Le Dain, J (concurred in by Pratte, J and Hyde, DJ):—This is an appeal from a judgment of the Trial Division dismissing an appeal from a judgment of the former Tax Appeal Board which had dismissed an appeal against reassessments in respect of the taxation years 1963, 1964 and 1965.
The issue is whether the profit realized by the appellant from the Sale of properties which the appellant purchased for the purpose of establishing shopping centres was capital gain or income from a business within the meaning of sections 3 and 4 and paragraph 139(1)(e) of the Income Tax Act, RSC 1952, c 148.
The appellant was incorporated by letters patent under the laws of the Province of Quebec on May 14, 1958, with the following purposes:
1. To purchase or otherwise acquire, urban and rurai land and immoveabie property; to hold, subdivide, develop, improve, and sell same, to erect thereon all kinds of buildings, including residential, commercial, industrial, institutional, public and private buildings; to hold, administer, lease, sell or otherwise dispose of same;
2. To develop, install and construct all kinds of improvements necessary for the habitation and use of such enterprises and projects, and which may seem directly or indirectly calculated to advance the company’s interests, including roads, sidings, streets, shops, stores, and other works and conveniences, sewer systems, water systems, heating systems, and power developments;
3. To carry on, conduct and engage in, in any way or manner whatsoever, the business and activities of a holding or investment company of real estate, for the sole purpose of deriving rents and revenues therefrom;
The shares of the appellant were beneficially owned at all material times by Cemp Investments Ltd (hereafter referred to as “Cemp”) in the proportion of 45%, by Mr Leo Kolber, the president of Cemp, in the proportion of 5%, and by Ivanhoe Corporation (hereafter referred to as “Ivanhoe”) in the proportion of 50%.
Cemp is one of the largest real estate investment companies in Canada. It is controlled by trusts established by the late Samuel Bronfman for his children and grandchildren. Through subsidiary and associated companies Cemp has interests in several shopping centres and large commercial buildings. The principal subsidiary through which Cemp has made real estate investments is a company which at the time of the transactions under consideration bore the name Cemp Holdings Ltd. In 1972 its name was changed to Fairview Corporation of Canada Limited (hereafter referred to as “Fairview”). Fairview manages the shopping centres in which Cemp has an interest.
Ivanhoe is a real estate company formed to acquire and develop property for the purpose of shopping centres and other locations for the stores of Steinberg’s Limited. The shares of Ivanhoe are owned by Steinberg’s Limited and members of the Steinberg family.
The appellant was incorporated at the instance of Cemp and Ivanhoe to establish one or more large shopping centres in the Montreal area. At the time of its incorporation both Cemp and Ivanhoe were well established as developers of shopping centres. Ivanhoe sought a partnership with Cemp because of the latter’s experience with the development of large shopping centres. The Steinberg’s research department made the market surveys to determine the location of the proposed shopping centres to be established by the appellant, and Ivanhoe conducted the negotiations for the acquisition of the necessary properties, but Cemp through its subsidiary Cemp Holdings Ltd (now Fairview) was to assume the leading role in the development and management of the proposed shopping centres.
On June 19, 1958 the appelant purchased from La Communauté des Soeurs de Charité de la Providence a piece of property of 1,106,324 square feet on De Salaberry Street in the City of Montreal (hereafter referred to as the “De Salaberry property”) for the price of $885,059.20. The market survey prepared by the Steinberg’s organization strongly recommended the development of a shopping centre on this site. Prior to the purchase, the attorneys for the appellant carried out a title search and provided the appellant with a favourable opinion as to the title to the property. Unknown to the appellant or its attorneys, ihe City of Montreal had adopted a resolution on May 26, 1958, directing that the necessary procedures be adopted for the homologation of an area of about 600,000 square feet in the middle of the De Salaberry property for the opening of streets and the establishment of a park. Under the city’s by-laws, the effect of the proposed homologation was to prevent the issue of a building permit in respect of the said property. The appellant did not learn of the proposed homologation until some two months after its purchase of the property.
For a period of some two years the appellant sought to persuade the City of Montreal to abandon or modify the proposed homologation and to make the necessary zoning changes to permit the development of a shopping centre on the De Salaberry property, but it was unsuccessful. The appellant abandoned its efforts when a rival shopping centre, established about a mile away, obtained some of the principal tenants that the appellant had been counting on for its own development. Steinberg’s Limited signed a lease with the other shopping centre in September 1961. The appellant sold parcels of the De Salaberry property totalling 368,200 square feet at a profit to builders in January and October 1963. In September 1964 an area consisting of 520,108 square feet was expropriated by the City of Montreal. The remainder of the property, consisting of 218,016 square feet, was ceded by the appellant to the city for streets to facilitate the sale to the builders.
On May 17, 1962 the appellant purchased from the Crown in right of Canada a piece of property of 1,304,481 square feet on Metropolitan Boulevard between 20th and 32nd Streets in Lachine (hereafter referred to as the Lachine property”) for the price of $971,373.38. This purchase was also based on a market survey by the Steinberg’s research department which recommended the development of a shopping centre at this location. As in the case of the De Salaberry property, the Lachine property, at the time of its purchase, was not zoned in a manner to permit the establishment of a shopping centre, but the appellant purchased it on the strength of assurances that the necessary rezoning would be carried out. In fact, there was strong opposition from local merchants to the proposed shopping centre, and successive municipal administrations refused to carry out the necessary rezoning. The appellant sold the Lachine property to Rojax Corporation at a profit on June 20, 1963.
Profit on the sale of the De Salaberry and Lachine properties was included by reassessment in the taxable income of the appellant for the taxation years 1963, 1964 and 1965 as follows:
1963 — $372,126.17
1964 — 110,050.60
1965 — 319,594.15
The appellant appealed against these reassessments to the former Tax Appeal Board. The Board dismissed the appeal. It held that at the time the appellant purchased the De Salaberry and Lachine properties it had the secondary intention to dispose of them at a profit should its plans for the development of a shopping centre be frustrated. The Board found that the pattern of dealing on the part of the Cemp and Ivanhoe groups was to assume the risk of being able to obtain the necessary zoning after a purchase had been made, and if unable to obtain it, to sell the property. It said [[1970] Tax ABC 977 at 982]:
. . . They are not concerned with the zoning. As said by one of the appellant’s witnesses: “we take the risk that we will have enough push to get the appropriate zoning. If it does not work we sell the property.” This is evidence of a second intention.
The appellant appealed from this decision to the Trial Division of this Court. Upon the basis of the evidence adduced before it, the Court came to the same conclusion, for essentially the same reasons, as the Tax Appeal Board had, and accordingly dismissed the appeal. The trial judge devoted the greater part of his judgment to an analysis of the reiationship of the appellant to the Bronfman and Steinberg groups of real estate companies, and to an elaboration of the holding that the intention of the appellant in purchasing the De Salaberry and Lachine properties must be viewed in the light of the general course of conduct of these groups of companies. He concluded that the appellant was an instrument of these groups of companies, that their general character included that of traders in land, and that the appellant must be considered to be a trader in land.
This general conclusion appears to have been based essentially on specific finindgs of fact which may have summarized as follows:
1. the members of the controlling groups generally purchased property for a shopping centre site, as did the appellant in the present case, before obtaining the necessary zoning to permit such development, and, therefore, necessarily contemplated the possibility, as a motivating consideration at the time of such purchase, that their plans for development might be frustrated by failure to obtain the necessary zoning and that they might be obliged to resell the property; and
2. the members of the controlling groups were involved from time to time, as was the appellant in the present case, in the sale of land that for one reason or another turned out to be surplus, and that, taken as a whole, the volume of such transactions was a significant one.
There can be no doubt, on the evidence, that the appellant purchased the De Salaberry and Lachine properties with the intention of establishing shopping centres on them. This was found as a fact by both the Tax Appeal Board and the Trial Division. The question is whether, at the time of such purchase, the appellant also had, as an operating motive for purchase, the secondary intention to turn the properties to account by resale should its plans to establish the shopping centres be frustrated.
The concept of a secondary intention to resell as an indication of an adventure or concern in the nature of trade has been considered and applied in a number of decisions. An exposition of this concept to which reference is frequently made is to be found in the judgment of Noël, J (as he then was) in Racine et al v MNR, [1965] CTC 150 at 159; 65 DTC 5098 at 5103, where he said:
To give to a transaction which involves the acquisition of capital the double character of also being at the same time an adventure in the nature of trade, the purchaser must have in his mind, at the moment of purchase, the possibility or reselling as an operating motivation for the acquisition; that is to say that he must have had in mind that upon a certain type of circumstances arising he had hopes of being able to resell it at a profit instead of using the thing purchased for purposes of capital. Generally speaking, a decision that such a motivation exists will have to be based on inferences flowing from circumstances surrounding the transaction rather than on direct evidence of what the purchaser had in mind.
A speculative character in the primary purpose of acquisition for investment has been taken as an indication of a secondary intention to resell should the primary purpose fail. Such was the case in Regal Heights Limited v MNR, [1960] SCR 902; [1960] CTC 384; 60 DTC 1270, where promoters who purchased land for the purpose of developing a shopping centre failed to obtain the necessary department store as a tenant and resold the land at a profit. In delivering the judgment of a majority of the Supreme Court of Canada holding that the transaction was a venture in the nature of trade and the profit accordingly taxable, Judson, J said [at p 389 [1272]]:
. . . The establishment of a regional shopping centre was always dependent upon the negotiation of a lease with a major department store. There is no evidence that any such store did anything more than listen to the promoters’ ideas, There is, understandably, no evidence of any intention on the part of these promoters to build regardless of the outcome of these negotiations. There is no evidence that these promoters had any assurance when they entered upon this venture that they could interest any such department store. Their venture was entirely speculative.
In the present case the appellant was the instrument of Cemp and Ivanhoe, both of whom had extensive experience in the development of shopping centres. They clearly had the financial capacity and expertise required for such an enterprise and they would have reason to believe, from their previous experience and contacts, that they would be able to obtain the necessary tenants. The trial judge found, however, as did the Tax Appeal Board, that the appellant speculated on being able to obtain the necessary rezoning to permit the development of shopping centres on the De Salaberry and Lachine properties.
Whether or not the appellant had, at the time of purchase, a secondary intention to turn the De Salaberry and Lachine properties to account should its plans to develop shopping centres be frustrated by failure to obtain the necessary rezoning is, of course, a question of fact. ‘While this is technically not a case of concurrent findings of fact, since the decisions of the Tax Appeal Board and the Trial Division were not based upon the same record, this Court should not reverse the finding of fact of the trial judge on this issue unless we are of the opinion that it is clearly wrong. It is not enough that we might have come to a different conclusion on the facts had we been in his place.* [1]
The findings of the trial judge on this issue are reflected in the following passages from his judgment:
. . . No attention is given to the matter of zoning before purchasing because it is assumed that any difficulty in that respect can be overcome.
The little, if any, attention paid to zoning and the assumption that any difficulty in that regard could be overcome have been proven wrong in the present case for the two purchases of the appellant. In my opinion Such carelessness about zoning indicates strongly that the main objective is to acquire land that can always be disposed of if the plans are frustrated.
In so far as the De Salaberry property is concerned, the immediate cause of the frustration of the appellant’s plans was the homologation of a large area in the centre of the property for the opening of streets and the establishment of a park, but even if such homologation had not taken place, the appellant would have had to obtain a change in the zoning regulations. Mr Goldfarb, Vice-President of Development and general manager of Ivanhoe, said, . . it wasn’t adequate just to lift the proposed homologation, the land had to be zoned and a permit had to be granted .. .”. Thus, while the evidence is clear that at the time of purchase the appellant did not know of or anticipate the proposed homologation, it did assume the risk, to the extent that there was such a risk, of not being able to obtain the necessary zoning for the De Salaberry property, as well as for the Lachine property.
Mr Gesser, Vice-President Finance of Cemp, testified with respect to the question of zoning:
Q. Prior to this time, prior to 1962 or ’63 or ’64, had you ever not been able to obtain satisfactory zoning? A. We never had any difficulty.
Mr Kolber, president of Cemp, testified as follows:
Q. Did you anticipate any difficulty of changing the zoning? A. No, not at all, otherwise there would be no point in buying.
Q. Now what was your intention in respect to both these pieces of property, the De Salaberry Street property and the Lachine property, if you could not proceed with building a shopping centre? A. We did have a contingency plan, we were very positive in thinking we could build shopping centres in both of them.
Q. And if something happened that you couldn’t, what would be . . . (interrupted) A. We assumed we could get our moneys back for it because we felt we were getting proper prices, and in fact the De Salaberry, I think we did try to get our money back.
Mr Ciaccia, “house solicitor’ for Steinberg’s Limited and Ivanhoe, testified as follows:
Q. Prior to the acquisition of the RCAF property in Lachine in June or July 1962, with respect to other properties in which you were interested on behalf of Ivanhoe concerning the zoning thereof, had there been any insurmountable obstacles in obtaining the appropriate zoning for the construction of the shopping centre, in your experience? A. Well, with the property that I had been involved with, some were more difficult than others, but I had not encountered myself any insurmountable obstacles.
The testimony of Mr Goldfarb, Vice-President of Development and general manager of Ivanhoe, contains the following passages with reference to this question:
. . « TO answer your question as to whether this was prudent, this was modus operandi, we had done that many times prior to this, and we were successful I would say in ninety-five per cent (95%) of the time, if I refer back to our first shopping centre in Dorval which is at the Dorval Circle if you recall, that land was also zoned residential, it was unzoned, and by representations to the City Council they changed the zoning to permit a shopping centre. I did the same thing in Ste. Foy, Quebec where it was totally unzoned too, a piece of land, we went up there and talked with the City Council because it was in the best interest of the City Council to give a permit at that time to get a major development for purposes of taxes and so on, so therefore in our part, we went by past experience that we felt that we could get zoning, it was based on other previous experience that we had, because again I repeat, there was no zoning at that time and therefore Councils were now considering the granting of zoning or permits of shopping centres, because one thing that we did for them, we took automobiles off the street and put them in our private parking lot, where we cleaned the snow and we lit and we did everything, so up io that point we had no trouble.
Q. So you were taking calculated risks? A. Yes, but the calculation was about ninety-five per cent (95%), based on past experience good.
Q. Isn’t it fair to say that you were taking a chance of being able to build a shopping centre and if you could not build on account of zoning or whether, or this or that, then you would sell? A. That is a fair assumption, but I would like to point out to you that a lot of the land that we bought because it was a land assembly or because it was one major block, we paid more than the market value and when you say take a chance about selling off, we certainly took a big chance because if we disposed of it especially on a subdivision basis, you would lose one-third ( /3) of your land that you have to give up for streets and for parks and things like that, and we paid at that time what I! considered to be a very, very high price.
The foregoing testimony is perhaps somewhat equivocal as to whether the controlling interests of the appellant considered as an operating motive at the time of purchase the possibility that they might not be able to obtain the necessary rezoning and would have to dispose of the properties, and opinions might well differ as to the conclusion that should be drawn from it, but it does not, in my opinion, warrant the conclusion that the trial judge was clearly wrong in the inference he drew as to secondary intention, particularly having regard to the fact that he had the advantage of seeing the witnesses. The possibility or risk of frustration is, of course, one thing, and the question of whether the purchaser contemplated such possibility or risk as an operating motive is another thing, but I am unable to conclude on the basis of the evidence in this case that the trial judge was clearly in error in finding that the appellant must necessarily have reckoned with the possibility of such frustration and the necessity of resale.
I turn now to the evidence of the previous sales of surplus land by the Cemp and Ivanhoe groups, and the inference to be drawn from it as to the intention of the appellant at the time of purchasing the De Salaberry and Lachine properties. The appellant did not quarrel with the proposition, to which the trial judge devoted the greater part of his judgment, that the appellant’s intention must be considered in the light of the previous course of conduct of the controlling companies with respect to land acquired for shopping centre development. Indeed, it invoked that course of conduct, tending to emphasize the role of Cemp rather than that of Ivanhoe, as indicating a dominant, well- established pattern of purchase for investment purposes. The respondent placed the emphasis on the role of Ivanhoe, as indicating a greater involvement in the sale from time to time of surplus land. Cemp and Ivanhoe were equal partners in the appellant and equal weight ought, in principle, to be given to their respective contributions to what must be held to be its corporate intention. The fact that the Cemp organization was to assume the leading role in the development and management of the shopping centres is not a reason, in my opinion, to give anything but equal weight to the background and course of conduct of Ivanhoe in attempting to determine the intention with which the properties were purchased. It was the Steinberg-Ivanhoe organization that played the leading role in the selection and acquisition of the sites. It was the Steinberg’s research department that made the market surveys that determined the selection of the sites, and it was the Ivanhoe organization that negotiated their acquisition.
The evidence shows that both the Cemp and Ivanhoe groups had made sales from time to time of vacant land that had been acquired for shopping centre development. Ivanhoe, in particular, purchased land in anticipation of development needs and acquired what amounted to an inventory of land for shopping centre sites or other suitable locations for Steinberg’s stores. This pattern of conduct on the part of Ivanhoe was also noted in the case of Wilderton Shopping Centre Inc v MNR, [1972] CTC 319; 72 DTC 6277, where Heald, J, then of the Trial Division of this Court, said [at p 323 [6280]]:
The evidence was that it would “pool” land far in advance of possible use; that it might buy three potential locations in one general area and then only use one site for a shopping centre, selling the other two.
There was evidence in the present case of several sales of surplus land at a profit by Ivanhoe during the years 1962 to 1966, although the evidence did not clearly indicate the extent to which such sales related to shopping centre sites, as distinct from other sites for the location of Steinberg’s stores.
In the case of the Cemp group, most of the sales of surplus land involved ten of sixteen sites for shopping centres that had been acquired from a shopping centre developer for some $17 million. The developer was in financial difficulties and was obliged to sell a large number of sites. Cemp had to defer development of several of the sites because it did not have the resources to develop all of them at the same time, and for one reason or another it gave up its plans for development of ten of the sites and sold them, in all but one case at a loss. In some cases its plans were frustrated by failure to obtain suitable zoning. There was also evidence of other sales of surplus land by the Cemp group, in some cases at a profit.
The findings of the trial judge with references to previous sales of surplus land by the controlling interests of the appellant are reflected in the following passages of his judgment:
Though there may be only one or two purchases, the area being large, too big for the needs, there are many sales mad by the sub-subsidiaries, sister-companies of the appellant; in fact, it is in evidence that the two parent-companies, Cemp Holdings Ltd and Ivanhoe Corporation are often approached by people wanting to buy land though no advertisement is made by them. I deduce that it has to be known that their subsidiaries have excess land and that they are willing to sell. . . .
By purchasing, even if forced to, more land than reasonably required, it is evident that the appellant, like the group, has the intention to sell the excess which is of no other use. It is inventory for the appellant. . ..
. . . Each of these sister-companies has the same general objects and its business is essentially similar. Each one buys and sells land. If one is isolated from its sister-companies there is only one or two purchases and a few more sales. When they are reunited, then their dealings are impressive and indicate that their business includes buying and selling in the ordinary course of events.
As the foregoing passages indicate, the trial judge appears to have concluded that, in the present case, the appellant purchased more land than it required for the contemplated shopping centres. In my opinion, the evidence does not clearly support this conclusion but rather points to the conclusion that the area of the De Salaberry and Lachine properties was approximately what was required for regional shopping centres, having regard to the proportion of the land required for parking purposes. This does not alter the fact, however, that there is evidence of sales of surplus land in the past by the controlling interests of the appellant which afford a relevant basis from which an inference may be drawn as to the probable intention of the appellant at the time of purchase. While opinions might well differ as to the weight which should be given to this evidence, I am unable to conclude that the trial judge was clearly wrong in the inference that he drew from it. No one denies that the dominant character of the pattern of conduct of the controlling interests of the appellant was the acquisition of land for the development of shopping centres to be held for investment purposes. What the trial judge appears to have concluded, however, is that inherent in such course of conduct was the necessity from time to time to dispose of land which for one reason or another turned out to be surplus, and that this possibility must have been present to the minds of the purchasers as a motivating consideration at the time of purchase. It cannot be said that this conclusion is clearly without support in the evidence.
For all of these reasons, I would dismiss the appeal.
*See Stein v The Ship “Kathy K”, judgment of the Supreme Court of Canada, October 7, 1975, reported (1976), 62 DLR (3d) 1.