Sheppard, DJ:—The facts and proceedings are fully set out in the Reasons for Judgment of the learned trial judge and need not be repeated here.
The issue arises out of the construction of subsection 83(5) of the Income Tax Act, RSC 1952, c 148, which reads as follows:
83. (5) Subject to prescribed conditions, there shall not be included in computing the income of a corporation income derived from the operation of a mine during the period of 36 months commencing with the day on which the mine came into production.
and is, according to the parties, whether the phrase “during the period of 36 months” refers to “income derived” as submitted by the respondent, or whether it refers to the immediately preceding words “the operation of a mine” as submitted by the appellant.
If the purpose was to grant an exemption from income tax in respect of all production of ore during the period of 36 months and whenever sold, then the appellant’s view is to be accepted. On the other hand, if the words “during the period of 36 months” refer to the income derived as reported each year, all or part of which falls within such 36 months, then the respondent’s view is to be accepted.
The appellant contends that the words “during the period of 36 months commencing with the day on which the mine came into production” would refer to the nearest antecedent and therefore modify the words “the operation of a mine” which immediately precede them. For that contention he cites Maxwell on Interpretation of Statutes, 12th ed, 1969, page 28, The Imperial Lexicon of English Language and Popular English Usage, Vol 1, page 22, and Gower’s The Complete Plain Words, page 166.
While that may be an implied intention, such implied intention will give way if it results in a construction that is inconsistent with the intention that is implicit in other words used in the section. Here such contrary intention excludes the rule of the words referring to the nearest antecedent.
The topic of the subsection is income and income is to be reported each year (sections 3 and 4 of the Income Tax Act). Hence what may be deducted under the subsection is something that would otherwise come within income for that year and be reported for that year.
In International Harvester Company of Canada Ltd v Provincial Tax Commission, [1949] AC 36, Lord Morton of Henryton, at page 53, States:
. . It was suggested in argument that the proper method of ascertaining the “manufacturing profit”, was to estimate the net profit which the appellant would have obtained if, instead of selling goods retail through its own selling organization in Saskatchewan, it had sold the same goods, direct from its factory, to a wholesaler. This method seems not unreasonable, but their Lordships do not desire to select any particular method as being the best, since this would appear to be a practical matter, not fully explored in argument.
In MNR v Imperial Oil Limited, [1960] SCR 735; [1960] CTC 275; 60 DTC 1219, Judson, J at page 749 [pp 288-9, 1224-5], delivering the judgment of Taschereau, Locke and Judson, JJ, stated:
No company makes an actual profit merely by producing oil. There is no profit until the oil is sold (International Harvester Co. of Canada v. Provincial Tax Commission, [1949] A.C. 36, at page 49; Laycock v. Freman, Hardy & Willis Ltd., [1939] 2 K.B. 1 at pages 6 and 11).
Where “income” appears in subsection 83(5), it implies the profit in each year, that is, the profit derived in each year, as represented by the proceeds of sales in excess of the expenditures in that year. Being not included implies that there is to be deducted something which would otherwise come within income, the topic of this subsection.
The reference to income, implicit in the words “during the period of 36 months”, is confirmed by the meaning assigned to individual words in subsection 83(5).
No special meaning is to be attached to the word “derived” in the words “derived from the operation of a mine”. In International Harvester Company of Canada Lid v Provincial Tax Commission (supra), Lord Morton of Henryton, at page 52, stated:
, . . . Lord Davey, in delivering the judgment of the board said: “Their Lordships
attach no special meaning to the word ‘derived’, which they treat as synonymous with arising or accruing . . .”
and the same meaning was attached to the word “derived” in this subsection in Hollinger North Shore Exploration Co v MNR, [1960] Ex CR 325; [1960] CTC 136; 60 DTC 1077, by Thurlow, J at page 332 [143, 1080].
If the words “arising or accruing” be substituted for “derived” in the expression “derived from the operation of a mine”, there is no difficulty in adopting the respondent’s construction.
The words in question “during the period of 36 months commencing with the day on which the mine came into production”, if taken as modifying the nearest antecedent, should be taken as modifying the words “arising or accruing (derived) from the operation of a mine” and as modifying this whole phrase. The words “arising or accruing” being the equivalent to “derived” necessarily imply income and hence the words “during the period of 36 months” necessarily refer to income.
It follows that the construction of the respondent is to be accepted.
The finding of the learned trial judge is affirmed.
Sweet, DJ:—To be decided in this appeal is the proper construction and the effect of the following wording in the relevant legislation:
83. (5) Subject to prescribed conditions, there shall not be included in computing the income of a corporation income derived from the operation of a mine during the period of 36 months commencing with the day on which the mine came into production.
The words “the period of 36 months commencing with the day on which the mine came into production” will be referred to as “the 36 months’ period”.
In his reasons for the judgment appealed from the learned trial judge dealt with the facts and set out in full what is referred to as “a Stated case and question agreed to between the parties”.
Section 8 and the relevant portion of section 9 of “the stated case’”’ IS:
8. The question in issue is whether in computing under section 83(5) of the Act the income of the Appellant derived from the operation of each of its new mines during the 36 months’ period
(i) there is to be included income arising or accruing from sales made during the 36 months’ period of metals from ore which had been extracted from the mine prior to the 36 months’ period; and
(ii) there is to be excluded income arising or accruing from sales made subsequent to the 36 months’ period of metals from ore which had been extracted from the mine during the 36 months’ period.
9. The parties agree that if the above question is answered tn the affirmative, the appeal in respect of the new mine income issue is to be dismissed with costs . . .
As I understand the appellant’s position it includes submissions to the effect that:
1. The phrase “during the period of 36 months commencing with the day on which the mine came into production”, because of its positioning, modifies the words “the operation of a mine” and does not modify the words “income derived”.
2. The words “operation of a mine” mean no more than the mechanical removal per se of the ore from the mine.
3. Each sale of metal subsequent to the 36 months’ period made from ore extracted from the mine during the 36 months’ period should be dealt with individually.
It is, I think, common ground that there is no income or profit arising from the mere winning of the ore and that there is no profit until the ore or resulting metal is sold.
As to the first of these submissions, it is my view that all, and not only part, of the wording which follows the words “income derived” in the quoted legislative provision modifies and relates to the words “income derived”.
It is also my Opinion that the meaning which the appellant would ascribe to “the operation of a mine” is, having regard to reality, far too limited.
The operation of the mine within the meaning of the relevant legislation can only mean the conducting of a viable, practical undertaking for that purpose. For this it is necessarily, and I would think obviously, required that there be an organization, a business enterprise, so structured and set up that the multiplicity of requirements to that end will be available. The extracting of the ore, the conversion of it into metal and the sale are parts, and important parts, but only parts, of those requirements. For realistic achievement of the result to be accomplished, and accomplished in a practical and effective sense, they must be supported and accompanied by other activities. It is the totality of that organization, of that enterprise and the totality of the conduct of the business which is “the operation of a mine” within the meaning of the legislation.
Thus it would be unrealistic, in my view, if an attempt were made separately to treat and to deal with each sale made after the 36 months’ period, even though the ore were extracted within the 36 months’ period. !t would be beyond practicability to attempt to treat each of those as separated, isolated transactions and as though they were, somehow, unrelated to the conduct of the enterprise in its entirety during the 36 months’ period.
I am of the opinion that the relief which is granted by the quoted legislative provision is confined to the 36 months’ period during which that enterprise, in its entirety, and which has for its purpose the operation of the mine, is being conducted.
When the 36 months’ period ends the enterprise enters a new era — an era untouched by the relieving provision. Sales made after the termination of the 36 months’ period are part of the operation after the 36 months’ period and are, in this connection, unrelated to the 36 months’ period.
Accordingly, sales after the 36 months’ period and the profit or income arising or accruing from them would not be items or factors within the ambit of the relieving legislation. That profit would be included in the computation of income for the taxation year of the business in which the sales were made.
The appellant submits that the object of the provision under consideration is to provide an incentive to bring new mines into production and in the construction he would place upon it, the incentive would be greater than the construction the Minister would place upon it. It would appear clear that incentive is the object of the provision. However, it is a commonplace that the nature and extent of the incentive can only be that provided by Parliament. If Parliament wished the incentive to be greater then Parliament would have done so by appropriate wording.
I would dismiss the appeal with costs.
The Chief Justice:—I agree in general with the views expressed by my brothers Sheppard and Sweet and I shall content myself with stating very briefly another approach to the conclusion that we have all reached that the appeal must be dismissed.
According to the Stated Case, as I understand it, the appeal is to be dismissed if, for the purposes of subsection 83(5), the appellant’s income from the operation of the mines in question during the 36 months period includes income from sales made during the 36 months period of product of the mines whenever produced and does not include income from sales made outside the 36 months period even though the product sold was produced during the 36 months period; and the appeal is to be allowed if, for the purposes of subsection 83(5), the appellant’s income from the operation of the mines in question during the 36 months period includes income from sales of product of the mines produced during the 36 months period no matter when the sales took place and does not include sales of product of the mines that were made in the 36 months period if the product was not produced from the mine during the 36 months period.
In my view, the real question raised by this issue is not whether the phrase “during the period of 36 months” modifies the word “derived” or the words “operation of a mine” in subsection 83(5). The real question is what is meant by the words “operation of a mine”.
The two possible meanings of “operation of a mine”, which produce, respectively, the opposite results contended for, are
(a) mere extraction of ore from a mine,
(b) carrying on the business of operating a mine, which involves, at a minimum, extracting the ore and selling it or otherwise disposing of it.
If, in subsection 83(5), “operation of a mine” means the mere physical extraction of the ore, in my view, the appellant should succeed, provided, always, that it can ever be said that income is derived from a mere physical operation of that kind considered apart from a business of which it is a part.
The other view, and, in my view, the correct view, is that when subsection 83(5) talks of income derived from operation of a mine, it is referring to income derived from a business of operating the mine, for, in relation to profit producing activity (as opposed to property or employment) a business is the sort of income source contemplated by the Income Tax Act. See, for example, section 3 of the Act, which reads as follows:
3. The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year from all sources inside or outside Canada and, without restricting the generality of the foregoing, includes income for the year from all
(a) businesses,
(b) property, and
(c) offices and employments.
A mere physical act considered apart from the other steps necessary to bring income into existence is not a source of income as con- templated by the Act. It follows that the mere physical act of extracting ore from the mine, considered apart from the business of which it forms a part, is a barren act that is not, in itself, capable of being an income source. That physical act cannot, therefore, be what is contemplated by subsection 83(5) when it speaks of “operation of a mine” as something from which income is derived.
Once it is recognized that “operation of a mine” is extraction plus sale, etc, it might be concluded that subsection 83(5) only excludes income derived from sales where both extraction and sale fall within the 36 months period. However, it has always been recognized by business and commercial practice, faced with the necessity of preparing profit and loss statements on a yearly basis, instead of preparing one profit and loss statement for the life of the business, that income should be attributed, for any business sequence of purchase or manufacture and sale, to the year in which the goods were sold. I have, therefore, no doubt that the effect of subsection 83(5) is that income is excluded if it is derived from sale of product of the mine and if that sale took place in the 36 months period.
I am of opinion that the appeal should be dismissed with costs.