THURLOW,
J.:—This
is
an
appeal
from
the
judgment
of
the
Income
Tax
Appeal
Board
(14
Tax
A.B.C.
384)
dismissing
an
appeal
by
the
appellant
from
an
income
tax
assessment
for
the
year
1951.
In
making
the
assessment,
the
Minister
added
to
the
income
reported
by
the
appellant
a
sum
realized
by
the
appellant
in
1951
on
the
sale
of
certain
shares
of
Donalda
Mines
Ltd.
which
the
appellant
had
acquired
through
two
transactions
in
each
of
which
the
appellant
loaned
a
sum
of
money
to
Donalda
at
interest
and,
as
part
of
the
transaction,
obtained
the
right
to
purchase
a
certain
number
of
shares
at
a
price
far
below
the
current
market
price.
The
Minister
treated
the
receipts
from
the
sale
of
the
shares
required
pursuant
to
these
transactions
as
Income
arising
from
the
appellant’s
business,
and
the
issue
between
the
parties
is
whether
or
not
he
was
correct
in
so
doing.
The
appellant
was
incorporated
under
the
Dominion
Companies
Act
in
1945
and
for
some
years
prior
to
and
at
the
time
of
the
events
in
question
was
engaged
in
underwriting
and
trading
in
securities.
In
this
business,
shares
were
acquired
by
the
appellant
both
by
purchases
in
the
market
and
under
contracts
with
various
mining
and
oil
companies
seeking
to
obtain
capital
to
finance
their
undertakings
by
sale
of
shares
in
their
capital
stock.
The
contracts
usually
took
the
form
of
a
firm
agreement
on
the
part
of
the
appellant
to
purchase
a
certain
number
of
shares
at
a
stated
price
and
one
or
more
options
oiving
the
appellant
the
right
to
purchase
additional
shares
within
times
and
at
prices
stated
in
the
contract.
In
these
contracts
the
price
of
the
shares
which
the
appellant
undertook
to
buy
w
as
below
the
current
market
price,
and
this
afforded
the
appellant
some
opportunity
to
sell
them
at
a
profit.
In
such
eases,
there
would
be
a
chance
to
make
a
further
profit
in
the
event
of
an
increase
in
the
market
price
of
the
shares,
and
the
option
or
options
contained
in
the
contract
afforded
to
the
appellant
the
opportunity
to
take
advantage
of
any
sufficient
advance
in
market
price
without
being
bound
to
purchase
the
shares
included
in
them.
On
the
other
hand,
by
undertaking
to
purchase
a
definite
number
of
shares
at
a
firm
price
the
appellant
ran
the
risk
of
loss
if
the
market
price
should
fall
below
that
price
before
the
shares
were
sold.
In
giving
such
a
commitment,
one
of
the
matters
of
importance
to
the
appellant
was
the
purpose
for
which
the
mining
or
oil
company
required
the
capital
which
it
would
obtain
from
the
sale
of
its
shares.
The
appellant
was
interested
in
the
speculative
chance
of
a
rise
in
the
market
price
of
the
shares,
and
that
chance
was
to
a
considerable
extent
dependent
upon
the
money
which
the
appellant
paid
for
them
being
used
for
purposes
holding
possibilities
of
a
discovery
that
might
quicken
the
demand
for
them.
For
this
reason,
purposes
such
as
the
construction
of
a
mill
for
the
processing
of
ore
bodies
already
discovered
did
not
offer
the
same
attraction
to
the
appellant
as
purposes
related
to
exploration
for
new
bodies
of
ore
or
oil.
Until
the
events
in
question,
the
appellant
had
never
underwritten
shares
or
debentures
or
advanced
money
to
enable
a
company
to
finance
the
construction
of
a
mill.
But
the
contracts
were
not
all
alike.
Sometimes
there
was
no
firm
commitment
but
simply
an
option
to
purchase
shares
granted
by
the
company
to
the
appellant
for
some
other
consideration.
And
such
consideration
might
be
an
advance
by
the
appellant
of
money
to
be
repaid
by
the
mining
or
oil
company,
with
provisions
in
the
contract
for
recovery
of
the
advance
from
moneys
payable
by
the
appellant
if
the
option
should
be
exercised.
(See
Ex.
0.)
The
appellant
is
not
a
loan
company,
nor
has
it
been
engaged
in
business
as
a
moneylender
in
the
ordinary
sense.
But
in
the
course
of
its
business
the
appellant
from
time
to
time
had
made
small
advances
to
certain
mining
and
oil
companies
with
which
it
had
business
dealings,
and
it
had
made
substantial
advances
in
a
few
cases
in
the
expectation
of
obtaining
repayment
from
the
moneys
to
accrue
to
the
mining
or
oil
company
under
prospective
underwriting
contracts.
No
interest
or
bonus
was
received,
nor
was
any
security
taken
by
the
appellant
for
any
of
these
loans,
though
some
of
them
were
outstanding
for
considerable
periods.
The
shares
acquired
by
the
appellant
through
contracts
with
mining
or
oil
companies
were
usually
marketed
over
a
period
of
time,
depending
on
market
conditions,
and
the
appellant
entered
into
such
contracts
only
when
it
regarded
the
time
and
marketing
conditions
as
appropriate.
In
the
course
of
its
business,
the
appellant
also
bought
shares
of
the
same
companies
on
the
market,
not
merely
when
the
market
price
was
attractive
but
also
to
support
the
market
price
and
thus
maintain
an
orderly
market
and
protect
the
value
of
its
holdings.
One
of
the
mining
companies
with
which
the
appellant
had
entered
into
contracts
was
Donalda
Mines
Ltd.
By
the
first
of
the
appellant’s
contracts
with
this
company,
which
was
dated
July
5,
1949,
the
appellant
undertook
to
buy
250,000
shares
at
40
cents
per
share
and
was
given
an
option
to
buy
a
further
290,000
shares
at
the
same
price.
The
appellant
exercised
the
option
and
purchased
all
of
the
500,000
shares
included
in
the
contract.
By
another
agreement
dated
July
12,
1949,
the
appellant
was
granted
an
option
to
buy
a
further
500,000
shares
of
Donalda
at
prices
ranging
from
55
cents
to
$1
per
share.
What
consideration
was
given
by
the
appellant
for
this
option
does
not
appear.
In
October,
1949,
the
appellant
purchased
50,000
of
the
shares
included
in
the
option
at
55
cents.
By
a
further
contract,
dated
November
4,
1949,
the
agreement
of
July
12,
1949,
was
cancelled,
and
the
appellant
gave
a
firm
commitment
to
buy
150,000
shares
at
50
cents
and
obtained
options
on
a
total
of
300,000
shares
at
prices
ranging
from
55
to
75
cents.
This
contract
contained
provisions,
effective
so
long
as
the
options
subsisted,
by
which
Donalda
agreed
that,
without
the
consent
of
the
appellant,
it
would
not
issue,
sell
or
grant
options
upon
its
treasury
shares,
or
alter
its
capital,
or
issue
securities
or
create
any
charge
or
mortgage
upon
its
properties
or
assets,
or
purchase
additional
mining
properties
or
sell
any
properties
it
then
had.
By
further
provisions,
Donalda
agreed
to
supply
the
appellant
with
monthly
statements
pertaining
to
its
financial
affairs
and,
in
priority
to
others,
with
information
pertaining
to
its
exploratory
operations.
It
also
agreed
to
provide
the
appellant
with
information
as
to
its
list
of
shareholders.
The
appellant
purchased
the
150,000
shares
comprised
in
the
firm
commitment
at
90
cents
in
November
and
December,
1950,
and
50,000
of
the
shares
included
in
the
options
at
55
cents
on
April
6,
1950.
In
the
meantime,
by
two
agreements
dated
February
24,
1950,
and
February
28,
1950,
the
times
for
the
exercise
of
the
options
had
been
extended
so
that
the
last
of
them
would
not
expire
before
October
1,
1950,
and
would
not
then
expire
until
terminated
by
a
seven-day
notice.
What
consideration
the
appellant
gave
for
these
extensions
does
not
appear,
the
documents
merely
stating
that
the
extensions
were
made
in
consideration
of
$1
and
other
valuable
consideration.
In
April,
1950,
shares
of
Donalda
were
being
traded
on
the
Toronto
Stock
Exchange
at
60
to
65
cents
a
share.
The
appellant
held
options
on
250,000
of
Donalda’s
remaining
treasury
shares,
the
last
of
which
options
could
not
be
terminated
prior
to
October
1,
1950,
and
so
long
as
such
options
existed
Donalda
could
neither
sell
treasury
shares
to
anyone
else
nor
borrow
money
on
the
security
of
its
assets
for
the
purpose
of
financing
its
undertakings.
Under
the
market
conditions
then
prevailing,
the
appellant
was
not
anxious
to
exercise
its
options
and
acquire
further
shares
at
the
option
prices.
It
was
in
this
situation
that
the
first
of
the
transactions
in
question
occurred.
This
was
an
agreement
dated
April
18,
1950,
by
which
the
appellant
released
its
options
and
other
rights
under
the
agreement
of
November
5,
1949,
and
agreed
to
lend
Donalda
$100,000
in
five
stated
consecutive
instalments
of
$20,000
each,
when
requested
within
one
year.
In
return
Donalda
agreed
to
use
the
money
to
procure
and
erect
a
mill
and
put
it
into
operation
within
eighteen
months,
to
repay
the
loan
with
five
per
cent
interest
in
two
years
from
the
date
of
each
advance,
and
to
apply
60
per
cent
of
the
mine
mill
gross
revenue
towards
the
repayment
of
the
loan
in
less
than
the
two-year
period.
As
part
of
the
transaction,
Donalda
also
agreed
to
sell
to
the
appellant
100,000
of
its
treasury
shares
at
five
cents
per
share.
The
contract
contained
provisions,
effective
until
the
mill
should
be
built
and
the
loan
repaid,
restricting
the
right
of
Donalda
to
deal
with
its
treasury
shares
and
property
and
to
provide
information,
all
in
terms
almost
exactly
similar
to
those
previously
mentioned
as
contained
in
the
contract
of
November
4,
1949.
In
addition,
the
agreement
of
April
28,
1950,
contained
the
following
clause,
the
terms
of
which
were
not
expressly
restricted
to
the
duration
of
the
loan:
“8.—Donalda
agrees
that
it
will
not
sell
or
option
to
sell
any
of
its
unissued
treasury
shares,
except
on
condition
that
it
will
give
Stuyvesant
the
first
opportunity
of
purchasing
the
said
shares
on
the
same
terms
as
they
are
being
offered
for
sale
or
option
to
any
other
purchaser
and
Stuyvesant
shall
have
thirty
days
within
which
to
elect
whether
to
purchase
the
said
shares
in
whole
or
in
part.”
Though
the
agreement
was
made
in
April,
1950,
the
moneys
to
be
advanced
under
it
were
not
in
fact
advanced
until
December
of
that
year
and
January
and
February
of
the
following
year.
The
100,000
shares
were
issued
by
Donalda
and
received
by
the
appellant
proportionately
as
each
advance
was
made,
and
the
appellant
paid
the
five
cents
per
share
for
them.
In
the
meantime,
the
appellant
had
arranged
for
a
Mr.
Bain
to
participate
in
the
transaction
to
the
extent
of
25
per
cent.
Mr.
Bain
reimbursed
the
appellant
to
the
extent
of
$25,000
and
received
29,000
of
the
shares
at
five
cents
each.
Evidence
as
to
the
negotiations
leading
up
to
this
transaction
was
given
by
Mr.
A.
G.
Fisher,
a
chartered
accountant
who
was
the
general
manager
of
the
appellant
and
negotiated
the
agreement
on
its
behalf.
He
stated
that
he
was
approached
by
Mr.
Arthur
P.
Earle,
the
president
of
Donalda,
now
deceased,
who
requested
that
the
appellant
lend
Donalda
$100,000
and
that
he
(Fisher)
was
given
to
understand
that
the
cost
of
building
a
mill
on
the
Donalda
property
had
far
exceeded
the
estimate
given
by
Donalda’s
engineers
and
that
Donalda
was
short
of
funds
and
required
the
loan
to
complete
the
mill.
This
strikes
me
as
strange
in
view
of
the
fact
that
none
of
the
moneys
arranged
for
in
April
were
advanced
before
the
following
December
and
even
more
strange
in
view
of
the
fact
that
the
minute
book
of
Donalda,
which
was
introduced
in
evidence
by
the
appellant,
indicates
that
the
estimate
for
the
construction
and
equipment
of
the
mill
was
presented
to
a
meeting
of
the
directors
of
Donalda
in
June,
1950,
and
it
was
at
that
meeting
that
the
directors
authorized
its
mine
managed
to
purchase
equipment
and
erect
the
mill.
I
think
Mr.
Fisher
is
mistaken
and
has
confused
the
situation
obtaining
at
the
time
of
the
negotiation
of
the
first
loan
with
circumstances
in
which
the
second
loan
was
arranged.
Mr.
Fisher
also
stated
that
initially
the
arrangement
between
Donalda
and
the
appellant
was
that
the
appellant
should
get
the
100,000
shares
as
a
bonus
without
any
payment
for
them,
but
before
the
contract
was
drawn
up
it
was
discovered
that
Donalda
was
restricted
by
one
of
its
by-laws
from
issuing
shares
at
a
discount
greater
than
95
per
cent
and
the
parties
thereupon
amended
the
arrangement
to
express
this
part
of
it
as
a
sale
of
five
cents
per
share.
In
explaining
this
change
in
the
arrangement,
he
said
in
the
course
of
his
examination
in
chief
:
“A.
We
found
out
that
the
only
way
this
transaction
could
be
completed,
that
is
the
loan
transaction,
would
be
to
either
pay
the
five
cents
per
share
or
have
Donalda
go
to
its
shareholders
and
have
the
by-law
amended.
By
this
time
too
much
would
have
elapsed,
and
the
need
was
fairly
imminent,
and
we
agreed
to
pay
9
cents
per
share
for
that
stock.
Q.
What
need
are
you
talking
about
there?
A.
Donalda’s
financial
needs.
Q.
Just
before
the
Court
rose
yesterday
we
got
into
an
argument
about
market
price—just
to
go
back
there
for
a
moment,
because
it
had
a
relation
to
something
else
you
were
telling
us,
namely,
the
reason
the
contracts
of
April,
1950
and
April,
1951
provided
for
the
purchase
of
shares
at
five
cents.
Would
you
give
us
those
reasons
again,
and
then
we
will
talk
about
market
value.
A.
After
Mr.
Earle
had
approached
Stuyvesant-North
through
me,
and
we
had
negotiated
the
loan
and
the
bonus
arrangement
on
the
basis
that
we
were
to
get
a
share
of
Donalda
for
every
dollar
that
was
loaned
to
the
company,
the
matter
was
then
turned
over
to
lawyers
for
drafting
an
agreement.
They
found
that
there
was
a
discount
by-law
that
prevented
Donalda
from
issuing
shares
at
less
than
five
cents
per
share,
and
we
had
no
intention
of
purchasing
shares.
The
deal
was
definitely
a
loan,
but
the
negotiations
had
gone
too
far
and
too
much
time
had
elapsed;
so,
rather
than
awaiting
any
change
of
the
discount
by-law,
we
decided
that
we
would
not
quibble
about
the
five-cent
price
and
we
went
ahead.
We
agreed
to
comply
with
the
by-law
and
went
ahead
and
made
the
loan
on
that
basis.
Q.
You
stated
you
were
not
going
to
quibble
about
that
five
cents.
At
the
time
that
the
contract
April,
1950
was
entered
into,
do
you
know
what
price
shares
of
Donalda
were
selling
at
on
the
Toronto
Stock
Exchange?
A.
Shares
were
selling
in
the
60
to
65-cent
range.”
In
cross-examination
he
said:
“Q.
In
the
result
you
purchased
them?
A.
There
was
a
provision
in
the
agreement
that
we
pay
Donalda
five
cents
a
share.
Q.
And
what
it
boils
down
to
is
this
:
You
paid
over
a
certain
sum
of
money
and
you
got
shares
;
in
the
agreement
you
got
the
right
to
do
that?
A.
Under
the
loan
agreement,
yes.
Q.
And
then
you
did
it?
A.
Yes.
Q.
I
asked
you
this
before,
but
I
would
like
to
clear
it
up
:
Why
were
the
option
agreement
of
November
4
and
the
extension
agreements
cancelled
?
A.
Because
market
conditions
were
such
at
the
time
that
we
did
not
really
want
to
acquire
additional
Donalda
shares.
X
*
*
Q.
No
moneys
have
been
taken
down
since
the
preceding
April,
until
December
18th.
I
understood
you
to
say
the
immediate
negotiation
of
the
agreement
was
urgent.
How
do
you
account
for
that?
A.
I
don’t
know
the
Donalda
financial
structure
as
such.
I
only
knew
that
the
costs
were
running
away
above
the
estimates.
I
don’t
know
whether
Donalda
was
able
to
keep
their
creditors
patient
in
the
interval
or
not.
Q.
You
had
said
you
did
not
wish
to
wait
for
an
amendment
to
the
discount
by-law
because
of
the
urgency
of
entering
into
the
agreement.
The
first
advance
was
made
some
seven
months
later.
A.
I
don’t
think
I
said
that.
Q.
I
think
I
am
quoting
you
accurately.
A.
I
don’t
think
I
said
that.
I
think
what
I
did
say
was
that
in
order
to
get
the
shares
at
anything
other
than
5
cents
we
would
have
had
to
wait
for
a
change
in
the
by-law,
and
we
weren’t
going
to
quibble
about
the
five
cents.’’
It
will
be
observed
that
it
was
the
appellant
who
was
anxious
to
avoid
the
delay
incident
to
a
change
in
the
by-law
and
that
its
desire
to
consummate
the
transaction
without
delay
was
such
that
it
would
not
quibble
about
paying
for
the
shares
a
sum
which
was
the
equivalent
of
a
full
year’s
interest
on
the
loan.
From
this
it
seems
clear
that
the
main
object
of
the
transaction,
so
far
as
the
appellant
was
concerned,
was
to
obtain
the
shares.
On
January
17,
1951,
a
further
contract
was
made
between
the
appellant
and
Donalda
by
which
the
appellant
undertook
to
buy
75,000
shares
at
45
cents
and
obtained
an
option
to
buy
a
further
75,000
shares
at
the
same
price.
Under
this
contract,
the
appellant
purchased
the
75,000
shares
included
in
the
firm
commitment,
but
it
did
not
exercise
the
option.
In
April,
1951,
the
second
of
the
agreements
in
question
in
these
proceedings
was
made.
At
that
time
the
mill
was
not
yet
completed,
and
Donalda
was
in
need
of
money
to
complete
it.
By
this
agreement
the
appellant
undertook
to
lend
Donalda
$125,000
in
two
instalments,
one
of
$50,000
on
April
21,
1951,
and
the
other
of
$75,000
on
April
30,
1951.
Donalda,
on
its
part,
agreed
to
use
the
money
to
complete
its
mill
and
to
repay
the
loan
with
five
per
cent
interest
on
April
1,
1952,
and
earlier
than
that
from
the
first
moneys
received
from
the
operation
of
the
mill,
but
on
a
pro
rata
basis
with
the
earlier
loan.
It
also
agreed
to
sell
to
the
appellant
125,000
shares
of
its
capital
stock
at
five
cents
per
share.
At
that
time,
shares
of
Donalda
were
being
traded
on
the
Toronto
Stock
Exchange
at
52-53
cents.
Arrangements
were
made
for
several
others
to
participate
in
this
loan,
and
the
appellant
itself
participated
in
it
to
the
extent
of
$50,000,
which
it
advanced
in
two
payments,
one
of
$25,000
on
April
5,
1951,
and
the
other
of
the
same
amount
on
April
13,
1951.
Again
the
shares
were
issued
by
Donalda
and
received
by
the
appellant
proportionately
as
the
advances
were
made.
In
October,
1951,
by
another
contract
the
appellant
undertook
to
advance
to
Donalda
$15,000
which
Donalda
agreed
to
use
for
drilling
and
exploration
purposes
on
its
property
in
locations
to
be
approved
by
Donalda’s
enginers,
but
subject
also
to
the
approval
of
the
appellant.
By
the
terms
of
the
contract,
Donalda
agreed
to
repay
the
advance
on
February
11,
1953,
and
also
gave
the
appellant
an
option
to
buy
the
whole
or
any
part
of
50,000
shares
at
40
cents
and
the
right,
if
it
exercised
the
option,
to
recover
payment
of
the
advance
from
the
moneys
payable
to
Donalda
for
the
shares.
The
shares
included
in
this
option
formed
part
of
a
purchase
of
150,000
shares
at
40
cents
made
by
the
appellant
in
January,
1952.
In
the
meantime,
between
December
3
and
13,
1951,
the
appellant
sold
on
the
market
the
125,000
shares
which
it
had
obtained
through
the
loan
transactions
and
thereby
realized
the
sum
in
question
in
this
appeal.
The
appellant
continued
to
sell
Donalda
shares
throughout
December
of
1951,
and
at
the
end
of
that
year
had
sold
such
shares
short
to
the
extent
of
45,000
shares.
The
loans
in
question
were
not
in
fact
paid
from
the
proceeds
of
production
of
the
mill
but
were
liquidated
after
they
became
due
in
part
from
the
proceeds
of
sales
of
shares
under
subsequent
contracts
between
Donalda
and
the
appellant.
In
support
of
the
assessment
of
the
receipts
from
the
sale
of
the
shares
in
question
as
income,
the
Minister
relied
on
Sections
3,
4
and
127(1)
(e)
of
The
Income
Tax
Act,
8.C.
1948,
c.
52.
These
sections
are
as
follows
:
“3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purposes
of
this
Part
is
his
income
for
the
year
from
all
sources
inside
or
outside
Canada
and,
without
restricting
the
generality
of
the
foregoing,
includes
income
for
the
year
from
all
(a)
businesses,
(b)
property,
and
(c)
offices
and
employments.”
“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.’’
‘
127.
(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
;
’
’
The
position
taken
by
the
Minister
is
that
the
receipts
from
the
sale
of
the
shares
were
income
from
the
appellant’s
business
within
the
meaning
of
these
sections.
For
the
appellant
it
was
submitted
that
the
two
transactions
in
which
the
appellant
obtained
rights
to
acquire
the
total
of
125,000
shares
at
five
cents
were
loan
transactions
beyond
the
scope
of
its
ordinary
business
of
underwriting
and
trading
in
shares,
that
the
appellant
was
not
in
the
business
of
money-
lending,
these
being
the
only
occasions
on
which
the
appellant
has
made
commercial
loans—meaning
by
commercial
loans,
loans
carrying
interest
and
a
bonus
and
secured
by
promissory
notes,
that
accordingly
such
transactions
should
be
regarded
as
capital
transactions
in
which
the
rights
to
acquire
the
shares
were
the
appellant’s
compensation
for
incurring
the
capital
risk
involved
in
lending
substantial
sums
of
money
without
security
to
a
company
such
as
Donalda,
that
such
rights
were
capital
rights
and
the
moneys
received
on
sale
of
the
shares
were
merely
proceeds
of
the
realization
of
capital
assets.
It
was
also
argued
that,
even
if
the
purchases
of
the
shares
pursuant
to
the
contracts
and
the
sales
of
them
must
be
regarded
as
having
been
made
in
the
course
of
the
profit-making
activities
of
the
appellant,
the
right
to
acquire
the
shares
at
five
cents
was
a
capital
right,
and
in
computing
the
profit
attributable
to
the
purchase
and
sale
of
the
shares
the
value
of
such
right
should
be
deducted
from
the
proceeds
as
if
such
capital
right
had
been
brought
into
inventory
by
a
notional
transfer
by
the
appellant
of
its
capital
to
its
inventory
at
the
market
value
of
such
right.
In
the
view
I
take
of
the
case,
it
is
unnecessary
to
deal
with
this
alternative
argument.
In
my
opinion,
it
is
important
to
note
that
the
issue
to
be
determined
does
not
depend
on
the
narrow
question
whether
or
not,
as
between
the
appellant
and
Donalda,
the
right
to
purchase
the
shares
was
given
by
Donalda
and
received
by
the
appellant
as
a
premium
or
bonus
to
compensate
for
a
capital
risk,
but
on
the
broader
question
whether
or
not
the
receipts
from
the
sale
of
the
shares
were
receipts
of
the
appellant’s
business.
For,
even
assuming
that
the
rights
were
bonuses
or
premiums
and
were
given
and
received
to
compensate
for
the
capital
risks
involved
in
making
the
two
loans
and
could,
on
that
account,
be
regarded
as
capital
if
the
loans
were
mere
investments,
such
bonuses
or
premiums
could
not
be
so
regarded
if
they
were
obtained
in
the
course
of
the
operation
of
the
appellant’s
business.
This
distinction
is
clearly
expressed
in
Californian
Copper
Syndicate
v.
Harris,
5
T.C.
159,
where
the
Lord
Justice
Clerk
said
at
p.
165:
‘It
is
quite
a
well
settled
principle
in
dealing
with
questions
of
assessment
of
Income
Tax,
that
where
the
owner
of
an
ordinary
investment
chooses
to
realise
it,
and
obtains
a
greater
price
for
it
than
he
originally
acquired
it
at,
the
enhanced
price
is
not
profit
in
the
sense
of
Schedule
D
of
the
Income
Tax
Act
of
1842
assessable
to
Income
Tax.
But
it
is
equally
well
established
that
enhanced
values
obtained
from
realisation
or
conversion
of
securities
may
be
so
assessable,
where
what
is
done
is
not
merely
a
realisation
or
change
of
investment,
but
an
act
done
in
what
is
truly
the
carrying
on,
or
carrying
out,
of
a
business
.
..
What
is
the
line
which
separates
the
two
classes
of
cases
may
be
difficult
to
define,
and
each
case
must
be
considered
according
to
its
facts;
the
question
to
be
determined
being—
Is
the
sum
of
gain
that
has
been
made
a
mere
enhancement
of
value
by
realising
a
security,
or
is
it
a
gain
made
in
an
operation
of
business
in
carrying
out
a
scheme
for
profit-making
?
’
’
In
the
present
case,
despite
the
fact
that
the
transactions
in
question
were
loans
for
definite
periods,
carrying
interest
and
involving
a
very
material
risk
that
the
principal
sums
might
never
be
repaid
or
recovered,
and
despite
the
fact
that
the
appellant’s
business
activities
had
not
included
the
making
of
loans
of
that
kind,
the
principal,
if
not
the
sole
purpose
of
the
appellant
in
entering
into
the
transactions
was
not
to
earn
the
interest
so
provided
for
but
to
obtain
the
right
to
acquire
shares
at
a
favourable
price
and
to
realize
the
profit
that
could
be
made
from
their
sale.
In
my
judgment,
this
clearly
appears
from
the
evidence
of
Mr.
Fisher
above
quoted.
Moreover,
when
entering
into
the
transactions,
the
only
purpose
of
the
appellant
with
respect
to
such
shares
was
to
sell
them
on
the
market,
a
purpose
which
it
proceeded
to
carry
ont
in
the
ordinary
course
of
its
business.
From
the
point
of
view
of
the
appellant,
each
of
the
transactions
was,
accordingly,
a
transaction
to
obtain
a
right
to
acquire
shares
for
sale
in
the
course
of
its
business.
When
this
fact
is
considered
in
the
light
of
the
further
fact
that
engaging
in
contracts
giving
the
appellant
the
right
to
acquire
shares
at
favourable
prices
so
that
profit
might
be
made
from
selling
them
was
one
of
the
common
methods
employed
by
the
appellant
in
carrying
on
its
business
of
dealing
in
shares,
in
my
opinion
it
becomes
apparent
that
these
transactions
were
not
mere
investments
dissociated
from
the
appellant’s
ordinary
business
but,
in
truth,
operations
of
that
business.
The
fact
that
as
loan
transactions
they
differed
from
others
in
which
the
appellant
obtained
the
right
to
acquire
shares
for
its
business
is,
no
doubt,
a
feature
to
be
taken
into
account
in
reaching
such
a
conclusion,
but
it
is
well
settled
that
that
circumstance
does
not
conclude
the
matter.
In
Atlantic
Sugar
Refineries
Ltd.
v.
M.N.R.,
[1949]
S.C.R.
706;
[1949]
C.T.C.
196,
Kerwin,
J.
(as
he
then
was),
put
the
matter
thus
at
p.
707:
‘"The
Court
of
Appeal
in
England
decided
in
Imperial
Tobacco
Co.
v.
Kelly,
[1943]
2
All
E.R.
119,
that
the
intention
with
which
a
transaction
was
entered
into
is
a
feature
that
should
be
considered
under
the
British
Income
Tax
Act.
That
is
an
important
matter
under
our
Act
but
the
whole
sum
of
the
circumstances
must
be
taken
into
account
in
determining
whether
a
profit
arose
as
part
of
the
taxpayer’s
business.
A
number
of
cases
are
referred
to
in
the
reasons
for
judgment
in
the
Court
below
and
they,
with
others,
were
discussed
fully
in
argument
before
us.
Some
are
on
the
point
whether
the
individual
or
company
concerned
was
carrying
on
any
business
and,
as
has
been
pointed
out
several
times,
a
company
comes
into
existence
for
some
particular
purpose
and,
therefore,
different
considerations
apply
to
it
than
would
apply
to
an
individual.
Other
decisions
consider
what
bearing
upon
the
issue
has
the
circumstance
that
it
was
an
isolated
transaction,
and
it
is
settled
that
the
mere
fact
that
that
was
so
does
not
dispose
of
the
matter.’’
In
my
opinion,
the
loans
made
by
the
appellant
cannot
be
regarded
as
mere
investments
unrelated
to
the
appellant’s
business.
Elements
of
an
investment
were,
no
doubt,
present,
but
present
as
well
in
each
case
was
the
circumstance
that
the
increment
to
be
obtained
from
the
loan
transaction
included
and
was
mainly
that
of
a
right
to
shares
for
sale
in
the
course
of
appellant’s
business.
Investment
in
one
sense
it
may
have
been,
but
it
was
not
mere
investment,
for
it
was
investment
made
for
the
purpose
of
an
operation
of
the
appellant’s
business
of
dealing
in
shares.
Moreover,
the
evidence,
instead
of
showing
that
these
transactions
were
separate
and
apart
from
the
day-to-day
transactions
of
the
appellant’s
business,
in
my
opinion,
supports
the
contrary
view.
At
the
time
of
the
negotiation
of
the
first
loan
contract
Donalda,
as
a
result
of
previous
dealings
with
the
appellant
in
the
course
of
the
latter’s
business,
was
obligated
by
the
options
and
other
provisions
of
the
contract
of
November
4,
1949,
to
deal
only
with
the
appellant,
at
least
in
so
far
as
its
endeavours
to
raise
further
moneys
for
its
projects
were
concerned.
The
release
of
such
options
and
provisions,
constituting,
as
they
did,
rights
of
the
appellant
obtained
in
the
course
of
its
business,
was
a
necessary
step
to
enable
Donalda
to
enter
into
the
first
of
the
transactions
in
question
and
formed
part
of
the
transaction
itself.
The
first
loan
transaction
is
thus
connected
with
the
earlier
underwriting
transactions.
Next
it
appears
that
the
contract
evidencing
the
first
of
the
loan
transactions
contained
agreements
by
Donalda
in
favour
of
the
appellant
similar
to
those
contained
in
the
earlier
agreement,
plus
an
additional
clause
affording
the
appellant
a
right
to
purchase
Donalda
treasury
shares
in
priority
to
anyone
elcse.
It
can
hardly
be
doubted
that
any
shares
that
might
have
been
acquired
under
this
clause
would
have
been
acquired
as
inventory
and
on
trading
account.
And
since,
under
the
provisions
of
the
loan
contract,
Donalda
thereafter
could
not
raise
money
to
finance
its
undertakings
by
the
sale
of
its
shares
or
by
charging
or
selling
its
property
except
with
the
appellant’s
consent,
the
circumstances
suggest
the
inference
that
the
subsequent
underwriting
contracts
with
the
appellant
and
the
terms
included
in
them,
such
as
the
clause
giving
the
appellant
a
voice
in
the
location
of
Donalda’s
drilling
operations,
resulted
to
some
extent
from
the
rights
obtained
by
the
appellant
under
the
first
loan
contract.
In
my
opinion,
the
loan
transactions
in
question
cannot
be
dissociated
from
the
other
transactions
between
the
appellant
and
Donalda,
but
on
the
contrary
were
connected
with
such
other
transactions
in
what
was
a
continuous
course
of
dealing
by
the
appellant
with
Donalda
for
the
purpose
of
gaining
profit
from
the
acquisition
and
marketing
of
its
shares.
The
situation,
as
I
find
it,
is
thus
one
in
which
(1)
the
appellant’s
ordinary
business
included
that
of
making
profit
by
acquiring
and
marketing
shares,
(2)
one
of
the
methods
com-
monly
used
by
the
appellant
in
carrying
on
this
business
was
that
of
entering
into
contracts
in
which,
for
various
kinds
of
consideration,
the
appellant
obtained
rights
to
acquire
shares,
(3)
the
transactions
in
question
were
transactions
by
which
the
appellant
obtained
rights
to
acquire
shares,
though
in
a
somewhat
unusual
way,
(4)
the
dominant
purpose
of
the
appellant
in
entering
into
each
of
such
transactions
was
to
obtain
the
right
to
acquire
such
shares
for
sale
in
the
course
of
its
business,
and
(0)
the
transactions
themselves
were
connected
with
and
part
of
a
continuous
course
of
dealings
by
the
appellant
with
Donalda
for
the
purpose
of
gaining
profit
by
acquiring
and
marketing
its
shares.
Certain
other
indicia,
such
as
the
source
of
the
funds
advanced
and
the
fact
that
the
certificates
for
the
shares
were
not
kept
physically
separate
from
other
Donalda
shares
belonging
to
the
appellant,
were
also
urged
as
showing
the
revenue
nature
of
the
transactions,
but,
while
such
facts
are
consistent
with
the
Minister’s
contention
and
might
in
a
close
case
be
of
some
importance,
I
prefer
to
rest
this
judgment
on
the
facts
above
mentioned.
In
my
opinion,
the
transactions
in
which
the
appellant
acquired
and
sold
the
shares
were
transactions
of
the
appellant’s
business
within
the
meaning
of
the
sections
of
The
Income
Tax
Act
above
referred
to,
and
the
moneys
realized
from
the
sale
of
the
shares
were,
accordingly,
income
and
were
properly
assessed.
Counsel
for
the
appellant
stressed
the
judgment
of
the
Court
of
Appeal
in
Lomax
(H.M.
Inspector
of
Taxes)
v.
Peter
Dixon
&
Son
Ltd.,
25
T.C.
353,
where
certain
premiums
and
discounts
obtained
by
an
English
company
from
its
wholly
owned
Finnish
subsidiary
company
in
refunding
an
indebtedness
of
the
subsidiary
to
the
parent
company
over
a
long
period
were
held
to
be
capital
and
not
subject
to
income
tax,
but
in
my
opinion
that
ease
is
clearly
distinguishable
from
the
present
one.
The
question
which
was
there
being
considered
by
the
Court
of
Appeal
was
not
whether
or
not
the
discounts
and
premiums
in
question
were
profits
of
a
trade
but
whether
or
not
they
were
income
chargeable
to
tax
under
Case
V
of
Schedule
D
of
the
English
statute
as
income
from
possessions
out
of
the
United
Kingdom
or
under
Case
III
of
Schedule
D
as
discounts,
and
the
judgment
was
that
they
were
not
subject
to
tax
under
Case
V
or
Case
III.
In
the
course
of
a
judgment
with
which
the
other
members
of
the
Court
agreed,
Lord
Greene,
M.R.,
discussed
considerations
which
are
relevant
to
determining
when
a
premium
or
discount
should
be
treated
as
income
and
when
not,
but
I
think
it
is
clear
that,
in
doing
so,
he
was
considering
such
premiums
and
bonuses
for
the
most
part
where
they
arise
in
situations
of
investment
not
within
the
scope
of
a
trade,
for
after
citing
examples
of
cases
in
which
the
question
whether
or
not
a
discount
or
premium
was
capital
or
income
might
be
resolved
from
the
contract
itself
pursuant
to
which
the
discount
or
premium
was
received,
and
of
some
cases
in
which
the
contract
afforded
no
answer
he
said
at
p.
362:
‘A
rather
different
case
is
that
of
a
moneylender
who
stipulates
for
payment
by
instalments
of
a
sum
very
much
larger
than
that
which
he
lends.
From
a
business
point
of
view,
the
excess,
one
would
have
thought,
is
referable
largely,
if
not
mainly,
to
the
capital
risk.
So
long
as
the
moneylender
iS
carrying
on
his
business
this
is
immaterial
since
he
will
be
assessed
under
Case
I
of
Schedule
D.
It
is
part
of
his
business
to
take
capital
risks.
’
’
I
regard
this
passage
not
as
limiting
the
application
of
Case
I
of
Schedule
D
in
situations
of
this
kind
to
those
in
which
the
transaction
is
entered
into
by
a
moneylender
in
the
course
of
his
business
but
merely
as
the
citation
of
an
example
of
a
kind
of
case
in
which
the
discount
or
premium
would
be
taxable
as
a
profit
of
a
trade.
At
p.
363
Lord
Greene
continued:
“I
refer
to
these
problems
not
for
the
purpose
of
attempting
to
solve
them
but
in
order
to
show
that
there
can
be
no
general
rule
that
any
sum
which
a
lender
receives
over
and
above
the
amount
which
he
lends
ought
to
be
treated
as
income.
Each
case
must,
in
my
opinion,
depend
on
its
own
facts
and
evidence
dehors
the
contract
must
always
be
admissible
in
order
to
explain
what
the
contract
itself
usually
disregards,
namely
the
quality
which
ought
to
be
attributed
to
the
sum
in
question.’’
In
my
opinion,
the
considerations
discussed
by
Lord
Greene
for
determining
when
a
premium
or
discount
might
be
treated
as
income
and
when
not,
when
such
premiums
or
discounts
arise
in
situations
of
investment
not
within
the
scope
of
a
trade,
are
not
conclusive
where,
as
here,
the
question
to
be
determined
is
whether
or
not
the
rights
obtained
as
a
bonus
or
premium
were
receipts
of
the
business
of
the
taxpayer,
for
while
such
considerations
may
indicate
that
the
bonus
or
premium
is
capital
rather
than
income
when
the
transaction
is
viewed
as
a
mere
investment,
the
bonus
or
premium
may,
nevertheless,
be
income
if
it
is
a
receipt
from
a
transaction
carried
out
in
what
is
truly
the
carrying
on
or
carrying
out
of
the
taxpayer’s
business.
The
appeal,
accordingly,
fails
and
will
be
dismissed
with
costs.
Judgment
accordingly.
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