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TMI Blog1937 (12) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... to the company the full benefit of their technical and financial knowledge and experience, and giving to the company and its directors advice to the best of their ability respectively on all questions of or relating to manufacture and finance and disposal of the company's products, provided that the company shall not by reason of this clause be liable to pay remuneration to the directors nominated by Skoda Works beyond their fees as directors and their travelling and other expenses. Such net profits shall be arrived at after payment of all expenses of the company and after providing for interest on the said debentures, but before making any provisions for depreciation and in case of any dispute as to the amount of such net profits, the certificate of the auditors for the time being of the company shall be final and binding on all parties." In 1930, this arrangement was by agreement continued for a further period of four years. The Skoda Company and the Corporation performed services under that agreement and received sums from the Company. On appeal against an assessment under Schedule D for the year 1931-33 in respect of trading profits the company claimed to be entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advisory work in respect of technical matters. The next point to observe is that what is referred to as "net profit" is a figure to be arrived at upon a conventional basis, not the basis upon which the company would ascertain its profits for commercial purposes or the basis upon which it would ascertain its profits for income tax purposes, although, speaking for myself, I think that the latter consideration is not one of any importance. But it is an important factor to be considered (although not necessarily in any individual case conclusive) that the fund of so-called profits, to 20 per cent. of which the companies are to be entitled for their services, is a fund ascertained by means of a conventional account between the parties. Now bearing all those things in mind, the question arises: on which side of the line does the case fall? I quite accept the proposition that there is a line between a contract for payment of a share of profits simpliciter and a payment of remuneration which is deductible in truth before the profits divisible are ascertained, and that line in some cases may be very difficult to draw. The well- known case of Last v. London Assurance Corporation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose, and for the purpose only, of ascertaining what is to be paid to the Skoda Works and to the Corporation. Now when that amount has been ascertained, that fund has ceased to have any usefulness at all, and it then becomes necessary to ascertain what are the divisible profits, and for that purpose, to take another account, which not only would bring in depreciation, but would also take into account the sum that had been paid out to the Skoda Works and the Corporation upon the taking of the first account. It seems to me that the circumstances that those two accounts have to be made out throws a very clear light upon the real nature of this transaction, and, looking at the clause in question as a whole, it seems to me clear beyond any reasonable doubt that the agreement is merely an agreement under which, before ascertaining the divisible profits of this company at all, the Skoda Works and the Corporation are to receive upon a particular conventional basis a commission sum as remuneration for their services. When that has been said, it appears to me that it brings the case within a very familiar category. Various authorities have been referred to. Speaking for myself I find the gre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers as the contractual recompense for their services during the year, it is plain that the real net profit is only ? 9,000. A contract to pay a commission at 10 per cent. on the net profits of the year must necessarily be held to mean on the net profits before the deduction of the commission, that is, in the case supposed, a commission on the ? 10,000". That passage, in my opinion, contains sufficient to dispose of this case, and if I may link it up, as I understand it, with what I said a moment ago about the two accounts, those are, I think what may be called the accountancy aspect of the two different senses in which the word "profits" is used in these cases, as explained by Lord Maugham. Once you realise that as a matter of construction the word "profits" may be used in one sense for one purpose and in another sense for another purpose, I think you have the real solution of the difficulties that have arisen in this case. The passage relied upon by Finlay, J., which he considered constrained him against his own opinion to decide as he did, occurred in the judgment of the Privy Council delivered by Lord Macmillan in the Pondicherry Railway v. Madras Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver judgment on the second point. Of course, it will not be taken from that by anybody concerned that it means that we are necessarily in agreement with the decision of the Court below. ROMER, L.J.--I agree with the judgment that has been delivered by the Master of the Rolls upon the first point. It appears to me that in all cases similar to the one with which we are dealing to-day the real question is this: Is the payment that has to be made by the trader under the contract in question a mere division of profits with another party or is it a payment to the other party, the amount of which is ascertained by reference to the profits? The question whether the particular case falls on one side of the line or the other is very often one of extreme difficulty. How difficult it may be is apparent form the fact that in the case Last v. London Assurance Corporation, four learned Judges were of opinion that the payment there fell on one side of the line and four learned Judges were of opinion that it fell on the other. For myself in this case I can feel no doubt. The payment that has to be made in this case, is in my opinion, a payment that is made, the amount of which has to be ascertaine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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