Walsh,
J:—Appellant
is
a
Canadian
corporation
which
carries
on
the
business
of
manufacturing,
selling
and
distributing
various
products
in
the
marking
and
labelling
field,
including
embossing
machines
and
tapes,
addressing
machines,
pressure
sensitive
labels
and
stencils
sold
under
the
name
“Dymo”
and
other
names,
and
a
marking
device
and
stencil
sold
under
the
trade
name
“Sten-C-Labl”.
Some
of
these
products
are
purchased
from
its
parent
American
company,
Dymo
Industries
Inc,
while
it
manufactures
other
products
itself
in
Canada.
Some
of
its
products
are
sold
by
its
own
sales
staff,
and
others
by
distributors
across
Canada
of
which
it
has
some
five
hundred.
The
only
product
with
which
this
case
is
concerned
is
Sten-C-Labl
which
consists
of
a
small
sheet
of
stencil
paper,
a
sheet
of
carbon
paper
and
a
sheet
of
backing
paper,
all
held
together
with
an
adhesive
tape
at
the
top.
There
is
an
applicator
machine
which
holds
the
label
and
feeds
ink
through
it.
An
address
can
be
typed
on
the
label
which,
when
pressed
on
a
packing
case,
will
then
imprint
this
address.
Prior
to
1962
two
individuals,
namely
F
Chapman
and
K
West,
had
been
selling
Sten-C-Labl
products
in
Canada
in
partnership
using
the
name
Sten-
C-Labl
Company
of
Canada
as
their
business
name
with
permission
of
Sten-C-Labl
Inc,
an
American
corporation.
Sten-C-Labl
had
been
registered
as
a
trade
mark
in
the
United
States
on
April
15,
1952
and
had
been
used
in
Canada
since
July
1,
1946.
It
was
registered
as
a
trade
mark
in
Canada
on
June
17,
1960,
but
Messrs
Chapman
and
West
never
became
registered
users
under
the
provisions
of
the
Trade
Marks
Act.
Late
in
1961
appellant’s
parent
company
acquired
ownership
of
Sten-C-Labl
Inc.
Messrs
Chapman
and
West
had
been
buying
the
product
in
question
from
Sten-C-Labl
Inc
in
the
United
States,
but
the
policy
of
appellant’s
parent
company,
after
acquiring
ownership
of
Sten-C-Labl
Inc,
was
that
all
sales
of
the
product
in
Canada
should
be
made
through
its
Canadian
subsidiary,
the
appellant.
Appellant
had
commenced
business
in
the
spring
of
1961,
originally
importing
tape
writers
and
tape,
another
product
of
the
parent
company,
from
the
United
States.
In
1962
they
moved
to
larger
premises
and
started
assembling
these
machines
there,
adding
about
fifteen
people
to
their
staff
when
they
commenced
this.
In
July
or
August
1962,
after
a
visit
to
the
parent
company,
Mr
Harold
Staines,
who
was
secretary
and
manager
of
appellant
at
the
time,
decided
that
the
Sten-
C-Labl
could
be
manufactured
in
Canada
and
he
approached
Messrs
Chapman
and
West
advising
them
that
they
could
no
longer
purchase
their
supplies
through
the
United
States
company.
He
offered
to.
buy
their
stock
on
hand,
and
advised
them
that
henceforth
appellant
would
supply
their
needs
at
a
40%
discount,
shipping
them
direct
to
the
customers
themselves.
No
exclusive
agency
was
given
to
Messrs
Chapman
and
West.
Mr
Chapman
moved
the
partnership’s
business
address
to
appellant’s
premises
in
September
1962,
Mr
West
having
been
inactive
in
connection
with
the
Sten-C-Labl
business
for
some
time,
and
appellant
provided
him
with
stenographic
and
bookkeeping
assistance.
All
orders
were
shipped
directly
by
appellant
and
at
the
end
of
each
month
the
total
of
sales
was
tabulated
and
the
Sten-C-
Lab]
partnership
was
billed
by
appellant
for
60%
of
this
total.
This
was
a
somewhat
different
arrangement
from
that
normally
adopted
by
appellant
with
distributors
who
would
buy
from
it
at
a
discount
and
resell
at
whatever
price
they
chose.
Mr
Staines
considered
Mr
Chapman
more
as
an
agent
for
the
company
than
as
a
distributor,
although
at
that
time
he
was
not
in
the
company’s
employ.
In
due
course,
about
September
1963,
he
reached
the
conclusion
that
Mr
Chapman
was
not
aggressive
enough
nor
a
good
organizer
so
decided
to
terminate
the
arrangement
but
felt
that
some
payment
on
termination
should
be
made
to
the
partnership,
since
they
had
been
selling
Sten-C-Labl
for
some
time,
even
using
the
trade
name
as
part
of
the
partnership
name
and
were
the
only
people
selling
Sten-C-Labl
in
Canada
at
the
time.
It
was
decided
to
pay
them,
by
payments
spread
over
a
period
of
four
years,
an
amount
of
not
less
than
$18,000
which
it
was
estimated
would
be
the
approximate
sum
earned
by
the
partnership
as
a
result
of
the
40%
discount
over
a
six-month
period.
An
agreement
was
drawn
up
dated
December
27,
1963,
which
provided
that
the
partners
(designated
as
distributors)
would
continue
to
collect
their
trade
accounts
receivable
up
to
December
31,
1963
and
would
then
sell
these
to
appellant
at
their
face
value,
less
reasonable
allowance
for
bad
debts,
and
that
a
further
adjustment
would
be
made
within
a
three-year
period
for
any
accounts
with
respect
to
which
appellant
could
not
collect
the
amount
paid
by
it
to
the
distributors.
Clause
2
of
the
agreement
read:
2.
The
Distributors
shall
deliver
to
Dymo
all
their
lists
of
customers
of
the
products,
all
unfilled
orders
for
the
sale
of
the
products
and
all
data
and
records
pertaining
to
the
sale
of
the
products
and
samples
and
advertising
material.
Clause
3
provided
for
paying
the
distributors
a
descending
percentage
on
Dymo
sales
of
Sten-C-Labl
products
in
Canada
during
the
years
1964,
1965
and
1966
with
a
minimum
total
of
$18,000.
Other
clauses
provided
that
the
distributor
would
cease
to
act
as
a
distributor
for
Dymo
as
of
December
31,
1963
and
that
the
distributor
would
sign
a
restrictive
covenant.
The
restrictive
covenants
which
were
added,
according
to
the
evidence
of
Mr
Staines,
at
the
suggestion
of
appellant’s
attorneys
were
signed
individually
by
Mr
Chapman
and
Mr
West
on
January
3,
1964
and
it
was
agreed
that
for
three
years
they
would
not
personally,
in
partnership
or
through
any
firm
or
otherwise,
engage
in
or
carry
on
the
sale
of
products
to
compete
with
the
products
presently
sold
or
distributed
by
appellant,
nor
would
they
permit
their
names
to
be
used
in
such
connection.
As
a
further
step
in
carrying
out
the
agreement
the
accounts
receivable
of
the
Sten-C-Labl
partnership
in
the
amount
of
$11,308.31
were
assigned
to
appellant
on
January
3,
1964.
On
December
31,
1963
certain
office
equipment
in
the
amount
of
$330
was
sold
to
appellant.
This
agreement
also
stated:
In
respect
to
the
Sten-C-Labl
products;
all
lists
of
customers,
all
unfilled
orders,
all
data
and
records
pertaining
to
the
sale
of
products
and
samples
and
advertising
material.
but
no
value
was
assigned
to
this.
Also,
as
of
December
27,
1963,
by
letter
appellant
engaged
Mr
Chapman
at
a
salary
of
$1,000
a
month
for
the
months
of
January,
February
and
March
1964,
it
being
stated:
The
intent
of
this
agreement
is
that
you
will
cooperate
with
us
fully
in
calling
on
customers
and
in
expediting
an
easy
transition
to
ensure
that
we
will
obtain
the
maximum
benefit
from
your
personal
contact
with
customers
as
our
distributor.
He
was
also
to
be
reimbursed
for
travelling
expenses
and
it
was
provided
that
for
purposes
of
income
tax
deductions
he
would
be
treated
as
an
employee
but
would
not
be
regarded
as
an
employee
for
other
purposes,
such
as
the
company’s
pension
plan.
As
a
result
of
these
agreements
payments
were
made
to
the
partnership
in
the
amounts
of
$7,030.31
in
1964,
$11,467.71
in
1965,
and
$9,026.21
in
1966,
making
a
total
of
$27,525.23
(excluding,
of
course,
the
salary
paid
to
Mr
Chapman).
These
amounts
were
deducted
as
expense
items
in
appellant’s
tax
returns
for
the
years
in
question
and
were
disallowed
by
the
Minister
as
being
capital
expenditures.
Subsequently,
the
Minister
did
allow
$2,000
for
the
1964
taxation
year
as
being
consideration
for
the
transfer
and
sale
of
samples
and
advertising
material
to
the
appellant,
reducing
the
Minister’s
claim
for
that
year
to
tax
on
an
additional
amount
of
$5,030.31.
It
is
the
classification
of
these
payments
to
the
partnership
by
appellant
which
is
the
issue
in
the
present
case
and
the
Court
has
to
determine
whether
they
were
current
and
normal
expenses
arising
out
of
the
termination
of
the
partnership’s
contract,
and,
as
such,
laid
out
to
produce
income
for
appellant
or
whether,
on
the
other
hand,
they
were
expenditures
of
a
capital
nature
laid
out
to
secure
an
enduring
benefit
for
the
business.
Commencing
in
January
1964
appellant
hired
two
salesmen
and
appointed
an
agent
in
Vancouver
and
by
about
March
1964
had
fifteen
distributors
for
Sten-C-Labl
products.
Sales
of
Sten-C-Labl
increased
dramatically
from
$58,804
in
1963
to
$118,501
in
1964,
$170,603
in
1965,
$242,345
in
1966
and
$285,129
in
1967
and
appellant
no
longer
had
to
pay
the
40%
discount.
On
December
31,
1963
appellant
acquired
the
Elliott
Business
Machine
Company
which
sold
a
machine
operating
with
a
paper
stencil
which
is
quite
extensively
used.
It
had
a
plant
in
Lachine
and
a
sales
office
in
Toronto
and
the
Elliott
company
in
the
United
States
was
a
subsidiary
of
appellant’s
parent
company.
Elliott
sold
directly
to
the
retail
trade
so
had
a
staff
of
salesmen
of
its
own
and
in
April
1964
the
Sten-C-Labl
sales
were
turned
over
to
Elliott
to
handle
through
them.
Mr
Staines
insisted,
however,
that
when
he
decided
to
terminate
the
arrangement
with
the
partnership
this
had
nothing
to
do
with
the
acquisition
of
the
Elliott
Business
Machine
Company.
They
wanted
to
retain
the
knowledge
of
Mr
Chapman
and
his
familiarity
with
selling
the
Sten-C-Labl
product,
as
appellant,
at
that
time,
had
no
experience
in
selling
to
the
retail
trade
and
wished
his
assistance
during
the
transition
period.
On
these
facts
appellant
argued
that
although
the
partnership
was
the
sole
distributor
of
Sten-C-Labl
products
until
appellant
itself
entered
into
this
field
after
the
acquisition
of
the
Sten-C-Lab]
Company
by
its
parent
company,
the
partnership
had
nevertheless
never
been
given
an
exclusive
agency
and
there
was
nothing
to
prevent
appellant
from
selling
the
product
directly
or
appointing
other.
distributors
or
agents
as
it
chose.
On
the
basis
of
equity,
however,
and
in
line
with
the
jurisprudence
on
this,
for
example
the
Ontario
case
of
Robinson
v
Galt
Chemical
Products,
[1933]
OWN
502,
it
was
reasonable
to
make
some
payment
to
the
partners
on
termination
of
the
business
relationship
with
them
and
this
was
the
primary
reason
for
the
payments
made
by
appellant.
Other
arrangements,
such
as
taking
over
the
accounts
receivable
of
the
partners,
buying
their
office
equipment,
advertising
material
and
circulars
and
customers
lists
and
requiring
a
restrictive
covenant
not
to
compete
for
three
years
during
which
the
partners
would
still
be
drawing
payments
from
appellant,
were
merely
incidental
to
this
primary
objective.
With
respect
to
the
customers
lists,
it
never
actually
received
any
as
such
nor
did
it
require
them
since
Mr
Chapman
had,
since
August
1962,
been
working
on
appellant’s
premises
with
stenographic
and
accounting
help
furnished
to
him
by
appellant
who
shipped
the
merchandise
orders
directly
to
the
customers.
After
a
year
and
one-half
of
this
method
of
operation
appellant
was
well
aware
of
who
the
customers
were
and
did
not
require
this
information
from
the
partners
nor
was
any
specific
sum
allocated
out
of
the
amount
paid
to
pay
for
any
such
lists.
The
fact
that
Mr
Staines
had
recorded
the
payment
in
the
company’s
book
as
a
payment
for
customers
lists
cannot
alter
the
true
nature
of
the
matter.
See
The
Seaham
Harbour
Dock
Company
v
Crook
(HM
Inspector
of
Taxes),
16
TC
333,
where
Lord
Hanworth
stated
at
page
347:
.
.
.
the
mere
mode
of
payment
or
method
of
accounting
does
not
alter
the
character
of
the
sums
received;
.
.
.
and
again
at
page
345
where
he
stated:
We
are
therefore
compelled
to
look
at
the
substance
of
the
matter.
.
.
Appellant
also
argued
that
there
could
be
no
question
of
the
purchase
of
goodwill
from
the
partners.
Any
goodwill
resulting
from
the
operations
of
the
partnership
accrued
to
the
name
“Sten-C-Labl”,
which
as
it
belonged
to
appellant’s
parent
company
and
not
to
the
partnership,
had
no
value
to
the
partnership.
Any
personal
goodwill
which
Mr
Chapman
had
by
virtue
of
his
contact
with
customers
in
the
trade
was
paid
for
by
appellant
when
it
engaged
him
for
three
months
at
a
salary
to
train
its
salesmen
and
assist
them
in
meeting
the
customers
and
learning
his
methods
of
operating.
This
is
clear
from
the
terms
of
the
letter
appointing
him.
In
any
event
it
has
been
well
settled
that
goodwill
cannot
be
evaluated
separately
for
tax
purposes
when
a
business
is
purchased
as
a
going
concern
even
if
the
purchase
price
is
broken
down
so
as
to
show
an
item
for
goodwill
(see
Southam
Business
Publications
Ltd
v
MNR,
[1966]
Ex
CR
1055;
[1966]
CTC
265;
66
DTC
5215,
and
the
cases
referred
to
therein
including
Dominion
Dairies
Ltd
v
MNR,
[1966]
CTC
1;
66
DTC
5028;
Schacter
v
MNR,
[1962]
CTC
437;
62
DTC
1271,
and
Trego
v
Hunt,
[1896]
AC
7).
Those
cases
decided
that
the
nature
of
the
expense
was
a
capital
expense
since
the
businesses
in
question
had
been
purchased
as
going
concerns,
whether
to
carry
them
on
or
to
close
them
down
and
thereby
eliminate
a
competitor.
In
the
present
case,
however,
appellant
did
not
have
to
acquire
the
business
of
the
partnership
in
order
to
effectively
close
it
down
as
it
had
full
control
in
Canada
of
the
sale
and
distribution
of
the
Sten-C-
Labl
product
which
was
the
sole
product
sold
by
the
partnership.
It
would
be
unrealistic,
therefore,
to
say
that
the
purchase
price
was
paid
with
the
view
of
eliminating
a
competitor.
Furthermore,
the
fact
that
there
was
a
restrictive
covenant
included
in
the
agreement
does
not
alter
the
true
nature
of
the
transaction,
as
a
similar
situation
existed
in
the
case
of
Anglo-Persian
Oil
Company,
Limited
v
Dale
(HM
Inspector
of
Taxes),
16
TC
253.
In
that
case,
which
appellant
relied
on
strongly,
the
company
had
appointed
an
agent
for
a
period
of
years
but
eventually
cancelled
this
for
a
lump
sum
payment
when
it
became
apparent
that
the
commissions
being
earned
by
the
agent
were
much
higher
than
what
had
been
anticipated.
It
was
held
that
although
the
payment
was
a
large
one
(£300,000)
this
was
properly
deductible
for
income
tax.
In
rendering
judgment
in
that
case,
Lord
Romer
stated
at
pages
275-6:
I
can
find
no
indication
that
any
enduring
advantage
to
the
Company’s
trade
from
a
capital
point
of
view
was
being
sought,
nor
was
it
suggested
that
any
such
advantage
would
be
gained
in
fact.
It
is
true
that
the
committee
of
directors
appointed
to
negotiate
with
Strick,
Scott
&
Co.
reported
on
the
28th
September,
1922,
that,
in
addition
to
the
large
saving
to
the
Company
that
would
be
effected
by
the
cancellation
of
the
contract
with
them,
there
would
be
other
material
advantages,
but
the
committee
did
not
explain
what
those
advantages
would
be.
They
might
well
have
been,
and
probably
were,
merely
revenue
advantages.
For
myself
at
any
rate,
I
cannot
see
what
other
advantages
could
accrue
to
the
Company
from
the
cancellation.
The
result
would
merely
be
that
the
Company
would
be
represented
in
the
East
by
agents
other
than
Strick,
Scott
&
Co.,
for
it
is
obvious
that
being
a
corporation
it
must
have
agents
of
some
sort
out
there.
Those
agents
would
no
doubt
be
employed
on
terms
more
favourable
to
the
Company
than
those
contained
in
the
agreement
of
the
6th
May,
1914,
and
it
may
well
be
that
the
Company
would
retain
a
greater
measure
of
control
over
such
agents
than
they
could
over
Strick,
Scott
&
Co.
All
this
would
lead
to
the
economy
and
saving
in
working
expenses
spoken
of
by
Lord
Inchcape.
Of
any
further
advantage
than
this
is
there
no
evidence.
Except
for
the
change
of
agents
and
for
all
that
I
know
to
the
contrary,
the
business
of
the
Company
continued
exactly
as
it
was
before
the
change.
I
cannot
find
that
any
advantage
or
benefit
either
positive
or
negative
accrued
to
the
capital
of
the
Company
by
the
expenditure
of
the
£300,000.
All
the
advantage
and
benefit
that
it
brought
seems
to
have
been
merely
of
a
revenue
character.
A
similar
finding
was
made
in
the
case
of
B
IV
Noble,
Limited
v
Mitchell
(HM
Inspector
of
Taxes),
11
TC
372,
where
a
substantial
lump
sum
payment
of
£19,500
was
paid
to
a
director
who
had
been
appointed
for
life
but
was
being
asked
to
resign.
He
also
owned
valuable
shares
of
the
company
and
participating
notes
and
as
part
of
the
agreement
sold
the
shares
to
the
other
directors
at
par
and
surrendered
his
participating
notes.
In
this
case,
Rowlatt,
J
said
at
page
414:
l
should
not
have
much
difficulty
if
this
were
a
question
of
paying
a
month’s
wages
or
six
month’s
wages
in
lieu
of
notice
to
an
employee
who,
the
employer
had
found,
from
the
business
point
of
view,
could
not
possibly
be
retained
because
he
was
turning
away
custom.
I
should
not
have
much
difficulty
about
that.
But
here
we
have
very
special
facts
and
very
big
figures,
and
the
question
is
whether
there
is
anything
in
these
facts
that
makes
a
difference.
.
.
.
It
seems
to
me
that
they
paid
all
this
sum—although
the
circumstances
are
very
peculiar—simply
to
get
rid
of
the
Director.
These
other
items
came
in,
but
they
only
came
in
as
enhancing
the
measure
of
the
claim
which
they
had
to
deal
with.
It
is
true
that
in
the
agreement
it
is
said
that
he
agreed
with
the
company
to
transfer
the
shares
at
their
face
value
to
his
co-directors;
and
that
he
undertook
to
surrender
his
profit-sharing
certificates
to
the
Company
or
as
they
should
direct;
but
I
think
that
is
only
putting
into
the
agreement
the
obligation
upon
him,
as
he
was
being
paid
in
respect
of
these
heads
of
damage,
that
he
would
deal
with
them
on
the
footing
which
formed
the
basis
of
his
payment,
namely,
that
he
should
part
with
these
pieces
of
property.
I
do
not
think
it
can
be
said
that
there
are
two
things
in
this
payment:
First
of
all,
a
compensation
for
the
loss
of
his
salary,
and
secondly,
independently,
a
buying
of
the
shares
and
a
buying
of
his
profit-
sharing
certificates.
I
do
not
think
that
is
the
view
of
it.
I
think
the
whole
sum
was
a
sum
paid
to
him
to
induce
him
to
go
—
to
get
rid
of
him,
in
other
words.
Therefore
it
seems
to
me
that
this
was
a
business
expense.
Now
comes
the
question
of
whether
it
was
a
capital
expense.
I
do
not
think
the
cases
in
which
there
was
a
question
of
a
lump
sum
payment
to
avoid
a
recurring
business
expense
have
anything
to
do
with
thts
case.
There
is
no
question
here
of
a
recurring
business
expense
or
payment
of
a
capital
sum
to
get
rid
of
it.
I
do
not
think
that
is
the
point
of
view
from
which
one
approaches
this
case.
I
do
not
thhink
it
is
on
that
ground
that
the
subject
can
successfully
argue
that
this
is
not
a
capital
expense.
But
is
it
a
capital
expense
on
any
ground?
As
Lord
Cave
points
out,
again
in
the
case
of
Atherton
v
British
Insulated
and
Helsby
Cables,
Limited
(10
T.C.
at
p.
192),
it
is
a
capital
expense
if
you
buy
an
asset
or
purchase
an
enduring
advantage.
This
was
not
that
case,
or
anything
like
it.
And
again
at
pages
415-16:
It
seems
to
me
it
is
simply
this,
although
the
largeness
of
the
figures
and
the
peculiar
nature
of
the
circumstances
perplex
one,
that
this
is
no
more
than
a
payment
to
get
rid
of
a
servant
in
the
course
of
the
business
and
in
the
year
in
which
the
trouble
comes.
I
do
not
think
it
is
a
capital
expense;
and
I
have
already
held
that
it
is
an
expense
incurred
in
the
conduct
of
the
business.
In
the
case
of
Johnston
Testers
Ltd
v
MNR,
[1965]
CTC
116;
65
DTC
5069,
Gibson,
J
made
an
extensive
examination
of
the
jurisprudence
in
question
including
the
leading
British
cases
of
Atherton
v
British
Insulated
and
Helsby
Cables,
Limited,
10
TC
155,
and
Anglo-Persian
Oil
Company,
Limited
v
Dale
(supra).
He
quotes
the
statement
of
Lord
Cave
in
the
former
case
at
page
192:
But
when
an
expenditure
is
made,
not
only
once
and
for
all,
but
with
a
view
to
bringing
into
existence
an
asset
or
an
advantage
for
the
enduring
benefit
of
a
trade,
I
think
there
is
very
good
reason
(in
the
absence
of
special
circumstances
leading
to
an
opposite
conclusion)
for
treating
such
an
expenditure
as
properly
attributable
not
to
revenue
but
to
capital.
Rowlatt,
J,
however,
in
the
Anglo-Persian
Oil
case
pointed
out
that
there
was
a
fallacy
in
the
use
of
the
word
“enduring”,
and
stated
that:
What
Lord
Cave
is
quite
clearly
speaking
of
is
a
benefit
which
endures,
in
the
way
that
fixed
capital
endures;
not
a
benefit
which
endures
in
the
sense
that
for
a
good
number
of
years
it
relieves
you
of
a
revenue
payment.
He
then
held
that
a
commutation
payment
representing
future
earnings
of
the
agent
which
were
redeemed,
were
made
in
the
course
of
and
for
the
purposes
of
-a
continuing
business.
In
the
case
before
Gibson,
J
which,
unlike
the
present
case,
dealt
with
the
commutation
of
a
contract
calling
for
payments
of
royalties
which
would
otherwise
have
continued
on
annually
for
some
fourteen
years,
he
found
at
page
128
[5075-6]
that
the
payment
was
.
.
.
to
get
rid
of
an
onerous
annual
expense
in
respect
to
a
business
that
it
proposed
to
and
did
carry
on,
and
such
payment
was
made
in
the
course
of
such
continuing
business;
and
that
as
a
result
no
advantage
or
benefit
either
positive
or
negative
accrued
to
the
capital
account
of
the
appellant,
but
instead
all
the
advantage
and
benefit
obtained
was
of
a
revenue
character
and,
therefore,
the
payment
was
not
a
capital
outlay
within
the
meaning
of
Section
12(1
)(b)
of
the
Income
Tax
Act.
See
also
the
case
of
BP
Australia,
Ltd
v
Commissioner
of
Taxation
of
the
Commonwealth
of
Australia,
[1965]
3
All
ER
209,
which
referred
with
approval
at
page
217
to
the
case
of
B
W
Noble,
Ltd
v
Mitchell
(supra)
and
also,
at
page
223,
to
the
case
of
Anglo-Persian
Oil
Company,
Limited
v
Dale
(supra).
With
reference
to
that
case,
Lord
Pearce,
who
wrote
the
Privy
Council
judgment,
stated:
It
paid
the
agent
company
£300,000
cash
in
consideration
of
the
agency
agreement
being
terminated.
It
was
held
by
ROWLATT,
J,
that
this
was
a
revenue
payment,
since
there
was
no
purchase
of
goodwill
or
start
of
a
business,
but
simply
the
putting
to
an
end
of
an
expensive
method
of
carrying
on
the
business
which
remained
the
same,
whether
the
distributive
side
was
in
the
hands
of
the
oil
company
itself
or
its
agents.
The
Court
of
Appeal
affirmed
this
decision.
LAWRENCE,
LJ,
concluded
that
“The
contract
to
employ
an
agent
to
manage
the
taxpayer’s
business
in
Persia,
however,
in
no
sense
forms
part
of
the
fixed
capital
of
the
taxpayer
but
is
a
contract
relating
to
the
working
of
the
taxpayer’s
business,
the
method
of
managing
which
may
be
changed
from
time
to
time.
Neither
the
contract
itself
nor
a
payment
to
cancel
it
would,
in
my
opinion,
find
any
place
in
the
capital
accounts
of
the
company.”
.
.
.
It
justifies
the
argument
that
expenditure
incurred
in
making
a
radical
change
in
the
marketing
arrangements
of
a
company’s
organisation
need
not
be
a
capital
payment.
It
refutes
any
argument
that
the
bigness
of
the
amounts
and
the
widespread
area
involved
and
the
finality
and
extent
of
the
change
point
automatically
to
a
capital
outlay.
In
the
case
af
Mandrel
Industries,
Inc
v
MNR,
[1965]
CTC
233;
65
DTC
5142,
which
respondent
principally
relied
on,
a
subsidiary
of
appellant
had
granted
an
exclusive
right
to
distribute
its
products
in
Canada
for
a
period
of
five
years.
When
the
subsidiary
was
wound
up
and
all
its
assets
came
into
the
possession
of
the
appellant,
it
desired
to
cancel
this
distributorship
contract
which
still
had
three
years
to
run
and
paid
$150,000
for
the
assignment
of
the
distributor’s
rights
under
it,
taking
over
at
the
same
time
virtually
the
whole
staff
and
sales
organization
of
the
former
distributor.
The
headnote
at
[1965]
CTC
233,
which
accurately
represents
the
findings
of
the
Court,
held
in
part:
(i)
That
the
payment,
which
was
made
by
the
appellant
to
re-acquire
the
right
to
sell
its
own
products
and
to
launch
its
own
selling
organization
in
Canada,
was
made
to
secure
an
advantage
for
the
enduring
benefit
of
the
appellant’s
trade,
despite
the
brevity
of
the
unexpired
term
of
the
1956
agreement,
and
was
therefore
a
capital
expenditure;
In
rendering
judgment,
Cattanach,
J
at
page
242
[5147]
referred
to
the
case
of
the
Vallambrosa
Rubber
Co
Ltd
v
Farmer,
5
TC
529,
in
which
Lord
Dunedin
said
at
page
536:
I
do
not
say
this
consideration
is
absolutely
final
or
determinative;
but
in
a
rough
way
I
think
it
is
not
a
bad
criterion
of
what
is
capital
expenditure
to
say
that
capital
expenditure
is
a
thing
that
is
going
to
be
spent
once
and
for
all,
and
income
expenditure
is
a
thing
that
is
going
to
recur
every
year.
Applying
that
dictum
to
the
facts
of
the
case
before
him,
Cattanach,
J
stated:
What
the
appellant
did
here
was
to
make
a
payment
once
and
for
all,
with
a
view
to
bringing
into
being
an
advantage
for
the
enduring
benefit
of
the
trade.
There
is
no
question
that
the
payment
was
made
once
and
for
all.
I
also
think
it
is
clear
that
what
the
payment
brought
into
being
was
an
advantage
in
that
the
appellant
could
operate
its
own
selling
operation
in
Canada
without
being
in
breach
of
its
previously
existing
exclusive
sales
contract
with
Electro-Technical
Labs.
Canada,
Ltd.
He
goes
on
to
say
that
it
also
acquired
an
existing
sales
and
servicing
Organization.
He
finds
that
although
the
appellant
only
acquired
the
right
of
commencing
selling
operations
in
Canada
three
years
earlier
than
it
otherwise
would
have,
this
is
sufficient
to
constitute
an
“enduring
benefit”
or
to
be
of
a
“permanent
character”,
stating
at
page
243
[5147]:
These
phrases
were
introduced
in
some
of
the
judicial
dicta
on
this
subject
to
indicate
that
an
asset
or
advantage
acquired
must
have
enough
durability
to
justify
its
being
treated
as
a
capital
asset
and
the
terms
are
not
used
synonymously
with
‘‘everlasting”.
There
have
been
many
instances
where
an
“advantage”
has
been
held
to
be
“enduring”
despite
the
fact
that
it
had
a
very
limited
life
or
duration.
Since
he
found
for
the
Minister
on
this
issue,
Cattanach,
J
did
not
find
it
necessary
to
consider
the
question
of
whether
the
payment
was
made
solely
in
consideration
of
the
acquisition
or
cancellation
of
the
exclusive
sales
agency
or
if
the
appellant
received
other
benefits
as
well.
He
does
comment
that
if
other
benefits
were
received
then
the
appellant
will
have
failed
to
discharge
the
onus
of
proving
the
expenditure.
In
the
present
case,
as
previously
indicated,
I
have
reached
the
conclusion
that
any
other
benefits
received
by
the
appellant
were
so
insignificant
as
not
to
affect
the
outcome
of
the
issue.
Primarily,
the
payment
was
made
for
the
cancellation
of
the
agreement
with
the
partnership.
Respondent’s
contentions
in
the
present
case
must
rest
on
two
assumptions:
(1)
that
the
partnership
was
a
separate
and
independent
business
enterprise
of
which
appellant
acquired
the
assets
including
customers
lists
and
goodwill,
if
any,
with
a
view
to
winding
up
this
independent
enterprise
and
eliminating
competition
from
it;
and
(2)
that
the
partnership
had
an
exclusive
right
to
sell
the
products
Sten-C-
Labl
in
Canada
and
that
appellant
therefore
acquired
an
enduring
benefit
by
the
cancellation
of
this
right.
On
the
facts
of
this
case
I
do
not
believe
that
either
assumption
is
tenable.
While
in
law
the
partnership
maintained
a
separate
corporate
existence
even
while
Mr
Chapman
was
operating
out
of
appellant’s
business
premises
in
that,
although
the
merchandise
was
shipped
by
appellant,
it
was
invoiced
to
the
customers
by
the
partnership
and
the
appellant
in
turn
invoiced
the
partnership
each
month
for
60%
of
the
amounts
of
its
sales
to
customers
being
the
amount
due
to
it
for
the
Sten-C-Labl
supplies
sold
by
the
partnership
after
deducting
the
40%
discount
allowed
to
the
partnership
on
such
sales,
this
does
not
alter
the
fact
that
after
August
1962
when
appellant
commenced
manufacturing
the
Sten-C-Labl
products
in
Canada
and
advised
the
partnership
that
henceforth
it
could
no
longer
buy
them
from
the
American
company
but
only
from
it,
the
partnership
was
operating
more
or
less
as
an
agent
of
appellant.
There
is
nothing
in
law
to
prevent
a
company
from
employing
another
corporation
or
a
partnership
as
an
agent
so
the
fact
of
the
separate
existence
of
the
partnership
does
not
alter
the
true
situation.
In
this
respect
the
facts
of
the
present
case
very
closely
resemble
those
of
the
Anglo-Persian
Oil
case
(Supra).
Furthermore,
although
the
partnership
may
have
been
the
sole
distributors
in
Canada
of
Sten-C-Labl
until
appellant
commenced
distributing
itself,
there
is
no
justification
for
the
assumption
that
the
partnership
at
any
time
had
an
exclusive
agency.
In
fact
this
was
denied
by
Mr
Staines
and
there
is
no
evidence
to
the
contrary.
The
present
case
can
therefore
clearly
be
distinguished
from
the
Mandrel
case
(supra)
in
which
the
taxpayer
could
only
enter
into
the
business
itself
by
terminating
the
exclusive
agency.
In
the
present
case
appellant
could
commence
direct
sales
or
appoint
other
distributors
or
agents
at
any
time
it
chose
to
do
so,
and,
in
fact,
early
in
1964
it
did
appoint
an
agent
in
Vancouver,
hired
two
salesmen
and
by
March
1964
had
appointed
fifteen
distributors.
The
fact
that
this
was
not
done
before
the
agreement
at
the
end
of
1963
does
not
indicate
that
appellant
could
not
have
done
so
earlier.
I
therefore
find
that
in
the
present
case
appellant
by
agreement
acquired
no
rights
or
advantages
of
an
enduring
nature
which
it
did
not
already
have,
nor
did
it
benefit
from
the
elimination
of
a
competitor
since
it
had
at
all
times
the
right
to
cancel
the
agreement
with
the
partnership
which
was
not
for
a
fixed
term.
It
is
common
ground
that
it
was
entirely
proper
to
make
the
payments
which
it
did
to
the
partnership
and
I
find
that
these
were
made
primarily
in
order
to
cancel
the
rights
which
the
partnership
had
in
its
non-exclusive
agreement
with
appellant,
whether
this
is
considered
as
an
agency
agreement
or
not,
so
that
appellant
could
thereby
earn
additional
income
by
being
relieved
of
the
necessity
of
providing
the
merchandise
in
question
at
a
40%
discount,
and
in
view
of
a
change
in
its
business
policy
whereby
it
now
proposed,
in
addition
to
selling
to
distributors,
to
sell
directly
to
the
retail
trade
which
it
at
all
times
had
had
a
right
to
do.
It
was
simply
a
change
in
the
method
of
appellant’s
business
operations
made
with
a
view
to
earning
increased
income
as
in
the
BP
Australia
case
(supra).
The
payments
made
to
the
partnership
as
a
result
of
this
were
therefore
properly
deductible
as
an
expense
made
with
a
view
to
earning
income.
Appellant’s
appeal
against
the
decision
of
the
Tax
Appeal
Board
is
therefore
maintained,
with
costs.