THORSON, P.:—These appeals are against the income tax assessments levied against the appellants respectively for the year 1958 whereby the Minister in each case added to the amount of reported taxable income the sum of $18,333.33 as the share of the profit resulting from a certain transaction into which the appellants had entered as partners. Each appellant filed a notice of objection to his assessment and each was confirmed by the Minister. Thereupon, each appellant appealed to the Tax Appeal Board which dismissed his appeal. It is from the decisions of the Tax Appeal Board (28 Tax A.B.C. 449, 452) that the present appeals are respectively taken. Pursuant to an order made on the opening of the hearing the three appeals were heard together.
The facts of the transaction from which the profits referred to were made by the appellants are not in dispute. The appellant Walker is a real estate agent with a. wide and long experience in Edmonton. In April of 1954 he purchased a lot in Jasper Place, a rapidly expanding suburb of Edmonton, described as Lot 1, Block 14, in the Townsite of Jasper Place, 191 K.S., for the sum of $2,600. It had belonged to Mayor Stone of Jasper Place who was anxious to get rid of it. Mr. Walker stated that he had planned to hold it and possibly build a motel on it and operate the motel, but there was a change in this intention in August of 1955 when he formed a partnership with the appellants Klak and Rueb for the development of the property for hotel purposes. It was agreed by the partners that they would jointly develop the property by the construction of a hotel on it, each contributing one-third of the equity capital, and that they would then operate the hotel, each taking one-third of the profits.
The property in question was admirably suited for the intended development and Mr. Walker sold it to the partnership for $10,000. On the profit realized on the sale he paid income tax.
With the intended purpose in mind the appellants negotiated with the Alberta Liquor Control Board and succeeded in obtaining its approval of the lot as a hotel site. Jasper Place at the time was a town of 14,000 people and growing rapidly. There was a great flow of traffic along the Jasper highway on which the lot faced and industrial and business expansion was taking place in the town. The appellants later obtained the Board’s approval in principle of the proposition that the Town of Jasper Place would support the proposed hotel and a beer licence. The appellants prepared preliminary sketches and final plans for a hotel building on the lot and obtained the Board’s approval of the plans as suitable and acceptable for licensed premises. They also advertised in the Jasper Place newspaper their intention to build a hotel and apply for a beer licence. They applied for and obtained an interim development permit from Jasper Place Interim Development Board. After obtaining estimates on the cost of the building they applied for and obtained a building permit permitting construction and between February 3, 1956, and April 1, 1956, they actually started construction by clearing and levelling the site and making an excavation for the basement.
The estimated cost of the hotel building after the Alberta Liquor Control Board had considered an earlier estimate was $220,000. Tentative arrangements were made with Credit Foncier in August of 1955 for a mortgage loan of $100,000, possibly $125,000. The partners were to provide the balance, Messrs. Klak and Rueb contributing $72,500 and Mr. Walker $36,250.
Messrs. Klak and Rueb. found that they were unable to raise the amounts which they had expected from two assets which they had valued: at $18,000 and $20,000 respectively with the result that they were able to contribute only $28,500 instead of the $72,500 which had been contemplated as the amount of their contribution. This reduced amount of $28,500, together with Mr. Walker’s contribution of $36,250 made only $64,750 available for the enterprise which in turn reduced the amount of the mortgage that they could raise. They, therefore, had to look elsewhere for assistance. They found it through Gateway Agencies who put them in touch with Mr. Louis Donald who agreed to put up the other necessary funds to build the intended hotel on the understanding that a corporation should be formed in which 75 per cent of the shares should be issued to him and 25 per cent to the partners and that the partners should transfer the lot to the company and prepare, procure and pay for plans and specifications for the erection of a hotel on it and assign them to the company in return for which the partners should receive from the company a promissory note payable on demand for $62,500. An agreement embodying this understanding was entered into on May 15, 1956, between the partners on the one hand and Mr. Donald on the other. Under this agreement the partners were not required to put up more money than they had available. Mr. Walker explained that the partners made this arrangement because Mr. Donald had experience in the hotel business and they would not have to look further for some one having such experience.
The amount of $62,500 subsequently received by the partners resulted in a profit to them of $44,500, after the deduction of $10,000 paid to Mr. Walker for the property, $2,000 paid to Gateway Agencies as a commission for finding Mr. Donald and $6,000 paid for the plans and specifications, which profit was divided into shares of $14,833.33 each which amount was included in each of the assessments under appeal.
It was contended for the appellants that the lot had been acquired as a fixed capital asset to form part of a business and that the profit realized by the partners on its sale was a capital gain, that the failure of Messrs. Klak and Rueb to realize what they had expected had frustrated their original plans and forced them to sell to the company referred in the agreement with Mr. Donald and that such frustration took the transaction out of the ambit of Section 139(1) (e) of the Act with the result that the profit made was not taxable.
The case for the appellants was carefully presented by counsel for them but I do not agree with the contention put forward by him. In my opinion, the profit realized by the appellants was plainly profit from a business within the meaning of the term “business” as defined in Section 139(1) (e) of the Income Tax Act, R.S.C. 1952, c. 148, and, therefore, taxable under Sections 3 and 4 of the Act. Section 139(1) (e) defines ‘‘business’’ as follows :
“139. (1) In this Act,
(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.”
In my judgment, the true nature of the transaction from which the profits in question were made was that of a business enterprise for the purpose of making a profit. This was not a case of capital gain at all. The appellants as partners acquired the lot in question for the purpose of the business enterprises on which they embarked and as part of it. Their business enterprise was clearly within the ambit of the term ‘‘undertaking’’ in the statutory definition. And it is not correct to say that they were frustrated in their plans and forced to sell. All that happened was that when Messrs. Klak and Rueb found themselves unable to realize the amounts expected by them from the assets on which they had counted the partners looked elsewhere and found the means of completing their undertaking in Mr. Donald. The business enterprise on which they had embarked took a different turn from that which they had originally intended. Moreover, the term ‘‘adventure or concern in the nature of trade’’ is wide enough to include the business activity into which they entered.
In my opinion, the Minister was clearly right in assessing the appellants as he did. Their respective appeals must, therefore, be dismissed with costs, but in view of the fact that the appeals were heard together the costs will include only one set of counsel fees to be apportioned equally between the three appellants.
Judgment accordingly.