Upstream Holdings Inc. v. Minister of National Revenue, [1969] CTC 569, 69 DTC 5358

DUMOULIN, J. :—This i is an appeal from a decision of the Tax Appeal Board, dated September 8, 1964, in respect of the assessment of Upstream Holdings Inc., of the city of Montreal, for the taxation year 1962.

On April 7, 1956 the appellant company was granted by the Quebec provincial authorities Letters Patent of Incorporation under the corporate name of Upstream Holdings Ine. (cf. exhibit 2). Its purposes are, mainly:

(a) To buy, sell, exchange, lease : or otherwise deal in real estate and immoveable property and to negotiate for the purchase, sale, exchange or lease of real estate and immoveable property and generally to carry on the business of real estate agents in all its branches subject to procuring the necessary licenses;

We are therefore dealing with a body politic whose sole activity is business and only aim profit, quite legitimate pursuits, assuredly, but evoking at once in a judicial mind the possible, if not probable, tentacular reach of Section 139(1) (e) of the Income Tax Act (R.S.C. 1952, c. 148 and amendments). It is trite to add that the particular facts of each case, its incidents and special nature, are, of needs, the qualifying factors of any issue at bar.

The material details are brief and uncomplicated as set out in paragraphs 1, 2 and 3 of the appellant’s statement of facts:

1. The assessment arises through the expropriation by the Department of Transport (Canada) of part of Lot No. 180 of the Parish of St. Laurent for the enlargement of Dorval Airport.

2. That the expropriated land had been acquired by Appellant and Merit Investment Co. on October 18th, 1956, for investment purposes.

(This last statement calling, of course for corroborative evidence.)

3. That the assessment for the year 1962 brings into Appellant’s income the proceeds on the expropriation.

Passing, next, to the reasons which appellant intends to submit, we read that:

4, . . . the Appellant company has not traded in real estate nor did the property expropriated form part of its stock in trade.

5. The expropriation was a realization of a capital asset and is not taxable income within the meaning of the Income Tax Act and in particular Sections 3, 4 and 139(1) (e) thereof.

6. That the land expropriated was acquired for investment purposes and the Appellant held same for over five (5) years prior to the expropriation.

Could linear measurements be applicable to written statements, then, paragraph 6 would be, at best, just a half truth, as lot 180, purchased October 18, 1956, at a price of $185,835, and containing about 61 arpents, or approximately 2,000,000 square feet (cf. exhibit 1), was, on June 19, 1957, the object of a sale to Holiday Investments Ltd., of slightly more than one half of its superficies, exactly 31.3 arpents or 1,153,302.4 square feet for a price of $184,528.38 (cf. exhibit 4).

On account of the legal stand now adopted by the appellant, it comes as a matter of some surprise to note that an estimated profit on the latter sale of $38,431.73 was included as ‘‘income earned’’ in Upstream Holdings’ income tax return for fiscal period ended June 30, 1957 (cf. exhibit B).

A. similar attitude recurs after the sale by appellant, on October 21, 1960, to the Protestant School Commissioners for the Municipality of St. Laurent, of lots 195A, 195B, part of lot 195C and part of lot 195 for an amount of $114,540.80 (cf. partly illegible exhibit 9, and refer to page 4 of the learned member of the Tax Appeal Board’s exhaustive reasons). Exhibit A, the appellant’s income tax return for the fiscal period ended June 30, 1961, again reports, as earned income on the transaction above, a profit of $75,090.48, after deductions.

Louis Dubrovsky, half owner and president of Upstream Holdings, appellant’s only witness, ventured the explanation that both income returns were prepared by the company’s erstwhile accountant, one Margolese, whose report had not been questioned by his clients. A somewhat weak reply, the acceptance of which would appear unfair to Mr. Dubrovsky’s business acumen.

On March 25, 1961 Upstream Holdings and its associate company throughout, Merit Investment Corporation, gave Ambassador Investment Corporation ‘‘an option valid for 90 days’’ on 500,000 square feet taken from lot 180’s residual area, for a total price of $140,000 (cf. exhibit 10).

It so happened, in the meantime, more precisely by June 12, 1961, that the appellant company received, under the signature of J. P. Adam, then regional manager, real estate division of the Department of Transport, an official notification thus worded in its relevant paragraphs:

Please take notice that under and pursuant to the provisions of the Expropriation Act, Chapter 106, R.S.C. 1952, a plan and description were deposited in the Registry Office for the Registration Division of Montreal, at Montreal, Province of Quebec, on the 5th day of June 1961, under Instrument No. 1536976, taking the land shown and described therein and all buildings and structures thereon for the use of Her Majesty in Right of Canada for the purpose of a public work to wit: Montreal International Airport, Province of Quebec, and the said land, by such deposit, became vested in Her Majesty in Right of Canada.

The land affected by the said Expropriation comprises part of Lots Nos. 180 and 181 Parish of St. Laurent . . . and it would appear that you are the registered owner of part of lot 180 (East half). (cf. exhibit 12.)

In paragraph 4(e) of the respondent’s reply to the notice of appeal, it is asserted that:

4. (e) Having learned that the land was to be expropriated, Upstream Holdings Inc. and Merit Investment Corp. succeeded to cancel the option by paying $25,000.00 to Ambassador Investment Corp.

True, no actual proof of appellant’s knowledge of the imminent expropriation was adduced, but in the present instance, material facts would be sufficient corroboration of respondent’s surmise, as borne out in exhibit 11. Dated May 23, 1961, this document purely and simply cancels the 90- day option extended on March 25 to Ambassador Investment Corporation, against payment to it of a 825, 000 forfeit. Paragraph 2 of the deed stipulates :

(2) THAT the Second Parties (viz. appellant and Merit Investment) are now desirous of. withdrawing the said Option, and the First Party (Ambassador Investment) has agreed to the termination of the said Option to Purchase upon payment to it by the Second Parties of a penalty of Five cents (54) per square foot, or a total of Twenty-five thousand dollars ($25,000.00).

If it still holds true that interest is the measure of actions, the dealings just recorded constitute a scarcely rebuttable evidence of appellant’s well founded suspicion that, presumably, a lucrative expropriation would intervene in a very few days. It is not a customary practice among’ shrewd real estate speculators to bestow a twenty-five thousand dollar indemnity, as in this case, without a sound expectation of its being worthwhile to do so.

Furthermore, as far back as January 29, 1960, the Department of Transport had registered an easement on part of lot 180 (cf. exhibit No. 8). As the saying goes, eventual expropriation ‘‘was on the order paper’’. Finally, on November 22, 1961, ‘‘the acting regional manager, real estate, G. W. Ledoux” advised Upstream Holdings In-(3. that ‘‘we are prepared to recommend a formal offer of settlement in the amount of $345, 000.00 in complete and final settlement for the interest you hold in this property . .” (cf. a letter, exhibit No. 13).

Apparently, this proposal. was accepted, for subparagraphs (f) and, partially, (g) .of respondent’ S reply (para, 4) went unchallenged by appellant. I quote:

4. (f) On June 5, 1961, 1,016,205 square feet were expropriated by the Government of Canada for extension of the Dorval Airport.

(g) The amount of $167, 879.30 was the profit realized by Upstream Holdings Inc. as a result of the expropriation and was a profit from its business.

Mr. Dubrovsky testified having frequently approached, with encouraging promises each time, the engineering authorities of the town of St. Laurent to obtain, municipal services on his company’s lots, 180 and others, in order to facilitate construction of a shopping centre, which the appellant company would either lease or operate itself.

The nature and frequency of those alleged demands do not seem to have registered lastingly in Mr. Yvon Gariépy’s memory, the civic engineer for the period, 1956-1962, and now manager of St. Laurent.

Respondent’s only witness, Gariépy, substantially reported that:

En 1956, et dans les années subséquentes jusqu’en 1962, alors que j’étais ingénieur de la ville, je ne me rappelle pas avoir discuté avec M. Dubrovsky ou autres représentants d’Upstream Holdings Inc. la possibilité d’installer de tels services sur les lots 180 et autres.

He adds:

En 1956, ‘pour les lots en question, ma. réponse eut été qu’il 11’y avait alors aucune possibilité d’obtenir ces services.

Amongst. a number of similar decisions, I would refer the appellant to'the case of Fogel v. M.N.R., [1959] Ex. C.R. 363; [1959] C.T.C. 227, and to those yet more in line of Bayridge Estates Ltd. v. M.N.R., [1959] Ex.; C.R. 348; [1959] C.T.C. 158, and Regal Heights Ltd. v. M.N.R., [1960] S:C.R. 902; [1960] C.T.C. 384

The Court does not hesitate to uphold the respondent’s contention expressed, inter alia, in paragraph 7, hereunder, 0£ its reply to notice of appeal :

7.: He says that the profit realized by the Appellant as a. result of the expropriation. was a profit from the taxpayer’s business ‘as a dealer in real estate and taxable under the provisions of sections 3, 4 and 139(1) (e) of the Act,

or, otherwise said, a venture in the nature of trade.

For the above reasons, the decision of the learned member of the Tax Appeal Board, Mr. Maurice Boisvert, Q. C., is affirmed and this appeal dismissed with all taxable costs accruing to the respondent.