Irving Garber Sales Canada Ltd. v. Minister of National Revenue, [1987] 2 CTC 2117, 87 DTC 427

Tremblay, T.CJ.:—These appeals were heard on October 15, 1986 in the City of Montréal, Québec.

1. The Point at Issue

The point is whether the appellant company is correct in the computation of its income for the 1978 to 1982 taxation years to consider as income from active business and not as investment income, amounts of interest originated from certificates of deposit. The appellant, who is in the fur business, contends that in order to operate properly it was obliged to prove its financial credibility, the certificates of deposit being such guarantee. Such deposits were necessary and accessory to the appellant's active business and hence, the income is qualified as income from active business.

The respondent considers the interest as investment income. According to him, the appellant was under no factual or legal obligations to maintain deposits certificates.

2. The Burden of Proof

2.01 The burden of proof is on the appellant to show that the respondent's reassessments are incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486; [1948] C.T.C. 195; 3 D.T.C. 1182.

2.02 In the same decision, the Court decided that the assumed facts on which the respondent based his reassessments are also deemed to be correct. In the five present appeals, the respondent's assumptions of facts can be cited as follows with appropriate figures from paragraph 5 of each of the five replies to notices of appeal. After each paragraph, I point out the admissions or denials made by the appellant's counsel.

5. In reassessing Appellant for its 1978 to 1982 taxation years, the Minister of National Revenue relied, inter alia, upon the following facts:

(a) Appellant is a private corporation legally incorporated which, during the taxation years under issue, carried on an active business in Canada as a fur wholesaler as outlined in paragraph 2 of the five Notices of Appeal; (agreed)

(b) Appellant's financial year stems from June 1st to May 31st of each year; (agreed)

(c) During said taxation years, Appellant's gross and net income was as follows:

		Net Income Before
Year	Gross Income	Income Tax
1978	$105,104	$ 58,490
1979	131,669	64,896
1980	223,289	148,899
1981	157,841	104,292
1982	195,395	131,263

(d) In respect to Appellant’s gross income for each of the taxation years under appeal, this was constituted as follows:

	Gross Profit	Commissions	Interests	Total Gross
Year	on Sales	Earned	Received	Income
1978	$ 2,643	$ 84,752	$17,709	$105,104
1979	15,977	100,080	15,612	131,669
1980	8,642	165,938	48,709	223,289
1981	7,674	81,196	68,971	157,841
1982	13,837	85,928	95,630	195,395
				(agreed)

(e) During the taxation years under issue, Appellant's active business income was as follows:

Year	Active Business Income
1978	$ 40,781
1979	49,284
1980	100,190
1981	35,321
1982	35,633
	(disagreed)

(f) During the taxation years under appeal, Appellant maintained at all times certificates of deposit for the following amounts established at the end of each financial year from which Appellant earned interests for the following amounts:

	Certificate	Interest
Year	of Deposits	Earned
1978	$285,000	$17,709
1979	335,000	15,612
1980	504,000	48,709
1981	508,000	68,971
1982	623,000	95,630
		(agreed concerning interest)

(g) During said taxation years, Appellant was under no factual or legal obligations towards Hudson's Bay to maintain certificates of deposit in order to bid at Hudson's Bay fur auctions, which auctions constitued Appellant's principal if not its only source of supply; (disagreed)

(h) As routine practice, Appellant required Hudson's Bay to bill directly to Appellant's clients and did not have to use its certificates of deposit as a collateral guarantee; (diagreed)

(i) Appellant has submitted no proof to the fact that the interest income earned from property, namely certificates of deposit, had a direct or even accessory relation to its active business or that the interest income was used or principally held for the purpose of gaining an income from an active business; (disagreed)

(j) During taxation years under issue, Appellant carried on an active business without having to use the interest income in order to continue business; (disagreed).

3. The Facts

3.01 I n the replies to notices of appeal the respondent admitted the following facts alleged in the notices of appeal:

1. In September 1983, the Minister of National Revenue (the "Minister") reassessed Appellant's 1978, 1979, 1980, 1981 and 1982 taxation years on the basis of eliminating Canadian interest income of $17,709.00, $15,612.00, $48,709.00, $68,971.00 $95,630.00 respectively from active business income and adding it to the Appellant's Canadian investment income account.

2. The Appellant carries on the following business:

— buying raw furs at the Hudson's Bay fur auction sales and selling the same for its own account;

— buying raw furs at the said auction for its customers' account;

— buying and selling finished fur coats for its own account;

— buying fur coats in Canada and exporting them for specific customers; and

— acting as manufacturers' agents.

3.02 The quantum of the figures alleged in the pleadings and quoted above substantially are not in dispute.

3.03 The only witness heard by the Court was Mr. Irving Garber, 69 years old. He is the main shareholder and president of the appellant. He testified that:

(a) He has been associated with the fur business for over 50 years. Indeed he started to work for A. Hollinder & Company in 1935 after his high school.

(b) A few years after, he went in partnership with a fur dyer and that lasted about 5 years.

(c) In 1950, with another gentleman, he initiated a company called Paramount Furs, the main object of which being to manufacture fur coats. That company had success, however it needed a lot of capital. It borrowed it from the bank. In 1959, a new bank manager informed him that the company's line of credit was too high. Paramount Furs had to reduce it and had many difficulties. In February 1960, the bank put a lot of pressure demanding immediate payment. Paramount Furs was forced to declare bankruptcy.

(d) Trying to keep his credit valid with the debtors, he personally endorsed and signed for a lot of debts. However, the debts were heavy. His partner had a heart attack. In 1960, he went bankrupt personally. It took four years to pay off his creditors and get the claims released. He was cleared from the bankruptcy obligations in 1964.

(e) Having no finance, he then worked as a salesman for manufacturers or wholesalers on a commission basis. Because he was an ex-bankrupt merchant the fur association tried to block him from getting a job. He had a lot of difficulties to prove that he was trustworthy. Finally his relatives helped him to start a company called Garber Sales Inc.; so that he would be able to re-establish himself in the fur business without relying on other manufacturers or other people. The new company started doing a limited business, buying and selling fur coats. However, the new company was not allowed to participate in auctions at the Hudson's Bay Company because it did not have the finances and credibility. It was banned from every place. He decided that if he had to build up a capital, he could not depend on banks when he wanted to do business. Then, this became the real goal of his life.

(f) It is only in 1970 that a Mr. David Green from Ankhorage, Alaska, asked him to buy fur coats, fur skins, etc. for him in Montreal. Mr. Green introduced him into [sic] officials of the Hudson's Bay Company and explained to them that Mr. Garber would be his representative and that Hudson's Bay had to accept his bids at the auction house. After that, other people started to trust him. He worked for Mr. Green as his agent until 1975.

(g) By that time, he had accumulated capital and bought certificate of deposit. He said "I didn't owe any money to the bank, I didn't have any credit to the bank cause I never went to get credit from the banks anymore. I wanted to do my own banking with my own money. This was exactly what I wanted to do." (TS, p. 18) In December 1975, he went to see Mr. Alf eleven, the manager of the Hudson's Bay Company in Montreal to have the right to bid independently at the auction house. This was allowed because of the certificates of deposit.

(h) In 1977, he incorporated the appellant's company (Garber Sales Inc. was rolled over into the appellant) and bid as its representative at the auctions of Hudson's Bay. The latter held auction sales about six to eight times a year. The buyers, from around the world, examined goods and bid on them like in any other auction sale.

The appellant wrote letters to people in Hong Kong and all over the world that it was a bona fide fur buyer and he could buy furs for them.

(i) In sum, the work done by the appellant's company was described by the witness as follows, despite his speaking about it as if he was doing it personally.

Well I had, I had several ways of doing business. I bought raw furs from the auction sale, I gave out skins to contractors to make coats for me, I was selling coats in my own name, I was buying coats for, I was buying coats from other people who needed money, I’ll be frank with you, I was looking for that type of operation. I also represented factories who had coats for sale and I was selling because I had developed a very big connection with American buyers.

The fact is the Canadian government decided in 1970 to bring in, they brought in on a free trip from the United States with a plane, they brought in buyers from all over United States and since I was in contact with Ottawa for many many years, I was on the list there and they informed me about it so I went into the Mount Royal Hotel at the time, opened the showroom and met with a lot of buyers at the time and since that connection was very very important, many factories in Montreal sought out my services because they knew that I had the representation and they wanted me to represent them.

See, the whole thing turned around your Honour. After ten years later, where nobody wanted me, everybody was looking for me. Because they found out that I am capable, that I am trustworthy and that I have connections and I was selling goods to Dallas Texas, to Seattle Washington, to New York, to Chicago, all over. I was selling merchandise. This, these people in the United States they were appointing me to be there (sic) representative to select the goods because you see the Americans have one fear. They come to Canada to buy goods your Honour when the goods are being shipped, they cannot be here to examine the goods and they don’t want to be shipped merchandise they didn't select. So they need somebody here whom they can trust. So I was used, they were using me as their agent so I should look at the goods and make sure before the parcels are closed that what they bought, they're getting. And this is the way it was working. (TS, pp. 22, 23, 24)

However, he only bid on Irving Gaber Sales Canada Limited, every time he bid. It was only on the appellant's name and not on the name of a client.

(j) As Exhibit A-1, three purchased slips were filed. They were all issued on December 21, 1981. The purchaser is "213 Irving Garber Sales Canada Ltd.". On one slip the lot number was 898079 and the description of the skins was “Sapphire mink M”, quantity: 47; unit price: $56.00, extention: $2,632.00. One can see on the other slip that the prices are $55 and $52 per skin of Sapphire mink.

(k) As Exhibit A-2, a sample of a 24 page document remitted to the bidders for the day of February 25th, 1981, giving the description of the skins, lot number, etc.

The second page, however, is entitled "Conditions of sale by auction". The second and eighth conditions are important and read as follows:

SECOND The highest Bidder shall be the Purchaser. The Bid price will be per skin. The Company reserves the right to bid either itself or through its agents, and to alter, vary or withdraw any Lot or Lots before or during a Sale. The Company, however, may without giving any reason therefor, refuse to accept the bidding of any person or persons.

EIGHTH The transfer by the Purchaser to any other party of any Lots purchased shall be made out on the printed form provided by the Company for the purpose, and the said form shall embody a Declaration to the effect that, in the event of the failure of the Transferee to meet his obligations in respect of the goods so transferred, the original Purchaser shall remain liable to the Company for payment to it forthwith of the full amount of the purchase price and all unpaid and accrued charges notwithstanding any time or other indulgence granted to the Transferee. In the event of the Company registering the transfer of Lots other than on the printed form provided for this purpose, the above mentioned Declaration shall be implied. The Company reserves the right to refuse to register any transfer without giving any reason therefor. Any acceptance of a transfer of goods by a Transferee from an original Purchaser shall be subject to all the provisions of the Company's Conditions of Sale. The Company will not accept transfers after Prompt Day (the date set for payment in full for goods purchased and their removal from the Company's warehouse). [Emphasis is mine.]

For the sales of February 25, 1981, the Prompt Day was March 12, 1981.

(l) the witness explained that if one of the clients of the appellant would have refused the skins, he would have remained liable vis-a-vis the Hudson's Bay Company. It was the purchaser who was responsible, no one else.

In fact this happened to him few times and he had to pay Hudson's Bay for hundreds of skins and after, he had to find a purchaser.

(m) An Analysis of Purchases from the Hudson's Bay Company, made by the appellant for the taxation years involved, was filed as Exhibit A-3. The figures come out from the general ledger of the appellant.

From this document, it appears that for the taxation years ended May 31 of each, the total of purchases is

(n) Concerning the necessity to have cash in that business, he said:

It always was necessary to have a very very good, very very strong cash position so that I should be able to, if it comes to a point where if I am buying, I should be able to pay for it and if the auction people had the right price I would buy. So I had to have a strong position, have a good position in cash.

I never had any bank lines of credit cause I didn't work with the banks. I didn't bother (TS, p. 34).

(o) When the appellant has liquid, it is always deposited on short-term basis (certificates of deposit, etc.), in case the money be required for the purpose of buying furs. The witness is clear, the liquid is never used for long-term investment: bonds, etc. (TS, p. 37). The certificates of deposit, according to him are part of the capital structure and financial credibility that he was trying to establish. It was the reason why he could become a bidder at the Hudson's Bay auctions, and thence, could start to work for himself through the appellant. He then ceased to be a salesman. Nobody can tell him now: ”. . .we need a younger man to sell out products". No bank can tell him now "when the credit limit is too high or too low” (TS, pp. 38, 39, 40).

“In 1979, I had $335,000 in certificates of deposits, and I bid $400,000 worth of goods".

”. . .I never was stopped at any auction sale from bidding” (TS, p. 41).

3.04 In cross-examination, Mr. Garber said that:

(a) May 31, 1978 was the end of the first financial year of the appellant.

(b) During or at the ned of 1978, he had around $285,000 in certificates of deposits and in 1981, $623,000.

(c) From 1978 to 1984, the appellant never left funds on deposit with Hudson's Bay. It only "pay the bills as they come due. That's all” (TS, p. 44).

Hudson's Bay never asked for a financial statement of the appellant during that period.

(d) Sometimes certificates of deposits had to be cashed to pay off the bids at the times of auction sales (TS, p. 46).

(e) Prior to an auction, he never had any sums of deposits from any clients. He never gave the money to Hudson's Bay prior to the auction either (TS, p. 51).

(f) When the appellant charges his clients after auction, it gives them 90 days without interest. Ordinarily, people who buy skins and finance them give only 60 days. It’s because the appellant is trying to gain clients that it gives 90 days (TS, p. 53).

3.05 In redirect examination, the witness confirmed that under the Hudson's Bay Company's conditions of sale, the appellant as the bidder is liable for the full purchase price for items bid on, despite the fact that the appellant could not collect after from its clients (TS, p. 55).

3.06 In re-cross-examination, the witness could not recollect an exact amount of money that the appellant has been stuck with. It is admitted that bad debt experience is small (TS, pp. 56, 57).

3.07 The witness explained that during two weeks before the auction sales, he spends time to examine the skins, to mark in the book what he would like to buy. Sometime, he rechecks few days after to make sure that he didn't make a mistake (TS, p. 58).

4. Law — Cases at Law — Analysis

4.01 Law

The main provisions of the Income Tax Act (the Act) involved in these appeals are sections 125 (active business) and 129 (Canadian investment income).

However, whereas an addition of paragraphs 125(6)(d) and (e), the amendment of subsection 129(4) and addition of subsection 129(4.1) are applicable to taxation years after 1979 and whereas the end of the appellant's taxation year is May 31, the said addition of 125(6)(d) and 125(6)(e) applies for the taxation years 1981 (June 1, 1980 to May 31, 1981) and 1982 (June 1, 1981 to May 31, 1982). Therefore, the provisions of the Act involved for the taxation years 1978,1979 and 1980 are not the same as those for 1981 and 1982.

A-1978, 1979, 1980 taxation years

(i) Definition of amounts qualifying for small business deduction:

125 (1) There may be deducted from the tax otherwise payable unde this Part for a taxation year by a corporation that was, throughout the year, a Canadian- controlled private corporation, an amount equal to 25% of the least of

(a) the amount, if any, by which

(i) thae aggregate of all amounts each of which is the income of the corporation

for the year from an active business carried on in Canada,

exceeds

(ii) the aggregate of all amounts each of which is a loss of the corporation for the year from an active business carried on in Canada,

(ii) Definition of “Canadian investment income"

129 (4) In subsection (3),

(a) "Canadian investment income” of a corporation for a taxation year means the amount, if any, by which the aggregate of

(i) the amount, if any, by which the aggregate of such of the corporation's taxable captial gains for the year from dispositions of property as may reasonably be considered to be income from sources in Canada exceeds the aggregate of such of the corporation's allowable capital losses for the year from dispositions of property as may reasonably be considered to be losses from sources in Canada,

(ii) all amounts each of which is the corporation's income for the year (other than exempt income or any dividend the amount of which was deductible under section 112 from its income for the year) from a source in Canada that is a property (other than a property used or held by the corporation in the year in the course of carrying on a business), determined, for greater certainty, after deducting all outlays and expenses deductible in computing the corporation's income for the year to the extent that they may reasonably be regarded as having been made or incurred for the purpose of earning the income from that property,

(iii) all amounts each of which is the corporation's income for the year (other than exempt income) from a source in Canada that is a business other than an active business, determined, for greater certainty, after deducting all outlays and expenses deductible in computing the corporation's income for the year to the extent that they may reasonably be regarded as having been made or incurred for the purpose of earning the income from that business,

exceeds the aggregate of amounts each of which is a loss of the corporation for the year from a source in Canada that is a property or business other than an active business. . .

B-1981, 1982 taxation years

(i) Definitions of “Active business" (125(6)(d)) and “Income of the corporation for the year from an active business" (125(6)(e)) read as follows:

125 (6) In this section and section 129,

(d) “active business" carried on by a corporation in a taxation year means the business of manufacturing or processing property for sale or lease, mining, operating an oil or gas well, prospecting, exploring or drilling for natural resources, construction, logging, farming, fishing, selling property as a principal, transportation or any other business carried on by the corporation other than a specified investment business or a non-qualifying business;

(e) “income of the corporation for the year from an active business" means the income of the corporation from an active business carried on by it, including any income pertaining to or incident to that business and amounts deemed by subsection 129(6) to be income from an active business, but does not include income for the year from a source in Canada that is a property (within the meaning assigned by subsection 129(4.1));

(ii) Amendment of subsection 129(4) and addition of subsection 129(4.1) read as follows:

129 (4) In subsection (3)

(a) “Canadian investment income” of a corporation for a taxation year means the amount, if any, by which the aggregate of

(i) the amount, if any, by which the aggregate of such of the corporation's taxable capital gains for the year from dispositions of property as may reasonably be considered to be income from sources in Canada exceeds the aggregate of such of the corporation's allowable capital losses for the year from dispositions of property as may reasonably be considered to be losses from sources in Canada, and

(ii) all amounts each of which is the corporation's income for the year from a source in Canada that is a property (other than exempt income, any dividend the amount of which was deductible in computing its taxable income for the year or income from real property of a corporation that is not a Canadian-controlled private corporation) determined after deducting all outlays and expenses deductible in computing the corporation's income for the year to the extent that they may reasonably be regarded as having been made or incurred for the purpose of earning income from that property,

exceeds

(iii) the aggregate of amounts each of which is the corporation's loss for the year from a source in Canada that is a property; and

129 (4.1) For the purposes of paragraph (4)(a) and subsection (6), "income" or "loss" of a corporation for a year from a source in Canada that is a property includes the income or loss from a specified investment business carried on by it in Canada other than income or loss from a source outside Canada but does not include income or loss

(a) from any other business,

(b) from any property that is incident to or pertains to an active business or a non-qualifying business carried on by it, or

(c) from any property used or held principally for the purpose of gaining or producing income from an active business or a non-qualifying business carried on by it.

4.02 Cases at Law

Counsel for the parties referred the Court to the following cases at law:

1. The Queen v. Rockmore Investments Ltd., [1976] C.T.C. 291; 76 D.T.C. 6156, (F.C.A.);

2. The Queen v. M.R.T. Investments Ltd., [1976] C.T.C. 294; 76 D.T.C. 6158, (F.C.A.);

3. E.S.G. Holdings Limited v. The Queen, [1976] C.T.C. 295; 76 D.T.C. 6158, (F.C.A.);

4. Supreme Theatres Limited v. The Queen, [1981] C.T.C. 190; 81 D.T.C. 5136, (F.C.T.D.);

5. The Queen v. Marsh & McLennan Ltd., [1983] C.T.C. 231; 83 D.T.C. 5180, (F.C.A.);

6. The Queen v. Ensite Limited (No. 1), [1983] C.T.C. 296; 83 D.T.C. 5315 (F.C.A.); [1986] 2 C.T.C. 459; 86 D.T.C. 6521, (S.C.C.);

7. The Queen v. Brown Boveri Howden Inc., [1983] C.T.C. 301; 83 D.T.C. 5319, (F.C.A.);

8. Canadian Marconi Company v. The Queen, [1984] C.T.C. 319; 84 D.T.C. 6267 (F.C.A.); [1986] 2 C.T.C. 465; 86 D.T.C. 6526, (S.C.C.);

9. Freeway Properties Inc. v. The Queen, [1985] 1 C.T.C. 222; 85 D.T.C. 5183, (F.C.T.D.);

10. Aqua-Gem Investments Limited v. M.N.R., [1986] 1 C.T.C. 2528; 86 D.T.C. 1392, (in appeal);

11. Calvin Bullock Ltd. v. M.N.R., [1985] 1 C.T.C. 2309; 85 D.T.C. 287, (F.C.T.D.);

12. Eric Burri v. The Queen, [1985] 2 C.T.C. 42; 85 D.T.C. 5287 (F.C.T.D.);

13. Atlas Industries Ltd. v. M.N.R., [1986] 2 C.T.C. 2392; 86 D.T.C. 1756, (T.C.C.).

4.03 Analysis

4.03.1 The general point at issue is whether the interest is an active business income or a Canadian investment income.

4.03.2 1978, 1979, 1980 taxation years

Concerning the appellant's taxation years 1978, 1979 and 1980, the Act, as it was written in those years, did not define "income . . . from an active business" (125(1)(i)) and "income from . . . a business other than an active business (129(4)(iii)) quoted in paragraph 4.01 A.

In 1985, Mr. Justice Addy in the Freeway Properties case (par. 4.02(9) already considered that point, and summarized the former cases:

Although the term “active business’ is now defined in the Act, there was no statutory definition of the term for the period relevant to the present case.

There are, however, numerous cases where the term has been judicially interpreted. The question of whether a business is an active one is, above all, a question of fact. In the case King George Hotels Ltd. v. The Queen, [1981] C.T.C. 87; 81 D.T.C. 5082, Urie, J, in expressing the unanimous opinion of the Court of Appeal, stated at 90 [5084] of the above-mentioned report:

Before disposing of the appeal I think that it should be stressed that whether a business is an active or inactive one is, as earlier pointed out on the authority of the Rockmore case, supra, one of fact dependent on the circumstances of each case. That being so, it is neither possible nor desirable to lay down any rule or principle applicable in every case. It cannot be said, therefore, in my biew, that income from “other than an active business" necessarily means that derived from a business that “is in an absolute state of suspension" or one “devoid of any quantum of business activity” as has been said in earlier decisions in the Trial Division. In any given case, the business may be of that kind but whether or not it is, is not necessarily determinative of the issue, the resolution of which depends on the fact finder’s view of the true nature of the business based on the facts in the particular case. The quantum of activity may well vary from case to case but still it is necessary for the Court to weigh all of the evidence to characterize the quality of the particular business.

The following statement by Sweet, DJ in the case Birmount Holdings Ltd v. The Queen, [1977] C.T.C. 34; 77 D.T.C. 5031 at page 46 [5039] is quite helpful:

Here, the situation is quite different. This is not a situation where the reality was acquired with funds awaiting use in connection with some other business of the company. Here, the plaintiff had no business other than business associated with the realty. Neither is it the case of a company, having surplus funds acquired in the conduct of its business, seeking an investment for those funds in a field other than that in which the company usually operated. Here, the evidence does not disclose any asset of the plaintiff except the realty out of which the assessment arose and possibly some increment from it. The funds with which the realty was acquired were not generated by the business of the plaintiff. They were supplied by Mr. Mentzelopoulos and were so supplied only for the purchase of the realty.

According to the wording of the letters patent of the plaintiff its only stated object was “to acquire by purchase” the lands in question. So far as the wording of the "objects" of the corporation is concerned the plaintiff had no function to perform, no business to pursue and nothing to do except in connection with the realty. The business of the plaintiff was dealing in and with the realty and that was the plaintiff’s only business.

In my opinion, the result is that the plaintiff did more than just engage in an adventure in the nature of trade. It carried on business in and with the land. In doing so, it performed the very business function anticipated by the wording of its letters patent.

In the case at bar, the object of the incorporation of the company was quite clearly to acquire land with the intention of selling it when it became advan tageous to do so. In Riviera Hotel Co. Ltd. v. The Queen, [1982] C.T.C. 30; 82 D.T.C. 6045, I held that the acquisition of real property for profit and resale constituted an active business operation in the circumstances of that case, although the taxpayer was primarily engaged in the hotel business. Where the income under consideration is part of the normal business activity of a company and it is inextricably linked with an active business it is considered active business income. (See Supreme Theatres Ltd. v. The Queen, [1981] C.T.C. 190; 81 D.T.C. 5136). The same principle of interdependence between what might otherwise be considered passive income and active business operations was recognized by the Court of Appeal in the case of The Queen v. Marsh & McLennan Ltd., [1983] C.T.C. 231; 83 D.T.C. 5180 where we find the following statement at 242 [5189];

To use the words employed by Rowlatt J. in Scales v. George Thompson and Company Limited, [1927] 13 T.C. 83, on the facts of this case there was between the broker’s business and the investments an inter-connection, an interlacing, an interdependence, a unity embracing the investments and the business. I conclude that the income from the investments is excluded as Canadian investment income under subparagraph (4)(l)(ii). These facts would also, on authority I have cited, serve to exclude it under subparagraph (4)(a)(iii).

For taxation purposes, the characterization of income received from property, including mortgages, depends upon the purpose for which the initial investment was made (See The Queen v. Rockmore Investments Ltd., [1976] C.T.C. 291; 76 D.T.C. 6156).

In the instant case, to characterize the income received from the income of interest from the certificates of deposit, it is not useless to take in consideration the story of the appellant's main shareholder (par. 3.03(a) to

(h)) through the difficulties to prove his financial credibility.

In initiating the appellant and transferring to it, his then certificate of deposit (around $285,000), Mr. Irving Garber then transferred to it his own credibility and the experience he had acquired until that date. At the end of 1981 fiscal year (May 31, 1981), the appellant had accumulated around $623,000 short-term certificates of deposits (par. 3.04(b)).

In 1979, the appellant had $335,000 in certificates of deposits. It “bid $400,000 worth of goods" in that year (par. 3.03(o)).

As explained by Mr. Garber in paragraph 3.03 (o), and as I see it, the liquid deposited on short-term basis, through certificates of deposits, became part of the capital structure and financial credibility to acquire fur pelts at auction sales to carry on the fur business. In my opinion, during the 1978, 1979 and 1980 taxation years, the interest income from certificates of depositis is part of the normal business activity of the appellant and it is inextricably linked with an active business.

4.03.3 Counsel for the respondent in his subsmission said that the well known Canadian Marconi case as rendered by the Federal Court of Appeal in April 1984, was the leading case up to then for the respondent in respect to Canadian investment income. Unfortunately, in November 1986, the Supreme Court of Canada reversed the said decision of the Federal Court of Appeal. The appeals are allowed for the 1978, 1979 and 1980 taxation years.

4.03.4 Concerning the 1981 and 1982 taxation years, considering the definition of "active business" (paragraph 125(6)(d), “Income of the corporation for the year from an active business” (paragraph 125(6)(e), and considering the amendment of subsection 129(4) and the addition of subsection 129(4.1) all quoted in paragraph 4.01-B above, I have no hesitation to decide that the income interest of the appellant is an income pertaining to or incident to the fur business as carried on by the appellant.

The appeals are allowed for the 1981 and 1982 taxation years. 5. Conclusion

For these reasons, the appeals are allowed for the 1978, 1979, 1980, 1981 and 1982 taxation years, and the matter referred back to the respondent for reconsideration and reassessment.

Appeals allowed.