CATTANACH,
J.:—In
this
appeal
from
a
decision
of
the
Tax
Appeal
Board
dated
February
22,
1966,
whereby
the
respondent’s
appeal
with
respect
to
assessment
for
income
tax
for
the
respondent’s
1963
taxation
year
was
allowed
and
the
assessment
vacated,
the
sole
issue
is
whether
the
respondent,
in
determining
its
taxable
income
for
the
1963
taxation
year,
is
entitled
to
deduct
capital
cost
allowance
on
two
items
of
equipment
purchased
by
it
being
(1)
one
Ideco
H-35
Drilling
Rig
(hereinafter
referred
to
as
the
‘‘rig’’)
the
purchase
price
of
which
was
$94,847.40
and
(2)
one
substructure
for
that
rig
(hereinafter
referred
to
as
the
“substructure”)
the
purchase
price
for
which
was
$10,400.
The
contention
of
the
Minister
is
that
the
rig
and
substructure
were
not
acquired
by
the
respondent
in
its
1963
taxation
year
from
which
it
follows
that
the
respondent
is
not
entitled
to
deduct
capital
cost
thereon
in
determining
its
taxable
income
for
that
year.
On
the
other
hand,
while
admitting
that
the
rig
and
substructure
were
not
paid
for
or
delivered
until
the
year
1964,
the
respondent
contends
that
both
such
items
were
acquired
during
the
1963
taxation
year
because
prior
to
the
end
of
that
year
there
was
in
existence
a
binding
contract
of
sale
and
purchase
enforceable
by
the
vendor
against
the
respondent
and
conversely
and
that,
therefore,
the
respondent
is
entitled
to
capital
cost
allowance
on
these
two
items
of
equipment
in
its
1963
taxation
year
even
though
they
were
not
delivered
until
1964.
The
respondent
is
a
joint
stock
company
incorporated
under
the
laws
of
the
Province
of
Alberta
and
is
engaged
in
the
business
of
drilling
oil
wells
in
western
Canada.
The
respondent
possessed
four
drilling
rigs
in
working
order
and
incidental
equipment
therefor
but
because
of
drilling
contracts
available
to
it
the
respondent
had
need
of
an
additional
rig
to
undertake
further
drilling
contracts.
Accordingly
at
a
meeting
of
the
board
of
directors
of
the
respondent
held
on
November
1,
1963
it
was
decided
to
acquire
a
new
rig.
The
pertinent
portion
of
the
minutes,
introduced
in
evidence
as
Exhibit
R-1
reads
as
follows:
(a)
That
it
was
desirable
that
the
Company
should
acquire
a
new
rig
to
be
designated
as
Rig
No.
6.
A
list
of
all
the
equipment
required
was
presented
by
the
President.
This
list
was
thoroughly
discussed
and
on
motion
duly
made
and
seconded
it
was
unanimously
resolved
that
the
Company
request
Mr.
Lyle
Hawkes
of
Ideco
Limited
present
the
Company
a
list
of
specifications
and
prices.
(b)
That
Wardean
Drilling
Ltd.
place
an
order
with
Ideco
Limited
to
commence
construction
of
Rig
No.
6
immediately
after
specifications
and
prices
should
be
agreed
on.
(c)
That
Mr.
W.
E.
Caskey
and
Mr.
Dean
Caskey
be
empowered
to
commence
purchasing
of
auxiliary
equipment
immediately
in
order
to
take
advantage
of
good
used
equipment
available
at
competitive
prices.
As
intimated
in
paragraph
(c)
of
the
above
minutes
the
respondent
also
purchased
two
other
items
of
auxiliary
equipment
in
addition
to
the
rig
and
substructure,
one
such
item
being
a
used
pump
and
the
other
a
diesel
engine
which
was
selected
from
a
catalogue
of
the
vendor.
Both
these
items
were
in
a
deliverable
state
in
1963
but
they
were
not
delivered
until
1964.
With
respect
to
these
two
particular
items
the
Minister
conceded
that
the
capital
cost
allowance
thereon
was
deductible
in
the
respondent’s
1963
taxation
year
but
did
not
make
a
similar
concession
with
respect
to
the
rig
and
substructure.
Therefore
the
only
issue
before
me
is
whether
the
respondent
is
entitled
to
a
capital
cost
allowance
on
the
rig
and
substructure
in
its
1963
taxation
year
and
I
mention
these
two
additional
items
of
equipment
because
during
the
course
of
his
argument
counsel
for
the
respondent
suggested
that
there
was
no
basic
difference
between
the
purchase
of
the
used
pump
and
diesel
engine,
on
the
one
hand
and
the
rig
and
substructure
on
the
other.
He
therefore
submitted
that
in
assessing
the
respondent
as
he
did
the
Minister
was
blowing
hot
and
cold.
Counsel
for
the
Minister
pointed
out
that
the
only
question
before
me
is
that
respecting
the
rig
and
substructure,
in
which
he
is
right,
but
he
added
that
there
was
a
distinction
between
the
purchases
of
these
respective
items
of
equipment
and
that
the
Minister
was
in
fact
consistent
in
his
assessment.
I
shall
mention
this
matter
later.
Pursuant
to
the
authorization
in
the
minutes
of
its
board
of
directors
dated
November
1,
1963
the
respondent
entered
into
negotiations
and
discussions
with
the
representative
of
Ideco
Canada
Limited
(hereinafter
referred
to
as
‘‘Ideco’’)
in
Edmonton,
Alberta
for
the
purchase
of
a
drilling
rig.
Ideco
had
a
rig
in
stock
at
the
plant
of
its
parent
company
in
Beaumont,
Texas.
As
it
stood
it
could
be
utilized
as
a
service
rig
but
not
as
a
drilling
rig
to
which
latter
use
the
respondent
intended
to
put
it.
To
do
so
the
standard
rig
in
stock
with
Ideco
required
extensive
modification
and
additional
equipment
to
render
it
serviceable
as
a
drilling
rig
and
to
withstand
the
more
rigorous
climate
of
western
Canada
as
well
as
to
drill
to
the
depths
dictated
by
western
Canadian
terrain
and
formations.
In
short
the
respondent’s
specifications
required
the
rig
to
be
much
heavier
and
stronger.
For
example
the
rear
end
of
the
standard
rig
as
it
stood
was
rated
at
3800
pounds,
whereas
the
respondent
required
a
5400
pound
rear
end.
All
material
to
meet
the
specifications
for
modification
and
additional
equipment
required
by
the
respondent
weer
on
hand
at
the
plant
of
Ideco’s
parent
in
Texas
except
spacer
blocks
for
the
installation
of
the
heavier
rear
end.
The
delay
encountered
in
obtaining
this
relatively
minor
but
essential
part
resulted
in
a
corresponding
delay
in
adapting
the
standard
service
rig
to
a
heavier
drilling
rig.
On
December
2,
1963
the
drilling
superintendent
of
the
respondent
and
the
representative
of
Ideco
flew
to
Texas
to
inspect
the
standard
rig
and
to
direct
and
agree
upon
the
required
changes.
These
matters
were
agreed
upon
at
that
time
and
delivery
of
the
rig
was
to
be
taken
by
the
respondent
when
the
changes
were
made.
The
purchase
of
the
drilling
rig
was
covered
by
a
letter
of
agreement
dated
December
26,
1963
(introduced
in
evidence
as
Exhibit
R-4)
addressed
to
the
respondent
as
purchaser
from
Ideco
as
vendor,
the
body
of
which
reads
as
follows:
To
confirm
your
verbal
order,
we
are
enclosing
the
original
and
two
copies
of
our
Invoice
No.
1-500-D
covering
the
IDECO
DIR-55
Drive-In
Rambler
Rig
and
components.
Outlined
below
are
the
terms
and
conditions
of
sale
as
agreed:
1.
It
is
agreed
that
the
total
amount
of
this
invoice
excluding
the
sales
tax
will
be
financed
over
a
three
year
period
payable
in
thirty-six
(36)
equal
monthly
installments,
plus
seven
percent
(7%)
interest
on
the
declining
balance.
First
payment
due
June
1,
1964,
but
interest
to
begin
on
date
of
shipment
which
is
now
scheduled
for
February
15,
1964.
2.
We
will
accept
your
National
T-20
Drawworks
S/N
A
1542
in
lieu
of
a
down
payment
and
will
allow
you
$1,500.00
trade-in
allowance
as
shown
on
our
invoice.
You
are
to
give
us
possession
of
your
T-20
Drawworks
upon
acceptance
of
this
letter
of
agreement
and
the
attached
invoice.
3.
The
notes
will
be
secured
by
a
mortgage
on
the
equipment
covered
by
this
sale.
4.
Wardean
Drilling
Company,
Ltd.
will
maintain
adequate
insurance
coverage
of
the
equipment
covered
by
any
mortgage
provided
for
herein
at
Wardean’s
expense
against
all
risk
of
physical
damage,
including
collapse
and
shall
include
a
mortgage
endorsement
clause
providing
the
coverage
described
in
Exhibit
A
attached
hereto
and
made
a
part
of
this
letter
agreement.
A
certificate
of
this
insurance
is
to
be
furnished
prior
to
delivery
of
the
Ideco
equipment.
5.
All
expenses
of
loading,
unloading,
shipping,
custom
duties
and
taxes
(sales,
use,
excise
and
other
taxes)
to
be
handled
by
and
for
the
account
of
Wardean
Drilling
Company,
Ltd.
Ideco
appreciates
this
opportunity
to
furnish
your
equipment
needs.
Please
sign
the
original
and
one
copy
of
this
letter
and
return
them
to
us
promptly.
In
accordance
with
the
request
in
the
concluding
paragraph
the
respondent
endorsed
its
agreement
thereto
on
December
31,
1963.
Accompanying
that
letter
was
an
invoice
dated
December
26,
1963
referring
to
an
order
of
December
2,
1963
for
the
drilling
rig
as
modified
in
the
amount
of
$94,847.40
U.S.
currency
being
the
basic
price
of
the
rig
plus
extras
and
additions
which
invoice
was
introduced
in
evidence
as
Exhibit
R-5.
On
page
five
of
this
exhibit
there
is
a
note
reading
as
follows:
Title
to
pass
and
notes
issued
as
of
date
shipment.
The
drawworks
referred
to
in
paragraph
numbered
2
in
Exhibit
R-5
above
was
delivered
to
Ideco
well
prior
to
December
31,
1963
for
which
a
credit
of
$1,500
was
allowed
to
the
respondent
and
treated
by
Ideco
as
a
down
payment
on
the
purchase
price
of
the
rig.
On
February
18,
1964
the
drilling
superintendent
of
the
respondent
went
to
Beaumont,
Texas
and
there
accepted
delivery
of
the
rig
(see
Exhibit
A-l,
being
a
warehouse
delivery
receipt)
which
he
drove
to
Alberta,
the
rig
being
a
self-propelled
vehicle.
As
indicated
in
paragraph
numbered
1
in
the
letter
of
December
26,
1963
(Exhibit
R-4)
the
purchase
price
was
to
be
financed
over
a
three
year
period
payable
in
36
equal
monthly
instalments
to
be
secured
by
a
chattel
mortgage
on
the
rig.
By
a
chattel
mortgage
dated
February
19,
1964
(Exhibit
R-8)
the
respondent
assigned
the
drilling
rig
to
Ideco
by
way
of
security
for
the
payment
of
the
purchase
price
thereof.
The
substructure,
to
support
the
rig
(being
the
other
item
of
equipment
with
respect
to
which
the
Minister
disallowed
the
rsepondent’s
claim
for
capital
cost
allowance
in
its
1963
taxation
year)
was
ordered
by
the
respondent’s
purchase
order
dated
December
23,
1963
from
Barber
Machinery
Ltd.,
4608
McLeod
Trail,
Calgary,
Alberta
(Exhibit
R-6)
and
described
therein
as
‘‘To
fabricating
substructure
for
Ideco
H-35’’
at
a
contract
price
of
$10,400
or
less.
The
invoice
of
Barber
Machinery
Limited
(Exhibit
R-7)
addressed
to
the
respondent
is
dated
December
31,
1963.
It
is
quite
apparent
to
me
from
the
evidence,
nor
do
I
think
it
was
otherwise
contended
by
the
respondent,
that
the
substructure
and
ramp
were
not
in
existence
prior
to
December
31,
1963.
They
had
to
be
constructed.
The
blueprint
(Exhibit
A-2)
upon
which
the
construction
of
the
substructure
would
be
based
indicates
that
it
was
drawn
and
redrawn
on
January
3,
1964.
It
is
admitted
that
the
substructure
was
not
delivered
to
the
respondent
nor
paid
for
by
the
respondent
until
well
into
1964.
The
secretary
and
accountant
of
the
respondent
testified
that
in
the
double
entry
system
of
bookkeeping
employed
by
her
she
recorded
the
rig
and
substructure
(as
well
as
the
other
items
of
equipment
not
here
in
issue)
in
the
year
1963
as
fixed
assets
with
an
off-setting
entry
in
accounts
payable
to
the
amount
of
the
respective
purchase
prices.
With
respect
to
this
particular
testimony
I
might
mention
here
parenthetically
that
the
authorities
are
clear
that
the
bookkeeping
entries
of
a
taxpayer
are
not
in
themselves
determinative
of
the
true
nature
and
substance
of
a
transaction
which
give
rise
to
such
entries.
Section
11(1)
(a)
of
the
Income
Tax
Act
(R.S.C.
1952,
c.
148)
provides
as
follows:
11.
(1)
Notwithstanding
paragraphs
(a),
(b)
and
(h)
of
subsection
(1)
of
section
12,
the
following
amounts
may
be
deducted
in
computing
the
income
of
a
taxpayer
for
a
taxation
year:
(a)
such
part
of
the
capital
cost
to
the
taxpayer
of
property,
or
such
amount
in
respect
of
the
capital
cost
to
the
taxpayer
of
property,
if
any,
as
is
allowed
by
regulation;
The
deductions
so
allowed
in
respect
of
capital
cost
are
set
forth
in
Regulation
1100
of
the
Income
Tax
Regulations
reading
as
follows:
1100.
(1)
Under
paragraph
(a)
of
subsection
(1)
of
section
11
of
the
Act,
there
is
hereby
allowed
to
a
taxpayer,
in
computing
his
income
from
a
business
or
property,
as
the
case
may
be,
deductions
for
each
taxation
year
equal
to
(a)
such
amounts
as
he
may
claim
in
respect
of
property
of
each
of
the
following
classes
in
Schedule
B
not
exceeding
in
respect
of
property
(x)
of
class
10,
30%
of
the
undepreciated
capital
cost
to
him
as
of
the
end
of
the
taxation
year
(before
making
any
deduction
under
this
subsection
for
the
taxation
year)
of
property
of
the
class.
Regulation
1100(1)
(a)
as
reproduced
above
is
as
was
applicable
in
1963
and
1964.
The
concluding
paragraph
as
reproduced
above
was
amended
effective
March
30,
1966
by
adding
a
reference
to
Section
1107
in
the
last
clause.
It
was
accepted
by
the
parties
that
the
rig
and
substructure
here
in
question
fall
within
class
10
of
Schedule
B.
Property
is
defined
in
Section
139(1)
(ag)
of
the
Act
as
meaning’
property
of
any
kind
whatsoever
whether
real
or
personal
or
corporeal
or
incorporeal
and,
without
restricting
the
generality
of
the
foregoing,
includes
a
right
of
any
kind
whatsoever,
a
share
or
a
chose
in
action.
In
Section
20(5)
(e)
of
the
Act
‘‘undepreciated
capital
cost’?
is
defined
as
follows:
(5)
In
this
section
and
regulations
made
under
paragraph
(a)
of
subsection
(1)
of
section
11,
(e)
“undepreciated
capital
cost”
to
a
taxpayer
of
depreciable
property
of
a
prescribed
class
as
of
any
time
means
the
capital
cost
to
the
taxpayer
of
depreciable
property
of
that
class
acquired
before
time,
minus
.
.
.
The
decision
in
this
appeal
turns
on
the
question
as
to
when
the
rig
and
substructure
were
‘‘acquired’’
by
the
respondent.
The
submission
on
behalf
of
the
respondent
was,
as
I
understood
it,
that
goods
are
acquired
by
a
purchaser
thereof
when
the
vendor
and
the
purchaser
have
entered
into
a
binding
and
enforceable
contract
of
sale
and
purchase.
The
test
and
concept
of
a
contract
was
that
adopted
by
the
Tax
Appeal
Board
in
the
decision
now
under
appeal.
With
all
deference
I
cannot
accede
to
that
view.
In
my
opinion
the
proper
test
as
to
when
property
is
acquired
must
relate
to
the
title
to
the
property
in
question
or
to
the
normal
incidents
of
title,
either
actual
or
constructive,
such
as
possession,
use
and
risk.
On
the
facts
in
the
present
appeal
there
is
no
question
whatsoever
that
the
contracts
for
the
purchase
and
sale
of
the
rig
and
substructure
were
completed
prior
to
December
31,
1963.
Accordingly
there
is
no
question
that
as
at
the
end
of
the
respondent’s
1963
taxation
year
it
had
rights
under
these
contracts.
Such
rights
are
‘‘property’’
within
the
meaning
of
Section
139(1)
(a)
of
the
Income
Tax
Act
but
Schedule
B
to
the
Income
Tax
Regulations
does
not
include
a
class
of
property
which
is
subject
to
capital
cost
allowance
such
as
properties
which
are
contractual
rights
under
the
contracts
here
in
question.
In
order
to
fall
within
any
of
the
specified
classes
in
Schedule
B
there
must
be
a
right
in
the
property
itself
rather
than
rights
in
a
contract
relating
to
the
property
which
is
the
subject
matter
of
the
contract.
As
I
have
indicated
above,
it
is
my
opinion
that
a
purchaser
has
acquired
assets
of
a
class
in
Schedule
B
when
title
has
passed,
assuming
that
the
assets
exist
at
that
time,
or
when
the
purchaser
has
all
the
incidents
of
title,
such
as
possession,
use
and
risk,
although
legal
title
may
remain
in
the
vendor
as
security
for
the
purchase
price
as
is
the
commercial
practice
under
conditional
sales
agreements.
In
my
view
the
foregoing
is
the
proper
test
to
determine
the
acquisition
of
property
described
in
Schedule
B
to
the
Income
Tax
Regulations.
This
appeal
was
argued
by
both
parties
on
the
assumption
that
the
contracts
here
in
question
are
subject
to
the
laws
of
the
Province
of
Alberta.
I
think
that
assumption
is
correct.
Both
parties
were
resident
in
Alberta
where
the
contracts
were
negotiated.
Sections
20
and
21
of
the
Alberta
Sale
of
Goods
Act
(R.S.A.
1955,
c.
295)
outline
the
time
of
transfer
of
property
in
goods
and
rules
for
ascertaining
the
intention
of
the
parties
as
to
the
time
at
which
the
property
in
the
goods
is
to
pass
to
the
buyer.
Section
20
reads
as
follows:
20.
(1)
Where
there
is
a
contract
for
the
sale
of
specific
or
ascertained
goods,
the
property
in
them
is
transferred
to
the
buyer
at
such
time
as
the
parties
to
the
contract
intend
it
to
be
transferred.
(2)
For
the
purpose
of
ascertaining
the
intention
of
the
parties,
regard
shall
be
had
to
the
terms
of
the
contract,
the
conduct
of
the
parties
and
the
circumstances
of
the
case.
Section
21(1)
reads
as
follows:
21.
(1)
Unless
a
different
intention
appears
the
following
are
the
rules
for
ascertaining
the
intention
of
the
parties
as
to
the
time
at
which
the
property
in
the
goods
is
to
pass
to
the
buyer:
Rule
I.
Where
there
is
an
unconditional
contract
for
the
sale
of
specific
goods
in
a
deliverable
state,
the
property
in
the
goods
passes
to
the
buyer
when
the
contract
is
made
and
it
is
immaterial
whether
the
time
of
payment
or
the
time
of
delivery
or
both
be
postponed.
Rule
II.
Where
there
is
a
contract
for
the
sale
of
specific
goods
and
the
seller
is
bound
to
do
something
to
the
goods
for
the
purpose
of
putting
them
into
a
deliverable
state,
the
property
does
not
pass
until
the
thing
is
done
and
the
buyer
has
notice
thereof.
.
.
.
I
have
not
reproduced
the
remaining
rules
in
Section
21
because
only
Rules
I
and
II
are
material
to
the
circumstances
of
the
present
appeal.
With
respect
to
the
rig
is
was
the
submission
on
behalf
of
the
Minister
that
it
was
not
in
a
deliverable
state
and
accordingly
the
contract
with
respect
to
the
rig
would
fall
within
Rule
II
above,
whereas
it
was
submitted
on
behalf
of
the
respondent
that
Rule
I
was
applicable
to
the
contract.
Because
of
the
view
I
take
of
the
matter,
it
is
not
necessary
for
me
to
resolve
this
subsidiary
controversy.
The
contract
was
for
a
specific
rig
which,
as
it
stood,
was
a
service
rig.
To
meet
the
needs
of
the
respondent
for
its
use
as
a
drilling
rig,
the
service
rig
had
to
undergo
substantial
modification
and
have
additional
equipment
fixed
thereto.
At
the
time
the
contract
was
entered
into
by
the
parties
thereto
the
service
rig
was
readily
identifiable.
Property
in
the
rig
could
have
passed
forthwith
had
the
parties
so
intended.
But
the
parties
did
not
so
intend.
It
was
agreed,
as
evidenced
by
the
note
on
page
5
of
the
invoice
(Exhibit
R-5)
that
“Title
to
pass
and
notes
issued
as
of
date
shipment’’.
Delivery
or
shipment
was
not
until
February
18,
1964
and
accordingly
property
in
the
rig
did
not
pass
to
the
respondent
until
that.
date.
It
is
my
opinion
that
neither
Rule
I
nor
Rule
II
set
forth
in
Section
21
of
The
Sale
of
Goods
Act
is
applicable
to
the
circumstances
of
this
particular
contract
but
rather
that
the
intention
of
the
parties
as
to
when
property
in
the
rig
was
to
pass
is
determined
by
the
terms
of
the
contract
in
accordance
with
Section
20
of
The
Sale
of
Goods
Act.
With
respect
to
the
substructure,
the
contract
for
the
fabrication
thereof
was
completed
in
the
1963
taxation
year
but
the
manufacture
thereof
did
not
begin
until
1964.
Accordingly
the
substructure
falls
within
Rule
II
of
Section
21
of
The
Sale
of
Goods
Act
above
and
property
therein
could
not
pass
to
the
buyer
until
well
into
1964.
In
the
contract
for
the
sale
and
purchase
of
the
substructure
the
parties
did
not
exhibit
a
contrary
intention.
With
respect
to
the
used
pump
and
diesel
engine
for
which
the
Minister
allowed
the
capital
cost
allowance
claimed
by
the
respondent
in
its
1963
taxation
year,
the
purchase
of
these
two
items
of
equipment
fall
precisely
within
Rule
I
above
and
accordingly
the
Minister
acted
properly
and
consistently
in
the
allowing
such
claim
and
in
disallowing
the
claim
for
the
rig
and
substructure
in
the
respondent’s
1963
taxation
year.
For
the
foregoing
reasons
it
is
my
opinion
that
the
Minister
was
right
in
disallowing
the
respondent’s
claim
for
capital
cost
allowance
with
respect
to
the
rig
and
substructure
in
the
respondent’s
1963
taxation
year.
It
follows
that
the
appeal
is
allowed
and
the
assessment
is
referred
back
to
the
Minister
for
reassessment
accordingly.
The
Minister
is
entitled
to
his
costs
to
be
taxed.