MACDONALD,
C.
J.B.C.:—The
Hastings
St.
Properties
Ltd.
was
incorporated
with
objects
inter
alia
to
buy
and
sell
land.
There
were
only
five
shareholders
and
the
paid-up
capital
of
the
company
was
the
sum
of
$5.
Their
principal
transaction
was
the
purchase
of
a
piece
of
property
on
Hastings
St.,
Vancouver,
which
was
shortly
afterwards
re-sold
at
an
advance
of
$30,000.
To
enable
the
company
to
buy
this
property
each
of
the
five
shareholders
advanced
monies
aggregating
$40,000.
the
price
of
the
property
and
the
company
entered
into
an
undertaking
with
them
in
consideration
thereof
to
pay
to
them
the
profits
which
should
be
realized
on
a
re-sale.
The
assessor
fixed
the
company’s
income
after
the
re-sale
of
the
property
aforesaid
at
the
sum
of
$26,393.
approximately
the
profits
made
by
the
resale
of
it
and
levied
the
tax
complained
of
thereon.
The
Court
of
Revision
held
that
the
said
profits
were
not
income
of
the
company
which
could
be
taxed
under
the
Taxation
Act,
R.S.B.C.
1924,
c.
254,
and
amendment
thereto.
The
Court
of
Revision
said
that
the
question
was
whether
the
company
should.
be
allowed
as
deductions
from
their
gross
income
the
amount
agreed
to
be
paid
to
the
five
shareholders
as
money
expended
in
producing
"'the
income’’
and
decided
that
after
payment
of
the
profits
to
the
five
shareholders
there
was
no
taxable
income.
In
my
opinion
the
money
supplied
by
the
five
shareholders
as
aforesaid
to
enable
the
company
to
buy
the
said
property
was
a
loan
of
capital
;
that
it
was
such
is
evidenced
by
a
resolution
(not
amongst
the
exhibits
but
mentioned
by
witness
R.
Kerr)
of
the
company
authorizing
the
borrowing
of
it.
If
these
profits
are
treated
as
equivalent
to
interest
they
fall
within
the
provisions
of
the
Taxation
Act.
This
Act
was
amended
in
some
respects
by
1925
(B.C.),
c.
54.
Section
44
of
the
main
Act,
as
so
amended
enacts
that
the
expenses
incurred
in
the
production
of
the
income
may
be
deducted
from
the
gross
income
but
that
no
deduction
by
way
of
expenses
shall
be
made
for
(b)
any
interest
on
capital.
This
subsection
is
re-numbered
(e)
in
the
amended
Act.
Subsection
(c)
of
the
last
mentioned
Act
allows
to
be
deducted,
"‘Interest
on
moneys
borrowed
from
without
the
Province,
either
by
way
of
loan,
advance,
or
through
a
bond
or
debenture
issue,
unless
a
separate
return
is
made
therefor
and
income-
tax
paid
thereon
at
the
rates
provided
under
sec.
52,
except
that
the
maximum
rate
shall
not
exceed
four
per
centum.’’
Interest
on
money
borrowed
from
without
the
Province
therefore
may
be
set
off
against
the
cost
of
producing
the
income
conditionally
upon
the
making
of
a
separate
return
and
if
the
income
tax
be
paid
by
the
person
or
persons
to
whom
the
interest
was
paid.
Subsee.
(f)
deals
with
interest
which
shall
not
be
set
off
against
the
cost
of
production
of
the
income
if
advanced
by
a
‘‘parent,
subsidiary,
or
associated:
corporation.
‘
The
Court
of
Revision
thought
that
under
said
subsec.
(e)
capital
was
not
to
receive
its
widest
signification
because
of
the
references
to
interest
in
other
subsections,
in
other
words
sub
sec.
(e)
was
practically
rescinded
by
construction
of
the
other
sections.
Now
the
words
of
subsec.
(e)
are
clear
and
explicit.
Interest
on
capital
is
not
to
be
set.
off
against
cost
of
the
production
of
the
income.
The
other
subsections,
if
indeed
we
may
look
at
them
at
all
for
the
purpose
of
cutting
down
the
wording
of
subsec.
(e)
refer
it
is
true
to
interest
and
upon
certain
conditions
being
performed
that
interest
may
be
set
off
against
the
gross
income.
But
I
think
the
proper
construction
is
that
interest
other
than
interest
on
capital
may
be
set
off
conditionally.
The
Legislature
having
dealt
specifically
with
interest
on
capital
then
proceeded
to
enact
respecting
other
interest,
not
interest
on
capital.
All
these
provisions
are
capable
of
being
given
effect
to
notwithstanding
any
suggested
conflict.
The
Court
if
possible
is
to
construe
the
statute
so
as
to
give
effect
to
all
its
provisions
and
therefore
if
I
am
permitted
to
construe
subsec.
(e)
by
reference
to
other
sections
I
am
forced
to
the
conclusion
that
the
other
sections
are
not
in
conflict
with
subsec.
(e)
and
that
therefore
said
subsec.
(e)
stands
as
a
direct
provision
against
the
set-off
of
interest
on
capital.
Subsec.
(f)
I
think.
has
no
real
bearing
upon
the
question
at
all
and
the
fact
that
shareholders
are
not
mentioned
in
it
does
not
imply
that
because
they
are
lenders
of
capital
and
are
not
mentioned
in
subsec.
(f)
the
company
shall
be
entitled
to
set
off
interest
in
contravention
of
the
plain
words
of
subsec.
(e).
Now
while
the
profit
may
be
looked
upon
as
the
consideration
for
the
loan
it
is
not
at
all
events
what
is
popularly
called
interest.
It
may
therefore
not
be
affected
by
subsec
(e)
of
sec.
44.
I
must
therefore
enquire
whether
or
not
the
transaction
was
an
illegal
evasion
of
the
Taxation
Act.
It
seems
to
me
that
if
this
transaction
is
legal
that
all
companies
by
resorting
to
the
like
methods
may
evade
the
payment
of
income
tax.
They
may
carry
on
their
business
on
borrowed
capital
under
an
agreement
such
as
the
one
in
question
here
and
thus
defeat
the
Act.
They
may
claim
the
profit
made
by
their
company
under
such
an
agreement
and
thus
leave
nothing
for
the
tax
collector.
I
think
a
transaction
which
leads
to
this
result
must
be
regarded
as
an
illegal
evasion
of
the
Act,
and
I
hold
this
transaction
to
be
such.
The
only
object
of
the
scheme
as
I
see
it
is
to
evade
payment
of
income
tax.
Instead
of
the
shareholders
supplying
the
company
with
capital
and
receiving
their
profits
if
any
in
dividends
they-may
set
up
a
dummy
company
without
capital
and
use
it
to
buy
property
for
itself
with
borrowed
money
under
a
scheme
which
defeats
the
revenue.
The
assessment
of
the
assessor
should
be
restored.
Martin,
J.A.:—This
appeal
should,
in
my
opinion,
and
with
all
due
deference
to
other
opinions,
be
dismissed
because,
in.
brief,
I
think
the
Court
of
Revision
below
took
substantially
the
right
view
in
holding
that
under
the
unusual
circumstances
of
the
special
arrangement
between
the
company
and
five
of
its
shareholders,
the
deductions
that
should
be
made
from
the
gross
income
of
the
proceeds
of
the
particular
adventure,
or
speculative
plan,
if
you
like,
leave
no
net
income
subject
to
taxation
against
the
company
whatever
may
be
the
personal
liability
of
the
said
five
members.
It
is
no
answer,-in
my
opinion,
to
this
view
to
point
out.
truly,
that
the
results
of
a
number
of
such
transactions
might,
or
indeed
would,
lead
to
something
unexpected;
that
often
is
so
where
there
is
a
casus
omissus,
as
herein.
It
might
be
otherwise
if
it
could
be
held
that
the
transaction
was
a
sham
one,
but
such
is
not
the
fact
here
:
the
most
that
can
fairly
be
said
is
that
it
is
peculiar
but
not
illegal..
It
really
comes
down
to
this
that
the
company
was,
within
its
powers,
permitting
some
of
its
members
to
make
a
profit
out
of
a
real
estate
speculation
by
using
its
name
while
putting
up
their
own
money.
Now
I
know
of
nothing
which
prevents
a
company
from
so
doing,
in
any
honest
business
venture,
just
as
a
private
person
may,
to,
e.g.,
oblige
a
friend.
Gallagher,
J.
A
:—I
agree
in
allowing
the
appeal.
MCPHILLIPS,
J.A.:—The
Crown
appeals
from
the
decision
of
the
Court
of
Revision
for
Vancouver
Assessment
District.
The
decision
was
that
the
company
had
no
taxable
net
income
for
the
period
in
question.
To
get
a
proper
understanding
of
the
‘matter
so
as
to
apply
the
law
to
the
relevant
facts
I
will
in
a
short
manner
state
what
the
facts
necessary
to
bear
in
mind
are.
The
appellant
is
a
company
incorporated
under
the
Companies
Act,
1929
(B.C.),
c.
11.
The
powers
may
be
said
to
be
shortly—to
purchase
and
sell
lands,
erect
buildings,
to
take
mortgages,
to
manage
lands
and
buildings,
to
borrow
money
for
the
purposes
of
the
company.
It
was
primarily
a
company
to
buy
and
sell
lands
and
with
powers
to
borrow
moneys
in
the
carrying
out
of
its.
business.
There
are
only
five
shareholders
each
holding
one
share
of
the
par
value
f
$1.
The
share
capital
of
the
company
authorized
was
50,000
shares
of
$1
each—the
total
issued
capital
being
the
5
shares
of
$1
each.
In
the
course
of
carrying
on
its
business
the
company
it
would
seem
embarked
upon
only
one
transaction
in
the
exercise
of
its
corporate
powers
and
that
was
to
purchase
Lot
5,
Block
22,
D.L.
541,
in
the
700
block
on
Hastings
St.
in
the
City
of
Vancouver,
the
purchase-price
was
$40,000.
Admittedly
the
company
did
not
have
the
requisite
money
to
make
the
purchase,
it
obtained
the
money
by
borrowing
the
sum
from
the
shareholders,
it
being
agreed
with
the
shareholders
that
the
net.
proceeds
made
on
the
sale
of
the
land
should
go
to
the
shareholders
making
the
advances.
A
sale
was
made
of
the
land
in
1928,
the
purchase
having
been
made
in
1926.
The
short
question
is
whether
the
$30,000
profit
realized
by
the
company
can
be
said
to
be
income
within
the
purview
of
the
Taxation
Act,
sees.
4(1),
44(1).
The
contention
of
the
Crown
is
that
the
profit
made
is
income
within
the
meaning
of
sec.
4(1)
of
the
Act,
and
the
assessment
made
in
respect
of
the
profits
so
made
on
the
sale
as
for
the
year
1928
was
put
at
"‘Net
taxable
income
$26,393.
Tax
thereon
$2,111.44,
less
10%
$211.14—tax
$1,900.30."
The
Judge
of
the
Court
of
Revision
in
this
judgment
in
the
matter
said
in
part
as
follows
:—
"‘Under
the
definition
of
‘Income’
in
the
Taxation
Act,
R.S.B.C.
1924,
e.
254,
there
is
no
doubt
in
my
mind
that
the
moneys
received
by
the
company
in
payment
for
the
sale
of
the
property
in
question
is
income,
and
the
question
is
whether
or
not
deductions
from
this
gross
income
should
be
allowed
for
the
respective
amounts
owing
and
paid
to
the
five
shareholders
under
the
agreements
entered
into
by
them
as
aforesaid.’’
Unquestionably
it
was
income
and
being
income
is
taxable
as
such;
that
the
company
made
an
agreement
to
pay
the
profits
to
the
shareholders
cannot
meet
the
question
and
satisfy
the
demand
of
the
Crown
based
upon
the
statute
laid.
The
procedure
adopted
and
the
manner
of
carrying
it
out—if
acceded
to
would
be
an
illegal
evasion
of
the
Taxation
Act
in
my
opinion.
It
was
advanced
at
this
Bar
that
the
moneys
in
question
were
in
their
nature
assets
not
income
or
in
other
words
to
be
treated
as
capital.
Upon
this
point
I
would
refer
to
what
Lord
Hals-
bury,
L.C.,
said
in
Dovey
v.
Cory
[1901]
A.C.
477,
at
pp.
486-7
"The
mode
and
manner
in
which
a
business
is
carried
on,
and
what
is
usual
or
the
reverse,
may
have
a
considerable
influence
in
determining
the
question
what
may
be
treated
as
profits
and
what
as
capital.”
Here
it
was
the
sole
business
transaction
entered
into
by
the
company
and
in
plain
exercise
of
powers
taken,
viz.,
to
buy
and
sell
land—as
the
merchant
sells
goods
over
the
counter
that
which
is
realized
over
and
above
the
cost
to
the
merchant
must
be
said
to
be
profit,
such
a
proposition
is
unchallengable,
and
that
is
income
within
the
meaning
of
the
statute.
I
would
refer
to
what
Cozens-Hardy,
M.R.,
said
in
Stevens
v.
Hudson’s
Bay
Co,
(1909)
101
L.T.
96,
at
p.
97
"This
is
not
a
case
where
land
is
from
time
to
time
purchased
with
a
view
to
resale.’’
That
is
exactly
the
present
case
and,
applying
the
reasoning
of
the
Master
of
the
Rolls,
in
the
present
case
the
profit.
made
is
liable
to
income
tax.
We
find
Farwell,
L.J.,
saying
in
the
above
case
(p.
98)
:—
“But
if,
instead
of
dealing
with
his
property
as
owner,
he
embarks
on
a
trade
in
which
he
uses
that
property
for
the
purposes
of
his
trade,
then
he
becomes
liable
to
pay
not
on
the
excess
of
sale
prices
over
purchase
prices,
but
on
the
annual
profits
or
gains
arising
from
such
trade,
in
ascertaining
which
those
prices
will
no
doubt
come
into
consideration.”
Lord
Dunedin
in
Com
f
r
of
Taxes
v.
Melbourne
Trust
Ltd.,
11914]
A.C.
1001,
at
p.
1010,
said:—
"‘But
it
is
equally
well
established
that
enhanced
values
obtained
from
realization
or
conversion
of
securities
may
be
so
assessable
where
what
is
done
is
not
merely
a
realization
or
change
of
investment,
but
an
act
done
in
what
is
truly
the
carrying
on,
or
carrying
out,
of
a
business.”
And
that
was
the
case
here.
In
Scottish
Investment
Trust
Co.
v.
Surveyor
of
Taxes,
21
R.
(Ct.
of
Sess.)
262,
it
was
held
(headnote)
:—
"
"
that
gains
made
by
the
company
by
realising
investments
at
larger
prices
than
those
paid
for
them
were
to
be
reckoned
as
‘profits
and
gains’
of
the
company
in
the
sense
of
the
Property
and
Income-Tax
Act,
1842,
Schedule
D.’’
In
Assets
Co.
v.
Inland
Revenue,
24
R.
(Ct.
of
Sess.)
578,
Lord
Young
said
(p.
586)
:—
“I
should
say
that
I
have
really
no
doubt
that
any
person
or
any
company
making
a
trade
of
purchasing
and
selling
investments
will
be
liable
in
income-tax
upon
any
profit
which
is
made
by
that
trade.’’
In
my
opinion
the
assessment
is
a
valid
one.
The
company
made
the
profit
not
the
shareholders
who
advanced
the
moneys
and
the
company
erred
in
making
payment
to
the
shareholders
of
all
the
profits
so
earned
by
the
company
without
first
deducting
the
income
tax
thereon,
the
profit
was
not
earned
by
the
‘shareholders
it
was
a
profit
of
the
company,
in
other
words
for
the
purpose
of
this
enquiry—income
under
the
Taxation
Act.
That
the
company
obligated
itself
to
pay
to
the
shareholders
all
the
profits
cannot
affect
the
question
to
be
here
determined.
The
profits
on
the
transaction
being
the
profits
of
the
company,
v.€.,
the
income
of
the
company
the
moneys
were
properly
assessable
as
such—and
the
net
taxable
income
as
levied,
viz.,
$1,900.30
was
properly
so
levied
and
is
due
and
payable
in
my
opinion
by
the
company.
I
would
allow
the
appeal
and
reinstate
the
assessment
as
made.
Macdonald,
J.A.
:—Respondent
company
was
incorporated
inter
alia
‘‘to
purchase
.
_.
.
.
lands
and
to
sell’’
the
same
and
although
it
had
wide
powers
it
was
apparently
formed
to
acquire
and
resell
at
a
profit,
if
possible,
the
property
in
question.
Of
its
authorized
capital
of
50,000
shares
of
$1
each
five
shares
only
were
issued.
It
purchased
Lot
5,
Block
44,
D.L.
541,
Vancouver,
for
$40,000
in
1926,
and
sold
it
for
$70,000
in
1928,
and
the
Minister
of
Finance
seeks
to
recover
income
tax
on
the
$30,000
profit
made,
it
is
alleged,
by
the
company.
It
had
not,
of
course,
sufficient
subscribed
capital
to
make
the
purchase
in
the
ordinary
way
and
proceeded
to
consummate
the
deal
by
obtaining
proportionate
parts
of
the
purchase-price
from
its
shareholders
giving
them
letters
of
which
the
following
is
a
sample.
"
"
In
consideration
of
your
having
already
advanced
to
the
company
the
sum
of
$6,308.03
and
contributing
one-third
of
any
further
moneys
required
to
finance
the.
purchase
of
Lot
5,
Block
22,
D.L.
541,
the
company
hereby
agrees
to
pay
to
you
one-
third
of
the
net
proceeds
of
the
sale
of
said
property
as
and
when
realized,
which
payment
shall
be
accepted
by
you
in
full
settlement
of
said
advances.”
The
proceeds
of
the
sale
were
distributed
to
the
shareholders
as
outlined
in
the
letter
quoted
and
the
respondent
company
now
submits
that
it
did
not
make
a
profit
on
the
transaction
in
the
ordinary
course
of
its
business,
but
merely
distributed
to
its.
Shareholders
a
capital
asset
which
appreciated
in
value
in
two
years
to
the
extent
referred
to.
If
the
company
purchased
the
lot
to
enable
it
to
carry
on
business
within
its
powers
from
which
profits
might
be
derived
the
appreciation
in
value
would
not
be
income.
That,
it
is
suggested,
is
the
true
situation.
As
part
proof
of
it,
rentals,
it
was
pointed
out,
were
received
during
the
two-year
period.
That
however
was
merely
incidental
to
the
ownership
of
the
property.
If
it
had
purchased
a
second
tract
of
land
for
the
purpose
of
re-selling
at
an
advanced
price
such
a
profit
would
be
regarded
as
income
but
the
first
purchase
it
is
submitted
should
not
be
so
regarded.
It
was
however
open
to
the
respondent
when
it
appealed
against
this
assessment
to
the
Judge
of
the
Court
of
Revision
to
show
that
the
purchase
and
sale
in
question
was
in
the
nature
of
an
acquisition
of
capital
and
it
did
not
do
so.
That
burden
was
upon
it:
sec.
133
(3)
of
the
Taxation
Act.
We
have
to
decide
on
a
fair
interpretation
of
the
facts
and
the
letters
referred
to
whether
or
not
the
purchase
and
resale
at
an
advance
of
$30,000
should
be
treated
as
the
acquirement
of,
and
disposal
of
a
capital
asset
or
as
a
profitable
transaction
from
trading
in
land.
I
have
no
doubt
that
it
bears
the
latter
aspect.
It
was
submitted
however
that
assuming
the
company
received
this
profit
it
only
earned
it
by
procuring
the
purchaseprice
from
its
shareholders
upon
the
terms
that
it
would
pay
them
the
net
proceeds
of
the
sale.
It
earned
a
profit
of
$30,000
but
expended
the
full
amount
in
doing
so.
That
is
the
sug-
gestion.
No
profit
was
received
by
the
company:
it
went
to
the
shareholders.
Expenses
incurred
in
the
production
of
income
may
be
deducted
from
the
gross
income.
To
come
within
this
exception
respondent
must
show
that
it
expended
$30,000
in
making
a
profit
of
a
similar
amount.
It
is
a
far
fetched
interpretation
of
sec.
8
of
1925
(B.C.,
c.
54,
referring
to
deductions
to
say
that
occurred
in
this
case.
It
is
not
a
fair
construction
of
the
letters
to
hold
that
the
methods
disclosed
reveal
an
expenditure
by
the
company
in
any
form,
whether
as
interest
on
borrowed
money
or
otherwise
in
the
course
of
earning
the
income
which
reached
the
coffers
of
the
company.
It
is
"‘a
very
forced
interpretation
of
the
contract
and
position
of
the
parties
to
put
it
down
as
part
of
the
expenses
of
making
the
income:’’
Last
v.
London
Ass’ce
Corp.,
10
App.
Cas.
438
at
p.
451.
I
would
allow
the
appeal.
Appeal
allowed.
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