Moriarty (Inspector of Taxes) v Evans Medical Supplies Ltd; Evans Medical Supplies Ltd v Moriarty (Inspector of Taxes)

[1957] 3 All ER 718

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(Decision by: Lord Morton of Henryton)

Between:
And:

Court:

Judges: Viscount Simonds
Lord Morton of Henryton
Lord Tucker
Lord Keith of Avonholm
Lord Denning

Subject References:
TAXATION
INCOME TAX
INCOME
Payment of lump sum for imparting secret processes and for furnishing plans, etc, for creating factory
Whether income or capital receipt

Legislative References:
Income Tax Act, 1952 (15 & 16 Geo 6 & 1 Eliz 2 c 10) - Sch D, Case I

Case References:
Butterworth (Inspector of Taxes) v Page - [1935] All ER Rep 943; 153 LT 34; sub nom Handley Page v Butterworth, (1935) 19 Tax Cas 328
Edwards v Bairstow - [1955] 3 All ER 48; [1956] AC 14; 36 Tax Cas 207
British Dyestuffs Corpn (Blackley) Ltd v Inland Revenue Comrs - (1923) 12 Tax Cas 586; 129 LT 538; 28 Digest 19, 96
Trustees of Earl Haig v Inland Revenue Comrs - (1939), 22 Tax Cas 725
Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) - (1905), 5 Tax Cas 159; 28 Digest 23, b
Ducker v Rees Roturbo Development Syndicate, Inland Revenue Comrs v Rees Roturbo Development Syndicate - [1928] AC 132; 97 LJKB 317; 138 LT 598; sub nom Rees Roturbo Development Syndicate Ltd v Ducker, Rees Roturbo Development Syndicate Ltd v Inland Revenue Comrs, 13 Tax Cas 366
Nethersole v Withers - [1946] 1 All ER 711, affd HL; sub nom Withers v Nethersole; [1948] LJR 805; [1948] 1 All ER 400; 28 Tax Cas 501; 2nd Digest Supp
Leeming v Jones - [1930] 1 KB 279, affd HL; (1930) 15 Tax Cas 333; sub nom Jones v Leeming, [1930] AC 415; 99 LJKB 318; 143 LT 50; Digest Supp
Kates v Jeffery - [1914] 3 KB 160; 83 LJKB 1760; 111 LT 459; 78 JP 310; 33 Digest 420, 1308
London County Council v Farren - [1956] 3 All ER 401; 120 JP 542; 3rd Digest Supp
Herbert Morris Ltd v Saxelby - [1916] 1 AC 688; 85 LJCh 210; 114 LT 618; 43 Digest 24, 154
Trego v Hunt - [1896] AC 7; 65 LJCh 1; 73 LT 514; 43 Digest 9, 44

Hearing date: 30-31 October, 4, 6 November 1957
Judgment date: 4 December 1957

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Decision by:
Lord Morton of Henryton

My Lords, the relevant facts of this case have been fully stated by my noble and learned friend, Viscount Simonds, and I shall not repeat them. The case has given rise to a remarkable difference of opinion on the question whether the sum of £100,000 now in question was, in the hands of the taxpayer company, an income receipt or a capital receipt. The Special Commissioners found that it was wholly income, Upjohn J held that it was wholly capital, and the Court of Appeal took the view that it was capital in so far only as it was to be attributed to the imparting to the Government of Burma of the secret processes mentioned in para 10 of the Case Stated, and remitted the case to the Special Commissioners to ascertain what part, if any, of the £100,000 should be so attributed.

My Lords, I think that this is a difficult and border-line case, but, in my opinion, the Court of Appeal arrived at the right conclusion. I am content to adopt the reasoning of the Master of the Rolls (Lord Evershed) and Romer LJ in which Birkett LJ concurred, and I shall not take up your Lordships' time by repeating that reasoning in language of my own; but, having regard to the course of the argument in your Lordships' House, I shall add a few words on two questions. They are, first, whether, having regard to the evidence and to the terms of the agreement of 20 October 1953, it is possible to sever the imparting of the secret processes from the rest of the consideration moving from the company under Part 1 of that agreement; secondly, whether the course of the proceedings in this House and in the courts below affords any reason for reversing the order made by the Court of Appeal.

My Lords, I realise fully that, if the order of that court stands, it will be no easy task for the commissioners to ascertain what part, if any, of the £100,000 should be attributed to the imparting of the secret processes to the Government of Burma, but I do not regard the difficulties as insuperable. Paragraph 10 of the Case Stated shows that the commissioners already have a considerable amount of knowledge as to the nature of these secret processes, and, no doubt, further evidence would be given before them as to the value to be attributed to the imparting thereof, on the terms set out in the agreement, as compared with the value of the other matters mentioned in Part 1 of the agreement. And, to my mind, the imparting of these secret processes, even if it can properly be described as a "service", is a service different in kind from all other services mentioned in Part 1. However the imparting may be carried out, it is completed when the secret processes come into the knowledge of the Government of Burma; and I agree with the Court of Appeal in thinking that, when that event happens, the company will have sold a part of its property, which is a capital asset. It appears to me that this part of the company's property could have been sold by itself, even if nothing else had been included in Part 1; and, if so, it must surely be possible to identify it and single it out from the rest of Part 1.

As to the course of the proceedings, counsel for the Crown have contended strenuously that the £100,000 is wholly income, while counsel for the company have contended, no less strenuously, that it is wholly capital; but counsel for the company not unnaturally asked your Lordships, if you could not accept his primary contention, to uphold the order of the Court of Appeal. I see no injustice, either to the company or to the Crown, in taking this course; indeed, it seems to me the only possible course if the true view is that the part of the £100,000 paid for the imparting of the secret processes was a capital receipt, and that there was evidence which justified the Special Commissioners in finding that the balance thereof was an income receipt.

I would dismiss the appeal and the cross-appeal.