http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/107970/index.do 
Feedlot Health Management Services Ltd. v. The Queen (February 6, 2015 – 2015 TCC 32, Woods J.).
Précis: Feedlot Health Management Services Ltd. (“FHMS”) expended $1,649,537 in conducting four research projects to test to test new diets, supplements and vaccines on cattle. During the research the cattle were maintained at commercial feedlots which implemented the research protocols. A large number of the cattle used were supplied by GK Jim Farms (“Jim Farms”). The payment in dispute was for the use of Jim Farms’ cattle for the research. Feedlot maintained that the payment was for SRED and that it was entitled to investment tax credits under section 127 of the Income Tax Act (“ITA”). The Tax Court held that the payments were not for “lease” of the equipment (i.e., the cattle) within the meaning of clauses (I) or (VI) of s. 37(8)(a)(ii)(B) of the ITA since FHMS did not have exclusive possession of the cattle but only limited rights to them for research purposes. However the Court held that the expenditures were expenditures in respect of SRED undertaken on behalf of FHMS within the meaning of clause (II) of s. 37(8)(a)(ii)(B) of the ITA since they were in respect of SRED performed by the feedlots on behalf of FHMS.
Decision: FHMS was involved in four research projects involving cattle:
[7] This appeal relates to four research projects (the “Projects”) involving the study of special diets, supplements and vaccines on cattle which were undertaken for sponsors. The Projects were designed to test the relationship between new diets and additives to the health and performance of cattle.
[8] Approximately 7,000 cattle owned by third parties were studied for purposes of the Projects. The cattle were maintained in commercial feedlots and were raised for commercial production on behalf of their owners. The commercial production used standard methods, subject to the protocols of the Projects.
[9] The cattle were given particular diets, supplements or vaccines by the feedlots for several months as required by the Projects until the cattle were sent to packing plants. Measurements of the cattle were taken by the feedlots throughout the process and the data was transmitted to FHMS for analysis.
The payment in dispute was to Jim Farms for use of their cattle in the research projects:
[11] FHMS also entered into agreements with GK Jim Farms (“Jim Farms”) for the supply of a large percentage of the cattle to be used in the Projects.
[12] Jim Farms is a sole proprietorship owned by Dr. Jim which operates a large cattle investment business. The cattle acquired for the Projects were raised and processed in the same manner as Jim Farms’ other cattle, subject to modifications agreed with FHMS to conduct its research.
[13] The disputed amounts totaling $1,649,537 represent the amounts invoiced and paid by FHMS to Jim Farms with respect to the supply of cattle for purposes of the Projects. …
The Court first determined whether the cattle were leased (within the meaning of clauses (I) or (VI) of s. 37(8)(a)(ii)(B) of the ITA) from Jim Farms and concluded they were not:
[42] Coincident with the RSAs, the cattle were also acquired, raised and processed for Jim Farms’ benefit in a manner identical to its regular business, except to the extent necessary to accommodate the Projects.
[43] A lease implies exclusive possession: Johnson v British Canadian Insurance Company, [1932] SCR 680, at 685.
[44] I find that FHMS did not have exclusive possession of the cattle during the period of the RSAs, and that it only had limited rights with respect to the cattle.
The Court then turned to whether the expenditures were expenditures in respect of SRED undertaken on behalf of FHMS within the meaning of clause (II) of s. 37(8)(a)(ii)(B) of the ITA. The Court raised this provision of its own motion since FHMS had chosen not to pursue it in argument although the Crown did address it:
[31] Despite the abandonment of the clause (II) argument by FHMS, after the hearing I concluded that this provision should be considered and invited the parties to make further submissions. The relevant principles for a Court to raise an issue of its own motion were recently described in
R. v Mian, 2014 SCC 54. I am satisfied that it is important to consider clause (II) in the context of this appeal and that neither party is prejudiced by my raising it.
The Court concluded that the expenditures were SRED since they related to the research projects:
[60] The Crown suggests that clause (II) does not apply because the work performed by Jim Farms is not SRED.
[61] The difficulty with this submission is that it does not give sufficient weight to the phrase “in respect of.” Clause (II) does not simply apply to expenditures “for” SRED but also expenditures “in respect of” SRED. This phrase, in my view, extends the qualifying expenditures under clause (II) to include expenditures that relate to SRED.
As a result the appeal was allowed with costs.