Gibson, J (orally):
1 This appeal is from reassessments for income tax for the 1970 and 1971 taxation years of the plaintiff.
2 By the reassessment for the 1970 taxation year, there was added to the plaintiff's income (1) $82,063.79 in respect to a transaction concerning premises in Kitchener, Ontario referred to in evidence as the Lexington and Weber site, and (2) $53,312.04 in respect to premises in Preston, Ontario referred to as the Werlich site. By the reassessment for the 1971 taxation year there was added to the plaintiff's income $19,528.28 in respect to a transaction concerning premises in Kitchener, Ontario referred to as the Weber and Broadview site.
3 The plaintiff is and was engaged in the retail food business. It was incorporated in 1955 but had its origin in 1950. From one store in the Kitchener area, and yearly sales of about $100,000 in 1950, it has expanded its business and its business has grown so that now in 1975 it has 26 stores and forecast sales of $106 million. From 1968 to the present, because of policies adopted by it, the increase in sales has been dramatic. (See Exhibit 1(a)(8).)
4 In the 1968 to 1971 period, one of the policies adopted concerned the transactions in relation to the three said premises, as a result of which there were profits made which the defendant assessed by their said reassessments as income to the plaintiff.
5 The policy adopted in respect to said premises in the said period involved the sales of the premises by the plaintiff and the taking back of long-term leasebacks by it (25 years with options for renewal) of parts of such premises for their retail grocery business. Such policy was adopted for the purpose of freeing funds for the purchase of inventory, fixtures and equipment in their retail food stores required because of their rapid expansion. By such transactions, the plaintiff sold and exchanged one kind of capital assets, namely, its equity titles (subject to mortgage or other debt) in the three said sites, for the acquisition and exchange of another kind of capital assets, namely, long term leaseholds (subject to onerous lease covenants by the plaintiff).
6 Such sales of the said premises resulted in differentials in receipts over costs of the three above sums which sums were added by the defendant to the income of the appellant in the said relevant taxation years 1970 and 1971.
7 As a result of such policy, the plaintiff now operates 25 retail food stores in leased premises and owns only one premise in which it operates a retail food store.
8 The leasebacks which the plaintiff obtained were all below the market price it would otherwise have been required to pay in the open lease market.
9 By this policy also the plaintiff obtained the locations which have proven to be successful for its retail food business. The plaintiff's income has very substantially increased as a result.
10 On the evidence none of the premises were procured with a view to selling at a profit, for speculation purposes, or as part of a scheme for profit making.
11 If there had been losses on the sales, such would not have been deductible from income (cf MNR v Freud, [1969] S.C.R. 75, [1968] C.T.C. 438, 68 D.T.C. 5279).
12 The said sums added to the income of the plaintiff for the taxation years 1970 and 1971 were not income within the meaning of the Income Tax Act (cf Food City Limited v Minister of National Revenue, [1971] C.T.C. 325, 71 D.T.C. 5211).
13 The appeal is therefore allowed and the reassessments are referred back for further reassessment not inconsistent with these reasons.
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