Warsh & Co. Ltd. v. MNR, 62 DTC 247 (TAB)

Mr. Fordham followed Salter v. MNR, 2 DTC 918 (Ex Ct) in finding that although an agreement between the taxpayer and an American company indicated that payments were made solely in consideration for the right to use a line of clothing and the associated name, the taxpayer's evidence that the terms of the agreement also required the provision to the taxpayer of services, was admissible.

The taxpayer, which was a Canadian manufacturer of ladies' dresses, agreed in writing with a U.S. company that it would have the exclusive Canadian rights in respect of the "Anne Klein" line of clothing in consideration for the payment of $6,500 per year plus 3% of its annual sales in respect of that line in excess of $150,000. There was oral testimony that the arrangement with the U.S. company included the provision of advice on the selection of fabric and the selection of styles, size and fitting of garments and trade intelligence generally.

Mr. Fordham found (at p. 249) that the "real purpose" of the agreement was to give the taxpayer the sole right to use the Anne Klein name in Canada and that "anything else was... purely incidental and not to be considered as meriting separate terms of payment". Accordingly, the full amount of the payment was subject to withholding under s. 106(1)(d) of the pre-1972 Act.