Heald,
J:—This
is
an
appeal
from
the
judgment
of
the
Tax
Appeal
Board
dated
May
27,
1966
confirming
an
assessment
by
the
respondent
dated
June
19,
1961
wherein
the
following
amounts
of
income
tax
in
respect
of
income
were
assessed
against
the
appellant:
for
the
taxation
year
1956
—
$172,265.32
for
the
taxation
year
1957
—
$
35,923.35
for
the
taxation
year
1960
—
$631,353.39
The
appellant,
now
67
years
of
age,
was
born
in
Rumania
where
he
lived
until
1944.
In
Rumania,
he
was
the
president
of
a
bank
and
had
a
number
of
other
commercial
activities.
In
1944
he
moved
to
Israel
where
he
became
involved
in
a
diamond
factory,
a
bank
and
a
textile
company.
In
1946
he
moved
to
Milan,
Italy
where
he
has
lived
ever
since.
In
Italy
he
became
involved
in
a
project
to
process
and
supply
cotton
yarn.
He
also
became
involved
in
a
very
large
chocolate
manufacturing
business
and
by
1948
he
had
acquired
total
ownership
of
this
business.
By
the
early
1950’s
appellant
became
interested
in
Canada
as
a
place
to
invest
his
money
and
acquired
several
cold
water
flat
apartment
houses
(without
central
heating)
in
Montreal.
The
demand
for
this
type
of
apartment
decreased
considerably
in
the
middle
and
late
1950’s
because
of
a
demand
for
higher
quality
housing
and
central
heating.
Thus,
appellant
sold
these
apartment
houses
at
a
loss
after
only
owning
them
a
few
years.
Notwithstanding
this
first
experience,
appellant
was
favourably
impressed
with
the
economic
conditions
prevailing
in
Canada,
seeing
great
possibilities
in
real
estate
investment.
Commencing
in
1953,
he
began
to
acquire
very
substantial
parcels
of
land
in
the
Montreal
area.
There
are,
essentially,
two
blocks
of
property
giving
rise
to
the
assessments
that
are
the
subjectmatter
of
this
appeal.
They
were
referred
to
at
trial
as
the
St
Laurent
property
and
the
Sault-au-Recollet
property.
I
will
deal
first
with
the
St
Laurent
property.
Commencing
in
1953,
appellant
proceeded
to
acquire
a
substantial
area
of
vacant
farm
land
in
the
community
of
Ville
St
Laurent
on
the
Island
of
Montreal
(now
part
of
the
City
of
St
Laurent).
By
1956
his
total
property
acquisitions
in
this
area
amounted
to
over
12
million
square
feet
of
property.
His
evidence
is
that
he
intended
to
eventually
develop
the
area
as
a
large-
scale
housing
development,
borrowing
from
the
Central
Mortgage
and
Housing
Corporation
by
way
of
building
mortgages
up
to
80%
or
more
of
the
cost
of
construction.
To
this
end,
he
instructed
a
real
estate
firm
known
as
Crosstown
Realties
(as
represented
by
agents
Gaty
and
Farcas)
to
procure
for
him
suitable
and
available
vacant
land
in
the
vicinity
of
Ville
St
Laurent.
The
St
Laurent
property
can
be
further
broken
down
into
three
distinct
parcels:
(a)
Part
lots
94,
95,
96,
97,
98,
106
(containing
approximately
4.3
million
square
feet)
This
property
was
acquired
in
July
of
1953,
was
in
line
with
the
main
runway
of
Cartierville
Airport
and
abuts
on
the
north-west
corner
of
the
airport
property.
Appellant
bought
this
property
subject
to
a
servitude
granted
on
January
39,
1952
to
the
Quebec
Hydro
Electric
Commission
and
to
a
further
servitude
by
the
federal
Department
of
Transport
for
a
period
expiring
in
1955
and
affecting
a
portion
of
the
area
on
which
no
buildings
could
be
erected.
The
notice
of
this
servitude
from
the
Department
of
Transport
was
entitled
“Expropriation
of
land
and
Easement
for
the
operation
of
Cartierville
Airport”.
In
August
of
1957
appellant
was
notified
by
the
federal
Department
of
Transport
of
their
intention
to
expropriate
parts
of
Lots
96,
97
and
106
for
the
purpose
of
enlarging
the
Cartierville
Airport
and
lengthening
the
main
runway.
Correspondence
ensued
dealing
mainly
with
the
price
negotiations,
the
expropriation
went
through
and
in
1960
the
appellant
received
as
compensation
for
the
land
so
taken
the
sum
of
$430,000
of
which
amount
the
sum
of
$401,680.09
has
been
computed
by
the
respondent
as
profit.
In
March
of
1960
the
appellant
sold
the
remainder
of
the
above
described
property
remaining
after
expropriation
to
a
construction
company
with
a
resulting
profit
of
$560,377.44.
(b)
Lots
107
and
108
(approximately
5.25
million
square
feet)
In
May
and
September
of
1953
appellant
purchased
this
property
fronting
on
Chemin
de
Bois-Franc.
In
September
of
1956
he
sold
about
one-third
of
this
property
at
a
profit
of
$119,131.64,
retaining
about
two-thirds
of
his
original
purchase.
(c)
Lots
109
and
113
(approximately
2.5
million
square
feet)
This
property
was
purchased
by
appellant
in
July
of
1956
and
in
February
of
the
following
year
he
sold
slightly
more
than
one-third
of
this
property
for
a
realized
profit
of
$71,286.
Dealing
now
with
the
Sault-au-Recollet
property.
The
appellant’s
evidence
is
that
as
he
proceeded
to
acquire
his
St
Laurent
holdings
in
1953,
he
decided
to
discontinue
his
chocolate
manufacturing
business
in
Milan,
Italy
and
to
re-establish
it
in
Canada.
He
knew
that
his
former
associates
in
the
Italian
chocolate
business
had
incorporated
a
Canadian
company
under
the
name
of
Elite
(Canada)
Limited
and
that
said
company
had
acquired
a
50%
interest
in
an
established
candy-making
company
in
Montreal
known
as
Mary
Lee
Candies
of
Canada
Limited.
Appellant
acquired
a
22%
equity
in
Elite
(Canada)
Limited
and,
immediately,
ambitious
plans
were
made
for
greatly
expanding
the
Mary
Lee
candy
operation
by
constructing
a
new
and
much
larger
factory,
the
intention
being
to
create
an
ultra
modern
and
completely
integrated
candy
manufacturing
business.
Appellant
says
that
he
originally
thought
some
of
his
St
Laurent
land
would
be
satisfactory
for
the
factory,
however,
in
the
course
of
discussions
with
his
partners,
it
was
decided
that
the
necessary
manpower
to
staff
the
factory
would
not
be
available
in
St
Laurent,
that
a
better
pool
of
the
necessary
workers
would
be
available
in
the
north-east
end
of
the
Island
of
Montreal
in
what
is
now
known
as
Ville
St
Michel
and
that,
accordingly
he
delegated
his
agent,
Mr
Gaty,
of
Crosstown
Realties,
to
acquire
the
necessary
land.
Mr
Gaty
found
the
Sault-au-Recollet
property
which
appellant
purchased
sight
unseen
for
a
purchase
price
of
$148,267,
the
total
area
being
some
728,821
square
feet.
A
short
time
later,
the
appellant
came
to
Canada
and
himself
saw
the
property
for
the
first
time.
Further
discussions
as
to
the
suitability
of
the
site
for
the
factory
took
place
and
disagreement
arose
amongst
some
of
the
partners.
One
of
the
Mary
Lee
partners
(Weinberg)
felt
the
land
was
too
close
to
an
existing
quarry
and
that,
because
of
the
dust
therefrom,
it
would
not
be
possible
to
produce
a
good
candy
product.
The
other
Mary
Lee
partner
(Waid)
began
to
feel
that
he
was
too
advanced
in
years
to
participate
in
such
an
ambitious
and
costly
product.
The
result
was
that
by
1956
the
proposed
new
chocolate
factory
had
fallen
through.
The
50%
interest
of
Elite
(Canada)
Limited
in
Mary
Lee
Candies
of
Canada
Limited
was
reacquired
by
the
two
original
Mary
Lee
partners,
the
plans
for
the
new
factory
were
abandoned
and
the
appellant
was
left
with
the
Sault-au-
Recollet
property
on
his
hands.
The
appellant
sold
this
land
in
1956
at
an
overall
profit
of
$105,262.75.
So
far
as
the
St
Laurent
property
is
concerned,
appellant
submits
that
his
sole
original
intention
was
to
acquire
and
assemble
a
large
parcel
of
property
for
the
purpose
of
constructing
a
large-scale
housing
development
for
leasing
on
a
long-term
rental
basis.
His
position
is
that
this
project
was
frustrated
and
prevented
by
the
expropriation
of
a
large
part
of
this
property
by
the
Department
of
Transport
and
thereafter
he
sold
the
remaining
portion.
He
says
that
he
had
no
intention
of
abandoning
the
project
and
only
did
so
when
faced
with
expropriation
by
the
Department
of
Transport
which
could
not
be
resisted.
This
is
his
explanation
for
disposition
of
that
portion
of
the
St
Laurent
property
described
in
(a)
above.
However,
with
regard
to
that
portion
of
the
St
Laurent
property
described
in
(b)
above,
his
explanation
is
that
when
he
purchased
the
farms
described
in
(a)
above,
the
vendors
insisted
upon
selling
their
entire
farms
which
included
the
property
described
in
(b)
above.
The
property
in
(b)
was
in
the
Village
of
Saraguay
which
adjoined
the
parish
of
St
Laurent.
In
this
village
there
were
building
regulations
requiring
four
or
five
arpents
for
a
villa
and
thus,
said
area
was
not
suitable
for
his
housing
development.
He
says
he
only
bought
this
property
because
he
had
to
buy
it
in
order
to
get
the
St
Laurent
property
he
desired.
He
said
he
intended
to
sell
the
land
in
Saraguay
and
the
evidence
is,
as
set
out
in
(b)
above,
that
he
did
sell
about
one-third
of
said
property
at
a
substantial
profit.
Concerning
that
portion
of
the
St
Laurent
property
described
in
(c)
above,
in
1957
one-third
of
this
property
was,
in
effect,
expropriated
by
Quebec
Hydro
for
the
purpose
of
constructing
a
transformer
station.
As
stated
in
(c)
(supra),
this
sale
resulted
in
a
substantial
profit
for
the
appellant.
The
respondent
tendered
in
evidence
at
the
trial
considerable
correspondence
between
the
appellant
and
others
relating
to
his
land
acquisition
program.
On
August
27,
1953
the
appellant
wrote
to
Gaty
(Exhibit
R-12),
his
real
estate
agent
in
Montreal,
and
instructed
the
purchase
on
his
behalf
of
parts
of
Lot
108.
This
letter
was
written
about
six
weeks
after
appellant
had
purchased
the
property
described
in
(a)
(supra).
Said
letter
contains
the
following
paragraph:
With
reference
to
your
information
about
the
firmness
in
the
plots
market,
please
note
that
we
are
ready
to
sell
some
land
if
we
can
get
a
good
profit,
because
you
understand
very
well
that
we
cannot
continue
to
buy
indefinitely
without
selling.
(Italics
mine.)
On
September
4,
1953
the
appellant
wrote
again
to
Gaty
(Exhibit
R-17).
In
that
letter
there
appears
the
following
paragraph:
Selling
of
lots:
I
wrote
you
some
time
ago
that
I
am
disposed
to
sell
a
part
of
my
plots
and
I
wish
to
have
some
offers
in
the
price
line
you
informed
me
with
your
last
letters.
On
February
22,
1954
the
appellant
wrote
again
to
Gaty
(Exhibit
R-13).
This
letter
refers
to
the
portion
of
plots
107
and
108
owned
by
the
appellant
and
apparently
refers
to
a
letter
he
received
from
Gaty
communicating
to
him
a
firm
offer
to
purchase
said
property
for
$370,000.
The
appellant
says
in
Exhibit
R-13:
I
received
your
letter
dated
17th
inst.
and
am
very
sorry,
but
to
confess
you
the
truth,
I
don’t
believe
you
have
a
firm
offer
at
$370,000
for
the
plot
107/8,
because
otherwise
I
am
sure
that
you
would
have
cabled
me.
You
asked
me
only
to
give
to
Haicken
the
authorisation
to
make
a
firm
offer,
but
never
he
informed
me
that
you
have
someone
ready
to
pay
the
above
amount.
I
have
a
too
high
opinion
on
your
behalf
so
that
I
cannot
believe
on
your
assertion
when
you
knew
very
well
that
I
wish
absolutely
to
sell
this
plot.
(Italics
mine.)
Later
on
in
the
letter
he
added:
As
I
explained
to
Mr.
Hackin,
I
wish
to
sell
a
part
of
my
holdings
in
Montreal
because
it
is
not
sound
to
possess
so
much
land.
On
October
19,
1956
Crosstown
Realties
wrote
to
the
appellant
(Exhibit
R-15)
expressing
the
opinion
that
the
time
was
ripe
to
do
something
with
Lots
96
and
97,
Ville
St
Laurent
and
recommending
a
plan
of
subdivision
and
a
promotional
campaign
designed
to
sell
the
land
piece
by
piece.
On
February
22,
1960
the
appellant
wrote
to
the
Real
Estate
Section
of
the
Department
of
Transport
(Exhibit
R-16)
expressing
his
dissatisfaction
with
the
amount
offered
to
him
as
compensation
for
the
expropriation
of
Lots
96,
97,
106
Ville
St
Laurent.
In
that
letter
he
made
the
following
comments:
For
your
information,
I
have
refused
long
before
your
expropriation
sums
far
in
excess
of
the
amount
offered
and
in
due
course
I
shall
furnish
you
with
all
details
of
such
offers.
Shortly
before
your
expropriation,
I
was
negotiating
for
the
sale
of
the
whole
property
for
a
price
of
.65^
per
square
foot,
and
the
sale
could
not
go
through
on
account
of
your
expropriation.
Recently
I
sold
a
part
of
the
property
adjoining
the
expropriated
part,
containing
approximately
one
million
square
feet
at
almost
double
the
price
per
foot
offered
you.
It
seems
to
me
that
this
correspondence
is
most
revealing
indeed
as
to
the
true
intentions
of
the
appellant
at
the
time
he
acquired
subject
property.
Only
a
few
weeks
after
he
acquired
the
first
of
the
St
Laurent
property,
he
was
ready
to
resell
it
provided
he
could
get
a
good
profit.
He
instructed
his
agent
to
get
some
offers
in
a
price
range
which
would
ensure
such
a
profit.
Early
in
1954,
while
he
was
still
in
the
process
of
acquiring
the
St
Laurent
property,
he
reminded
his
agent
again
‘that
I
wish
absolutely
to
sell
this
lot”.
There
is
no
question
but
that
his
agent
understood
that
he
would
sell
if
the
price
was
right.
They
would
hardly
write
the
kind
of
letter
they
did
on
October
19,
1956
to
someone
who
was
not
in
the
business
of
selling
land.
Then,
appellant’s
letter
to
the
Department
of
Transport
on
February
22,
1960
is
completely
consistent
with
appellant’s
trading
pattern
because
it
refers
to
many
offers
received
by
the
appellant
and
makes
reference
to
current
negotiations
for
the
sale
of
the
expropriated
property
at
a
price
of
65C
per
square
foot
and
refers
to
the
sale
of
the
property
adjoining
the
expropriated
part.
The
appellant’s
evidence
in
this
action
was
taken
on
commission
at
Paris
on
May
27,
1970.
Appellant
was
cross-examined
on
this
correspondence
and
came
up
with
a
rather
ingenious
explanation
of
it.
He
said
that
his
references
to
selling
in
the
letters
in
question
were
a
tactic
used
by
him
to
disguise
his
true
intention
which
was,
he
says,
not
to
sell
but
to
continue
to
buy.
His
explanation
is
that
if
it
became
known
that
he
was
going
to
continue
to
buy
notwithstanding
the
price,
this
would
resuft
in
the
price
going
up.
To
prevent
this,
he
says
he
used
the
tactic
of
making
it
appear
that
he
wanted
to
sell
as
much
as
he
wanted
to
buy.
This
evidence
was
given
by
the
appellant
some
seven
years
after
these
letters
were
written
and
after
the
Tax
Appeal
Board
had
held
that
the
profits
from
his
real
estate
transactions
were
taxable
as
being
trading
transactions.
I
am
not
prepared
to
accept
appellant’s
explanation.
This
explanation
is
a
post
facto
statement
made
many
years
after
the
fact,
after
the
profit
had
been
made
and
held
to
be
taxable.
In
my
view,
this
explanation
runs
contrary
to
the
clear
intention
expressed
in
the
letters
themselves
which
intention
is
clearly
confirmed
by
the
resulting
sales.
Appellant
also
submits
that
the
fact
he
instructed
an
architect
to
prepare
plans
for
a
housing
development
was
corroborative
of
his
intention
to
utilize
subject
lands
as
a
housing
development.
The
architect,
Max
W
Roth,
gave
evidence
at
trial.
He
said
that
he
was
commissioned
by
appellant
in
the
fall
of
1957
to
prepare
a
plan
showing
a
proposed
utilization
of
Lots
96
and
97.
The
plan
was
only
a
preliminary
one,
took
only
one
or
two
weeks
to
prepare,
it
was
similar
to
other
limited
dividend
scheme
plans
that
his
firm
had
prepared
for
other
developers.
This
is
a
very
sketchy
plan,
obviously
prepared
from
a
more
or
less
standard
form
of
plan
used
by
the
architect
for
similar
schemes
for
other
clients.
The
plan
was
not
prepared
taking
into
consideration
any
existing
or
possible
future
servitudes
for
the
Cartierville
Airport.
At
best,
it
was
a
very
preliminary
step.
I
think
it
quite
likely
that
the
main
reason
for
its
preparation
was
to
encourage
the
municipal
authorities
to
extend
local
improvements
to
the
area
which
would,
of
course,
make
the
property
more
valuable
from
a
resale
point
of
view.
The
appellant
admitted,
in
cross-examination,
that
he
wrote
a
letter
to
the
City
of
St
Laurent
on
April
17,
1956
in
which
he
applied
for
building
permits
for
500
split-level
cottages
and
bungalows
to
be
built
on
Lots
96,
97,
106,
107,
108
and
in
which
he
said
that
he
intended
to
start
construction
on
August
1,
1956.
He
further
admitted
that
he
had
no
intention
of
building
small
houses
such
as
this,
that
his
intention
was
rather
to
build
apartments
but
that
he
wrote
the
letter
this
way
because
he
had
been
advised
that
there
was
a
better
chance
of
getting
services
if
he
said
he
was
going
to
build
small
houses.
He
said
at
page
28
of
the
commission
evidence:
My
interest
was
to
have
the
services
and
he
suggested
to
me
not
to
write
about
apartments
but
about
small
houses,
there
was
a
shortage,
as
Government
wanted
to
help
certain
housing
to
give
mortgages
for
this
kind
of
thing.
and
again
at
page
29:
Yes.
This
is
making
part
of
the
tactics.
My
intention
was
and
my
need
was
for
sewers
and
water,
to
have
services.
This
evidence
is
quite
revealing
as
to
the
“tactics”
of
the
appellant.
It
is
clear
that
he
did
not
hesitate
to
make
untrue
statements
of
his
intention,
if,
by
so
doing,
it
would
serve
his
ultimate
goal,
which,
in
this
case,
was
to
make
the
property
as
valuable
as
he
could,
and
then
to
resell
at
a
substantial
profit
if
the
opportunity
presented
itself.
I
am
convinced
that
the
preparation
of
the
preliminary
plans
by
Roth
was
just
another
“tactic”
used
by
the
appellant
to
hasten
the
servicing
of
his
property,
thus
making
it
more
valuable
for
resale.
Turning
now
to
the
Sauit-au-Recollet
property,
I
am
equally
convinced
that
this
also
was
a
trading
transaction
for
the
appellant.
The
evidence
is
that
the
proposed
chocolate
factory
would
have
required,
at
the
most,
300,000
square
feet
of
property
(including
parking),
less
than
one-half
of
the
total
area
of
subject
property.
The
appellant
purchased
this
property
while
the
discussions
were
going
on
between
the
Elite
group
and
the
Mary
Lee
group;
no
cost
estimates
had
been
projected;
no
details
on
the
percentage
of
contribution
by
the
various
partners
had
been
worked
out;
no
agreement
had
been
reached
on
rent;
there
was
absolutely
nothing
in
writing
to
ensure
that
the
project
would
proceed
and
of
course,
it
did
not
proceed.
The
appellant
bought
the
property
for
himself
as
a
commercial
risk
(transcript—page
45)
while
at
the
same
time
expressing
his
opinion
that
to
buy
the
land
was
not
a
risk
(transcript—page
44).
I
interpret
this
evidence
to
mean
that
the
appellant,
as
a
shrewd
and
successful
businessman
of
many
years
standing,
was
convinced
that
raw
land
purchases,
at
this
point
in
time,
in
this
area
of
Montreal,
were
a
good
buy,
having
regard
to
the
possibility
of
future
appreciation
in
value
and
to
the
likelihood
of
substantial
profits
on
resale.
I
think
the
appellant
acquired
this
property
as
inventory,
in
much
the
same
manner
as
a
merchant
buys
stock-
in-trade,
in
the
expectation
of
resale
at
a
profit.
His
expectations
were,
of
course,
realized
in
the
form
of
substantial
profits
after
holding
the
land
for
only
two
and
one-half
years.
In
summary,
my
appreciation
of
the
evidence
in
this
case
leads
me
to
conclude
that,
in
respect
of
all
the
subject
transactions,
the
appellant,
at
the
time
of
purchase,
had
the
intention
to
buy
this
land,
keep
it
for
a
while
and
then
resell
it
at
a
profit.
In
the
case
of
St
Laurent,
he
took
some
very
preliminary
steps
indicative
of
commencing
a
housing
development
but,
as
I
said
earlier,
these
steps
were
just
as
consistent
with
resale
as
they
were
with
development.
In
the
case
of
Sault-au-Recollet,
the
projected
chocolate
factory
was
certainly
in
his
mind
as
a
possible
use
for
a
portion
of
the
land
but
I
think
he
bought
the
property
with
the
‘intention
of
either
using
part
of
it
for
the
factory
or
for
resale
at
a
profit.
When
he
bought
the
land,
he
was
not
in
any
position
to
ensure
that
the
factory
be
built
there
(11%
equity
in
the
chocolate
company)
and
he
went
ahead
anyway.
Because
I
have
concluded
that
the
transactions
in
question
were
trading
transactions,
the
appeal
is
dismissed
on
the
principal
issue.
At
the
trial,
counsel
filed
“An
Agreement
Between
Counsel
to
Limit
Evidence”
dated
January
18,
1973
which
provides
as
follows:
With
a
view
to
limiting
the
length
of
the
enquiry
and
its
scope
to
the
basic
issue,
and
in
order
to
avoid
unnecessary
technical
evidence,
the
parties,
through
their
respective
counsel,
agree
that
in
the
event
this
appeal
is
not
allowed
on
the
principal
issue,
the
appeal
will
be
allowed
to
the
extent
it
be
referred
to
the
Minister
for
reassessment
on
the
understanding
that
Appellant
will
be
permitted
to
establish
any
allowable
deductions.
In
accordance
with
this
agreement,
the
appeal
is
allowed
to
the
extent
it
be
referred
to
the
Minister.
for
reassessment
on
the
understanding
that
appellant
will
be
permitted
to
establish
any
allowable
deductions.
The
respondent
is
entitled
to
his
costs
of
appeal.
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