
and
that
the
appeal
must
be
allowed.
The
appellant
will
be
entitled
to
its
costs
against
the
respondent.
Appeal
allowed.
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