Metropolitan Motels Corporation v. Minister of National Revenue, [1966] CTC 246, 66 DTC 5208

JACKETT, P.:—This is an appeal from a decision of the Tax Appeal Board dismissing appeals from assessments of the appellant under the Income Tax Act for the 1959 and 1960 taxation years.

The sole question raised by the appeal is whether a profit made by the appellant on the sale of a parcel of land was properly included by the Minister in the computation of the appellant’s income under the Act for the year in which the sale was made as being income from a business within the extended meaning given to that word by paragraph (e) of subsection (1) of Section 139 of the Act.

The facts of the matter as established by the evidence given in the Tax Appeal Board are fully set out in the reasons for the judgment of the Board. The facts established by the evidence given in this Court are, for all practical purposes, substantially the same as the facts as set out in the Board’s reasons for judgment. There are minor differences, to which counsel for the appellant has, very helpfully, drawn my attention.* [1] These differences do not, in my view, affect the matter in any material way. Counsel for the appellant did not suggest that they did. I therefore adopt the Board’s narrative of the events without repeating it. I should also say that I am, generally speaking, in agreement with the Board’s approach to the determination of the issue raised by the appellant. I have, after giving very careful consideration to the question upon which, in my view, the appeal turns, reached the same conclusion as that reached by the Board. I must, however, state my reason for reaching that conclusion in my own words.

It is common ground that, for purposes of this appeal, the appellant’s intentions are those that Isaac Rawas, by whom the appellant was managed and controlled, had for it. It is also common ground that nothing in this appeal turns on the fact that the property in question was originally acquired by Meteor Homes Limited, another company managed and controlled by Mr. Rawas. The appeal must be decided as though the property had been acquired by the appellant when it was acquired by Meteor Homes Limited.

The situation is then, in brief, that, in 1957 the appellant acquired for a price of $60,080.63 a property that was regarded as a good site for a motel, and, in 1959, after unsuccessfully attempting to make the arrangements necessary to build on the site a motel from which it could get a rental income, it resold the property for $157,062.40, thus realizing a profit of $96,981.77.

It is clear on the evidence given before me, and I so find, that, at the time of the acquisition of the property, the appellant had a firm intention, if it could make the necessary arrangements, to build a motel and rent it to some one who could operate it. It also knew at that time, however, that, before it could carry out that intention, it had to formulate a project for a motel in which it could interest an experienced operator of motels to such an extent that it would commit itself, in advance, to rent the motel to be built and that such operator of motels and its commitment had to be sufficiently acceptable to a lending institution for that institution to be prepared to lend an amount in the neighbourhood of $600,000 on first mortgage to finance, in part, the construction of the motel. The appellant tried to get such a commitment from an operator of motels and failed. The appellant did not, therefore, build a motel but, instead, was able to negotiate the very profitable sale to which I have already referred.

If the property in question was acquired for the exclusive purpose of building a motel—if that was the sole motivating reason for its acquisition—the profit is a profit from an affair of capital and is not part of the appellant’s income. If, on the other hand, the appellant was also motivated in deciding to buy the property by the possibility that, if it could not build a motel, it could in any event sell it at a profit, then a sale made in the course of realizing that possibility is, in my view, the consummation of a venture in the nature of trade and the resulting profit is taxable.

I observed Mr. Rawas as he gave evidence with great care. He told the Court that the land values in the area in question were, at the time the property was acquired, going up and were going to continue to go up. He said that if this project were not a good buy he would not have bought it. He said that, had he been asked at that time what he would do if the motel proposal were frustrated, he would have said, ‘We’ll do something else’’. He is a very careful and able businessman. He is not some inexperienced or reckless person who would embark on a major transaction without considering all the possibilities. Without in any way doubting his honesty or sincerity, I cannot escape the inference that, when he acquired this property, it was with the intention of building a motel, if possible, and, if that were not possible, of otherwise turning the property to account at a profit.

The appeal is dismissed with costs.