LOCKE,
J.
(concurred
in
by
Taschereau,
Estey,
Cartwright
and
Fauteux,
JJ.)
:—This
is
an
appeal
from
a
judgment
of
Archibald,
J.,
dismissing
the
appeal
of
the
present
appellant
from
an
assessment
made
under
the
Excess
Profits
Tax
Act,
1940
for
the
taxation
year
1946.
The
assessment
in
question
was
made
in
respect
of
a
profit
of
$95,102.90
made
by
the
appellant
upon
the
sale
in
the
year
1946
of
a
parcel
of
Crown
granted
land
described
as
Section
1,
Nootka
District,
British
Columbia,
and
its
interest
in
seven
renewable
timber
leases
made
between
the
Crown
in
right
of
the
Province
and
the
appellant
in
respect
of
lands
in
the
said
district.
The
appellant
gave
notice
of
appeal
to
the
Minister
of
National
Revenue
under
the
provisions
of
Section
14
of
the
Excess
Profits
Tax
Act
on
the
ground
that
the
profit
was
not
income,
within
the
meaning
of
the
Act,
and
the
latter
affirmed
the
assessment.
Archibald,
J.,
in
dismissing
the
appeal,
apparently
considered
that
the
question
to
be
determined
was
governed
by
the
judgment
of
this
Court
in
Anderson
Logging
Co.
v.
The
King,
[1925]
8.C.R.
45;
[1917-27]
C.T.C.
198.
The
Sutton
Lumber
and
Trading
Company
Limited
was
first
incorporated
by
a
memorandum
of
association
under
the
provisions
of
the
Companies
Act,
1890
of
the
Province
of
British
Columbia
in
the
year
1893.
In
the
year
1897
that
Act
was
repealed
and
the
various
statutes
dealing
with
the
incorporation
of
companies
consolidated
in
the
Companies
Act,
1897.
By
Section
5
of
that
statute
it
was
provided
that
a
company
theretofore
incorporated
by
memorandum
of
association,
upon
compliance
with
prescribed
formalities,
might
deliver
to
the
Registrar
of
Companies
a
copy
of
its
charter
and
regulations
and
its
certificate
of
incorporation
and
receive
a
certificate
of
what
was
called
the
‘
‘
reincorporation
’
’
and
registration
of
the
company
as
a
company
under
the
new
Act.
The
appellant
company,
taking
advantage
of
this
provision,
was
reincorporated
under
the
Act
of
1897
on
November
17th,
1902.
The
authorized
capital
was
$100,000.
divided
into
1,000
shares
of
$100.
each,
at
which
figure
it
has
remained
to
the
present
day.
The
British
Columbia
legislation
providing
for
the
incorporation
of
companies
by
memorandum
of
association
followed
the
plan
provided
in
England
by
the
Companies
Act
of
1862.
Companies
so
incorporated,
as
was
decided
in
the
House
of
Lords
in
Ashbury
Carriage
Company
v.
Riche
(1875),
L.R.
7
H.L.
653,
and
in
Attorney-General
v.
The
Directors
of
the
Great
Eastern
Railway
Company
(1880),
5
App.
Cas.
473,
have
no
inherent
common
law
rights
and
are
accordingly
restricted
in
their
activities
to
carrying
out
the
objects
and
exercising
such
powers
as
are
described
in
the
memorandum,
including
those
which
are
fairly
incidental
to
those
things
which
the
legislature
has
authorized.
No
doubt,
it
was
for
this
reason
that
until
the
passing
of
the
Companies
Act
of
1929,
which
by
Section
22
gave
to
all
companies,
thereafter
incorporated
by
memorandum,
extensive
powers
for
the
purpose
of
carrying
out
their
declared
objects
without
the
necessity
of
enumerating
them
in
the
memorandum,
the
memoranda
of
association
of
many
companies
incorporated
in
the
province
included
far
reaching
powers
to
carry
on
activities,
many
of
which
were
far
removed
from
the
real
purpose
of
the
incorporation
of
the
company.
The
memorandum
of
association,
in
so
far
as
its
terms
affect
the
present
matter,
reads
as
follows
:—
‘‘2.
The
objects
for
which
the
Company
is
established
are
:—
(1)
To
purchase,
take
on
lease,
or
otherwise
acquire
and
hold
any
lands,
timber
lands
or
leases,
timber
claims,
licenses
to
cut
timber,
rights
of
way,
water
rights
and
privileges,
foreshore
rights,
wharves,
saw
mills,
factories,
buildings,
machinery,
plant,
stock-in-trade,
or
other
real
and
personal
property,
and
equip,
operate
and
turn
the
same
to
account,
and
to
sell,
lease,
sublet
or
otherwise
dispose
of
the
same,
or
any
part
thereof,
or
any
interest
therein.
(2)
To
purchase,
lease,
hire,
build,
and
operate
saw
mills
and
other
mills
and
factories
for
the
manufacturing
of
lumber
and
sale
of
lumber,
shingles,
boxes,
blinds,
sash
and
furniture,
and
any
other
articles
of
which
wood
shall
form
a
component
part.
(3)
To
carry
on
the
business
of
saw
mill
proprietors
and
merchants
and
manufacturers
of
and
dealers
in
timber
and
lumber
of
all
kinds.
(4)
To
construct
dams
and
improve
rivers,
streams
and
lakes,
and
to
divert
the
whole
or
part
of
the
water
of
such
streams
and
rivers
as
the
purposes
of
the
Company
may
require.
(5)
To
catch,
purchase,
preserve,
sell
and
deal
in
seals,
and
seal
skins,
and
all
kinds
of
fish,
and
the
products
thereof,
respectively
;
to
acquire,
erect
and
operate
fish
canneries;
and
to
purchase,
sell
and
trade
in
general
merchandise.
(6)
To
carry
on
all
or
any
of
the
businesses
of
dealers
in
furs,
skins
and
fish,
exporters
and
importers,
carriers
by
land
and
water,
warehousemen,
wharfingers
and
general
traders
and
merchants.
(7)
To
construct,
carry
out,
acquire
by
purchase
or
otherwise
maintain,
improve,
manage,
work,
control
and
superintend
any
trails,
roads,
railways,
tramways,
bridges,
reservoirs,
watercourse
aqueducts,
wharves,
saw
mills,
electrical
works,
telephones,
factories,
warehouses,
ships,
vessels,
fishing
and
other
boats,
and
other
works
and
conveniences
which
the
Company
may
think
directly
or
indirectly
conductive
to
any
of
these
objects,
and
to
contribute
or
otherwise
assist
or
take
part
in
the
construction,
maintenance,
development,
working,
control
and
management
thereof.
(8)
Generally
to
purchase,
take
on
lease,
hire,
or
other-
wise
acquire
any
real
and
personal
property,
and
any
rights
and
privileges
which
the
Company
may
think
necessary
or
convenient
for
the
purposes
of
its
business.
(9)
To
use
water,
steam,
electricity,
or
any
other
power
now,
or
hereafter
to
become
known
as
a
motive
power
or
in
any
other
ways
for
the
uses
and
purposes
of
the
Company.
(10)
To
acquire,
operate,
and
carry
on
the
business
of
a
power
company
under
Part
IV
of
the
Water
Clauses
Consolidation
Act,
1897.
(11)
To
acquire
and
carry
on
all
or
any
part
of
the
business
or
property,
and
to
undertake
any
liabilities
of
any
person,
firm
or
association,
or
Company,
possessed
of
property
suitable
for
the
purposes
of
this
Company,
or
carrying
on
any
business
which
this
Company
is
authorized
to
carry
on,
or
which
can
be
conveniently
carried
on
in
connection
with
the
same,
or
may
seem
to
the
Company
calculated
directly
or
indirectly
to
benefit
the
Company,
and
as
the
consideration
for
the
same
to
pay
cash
or
to
issue
any
shares,
stocks
or
obligations
of
this
Company.
(12)
To
enter
into
partnership
or
into
any
arrangement
for
sharing
profits,
union
of
interests,
co-operation,
joint
adventure,
reciprocal
concessions,
or
otherwise,
with
any
person
or
company
carrying
on,
or
engaged
in,
or
about
to
carry
on
or
engage
in,
any
business
or
transaction
which
this
Company
is
authorized
to
carry
on
or
engage
in,
or
any
business
or
transaction
capable
of
being
conducted
so
as
directly
or
indirectly
to
benefit
this
Company;
and
to
lend
money
to,
guarantee
the
contracts
of,
or
otherwise
assist
any
such
person
or
Company,
and
to
take
or
otherwise
acquire
shares
and
securities
of
any
such
Company,
and
to
sell,
hold,
re-issue,
with
or
without
guarantee,
or
otherwise
deal
with
the
same.
(13)
To
sell
or
dispose
of
the
undertaking
of
the
Company,
or
any
part
thereof,
for
such
consideration
as
the
Company
may
think
fit,
and
in
particular,
for
shares,
debentures,
or
securities
of
any
other
Company
having
objects
altogether,
or
in
part,
similar
to
those
of
this
Company.
(14)
To
promote
any
Company
or
Companies
for
the
purpose
of
acquiring
all
or
any
of
the
property
and
liabilities
of
this
Company,
or
for
any
other
purpose
which
may
seem
directly
or
indirectly
calculated
to
benefit
this
Company.
(15)
To
borrow
or
raise
money
for
any
purpose
of
the
Company,
and
for
the
purpose
of
securing
the
same
and
interest,
or
for
any
other
purpose,
to
mortgage
or
charge
the
undertaking,
or
all
or
any
part
of
the
property
of
the
Company,
present
or
after
acquired
or
its
uncalled
capital,
and
to
create,
issue,
make
draw,
accept
and
negotiate
perpetual
or
redeemable
debentures
or
debenture
stock,
promissory
notes,
bills
of
exchange,
bills
of
lading,
warrants,
obligations
and
other
negotiable
and
transferable
instruments.
(16)
To
take
or
otherwise
acquire,
and
hold
shares
in
any
other
Company
having
objects
altogether
or
in
part
similar
to
those
of
this
Company,
or
carrying
on
any
business
capable
of
being
conducted
so
as
directly
or
indirectly
to
benefit
this
Company.
(17)
To
distribute
any
of
the
property
of
the
Company
among
the
members
in
specie.
(18)
To
sell,
improve,
manage,
develop,
exchange,
lease,
mortgage,
dispose
of,
turn
to
account,
or
otherwise
deal
with
the
undertaking,
or
all
or
any
part
of
the
property
and
rights
of
the
Company,
with
power
to
accept
as
the
consideration
any
shares,
stocks
or
obligations
of
any
other
Company.
(19)
To
do
all
such
other
things
as
are
incidental
or
conducive
to
the
attainment
of
the
above
objects,
or
any
of
them.’’
It
will
be
noted
that,
while
the
foregoing
subparagraphs
1
to
18
are
referred
to
in
the
opening
words
of
the
paragraph
as
objects,
objects
and
powers
are
mingled.
It
is,
in
my
opinion,
a
matter
of
some
difficulty
to
sever
what
were
intended
as
objects
from
those
which
were
merely
powers,
but
it
seems
to
me
to
be
clear
that
to
operate
and
turn
to
account
saw
mills,
factories,
water
rights
and
timber
lands
or
leases
in
subparagraph
1
and
the
activities
referred
to
in
subparagraphs
2,
3,
5,
6
and
10
were
clearly
intended
as
objects,
while
the
remainder
of
the
subparagraphs
were
intended
to
define
the
powers
taken
for
the
purpose
of
carrying
out
such
objects.
When,
for
the
purpose
of
obviating
the
necessity
of
defining
the
powers
taken
in
such
detail,
the
legislature
enacted
Section
22
of
the
Companies
Act,
1919,
the
powers
which
were
given
to
all
companies
thereafter
incorporated
as
ancillary
and
incidental
to
the
objects
set
forth
in
the
memorandum
included
practically
all
of
those
enumerated
in
subparagraphs
1,
7,
8,9
and
11
to
19,
both
inclusive,
in
addition
to
others.
The
powers
so
vested
in
every
company
incorporated
under
the
terms
of
the
Act
of
1919
and
in
any
company
which
might
under
the
provisions
of
Section
51
of
the
Act,
by
ordinary
resolution,
alter
its
memorandum
of
association
so
as
to
include
any
or
all
of
the
powers
referred
to
in
Section
22,
include,
it
is
to
be
noted,
the
right
:—
“
(a)
To
purchase,
take
on
lease
or
in
exchange,
hire,
or
otherwise
acquire
and
hold
any
real
and
personal
property
and
many
rights
or
privileges
which
the
Company
may
think
necessary
or
convenient
for
the
purposes
of
its
business
;
’
’
.
(a)
To
sell
or
dispose
of
the
undertaking
of
the
company
or
any
part
thereof
for
such
consideration
as
the
company
may
think
fit
.
.
.
’
’
and
(b)
To
sell,
improve,
manage,
develop,
exchange,
lease,
dispose
of,
turn
to
account,
or
otherwise
deal
with
all
or
any
part
of
the
property
and
rights
of
the
company.”
The
question
to
be
decided
is
not
as
to
what
business
or
trade
the
company
might
have
carried
on
under
its
memorandum,
but
rather
what
was
in
truth
the
business
it
did
engage
in.
To
determine
this,
it
is
necessary
to
examine
the
facts
with
care.
The
company
was
incorporated
under
the
Act
of
1890
at
the
instance
of
W.
J.
Sutton,
J.
E.
Sutton
and
their
associates
and
acquired
from
one
of
the
Suttons
a
lease
granted
by
the
Provincial
Government
of
ten
sections
in
the
Clayoquot
District
on
the
West
Coast
of
Vancouver
Island.
By
terms
of
the
Lands
Act
of
1888,
the
Lieutenant-Governor
in
Council
was
authorized
to
grant
renewable
leases
for
terms
not
to
exceed
thirty
years,
containing
provisions
binding
the
lessee
to
erect
in
some
part
of
the
Province
a
lumber
mill
capable
of
cutting
not
less
than
1,000
ft.
of
lumber
per
day
for
every
400
acres
of
land
included
in
the
lease.
The
company,
while
controlled
by
the
Suttons,
had
built
and
operated
what
was
referred
to
as
a
small
lumber
mill.
The
extent
of
the
holdings
of
the
company
during
this
time
was
apparently
some
2,500
acres.
In
November
1902,
W.
H.
and
A.
F.
McEwan
of
Seattle,
the
principals
in
the
Seattle
Cedar
Lumber
Manufacturing
Company,
which
was
engaged
in
the
production
of
cedar
lumber
in
the
State
of
Washington,
acquired
the
share
interest
of
the
members
of
the
Sutton
family.
As
shown
by
the
Minute
Book
of
the
company,
the
McEwans
and
one
of
their
solicitors
at
Victoria
were
appointed
the
first
directors
of
the
company
following
its
reincorporation
and
a
resolution
was
passed
that
the
registered
office
be
at
No.
2
Broughton
Street
in
Victoria.
In
November
1903,
B.
W.
Arnold,
a
lumberman
caryying
on
business
in
Ontario
and
the
Eastern
United
States,
became
a
shareholder
and
was
elected
a
director
and
thereafter
agreed
to
advance
to
the
company
the
funds
necessary
for
the
construction
of
what
was
referred
to
as
a
mill
and
logging
plant
at
Clayoquot.
Between
the
years
1902
and
1905,
renewable
leases
of
large
areas
of
timber
in
the
Clayoquot
area
were
obtained
by
the
company
from
the
Provincial
Government
and
some
Crown
granted
lands
were
purchased.
In
addition,
during
this
time
certain
leases
and
some
Crown
granted
lands
were
obtained
in
the
Nootka
District
lying
to
the
north
of
the
Clayoquot
District.
The
English
Lumber
Company,
a
Washington
corporation,
acquired
shares
in
the
company
at
a
date
which
is
not
disclosed
in
the
evidence.
Whether
the
shares
were
held
in
the
name
of
the
company
or
that
of
Edward
English,
the
directing
head
of
the
company,
is
not
shown.
No
further
leases
or
Crown
grants
of
timber
were
acquired
between
1905
and
the
time
of
the
sale
made
in
1946
which
gave
rise
to
the
present
litigation.
In
1946,
Mr.
A.
F.
McEwan
alone
survived
of
those
who
had
been
the
principals
in
the
direction
of
the
affairs
of
the
appellant
company
in
1915
and
he
died
before
the
present
dispute
arose.
W.
H.
McEwan,
Arnold
and
Edward
English
had
all
died
long
prior
to
that
time.
There
was,
however,
in
the
employ
of
the
Seattle
Lumber
Company
Wm.
C.
Schultheis
who,
since
the
year
1898,
had
been
employed
by
that
company
as
a
log
and
timber
buyer
and
looked
after
the
outside
interests
of
the
McEwans
and
was
intimately
familiar
with
the
activities
of
the
appellant
company
between
the
year
1902,
when
the
McEwans
first
acquired
their
interest,
up
until
the
present
time.
In
1923,
on
the
death
of
W.
H.
McEwan,
Schultheis
had
succeeded
him
as
a
director
and
had
been
elected
Vice-President
of
the
appellant
company.
Schultheis
said
that,
at
the
time
the
McEwans
acquired
control
of
the
appellant
company,
there
was
only
a
cursory
examination
made
by
cruisers
of
the
limits
in
the
Clayoquot
area.
There
was
only
a
limited
time
to
take
up
the
options
his
employers
had
taken
upon
the
Suttons’
shares
and
the
cruisers
found
enough
timber
to
justify
the
purchase.
Cedar
predominated
throughout
the
area.
The
Suttons
apparently
had
not
any
cruise
of
the
timber.
It
was
apparently
prior
to
1905
that
certain
leases
had
been
obtained
in
the
Nootka
District,
which
lay
in
a
different
watershed
than
Clayoquot.
In
either
of
the
years
1904
or
1905
the
company
purchased
three
Crown
granted
claims
from
a
Captain
Townsend,
which
were
suitable
for
a
mill
site
and
booming
grounds.
In
the
year
1905
the
company
started
clearing
the
land
for
the
erection
of
a
mill
in
Mosquito
Harbour
in
the
Clayoquot
District
and
obtained
foreshore
leases
at
that
place
and
booming
ground
rights
near
the
mouth
of
the
Kennedy
River.
In
the
same
year,
it
applied
for
and
obtained
a
water
licence
enabling
it
to
divert
water
from
Sutton
Creek,
a
tributary
of
Mosquito
Harbour,
for
the
purpose
of
milling
operations.
In
the
year
1906
the
mill
was
built,
designed
for
the
manufacture
of
cedar
lumber
and
shingles.
It
was
not
designed
to
handle
fir
logs.
The
mill
operated
with
logs
cut
from
the
adjoining
limits
of
the
company
during
the
year
1907.
The
financial
statement
of
the
company
as
of
January
1st,
1908,
showed
an
investment
in
buildings,
machinery,
machine
shops,
etc.,
in
excess
of
$153,000.00.
Other
buildings
including
dwellings
had
accounted
for
an
expenditure
in
excess
of
$14,000.00.
Something
more
than
$24,000.00
had
been
spent
on
dock
construction
in
the
harbour
and
for
donkey
engines
and
other
equipment
for
use
in
logging,
something
more
than
$15,000.00
had
been
expended.
The
capital
stock
of
the
company
remained
at
$100,000.00
and
the
company
was
indebted
to
its
stockholders
for
loans
of
money,
apparently
for
the
acquisition
of
the
timber
limits,
the
payment
of
rentals
and
the
construction
and
equipment
of
the
mill
in
an
amount
approximating
$460,000.00.
This
was
apparently
the
first
time
that
a
cedar
mill
had
been
operated
on
the
West
Coast
of
Vancouver
Island
and
the
results
were
not
profitable.
A
cargo
of
lumber
was
shipped
to
the
New
York
market
which
arrived
there
at
the
time
of
the
financial
panic
of
1907
and
a
heavy
loss
resulted.
The
loss
in
the
operations
for
the
year
1907
approximated
$150,000.00
and
the
mill
was
closed
down.
In
so
far
as
the
market
in
the
United
States
was
concerned,
Schultheis
said
it
was
decided
to
wait
until
the
Panama
Canal
was
completed.
The
location
of
the
timber
was
such
that
during
this
period
it
was
not
possible
to
sell
logs
on
the
West
Coast
market
at
a
profit.
Owing
to
the
necessity
of
rafts
being
towed
for
long
distances
in
the
open
sea,
such
an
operation
was
not
possible
and
Davis
rafts
which
might
have
made
this
feasible
were
not
then
known.
The
financial
statement
of
the
company
for
the
year
1909,
during
which
neither
the
lumber
nor
shingle
mills
were
operated,
shows
the
investment
of
the
company
in
the
mill
site
before
depreciation
at
$153,427.14,
for
outside
buildings
and
dwellings
$14,010.39,
for
the
fresh
water
system
$6,857.66,
for
dock
construction
$24,325.76,
for
woods
plant
comprising
logging,
donkeys,
equipment,
etc.,
$15,713.83,
for
the
Tug
Clayoquot
$5,041.03,
for
the
cook
house
and
camp
buildings
$2,366.90,
in
addition
to
the
amounts
invested
in
boom
chains
and
other
miscellaneous
equipment.
The
advances
by
shareholders
to
the
company
as
at
the
end
of
the
year
totalled
$462,000.00.
A
caretaker
was
employed
at
the
mill
and
no
logging
operations
were
carried
on.
According
to
Schultheis,
it
was
either
in
the
years
1910
and
1911
that
a
timber
cruiser
was
sent
to
make
an
examination
of
the
Nootka
limits
and
he
reported
that
they
were
predominantly
fir.
These
limits
constituted
only
about
one-seventh
of
the
company’s
holdings
and
it
was
not
practical
to
operate
a
fir
mill
in
the
Nootka
District
and
a
cedar
mill
in
Clayoquot.
On
October
10th,
1911,
at
the
annual
meeting
of
the
shareholders
held
at
Victoria,
the
directors
were
authorised
to
sell
for
such
consideration
as
they
thought
fit
the
three
Crown
granted
lots
in
the
Nootka
District
and
the
company’s
leasehold
holdings
in
that
area.
Other
than
the
Crown
granted
lots,
these
were
the
properties
which
were
sold
thirty-five
years
later,
the
sale
resulting
in
the
profit
sought
to
be
taxed
in
these
proceedings.
In
the
year
1922
the
company
had
all
of
the
limits
completely
cruised.
In
the
Nootka
District
the
area
of
the
Crown
granted
and
leased
lands
was
10,195
acres,
upon
which
there
was
an
estimated
335,701,000
ft.
B.M.
of
timber,
the
greater
part
of
which
was
fir,
hemlock
and
balsam:
in
the
Clayoquot
District,
where
there
was
comparatively
little
fir
and
cedar
greatly
predominated,
the
area
of
the
limits
was
63,665
acres,
containing
an
estimated
1,955,616,000
ft.
B.M.
The
evidence
of
the
witness
Schultheis,
together
with
that
of
Mr.
Aird
Flavelle,
a
manufacturer
of
cedar
lumber
of
very
long
experience
on
the
West
Coast
and
who
had
an
intimate
knowledge
of
the
cedar
market
during
the
past
forty
years,
show
conclusively
that,
from
the
time
of
the
acquisition
of
the
limits
until
after
the
conclusion
of
the
Second
World
War,
the
manufacture
of
cedar
lumber
on
the
properties
or
the
sale
of
cedar
logs
from
the
limits
was
not
economically
possible.
The
company,
however,
maintained
the
lumber
and
shingle
mill
and
the
appurtenant
properties
in
a
state
of
repair,
looking
forward
to
the
day
when
operations
might
become
possible.
In
1924,
concrete
foundations
were
placed
under
the
mill
replacing
the
timber
posts
originally
installed.
A
caretaker
was
maintained
continuously
until
it
was
dismantled
in
the
year
1940.
In
1926,
the
company
employed
W.
C.
Morse,
a
hydraulic
engineer,
to
advise
as
to
the
best
means
of
bringing
logs
from
Kennedy
Lake,
which
lay
in
a
southeasterly
direction
from
the
mill
in
Mosquito
Harbour,
down
the
Kennedy
River
to
salt
water,
and
after
an
extensive
survey
received
his
opinion
as
to
the
most
feasible
method
and
the
probable
cost.
The
engineer
was
further
instructed
to
examine
the
area
and
report
as
to
the
possibilities
of
developing
hydro-electric
power
in
the
Kennedy
Lake
area
and
as
to
suitable
locations
for
a
ground
wood
paper
mill
in
the
area,
and
two
written
reports
made
by
him
respectively
in
July
and
August
1926
were
put
in
evidence.
Mr.
Morse
advised
that
a
suitable
power
site
was
available
at
the
Kennedy
River
Rapids
where
there
was
an
excellent
dam
site.
He
advised
that
a
very
large
amount
of
timber
would
have
to
be
cut
and
bucked
before
the
lake
level
could
be
raised
and
advised
as
to
its
disposition.
As
to
a
site
for
such
a
mill,
he
said
that
there
was
a
suitable
location
at
the
mouth
of
the
Kennedy
River
with
a
wharf
facing
on
deep
navigable
waters
in
Tofino
Inlet
and
advised
as
to
the
cost
of
installations
for
the
production
of
9,550
and
18,500
horse
power
respectively.
The
engineer
considered
that
the
ideal
combination
to
develop
the
timber
in
the
Clayoquot
District
would
be
a
cedar
mill,
a
hemlock
mill
and
a
pulp
and
paper
mill
and,
as
between
the
existing
location
of
the
company’s
mill
at
Mosquito
Harbour
where
the
mill
was,
in
his
opinion,
worth
around
$150,000.00,
advised
as
to
the
suitability
of
a
second
site
at
the
mouth
of
the
Kennedy
River
and
a
third
site
at
Mud
Bay,
giving
figures
as
to
the
cost
that
would
be
involved
in
further
construction
at
Mosquito
Harbour
if
operations
were
to
be
con-
continued
there
and
if
mills
were
constructed
at
the
alternative
sites.
As
an
alternative
to
construction
on
the
West
Coast
of
Vancouver
Island,
the
engineer
considered
and
advised
as
to
the
cost
of
delivering
logs
to
Alberni
at
the
head
of
the
Alberni
Canal,
assuming
the
company
should
decide
to
build
a
cedar
mill
at
that
point
rather
than
in
the
vicinity
of
its
Clayoquot
holdings.
In
advance
of
incurring
the
expense
of
these
surveys
by
Mr.
Morse,
a
reservation
of
the
water
power
in
the
area
was
made
and
the
official
findings
of
the
engineer
were
filed
with
the
Water
Board
at
Victoria.
A
contract
was
made
to
drill
the
foundations
for
a
dam
at
Kennedy
Rapids
and
this
work
was
done.
The
company
also
undertook
negotiations
with
the
Crown
Zellerbach
Corporation
for
the
establishment
of
a
pulp
mill
which
continued
over
an
extended
period.
The
company
had
purchased
a
suitable
property
as
a
site
for
a
pulp
mill
and
town
site
at
Mud
Bay
at
a
cost
of
$5,000.00,
having
accepted
the
recommendation
of
the
engineer
as
to
this.
However,
construction
was
not
proceeded
with
and
the
depression
commencing
at
the
end
of
the
year
1929
rendered
impossible
the
profitable
operation
of
the
properties.
Other
than
the
logging
and
lumbering
activities
which
were
carried
on
in
the
years
1906
and
1907,
no
such
operations
were
carried
on
until
the
year
1937
when
the
company,
by
a
contract
dated
August
3rd,
sold
to
Gibson
Brothers
Limited
the
merchantable
timber
on
section
2,
which
was
Crown
granted,
in
the
Nootka
District
and
upon
the
lands
covered
by
the
timber
lease
of
Lot
656
in
that
area.
Upon
these
areas
there
was,
as
shown
by
the
cruise,
50,809,000
ft,
of
fir
and
651,000
ft.
of
cedar.
The
contract
price
was
a
stumpage
rate
of
$3.00
per
thousand
of
timber
cut
from
the
Crown
granted
lands
and
$2.00
per
thousand
for
timber
cut
from
the
lease,
and
in
addition
50%
of
the
net
proceeds
received
from
the
purchaser
from
the
sale
of
the
logs,
after
the
deduction
of
logging
and
marketing
costs
specified
by
the
agreement.
By
the
agreement,
the
purchasers
agreed
to
log
and
raft
not
less
than
10,000,000
ft.
B.M.
during
each
twelve
month
period
and,
on
the
demand
of
the
vendor,
to
sell
to
it
all
cedar
logs
cut
from
the
property
from
time
to
time
at
the
then
market
price.
By
a
further
agreement
dated
August
17th,
1938,
the
company
agreed
to
sell
to
Gibson
Brothers
Limited
all
the
merchantable
timber
on
its
timber
lease
on
Lot
34
in
the
Nootka
District
on
the
same
terms.
The
purchaser
found
the
logging
operations
unprofitable
and
did
not
complete
the
logging
of
the
said
limits
and,
by
an
agreement
dated
March
31st,
1943,
the
two
agreements
were
terminated
and
Gibson
Brothers
Limited
was
released
from
further
liability.
On
March
31st,
1945,
the
company
entered
into
an
agreement
to
sell
the
merchantable
timber
upon
part
of
its
holdings
in
the
Clayoquot
District
to
the
North
Coast
Timber
Company
Limited
at
an
agreed
stumpage
rate
and,
in
addition,
in
consideration
of
60%
of
the
net
proceeds
which
the
purchaser
should
receive
from
the
sale
of
all
logs
cut
off
the
said
lands,
the
purchaser
agreeing
to
log
and
raft
not
less
than
20,000,000
ft.
and
not
more
than
35,000,000
ft.
in
each
period
of
twelve
months
throughout
the
term
of
the
contract.
Much
of
the
timber
so
sold
was
upon
limits
that,
according
to
Morse’s
survey,
would
be
flooded
by
the
construction
of
a
hydro-electric
plant
on
Kennedy
River.
The
North
Coast
Company
sold
its
interest
in
the
contract
to
Kennedy
Lake
Logging
Co.
Ltd.
and
active
logging
operations
were
commenced
and
were
being
carried
on
at
the
time
of
the
trial
of
this
action.
The
logs
cut
were
taken
to
mills
at
Port
Alberni
and
this
was
apparently
the
first
time
that,
following
the
termination
of
the
Second
World
War
in
1945,
the
market
was
such
as
to
permit
logging
the
cedar
timber
at
a
profit.
The
financial
statement
of
the
company
for
the
year
1946
showed
receipts
from
stumpage
and
profit
sharing
under
the
North
Coast
agreement
amounting
to
$49,754.68.
Other
than
such
amounts
as
had
been
received
from
the
logging
operations
of
Gibson
Brothers
Limited,
the
company
had
had
no
income
between
the
year
1907
and
the
year
1946.
The
moneys
to
provide
for
the
payment
of
rentals,
for
the
timber
leases
and
for
the
other
expenditures
of
the
company
was
provided
accordingly
by
loans
made
to
the
company
by
the
shareholders
which
totalled
as
of
December
31st,
1946,
$1,081,588.52.
During
the
year
1946
the
company
sold
to
British
Columbia
Forest
Products
Ltd.
section
1
and
all
of
its
interest
in
its
timber
leases
in
the
Nootka
District,
realizing,
according
to
its
financial
statement,
a
profit
of
$95,261.10,
which
was
carried
to
capital
surplus
in
the
balance
sheet.
The
company’s
mill
at
Mosquito
Harbour
had
been
dismantled
in
the
year
1942
on
the
order
of
the
Machinery
Controller
of
Canada
and
the
machinery
sold.
It
was
impossible
to
buy
machinery
during
the
war
years
but,
after
the
sale
in
1946,
the
company
had
been
endeavouring
to
locate
a
suitable
mill
site
in
the
vicinity
of
the
Alberni
Canal
and,
in
the
year
1948,
purchased
a
property
at
Ucluelet
in
the
Clayoquot
District
which
had
been
used
as
an
airport
during
the
war
and
upon
which
there
were
hangars
and
numerous
other
buildings,
of
which
use
might
be
made
when
establishing
a
mill,
the
consideration
for
the
purchase
being
approximately
$60,000.00.
Keith
Fisken,
the
treasurer
of
the
appellant
company,
had
been
a
director
since
1938
and
president
from
that
year
until
1950,
an
officer
of
the
Seattle
Cedar
Company
since
1930
and
was
the
executor
of
the
estate
of
A.
F.
McEwan
and
intimately
associated
with
the
affairs
of
the
appellant
since
being
elected
to
its
Board.
Since
1938
he
said
that
the
directors
had
attempted
on
numerous
occasions
to
find
a
way
to
operate
the
property
but
that
every
time
it
appeared
that
something
could
be
done
the
cedar
market
fell.
The
English
Lumber
Company,
to
which
the
appellant
company
was
indebted
as
of
December
31st,
1946,
in
the
sum
of
$270,397.55
for
advances
and
which
held
25%
of
the
shares,
got
into
difficulty
with
its
creditors
and
its
shares
were
taken
over
by
them
and
further
advances
by
that
company
were
not
available.
In
the
existing
state
of
the
company’s
finances,
the
only
source
from
which
moneys
for
the
construction
of
a
mill
and
the
developing
of
the
property
could
be
sought
was
from
the
shareholders.
The
company
had
not
built
a
new
mill
up
to
the
time
of
the
inception
of
these
proceedings.
In
addition
to
the
evidence
of
the
actual
activities
carried
on
by
the
company
since
1902,
the
appellant
tendered
at
the
hearing
the
evidence
of
Schultheis
as
to
the
business
which
those
who
controlled
the
company
intended
that
it
should
carry
on.
Schultheis,
as
I
have
said,
did
not
become
a
director
of
the
company
in
1923,
when
he
was
elected
as
such
upon
the
death
of
A.
F.
McEwan.
He
was,
however,
closely
associated
with
the
McEwans
and
their
associates
in
the
company
and
had
been
present
at
many
conferences
between
them
and
Arnold
prior
to
1905
and
was
clearly
in
a
position
to
say
how
the
then
directors
intended
to
deal
with
the
property.
Counsel
for
the
Crown,
however,
objected
to
Schultheis
giving
evidence
as
to
the
business
which
it
was
intended
that
the
company
should
carry
on
and
the
learned
trial
Judge
ruled
that
his
evidence
was
inadmissible,
apparently
on
the
ground
that
he
was
not
then
a
director
of
the
company.
Thus,
since
all
of
those
who
were
directors
at
the
time
were
dead,
the
intention
of
those
who
controlled
and
directed
its
activities
must
be
sought
by
inference
from
the
record
of
the
business
actually
carried
on.
In
my
opinion,
the
evidence
of
Schultheis
as
to
the
business
which
the
company
proposed
to
carry
on
between
the
years
1902
and
1923
was
improperly
rejected.
The
record,
however,
of
the
activities
of
the
company
during
this
period
is
consistent
only
with
the
view
that
the
intention
was
to
carry
on
the
business
of
operating
a
saw
mill
for
the
production
of
cedar
lumber
in
the
Clayoquot
District.
There
had
been
no
real
cruise
made
of
the
timber
in
the
Nootka
area
in
1910
or
1911
but
the
examination
which
had
been
made
apparently
led
the
directors
to
believe
that
the
timber
was
predominantly
fir
and
thus
unsuitable
for
manufacturing
into
lumber
in
a
cedar
mill,
whereupon
they
passed
the
resolution
in
October
1911
that
these
limits
be
disposed
of.
In
fact,
when
an
accurate
cruise
was
made
of
all
the
properties
by
Gardiner
and
Baxter
in
1922,
it
was
disclosed
that
there
was.more
cedar
than
fir
upon
the
Nootka
limits.
Taking,
however,
the
hemlock,
balsam
and
other
species,
the
cruise
showed
the
cedar
to
be
only
slightly
more
than
one-third
of
the
timber
upon
the
property.
The
evidence
of
Schultheis,
who
was
permitted
to
speak
of
the
activities
which
the
company
proposed
to
carry
on
from
the
time
in
1923
when
he
was
elected
a
director,
and
of
Fisken
and
the
record
of
the
heavy
expenditures
made
by
the
company
in
Morse’s
survey,
for
the
upkeep
and
maintenance
of
the
mill,
for
the
acquisition
of
a
mill
site,
for
a
site
for
a
pulp
mill
which
could
be
operated
in
conjunction
with
a
lumber
mill,
for
the
purchase
of
the
mill
and
town
site
at
Ucluelet
and
the
acquisition
of
the
water
rights
on
Kennedy
River,
demonstrated,
in
my
opinion,
that
those
who
controlled
this
company
did
not
depart
from
their
original
intention
to
utilize
these
extensive
limits
for
the
manufacture
of
cedar
lumber
in
a
location
in
the
Clayoquot
District.
The
sales
to
Gibson
Brothers
and
to
the
North
Coast
Timber
Company
were
made
in
the
hope
of
obtaining
some
money
to
assist
in
carrying
the
properties,
which
cost
annually
for
rentals
and
taxes
some
$20,000.00,
and
the
sale
of
the
Nootka
limits,
which
did
not
fit
in
to
the
proposed
cedar
operations,
was
to
obtain
funds
to
repay
part
of
the
long-standing
indebtedness
of
the
company
to
its
shareholders.
In
the
reasons
for
judgment
delivered
at
the
trial,
the
learned
trial
Judge,
commenting
on
the
evidence
of
Schultheis,
said
that
the
evidence
did
not
satisfy
him
that
the
witness
had
detailed
knowledge
respecting
all
the
plans
of
the
directors
of
the
appellant
company
and
that
he
could
not
accept
his
evidence
as
conclusive
proof
of
the
intent
and
purposes
of
the
directors
during
the
early
years
of
its
existence,
adding
that
he
found
his
evidence
entirely
unsatisfactory
in
that
respect.
With
respect,
this
comment
appears
to
overlook
the
fact
that
the
evidence
of
Schultheis,
which
had
been
tendered
as
to
the
activities
proposed
to
be
carried
on
by
the
directors
between
the
period
1902
to
1923,
had
been
rejected.
As
to
the
business
carried
on
and
intended
to
be
carried
on
from
1923
onward,
the
evidence
is
clear,
direct
and
uncontradicted.
The
case
for
the
Minister
is
apparently
based
upon
the
fact
that
in
subparagraph
1
of
paragraph
2
of
the
memorandum
the
power
‘‘to
sell,
lease,
sublet
or
otherwise
dispose
of’’
timber
lands
and
leases
was
taken.
It
was
apparently
considered
by
the
draftsmen
of
the
memorandum
that
this
power
should
be
expressly
taken.
Had
the
Companies
Act
of
1897
included
a
section
similar
to
Section
22
of
the
Act
of
1929,
the
power
to
sell
the
limits
would
have
been
implied.
The
existence
of
this
power
does
not
afford
evidence
that
the
company
was,
in
truth,
carrying
on
the
business
of
buying
timber
lands
or
acquiring
leases
and
selling
them
with
a
view
to
profit.
The
evidence
submitted
by
the
appellant
in
the
present
case
demonstrates
the
contrary.
In
Anderson
Logging
Company
v.
The
King,
above
referred
to,
the
appellant
company
was
incorporated
under
the
British
Columbia
Companies
Act
of
1907.
The
objects
declared
in
the
memorandum
included
the
following
:—
41
To
stake,
lease,
record,
purchase,
sell
and
deal
in
timber
licenses,
timber
leases
and
timber
lands
and
to
cut
and
buy
and
sell
timber
of
all
sorts
and
to
carry
on
a
general
business
as
logger
and
dealer
in
logs
and
timber
of
all
sorts
in
British
Columbia
and
elsewhere.”
The
company
had
purchased
certain
timber
limits
and
these
were
sold
at
a
substantial
advance
over
their
cost
and
the
question
was
as
to
whether
this
profit
was
income,
within
the
meaning
of
the
Income
and
Personal
Property
Taxation
Act
(B.C.),
1921.
While
the
company
had
carried
on
business
for
several
years,
no
evidence
was
given
as
to
the
nature
of
the
business
actually
carried
on
from
the
time
of
its
inception
until
the
year
1916,
a
fact
commented
on
by
Duff,
J.
who
delivered
the
judgment
of
the
Court
upholding
the
assessment.
After
pointing
out
that
there
was
only
evidence
of
one
transaction,
the
purchase
of
the
limits
in
question,
the
following
further
comment
was
made:—
“It
is
not
unimportant
to
remark
that
neither
of
the
principal
partners
of
the
company,
who
could
have
given
a
history
of
the
company’s
affairs
from
its
inception,
was
called
as
a
witness,
nor,
as
has
already
been
mentioned,
was
any
but
the
most
meagre
evidence
adduced
as
to
the
character
of
the
company’s
operations
before
1916.”
In
the
absence
of
the
evidence
of
any
one
having
any
knowledge
of
what
was
referred
to
as
the
design
of
the
directors
of
the
company
in
purchasing
the
limits
and
as
one
of
the
substantive
objects
of
the
company,
as
declared
by
the
memorandum,
was
to
acquire
timber
lands
and
timber
rights
with
a
view
to
dealing
in
them
and
turning
them
to
account
for
the
profit
of
the
company,
it
was
held
that
the
appellant
had
failed
to
show
that
the
assessment
was
one
which
ought
not
to
have
been
made.
The
question
as
to
whether
or
not
the
present
appellant
was
engaged
in
the
business
of
buying
timber
limits
or
acquiring
timber
leases
with
a
view
to
dealing
in
them
for
the
purpose
of
profit
is
a
question
of
fact
which
must
be
determined
upon
the
evidence.
It
may
be
noted
that
the
memorandum
of
the
appellant,
while
including
the
power
to
sell
or
dispose
of
timber
properties,
to
deal
in
timber
licenses
is
not
one
of
the
objects
stated
as
it
was
in
the
Anderson
case.
Had
it
in
fact
included
such
an
object,
the
evidence
in
this
case
demonstrated
that
the
company
at
no
time
carried
on
or
intended
to
carry
on
any
such
business.
Unlike
that
case,
in
the
present
matter
all
the
available
evidence
as
to
the
activities
carried
on
or
intended
to
be
carried
on
by
the
company
in
the
fifty
years
prior
to
the
time
of
the
trial
of
this
action
was
given
or
tendered
by
the
appellant.
The
decision
in
that
case
does
not,
in
my
opinion,
affect
this
matter.
In
Commissioner
of
Taxes
v.
The
Melbourne
Trust
Limited,
[1914]
A.C.
1001
at
1010,
Lord
Dunedin,
in
delivering
the
judgment
of
the
Judicial
Committee,
quoted
with
approval
the
fol-
lowing
passage
from
the
judgment
in
Californian
Copper
Syndicate
v.
Harris
(1904),
5
T.C.159:—
‘‘It
is
quite
a
well
settled
principle
in
dealing
with
questions
of
income
tax
that
where
the
owner
of
an
ordinary
investment
chooses
to
realize
it,
and
obtains
a
greater
price
for
it
than
he
originally
acquired
it
at,
the
enhanced
price
is
not
profit
in
the
sense
of
Schedule
D
of
the
Income
Tax
Act
of
1842
assessable
to
income
tax.
But
it
is
equally
well
established
that
enhanced
values
obtained
from
realization
or
conversion
of
securities
may
be
so
assessable
where
what
is
done
is
not
merely
a
realization
or
change
of
investment,
but
an
act
done
in
what
is
truly
the
carrying
on,
or
carrying
out,
of
a
business.’’
In
the
present
case,
the
Nootka
limits
which
were
sold
in
1945
were
assets
in
which
the
company
had
invested
with
a
view
to
cutting
the
merchantable
timber
into
lumber
in
a
mill
to
be
erected
by
it
in
the
Clayoquot
District
and
the
sale
merely
a
realization
upon
one
of
its
capital
assets
which
was
not
required
and
did
not
fit
into
the
company’s
plans
for
the
operation
of
its
main
property
and
one
which
was
not
made
in
the
course
of
carrying
on
the
business
of
buying,
selling
or
dealing
in
timber
limits
or
leases.
The
appeal
should
be
allowed
with
costs
throughout
and
the
judgment
of
the
Exchequer
Court
and
the
assessments
made
set
aside.
Appeal
allowed.
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