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Issues Involved:
1. Whether the sums received under the "keep-out" covenants were trading receipts or capital receipts. 2. Whether the royalties received under the various agreements were trading receipts. Detailed Analysis: Issue 1: Whether the sums received under the "keep-out" covenants were trading receipts or capital receipts. The primary question was whether the sums received by Imperial Chemical Industries (I.C.I.) under the "keep-out" covenants in their agreements with foreign companies were trading receipts and thus taxable as part of I.C.I.'s income or capital receipts which are not taxable. The "keep-out" covenants restricted I.C.I. from manufacturing or selling Terylene in specific countries. The court analyzed the nature of the "keep-out" covenants, noting that they were ancillary to the grant of an exclusive license. The essence of the transaction was that I.C.I. granted an exclusive license to use the patents in the country concerned for the term of the patent and received remuneration in various forms, including a lump sum for the "keep-out" covenant. The court emphasized that I.C.I. was not dealing in patent rights or licenses but was disposing of a capital asset. The court drew parallels with the assignment of patent rights, indicating that both an outright assignment and the grant of an exclusive license for the period of the patent constituted the disposal of a capital asset. The court concluded that the lump sum received for the "keep-out" covenant was a capital receipt, influenced by the following factors: 1. It was part payment for an exclusive license, which is a capital asset. 2. It was payable irrespective of whether there was any user under the license. 3. It was agreed to be a capital sum payable by installments and not as an annuity or a series of annual payments. Therefore, the lump sum received under the "keep-out" covenants was deemed a capital receipt, not taxable as part of I.C.I.'s income. Issue 2: Whether the royalties received under the various agreements were trading receipts. I.C.I. accepted that the royalty payments under the various agreements should be included in its accounts as trading receipts. The court noted that royalties for the master C.P.A. patents and the ancillary I.C.I. patents were revenue receipts. The royalties were calculated based on the net invoice value of products sold or utilized, making them revenue receipts. The court referenced previous cases and legal principles to support its conclusion. It distinguished between the different types of receipts, noting that royalties calculated by reference to actual user and annual payments over the period as compensation for the user were revenue receipts. In contrast, lump sums for outright disposal of patent rights without reference to anticipated user were capital receipts. The court's analysis concluded that while the royalties were trading receipts, the lump sum payments under the "keep-out" covenants were capital receipts. Conclusion: The court dismissed the Crown's appeal, affirming that the lump sums received under the "keep-out" covenants were capital receipts and not taxable as part of I.C.I.'s trading income. The royalties received under the various agreements were accepted as trading receipts and taxable as part of I.C.I.'s income.
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