Ralph K. Farris v. Minister of National Revenue, [1963] CTC 345, 63 DTC 1221

KEARNEY, J.:—We are here concerned with two separate appeals from income tax assessments levied by the Minister upon the appellant for the year 1952 (case No. 160170) and for 1953 (case No. 160171). Both notices of appeal were filed in this Court on December 31, 1959, and the appeals were heard together. The basic issue which is common to both cases is the familiar one of capital versus income resulting from a business or adventure in the nature of trade. In several other respects the case presents unusual features. I will deal first with the income tax assessment for 1952.

The main facts are not in issue and are broadly these. The appellant, a resident of Vancouver, on February 5, 1952, acquired from the British Columbia Department of Land, Crown Petroleum and Natural Gas Permits Nos. 317 to 321 inclusive (hereinafter called ‘‘the B.C. permits’’) for which he paid $26,250. Shortly thereafter he sold by instalments his entire interest in the said permits in the under mentioned manner for $81,643.10, thus realizing $55,393.10 more than he paid for them.

The Minister assessed to tax, inter alia, the said amount of $55,393.10 as appears by a notice called notice of re-assessment dated October 3, 1958, which reads in part as follows:

“ EXHIBIT 7

NOTICE OF RE-ASSESSMENT

3 Oct. 58

Ralph K. Farris

Taxation year 1952. Tax assessed $39012.00 Tax assessed includes

Penalty $500.00.

A further examination has been made of your income tax return for the taxation year indicated. The resulting reassessment of tax is shown above and any adjustment to interest assessed is shown under ‘Statement of account’.

Explanation of changes—

Taxable income previously reported _ Nil

Add : Salary from United Distilleries

As appears by the documents transmitted by the Minister in conformity with Section 100(2) of the Act (hereinafter referred to as ‘‘the documents’’), the appellant by notice dated October 31, 1958 objected to the said so-called re-assessment wherein he acknowledged having received as salary from United Distilleries $500 during the taxation year 1952 and contended that he filed an income tax return for the said year but, in any event, since his personal exemptions totalled $2,450 and as the said $500 was the only income he received in that year, it was unnecessary for him to file a return for the 1952 taxation year. He objected to the other two assessment items on the ground that the gain of $55,393.10 was not taxable profit but a capital gain as the appellant was not in the business of trading in permits neither did the transaction constitute an adventure or concern in the nature of trade.

As to the $16,500 item of the so-called taxable income, the appellant claimed that it was unfounded as he had no transaction whatsoever with Canadian Producers Ltd. during 1952 and had no knowledge of the gain alleged by the Department. Finally, as to the penalty of $500, the appellant states that he did not and neither was it alleged that he wilfully attempted to evade payment of tax properly payable under the Act and that the penalty of $500 cannot be imposed.

By notice of re-assessment mailed on October 8, 1959, the Minister made the following adjustment to the taxpayer’s net income previously assessed. See Exhibit 8 which reads in part as follows :

‘Notice of Re-assessment

8 Oct. 59
Ralph K. Farris
Taxation year 1952	Tax assessed _. $27,906.23
(Tax assessed includes
penalty $500.00)
	Previous tax ....	$39,012.00

A further examination has been made of your income tax return for the taxation year indicated. The resulting reassessment of tax is shown above and any adjustment to interest assessed is shown under ‘Statement of Account’.

Adjustments to declared income—
Net income previously assessed		-____r_____2_„A $72,393.10
Deduct: Amount assessed in error as profit from
sale of B.C. Oil Permits			16,500.00
Revised net income	_.		55,893.10
Personal exemptions	...	-	2,450.00
Revised taxable income			$53,443.10”

The appellant. filed an appeal from the above-mentioned reassessment on December 31, 1959, as earlier mentioned.

. It is common ground, as set out in the opening paragraph of the notice of appeal, that at all relevant times he resided in the city of Vancouver and managed the affairs of Charter Oil Co. Ltd. During the first month of the year 1952 he was employed by United Distilleries Limited and received as salary from that company the sum of $500. A form 1‘4-1952 filed by the said company indicates that $60.30 was deducted from the said $500 and paid to the Department of National Revenue. After reiterating his contentions set out in his notice of objection that the proceeds from the sale of the permits amounting to over $55,000 was a capital gain and denying that at the time of the sale he was in the business of trading in oil and gas permits the appellant raised the following defence.

g The Minister purported on October 3, 1958 to re-assess the appellant in respect of his taxes payable for the taxation year 1952 but did not raise any question of misrepresentation or fraud on the part of the appellant in filing his income tax return or in supplying information under the Act, the aforementioned re-assessment having been made more than four years after the making of the original assessment is barred by reason of Section 46(4) of the Income Tax Act which as amended by S.C. 1960, c. 43, Section 15(3), states:

“46. (4) The Minister may at any time assess tax, interest or penalties under this Part or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the taxation year, and may

(a) at any time, if the taxpayer or person filing the return

(i) has made any misrepresentation or committed any fraud in filing the return or in supplying any information under this Act, or

(ii) has filed with the Minister a waiver in prescribed form within 4 years from the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year,

and

(b) within 4 years from the day referred to in subparagraph

(ii) of paragraph (a), in any other ease,

re-assess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require. ’’ Section 46(4), as amended by Statutes of Canada 1960, c. 43, Section 15(3), states:

‘“A reference in paragraph (b) of subsection (4) of section 46 of the said Act as enacted by this section to a period of four years from the day referred to in subparagraph (ii) of paragraph (a) thereof shall, in its application in any case where an appeal from a re-assessment was instituted before the coming into force of this section be construed as a reference to a period of four years from the day of an original assessment or the day of mailing of a notification described in subsection (4) of section 46 of the said Act as enacted by this section. ’ ’

On June 28, 1959, the respondent filed his reply to the appellant’s notice of appeal in which he admitted the contents of the first paragraph thereof and acknowledged receipt of the T-4 form and the sum of $60.80 in respect of appellant’s salary of $500. He accepted the appellant’s statement of fact as to the manner in which the permits were acquired and sold and alleged that the appellant realized a profit thereon of at least $55,393.10. The respondent also declared that the appellant never filed a return of his income for 1952 in the prescribed form and the respondent had never, prior to October 3, 1958, made an original assessment of the tax payable by the appellant for the said year. The respondent denied that on or about October 3, 1958 he purported to re-assess the appellant in respect of income tax payable for the year 1952 but says that immediately prior to October 3, 1958 he assessed the appellant for the year 1952, notice of which was posted on October 3, and says that the notice of assessment speaks for itself. He admitted the filing of appellant’s notice of objection and said that on reconsideration he re-assessed the appellant, notice of which was posted, as already mentioned, on October 8, 1959.

The respondent in his reply also says that in assessing and re-assessing the appellant for the year 1952 he acted on the following assumptions :

That the appellant acquired the permits with a view to profit by turning the same to account or by trading in such permits ;

That the profit of at least $55,393.10 which he realized on the purchase and subsequent resale of the permits was profit from a business or adventure in the nature of trade as defined in the Income Tax A ct ;

That the sum of $500 levied as a penalty against the appellant for failure to make a return when required for the year 1952 was properly imposed and calculated and that the respondent relies, inter alia, upon Sections 3, 21, 40(1), 41, 42(3), (4), 44, 46, 48, 51(1), 53(2) and 127(1) (e) of the Income Tax Act, 8.C. 1947-48, c. 52, and Section 142 of the Income Tax Act, R.S.C. 1952, c. 148.

I think that this is as an appropriate time as any to consider the merits of the appellant’s submission in his notice of appeal that the respondent allowed more than four years to elapse between an original assessment and the so-called re-assessment of October 3, 1958, as mentioned in Section 46(4) of the Act.

If the appellant is unsuccessful in proving the aforesaid lapse of time, the ancillary question of whether and when he filed a tax return for the year in question becomes of little importance. Assuming for the sake of argument that he filed a tax return which showed taxable income of $500, since, as he pointed out, his exemptions amounted to $2,450, I think the probabilities are that the Minister would be in no hurry to make an examination into such an occurrence rather than accept a nil return and hasten to notify the taxpayer that no tax was payable. If the latter had been the case, the appellant would likely have received a notice to that effect, but he did not claim that he received any notice from the Minister prior to October 3, 1958.

In order to support his contention that it should be presumed that the Minister made an original assessment more than four years prior to the re-assessment of October 3, 1958, the appellant placed strong reliance upon the words, ‘‘with all due despatch” as contained in Section 46(1) which reads as follows:

“The Minister shall, with all due despatch, examine each return of income and assess the tax for the taxation year and the interest and penalties, if any, payable.’’

I do not consider that the above provision can be interpreted in such a way as would lead to the conclusion or create a presumption that an original assessment in the instant case was made prior to Ocober 3, 1958, or at any other particular time. I think it is generally accepted that the words, ‘‘with all due despatch’’ contain little if any of the element of compulsion and were not intended to tie the Minister’s hands. See Provincial Paper Ltd. v. M.N.R., [1954] C.T.C. 367. They should, I think, be read in conjunction with other provisions of the Act, such as:

“46. (3) Liability for tax under this Part is not affected by an incorrect or incomplete assessment or by the fact that no assessment has been made.

139.(1) (d) ‘assessment’ includes a re-assessment ;’’

I think the construction of Section 46(1) depends on the particular circumstances of each case and should be interpreted so as to afford the Minister ample latitude in taking all reasonable means necessary to ensure effective administration of the Act. Counsel for the appellant also argued that since the notice sent by the Minister on October 3, 1958, was called a re-assessment it presupposes that a previous original assessment had been made, As we have seen, the Minister takes the position that the so- called re-assessment of October 3, 1958, while called a re-assessment was in fact an original assessment.

It is important to note that prior to October 4, 1954, namely, in the month of September of that year, the appellant’s case was still under investigation (Ex. 4A) and I don’t think it can be reasonably inferred that the Minister, under such circumstances, would have made an original assessment at an earlier date.

Later, namely, on April 25, 1955 (Ex. “B”), the appellant gave details of the purchases and sales in 1952 of Charter Oil Co. Ltd. stock which led to an added assessment being made of the $45,000 item previously referred to. I think it is a further element. which renders it probable that the making of any original assessment in 1955 still lay in the future.

The fact that a dummy return (see transmitted record Ex. 6) which bears the date of August 12, 1958, was compiled by an assessor in the Minister’s Office and indicates that the net taxable income attributable to the appellant for that. year was $72,393.10 and corresponds exactly with the amount of the additional assessment mentioned by the Minister in his notice of re-assessment dated October 3, 1958 (EX. 7) and with the amount described as net income previously assessed in the respondent’s notice of re-assessment dated October 8, 1959 (Ex. 8), is strong evidence that this calculation is the original assessment made in respect of the taxes allêgedly owing by the appellant for that year. It also bears a sealed and initialed stamp ‘‘October 3, 1958”’ which is the date in which the first notice of re-assessment was sent to the taxpayer.

I am accordingly of the opinion that the original assessment was made within less than two months prior to the first notice of re-assessment and was well within the 4-year period prescribed by Section 46(4).

1 will now deal with the assessment of $55,393.10 on its merits and enquire whether these proceeds realized by the appellant from the sale of the said permits constituted capital gains or income from a business as defined in Section 139(1) (e) which reads as follows :

‘“ “Business.’—‘ Business’ includes a profession, calling, trade, manufacture or undertaking of any kind whatoever and includes an adventure or concern in the nature of trade but does not include an office or employment ;’’

As was said in the oft-quoted Californian Copper Syndicate v. Harris, 5 T.C. 159, the problem reduces itself to a determination of which side of the line does each particular transaction fall.

in support of his defence that the said amount is not subject to tax the appellant testified (Vol. 1 of the transcript, pp. 82 et seq.) that he purchased the said permits as a long term investment which would enable him to participate in the proceeds from oil and gas lands which he hoped would prove to be productive. He secured permits on 500,000 acres with the ultimate aim of obtaining a commitment from one or more large independent or major oil companies to explore and develop the acreage in return for which the appellant would assign a considerable percentage of his interest in the permits (this transaction is called a “farm out’’), while expecting to be able to retain for himself about a 20% interest in the total acreage. As it would take time to interest large oil companies capable of spending probably a million or more on development, the appellant decided to lessen his risk and reduce his original investment by securing -a few influential associates who would purchase an interest in the permits and would be helpful in furthering his aim of interesting a major oil company to the extent of becoming a “farmee”.

As initially mentioned and as appears by paragraph 2 of the notice of appeal, the appellant having acquired the permits on February 5, 1952, his first associate became Northern Oils Ltd. (Vol. 1 of the transcript, pp. 20 ef seq.), which company acquired a 10% interest in the permits for $6,250 on March 30, 1952. The said company was partly owned or controlled by a Mr. Nash who had been associated with the appellant in the construction business and. partly by Mr. Ralph Brown who was a lifelong personal friend.

Next, on April 2 came Redwater Utilities Holdings and Asher Company Limited, two companies in which Mr. Max Bell with whom he had acquired an interest in other oil permits or reservations herein later referred to was interested. Mr. Bell informed the appellant that the two companies would acquire a 70% interest in the permits. Accordingly the Redwater Co. paid $14,850 for a 40% interest, the Asher Co. $11,150 for a 30% interest. The appellant thus realized for an 80% interest in his permits exactly $6,000 more than he had paid for all of them.

Following two or three conversations which the appellant had with Mr. J. A. Mayberry (Vol. 1 of the transcript, p. 93), who was a co-director of his in Charter Oil Co. Ltd., informed the appellant by a long distance call that he had looked into the permit matter and that he was prepared to pay approximately $50,000 for the appellant’s remaining 20% interest. This offer, the taxpayer stated, was the equivalent of 50c an acre compared with a little over 7c an acre which he had received from his other associates. With very little further thought he felt compelled to change his ‘‘attitude’’ of retaining his 20% interest because of the magnitude of this cash offer. He accepted it and on April 16 he received $49,393.10 from Albermont Petroleums Ltd., which was owned or controlled by Mr. Mayberry. The appellant described the manner in which the permits were obtained and it convinces me that the money expended in acquiring them was a speculation of the first water. No prior prospecting was done but the acreage was acquired sight unseen and selected from a map on which available acreage was marked. The appellant also stated that, by taking a very large acreage which he knew he could not afford to carry, his chances of striking oil were improved if the large acreage could be retained through the medium of forming a group to share the initial expense and risk entailed. I am convinced that the $6,000 gain which he made on the first three sales was a speculation in the nature of trade even if it were the only single venture of its kind which he undertook. Before discussing the merits of the defence raised in respect of the sale for approximately $50,000 of his remaining 20% interest to which he made to Albermont Petroleums I should advert to the proof in respect of other similar transactions. The evidence shows that in 1950 the appellant had, with Messrs. Benendum and Trees, acquired 11 gas and oil permits or reservations extending over 630,000 acres situated in the province of Alberta. Later he syndicated and disposed of his interest in the same year to Charter Oil Co. Ltd. in consideration, inter alia, of the issuance to him of 100,000 shares, about half of which he sold during the year 1952. See Exhibit 4A and p. 2; Exhibit “B”, p. 2, para. 1, and p. 5, para. 1.

Shortly after disposing of the instant 5 British Columbia permits for some $55,000 the appellant acquired in 1952 a 50% interest from the Government of Canada in 14 gas and oil permits, covering more than 800,000 acres, in the Northwest Territories. The cost to him of his half interest. was $26,000. On June 3, 1953, he sold half of his said interest to Pan-Provincial Oil Co. Ltd. partly for cash and partly for shares of the said company. The permits, he testified, went into default and the interest of all parties in them was lost. There is also additional evidence in the record (I do not think it necessary to refer to it in detail) which shows that, prior, during and subsequent to 1952 and 1953, the appellant described himself and was reputed to be “an independent oil operator” and ‘“promoter’’. Also that in his earlier career he tried several lines of endeavour, almost all of which he gave up when in 1950 he organized and caused to be incorporated the Charter Oil Co. at a time when there was great activity in gas and oil exploitation in Western Canada. By 1952 this line of endeavour became to all intents and purposes his only concern. Prior to 1949 he owned a stock brokerage which he wound up but retained for himself its seat on the stock exchange and during the years in question he carried out extensive market operations in the purchase and sale of shares of Charter Oil Co. Ltd. for whose existence he was responsible and also in respect of Midland Petroleums which he had helped to underwrite.

I am satisfied that at least insofar as the $6,000 gain realized on the first. three sales in respect of the permits in issue constitutes quick profit which the appellant always intended to realize. Furthermore, they were transactions which were not merely an isolated adventure in the nature of trade but which, I am convinced, occurred in the ordinary course of the business in which the appellant was then engaged.

Now, with respect to the appellant’s contention that the sale of his remaining 20% interest for over $49,000 falls into a different category because he intended from the begi nning to retain it and would have done so but for ths Albermont Petroleums Ltd. offer which came as a ‘‘windfall’’. In my opinion, the risk in connection with purchase and sale of gas and oil permits was such that it is reasonable to assume that anyone engaged in such transactions would maintain a mobile position and be prepared at short notice to quickly eut what looked like a bad loss or to seize upon what seemed to be an unexpectedly large and fleeting sain. 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 Regal Heights Lid. 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. In this connection, the appellant used the word 11 attitude 7 ’, which, in my opinion, aptly described his state of mind. The defence is further weakened by the fact that the appellant disposed of his entire interest by four sales which all occurred within a space of about two weeks of each other and within a little over two months from the date of purchase and I consider that it must fail. For. the foregoing reasons I find that the sum of $49,393.10, like the $6,000 amount, totalling $55,393.10, resulted from a scheme of profit- making and is income from a business within the meaning of Section 139 (1) (e) of the Act and that the Minister was justified in so finding.

More than two years after the respondent? s reply, namely, on February 2, 1962, pursuant to an order granted by Dumoulin, J., the Minister filed a further reply to the appellant’s notice of appeal wherein, apart from reiterating the allegations of the original reply, ‘he sought to include as additional taxable income a sum’ of'$45,754.60 which; allegedly, the appellant received in 1952 as a profit as a result of trading operations in the shares of Charter Oil Co. Ltd. which he had acquired in 1950.

I might here add that I think, for. reasons which appear later, I do not propose to deal with the aforementioned item on its merits nor with the appellant’s defence that the Minister erred in assuming that the appellant obtained the said shares for nothing, whereas he had been given valuable consideration for them. The respondent in the aforesaid reply declares that in calculating the appellant’s income he had erred in not including the said amount and consequently he prayed that the appeal be allowed and the so-called re-assessment of October 3, 1958, be referred back to the Minister for re-assessment so as to include as income the further sum of $45,754.60.

It j is not to be assumed from this prayer that if I were to grant it the appellant would be freed from liability in respect of the sum of $55, 393. 10 previously considered.

In my opinion, the item of $45, 754.60 is not properly before this Court for adjudication on the merits. The aforesaid item is not included in any so-called re-assessment and is not the subject matter of the appellant’s notice of appeal. Counsel for the respondent suggested that the Minister’s first and second reply were something in the nature of a cross-appeal. There is no provision that I know of in the Act whereby the Minister is empowered to file a cross-appeal from his own assessment. A crossappeal lies to this Court only from a decision of the Tax Appeal Board upon notice being given to the opposite party as provided in Section 99(la) of the Act which reads as follows :

“If the respondent desires to appeal from the decision of the Tax Appeal Board, he may, instead of filing a notice of appeal under section 98, give notice of his reply (notwithstanding that it is filed and served after the expiration of the time for appeal fixed by section 60) by way of cross-appeal of his intention to contend that the decision of the Tax Appeal Board should be varied and set out therein a statement of such further allegations of fact and of such statutory provisions and reasons as he intends to rely on in support of the contention.’’

Consequently, at the request of the respondent, the appeal is allowed and the so-called re-assessment referred back to the Minister so that he may include for further re- assessment the sum of $45,754.60 with the sum of $55,393.10 above-mentioned but not otherwise.

If, as and when the Minister makes such re-assessment in respect of the appellant’s income for 1952 it will be open to the appellant to object thereto insofar as the sum of $45,754.60 is concerned.

There remains the relatively small item of the $500 penalty levied against the appellant for failure to file a return as prescribed in Section 44(1) of the Act. The appellant did not offer any proof as to the date on which he filed the alleged return. Since I have found that he was liable for tax in the said year, I consider that he has not discharged the burden of proving that the penalty imposed upon him was erroneous. See Alex Pashovitz v. M.N.R., [1961] C.T.C. 288, 295. I consequently find the Minister was justified in imposing the penalty.

Since the appellant has failed in respect of the items which ‘are the subject matter of his notice of appeal from the assessment for 1952 and the appeal has been allowed only for the reasons prayed for by the respondent, the Minister is entitled to costs of the said appeal to be taxed 1 n t manner herein later

I will now pass on to case No. 160171 concerning the appeal from the assessment made by the Minister in respect of the appellant’s taxable income for the year 1953. This case resembles ease No. 160170 in that on the merits the defence is the same, namely, whether the amounts in issue constitute taxable income or capital gains. As appears by the record transmitted by the Minister, the appellant’s declared income for 1953 amounted to $9,894.26. No question arises as to when the Minister made an original assessment but by notice of re-assessment dated June 20, 1958, the Minister added to the said declared income the following amounts (see Ex. 8) :

By notice dated August 15, 1958, the appellant objected to the assessment of $11,500 in respect of the Northwest Territories Permits (hereinafter referred to as N.W. T. permits) on the following rounds:

“In April and May of 1952 acquired from the Government of Canada a fifty per cent interest in Permit numbers 539, 569, 570, 618, 540, 542, 619, 620, 541, 543, 544, 571, 617 and 602 (hereinafter sometimes referred to as the N.W. T. Permits) which permitted the owners of these permits to search for oil and gas in the Northwest Territories. The taxpayer paid $26,000 for his fifty per cent interest in these Permits.

On January 30, 1953, the Taxpayer sold one quarter of his interest of these Permits to Canadian Pipelines Producers Limited and received the sum of $12,500.

On June 3, 1953, Pan Provincial Oil and Gas Limited purchased one- half of the Taxpayer’s original interest in the Northwest Territories Permits for $25,000. It was however a condition of this purchase that the Taxpayer would purchase 250,000 shares of the capital stock of Pan Provincial Oil and Gas Limited for $10,000 cash. The transaction was concluded on that basis, and the Taxpayer still holds the 250, 000: shares of Pan Provincial Oil and Gas Limited.

The Northwest Territories Permits were subsequently allowed to lapse and the Taxpayer’s remaining one quarter interest in them was lost. ’ ’

As to the amount of $5,273.60 assessed by the Minister in respect of the B.C. permits Nos. 250 and 251, the appellant’s submission was as follows:

“(B) British CoLUMBIA PERMITS Nos. 250 AND 251.

On November 10, 1951, at the request of Mr. Max Bell and Charter Oil Company Limited, the Taxpayer made application to the Lands Branch of the Department of Lands and Forests of the Province of British Columbia. The Taxpayer paid a deposit of $5,250 for each permit, or $10,500 in all. Mr. Bell and Charter Oil Company Limited subsequently reimbursed the Taxpayer for the deposits he had made on their behalf.

The Taxpayer did not receive from either Charter Oil Company Limited or Mr. Bell, any compensation for arranging for the grant of the B.C. Permits nor did he at any time hold a beneficial interest in these Permits. So long as the Permits remained in the name of the Taxpayer, they were held by him in trust for Charter Oil Company Limited and for Mr. Bell.”

As a result of the aforesaid objections, the Minister, after reconsidering his aforesaid re-assessment, notified the taxpayer by a further re-assessment mailed on October 8, 1959, that the following adjustments had been made in respect of the appellant’s declared income:

A further examination has been made of your income tax return for the taxation year indicated. The resulting reassessment of tax is shown above and any adjustment to interest assessed is shown under ‘Statement of Account’.

Adjustment to declared income:
Net income previously assessed	$28,648.60

Deduct: Profit on sale of North West
Territories Oil Permits Pre
viously assessed			$11,500.00
Now assessed		_.	4,797.80
			$ 6,702.20
Cost of B.C.	Oil	Permits
#250-251 equal to proceeds
of sale assessed as income			5,273.60	11,975.80
Revised net income			____j	$16,672.80
Personal exemptions				2,450.00
Revised taxable income			,„i„ $14,222.80
Corrected profit of $4,797.80 on sale
-. of North West Territories Oil Permits
calculated as follows :	; ....
Proceeds—sale of taxpayer’s 25% interest				$12,500.00
—sale of taxpayer’s 90 %. interest _..				25,000.00
				$37,500.00
Cost—of taxpayer’s 100% interest _„A__..2_				22,702.20
				$14,797.80
Deduct : Loss on Pan Provincial Oil and Gas Co.
Ltd. shares				10,000.00
Corrected net profit			;	$ 4,797.80”

By notice dated December 29, 1959, the taxpayer appealed from the last mentioned re-assessment whereby his net revenue which had previously been assessed at $28,648.60 was corrected to read $4,797.80 and in support thereof reiterated the statement of facts and reasons for objection set out in his previous objection.

By reply dated June 29, 1960, the Minister affirmed that during the taxation year 1953 the appellant disposed of his interest which was a 50% one in the N.W.T. Permits at a profit of at least $4,797.80 and that it was from a business or a venture in the nature of trade as defined by Section 139(1) (e) of the Act and that the sum of $74.68 levied as penalty against the appellant whose return was made by the 18th of May 1954 was properly imposed and calculated. Later in his reply the respondent sought to retract the $10, 000 loss on Pan-Provincial Oil and Gas Co. Ltd. shares which he had previously allowed to the appellant, as per notice of re- assessment dated October 8, 1959, on the following grounds :

‘ 1 That in calculating the profit of the appellant from the purchase and subsequent resale of the said Northwest Territories Permits he erred in allowing the appellant a deduction of $10,000 in respect of the 250,000 shares of Pan Provincial Oil & Gas Limited since the sum of $10,000 was not part of the cost of acquiring the said permits nor was it an outlay or expense made or incurred for the purpose of gaining or producing income.

Alternatively, if the consideration for the disposition of the said one-half interest in the said permits to Pan Provincial Oil & Gas Limited was the sum of $15,000 in cash and the 250,000 shares of Pan Provincial Oil & Gas Ltd. then, since the appellant in the course of his trade received a new and valuable asset not being money, the value of the said shares must be included in the profit and loss account as a trading receipt and the onus is on the appellant to establish that the fair market value of these shares at the date of acquisition was less than $10,000.’’

111 his conclusions the respondent prayed that the appeal be allowed and the re-assessment be referred back to the Minister for re-assessment so as to disallow the deduction of the aforesaid sum of $10,000.

More than two years later, by a further reply dated February 2, 1962, which was filed outside the statutory time provided by Section 99(1) of the Act in virtue of an Order granted by Dumoulin, J., which, apart from reiterating the allegations of the previous reply of December 1959, sought authority to add a still further additional amount of $16, 751.10 to the appellant’s taxable income for 1953, representing profit realized on the purchase and sale of Charter Oil Co. shares in the said year, on the ground that the respondent erred in not including as income the sum of $16,751.10 aforesaid, and the Minister also asked that the levy of $74.68 made against the appellant for his late return be affirmed. In his conclusions the respondent again prayed that the appeal be allowed and the re-assessment. be referred back to the Minister so as to disallow the deduction. of 10, 0 pre- viously granted and to include as income the further sum of $16,751.10.

For the same reasons as I gave in the 1952 case, I consider that the only re-assessment properly before me for adjudication on the merits is that of October 8, 1959, wherein the Minister calculated that, for the reasons therein set out, the corrected net profit of the appellant for 1953 amounted to $4,797.80, and I will now proceed to adjudicate upon it.

There are two transactions properly before me for consideration. The first concerns the sale of the N.W.T. Permits and the sale of British Columbia Permits Nos. 250 and 251. Since the Minister allowed as a loss a sum of $10,000 in connection with the sale of the N.W.T. Permits, the appellant’s remaining defence against the corrected net profit of $4,797.80 is that it was not profit from a business but a capital gain. In my opinion, the transaction in question is further evidence of a course of conduct which the appellant followed in acquiring and disposing of gas and oil permits which establishes that it was a scheme for profitmaking from a business as defined in the Act. For the same reasons I affirmed the assessment to tax of $55,374 in connection with the sale of the five B.C. permits in the 1952 case, I find that the Minister’s assessment of $4,797.80 and the penalty of $74.68 are well founded and I so declare.

As to the proceeds of $5,273 from the sale of the two B.C. permits which the Minister seeks to add to the appellant’s 1953 assessment, I think that the testimony of the appellant clearly establishes that he acquired the said permits as agent for Mr. Max Bell and Charter Oil Co. Ltd. and he did not receive any compensation for arranging for the granting of the said permits nor did he hold any beneficial interest in them. The taxpayer paid a deposit of $5,250 for each permit. Mr. Bell and Charter Oil Co. subsequently reimbursed the taxpayer. So long as the permits remained in the name of the taxpayer they were held by him in trust for the aforementioned company and Mr. Bell. During the hearing, counsel for the respondent acknowledged that there was no evidence to justify the said item and I disallow the assessment of $5,273.60.

As prayed for by the respondent, the appellant’s appeal is maintained but only for the purpose of referring the record back to the Minister so that the loss of $10,000 allegedly allowed by the Minister in error and the further item of $16,751.10 may be joined with the assessment of $4,797.80 and $74.68 penalty for re-assessment accordingly.

As in the 1952 case, the said re-assessment in case No. 16017 1, if, as and when made, will be subject to the appellant’s right to object thereto upon receipt of notice thereof.

The hearing and argument of the two eases occupied three days, and to lessen any difficulty which the taxing officer may encounter in determining the amounts of costs respectively attributable to the two appeals, the Order for costs will be as follows.

The appellant, having succeeded in his appeal against his assessment for 1953 to the extent of $5,273, will be entitled to costs taxed in the usual way but on the basis of a 1-day trial; similarly, the respondent having been successful in justifying the 1952 assessment of $55,393.10 against which the appellant appealed, will be entitled to costs taxed in the usual way but on the basis of a 2-day trial.

Judgment accordingly.