Noël, ACJ:—This is an appeal to this Court from the decision of the Tax Appeal Board on December 2, 1970, allowing an assessment for 1963 in which, on July 10, 1968, the Minister had added the sum of $18,514.91 to appellant’s income [sic] by refusing to permit it to deduct this amount which it had claimed, as a manufacturing and processing corporation, as a production incentive under section 40A of the Income Tax Act.
Appellant prints and publishes in Quebec City the newspaper Le Soleil, which had a circulation on December 31, 1963 of about 167,000 copies. There are four editions of this newspaper: the metropolitan Quebec City edition; the regional edition serving all areas outside metropolitan Quebec City, such as the counties of Beauce and Dorchester, as far as Montmagny; the Saguenay-Lac-St-Jean edition, taking in the whole of that region; and the lower St Lawrence edition, distributed from Montmagny to the tip of the Gaspe Peninsula.
In 1962 appellant, which regards itself as a manufacturing and processing corporation, and whose sales of goods processed and manufactured in Canada amounted to at least 50% of its gross annual income, took advantage of the provisions of section 40A of the Act which relate to production incentives, complied with the formalities required by the Act in this connection, and was in fact recognized by the Department as being entitled to the said deduction. As appellant was in the same situation in 1963 as existed in 1962, and took the same view as formerly, it again availed itself of the provisions of section 40A of the Act in the same way as in 1962.
On July 10, 1968 the Minister informed appellant by assessment that he refused to grant it the right to the deduction provided in section 40A of the Act, because, in the Minister’s view, appellant did not derive more than 50% of its sales from manufacturing. The Minister in fact seeks to distinguish between sales of the newspaper and advertising sales, which in the latter case would not be sales from manufacturing. Appellant contends, first, that advertisements in its newspaper must be taken into account, since printers of circulars, advertising handouts and other things of that kind, distributed by the printer himself or through third parties, qualify under the provisions of section 40A, and since almost every day, and, if not, at least frequently, appellant does exactly what the printer of circulars or advertising handouts does when required. Appellant submits that a newspaper is a single entity, and cannot be divided into two sections, namely the newspaper itself and the advertisements. It argues that a person buying a newspaper wants to be informed not only of the international, national and local news, but also of the products of various business firms, and that in some families, and by certain members of the family, the advertisements are read first, which clearly indicates that they constitute reading material as important to readers as the other news. Newspapers are not concerned by the fact that the news is paid for by the advertisers, as otherwise the selling price would be prohibitive; a newspaper without advertising either does not sell or has a very short life. In appellant’s submission, newspapers as such, even including the advertisements, constitute goods processed or manufactured in Canada. Where the preparation of a newspaper is concerned there is, in appellant’s view, no difference between what may be described as reading material, and advertising, because there has to be manufacturing and processing in both cases. It points out, to show that the reader’s interest is the same as that of the advertiser, that, to cite only one instance, the advertisements in the metropolitan Quebec City edition are generally not the same as those for Lac-St-Jean. It adds that the same also applies to certain news which is appropriate to one edition and not to others. This means that an advertiser pays “in another’s stead a few cents less than the amount it would cost to buy a newspaper with the advertisements he wants to see in it”. In appellant’s submission, the total sales of manufactured products, compared with the total sales of the business, amount to 57.126%, which is more than sufficient since the Act requires 50%. According to appellant, the advertiser chooses the size of the advertisement, its position in the newspaper, and the items and text he wants to insert, without the newspaper being able to exercise any influence, except when morals, public order and libel may be involved, so that the newspaper has no latitude and must comply with the instructions received. In appellant’s submission, therefore, it is a manufacturing corporation within the meaning of the relevant provisions of the Act, as was recognized, moreover, by the Minister in his decision, and since the expression “manufacturing and processing corporation” must be interpreted disjunctively, not conjunctively, it falls within the conditions specified as a qualification for the said deduction in 1963.
The Minister admits that income from the public sale by a printer of the circulars and advertising handouts he has made may qualify for the provisions of section 40A, but he submits that in calculating the printer’s income the amount paid for space reserved in the newspaper by advertisers cannot be included for the purposes of this section. Payment for space reserved in a newspaper by an advertiser is, in respondent’s submission, payment for services rendered, and a printer’s income from this source cannot be considered as income from the sale of manufactured and processed goods within the meaning of section 40A of the Act. It follows, therefore, that the payments received by appellant for these services would not be regarded as income from manufactured or processed goods, and the sale of its manufactured or processed goods by appellant would thus not constitute 50% of its gross income for 1963.
The Minister submits that an analysis of appellant’s sales for 1963 showed that of the total amount of $8,016,344, only $3,392,340 came from the sale of manufactured or processed goods. He said that appellant’s income for 1963 from goods processed or manufactured in Canada did not, therefore, amount to at least 50% of its gross income for the year within the meaning of the said section. In the Minister’s submission, appellant was not a manufacturing and processing corporation within the meaning of section 40A of the Act. It should be noted, first of all, that in my view the statement of the learned Member of the Tax Appeal Board to the effect that while appellant may be regarded as a manufacturing corporation, it may not be regarded as a processing corporation, a view on which he appears to have relied, at least in part, in arriving at his decision, is not well founded. First, I feel that manufacturing and processing are both involved in producing a newspaper, but that even if processing were not involved manufacturing would suffice, since subsection 40A(2) uses the disjunctive wording “. . . of goods processed or manufactured in Canada”.
Where advertisements and news are concerned, it is true that both are involved in production of a newspaper, and that production is continuous from the time the news is first compiled and put into written form, or, in the case of advertisements, from the time the employee not only obtains an advertising contract, but brings the advertisement to the office where it will also be put in print. It is probably also true to say that income from advertisements and from readers of the paper is income from sources which could not exist without each other. Both Operations are interdependent, and both form an integral part of the manufacturing and processing involved in the production of a newspaper, and it is even possible that the latter could not be done profitably or satisfactorily without the income from advertisements. Furthermore, the manufacturing of a newspaper is done in the same way for the news as for advertisements. It includes the collection and page- setting of news for the information, instruction and entertainment of the readers who buy the paper, but it also covers collection of information from those desirous of paying for the advertisements inserted in the newspaper. This collection of news and information is part of the process of manufacturing a newspaper, and is included in the uninterrupted sequence of Operations from the time the news item or advertisement is collected or obtained until the newspaper is in the purchaser’s hands, and the income resulting from these two operations undoubtedly comes from manufactured and processed goods. Furthermore, the newspaper vendor who buys newspapers for resale will have for sale, in his stock, goods manufactured and processed in Canada. Unfortunately for appellant, however, these are not the only conditions specified in order to qualify for the deduction provided in section 40A. Indeed, the latter does not say that a manufacturing and processing company may make certain deductions from its income tax if the income from goods which it has processed or manufactured in Canada amounts to at least 50% of its gross income, but rather that it may make these deductions if the net sales come from the sale of goods processed or manufactured in Canada. The income must therefore come from the sale of goods if it is to be included in the taxpayer’s income for deduction purposes.
Although it may be difficult to distinguish the case of advertising circulars sold to an advertiser for distribution to the addressees from that of advertisements sold to the same advertiser for insertion in the newspaper, when both are produced by the same process and by the same workers or employees, using the same materials, the fact remains that the publication of advertisements in the newspaper does not constitute a true sale of “goods processed or manufactured”, such as that which occurs on sale of the newspaper itself to the reader, or even on the sale of circulars to the advertiser. In fact, one aspect is lacking which is essential in order to bring the amounts paid for advertisements inserted in the taxpayer’s newspaper within its net income from the sale of processed or manufactured goods, in that it is paid for services rendered, and not for goods sold, since the advertiser receives no goods except the benefit of using the newspaper’s facilities to get his information across to actual or potential customers. I feel I must come to this conclusion, even though the advertiser, through what might be called an advertising “subsidy”, is thereby contributing to the cost of the newspaper, and thus making it possible for the reader to pay a lower price than what he would otherwise have to pay if he had to bear his full share of the cost of producing the newspaper.
It is not possible, in fact, without doing violence to the wording of section 40A, and without distorting the meaning of the words ‘sale of goods”, to maintain that an “advertising contract” is a sale of goods. Indeed, a sale of goods necessarily implies that property in chattels is transferred to another for a money consideration, and I find it hard to accept that there is such a transaction or operation when an advertiser pays a sum of money for an advertisement he wants to have inserted in a newspaper. There is in such a case no goods which change hands, and the advertiser obtains no property right in the advertisement paid for by him and inserted in the newspaper. I feel, therefore, that it is more true to say that where advertisements are concerned, the newspaper only undertakes to perform certain services for the advertiser, namely that when the newspaper is printed and sold it will contain the advertisement ordered by the advertiser.
I therefore consider it impossible to extend the provisions of section 40A of the Act so as to make them apply to appellant.
The appeal is therefore dismissed with costs.