TMI Blog1945 (2) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... act as their ship managers under various agreements. By minute of agreement dated 25th May, 1937, which varied a previous minute, the appellant company was to continue to act as managers for the shipping company and the contract was to endure until 1st January, 1951. Under the third article of that agreement the appellant company was to receive a management fee of 500, a commission of one per cent. on the price of any vessel built, purchased or sold, and a commission of five per cent. on the profits of the shipping company as defined in the agreement. By the fourth article the remuneration to be afforded to the appellant company by the shipping company in terms of the third article until the termination of the agreement was not to be less than 2,000 per annum. The fourth article continues: Should the first parties go into liquidation either voluntary or compulsory or cease to carry on business for any other cause then the remuneration to be paid by the first parties (the shipping company) to the third parties (the appellant company) in respect of the period from the date of such liquidation until the date of expiry of this agreement will become immediately due to the thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a question between the appellant company and the Inland Revenue, the character of the payment received by the appellants and made it an income payment and not a capital payment. That view of the meaning and effect of article 4 was maintained in argument by the learned counsel who appeared for the Inland Revenue, who also maintained that, because this article appeared in the original agreement at the inception of the relationship between these two companies, it must bear this meaning and have this effect, though it might have borne a different meaning and effect in an agreement specially contracted between the two parties upon the eve and in contemplation of liquidation. I dissent from these contentions. As regards the meaning of the relevant words in article 4, it seems to me clear that the parties to the agreement were not in the least concerned with the character of the payment as income or as capital in a question with the Inland Revenue, and did not contract with reference to that at all. All that they were concerned with was the fixing of the sum which should be payable to the appellant company in the event of the shipping company going into liquidation or ceasing to car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ping company to the appellants was of the nature of a capital payment and not of the nature of a payment chargeable to income tax as annual profit. It has been truly said that every case must be considered on its own facts, and that no legal criterion for distinguishing between capital payments and income payments is readily applicable. Therefore, though we have had a considerable citation of cases, I do not propose to refer to more than a few of them. Lord Cave, L.C., in the case of British Insulated and Helsby Cables, Ltd. v. Atherton [1926] A.C. 205, at p. 213; 10 Tax Cas. 155, at p. 192, said: But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. And, of course, one may equally say that an expenditure made once and for all as payment for abandoning or surrendering an asset is received by the recipient as a capital and not as a revenue payment, in the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself indecisive, and though each is open to criticism, yet juncta juvant. And where you have a payment for the loss of the contract upon which the whole trade of the company has been built, where the expected profits of the contract are used to measure the loss of them for a period of future years, and where in consequence of the loss the company's structure and character are greatly affected, the payment seems to me to be beyond doubt a capital payment. For these reasons, therefore, I think that the question of law ought to be answered in the negative. So much for the income tax aspect of the case. The same question precisely arises under the liability for excess profits tax. There is no speciality which I have to consider in relation to that case, and there also I think that the question of law should be answered in the negative. LORD MONCRIEFF.―I am of the same opinion and have little to add. In cases such as this, which are so dependent each upon its own complicated circumstances, it is not possible to get much guidance by way of comparison from the decisions in other related cases. I think, however, that a general guide for application in all such cases is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in their agreement could be fastened on by the Inland Revenue and taken as concluded against them, that again might conclusively have supported the Commissioners' decision upon the case. But that emphatically is not the law. Taxpayers when faced with demands for tax may put forward their view of their case as tabled in their private agreements by way of defence or by way of concession. Their defence as so supported will not avail them if the facts do not support it in substance, while their concession cannot be urged against them unless the concession is one which is supported by the facts. I have in view what was said by Lord Tomlin in the case of Commissioners of Inland Revenue v. Duke of Westminster [1936] A.C. 1, at p. 19; 19 Tax Cas. 490, at p. 520, that it is the legal reality which has to be regarded and not―what he was pleased to put in contrast with the legal reality―the mere substance of the matter. In my view it is the legal reality which is the substance of the matter; and the substance of the matter as referred to in the past by learned Judges has meant the legal reality of the situation and nothing else, and has been used by them in contrast not w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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