Gunnar Mining Limited v. Minister of National Revenue, [1968] CTC 22, 68 DTC 5035

SPENOE, J.:—This is an appeal from the judgment of the Exchequer Court delivered on September 30, 1965 which dismissed the appeal from the decision of the Tax Appeal Board delivered on September 24, 1963. By that decision the Tax Appeal Board had confirmed the assessment of the Minister as to the 1958, 1959 and 1960 income tax payable by the appellant.

The Minister in his assessment had added to the taxable income of the appellant income from short term investments received in each of the said years. The following were the circumstances.

The appellant, or perhaps one might more correctly say the appellant’s predecessor Gunnar Mines Limited, was developing a very large uranium ore open pit mine at Beaver Lodge in the Lake Athabasca area of Saskatchewan. The ore had been sold to Eldorado Mining & Refining Limited under a contract providing for total payments of nearly $77,000,000. Gunnar Mines Limited determined to borrow on debenture’ a capital sum of $19,500,000 and for such purposes issued 5% debentures in that sum, The Canada Permanent Trust Company was the trustee for the debenture holders and as such received the net proceeds of the sale of the debentures in the sum of $18,700,000. The said proceeds were held by the said trust company and paid out to Gunnar Mines Limited from time to time upon the latter’s certificates ‘a to the payment of the costs of construction of the proposed mine. Those parts of the proceeds of the debentures issued which were not immediately required by Gunnar Mines Limited for the purpose of expenditure upon the construction of the mine were kept invested by the trustee in short term securities and the income therefrom in the amount of $104,000 was used by Gunnar for construction purposes. That item of $104,000 was charged against the 5% interest payable on the outstanding debentures. In making its 1954 and 1955 income tax returns, Gunnar divided the sum of $104,000 between these two taxation years and deducted the two amounts from the interest paid on the 5% sinking fund debenture. That process was permitted by the Minister in the two years mentioned.

The mine was completed in Oetober 1955 and all the proceeds of the debentures were paid out by the trustee to Gunnar on or before that time. The income tax authorities agreed to consider the period between October 1955 and February 28, 1956 as a run-in period and to take the following day, i.e., March 1, 1956, as the first day upon which production of the mine commenced. This: was for the purpose of applying the 36-month taxation exemption under Section 83(5) of the Income Tax Act to which reference shall be made hereafter.

Production of uranium from the mine was so successful that the taxpayer was able to accumulate profits therefrom at such a rate that they exceeded the requirements for the payment of interest on the debentures and also the requirements for repayment in instalments of the said debentures. Under the trust deed, those debentures were to be redeemed as follows :

The company, therefore, had to determine its course. It could use these funds to redeem the sinking fund debentures prior to their due date or the company could go out into the market and purchase for cancellation the said sinking fund debentures or it could invest its profits in such short term securities as would permit it to redeem the sinking fund debentures in accordance with the terms of the trust deed. Had the company called the sinking fund debentures for redemption prior to their due date it would have been required to pay a premium. It was informed by its financial advisers that if it sought to go into the market to purchase the said sinking fund debentures for cancellation the market would immediately react so that the price would increase to equal the premium for redemption prior to the due date and the company therefore determined to invest its profits in short term securities.

In the three years under consideration, i.e., 1958, 1959 and 1960, this resulted in the taxpayer receiving an income from the said short term securities as follows :

During the same years, the liability for interest upon the 5% sinking fund debentures of the taxpayer was in these amounts :

The 36-month exemption period allowed by Section 83(5) to which I have referred above, having commenced on March 1, 1956 ended on that day in 1959, and therefore the 1959 figures must be divided so that the first two months showed an income from short term investments of $68,922.28 and the remaining ten months in the next exemption period showed an income from such short term investments of $343,930.57, while the interest payable on the 5% sinking fund debentures in the first two months was $60,152 and in the remaining ten months, i.e., the non-exempt period, was $175,940. That the financial advisers’ opinion was a sound one is demonstrated by the fact that during those three years the interest payable on the 5% sinking fund debentures totalled $836,572.90 while the income received on the short term investments made by the company out of its profits in the same three years totalled $1,148,814.20, a credit of $312,241.30.

Mr. Richard M. Parkinson, a chartered accountant, described before Gibson, J. in the Exchequer Court the method used by the company in its accounting. His evidence is summarized by the learned Exchequer Court Judge as follows:

The evidence of Mr. Parkinson in brief was that it was proper from a commercial and business point of view for the Appellant, or indeed for any business, to differentiate in its statement of income and expenditures between what he refers to as "operating items” and “non-operating items”.

The figure obtained by considering only operating items, this witness said, results in arriving at a figure of “operating income”. This is done by first obtaining the figure of gross sales less returns, allowances, etc., and subtracting from that sum the cost of sales to arrive at a figure for gross profit. From this figure is then deducted selling expenses and general and administrative expenses from which the figure of operating income is. obtained.

Then this witness said it is proper to consider the non-operating items in the business.

These non-operating items the witness said are categorized as “other income”, and include interest and dividends and miscellaneous items on the receipt side and also on the disbursement side; and from which there is computed the figure of income before federal and other taxes. Then the witness said that it is proper to make a computation of federal and other taxes and subtract the figure so found from the figure of income above referred to, in order to obtain the figure of “net income” of the business for the fiscal year.

The learned Exchequer Court Judge in his reasons said :

I accept Mr. Parkinson’s evidence in so far as it describes a method currently recommended as good practice and employed by many accountants in determining the profit or loss of a company from its business operations including miscellaneous revenues of investments of surplus cash. His method no doubt is not only good accounting practice, but is also acceptable as a method of determining the company’s income for the purpose of the Income Tax Act for a fiscal year (when the company is taxable on its income from all sources) in that it is not contrary to any particular statutory direction.

In the matter under appeal,- however, what is being considered is not income for the year from all sources but income from a source other than the company’s mining business, namely, the income from its short term investments/’ (The italics are my own. )

I am in agreement with that comment.

Section 83(5) of the Income Tax Act provides :

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.

Section 11(1) (c) of the said Income Tax Act provides:

11. (1) Notwithstanding paragrahs (a), (b) and (h} of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year :

(c) an amount paid in the year or payable in respect of the year (depending upon the method regularly followed by the taxpayer in computing his income), pursuant to a legal obligation to pay interest on '-

(i) borrowed money used for the purpose of earning income from a business or property (other than borrowed money used to acquire property the income from which would be exempt),

(ii) an amount payable for property acquired for the purpose of: gaining or producing income therefrom or for the purpose of gaining or producing income from a business (other than property the income from which would be exempt), or

(iii) an amount paid to the taxpayer under

was entitled : C Section 11

The appellant, therefore, was entitled under Section 11 of the Income Tax Act to deduct from its incomie the interest which it would be required by law to pay on the. 5% sinking fund debentures. That amount in the year 1958 was $485,878, in the year 1959 was $236,092, and in the year 1960 was $114,603.

The appellant did not deduct those amounts from its taxable income but in each year a smaller amount which resulted from crediting against that interest payable the income received from its short term investments. In fact in 1959 and 1960 that.- income far exceeded the interest payable. The result in the tax exempt period which covers the whole of the year 1958 and. the first two months of 1959 was that those amounts of income from.short term investments were thrown into the income from the operation of the mine and therefore claimed as exempt under Section 83(5) of the Income Tax Act. What is exempt under the latter section is "‘income derived from the operation of a mine’ The income from the short term investments was not income derived from the operation of the mine but was income derived from the investment of the profits of the mine. This income from the short term investments cannot be regarded as incidental income in the operation of the mine any more than any other income gained from use of the profits of the mine could be so considered.

As the learned member of the Tax Appeal Board noted in his reasons :

Even if Gunnar had held the surplus revenue from its mine on deposit, the bank interest could not be said to be derived from the operation of its mine.

Counsel for the appellant stressed the circumstance that in the tax exempt period the corporation also showed as incidental income rental which it received from the letting of certain houses at the mine property and argued that the income from the short term securities was just another form of income incidental to the mining operation. I do not think that the argument can be accepted. Those houses were built by the company so that its workers at the mine might reside therein. Certainly their construction and letting, and the receipt of rental therefrom, was incidental to the operation of the mine. To put it perhaps colloquially, during the tax exempt period the appellant was operating two businesses—firstly, a mining businses, and secondly, an investment business, and the fact that its purpose in operating the second business was so that it might accumulate funds in a readily realizable form with which it could pay off the 5% sinking fund debentures if they became due makes it nonetheless the operation of a second business.

In my view, this is sufficient to dispose of the appellant’s appeal in reference to the tax exempt period ending on February 28, 1959.

The appellant’s appeal as to the non-exempt period, being the last ten months of the year 1959 and the last eleven months of the year 1960 (the fiscal year having been altered to end on November 30) deals with the Minister’s refusal to allow the quantum of the depletion allowance claimed by the appellant as authorized by Section 1201(2) of the Regulations made under the Income Tax Act. The said regulation provides :

1201. (2) Where a taxpayer operates one or more resources, the deduction allowed is 331% of

(a) the aggregate of his profits for the taxation year reasonably attributable to the production of oil, gas, prime metal or industrial minerals from all of the resources operated by him

The appellant claimed a depletion allowance upon its total income including income from these short term investments. As the learned Exchequer Court Judge remarked :

In the matter under appeal, however, what is being considered is not income for the year from all sources but income from a source other than the company’s mining business, namely, the income from its short term investments.

It would seem that the income from such short term investments could not possibly be considered as "profits for the taxation year reasonably attributable to the production of . . . prime metal or industrial minerals . . .”.

I am, therefore, of the opinion, that the Minister’s limitation on the depletion allowance as confirmed by the Tax Appeal Board and the Exchequer Court was a proper one.

For these reasons, I would dismiss the appeal with costs. CAPITAL MANAGEMENT LIMITED, Appellant,

and

MINISTER OF NATIONAL REVENUE, Respondent.

Supreme Court of Canada (Cartwright, C.J.C. and Abbott, Hall, Spence and Pigeon, JJ.), January 29, 1968, on appeal from a judgment of the Exchequer Court, reported [1967] C.T.C. 150.

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148—Section 11(1) (a)—Income Tax Regulations—Section 1100(1) (c), Schedule B, Class 14—Capital cost allowance—Franchise, concession or licence for limited period—Whether right to manage and to exercise other privileges for period of 10 years “depreciable property” of Class 14.

In 1959, for an outlay of $1,913,060, the appellant acquired the right to manage two mutual funds for a period of 10 years and to receive specified commissions in respect thereof. In the appellant’s view it thereby acquired depreciable property of Class 14 (franchise, consession or licence for a limited period) and was therefore entitled to amortize its cost, as a capital cost allowance, over the relevant period of years. The Exchequer Court, concurring in the Minister’s view, held that the rights acquired did not represent a franchise, concession or licence as those terms were understood on this continent and were not “in respect of property”.

HELD (per curiam) :

As held by Jackett, P. in The Investors Group v. M.N.R., a “franchise, concession or licence” referred to some right, privilege or monopoly that enabled the holder to carry on his business, or facilitated the carrying on of his business, and did not refer to a contract under which a person was entitled to remuneration for the performance of specified services. Appeal dismissed.

R. deWolfe MacKay, Q.C., and C. C. Locke, Q.C., for the Appellant.

G. W. Ainslie, for the Respondent.

CASE REFERRED to :

The Investors Group v. M.N.R., [1965] Ex. C.R. 520; [1965]

C.T.C. 192.

SPENCE, J.:—This is an appeal from the judgment of Gibson, J. in the Exchequer Court of Canada pronounced on April 5, 1967 wherein he dismissed the appellant’s appeal against its 1960 assessment. The Minister had refused to permit the appellant, in computing its income, to deduct the sum of $191,466.50.

By indentures dated October 1, 1954 between a corporation known as Capital Management Corporation Limited and the Montreal Trust Company, the All Canadian Dividend Trust Fund and The All Canadian Compound Fund mutual fund Operations were established. These agreements designated the Capital Management Corporation as the manager of the trust funds and the Montreal Trust as the custodian of the assets thereof. Under that agreement, the Capital Management Corporation was entitled to a fee of not less than one-tenth of one per cent and not more than one-fifth of one per cent of the capital of the trust fund payable quarterly. There was no limitation on the period of time during which the Capital Management Corporation Limited was entitled to act as manager of the fund and receive the said fee although it might retire upon notice.

The appellant company was incorporated under the provisions of the British Columbia Companies Act on October 23, 1959. On October 31, 1959 the appellant entered into an agreement with Capital Management Corporation Limited, i.e., the existing manager under the trust deeds, whereby it purchased from the latter all its rights under the said trust deeds of October 1, 1954. The conveyance of such rights in the agreement of October 31, 1959 appears in paragraph 1 thereof as follows:

1. The Vendor hereby sells, transfers and assigns unto the Purchaser and the Purchaser hereby accepts the sale, transfer and assignment of all the vendor’s exclusive right and concession under the Indentures for and in consideration of the price of one million, nine hundred and thirteen thousand and sixty dollars ($1,913,060.00) payable upon the execution hereof.

Immediately prior to that agreement of sale between Capital Management Corporation Limited and the appellant, the former had entered into amending agreements with the Montreal Trust Company which agreements were approved by the unit holders in both the All Canadian Dividend Fund and the All Canadian Compound Fund. By the agreements which were made on October 16, 1959 the manager, 1.e., at that time the Capital Management Corporation Limited, was given the exclusive right and concession to manage all moneys and securities held by the trustees subject to the terms of the trust agreement for the period from October 16, 1959 to October 15, 1969. Also by those agreements the fees which the manager was to receive from the trustees were fixed at one-eighth of one.per cent of the capital, again payable quarterly. It is the contention of the appellant that it is entitled to claim a capital cost allowance of an amount equal to one-tenth of the purchase price of $1,913,060, as set out in paragraph 1 of the agreement quoted above. under the provisions of the Income Tax Act and Regulations.

Section 11(1) of the Income Tax Act provides :

11. (1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for the taxation year:

(a) such part of the capital cost to the taxpayer of property, or such amount in respect to the capital cost to the taxpayer of property, if any, as is allowed by regulation;

Section 1100(1) of the Income Tax Regulations provides:

(1) Under paragraph (a) of ‘subsection (1) of section 11 of the Act, there is hereby allowed to a taxpayer, in computing his income from a business or property, as the case may be, deductions for each taxation year equal to

Patent, Franchisé, Concession or Licence

(c) Such amount as he may claim in respect of property of

class 14 in Schedule B not exceeding the lesser of

(i) the aggregate of the amounts for the year obtained by apportioning the capital cost to him of each property over the life of the property remaining at the time the cost was incurred, or

(ii) the undepreciated capital cost to him as of the end of the taxation year (before making any deduction under this subsection for the taxation year) of property of the class ;

Class 14 of Schedule B reads: . ;

Property that is a patent, franchise, concession or licence for a limited period in. respect of property but not including (the exclusions are irrelevant).

. •,2! !2i..

The parties agree that Gibson, J. correctly stated that the determination of the issue as to whether the appellant is entitled to such capital costs deduction is dependent upon the answer to the question :

Are the rights or obligations obtained and assumed by the appellant pursuant to the agreement between it and the Capital Management Corporation Ltd. dated October 31st, 1959, "property that is a patent, franchise, concession or licence for a limited period in respect of property”?

Of course, such rights are not a patent SO the question narrows down to: whether they were à franchise, concession or licence, and also whether they were "‘in respect of property’’. -

Gibson, J. held that the rights which the appellant received from its predecessor under the said agreement were essentially the right to act as a managing agent for a set fee and that such right could not be described as a franchise, concession or licence in relation to property, and he therefore dismissed the appellant’s appeal from the assessment made by the Minister.

The appellant in its submission to Gibson, J. and to this Court emphasized that its rights under the trust agreements which it purchased on October 31, 1959 were much more than the rights to act as manager for a fee, in that it had the sole right to designate the brokers who could sell the units in the two funds and was entitled to an acquisition fee of 2% of the proceeds of the sale of any of those units. In addition, the broker or selling agent was entitled to a commission of 6% although sometimes less than 6% was paid as discounts were given for large purchases.

Under the trust agreements, the appellant was entitled, in the words of Article XVII, Section 5:

5. The Manager or any company in or with which it or its stockholders may be interested or affiliated or any officer or director of the Manager or of any such company may buy, sell, hold, own or deal in any of the certificates with the same rights as other holders thereof.

The appellant never did buy, sell, hold or deal in any of the certificates but it did purchase all the shares of an existing corporation known as General Mutual Funds Ltd. and that entity then sold a large number of units and obtained the 6% commission aforesaid. The appellant obtained the 2% acquisition fee on the units sold by General Mutual Funds Ltd. as well as on the units sold by a very large number of brokers all of whom it had chosen under its power in the trust deed. It is the appellant’s submission that these rights are, therefore, a "‘franchise, concession or licence’’ within the aforesaid Class 14 and Section 1100 of the Regulations.

The respondent submits that those words, ‘‘franchise, concession or licence in respect of the property’’ must be interpreted in the sense used by ordinary businessmen on this continent. Counsel for the respondent agrees that the words extend not only to certain kinds of privileges or monopolies conferred by virtue of statutory enactment but may also extend to rights created by contract between private parties. The respondent, however, submits that the English authorities dealing with similar words when used in contracts in reference to property are not helpful in interpreting the words used in income tax legislation on this continent. Counsel for the respondent, therefore, cites American dictionaries, and, particularly Webster’s International Dictionary f 3rd edition, which, at p. 902, defines ‘ ‘franchise” as

3 a: a right or privilege conferred by grant from a sovereign or a government and vested in an individual or group; specif : a right to do business conferred by a government—see FRANCHISE TAX b: a constitutional or statutory right or privilege; esp: the right to vote—usu. used with the c(l) : the right granted to an individual or group to market a company’s goods or services in a particular territory (2) : the territory involved in such a right d: a contract for public works or public services granted by a government to an individual or company e(l) : the right of membership granted by certain professional sports leagues (2) : such membership itself (8): a team and the professional organization operating it having such membership f: the right to present, broadcast, or televise the events put on by a sports league or organization . . .

And at p. 470, where " concession” is defined as:

a. a grant of land or other property esp. from a government in return for services rendered or proposed or for a particular use; specif: a tract granted to a foreign power in a Chinese treaty port or other trading center and permitted rights or extraterritoriality and local self-government b: a usu. exclusive right to undertake and profit by a specified activity [a — to build a canal] [conflicting —s in the oil fields] c: a lease of premises or a portion of premises for a particular purpose, esp. for some purpose supplementary to another activity (as the storing of wraps of patrons of a theatre) or for providing entertainment; often: the premises covered by such a concession or the activities for which it is granted [it was reported that some of the —s at the fair were not honest] . . .

And at p. 1304, where ""licence” 1 defined as :

38 a(l) : a right or permission granted in accordance with law by a competent authority to engage in some business or occupation, to do some act, or to engage in some transaction which but for such licence would be unlawful [a — to sell liquor] [a marriage —] [a — to practice medicine] (2) : a document evidencing a licence granted . . .

There seems to have been only one decision i in courts in Canada which has any direct application to the present situation: The Investors Group v. M.N.R., [1965] 2- Ex. C.R. 520; [1965] C.T.C, 192, where Jackett, P. considered a like, appeal and expressed the view that the words " franchise, concession or licence” in the statute were used to refer to some right, privilege or monopoly that enables the concessionaire or franchise holder to carry on his business or that facilitates the carrying on of his business and that they were not used to refer to a contract under which a person was entitled to remuneration for the performance of specific services, Gibson, J. adopted this view in dismissing the appellant’s appeal. Counsel for the appellant submits that the present case should be distinguished from The Investors Group v. M.N.R. on the ground that in that case all the taxpayer obtained under the agreement was a power to procure and recommend salesmen with a duty to finance their expenditures and that there was nothing to show that such power was an exclusive power. It is true that in the report of the case in 35 Tax A.B.C. 413, Mr. St-Onge dealt with those circumstances but I did not find that the learned President in considering the appeal in the Exchequer Court placed any reliance whatsoever upon them. On the other hand, he based his decision solely on a consideration of the proper interpretation to be given to the words franchise, concession or licence’’ in business practice on this continent.

Counsel for the respondent submits that the appellant in relying on the power which it alleges it had to deal with the units and advancing that power as one reason in interpreting its rights as a franchise, is misconstruing the power granted to it in the two trust deeds. Counsel for the respondent points out that the trust deeds themselves carefully distinguished between shares and certificates for shares, so in the trust deed setting up the All Canadian Dividend Fund it is provided in Article IV, paragraph 2, "‘shares may be purchased by or through persons authorized by the manager’’, and in paragraph 3, "‘upon receipt of the purchase price of a share or shares by the trustee, the trustee shall issue to each such purchaser of such share or shares a certificate representing the number of shares purchased by him’’, while in Article XVII, paragraph 5, it is provided:

5. The Manager or any company in or with which it or its stockholders may be interested or affiliated or any officer or director of the Manager or of any such company may buy, sell, hold, own or deal in any of the certificates with the same rights as other holders thereof. (The italics are my own.)

And by Article XVI, paragraph 2, the same exact right is given to the trustee. I am in agreement with this submission of counsel for the respondent that the power given to the manager and, as I have said, also to the trustee, to deal in certificates is not a power by which it may purchase shares from treasury, but merely a power permitting it to buy and sell on the market certificates for such shares once they have been issued, a power which, of course, is a very frequent one in contracts appointing trustees of a fund or managing agents of a fund when those trustees or managing agents are in the business of dealing in securities and holding investments. Once this interpretation is accepted then the position of the appellant is reduced to that of a managing agent with a right to designate selling agents and to obtain a 2% acquisition fee on sales of all shares by such agents. It is difficult to distinguish between that position and the position of the appellant in The Investors Group v. M.N.R., and I have already expressed my agreement with the view of the learned President in that decision.

This is sufficient to dispose of the appeal. I, therefore, find it unnecessary to refer to another submission made by counsel for the respondent, i. e., that whether the rights of the appellant are or are not a franchise, concession or licence’’ they are not "‘in respect of property’’. I prefer to express no opinion on that submission.

For these reasons, I would dismiss the appeal with costs. FURNESS, WITHY & COMPANY, Appellant,

and

MINISTER OF NATIONAL REVENUE, Respondent.

Supreme Court of Canada (Cartwright, C.J.C. and Abbott, Judson, Ritchie and Pigeon, J J.), January 29, 1968, on appeal and cross-appeal from a judgment of the Exchequer Court, reported [1966] C.T.C. 482.

Income. tax—Federal—Income Tax Act, R.S.C. 1952, c.-148—Section

The appellant was incorporated in the U.K. and resident in that country and not in Canada. In Canada it carried on the business of general agent or ship-broker and, in relation to ships owned by it, performed the duties and functions normally performed by a general agent or ship-broker. It also carried on the business of stevedoring in Canada and, in relation to ships owned’ by it, performed the duties and functions normally performed by a stevedore. Similar services were provided for a number of subsidiary and affiliated companies. In issue were (1) whether income earned in Canada by the appellant as general agent or stevedore was income attributable to the operation of ships within the meaning of the Act and Canada-U.K. Agreement, and (2) whether income earned in Canada in respect of servicing or stevedoring the appellant’s own ships whilst in Canada was likewise so attributable.

The Exchequer Court had held as to (1) that neither the Act nor the Canada-U.K. Agreement exempted earnings from managing or agency or stevedoring services rendered in Canada to other corporations, and as to (2) that the appellant was entitled to exemption under those provisions in respect of amounts attributable to agency or stevedoring services to ships owned or chartered by the appellant and operated in its own service. From the first finding the appellant appealed and from the second the Minister cross-appealed.

HELD (per curiam) :

The reasons for judgment of the Exchequer: Court were adopted except that no reliance was placed on the French text of the Canada- U.K. Agreement. Appeal and cross-appeal dismissed.

H. Howard Stikeman, Q.C., W. David Angus and Peter F. Cumyn, for the Appellant.

@. W. Ainslie and M. A. Mogan, for the Respondent.

ABBOTT, J. (all concur) :—This is an appeal and cross-appeal from a judgment of Mr. Justice Thurlow of the Exchequer Court of Canada, which allowed in part the appellant’s appeal from income tax assessments made for its taxation years 1957 to 1963 inclusive.

The principal issue on both the appeal and cross-appeal, is the meaning to be ascribed to the phrase, " income . .. . earned in Canada from the operation of a. ship’’ found in paragraph (c) of subsection (1) of Section 10 of the Income Tax Act, R.S.C. 1952, ce. 148, and the phrase “profits which a resident . . . derives from operating ships’’ found in Article V of the Tax Convention of June 5, 1946, between Canada and the United Kingdom of Great Britain and Northern Ireland; Statutes of Canada 1946, c. 38.

This raises two questions, namely :

(1) Whether income which the appellant earned in Canada in its character as a general agent or stevedore is "" income .. . . earned in Canada from the operation of a ship’’ or "‘profits which . .-(the , (the appellant) derives from operating ships’’; and

(2) Whether income which the appellant earned in Canada in respect of servicing or stevedoring its own ships whilst in territorial waters in Canada is ‘‘income . . . earned in Canada from the operation of a ship’’ or "‘profits which . . , (the appellant) derives from operating ships’’.

Section 10(1) (c) of the Income Tax Act provides:

10. (1) There shall not be included in computing the income of a taxpayer for a taxation year

(c) the income for the year of a non-resident person earned in Canada from the operation of a ship or aircraft owned or operated by him, if the country where that person resided grants substantially similar relief for the year to a person resident in Canada.

Article V of the Canada-U.K. Tax Convention provides :

Notwithstanding the provisions of Articles III and IV, profits which a resident of one of the territories derives from operating ships or aircraft shall be exempt from tax in the other territory.

There is no serious dispute between the parties as to the relevant facts. The appellant was incorporated under the laws of the United Kingdom and has its registered office in London. It operates branch offices at various Canadian ports and its chief Canadian office is at Montreal. It is common ground that appellant is resident in the United Kingdom and is not. resident in Canada.

In Canada, the appellant carries on the business of a general agent or ship-broker and, in relation to ships owned by it, performs the duties and functions which would normally be performed by a general agent or ship-broker. Also, the appellant carries on the business of stevedoring in Canada and, in relation to some ships owned by it, performs the duties and functions which would normally be performed by a stevedore. It also performs similar services as agent, ship-broker or stevedore for ships owned by other companies, in many of which appellant, as a shareholder, holds either a majority or minority interest.

The learned trial judge held :

1. That neither Section 10(1) (c) of the Income Tax Act nor Article V of the Tax Convention exempts earnings of the appellant from managing or agency or stevedoring services which it renders in Canada to other corporations:

2. That appellant is entitled to exemption under these provisions in respect of the portions of the amounts treated as income by the Minister, which arose from entries of charges made by the branches for ‘‘agency’’ and stevedoring services to ships which were owned or chartered by the appellant and were operated in its own service.

3. That appellant is entitled to deduct, in computing its income from business carried on in Canada, that portion of general head office administration expenses properly chargeable to its operations in Canada.

Appellant appealed to this Court from the first finding and the Minister cross-appealed as to the second. There is no crossappeal from the third finding.

There is nothing that I can usefully add to the able and exhaustive reasons for judgment of Thurlow, J., with which I am in agreement, and I am content to adopt them with one minor exception. In interpreting Article V of the Canada-U.K. Tax Convention, I do not rely upon the translation of the Convention, which appears as a Schedule to the French text of the Statutes of Canada 1946, c. 38.

I would therefore dismiss the appeal and the cross-appeal with costs.