Scott, L. J..-We need not trouble you, Mr. Solicitor.
In this case the question arises out of an agreement of sale by a gentlemen now deceased of, broadly speaking, his business to a limited company in the year 1934. In the agreement entered into on 9th August of that year there are certain provisions with which I must deal because it is out of those provision that the question in the presents appeal arises. I add this, that the question is as to the profits received by the vendor or his executors on orders which he had obtained before he sold his business on 9th August. The Commissioners before whom the question came decided and that consequently the assessment upon his personal representatives under Rule 18 of the General Rules applicable to all Schedules of the Income tax Act, 1918 could not properly be made upon the personal representatives.
The agreement in question provided that the vendor should sell and the company should purchase : 'First the goodwill of the business of the Vendor, as hitherto carried on' in London and Liverpool 'as a going concern as and from the close of business on the 31st days of July 1934 ....... and all trade marks and the benefits of all pending contracts in connection therewith.' Clause 2 provided that the company should pay at the vendor the sum of pounds 10,000 on completion, and should enter into a covenant to pay to the vendor and his wife during their lives Pounds 2,500, less income-tax, every year. Clause 8 provided that : 'All commission or profits on orders executed on or before the sale date shall belong to the vendor. All orders undertaken by the Vendor or in respect of which the vendor received instructions prior to the sale date but remaining unexecuted at that date shall be executed by the company as the Agent for the Vendor and in respect of any such orders the company shall be paid a sum equivalent to twenty five per cent of the gross profits or commissions arising therefrom and the remainder of such profits or commissions shall be paid to the vendor for his own absolute use and benefit.'Clause 9 provided that : The company shall collect on behalf of the Vendor all the book or other debts in connections with said business which are reserved by this agreement to the Vendor and are excluded from the sale.' Under clause 8 the company was execute those orders and collect the money due upon them, and the vendor was to have 75 per cent of the gross profits or commissions. It is the money so received which is in dispute between the personal representatives and the Revenue in the present case.
Before the Commissioners no evidence was called, and the whole case depended on the true interpretation of the agreement, all the material clauses of which I have read. The executors contended the money in question was not income. The Inspector or Taxes contended before the commissioners that it was income because it was profits or the trade carried on by the vendor through his agent, the company, in the year ended 5th April, 1935 and that the assessment was properly made under Rule 18 of the General Rules, as I have said. Upon that question of law, which was in no sense a question of fact, the Commissioners held that the amount payable to the deceased on orders unexecuted before 31st July 1934 under clause 8 of the agreement, formed part of the purchase price and was a capital payment, and therefore before them the appeal succeeded. The Revenue appealed upon a stated case and Lawrence, J., reserved the decision of the Commissioners, holding that the money received were not capital but were income. He said this : 'Such sums were not instalments of a capital sum; they were the profits from a we business which the parties chose to sat up in which the company acted as the agent for the deceased. It is true that this business was connected with the old business of the deceased but it was a new business in that it was carried on in a different way from the old business and it neither formed part of the business sold nor were its profits included in the purchase price. The company would undoubtedly be taxable upon he 25 per cents. of the profits on such orders and could not be taxable upon the remaining 75 per cent., but I can see no reason why the deceased should not.' I entirely agree with the learned Judges. He added that the Commissioners had not found any facts inconsistent with that view, and he did not think there was any evidence upon which they could have found that the business in connection with these orders was not a new business.
Subject to one comment I entirely agree with that judgment. It may be that possibly the agreement could be construed as excluding these orders from the sale, and the deceased was therefore carrying on the part of his old business until those orders were executed and paid; but which namely, that this money was capital money0is, in my view, clearly wrong, and the appeal must be dismissed with costs.
CLAUSON, L. J.-I agree.
GODDARD, L. J.-I agree.