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TMI Blog1964 (6) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... every gallon of petrol if he would promise to sell its brand to the exclusion of all others. The retailer would tie himself to the company offering the most rebate. Competition forced the rebates up. The next stage was that instead of rebate, the company paid a sum in advance to the retailer each year according to the estimated gallonage for the coming year. So the retailer received cash in hand at the beginning of the year, and then at the end of the year the figure was adjusted up or down according to the gallonage actually supplied. The retailer would tie himself to the company offering the best advance payment. The third stage was, that instead of an advance for one year, the company paid a lump sum in advance for five or six years ahead; and this was adjusted up or down afterwards according to the gallonage sold. That was the stage reached in Bolams case, where Danckwerts J. held that these advance payments made by a company were payments of a revenue nature. They were not capital expenditure. They could be deducted by the company in calculating its profits for tax purposes. We have now reached a further stage. Some of the retailers have taken even greater advantage of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 and similar sums which Regent thus paid were sums employed by Regent as capital in its trading; for if they were, regent was not entitled to deduct them in computing its profits (see section 137(f) of the Income Tax Act, 1952). But if they were of a revenue nature, of course, they could be deducted. The commissioners held that the payments were properly to be deducted as of a revenue and not of a capital nature. Pennycuick J. held that the commissioners could not reasonably come to that conclusion. He held that they were payments of a capital nature. We were referred to several authorities on this subject, particularly the well-known words of Viscount Cave L.C. in British Insulated and Helsby Cables v. Atherton and of Lord Macmillan in Van den Berghs Ltd. v. Clark, and the recent application of those principles in the opencast mining cases of Knight v. Calder Grove Estates and H. J. Rorke Ltd. v. Inland Revenue Commissioners. If one looks at the transaction according to its legal form, the payment of the lump sum was to my mind clearly expenditure of a capital nature. It was paid by Regent so as to acquire a lease for a term of years at a nominal rent. Whether described by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent from the cloth which it measures. We must look at these lump sums as they really were, payments for a permanent assets in the shape of an exclusive output of Regents product, and as such they were capital payments. I would like to pay tribute to the care and consideration which the commissioners gave to this case, but after reflection I have come to the conclusion that their decisions was one to which they could not reasonably come. I think these payments were of a capital nature and I agree with Pennycuick J., and I would dismiss the appeal. DANCKWERTS, L. J. In Bolam v. Regent Oil Co. Ltd. sums paid by regent to retailers of petrol by reference to "rebates" of so much per gallon of petrol sold, were held not to be capital payments but deductible payments out of revenue for income tax purposes, albeit in some cases considerable sums were paid by Regent to retailers in advance of actual sales. The correctness of that decision is not contested by the Inland Revenue. The present case is concerned with some transactions (of a type of which it is said that there are only 12 examples) in which a different arrangements has been adopted. I am afraid that Regent has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Pennycuick J. on the grounds that he was mesmerised by the fact that this transaction involved the acquisition by the taxpayer of an interest in land. It is urged that we should look at it not with the clouded gaze of conveyancer, but with the penetrating observations of a businessman, we should look not to the form but to the substance. But this is a case in which the substance follows from the form. The purpose of acquiring the interest in land, the head lease, was that there might be attached to it by means of the sublease to the dealer covenants by the dealer under which he would be compelled for the duration of the lease (which varied on the cases under considerations from five to 20 years) to buy his petrol exclusively from the taxpayer, regent. Not only was he obliged under those covenants to buy all his petrol from regent but he was compelled to continue to carry on the business during the duration of the lease, and not to reduce the number of his pumps. Furthermore, the covenants were so designed that if he himself on which the business or if the sought to assign the business, the premises on which the business was carried on would still be tied and continue to be use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regent share of the oil trade but only to maintain it." With the greatest respect that was an irrelevant consideration. If a trader acquires a capital asset in order to carry on trade to produce his stock-in-trade or to enable him to sell it, it matters not whether he does it in the hope of extending his business or of maintaining that business. To install a new machine is to acquire a capital asset whether it is to replace an obsolete machine and retain trade against competition or whether it is to extend the trade. The next point to which they refer in their case is this. They go on to say : "What might be an enduring advantage in the case of a company with a small and limited turnover would probably be an insignificant matter in the case of a company with a "word-wide or nation-wide trade." That, again, with great respect, seems to me to be an irrelevant considerations whether it is a capital asset or not depends not upon its size in relation to the size of the total business done by the company. The commissioners then go on to say : "It was therefore a question of degree...." I think they are here misdirecting themselves. The question was not a qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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