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TMI Blog1956 (4) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... armaceutical products and to the use of machinery plant appliances and devices used in such manufacture. (3) For facilitating the building and running of such factory Evans Medical propose to supply the Government of the Union of Burma with information and to organize the factory in the manner hereinafter mentioned. " Part I of the agreement sets out the obligations of the company in consideration of the payment to the company of "the capital sum of £ 100,000." The use of the word "capital" is of little import in such an agreement; "is a mere label attached to the [£ 100,000] with an eye, no doubt, to tax considerations" (see Lord Greene M.R. in Rustproof Metal Window Company v. Inland Revenue Commissioners [1947] 2 All E.R. 454, 460; 29 T.C. 243, 271). It was suggested, though faintly, that the agreement did not provide for the disposal to the Burmese Government of the company's secret processes and it was said that "know-how" was not appropriate to describe a secret process. True, Lord Evershed, in Stevenson Jordan and Harrison v. Macdonald & Evans [1952] 1 T.L.R. 101, said Ibid 104: "'Know-how' seems to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o point out that a finding that the receipt of the sum was "in course of the trade," to use the Commissioners' own language, does not carry the matter home, but I will assume that the Commissioners intended to mean that the said receipt was a trading receipt in the course of carrying on the trade. I was referred to three cases on this point-Californian Copper Syndicate Limited and Reduced v. Harris [1904] 6 F. 894; 5 T.C. 159, Rees Roturbo Development Syndicate Ltd. v. Ducker [1928] 1 K.B. 506; 43 T.L.R. 796; [1928] A.C. 132; 44 T.L.R. 307; 13 T.C. 366 and J. Gliksten & Son Ltd. v. Green [1929] A.C. 381; 45 T.L.R. 274; 14 T.C. 364--but the question is essentially a question of fact and those cases do not really assist me on the facts of this case. For myself, I do not see how the receipt of £ 100,000 under the agreement can be said to be part of the profits or gains of the company in their trade of wholesale druggists. With all respect to the Special Commissioners, the company was not "exploiting" its business in the only sense in which that word is relevant, that is, of carrying on its trade of wholesale druggists in Burma, but in and by the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be a capital and not a revenue receipt : whether or not it is so must depend on any particular facts which in the particular case, may throw light upon its real character, including of course, the terms of the agreement under which the licence is granted. If the lump sum is arrived at by reference to some anticipated quantum of user it will, we think, normally be income in the hands of the recipient. If it is not, and if there is nothing else in the case which points to an income character, it must, in our opinion, be regarded as capital. This distinction is in some respects analogous to the familiar and perhaps equally fine distinction between payments of a purchase price by instalments and payment of a purchase price by way of an annuity over a period of years. "In the present case, whether the agreement operates (as we think) as an assignment, or as a licence, the result is, in our opinion, the same. But, as we have indicated, there are other circumstances which in any event make it impossible to regard this sum as a revenue receipt. In addition to the assignment or licence, whichever it may be, the agreement operates as a partial realisation by Miss Nethersole of her c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight occupies a position and character of its own dependent on the Copyright Act. Nevertheless, secret processes bear a marked analogy to patent rights and copyright. In Handley Page v. Butterworth 1935] 19 T.C. 328 Romer L.J. pointed out that a patentee has a monopoly which is a capital asset in his hands and he can prevent others from utilizing it; he can exploit it in a variety of ways; by exercising the invention himself, by granting licence in consideration of royalty payments which will be taxable notwithstanding that the capital asset is yearly diminishing in value, or by selling it or surrendering it. Romer L.J. continued Ibid. 359: "The owner of a secret process, such as was possessed by Mr. Handley Page, stands in a very analogous position; he has not a monopoly at law, but he has a monopoly in facta monopoly in fact arising from the possession by him of the secret knowledge of the process that he is carrying on. That secret knowledge is as much his capital asset as is the patent monopoly the capital asset of the patentee, and, like the patent, he can use that capital asset in either or both of the following ways : he can himself carry on the secret process or he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration of a lump sum payment payable by instalments. It was held that the payment was capital notwithstanding that the licence was not stated to be exclusive and there was no dissipation but rather exploitation of the patent. I approach the consideration of this contract, therefore, in the light of the broad principles laid down by Lord Greene. The effect of the contract was this: the company parted with its secret processes to the Burmese Government for ever, but upon the terms that the Government would not without the consent of the company impart such information to another, such consent not to be unreasonably withheld. The company remained at liberty to carry on its wholesale trade there, and, in legal theory, could no doubt have thereafter set up a competing factory in Burma. In addition, the company was to supply technical data, drawings, designs and plans for the erection of a factory and of the installation of machinery appropriate and suitable for the manufacture of these known pharmaceutical products and for their processing by these secret processes. After the expiry of the contract (but not before), the company was at liberty to impart its "know-how" in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assignment of all its rights in Burma, for the company in legal theory, though possibly not in practical Burmese politics, remained at liberty to use the processes itself in Burma. Of course, it also remained at liberty to carry on its business of wholesale druggists there by selling its products made in this country, in Burma through its usual agents. But it was parting for ever with part of a valuable asset, and was doing so to enable an entirely new and competing industry to be set up there. That industry established by the skill and "know-how" of the company, could embark on an export trade which could compete with the company's own products in other countries. In that sense the company was dissipating its asset, and it must be remembered that a secret process once communicated to another is in jeopardy; if it gets into the wrong hands, the grantor has no protection. Even if it be a necessary ingredient to support a capital payment to show some dissipation of a capital asset (which, in my judgment, it is not), that element seems to me to be present here. I allow the appeal. The matter must be remitted to the Commissioners to adjust the figures on that footin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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