Rolls-Royce ( Canada ) Ltd. v. Canada
A-1057-91
MacGuigan J.A.
22/12/92
9 pp.
Appeal from trial judgment dismissing appeal from income tax reassessments -- Appellant overhauling airplane engines -- Rebuilt engines returned to original owner with numerous parts replaced, so that after three overhauls engine completely replaced -- Replacement parts manufactured by appellant, parent company, subcontractors, or generally available on market -- Trial Judge holding appellant not engaged as primary purpose in processing of goods for sale as each engine maintaining unique identity as particular engine owned by particular customer (retaining same serial number, log book for lifetime, parts not intermingled with those of other engines) -- Trial Judge followed Crown Tire Service Ltd. v. The Queen, [1984] 2 F.C. 219 (T.D.) and distinguished Halliburton Services Ltd. v. R. (1985), 85 D.T.C. 5336 (F.C.T.D.); upheld (1990), 90 D.T.C.. 6320 (F.C.A.) and Nowsco Well Service Ltd. v. R. (1990), 90 D.T.C. 6312 (F.C.A.) -- Appeal dismissed -- Trial Judge correctly holding two lines of authority reconcilable -- Crucial distinction between Crown Tire and Halliburton that processing of rubber strips to be applied to tire casings owned by customers not manufactured or processed by taxpayer, whereas cement used in connection with oil and gas wells custom-made by taxpayer according to exact specifications -- Although overhauling airplane engines manufacturing or processing, not "manufacturing or processing goods for sale" since engines owned throughout by customers -- Majority of replacement parts sold not manufactured or processed by taxpayer -- Statute requiring taxpayer to manufacture or process same goods it sells -- Only manufacturing whole engine, not for sale by it -- Not entitled to deductions for inventory allowance pursuant to Income Tax Act, s. 20(1)(gg) (as it then was), deductions of manufacturing and processing tax credits from tax otherwise payable pursuant to s. 125.1(1), deductions of capital cost allowance on property included in Class 29 of Schedule II of Income Tax Regulations -- Income Tax Act, S.C. 1970-71-72, c. 63, ss. 20(1)(gg) (as enacted by S.C. 1977-78, c. 1, s. 14), 125.1 (as enacted by S.C. 1973-74, c. 29, s. 1) -- Income Tax Regulations, C.R.C., c. 945, Schedule B, class 29.