Falconbridge Nickel Mines Limited (Appellant)
v.
Minister of National Revenue (Respondent)
Court of Appeal, Jackett C.J., Sheppard and
Sweet D.JJ.—Ottawa, June 28 and 29, 1972.
Income tax—''Income derived from operation of mine"—
Exemption for 36 months—Profit from sale of ore extracted
before exempt period—Whether exempt—Income Tax Act,
R.S.C. 1952, c. 148, s. 83(5).
Ore extracted from appellant's mine was smelted and
refined, and the resultant nickel sold approximately four
months after the extraction of the ore. Section 83(5) of the
Income Tax Act provides: "Subject to prescribed condi
tions, 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".
Held, affirming Cameron D.J., in computing the income of
appellant derived from the operation of its mine during the
36 months period the Minister properly included the income
arising or accruing from sales during those months of metal
from ore extracted prior thereto (viz, $214,317) and proper
ly excluded the income arising or accruing from sales after
those months of metal extracted during those months (viz,
$682,620).
APPEAL from Cameron D.J. [1971] F.C.
471.
Allen Findlay, Q.C. and B. W. Earle for
appellant.
G. W. Ainslie, Q.C. and John R. Power for
respondent.
JACKETT C.J.—I agree in general with the
views expressed by my brothers Sheppard and
Sweet and I shall content myself with stating
very briefly another approach to the conclusion
that we have all reached that the appeal must be
dismissed.
According to the Stated Case, as I understand
it, the appeal is to be dismissed if, for the
purposes of section 83(5), the appellant's
income from the operation of the mines in ques
tion during the 36 months period includes
income from sales made during the 36 months
period of product of the mines whenever pro-
duced and does not include income from sales
made outside the 36 months period even though
the product sold was produced during the 36
months period; and the appeal is to be allowed
if, for the purposes of section 83(5), the appel
lant's income from the operation of the mines in
question during the 36 months period includes
income from sales of product of the mines
produced during the 36 months period no
matter when the sales took place and does not
include sales of product of the mines that were
made in the 36 months period if the product
was not produced from the mine during the 36
months period.
In my view, the real question raised by this
issue is not whether the phrase "during the
period of 36 months" modifies the word "de-
rived" or the words "operation of a mine" in
section 83(5). The real question is what is
meant by the words "operation of a mine".
The two possible meanings of "operation of a
mine", which produce, respectively, the oppo
site results contended for, are
(a) mere extraction of ore from a mine,
(b) carrying on the business of operating a
mine, which involves, at a minimum, extract
ing the ore and selling it or otherwise dispos
ing of it.
If, in section 83(5), "operation of a mine"
means the mere physical extraction of the ore,
in my view, the appellant should succeed, pro
vided, always, that it can ever be said that
income is derived from a mere physical opera
tion of that kind considered apart from a busi
ness of which it is a part.
The other view, and, in my view, the correct
view, is that when section 83(5) talks of income
derived from operation of a mine, it is referring
to income derived from a business of operating
the mine, for, in relation to profit producing
activity (as opposed to property or employ
ment) a business is the sort of income source
contemplated by the Income Tax Act. See, for
example, section 3 of the Act, which reads 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.
A mere physical act considered apart from the
other steps necessary to bring income into
existence is not a source of income as contem
plated by the Act. It follows that the mere
physical act of extracting ore from the mine,
considered apart from the business of which it
forms a part, is a barren act that is not, in itself,
capable of being an income source. That physi
cal act cannot, therefore, be what is contemplat
ed by section 83(5) when it speaks of "opera-
tion of a mine" as something from which
income is derived.
Once it is recognized that "operation of a
mine" is extraction plus sale, etc., it might be
concluded that section 83(5) only excludes
income derived from sales where both extrac
tion and sale fall within the 36 months period.
However, it has always been recognized by
business and commercial practice, faced with
the necessity of preparing profit and loss state
ments on a yearly basis, instead of preparing
one profit and loss statement for the life of the
business, that income should be attributed, for
any business sequence of purchase or manufac
ture and sale, to the year in which the goods
were sold. I have, therefore, no doubt that the
effect of section 83(5) is that income is exclud
ed if it is derived from sale of product of the
mine and if that sale took place in the 36
months period.
I am of opinion that the appeal should be
dismissed with costs.
* * *
SHEPPARD D.J.—The facts and proceedings
are fully set out in the reasons for judgment of
the learned trial judge and need not be repeated
here.
The issue arises out of the construction of
section 83(5) of the Income Tax Act, R.S.C.
1952, c. 148, which reads as follows:
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.
and is, according to the parties, whether the
phrase "during the period of 36 months" refers
to "income derived" as submitted by the
respondent, or whether it refers to the immedi
ately preceding words "the operation of a
mine" as submitted by the appellant.
If the purpose was to grant an exemption
from income tax in respect of all production of
ore during the period of 36 months and when
ever sold, then the appellant's view is to be
accepted. On the other hand, if the words "dur-
ing the period of 36 months" refer to the
income derived as reported each year, all or
part of which falls within such 36 months, then
the respondent's view is to be accepted.
The appellant contends that the words "dur-
ing the period of 36 months commencing with
the day on which the mine came into produc
tion" would refer to the nearest antecedent and
therefore modify the words "the operation of a
mine" which immediately precede them. For
that contention he cites Maxwell on Interpreta
tion of Statutes 12th ed. 1969, p. 28, The
Imperial Lexicon of English Language and
Popular English Usage vol. 1, p. 22 and Gow-
er's The Complete Plain Words, p. 166.
While that may be an implied intention, such
implied intention will give way if it results in a
construction that is inconsistent with the inten
tion that is implicit in other words used in the
section. Here such contrary intention excludes
the rule of the words referring to the nearest
antecedent.
The topic of the subsection is income and
income is to be reported each year (sections 3
and 4 of the Income Tax Act). Hence what may
be deducted under the subsection is something
that would otherwise come within income for
that year and be reported for that year.
In International Harvester Co. of Canada v.
Provincial Tax Com'n [1949] A.C. 36, Lord
Morton of Henryton, at p. 53, states:
... It was suggested in argument that the proper method of
ascertaining the "manufacturing profit", was to estimate the
net profit which the appellant would have obtained if,
instead of selling goods retail through its own selling organi
zation in Saskatchewan, it had sold the same goods, direct
from its factory, to a wholesaler. This method seems not
unreasonable, but their Lordships do not desire to select
any particular method as being the best, since this would
appear to be a practical matter, not fully explored in
argument.
In M.N.R. v. Imperial Oil Ltd. [1960] S.C.R.
735, Judson J. at p. 749, delivering the judg
ment of Taschereau, Locke and Judson JJ.,
stated:
No company makes an actual profit merely by producing
oil. There is no profit until the oil is sold. International
Harvester Co. of Canada v. Provincial Tax Commission
[1949] A.C. 36. Laycock v. Freeman, Hardy & Willis Ltd.
[1939] 2 K.B. 1 at 6 and 11.
Where "income" appears in s. 83(5), it
implies the profit in each year, that is, the profit
derived in each year, as represented by the
proceeds of sales in excess of the expenditures
in that year. Being not included implies that
there is to be deducted something which would
otherwise come within income, the topic of this
subsection.
The reference to income, implicit in the
words "during the period of 36 months", is
confirmed by the meaning assigned to individu
al words in section 83(5).
No special meaning is to be attached to the
word "derived" in the words "derived from the
operation of a mine". In International Harvester
Co. of Canada v. Provincial Tax Com'n (supra),
Lord Morton of Henryton, at p. 52, stated:
. Lord Davey, in delivering the judgment of the board
said: "Their Lordships attach no special meaning to the
word `derived', which they treat as synonymous with arising
or accruing ..."
and the same meaning was attached to the word
"derived" in this subsection in Hollinger North
Shore Exploration Co. v. M.N.R. [1960]
Ex.C.R. 325, by Thurlow J. at p. 332.
If the words "arising or accruing" be sub
stituted for "derived" in the expression "de-
rived from the operation of a mine", there is no
difficulty in adopting the respondent's
construction.
The words in question "during the period of
36 months commencing with the day on which
the mine came into production", if taken as
modifying the nearest antecedent, should be
taken as modifying the words "arising or accru
ing (derived) from the operation of a mine" and
as modifying this whole phrase. The words
"arising or accruing" being the equivalent to
"derived" necessarily imply income and hence
the words "during the period of 36 months"
necessarily refer to income.
It follows that the construction of the
respondent is to be accepted.
The finding of the learned trial judge is
affirmed.
* * *
SWEET D.J.—To be decided in this appeal is
the proper construction and the effect of the
following wording in the relevant legislation:
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.
The words "the period of 36 months com
mencing with the day on which the mine came
into production" will be referred to as "the 36
months' period".
In his reasons for the judgment appealed
from the learned trial judge dealt with the facts
and set out in full what is referred to as "a
stated case and question agreed to between the
parties".
Section 8 and the relevant portion of section
9 of "the stated case" is:
8. The question in issue is whether in computing under
section 83(5) of the Act the income of the Appellant derived
from the operation of each of its new mines during the 36
months' period
(i) there is to be included income arising or accruing from
sales made during the 36 months' period of metals from
ore which had been extracted from the mine prior to the
36 months' period; and
(ii) there is to be excluded income arising or accruing
from sales made subsequent to the 36 months' period of
metals from ore which had been extracted from the mine
during the 36 months' period.
9. The parties agree that if the above question is
answered in the affirmative, the appeal in respect of the
new mine income issue is to be dismissed with costs ...
As I understand the appellant's position it
includes submissions to the effect that:
1. The phrase "during the period of 36
months commencing with the day on which
the mine came into production", because of
its positioning, modifies the words "the oper
ation of a mine" and does not modify the
words "income derived".
2. The words "operation of a mine" mean
no more than the mechanical removal per se
of the ore from the mine.
3. Each sale of metal subsequent to the 36
months' period made from ore extracted from
the mine during the 36 months' period should
be dealt with individually.
It is, I think, common ground that there is no
income or profit arising from the mere winning
of the ore and that there is no profit until the
ore or resulting metal is sold.
As to the first of these submissions, it is my
view that all, and not only part, of the wording
that follows the words "income derived" in the
quoted legislative provision modifies and relates
to the words "income derived".
It is also my opinion that the meaning that the
appellant would ascribe to "the operation of a
mine" is, having regard to reality, far too
limited.
The operation of the mine within the meaning
of the relevant legislation can only mean the
conducting of a viable, practical undertaking for
that purpose. For this it is necessarily, and I
would think obviously, required that there be an
organization, a business enterprise, so struc
tured and set up that the multiplicity of require
ments to that end will be available. The extract
ing of the ore, the conversion of it into metal
and the sale are parts, and important parts, but
only parts, of those requirements. For realistic
achievement of the result to be accomplished,
and accomplished in a practical and effective
sense, they must be supported and accompanied
by other activities. It is the totality of that
organization, of that enterprise and the totality
of the conduct of the business that is "the
operation of a mine" within the meaning of the
legislation.
Thus it would be unrealistic, in my view, if an
attempt were made separately to treat and to
deal with each sale made after the 36 months'
period, even though the ore were extracted
within the 36 months' period. It would be
beyond practicability to attempt to treat each of
those as separated, isolated transactions and as
though they were, somehow, unrelated to the
conduct of the enterprise in its entirety during
the 36 months' period.
I am of the opinion that the relief that is
granted by the quoted legislative provision is
confined to the 36 months' period during which
that enterprise, in its entirety, and which has for
its purpose the operation of the mine, is being
conducted.
When the 36 months' period ends the enter
prise enters a new era—an era untouched by the
relieving provision. Sales made after the termi
nation of the 36 months' period are part of the
operation after the 36 months' period and are,
in this connection, unrelated to the 36 months'
period.
Accordingly, sales after the 36 months'
period and the profit or income arising or accru
ing from them would not be items or factors
within the ambit of the relieving legislation.
That profit would be included in the computa
tion of income for the taxation year of the
business in which the sales were made.
The appellant submits that the object of the
provision under consideration is to provide an
incentive to bring new mines into production
and in the construction he would place upon it,
the incentive would be greater than the con
struction the Minister would place upon it. It
would appear clear that incentive is the object
of the provision. However, it is a commonplace
that the nature and extent of the incentive can
only be that provided by Parliament. If Parlia
ment wished the incentive to be greater then
Parliament would have done so by appropriate
wording.
I would dismiss the appeal with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.