WALSH, J.:—This appeal is from a notice of re-assessment of income for the taxation year 1959 dated May 27, 1964 whereby $68,255.10 was added to the appellant’s taxable income previously reported in respect of alleged income from the sale by the appellant of 74,420 shares of Combined Estates Limited during the year. By further notice of re-assessment dated May 7, 1965 minor adjustments were made to deduct a share of legal and trust fees and the cost of the Combined Estates Limited shares sold and this appeal is also from that re-assessment. By agreement between the attorneys for the parties this appeal was heard immediately following the conclusion of the evidence in the appeal of Lauch F. Farris, Executor of the Estate of Donald
F. Farris v. M.N.R. relating to re-assessments of alleged income on an identical share disposal, in which the parties were represented by the same attorneys, and the evidence of the witnesses John Earl White, Walter Potter, Joseph Weldon Graham, portions of the examination for discovery of lan Montague Harford and most of the exhibits filed in the record of the case were read into the present record, subject always to the same objections raised during the hearing in that case and taken under advisement. The only portions of the evidence in that case left out of the record of the present appeal, are the evidence of Lauch Farris, executor of the estate of the late Donald Farris who had died after the institution of his appeal and certain exhibits which related only to that case. On the other hand certain additional exhibits relating only to the present appeal were filed during the course of the evidence of the appellant Ralph K. Farris, and as his evidence was very extensive and illuminating it is convenient to deal with this appeal first. The written arguments submitted by the attorneys for the parties were prepared, by agreement, in such a fashion that they would be applicable to both appeals, the distinction between the two cases being pointed out, where such a distinction exists, in these arguments.
It must be stated that the decision reached in the present appeal need not necessarily apply to the appeal against the assessment of the late Donald F. Farris any more than the decision in either or both of these appeals need follow that arrived at in the case of John S. Davidson v. M.N.R., [1968] 2 Ex.C.R. 113; [1968] C.T.C. 136, in which Sheppard, D.J. found that the identical transaction relating to the sale of shares of Combined Estates Limited by the appellant in that case was the realization of an investment and that the gain thereon was not subject to income tax, which Judgment was not appealed by the Minister. It is well settled that the profits in the sale of property by one taxpayer may not be taxable while the profits in the sale of identical property under similar circumstances by another taxpayer may be subject to tax as an adventure in the nature of trade, depending on the apparent intentions of the taxpayer at the time of acquiring same and the nature of his business background and usual occupation. (See Gladys M. Mainwaring v. M.N.R., [1963] C.T.C. 48; William C. Mainwaring v. M.N.R., 11964] C.T.C. 341 ; Alexander Bruce Robertson v. M.N.R., [1963] C.T.C. 990, confirmed in the Supreme Court of Canada; and Robert Henry Brackman Ker v. M.N.R., [1964] C.T.C. 415, in which cases on an identical transaction Mrs. Mainwaring was found not to be taxable and the other members of the group were taxed as having entered into a trading transaction.)
The background of the share disposal we are dealing with in the present case is as follows:
On December 10, 1954 a private company Welfar Holdings Limited was incorporated, the initial shareholders being Donald
F. Farris and Ralph K. Farris (the profit in the disposal of whose shares being the issue with which these two cases are concerned), John 8. Davidson (who was found to be not taxable on the disposal of his shares by the Judgment of Sheppard, D.J. (supra)), Frank 8. Welters (whose re-assessment on the disposal of the same shares is under appeal and has not yet come on for hearing) and James 8. McKee (who died on October 21, 1958 and whose estate was not re-assessed on the disposal of his shares in 1959), each of whom subseribed to 200 shares at $1 each. A sixth shareholder, Geoffrey II. Whitelaw, who was an employee of B.C. Estates Limited which will be referred to later, and managed it as well as Welfar Holdings Limited, received in March 1956 by transfer 20 shares in each company from each of the five original shareholders, leaving them with 180 shares each and him with 100 shares. He was re-assessed on the disposal of these shares and later withdrew his appeal from this re-assessment.
A second company, B.C. Estates Limited, was incorporated on the same day as Welfar Holdings Limited, December 10, 1954, with the same five shareholders, each subscribing for 200 of the 1,000 issued common shares at $1 each. This company was formed to underwrite and offer to the public shares in companies owning apartment blocks, commercial or industrial buildings and to act as a broker in any general resale of such shares. Commencing in 1958 it also managed the buildings for which service it was paid a management fee by the corporations that owned the buildings in each ease (paragraph 15, Agreed Statement of Facts). Between 1954 and 1959 Welfar Holdings Limited, together with B.C. Estates Limited, caused the incorporation of 19 real estate companies (referred to during the evidence as “little companies”) each of which would purchase or construct one or two apartments or commercial buildings in Vancouver. In each case Welfar Holdings Limited subscribed for approximately 10 to 15 per cent of the total issued shares in each of these little companies at a price of 10^ per share and the remaining issued shares would then be sold to B.C. Estates Limited by virtue of an underwriting agreement for resale to the general public at $1 per share. The initial acquisition of the real estate in each case was made by loans to the individual little companies concerned using funds which Welfar Holdings Limited borrowed from the Canadian Imperial Bank of Commerce on the personal guarantee of its five directors, the top line of authorized credit being $165,000 (paragraph 5 of the Agreed Statement of Facts). By December of 1958 Welfar Holdings Limited had assets consisting of a total of 461,912 shares of the 19 little companies which were held in escrow on orders of the Superintendent of Brokers. During this period Welfar Holdings Limited paid no dividends or salary to any of its Shareholders other than a salary to Mr. Whitelaw, although it did receive dividends from its shares in the little companies. B.C. Estates Limited sold shares in the little companies through the medium of commission salesmen, direct mail solicitation and newspaper advertising but the shares were never listed or exchanged on any stock exchange even on an over-the-counter basis.
On December 22, 1958, 9,000 of the total authorized capitalization of 10,000 shares of Welfar Holdings Limited were cancelled leaving only the 1,000 issued and outstanding shares and under the same resolution these shares were subdivided on the basis of 420 shares for each share, leaving Ralph K. Farris, Donald F. Farris, and each of the other associates with a holding of 75,600 shares with the exception of Geoffrey H. Whitelaw who now held 42,000 shares, and as of this date the directors estimated the market value of the securities owned by the company to be $420,000. On January 26, 1959 the shareholders each sold to B.C. Estates Limited 75,420 of their shares leaving them with 180 shares each (with the exception of Mr. Whitelaw who sold 41,900 of his shares, leaving him with 100 shares) and as a result of this disposition realized in excess of the cost of the shares sold the sum of $67,546.74 each, except for Mr. Whitelaw who realized $37,919.50. Before doing this the name of Welfar Holdings Limited had been changed on January 15, 1959 to Combined Estates Limited, and a further fact of some interest is that on December 24,1958 these same shareholders of Combined Estates Limited (excepting James F. McKee who was deceased) had caused a company called Farwel Holdings Limited to be incorporated with identical shareholders to carry on a similar business. B.C. Estates eventually disposed of the shareholdings in Welfar Holdings Limited (now known as Combined Estates Limited) which it had acquired from the original shareholders to the general public.
As indicated, Mr. Whitelaw acted as a managing director for both B.C. Estates Limited and Welfar Holdings Limited, being first employed in August 1954 somewhat prior to their actual incorporation. It was his responsibility to locate and advise the directors of properties that were suitable for purchase and when the decision of the directors was made B.C. Estates Limited through him would then purchase the property in question as agent for a limited company to be formed (one of the little companies). The company would first be formed as a private company and later converted to a public company, and qualifying shares were issued to each of the directors who were drawn from the same persons who were the directors of Welfar Holdings Limited and B.C. Estates Limited. The shares subscribed for by Welfar Holdings Limited, amounting to about 10 to 15 per cent of the total share capital, at about 10¢ a share, were then placed in escrow and the balance of the shares issued to B.C. Estates Limited, pursuant to an underwriting agreement at approximately 85^ per share to be sold to the public for $1 per share in blocks of 1,000 shares. The amount of money required to purchase new properties over and above the mortgage would be borrowed from Welfar Holdings Limited which in turn borrowed from the bank on the guarantee of the directors, and on receipt of the money from the sale of the shares of the little companies by B.C. Estates Limited, the demand promissory note which had been given to Welfar Holdings Limited would then be paid off. Welfar Holdings Limited would also be paid a nominal sum for services rendered in connection with the organization of the new company which in most of the companies was in itself sufficient to pay for the shares to which it had subscribed before the offer to the public. While in the first instance the management of the properties was handled by the Montreal Trust Company, in 1958 the actual management was taken over by B.C. Estates Limited on 5-year management contracts. When B.C. Estates Limited distributed the shares of the Combined Estates Limited (formerly Welfar Holdings Limited) to the general public it followed the identical procedure as had been utilized in the distribution of the shares of the 19 little companies.
Farwel Holdings Limited which was incorporated to continue the operations of Welfar Holdings Limited arranged for the incorporation and sale of shares of three more little companies in 1959 in an identical manner to that previously adopted by Welfar Holdings Limited.
On occasion B.C. Estates Limited made payments by way of contributed surplus to various of the little companies to enable them to maintain an 8% dividend payment, this being the rate which had been indicated to be likely in the sales brochures. The amounts involved were as follows:
May 31, 1957 — $ 4,000
1958 — $ 4,400
1959 — $ 17,232
1960 — $ 13,250
In the same years the aggregate dividends paid to all shareholders by the little companies were approximately
1957 — $ 85,370
1958 — $181,555
1959 — $282,066
1960 — $198,860
following which they were unable to continue their regular 8% dividend payments due to the development of a depressed rental market (Agreed Statement of Facts, paragraphs 34 to 36). The directors of B.C. Estates Limited had, at December 31, 1958, a report from staff on the status of the various properties that indicated that the payments made to the various little companies could be expected to diminish in future. (Paragraph 39, Agreed Statement of Facts.)
By order of Sheppard, D.J. dated December 4, 1969, on the application of counsel for respondent pursuant to Section 29(6) of the Canada Evidence Act, respondent was permitted to inspect and take copies of any entries in the books or records of the Canadian Imperial Bank of Commerce, Georgia. and Burrard Branch, Vancouver, British Columbia, relating to Combined Estates Limited (formerly Welfar Holdings Limited), Farwel Holdings Limited and B.C. Estates Limited for the period from 1954 to 1964 subject to the appellant’s right of objection to the admissibility of any documents obtained by the respondent pursuant to the said order.
By a further order dated January 7, 1970 respondent was permitted to inspect and take copies of any entries in the books or records of the Canadian Imperial Bank of Commerce, 640 West Hastings Street, Vancouver, with respect to the account of Ralph K. Farris as guarantor, the Toronto Dominion Bank, 260 West Hastings Street, Vancouver, with respect to the account of Ralph K. Farris and the Toronto Dominion Bank, 560 West Hastings Street, Vancouver, with respect to the account of Donald F. Farris, deceased, again subject to appellant’s right of objection to the admissibility of any documents obtained by the respondent pursuant to this order. Similar orders were made in connection with the Donald F. Farris Estate case.
Pursuant to a Notice to Admit Documents dated February 3, 1970 applicable to both cases respondent called on appellant to admit that such of the documents as are specified to be originals were respectively written, signed or executed as they purport respectively to have been; that such as are specified as copies are true copies and such documents as are stated to have been served, sent or delivered were so served, sent or delivered respectively, saving all just exceptions to the admissibility of all such documents as evidence in this cause. A considerable number of documents are listed in Schedules to this Notice to Admit and were filed in due course under the several headings General Documents, Midland Petroleums Ltd. (N.P.L.), Cariboo Hudson Gold Mines (1946) Limited (N.P.L.), Charter Oil Co. Ltd. National Explorations Limited (N.P.L.), Harvard Syndicate, Bata Petroleums Ltd. (N.P.L.), Northern Ontario Natural Gas Co. Ltd., Twin City Gas Co. Ltd., Magna Pipe Line Co. Ltd., Natural Gas Transmission Co., Cascade Natural Gas Corporation, Pan Provincial Oil and Gas Ltd.
Pursuant to the order of Sheppard, D.J. relating to the banking records of Combined Estates Limited, Farwel Holdings Limited and B.C. Estates Limited, an affidavit of Kenneth Travers, manager of the Canadian Imperial Bank of Commerce, Georgia and Burrard Branch, Vancouver, to which are annexed 154 pages of copies of banking records, states that the deponent is advised by Joe Weldon Graham, manager of the branch at the time the records were created, that the original documents of which the exhibits are copies were at the time of their creation ordinary books or records of the bank and that the entries contained therein were made in the usual and ordinary course of the business of the bank, was filed as Exhibit 17 in the Donald F. Farris Estate case. Mr. Graham also testified at length concerning this and respondent sought to have certain specified pages of this exhibit introduced into the record. Several objections were made by counsel for appellant to the introduction of part of this evidence and in particular to inter-office memos, such as communications from the branch manager to head office in connection with credit applications, which recount statements made to him by Donald Farris and other interested parties. Section 29(1) of the Canada Evidence Act* [1] as amended on February 13, 1969 reads as follows:
29. (1) Subject to this section a copy of any entry in any book or record kept in any financial institution shall in all legal proceedings be received as prima facie evidence of such entry and of the matters, transactions and accounts therein recorded.
Subsection (5) as amended reads as follows:
(5) A financial institution or officer of a financial institution is not in any legal proceedings to which the financial institution is not a party compellable to produce any book or record, the contents of which can be proved under this section or to appear as a witness to prove the matters, transactions and accounts therein recorded unless by order of the court made for special cause.
Subsection (6) reads in part as follows:
(6) On the application of any party to a legal proceeding the court may order that such party be at liberty to inspect and take copies of any entries in the books or records of a financial institution for the purposes of the legal proceeding; . . .
Counsel for appellant contended that, while subsection (6) permits the inspection and taking of copies under court order of any entries in the books or records of a financial institution for the purposes of the legal proceedings, this does not mean that they can be produced in court and that when subsection (1) refers to an entry in a book or record this must be considered as meaning merely entries in the bank’s books and does not extend to inter-office correspondence and memoranda. He contended that Section 29 applies to financial institutions, which, as defined therein, would include banks, while Section 29A would apply to other businesses. Section 29A as inserted in the Canada Evidence Act\ [2] on February 13, 1969 reads in part as follows:
29A. (1) Where oral evidence in respect of a matter would be admissible in a legal proceeding, a record made in the usual and ordinary course of business that contains information in respect of that matter is admissible in evidence under this section in the legal proceeding upon production of the record.
(3) Where it is not possible or reasonably practicable to produce any record described in subsection (1) or (2), a copy of the record accompanied by an affidavit setting out the reasons why it is not possible or reasonably practicable to produce the record and an affidavit of the person who made the copy setting out the source from which the copy was made and attesting to its authenticity, each affidavit having been sworn before a commissioner or other person authorized to take affidavits, is admissible in evidence under this section in the same manner as if it were the original of such record.
(6) For the purpose of determining whether any provision of this section applies, or for the purpose of determining the probative value, if any, to be given to information contained in any record received in evidence under this section, the court may, upon production of any record, examine the record, receive any evidence in respect thereof given orally or by affidavit including evidence as to the circumstances in which the information contained in the record was written, recorded, stored or reproduced, and draw any reasonable inference from the form or content of the record.
(9) Subject to section 4, any person who has or may reasonably be expected to have knowledge of the making or contents of any record produced or received in evidence under this section may, with leave of the court, be examined or cross-examined thereon by any party to the legal proceeding.
(11) The provisions of this section shall be deemed to be in addition to and not in derogation of
(a) any other provision of this or any other Act of the Parliament of Canada respecting the admissibility in evidence of any record or the proof of any matter, or
(b) any existing rule of law under which any record is admissible in evidence or any matter may be proved.
(12) In this section,
(a) “business” means any business, profession, trade, calling, manufacture or undertaking of any kind carried on in Canada or elsewhere whether for profit or otherwise, including any activity or operation carried on or performed in Canada or elsewhere by any government, by any department, branch, board, commission or agency of any government, by any court or other tribunal or by any other body or authority performing a function of government;
(e) “record” includes the whole or any part of any book, document, paper, card, tape or other thing on or in which information is written, recorded, stored or reproduced, and, except for the purposes of subsections (3) and (4), any copy or transcript received in evidence under this section pursuant to subsection (3) or (4).
Counsel for respondent contended that the definition of business is quite wide enough to include a financial institution, such as a. bank, as defined in Section 29 and that the existence of Section 29 does not exclude the application of Section 29A, this being made especially clear by the provisions of Section 29A(11). The definition of record in Section 29A(12)(e) is also wide enough to include the inter-office memos included in the bank’s records.
While it is true that Section 29(1) states that the entry shall be “received as prima facie evidence’’ while Section 29A(1) refers merely to the record being ‘‘admissible in evidence .. . . upon production of the record’’, I have reached the conclusion that the very broad powers given in Section 29A permit the production of the entire bank records in question. The probative value, however, of the inter-office memoranda is another matter. In reaching a conclusion with respect to this I have had the opportunity of hearing the evidence of the witness Graham with respect to these entries, the most significant of which were made by him or under his direction during the period while he was manager of the branch.
Aside from objecting to the admissibility of part of these bank records under the provisions of the Canada Evidence Act, counsel for appellant also objected to all the material in same relating to Farwel Holdings Limited contained in pages 1 to 96 of the said Exhibit 17 on the ground that it was not even incorporated until just before the shares of Combined Estates Limited (formerly Welfar Holdings Limited) were disposed of, and that its subsequent operations would have no bearing on the question as to whether the profits realized from the disposition of these shares constituted a capital gain for the shareholders or not. Here again I believe that this objection cannot justify the refusal to admit this part of the evidence, but touches rather on the weight to be given to it. To some extent the continued actions of the shareholders in the period immediately following the disposition of their shares may perhaps be of some assistance in a determination of their intent with respect to them during the time they were shareholders, but it would be going too far afield to permit hindsight evidence of what took place perhaps two or three years later to affect the decision of the Court.
The reason why counsel for respondent insists on the introduction of this bank evidence is in an attempt to refute appellant’s contention that the sale of the shares in question became necessary as a result of the death of James McKee and that this was the sole motivation for selling them at the time, whereas respondent contends that these shares had always been considered by appellant as an adventure in the nature of trade and that plans were already afoot to dispose of them profitably when the incomes of the little companies showed signs of commencing to deteriorate, so that they would have been sold for this reason in any event whether or not he had died when he did. While a decision on this point will not in itself necessarily be conclusive in determining the taxability or non-taxability of appellant on the profit realized by the sale, the motive for selling the shares is an important factor in the determination of the issue.
The most important part of Exhibit 17 is contained in pages 102 to 107 being a report made by Mr. Graham, the manager at that time (December 11, 1958), to the regional superintendent of the bank in connection with an application for credit by Welfar Holdings Limited. At this time Mr. Mckee had already died and the application for an additional $20,000 to $25,000 was to be guaranteed by Messrs. Welters, Davidson, Ralph Farris and Donald Farris, as well as by B.C. Estates Limited. In this report on page 104 there is the following statement:
While the directors were in the process of arranging to make the subject company a public one and selling the approximately 425,000 shares to the public for $1.50 each and all the present directors, excepting Whitelaw, withdrawing from both the subject company and B.C. Estates Limited, James MacKee, one of the guarantors, aged 53 died. Since then it has been decided to proceed with making the subject company a public one. A sales programme is now being organized and the directors, including of course, the MacKee estate, expect to realize a net of about $100,000 each. We are told the Income Tax authorities will permit the approximately $95,000 each director will get over and above his $5,000 investment four years ago, as capital gain and not subject to tax.
After this has been accomplished, a new company to be called Farwell Holdings Limited will be incorporated and each of the directors will again make a nominal investment in the new company as they did in the subject company, and it is the intention to pretty well endeavour to duplicate the procedure followed by the subject company over the past four years.
Again on page 106 we find the following:
The Manager looked over all the residential and business properties of these companies in Greater Vancouver when he was approached by Mr. Whitelaw for an opinion of what credit the Bank might grant to Welfar Holdings Limited when all the present guarantors were thinking of selling their shares and withdrawing from all the companies.
Although these statements which may well have been made by Mr. Graham on the basis of information furnished him by Mr. Whitelaw, with whom he apparently dealt principally, the respondent contends they show that plans for the reorganization of Welfar Holdings Limited, the sale of the shares in same to the public, and the incorporation of the new company Farwel Holdings Limited were contemplated before the death of Mr. McKee and did not result from his death.
Mr. Graham was questioned at length concerning these bank records. In fairness to him it must be pointed out that he was testifying with respect to events which took place over eleven years ago and in the course of his duties as branch manager at the time he had occasion to prepare or sign some 50 such credit reports every week, so it is not surprising that his recollection as to the details and sequence of events should be somewhat confused. However, it must be said that he was not a very satisfactory witness. Although no serious suggestion was made of tampering with his evidence, it was admitted that he had spoken to Mr. Davidson, whose case had already been heard and finally adjudicated upon in his favour, shortly before he testified in the present proceedings in connection with this report of December 11, 1958, and that Mr. Davidson had suggested to him that his comments in it might not be correct, as to when the shareholders had commenced formulating their plans for disposing of their Shares. It was apparent during his evidence and cross-examination that he was aware how embarrassing his comments in this report were now proving for his former clients and he was prepared to admit that the information which he had included in this report might be erroneous, but, on the other hand, when confronted with it, he agreed that it. was a correct reporting of the information which had been given to him at the time. He did testify that prior to October 21, 1958 he had never heard of any proposal to sell the shares of Welfar and had never met Ralph Farris prior to that date in his office nor did he know him at that time. He was unable to recall whether the property inspections he referred to on page 106 had been made before or after Mr. McKee’s death, and stated that, since the question of whether the decision to sell the shares was made before or after Mr. McKee’s death was of no great significance to him or to the bank, this might account for the inference which he made. His report was certainly inaccurate in a number of other respects, which need not be gone into here.
The evidence of the witness Walter Potter is also of some interest in helping to determine when the shareholders first thought of disposing of their interests in Welfar Holdings Limited. He was the property development manager for B.C. Estates, having started work for that company in February 1958, and in later years he became a director of some of the little companies. His principal function was to assist in locating suitable properties for purchase. He worked under Whitelaw but sometimes dealt with the others, and occasionally attended a meeting of the directors of B.C. Estates when they were discussing the purchase of some property he had recommended. He was aware that B.C. Estates was making grants to some of the little companies to assist them to maintain their dividend payments, and became concerned about their financial position in view of the large number of new building starts in the area, which was producing more competition. He prepared a joint report, together with W. 8S. Murray, director and financial adviser of the company, which was produced as Exhibit 15 and another report produced as Exhibit 16. It must be pointed out that the first of these reports was dated April 10, 1959, and the second June 30, 1959, that is to say, after the shares in question in Welfar Holdings Limited had been disposed of, so that it cannot be said that the share disposal was made as a result of these reports, but if it can be shown that the information on which these reports were based was known to appellant and his associates prior to the death of Mr. McKee, then this might be considered to have had some influence on their decision to dispose of their shares. The first page of Exhibit 15, less the last paragraph, was incorporated in the Agreed Statement of Facts. This report states in part (as of April 10, 1959) :
. . . During the last year, vacancy losses were suffered and have now become a substantial factor. The slight surplus of supply over demand is having the usual result. The customer is able to shop around and bargain to get the best deal he can. . . .
The report goes on to state that some of the buildings such as 2300 West - 1st Avenue, 1371 Harwood Street and 2181 Haul- tain Street, Victoria, have losses above the average. It refers to the practice of some landlords to reduce rentals, provide free parking and even offer a month’s free rent or free removal expenses, and to the increasing need for maintenance for some of the buildings which were new when bought, but will now require substantial redecorating. The report goes on to say:
In summary, therefore, we are now faced with a group of adverse factors, most of which were not present a few years ago. Vacancy loss must be reckoned with. Some rents have had to be reduced. Increased costs on repairs are to be expected and items which are completely uncontrollable such as taxes, janitor charges and other operating expenses have risen quite substantially and cannot be recovered from the tenants as the market is today.
The report continues :
Many private landlords have quite a margin to operate in and can take the long view, but any reduction in revenue or increase in expenditures places our companies in immediate jeopardy. They are, without exception, in poor financial condition. On the basis of current estimates approximately $50,000.00 will be required to support dividend payments during the forthcoming year. All the companies were originally set up with almost no working capital and, because all subsequent earnings from operations have been paid out in dividends, the companies are now without the resources required to finance major expenditures. The only practical way to obtain the funds that are required to maintain the properties in a sound physical and financial condition is to impose a cut in the dividend rate.
The report dated June 30, 1959 indicates that conditions continued to deteriorate during the intervening three months. It attributes the situation to the large volume of construction, reduced immigration, and poor economic conditions. It points out that the average number of housing units started annually between 1954 and 1957 in Vancouver was 7,900 whereas in 1958 there were 12,298 starts. Multiple units started in 1957, an average year, were doubled in 1958, going up from 1,893 to 3,773. The report goes on to point out that all but four of the public companies underwritten by B.C. Estates Limited have net income below the required dividend rate and that “No company underwritten by B.C. Estates Limited in the past 214 years since January 1957 has earned an 8% dividend.”
Now although these reports are dated after the sale of the Shares it is evident that the deteriorating condition was known at least to the writers of the reports, and certainly to Mr. Whitelaw to whom they reported, for some time, and certainly during most of 1958 as the deterioration was gradual. Appellant during the course of his evidence testified that he had nothing to do with the day-to-day operations of any of the companies from 1954 to 1958, save as a director, that the sales of the shares in the little companies were handled entirely by Mr. Whitelaw, and that he himself was not aware of the adverse trend in rentals in 1958 and did not see Exhibits 15 and 16 until shortly after they were prepared, nor was he aware of Mr. Potter’s concern over the deteriorating prospects. We find, however, in the minutes of the meeting of B.C. Estates Limited held on July 17, 1958, at which both the appellant and Donald Farris were present (part of Exhibit 28, Donald Farris Estate case) the following statement:
At this stage, Mr. W. S. Murray and Mr. W. R. Potter were invited to the Meeting. Mr. Murray was questioned on several matters of interest to the Directors and was requested to give an analysis of the donations made by B.C. Estates Limited to various companies, the reasons for these donations and the likelihood that they will recur.
Later at the same meeting the following statement:
A brief but complete report was presented to the meeting by Mr. Whitelaw outlining the growth of the company. during the past year and some of the problems that have been met and others that are to be faced in the coming year.
Surely it is not conceivable that neither Mr. Murray nor Mr. Whitelaw in their reports to the meeting would have dealt with the deteriorating situation which subsequently became the subject of the written reports in April and June 1959. Mr. Potter in his evidence had also testified that in the summer of 1958 he had made known his misgivings to Mr. McKee, a former neighbour of his with whom he was apparently on sufficiently friendly terms to go over the head of Mr. Whitelaw, who appears not to have taken his misgivings too seriously. Mr. Mckee was present at this meeting on July 17, 1958 also and in any event it is not reasonable to assume that considering his close personal and business relationships with his fellow directors he had not, on any occasion prior to his death in October 1958, discussed Mr. Potter’s views with them.
Appellant, although claiming to have taken no active part in the running of the companies, agreed in cross-examination that he may have attended as many as 151 directors’ meetings of 13 of the underlying companies alone, not including Welfar and B.C. Estates during this period. He testified that he was particularly busy in connection with the promotion of Magna Pipe Line Co. Limited, and Northern Ontario Natural Gas between 1954 and 1959 and spent a substantial portion of his time in eastern Canada, particularly during 1956. Nevertheless, I believe him to be too experienced and astute a business man not to be aware of developments and future prospects in the operations of Welfar Holdings Limited, B.C. Estates Limited and at least in a general way, with the business prospects of the little companies, and that he and his fellow directors, while perhaps giving Mr. Whitelaw a free hand in the day-to-day operations of the companies, must at all times have been well aware of any significant changes and in particular the deteriorating rental market in Vancouver. He testified further that this decision to sell their shares in Welfar Holdings Limited resulted wholly from the death of Mr. McKee, since following his death the remaining four directors did not wish to continue to guarantee the bank loans themselves for the benefit of McKee’s estate, especially as there would appear to be some doubt as to whether his executor could, on behalf of the estate, continue to guarantee these loans or more specifically guarantee new loans as new little companies were formed. There were therefore only three choices open to them. First, they could have bought out the shares held by the McKee estate which they rejected as this would have been too costly. Secondly, they might have replaced the late Mr. McKee by someone else, or thirdly, they could follow the procedure which they adopted whereby the shares were subdivided and they all sold their shares so the McKee estate could get its money out, and the profits received by the other four principal shareholders enabled them to increase the amount of the bank loans they guaranteed when the new company Farwel Holdings Limited was incorporated. He admitted that the guarantees incurred for this new company were higher than those for which they were liable for the loans to Welfar Holdings Limited, but by this time the properties involved were larger and provided additional security. He stated that they never considered the possibility of converting to a public company, in which the McKee estate alone would sell its shares and the others would retain theirs. The shares they finally retained in Welfar Holdings Limited represented only a very small proportion of the total shareholdings after being subdivided 420 for 1.
In the light of all the foregoing evidence, I have reached the conclusion that the reorganization of Welfar Holdings Limited, change of name, subdivision and sale of the majority of its shares by appellant and his associates cannot be attributed entirely to the death of Mr. McKee. While there were reasons why this became a very convenient way of disposing of the interest of his estate in the company and it may have advanced somewhat the eventual sale of these shares, there is sufficient ground for believing that this possibility had been in the minds of appellant and his associates before Mr. McKee’s death as the assets of the company were at a peak in value in 1958 and there was some reason for moderate concern that the little companies might be entering into a difficult period when their dividends could no longer be maintained, and hence the promotion and sale of shares in additional little companies which was the business carried on by Welfar Holdings Limited through B.C. Estates Limited as underwriter would become increasingly difficult. To state that appellant and his associates disposed of their shares at a propitious time when they had reached their peak in value and could still be readily disposed of is not, of course, to state that the profits realized from such a sale must necessarily be taxable.
We now, therefore, have to consider the indications as to the intent of appellant when he acquired the shares and in this connection his business background and conduct in similar transactions must be carefully examined. Although he testified that when he purchased the treasury shares of Welfar Holdings Limited in 1954 he had no intention of selling them at a profit but looked on them as being in the nature of a long term annuity, I attribute little weight to this evidence. In any tax case of this sort one must anticipate that the appellant will testify that when he acquired the asset in question he had no intention whatsoever of doing so as an adventure in the nature of trade and that if he subsequently was successful in selling it at a substantial profit this was unforeseen at the time of acquisition and is a capital gain; if he is not prepared to so testify there would be no issue to litigate. We must, therefore, not depend too much on the expressed intentions of the taxpayer but rather examine his apparent intentions as indicated by his conduct in dealing with the property, and the frequency with which he has dealt with similar property in a similar manner.
During the course of his testimony Mr. Ralph Farris was taken through the history of his dealings with various companies with which he has been associated during their development and promotion and whose stock he has held, and a substantial number of exhibits were filed outlining the details of these dealings, which we need only go into briefly here. In 1939 he was a minority shareholder in Midland Securities and an employee who sat on the boards of two companies which that firm had an interest in but was not a floor trader nor a registered salesman. Subsequently, he went to Prince Rupert as the resident officer of a large construction company. In due course he incorporated Ralph K. Farris Limited which took over the seat of his former employers on the Vancouver Stock Exchange but he was only active in connection with this brokerage business for two or three years until about 1949 or 1950 although he carried the seat as an investment until 1958 or 1959. He had a share position in Charter Oil Company and carried out extensive market operations in the purchase and sale of its shares, though his best known promotion was Northern Ontario Natural Gas Company in which his 75 original shares expanded to 37,500 shares and of which he eventually became a salaried employee. He was also a salaried employee and president of Charter Oil Company Limited commencing about 1952.
Appellant testified further that Ralph K. Farris Limited was a very small company dealing primarily in arbitrage accounts. He eventually became a minority shareholder in Pacific Coast Securities which took over Ralph K. Farris Limited. One of his fellow directors. was the same John 8S. Davidson who was later associated with him in connection with Welfar Holdings Limited. Although it is not primarily because of this earlier connection with brokerage firms that the claim against him is being made for tax on the present sale of shares, it is of some interest to note that his attention was called to the danger of his being taxed on capital gains in a letter dated April 20, 1949 from
A. P. Gardiner and Company (Exhibit 5) where they indicate that they are anxious that he should be classified as an employee of Ralph K. Farris Limited so that the Tax Department will not take the stand that he is a private trader deriving his livelihood from transactions in stocks and bonds. As an employee he would be receiving an income which could be used as an argument that this was his chief occupation for purposes of income tax ‘ leaving any gains from stock transactions in the best position to argue as of a capital nature’’.
In connection with Midland Petroleum Limited, Ralph K. Farris Limited did some of the underwriting. He had a substantial insider position in connection with this company. He had some unsuccessful promotions, such as Cheam Bridge Co. Ltd., an attempt to enter into a contract with B.C. Electric Co., in connection with the conversion from one type of gas to another, and Pan Provincial Oil and Gas Co. Ltd. He also participated in the promotion of Cariboo Hudson Gold Mines.
On June 29, 1950 he provided Charter Oil Co. Limited with $4,500 for initial operating funds in consideration of which he was to receive 90,000 shares. On September 15, 1950 the prospectus of that company offered 600,000 shares for sale at $1 per share (Exhibit 24). He continued to deal in shares of this company over a period of some years (Exhibits 25 to 28). He stated that he had operated a market stabilization account to protect his interest as a shareholder because the underwriters and bankers were not doing so. He had a 25 % interest in Pacifie Coast Securities but had nothing to do with the management of it when it bought a share interest in Bata Petroleums of which one of his later associates, Frank 8. Welters was president. He was also involved in the promotion of National Explorations Limited, in which he was associated among others with John S. Davidson. He attempted to promote Magna Pipe Line to pipe natural gas from the mainland to Vancouver Island but this was never established. It is not necessary to go into the rather voluminous details of his share transactions in these various companies but an examination of the exhibits produced indicates: his primary occupation to be that of a promoter or trader, rather than that of an executive or employee of any given. company, although from time to time he has been a director and occasionally a paid officer of many companies.
It is, however, apparent in dealing with the shares of these many companies which he promoted that he was involved in a substantial number of buying and selling transactions, whereas in the present case there was only the one sale of shares after they had been held for some four or five years. This distinction must be made for appellant relies substantially on it in arguing that although he may frequently have been a trader it should not be concluded that he was so in connection with this specific deal. It can be conceded that. even a promoter and trader can make a capital gain on an isolated transaction or transactions as, for example, should he buy shares of a company such as Bell Telephone or General Motors on the Stock Exchange and subsequently sell same at a substantial profit. The respondent makes the distinction, however, that when he has an insider position, as in the present case, the situation is different.
As indicated, counsel for appellant places considerable reliance on the twofold argument that the shares of Welfar Holdings Limited (subsequently Combined Estates Limited) were disposed of by the shareholders in a single transaction and then only after having been held from 1954 until early in 1959 and that there was no buying and selling or trading of these shares in the interval, and that in fact it operated as a private company with restrictions on share transfers until just prior to the conversion and sale of the shares. It appears, however, that this particular scheme differed in several respects from other promotions in which appellant had engaged, in that what we might refer to as the “parent company” Welfar Holdings Limited was not formed to promote a single undertaking such as the development of a mine, the construction of a pipe line, nor a bridge, but rather it was active in the promotion of a total of 19 little companies over a four-year period (and subsequently Farwel Holdings Limited promoted three others on the same basis) and might have carried on on the same basis for a number of years as long as the real estate market justified such promotions. It was therefore not in the same category as a single promotion where the original shareholder would get out as soon as the promotion was completed, for in a sense this promotion was never completed until after the sale by the original shareholders of their shares, when Welfar Holdings Limited ceased to develop any further little companies and its business thereafter ceased to be that of promotion but became a more or less dormant business operation existing. on income from its shareholdings in the little companies. Being a private company, its shares were never sold on any exchange nor distributed to the public. until after the conversion to a public company and stock split when appellant and all his fellow shareholders disposed of their holdings together (keeping only 1,000 of the 420,000 new shares) so there was no question of buying or selling additional shares in the interval.
Under the cireumstances I do not find that the fact that there was no dealing in these shares by appellant until the final sale or that he held them for nearly five years justifies the conclusion that this was not an adventure in the nature of trade. As was stated in M.N.R. v. James A. Taylor, [1956] C.T.C. 189 at 190:
The singleness or isolation of a transaction cannot be a test of whether it was an adventure in the nature of trade . . . it is the nature of the transaction, not its singleness or isolation that is to be determined.
Appellant argued that any trading that was done was carried out by B.C. Estates Limited who underwrote and sold the shares of the little companies and eventually the shares of appellant and his associates in Welfar Holdings Limited, and that it is not the taxability of B.C. Estates Limited or Welfar Holdings Limited that is in issue here. I cannot accept this argument. The shares of both B.C. Estates Limited and Welfar Holdings Limited were entirely owned by appellant and his associates who were also the directors of these companies and the actions of these companies were dictated by them in their quality as directors. In deciding when to dispose of their shares in Welfar Holdings Limited they had inside knowledge of the position of both companies resulting from their position as directors. As Martland, J. said in Norman R. Whittall v. M.N.R., [1967] C.T.C. 377 at 393:
. . . Counsel for the appellant took issue with the statement that “the appellant assisted materially in the marketing of these securities”, contending that it was the investment company which had done the marketing and not the appellant. But the learned trial judge uses the word “assisted”, and the appellant was, at the material times, the majority shareholder, a director and officer of Ross Whittall Ltd. and the president of its successor. Undoubtedly he assisted in the marketing operations mentioned.
While the direct. marketing of the securities and the activities of both Welfar Holdings Limited and B.C. Estates Limited were carried on by Mr. Whitelaw and his staff and not by the appellant or his associates personally, it must be remembered that Mr. Whitelaw and his staff though employed by the companies were certainly under the direction of appellant and his associates, the directors of those companies. As Noel, J. said in Racine, Demers and Nolin v. M.N.R., [1965] D.T.C. 5098 at 5103 :
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 the purchase, the possibility of 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.
As previously stated, appellant testified that when he bought the shares of Welfar Holdings Limited he had no intention of selling them as a profit but looked on them in the nature of a long-term annuity. The whole background of appellant as a very successful promoter indicates that he certainly would not consider a $200 investment as a very substantial one, nor would he be interested merely in the potential dividend returns for same. The fact that no dividends were ever paid does not alter this since they could have been paid.
Noel, J. goes on to say at page 5104:
With reference to the past operations of the appellants, I find nothing there to indicate that they necessarily had in their minds the idea of reselling the commercial enterprise as a motivating force at the time of the purchase. In effect the proof does not show that they have ever before bought and resold a commercial enterprise. They probably engaged in many commercial ventures but, in almost all the cases, they seem to have retained them for what future income these businesses might supply them.
This is certainly not the case with the present appellant whose history is one of buying in and out of many companies, obtaining treasury shares, and evntually selling them at very substantial profits, and there is nothing to indicate that in the present case he did not always have a secondary intention in mind of selling out his shares in Welfar Holdings Limited at the most propitious time.
Appellant also places considerable reliance on the case of I wi- gation Industries Limited v. M.N.R., [1962] S.C.R. 346; [1962] C.T.C. 215, where the appellant which had incurred a bank loan for the purchase of real estates purchased shares of the common stock of another company, borrowing money to do so. When called upon to pay its overdraft it sold some of these shares for this purpose and the remaining shares were subsequently sold at a substantial profit. It was held that this was an acquisition by the appellant of a capital interest in a new corporate business venture which had the characteristics of an investment. The mere fact that the shares were disposed of soon after at a profit does not make it an adventure in the nature of trade, and an accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value; if it does so rise its realization does not make it income. I believe that case can clearly be distinguished, however, in that it involved the purchase of only 4,000 shares out of a total issue of 500,000 shares of a company in which the predecessor had no insider position. As Martland, J. stated at page 354 [p. 222]:
. . . The appellant’s purchase was not an underwriting, nor was it a participation in an underwriting syndicate with respect to an issue of securities for the purpose of effecting their sale to the public, and did not have the characteristics of that kind of a venture. What the appellant did was to acquire a capital interest in a new corporate business venture, in a manner which has the characteristics of the making of an investment, and subsequently to dispose, by sale, of that interest.
Appellant, as is to be expected, relies most heavily on the decision of Sheppard, D.J. in the case of appellant’s associate John S. Davidson (supra), which held that his profits from the sale of his shares in Welfar Holdings were not taxable constituting capital gain. Certainly the judgment in that case must be examined carefully, and should be followed unless a distinction can be made between the position of the appellant in the present proceedings and that of John S. Davidson in that case. It was pointed out during the hearing of the present proceedings that a considerable amount of evidence was introduced which was not available to Sheppard, D.J. at the time he heard the said case and which, had this evidence been before him, might have altered his decision. It would be profitless to speculate as to the effect additional evidence might have had on a decision already made, and in any event, I must base my decision in the present case on the evidence now before me, having heard the evidence of the witness Graham and examined the bank records and certain of the entries from the minute books of the companies produced as exhibits, and having also heard the evidence of Mr. Potter, none of which was before Sheppard, D.J. in the Davidson (supra) case. I have now reached the conclusion, as previously indicated, that, while the death of Mr. McKee was an important contributory factor in the decision to sell the shares of Welfar Holdings Limited when they were sold, it was not the sole reason for their sale, the possibility of which had been in contemplation sometime before his death. This finding is contrary to the finding of Sheppard, D.J. in the Davidson (supra) case and can readily be explained by the additional evidence brought before me. Certain evidence was also brought before me that Davidson was a director of Beaver Lodge Uranium Mines Limited, Far West Tungsten Copper Mines Limited and Western Tungsten Copper Mines Limited, of which the late Donald Farris and the late James McKee were also directors and that he had also acquired Shares in Bethsaida of which Donald Farris was the president and director. Part of this evidence was not before the Court in his appeal though counsel for appellant indicates in his written argument that his shareholdings in Beaver Lodge and Far West Tungsten were known to the Court in that case. As counsel for the appellant points out in his argument the evidence that Davidson was a shareholder in a number of other companies (Exhibit 47) does not constitute evidence of share trading activity by him, but it might well be that the new evidence of his previous association :with the late Donald Farris and the late James McKee in various mining developments of a speculative nature might have influenced the decision in his case which was based primarily on the fact that Davidson was in business during the entire period as an insurance broker. In any event, it is not necessary, nor would it be proper for me to decide whether on the evidence now before me I would have reached a different conclusion in the Davidson (supra) appeal which was finally disposed of in the well reasoned and unappealed judgment of Sheppard, D.J.
The fact that one of a group of people engaged in a business deal may be taxable while others of the group may not be taxable in connection with the identical deal has already been established by the Mainwaring {supra), Ker (supra), Robertson (supra), and Mrs. Mainwaring (supra) cases, and the fact that the learned judge in the Davidson (supra) case reached the conclusion that insofar as he was concerned the profit on the disposal of his shares in We]far Holdings Limited, in view of the fact that his profession was that of insurance agent, was a capital gain and not taxable as an adventure in the nature of trade, does not preclude a different finding in the present appeal if I reach the conclusion that the appellant herein had as his principal occupation the promotion and development of corporations, often of a speculative nature, and the trading in the stock thereof from an insider position.
Appellant Ralph Farris testified that Mr. Whitelaw who had been ‘brought to him by Mr. Welters, had an idea that many persons who did not have sufficient funds to invest in real estate as individuals might be interested in investing in the stock of revenue producing properties as a worthwhile. He then took them to Farris and Company, his lawyers, and stated that there may have been further discussions there as to the appropriate method to be used. It is clear that he and his brother, the late Donald Farris, the late James McKee, Frank S. Welters and John S. Davidson had had previous business associations in various combinations and apparently worked well together. There is little doubt, as Mr. Farris testified, that the main responsibility for the operations was left to Whitelaw who was given quite a free hand. It is apparent, however, that the modus operandi was carefully worked out by appellant and his associates in conjunction with their attorneys with the result that instead of investing directly in the little companies themselves Welfar Holdings Limited whose shares they wholly owned was incorporated by them and was able to acquire approximately 10% of the stock of each of the little companies at very little expense. The underwriting of the sale of the remaining shares of the little companies to the public by B.C. Estates Limited whose shares appellant and his associates also wholly owned, resulted in the earning by it of commissions of an amount equal to or more than what Welfar Holdings Limited had paid for its shares in these companies. Appellant and his associates had very, good credit standing which they used to guarantee the loans required by the little companies to acquire the properties in question, which were repaid when the sale of their shares by B.C. Estates Limited was completed. The 10% shareholding in each of the little companies by Welfar Holdings Limited was sufficient to maintain the effective control over these companies until a proxy battle in 1963 respecting some of the little companies disturbed this. B.C. Estates Limited helped out the little companies from time to time by grants in aid so that the little companies were able to maintain an 8% dividend which they had indicated to their shareholders in their sales brochures would be payable, and this in turn, helped in the promotion and sale of the shares of each new little company as it was incorporated. Welfar Holdings Limited of course received its dividends on the 10% of the shares it held and since these shares had been purchased for 10^ each instead of at a dollar, the dividend was equivalent to an 80% return on the capital investment by it to acquire these shares. Its surplus continued to grow therefore as did that of B.C. Estates Limited. B.C. Estates Limited in addition to making the grants in aid took other steps to maintain the market for the shares of the little companies. In the minutes of a meeting of directors of B.C. Kstates Limited on January 12, 1958 (the present appellant Mr. Ralph Farris was not present), it is recorded :
Mr. Whitelaw suggested to the Meeting that it would be beneficial from a selling standpoint if B.C. Estates Limited were to advertise in the press offering to purchase shares in companies underwritten by B.C. Estates Limited.
A discussion took place concerning the advisability of such action and it was suggested by Mr. Donald Farris that before placing any such advertisements that a substantial number of stockholders in previous companies be canvassed by telephone with the object of ascertaining what percentage might consider selling their stock holdings, and that should the percentage be relatively small then the advertisement offering to purchase stock be inserted in the press but limiting the number of companies in the first instance to four, and that should the response from such advertisement be relatively small that further advertisements offering to purchase stock in all companies underwriten by B.C. Estates Limited be duly inserted.
Clearly this was a market support move and I do not think that we can infer from the fact that the present appellant was not present at that meeting that he remained unaware of this decision.
In the case of M.N.R. v. Firestone Management Limited, [1967] 1 Ex. C.R. 340; [1966] C.T.C. 771, where respondent corporation purchased all the shares in another corporation controlled by the same person and a year later caused the latter corporation to become a public company and its shares to be subdivided and then sold half of them to a group of underwriters for resale to the public which yielded a substantial profit, it was held by Jackett, P. that the profit was not taxable as:
. . . The evidence indicated that respondent did not acquire the shares of the sales company with the intention of turning them to account at a profit by offering them for sale to the public, as it subsequently did. Neither did respondent’s activities following its acquisition of the shares in the sales company as an investment, viz. in converting it to a public company, reorganizing its capital structure, employing expert assistance, arranging for necessary registration with United States securities authorities, amount to the carrying on of a business: it merely did what its advisers advised it to do in order to realize most advantageously a portion of an investment which as a matter of good judgment called for some diversification.
In the present case we have something more, however, in that we have the active direction by appellant and his associates of the affairs not only of Welfar Holdings Limited but also of the B.C. Estates Limited and of the little companies controlled by Welfar Holdings Limited in such a way as to promote and build up the value of their shareholdings in Waif ar Holdings Limited, with the end result that they could eventually be subdivided, and upon the company going public be disposed of at a substantial profit. This, in my view, constitutes an adventure in the nature of trade.
I do not believe much significance should be attributed to what happened after 1959. In support of his argument that the sale of the shares of Welfar Holdings Limited resulted wholly from McKee’s death, the appellant’s counsel contended that the fact that the new company Farwel Holdings Limited was immediately esablished by the four surviving associates (and Whitelaw for his minority interest) to carry on in the same way and did in fact sponsor the incorporation of three little companies, operating again by virtue of the personal guarantees of the four principal shareholders, indicated a continuing investment. It appears to me however, that this must be considered as a separate venture, although following the same pattern. Having disposed of their interest in Welfar Holdings Limited at a time when they could realize a handsome profit on same, and being aware that, although the real estate rental market may have passed its peak, this did not entirely preclude the possibility of further profits being made, there was no reason why they should not have recommenced a similar operation, but this did not involve the re-investment of the realized profits from the disposal of their shares in Welfar Holdings Limited.
Shortly after appellant and his associates disposed of most of their shares in Welfar Holdings Limited (Combined Estates), the little companies entered into five-year irrevocable management contracts with B.C. Estates Limited which therefore continued to manage the properties. This was a wise business move but I do not see how this affects the taxability of appellant on the profits realized on the sale of his shares of Welfar Holdings Limited. An abortive attempt to sell the shares of B.C. Estates Limited to Macaulay Nicolls Maitland and Co. Ltd., took place early in 1960 and in 1963 a further attempt was made, and also in 1963 a further offer was received from the latter group to purchase the management contracts of the little companies held by B.C. Estates Limited (Exhibits 19 to 24, Donald Farris Estate case). Here again the fact that appellant and his associates wished to divest themselves of their interests in B.C. Estates Limited after disposing of their shares in Welfar Holdings Limited does not, as I see it, affect in any way the issue at present before me.
It is of some interest that in a previous tax case in which the present appellant Ralph K. Farris was involved, namely, Ralph
K. Farris v. M.N.R., [1963] C.T.C. 345, dealing with the disposal of certain oil permits which had been acquired by appellant, Kearney, J. found that the profit was ‘‘taxable income :not only from:.an adventure in the nature of trade, but also from the ordinary course of the appellant’s business, judging by his past and subsequent activities’’. Having. disposed of 80% of his interest he had retained a 20% interest which he claimed he intended to retain but for a very generous offer received from a prospective purchaser. Kearney, J. held (p. 356) :
. . .— I do not doubt but that the appellant had some intention of retaining a 20% interest, but I think this is a case where the doctrine of alternative intention which has been followed in this Court as a result of the Regal Heights Ltd. v. M. N. R., [1960] S.C.R. 902; [1960] C.T.C. 384, must prevail.
A person may have, I think, different degrees of intent which may vary from wishful thinking to a firm resolve.
I believe that this doctrine of secondary intent is of some interest to us in the present case, as even if it were conceded that appellant made his investment in Welfar Holdings Limited with the intent of retaining same as long as it proved profitable to do so, he may well formed a secondary intention to dispose of his holdings as soon as the prospect of profit from rental properties deteriorated.
While I have given careful consideration to the jurisprudence cited by learned counsel for both parties in their extensive written arguments, it must be stated that in the last analysis the decision in any case, such as the present, must depend on the specific facts and circumstances, which are not identical to those of any other case. This is well expressed in j the judgment of Lord Upjohn in Ogden Industries Pty. Ltd. v. Lucas, [1970] A.C. 127 (P.C.), where he states:
It is quite clear that judicial statements as to the construction and intention of an Act must never be allowed to supplant or supersede its proper construction and courts must beware of falling into the error of treating the law to be that laid down by the judge in construing the Act rather than found in the words of the Act itself.
‘No doubt a decision on particular words binds inferior courts on the construction of those words on similar facts but beyond that the observations of judges on the construction of statutes may be of the greatest help and guidance but are entitled to no more than respect and cannot absolve the court from its duty of exercising an independent judgment. It is with these principles in mind that their Lordships approach this very considerably body of authority.
I have to construe Sections 3 and 4 of the Income Tax Act which read as follows:
3. The income of a taxpayer for a taxation year for the purposes of this Part in 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.
4. Subject to the other provisions of this Part, income for a taxation year from a business or property is the profit therefrom for the year.
in the light of the definition of “business” contained in Section 139(1) (e) of the Act reading:
(e) “business” includes a profession, calling, trade, manufacture or undertaking of any kind whatsoever and includes an adventure or concern in the nature of trade but does not include an office or employment;
It is my Judgment that on the evidence presented before me, the acquisition and subsequent disposal of the shares in question of Welfar Holdings Limited by appellant was ‘‘an adventure in the nature of trade’’ and that the profits realized therefrom are therefore taxable.
The appeal from the Notice of Re- Assessment dated May 27, 1964. as amended by the Notice of Re-Assessment dated May 7, 1965 is therefore dismissed with costs.
*17-18 Eliz. II, c. 14, s. 3.
117-18 Eliz. II, c. 14, s. 4.