T-2458-81
Mother's Pizza Parlour (London) Limited (Plain-
tiff)
v.
The Queen (Defendant)
and
T-2459-81
Mother's Pizza Parlour Limited (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Rouleau J.—Toronto, October 23,
1984; Ottawa, April 30, 1985.
Income tax — Income calculation — Investment tax credit
— Processing of goods for sale — Restaurants — Buildings
operated as eating establishments with take-out service not
"qualified property" within Act s. 127(10)(c)([) — "Process-
ing" defined — Income Tax Act, S.C. 1970-71-72, c. 63, ss.
125.1(3)(6) (as added by S.C. 1973-74, c. 29, s. 1), 127(5),(9),
(10),(11) (as added by S.C. 1974-75-76, c. 71, s. 9), 172 (as
am. by S.C. 1974-75-76, c. 26, s. 108), 175.
The plaintiffs are members of the "Mother's Pizza Parlour
and Spaghetti House" chain of restaurants which specialize in
pizza and provide dining room, take-out and delivery service.
In 1976, the plaintiffs sought to deduct amounts as invest
ment tax credit under subsection 127(5) of the Income Tax Act
as arising from their interests in the buildings they leased to
conduct their restaurant operations.
The Minister disallowed the plaintiffs' claims on the ground
that the buildings were not "qualified property" within the
meaning of subsection 127(10) of the Act since they were not
used "primarily for the purpose of manufacturing or processing
of goods for sale" as required by paragraph 127(10)(c) of the
Act. In each case, a notice of objection was filed and in each
case the reassessment was confirmed by the Minister. These
two actions were brought against the Crown pursuant to sec
tions 172 and 175 of the Act in order to attack these
reassessments.
The issue, essentially, is whether the buildings were used for
the "processing of goods for sale" and, if so, whether they were
used "primarily" for that purpose.
Held, both actions should be dismissed.
While the interpretation bulletin, which is favourable to the
plaintiffs, may be consulted, it is not binding on Her Majesty
and should be considered only as persuasive authority.
The meaning of subsection 127(10) is less than clear and
requires interpretation. In the final analysis, the word "process-
ing", which, according to the defendant, involves the adding of
value to foodstuffs through various techniques which increase
shelf-life and allow distribution over a wide area, must not be
given an all-encompassing definition. If subparagraph
127(11)(b)(iv) excludes ordinary retail and middle-man opera
tions where no product is prepared in the building in question,
then subparagraph 127(11)(b)(i) deletes from the meaning of
"manufacturing and processing" any operation using its build
ing for the "selling ... of finished goods". And this exclusion
applies in this case because the Court finds as a fact that the
buildings herein were used for the selling of finished goods—
meals—whether they were consumed on the premises or were
picked-up or delivered for consumption elsewhere.
Furthermore, paragraph 127(10)(c), when read as a whole,
indicates that the investment tax credit was intended to provide
an incentive for investment in Canada's traditional primary and
secondary industries; it was not intended to benefit restaurants,
pastry shops, haberdasheries or hot dog stands.
Even if "processing" were given a very broad meaning, the
operations herein, the preparation of meals for immediate
consumption, cannot be viewed as processing. This is in accord
ance with the ordinary commercial usage in the industry as
regards the term "food processing".
Given the above findings, it is not necessary to decide
whether the buildings were "primarily" used for "food
processing".
CASES JUDICIALLY CONSIDERED
DISTINGUISHED:
Canadian Wirevision Ltd. v. R., [1978] 2 F.C. 577
(T.D.); Le Soleil Ltée v. Minister of National Revenue,
[1973] F.C. 97 (C.A.), reversing [1972] F.C. 423 (T.D.);
Federal Farms Ltd. v. Minister of National Revenue,
[1966] Ex.C.R. 410; appeal dismissed without reasons
[1967] S.C.R. vi.
CONSIDERED:
Controlled Foods Corp. Ltd. v. R., [1981] 2 F.C. 238
(C.A.), affirming [1979] 2 F.C. 825 (T.D.).
REFERRED TO:
O'Neill v. The Queen, judgment dated December 17,
1984, Federal Court, Trial Division, T-106-84, not yet
reported; Stubart Investments Ltd. v. The Queen, [1984]
1 S.C.R. 536; (1984), 53 N.R. 241; Hare! v. Dep. M.
Rev. of Quebec, [1978] 1 S.C.R. 851; Nowegijick v. The
Queen, [1983] 1 S.C.R. 29; The Queen y Royal Trust
Corp of Canada, [1983] CTC 159 (F.C.A.); McDonald's
Corp. v. Oklahoma Tax Commission, 563 P.2d 635
(Okla. Sup. Ct. 1977); The Canada Trust Co v MNR,
[1979] CTC 2199 (T.R.B.); Scroll, Inc. v. C.!.R. 447
F.2d 612 (5th Cir. 1971); Malat v. Riddell, 383 U.S. 569
(1966).
COUNSEL:
Wolfe D. Goodman, Q.C. and Joanne E.
Swystun for plaintiffs.
Deen C. Olsen and E. Thomas for defendant.
SOLICITORS:
Goodman & Carr, Toronto, for plaintiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
ROULEAU J.: These two actions were heard
together on essentially common evidence and were
the object of identical argument by counsel. Both
actions were brought against the Crown pursuant
to sections 172 [as am. by S.C. 1974-75-76, c. 26,
s. 108] and 175 of the Income Tax Act [R.S.C.
1952, c. 148 (as am. by S.C. 1970-71-72, c. 63, s.
1)] as amended (all subsequent references are to
that Act unless otherwise noted) as a result of
reassessment for the 1976 taxation years disallow
ing deductions claimed under subsection 127(5)
[as added by S.C. 1974-75-76, c. 71, s. 9].
I - FACTS
The parties submitted an agreed statement of
facts.
Plaintiff Mother's Pizza Parlour Limited
("Mother's") was a corporation incorporated
under the laws of Ontario on May 24, 1972.
Plaintiff Mother's Pizza Parlour (London) Lim
ited ("Mother's London") is a corporation incor
porated under the laws of Ontario on March 18,
1974.
Mother's and Mother's London are members of
a group of companies which operate establish
ments under the name and style of "Mother's
Pizza Parlour and Spaghetti House". These estab
lishments offer a variety of foods of which pizza is
the specialty. Generally, they provide dining room,
take-out and delivery service to their customers.
Mother's, as at December 31, 1976, was a joint
venture partner in three joint ventures to the fol
lowing extent:
Wellington Road Associates 6/22
Brantford Associates 50 %
Kitchener Associates 37.5%
Mother's London, as at December 31, 1976, had
a 3/22 interest in Wellington Road South Associ
ates joint venture.
Wellington Road Associates, Brantford Associ
ates and Kitchener Associates each acquired after
June 23, 1975 and before July 1, 1977 (dates
relevant under subsection 127(10) (infra), to the
availability of the investment tax credit in ques
tion) buildings located in London, Brantford and
Kitchener, Ontario at the following costs:
London $309,525
Brantford $258,453
Kitchener $296,938
The Wellington Road Associates joint venture
leased the building in London to Mother's Pizza
Parlour (Wellington Road) Limited ("Wellington
Road") an Ontario corporation incorporated on
September 8, 1975.
The Brantford Associates joint venture leased
the building in Brantford to Mother's Pizza Par
lour (Brantford) Limited ("Brantford"), a corpo
ration incorporated under the laws of Ontario on
August 22, 1975.
The Kitchener Associates joint venture leased
the building in Kitchener to Mother's Pizza Par
lour (Kitchener) Limited ("Kitchener"), an
Ontario corporation incorporated on December 25,
1975. All of these buildings were operated as
eating establishments under the name "Mother's
Pizza Parlour and Spaghetti House" (for simplici
ty I shall refer collectively to the buildings in
question and the operations therein as "Mother's
Pizza Parlours").
In calculating federal income taxes payable for
1976 Mother's sought to deduct an amount of
$18,181 from the tax otherwise payable as an
investment tax credit under subsection 127(5)
including an amount of $16,250 calculated as aris
ing from its interest in the three buildings.
Similarly Mother's London sought to deduct the
amount of $2,436 including an amount of $2,110
calculated in respect of its interest in the London
building.
By notice of reassessment of May 23, 1980, the
Minister of National Revenue dissallowed Moth
er's claim of $16,250 as an investment tax credit in
1976 arising from its interest in the three build
ings. Similarly by notice of reassessment of June
13, 1980 Mother's London's attempt to deduct
$2,110 was disallowed. Both of these reassess
ments were based on the Minister's view that the
building was not used nor could reasonably be
expected to be used by the lessee in 1976 "primari-
ly for the purpose of manufacturing or processing
of goods for sale" as required by subsection 127(10
[as added by S.C. 1974-75-76, c. 71, s. 9]. In short
they were found not to be subsection 127(10)
"qualified property".
In each case a notice of objection was filed by
the plaintiff and in both cases the Minister of
National Revenue confirmed his reassessment.
II — ISSUES
The defendant disputes the investment tax credit
claimed by the plaintiffs as "qualified property"
under paragraph 127(10)(c) of the Act. I must
determine whether or not buildings leased in 1976
were used for the "processing of goods for sale"; if
I find in the affirmative, were the buildings used
"primarily" for that purpose.
III — STATUTORY PROVISIONS
Reference must of course be made to the provi
sions of the Income Tax Act as they existed in the
1976 taxation year.
Subsection 127(5) establishes a deduction from
tax otherwise payable in the following terms:
127... .
(5) There may be deducted from the tax otherwise payable
by a taxpayer under this Part for a taxation year an amount not
exceeding the lesser of
(a) his investment tax credit at the end of the year, and
(b) the aggregate of
(i) $15,000, and
(ii) 1/2 the amount, if any, by which the tax otherwise
payable by him under this Part for the year exceeds
$15,000.
Subsection 127(9) [as added by S.C. 1974-75-
76, c. 71, s. 9] elaborates the calculation of the
"investment tax credit" as being essentially 5 per
cent of the capital cost of qualified property.
Subsection 127(10) provides the definition of
"qualified property". Particular attention should
be paid to subparagraph 127(10)(c)(i). The entire
subsection reads as follows:
127. ...
(10) For the purposes of subsection (9), a "qualified proper
ty" of a taxpayer means
(a) a prescribed building to the extent that it is
(i) acquired by the taxpayer after June 23, 1975 and
before July 1, 1977, or
(ii) acquired by the taxpayer after June 30, 1977, if
installation of the footings or other base support for the
building was commenced by the taxpayer after June 23,
1975 and before July 1, 1977 and the building was com
pleted in substantial accordance with plans and specifica
tions agreed to in writing by the taxpayer before July 1,
1977, or
(b) prescribed machinery and equipment acquired by the
taxpayer after June 23, 1975 and before July 1, 1977
that has not been used for any purpose whatever before it was
acquired by the taxpayer and that is
(c) to be used by him in Canada primarily for the purpose of
(i) manufacturing or processing of goods for sale or lease,
(ii) operating an oil or gas well,
(iii) extracting minerals from a mineral resource,
(iv) processing, to the prime metal stage or its equivalent,
ore from a mineral resource,
(v) exploring or drilling for petroleum or natural gas,
(vi) prospecting or exploring for or developing a mineral
resource,
(vii) logging,
(viii) farming or fishing, or
(ix) the storing of grain, or
(d) to be leased by the taxpayer, to a lessee (other than a
person exempt from tax under section 149) who can reason
ably be expected to use the property in Canada primarily for
any of the purposes referred to in subparagraphs (c)(i) to
(ix), but this paragraph does not apply in respect of property
that is a prescribed property for the purposes of paragraph
(b), unless
(i) the property is leased by the taxpayer in the ordinary
course of carrying on a business in Canada and the
taxpayer is a corporation whose principal business is
(A) leasing property,
(B) manufacturing property that it sells or leases,
(C) the lending of money, or
(D) the purchasing of conditional sales contracts,
accounts receivable, bills of sale, chattel mortgages, bills
of exchange or other obligations representing part or all
of the sale price of merchandise or services,
or any combination thereof, and
(ii) use of the property by the first lessee commenced after
June 23, 1975 and before July 1, 1977.
Subsection 127(11) [as added by S.C. 1974-75-
76, c. 71, s. 9] refines the definition of "qualified
property" in the following terms:
127... .
(11) For the purposes of subsection (10),
(a) "manufacturing or processing" does not include any of
the activities referred to in subparagraphs 125.1(3)(b)(i) to
(ix), and
(b) for greater certainty, the purposes referred to in subpara-
graphs (10)(c)(i) to (ix) do not include
(i) storing (other than the storing of grain), shipping,
selling and leasing of finished goods,
(ii) purchasing of raw materials,
(iii) administration, including clerical and personnel
activities,
(iv) purchase and resale operations,
(v) data processing, and
(vi) providing facilities for employees, including cafeterias,
clinics and recreational facilities.
Subparagraphs 125.1(3)(b)(i) to (ix) [as added
by S.C. 1973-74, c. 29, s.1] referred to in para
graph 127(11)(a) read as follows:
125.1.. .
(3) ...
(b) "manufacturing or processing" does not include
(i) farming or fishing,
(ii) logging,
(iii) construction,
(iv) operating an oil or gas well,
(v) extracting minerals from a mineral resource,
(vi) processing, to the prime metal stage or its equivalent,
ore from a mineral resource,
(vii) producing industrial minerals,
(viii) producing or processing electrical energy or steam,
for sale,
(ix) processing gas, if such gas is processed as part of the
business of selling or distributing gas in the course of
operating a public utility, ...
IV - PLAINTIFFS' ARGUMENT
Counsel for the plaintiffs dealt first with the
meaning of the term "processing of goods for sale"
and submits, in his view, that the activity carried
on was processing, and that the buildings were
used "primarily" for that purpose in 1976.
The plaintiffs argued that "processing" is not a
term of art and, in the absence of clear statutory
authority to the contrary, should be given its ordi
nary dictionary meaning (I shall refer to the sug
gested definitions further on). In this connection
reference was made to the decision in Federal
Farms Ltd. v. Minister of National Revenue,
[1966] Ex.C.R. 410; appeal dismissed without rea
sons, [1967] S.C.R. vi. The Court is specifically
urged to avoid relying on any commercially
accepted usage of the term and thus reject the
expert evidence of Mr. Kitson (Exhibit D-8)
appearing on behalf of the defendants and who
testified that the operations conducted by Moth
er's Pizza Parlours do not constitute food process
ing as that term is generally understood in the food
industry. The plaintiffs criticize Controlled Foods
Corp. Ltd. v. R., [1981] 2 F.C. 238 (C.A.), affirm
ing [1979] 2 F.C. 825 (T.D.) as wrongly accepting
such commercial usage as a guide.
Counsel for the plaintiffs suggests that "process-
ing" is a much wider term and may include any
process involving the combination of various food
stuffs into edible food such as the work carried on
at Mother's Pizza Parlours.
Relying on an interpretive argument involving
the reference in paragraph 127(11)(a) to subpara-
graphs 125.1(3)(b)(i) to (ix) (which I will discuss
further on) and, inter alia, on Canadian Wirevi-
sion Ltd. v. R., [1978] 2 F.C. 577 (T.D.), at page
586 and Le Soleil Liée v. Minister of National
Revenue, [1973] F.C. 97 (C.A.) reversing, on
another point, [1972] F.C. 423 (T.D.), the plain
tiffs urge this Court to opt for a broad interpreta
tion of the term "processing".
Further, with respect to the definition of proc
essing the plaintiffs cite authority which permits
the use of departmental interpretation bulletins as
an aid to interpreting the Income Tax Act (Harel
v. Dep. M. Rev. of Quebec, [1978] 1 S.C.R. 851,
at page 859; Nowegijick v. The Queen, [1983] 1
S.C.R. 29, at page 37; and The Queen v Royal
Trust Corp of Canada, [1983] CTC 159 (F.C.A.),
at pages 165-166). They refer the Court to para
graph 26 of IT-331 where the view is expressed
that "the activities of preparing meals for con
sumption constitute processing".
The plaintiffs then submit that the buildings
were "primarily" used for processing. On the basis
of various dictionary definitions they argue that
"primarily" is not a quantitative notion like
"mainly" or "substantially" but rather means
"essentially", "fundamentally", "of first impor
tance". In support of this view they referred to
several authorities, notably Malat v. Riddell, 383
U.S. 569 (1966); Scroll, Inc. v. C.I.R. 447 F.2d
612 (5th Cir. 1971) and The Canada Trust Co v
MNR, [1979] CTC 2199 (T.R.B.).
Counsel in argument points to a number of facts
with respect to Mother's Pizza Parlours operations
to emphasize that they are "primarily" engaged in
what is alleged to be processing, including the
relative importance of the kitchen, take-out and
delivery aspects of the operation and to diminish
the importance of the dining room at Mother's
Pizza Parlours.
V — DEFENDANT'S ARGUMENT
According to counsel for the defendant, subsec
tion 127(5) creates a tax credit of 5 percent of the
cost of qualified property; but, one must keep in
mind the tax policy approach taken by Mr. Justice
Estey in Stubart Investments Ltd. v. The Queen,
[1984] 1 S.C.R. 536; (1984), 53 N.R. 241. The
section is designed to stimulate certain industrial
sectors in Canada by providing a tax incentive for
investment in buildings and equipment. It is the
view of the defendant that the words "primarily
for the purpose of manufacturing and processing"
in subsection 127(10) are conditioned, inter alia,
by paragraph 127(11)(b) so as to exclude build
ings used for the selling of finished goods or by
service industries. In reviewing these subsections,
one should look to the Stubart Investments case
which expresses the view that the courts must not
take a strict view of the words of the taxing statute
without examining the theme, intent and policy
object of the enactment in question.
The defendant further submits that Mother's
Pizza Parlours are not engaged in manufacturing
or processing for the purposes of subsection
127(10), but rather involved in the preparation of
food for immediate consumption. In support of this
proposition the defendant cites Controlled Foods
Corp. Ltd. v. R. (supra), and McDonald's Corp. v.
Oklahoma Tax Commission, 563 P.2d 635 (Okla.
Sup. Ct. 1977). In addition to its relevance to the
argument that restaurants do not engage in pro
cessing, the Controlled Foods case also sustains
the principle that "generally accepted commercial
view" may be used by the Court in defining
processing.
Counsel contends that Mother's Pizza Parlours
prepare food for immediate consumption; that
according to generally accepted commercial usage,
this does not constitute food processing. Food
processing involves the adding of value to food
stuffs through various techniques which increases
shelf-life and allows distribution over a wide area.
He distinguishes the decision in Federal Farms
Ltd. v. Minister of National Revenue (supra).
Interpretation bulletins may be consulted by the
Court in the case of ambiguity, but the defendant
asserts that they are guidelines only to be con
sidered along with the rest of the evidence.
Finally, counsel for the defendant submits that
even if I should find Mother's Pizza Parlours
buildings are used for processing they were not
"primarily" so used; despite take-out and delivery
services, Mother's Pizza Parlours buildings are
basically restaurants. They are primarily service
and sales locations with the processing being of
lesser importance. The largest portion of Mother's
floor space and staff are involved in dining room
service.
VI - DISPOSITION
I would make one brief preliminary remark. I
have no difficulty with the proposition that income
tax interpretation bulletins may be consulted [see
Harel v. Dep. M. Rev. of Quebec, [1978] 1 S.C.R.
851 at page 859; Nowegijick v. The Queen, [1983]
1 S.C.R. 29 at page 37; and The Queen v Royal
Trust Corp of Canada, [1983] CTC 159 (F.C.A.)
at pages 165-166] but these materials are not
binding on Her Majesty and should be considered
only as persuasive authority.
Were Mother's Pizza Parlours buildings used
for "processing" and if so, were they "primarily"
so used?
Subsection 127(10) is a statutory provision
whose meaning is less than clear, and requires
interpretation. There appears to be no authority
directly on point. A careful reading of the statu
tory provision in order to discover its meaning in
the total scheme of the Income Tax Act is
required, keeping in mind the economic policy
objectives of Parliament in allowing the investment
tax credit. It is my view that the word "process-
ing" must not be given an all-encompassing defini
tion. There are a number of reasons for this con
clusion. Even in the light of the Stubart
Investments (supra) decision, it is still permissible
to require that a taxpayer's circumstances bring
him squarely within the four corners of a section,
so long as the economic policy objective of the
deduction is kept in perspective.
I cannot agree to giving on all-encompassing
meaning for "processing" because of exclusions
from 127(10)(c) found in 127(11)(b). Counsel for
the plaintiffs argued that the 127(11)(a) exclusion
by reference to the exclusions of 125.1(3)(b)(i) to
(ix) from the definition of "manufacturing or
processing" indicates that those terms as used in
127(10)(c) have an otherwise broad meaning.
However, in my view, the exclusions in 127(11)(b)
are of much greater relevance to the cases before
this Court. Subparagraph 127(11)(b)(iv) excludes
what I understand to be ordinary retail and mid-
dle-man operations where no product is prepared
in the building in question (see the reasons of my
brother Cullen J. in O'Neill v. The Queen (judg-
ment dated December 17, 1984, Federal Court,
Trial Division, T-106-84, not yet reported)). In
these circumstances subparagraph 127(11)(b)(i)
must be given some meaning. I think its meaning
and interpretation are obvious. Subparagraph
127(11)(b)(i) deletes from the meaning of "manu-
facturing and processing" any operation using its
building for the "selling ... of finished goods". I
find, as a matter of fact, that whatever the inter
mediate steps may be, Mother's Pizza Parlours
buildings were used for the selling of finished
goods, namely meals, whether they were consumed
on the premises or were picked-up or delivered for
consumption in the homes of customers.
There is further reinforcement for my view as to
the effect of subparagraph 127(11)(b)(i). Parlia
ment could not have intended such a broad mean
ing for the word "processing" as the plaintiffs
would have me adopt. Paragraph 127(10)(c), when
read as a whole, indicates that the investment tax
credit was intended to provide an incentive for
investment in Canada's traditional primary and
secondary industries; to provide a reward for
enterprises in those industries who have already
made investments in new buildings or equipment.
The effect intended was to protect or create
Canadian jobs in certain sectors. No doubt Moth
er's Pizza Parlours is a large-scale operation with a
large number of employees and expansive equip
ment and buildings. But I see no logical distinc
tion, other than the scale of the operation, between
Mother's Pizza Parlour and any other restaurant;
or for that matter, a corner pastry shop, a haber
dashery which makes suits to measure or even a
hot dog stand. I cannot accept that Parliament
intended to benefit all such operations with the
investment tax credit. I am convinced that it was
intended to avoid such an absurd result that sub-
paragraph 127 (11) (b) (i) excludes operations using
machinery and buildings to sell finished goods.
Even if I am wrong in stating that the word
"processing", cannot, in this instance, be given a
wide definition because of the overall scheme and
intent of the investment tax credit, I do not think
Mother's Pizza Parlours' operations can be viewed
as processing even if that term is given a very
broad meaning. The buildings were used for the
preparation of meals for immediate consumption,
not for the processing of food. For example, pizzas
were prepared (or assembled) using purchased
ingredients and the dough was not even made on
the premises. It was purchased from an independ
ent supplier.
The plaintiffs place great reliance on what they
consider to be the ordinary meaning of processing
as reflected in dictionary definitions. These defini
tions are helpful, but they certainly do not settle
the matter. The plaintiffs submitted, as part of
Exhibit P-5, the definitions of "process" found in
Webster's Third International Dictionary (1959)
and Webster's Third International Dictionary
(1964). They read respectively as follows:
To subject (especially raw material) to a process of manufac
turing, development, preparation for market, etc; to convert
into marketable form as live stock by slaughtering, grain by
milling, cotton by spinning, milk by pasturizing, fruits and
vegetables by sorting and repacking.
To subject to a particular method, system or technique of
preparation, handling or other treatment designed to effect a
particular result: put through a special process as (1) to prepare
for market, manufacture or other commercial use by subjecting
to some process (- ing cattle by slaughtering them) (- ed milk
by pasturizing it) (- ing grain by milling) (- ing cotton by
spinning).
These definitions seem to confirm my view that
processing does not include the preparation of
meals for immediate sale as a finished product to
the public. These definitions all suggest, with
examples, that a factory freezing pizzas or pizza
ingredients might be "processing", but not a res
taurant preparing pizza for immediate consump
tion. I found the expert testimony of Mr. John A.
Kitson more helpful that the dictionary definitions.
Mr. Kitson testified that Mother's Pizza Parlours
are not food processing operations. He would
appear to base his opinion on two factors. First,
that ordinary commercial usage in the industry
does not include the preparation of food for
immediate consumption in a restaurant or for
delivery or pick-up in the notion "food process
ing". The admissibility and probative nature of
such evidence is confirmed by the decision of the
Federal Court of Appeal in Controlled Foods
Corp. Ltd. v. R. (supra). Second, that food proc
essing includes some element of transformation or
preservation to allow wide distribution at a later
date. This does not describe the operations carried
out at Mother's Pizza Parlours. Preservation is not
a condition sine qua non of food processing.
This brings me to the case law. There is no
authority that has come to my attention which is
directly on point. However, there are some deci
sions which bear careful scrutiny.
The Controlled Foods case (supra) involved the
applicability of the federal excise tax exemption
for "manufacturers or producers" on machinery
purchased for use in the "manufacture or produc
tion of goods" and did not deal directly with the
meaning of "processing". However, the exemption
was claimed in respect of restaurant equipment
alleged to be used for the manufacture or produc
tion of meals and drinks in a restaurant. The
Federal Court of Appeal did not interfere with the
refusal of the Trial Division [ 1979] 2 F.C. 825, to
accord the exemption to such a restaurant opera
tion. This case is instructive and enlightening in
view of the similarity to the facts to the present
cases.
In Canadian Wirevision Ltd. v. R. (supra) it
was held that cable television signals are not goods
and therefore the taxpayer's profits did not qualify
as "Canadian manufacturing and processing prof
its" under subsection 125.1(3) of the Income Tax
Act. It was also stated obiter that capture and
delivery of television signals constituted processing
in the "ordinary reasonable sense" of that term
(ibid., at page 586). I do not regard this obiter
dictum as applicable to the present cases because
of its vastly different facts.
Similarly, the decision of the Federal Court of
Appeal in Le Soleil Ltée v. Minister of National
Revenue (supra) involved facts very far removed
from the present case. That a newspaper was
considered to be a "manufacturing and processing
corporation" does not settle the case of Mother's
Pizza Parlours. It should also be noted that the
narrow question before the Court in that case was
not whether a newspaper is involved in processing
but rather whether advertising sales can be regard
ed as manufacturing or processing sales.
This leaves the decison of Cattanach J. in Fed
eral Farms Ltd. v. Minister of National Revenue
(supra) which was urged upon me by the plain
tiffs. Like the Le Soleil case, Federal Farms
involved the determination of whether the appel
lant qualified as a "manufacturing and processing
corporation" for the purposes of then section 40A
of the Income Tax Act. Federal Farms may be
distinguished from the present cases on two key
points. First, the integrated market gardening cor
poration in question was involved in both the
primary and secondary stages of food production.
In contrast, Mother's Pizza Parlours are retail
sales and service operations which prepare meals
for immediate sale to the public as finished goods.
Second, the operations performed in Federal
Farms included washing and grading to facilitate
later use, spraying to retard bacterial growth and
increase shelf life and packaging for the wholesale
market. It is primarily the spraying and packaging
for wholesale distribution of the vegetables which
distinguishes Federal Farms operation from the
activities carried out in the buildings in the present
cases.
For all of these reasons I find that the plaintiffs
did not, in the 1976 taxation year, lease the build
ings in question to lessees who used them for the
processing of goods for sale.
In the circumstances it is not strictly necessary
to decide whether the activities that the plaintiffs
allege to be processing, were the activities for
which the buildings were "primarily" used.
In summary, I find that the buildings in ques
tion were not used in 1976 for "processing" as that
term may be understood for the purposes of sub
section 127(10) of the Income Tax Act. Thus, the
Minister of National Revenue was correct in his
notices of reassessment for the 1976 taxation year.
Mother's is not entitled to the deduction of
$16,250 and Mother's London is not entitled to the
deduction of $2,110 both claimed under subsection
127(5) with respect to the three buildings as they
were not "qualified property" within the meaning
assigned to that term by subsection 127(10).
Accordingly, both actions are dismissed with costs.
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