CAMERON,
J.:—This
is
an
appeal
from
a
re-assessment
dated
April
15,
1958,
and
made
upon
the
appellant
in
respect
of
its
taxation
year
ending
March
31,
1955.
By
that
re-assessment,
the
respondent
added
to
the
declared
income
of
the
appellant
the
sum
of
$75,000,
said
to
be
‘‘rental
deposit
forfeited’’.
Following
a
Notice
of
Objection,
the
respondent
confirmed
the
said
assessment,
in
particular
on
the
following
grounds:
“The
amount
of
$75,000
received
by
the
taxpayer
from
Barclay
Hotels
(Toronto)
Ltd.
has
been
properly
taken
into
account
in
computing
the
taxpayer’s
income
in
accordance
with
the
provisions
of
ss.
3
and
4
of
the
Act.”
There
is
no
dispute
as
to
the
facts
and
the
only
question
for
determination
is
whether
the
said
amount
in
the
circumstances
to
be
mentioned
constitutes
income
in
the
hands
of
the
appellant
or,
aS
the
latter
submits,
was
a
capital
receipt.
The
only
evidence
given
at
the
hearing
was
that
of
Saul
Salzman
who
has
been
president
of
the
appellant
company
since
its
incorporation,
and
documents
tendered
by
him.
The
appellant
was
incorporated
under
the
Ontario
Companies
Act
on
May
17,
1946
(Exhibit
1),
its
purposes
and
objects
being
stated
as
follows:
“Subject
to
the
provisions
of
any
statute
or
regulations
passed
thereunder
in
that
behalf
for
the
time
being
in
force,
to
conduct
and
operate
a
hotel
business
at
the
northeast
corner
of
Front
and
Simcoe
Streets,
in
the
said
city
of
Toronto.”
The
hotel
referred
to
and
which
I
shall
refer
to
as
the
Barclay
Hotel,
was
operated
by
the
appellant
under
the
management
of
Salzman
from
1946
to
1949.
In
the
latter
year,
Salzman
found
that
he
could
no
longer
carry
on
the
business
and
it
was
decided
to
rent
the
property.
On
August
4,
1949,
the
appellant
received
and
accepted
an
offer
to
lease
the
Barclay
Hotel
as
a
going
concern,
with
all
its
contents,
from
Messrs.
Gould
and
Torno
as
trustees
for
a
company
to
be
incorporated
under
the
name
of
Barclay
Hotels
(Toronto)
Ltd.
Exhibit
2
is
the
lease
dated
August
22,
1949,
subsequently
entered
into
between
the
appellant
and
the
new
company,
and
attached
thereto
is
a
copy
of
the
said
offer
to
lease.
The
lease
was
for
a
period
of
ten
years
from
September
1,
1949,
at
a
‘‘minimum
annual
rental”
of
$75,000
payable
in
advance
in
equal
monthly
instalments
of
$6,250
on
the
1st
of
each
month.
Provision
was
also
made
for
payment
of
additional
rental
(which
I
shall
hereinafter
refer
to
as
‘‘further
rental’’)
in
certain
circumstances.
‘
And
in
addition
thereto
by
way
of
further
rental
for
each
complete
year
of
the
said
term,
the
amount,
if
any,
by
which
the
minimum
annual
rental
for
such
year
is
less
than
the
percentages
of
the
Lessee’s
Total
Gross
Receipts
hereinafter
set
forth
derived
during
such
year
from
the
business
carried
on
upon
the
demised
premises,
and
for
any
fraction
of
the
year,
the
amount,
if
any,
by
which
the
proportion
for
such
fraction
of
a
year
of
the
minimum
annual
rental
is
less
than
the
percentages
of
the
Lessee’s
said
Total
Gross
Receipts
for
such
fractions
of
a
year.”
Then
followed
a
detailed
statement
of
the
percentages
of
the
lessee’s
total
gross
receipts,
above
referred
to,
the
details
of
which
are
not
here
of
importance.
Provision
was
also
made
by
which
the
lessee
could
secure
two
five-year
extensions
of
the
lease
“provided
the
lessee
is
not
in
default
hereunder’’
and
‘‘at
the
same
minimum
rental
and
percentages
of
gross
sales
and
revenue
as
aforesaid,
and
otherwise
upon
the
same
terms
and
conditions
as
are
in
the
Lease
set
out,
but
without
any
obligation
to
pre-pay
any
rent."
(The
italics
are
mine.)
The
provisions
in
the
lease
regarding
pre-payment
of
rent
are
found
on
pages
20-21
:
“Forthwith
upon
the
execution
of
these
presents,
the
Lessee
shall
pay
to
the
Lessor
the
sum
of
Seventy-five
Thousand
Dollars
($75,000.00)
of
lawful
money
of
Canada
(the
receipt
whereof
is
hereby
acknowledged)
to
be
applied
on
account
of
rent
as
hereinafter
provided
to
be
retained
by
the
Lessor
and
to
be
forfeited
to
the
Lessor
as
liquidated
damages
(in
addition
to
any
other
rights
or
remedies
that
the
Lessor
may
have)
for
the
Lessor’s
trouble
and
expense
in
giving
up
possession
of
the
said
premises,
in
case
the
Lessor
shall
be
entitled
to
determine
the
term
hereby
demised
because
of
non-payment
of
rent
by
the
Lessee,
or
because
the
Lessee
has
made
an
assignment
for
the
benefit
of
creditors
or
become
bankrupt,
or
an
order
has
been
made
for
the
winding
up
of
the
Lessee,
or
a
final
judgment
has
declared
that
the
Lessor
is
entitled
to
determine
the
terms
hereby
demised
because
of
the
Lessee’s
failure
to
observe
any
other
of
the
provisoes,
covenants
and
agreements
herein
contained.
Provided,
however,
that
if
the
term
hereby
demised
is
not
determined
by
the
Lessor
for
any
of
the
causes
aforesaid,
or
if
the
Lessor
has
not
obtained
a
judgment
declaring
that
it
is
entitled
to
determine
this
Lease
as
aforesaid,
the
Lessor
shall
apply
the
said
sum
of
Seventy-
five
Thousand
Dollars
($75,000.00)
on
account
of
rent
due,
as
follows:
Fifteen
Thousand
Dollars
($15,000.00)
on
account
of
the
rent
due
for
the
quarter-year
from
the
first
of
September,
1954,
to
the
thirtieth
day
of
November,
1954;
Fifteen
Thousand
Dollars
($15,000.00)
on
account
of
the
rent
due
for
the
quarter-year
from
the
first
of
September,
1955,
to
the
thirtieth
day
of
November,
1955;
Fifteen
Thousand
Dollars
($15,000.-
00)
on
account
of
the
rent
due
for
the
quarter-year
from
the
first
of
September,
1956,
to
the
thirtieth
day
of
November,
1956;
Fifteen
Thousand
Dollars
($15,000.00)
on
account
of
the
rent
due
for
the
quarter-year
from
the
first
of
September,
1957,
to
the
thirtieth
day
of
November,
1957
;
and
the
remaining
Fifteen
Thousand
Dollars
($15,000.00)
on
account
of
the
rent
due
for
the
quarter-year
from
the
first
of
September,
1958,
to
the
thirtieth
day
of
November,
1958.
The
said
sum
of
Seventy-five
Thousand
Dollars
($75,000.00)
or
any
part
thereof
remaining
from
time
to
time
unapplied
on
any
rent
payments
shall
bear
interest
at
the
rate
of
two
percentum
(2%)
per
annum,
payable
yearly
on
the
first
day
of
September
in
each
year
to
be
computed
from
the
22nd
day
of
August,
1949,
and
to
run
until
the
30th
day
of
November,
1959.
The
first
payment
of
interest
to
be
made
on
the
1st
day
of
September,
1950.”
The
said
sum
of
$75,000
was
paid
by
the
lessee
to
the
appellant
in
cash
in
1949
and
placed
in
the
latter’s
bank
account.
It
appears
to
have
been
used
for
the
general
purposes
of
the
appellant,
including
large
payments
for
the
transfer
of
the
liquor
licence
in
1949,
and
again
in
1958.
Within
six
months
of
the
date
of
the
lease,
the
lessee
found
itself
in
financial
difficulties
and
by
the
terms
of
an
agreement
dated
April
30,
1950
(Exhibit
3),
certain
variations
of
the
lease
were
agreed
to,
and
subject
thereto
the
original
lease
remained
in
effect.
By
that
amendment,
it
was
recited
that
the
lessee
had
observed
all
the
covenants
of
the
lease
up
to
November
1,
1949,
but
that
thereafter
and
up
to
April
30,
1950,
had
paid
only
the
minimum
monthly
rental
of
$6,250
which
the
lessee
agreed
to
accept
in
full
of
rent
to
that
date.
It
was
further
provided
that
for
the
months
of
May,
June
and
July
and
August,
1950,
the
lessor
would
accept
a
fixed
monthly
rental
of
$6,250,
waiving
any
right
to
the
‘further
rental’’
for
that
period;
and
that
for
the
four-year
period
commencing
September
1,
1950,
and
ending
August
31,
1954,
the
fixed
annual
rental
would
be
$65,000,
payable
in
equal
monthly
instalments
in
advance,
any
right
to
‘‘further
rental’’
being
waived
for
that
period
also.
It
was
agreed
also
that
the
lessor
should
pay
all
realty
taxes
(under
the
original
agreement
the
Lessee
was
not
required
to
pay
any
part
thereof),
but
that
if
such
realty
taxes
in
any
of
the
years
1951
to
1954,
inclusive,
should
exceed
those
payable
by
the
lessor
in
1950,
such
excess
taxes
should
be
paid
by
the
lessee.
The
original
proviso
by
which
the
lessee
was
entitled
to
2
per
cent
interest
on
the
sum
of
$75,000,
or
on
that
part
thereof
not
applying
to
rent,
was
deleted
and
the
following
clause
substituted
:
“The
said
sum
of
Seventy-five
Thousand
Dollars
($75,-
000.00)
or
any
part
thereof
remaining
from
time
to
time
unapplied
on
any
rent
payments
shall
bear
interest
at
the
rate
of
two
per
centum
(2%)
per
annum,
payable
yearly
on
the
first
day
of
September
in
each
year
to
be
computed
only
from
the
first
day
of
September,
1954.
The
first
payment
of
interest
to
be
made
on
the
first
day
of
September,
1055.”
“The
Lessee
hereby
waives
and
renounces
any
and
every
claim
to
the
payment
of
interest
on
the
said
sum
of
Seventy-
five
Thousand
Dollars
($75,000.00)
from
the
22nd
day
of
August,
1949,
to
the
31st
day
of
August,
1954.”
The
final
clauses
of
that
agreement
read
as
follows:
“6.
All
the
other
terms
and
conditions
of
the
said
indenture
of
lease
dated
the
27th
day
of
August,
1954
(obviously
an
error
for
1949)
save
as
herein
amended,
shall
remain
in
full
force
and
effect
and
be
binding
upon
the
parties
hereto,
their
successors
and
assigns.
7.
It
is
hereby
agreed
and
acknowledged
by
the
parties
hereto
that
for
the
period
commencing
from
the
1st
day
of
September,
1954,
all
the
terms
and
conditions
as
set
forth
in
the
indenture
of
lease
of
the
22nd
day
of
August,
1949,
shall
again
come
into
effect
and
be
binding
on
the
parties
hereto
from
the
said
1st
day
of
September,
1954.”
The
original
lease
as
so
amended
remained
in
force
until
August
31,
1954.
If
no
new
arrangements
had
been
entered
into,
all
the
terms
of
the
original
lease
would
have
been
in
effect
for
the
period
September
1,
1954,
to
August
31,
1959,
including
the
right
of
the
lessor
to
receive
not
only
the
“minimum
annual
rental’’,
but
also
the
“additional
rental’’
if
the
circumstances
warranted.
The
appellant
would
also
have
been
entitled
to
apply
the
sum
of
$75,000
in
its
hands
on
account
of
rent
as
originally
provided.
The
lessee
would
have
been
entitled
to
receive
2
per
cent
interest
on
the
portion
of
that
sum
not
applied
to
rent.
However,
on
March
10,
1954,
a
new
lease
of
the
same
property
(Exhibit
4)
was
entered
into
between
the
same
parties—three
individuals,
all
of
whom
were
shareholders
of
the
lessee
company,
joining
therein
to
guarantee
the
due
performance
by
the
lessee
of
all
its
covenants.
It
was
for
a
term
of
five
years
commencing
September
1,
1954,
and
ending
on
August
31,
1959,
as
the
original
lease
had
done;
it
was
for
a
fixed
annual
rental
of
$65,000
payable
in
equal
monthly
instalments
in
advance.
By
clauses
25
and
26
thereof,
the
lessee
had
the
right
to
two
five-
year
extensions
of
the
lease
on
the
terms
set
out
in
the
draft
lease
attached
thereto
and
called
Schedule
B.
Essentially,
the
terms
of
such
five-year
extensions
appear
to
be
the
same
as
those
provided
for
in
the
original
lease
of
August
22,
1949,
the
rental
reserved
being
‘‘the
minimum
annual
rental’’
of
$75,000,
and
‘‘further
rental’’
again
being
on
the
basis
of
the
percentages
of
the
lessee’s
total
gross
receipts.
Clause
30
of
the
new
lease
reads
as
follows:
“30.
In
consideration
of
the
Lessor
entering
into
these
presents
and
releasing
the
Lessee
from
its
obligations
under
the
said
Indenture
of
Lease
dated
the
22nd
day
of
August,
1949,
as
amended
by
the
said
Indenture
dated
the
30th
day
of
April,
1950,
the
Lessee
hereby
waives
and
renounces
any
and
every
claim
for
the
sum
of
Seventy-five
Thousand
Dollars
paid
to
the
Lessor
as
hereinbefore
set
out
to
be
applied
on
account
of
future
rent
and
to
be
retained
by
the
lessor
upon
the
happening
of
certain
contingencies,
and
acknowledges
that
the
Lessor
is
entitled
to
retain
the
said
sum
of
Seventy-
five
Thousand
Dollars
free
from
any
claim
or
demand
by
the
Lessee.
The
Lessee
further
waives
and
renounces
any
and
every
claim
for
the
payment
of
interest
on
the
said
sum
of
Seventy-five
Thousand
Dollars.”
It
is
the
nature
of
this
sum
of
$75,000
so
received
by
the
appellant
which
is
now
in
dispute.
The
parties
have
agreed
that
it
was
received
by
the
appellant
in
its
1955
taxation
year.
Before
considering
the
legal
questions
involved,
it
becomes
necessary
to
refer
to
two
other
documents
put
in
evidence
by
the
appellant.
Attached
to
the
original
lease
(Exhibit
2)
is
a
copy
of
the
‘‘Offer
to
Lease’’
dated
and
accepted
by
the
appellant
on
August
4,
1949.
It
provides
for
payment
to
the
lessor
of
$75,000
in
cash
to
be
applied
by
the
latter
only
on
account
of
rent
then
due,
namely,
$15,000,
on
account
of
the
first
quarter
’s
rent
in
each
of
the
last
five
years
of
the
ten-year
lease;
it
contained
no
provisions
for
forfeiture
to
the
appellant
of
any
part
thereof
in
the
event
of
the
lessee
failing
to
carry
out
its
agreement
or
going
into
bankruptcy,
or
otherwise.
It
is
apparent,
also,
that
notwithstanding
the
general
release
given
by
the
lessee
to
the
appellant
of
all
rights
in
the
sum
of
$75,000
as
set
out
in
clause
30
of
the
new
lease
(Exhibit
4),
it
never
was
the
intention
of
the
parties
that
it
should
have
that
effect.
On
the
same
date
that
the
new
lease
w
as
signed,
a
further
and
separate
agreement
was
entered
into
by
the
same
parties
and
prepared
by
the
same
firm
of
solicitors.
While
it
is
referred
to
as
‘‘an
addendum
to
the
said
lease’’,
the
terms
thereof
were
apparently
in
the
contemplation
of
the
parties
at
the
time
the
lease
was
signed.
Its
operative
terms
are
as
follows:
“1.
Paragraph
13
on
page
6
of
the
said
lease
of
the
10th
day
of
March,
1954,
is
amended
by
providing
that
in
the
event
that
the
lease
is
terminated
under
the
provisions
of
the
said
paragraph
13
the
Lessor
will
forthwith
pay
to
the
Lessee
the
sum
of
Fifteen
Thousand
Dollars
($15,000.00)
for
each
year,
or
a
proportionate
amount
for
part
of
a
year
remaining
of
the
unexpired
term
of
the
said
lease.
2.
Paragraph
24
on
page
13
of
the
said
lease
of
the
10th
day
of
March,
1954,
is
amended
by
providing
that
in
the
event
the
said
lease
is
terminated
under
the
provisions
of
the
said
paragraph
24
the
Lessor
will
forthwith
pay
to
the
Lessee
the
sum
of
Fifteen
Thousand
Dollars
($15,000.00)
for
each
year,
or
a
proportionate
amount
for
part
of
a
year,
remaining
of
the
unexpired
term
of
the
said
lease.
3.
All
the
other
terms
and
conditions
of
the
said
lease
are
to
remain
in
full
force
and
effect.”
Paragraph
13
so
referred
to
related
to
the
right
of
the
lessee
and
the
lessor
to
terminate
the
lease
in
the
event
of
the
demised
premises
being
destroyed
by
fire,
lightning
or
tempest,
or
other
casualty,
act
of
God,
or
the
Queen’s
enemies
to
such
an
extent
as
to
render
them
unfit
for
the
lessee’s
business,
and
incapable
of
restoration
within
180
days
thereof.
Paragraph
24
so
referred
to
related
to
the
option
given
to
the
lessee
to
determine
the
lease
if
without
fault
on
its
own
part,
it
lost
the
right
to
sell
beer,
wine
and
liquor
on
the
demised
premises.
-In
its
Notice
of
Appeal,
the
appellant
stated
its
reasons
as
follows:
“11.
The
Appellant
claims
that
the
said
sum
of
Seventy-
five
Thousand
Dollars
($75,000.00)
was
not
received
as
rent,
but
as
security
for
the
proper
performance
by
the
Lessee
of
its
covenants
under
the
said
Lease
dated
the
22nd
day
of
August,
1949.
Under
certain
conditions,
which
never
materialized,
the
said
sum
was
to
have
been
applied
to
five
equal
instalments
on
account
of
rent
for
the
quarter-years
commencing
the
1st
day
of
September
in
each
of
the
years,
1954
to
1958,
inclusive.
However,
before
the
time
arrived
when
the
Lessee
could
avail
itself
of
its
right
to
have
the
said
sum
applied
on
account
of
rent,
the
Lessee
surrendered
all
its
rights
to
the
said
sum,
in
consideration
of
the
Appellant’s
accepting
the
surrender
of
the
Lease
dated
the
22nd
day
of
August,
1949,
and
granting
a
new
lease
dated
the
10th
day
of
March,
1954.
12.
The
Appellant
claims
that,
in
all
the
circumstances
of
the
case,
the
said
sum
of
Seventy-five
Thousand
Dollars
($75,000.00)
constitutes
a
capital
receipt
of
the
Appellant
and
that
it
is
not
income
within
the
meaning
of
any
of
the
provisions
of
the
Income
Tax
Act.”
The
respondent
relies
on
Sections
3
and
4
of
the
Income
Tax
Act
and
says
that
the
sum
of
$75,000
received
by
the
appellant
was
income
from
property;
alternatively,
that
it
was
income
from
a
business;
and
in
the
further
alternative
that
it
was
income
from
a
source.
He
says
that
in
adding
to
the
income
of
the
appellant
for
the
1955
taxation
year,
in
the
course
of
reassessment,
the
sum
of
$75,000,
he
acted
on
the
following
assumptions
:
(a)
that
the
said
sum
of
$75,000.00
was
received
by
the
appellant
from
Barclay
Hotels
(Toronto)
Limited
at
some
time
prior
to
the
beginning
of
the
1955
taxation
year
of
the
appellant;
(b)
that
the
said
sum
of
$75,000.00
was
beneficially
received
by
the
appellant
during
its
1955
taxation
year,
and
(ce)
that
the
said
sum
of
$75,000.00
represented
part
of
the
income
of
the
taxpayer
for
the
said
taxation
year
within
the
meaning
of
Sections
3
and
4
of
the
Income
Tax
Act.
While
the
original
lease
(Exhibit
2)
provided
for
the
forfeiture
of
the
sum
of
$75,000
to
the
appellant
as
liquidated
damages
if
the
appellant
terminated
the
lease
because
of
a
breach
of
certain
covenants
by
the
lessee,
it
is
not
suggested
in
the
pleadings,
evidence
or
argument
that
such
a
forfeiture
did
in
fact
occur.
In
the
new
lease
(Exhibit
4),
there
is
a
recital
that
the
lessee
was
unable
to
carry
out
the
terms
of
the
original
lease,
but
no
evidence
was
given
on
that
point
and
clause
30
thereof
expressly
states
that
the
consideration
for
the
lessee’s
renunciation
of
all
claim
to
the
sum
of
$75,000
was
the
grant
of
the
new
lease
and
the
release
of
the
lessee
from
the
obligations
under
the
original
lease.
It
is
not
necessary,
therefore,
to
consider
the
problem
that
might
have
arisen
had
the
appellant
terminated
the
original
lease
by
reason
of
the
lessee’s
breach
of
its
covenants,
and
had
retained
the
sum
of
$75,000
as
liquidated
damages.
Put
briefly,
the
submission
by
appellant’s
counsel
is
this.
He
says
that
a
lump
sum
payment
received
for
the
surrender
of
the
lease
and/or
for
the
grant
of
a
new
lease,
is
not
of
an
income
nature
but
a
receipt
on
capital
account.
In
support
of
that
contention,
he
cited
a
number
of
cases,
but
in
view
of
the
conclusion
which
I
have
arrived
at
as
to
the
real
nature
of
the
payment,
I
do
not
find
it
necessary
to
consider
them.
In
Simon’s
Income
Tax,
Second
Ed.,
Vol.
1,
p.
50,
the
author,
after
referring
to
a
number
of
decisions,
states:
The
true
principle,
then,
is
that
the
taxing
Acts
are
to
be
applied
in
accordance
with
the
legal
rights
of
the
parties
to
a
transaction.
It
is
those
rights
which
determine
what
is
the
‘substance’
of
the
transaction
in
the
correct
usage
of
that
term.
Reading
‘substance’
in
that
way,
it
is
still
true
to
say
that
the
substance
of
a
transaction
prevails
over
mere
nomenclature.”
Earlier,
the
author
had
referred
to
the
statement
of
Viscount
Simon
in
C.I.R.
v.
Wesleyan
and
General
Assurance
Society,
30
T.C.
11
(H.L.)
at
pages
24
and
25,
in
which
he
expressed
the
principle
in
these
words:
“It
may
be
well
to
repeat
two
propositions
which
are
well
established
in
the
application
of
the
law
relating
to
income
tax.
First,
the
name
given
to
a
transaction
by
the
parties
concerned
does
not
necessarily
decide
the
nature
of
the
transaction.
To
call
a
payment
a
loan
if
it
is
really
an
annuity
does
not
assist
the
taxpayer,
any
more
than
to
call
an
item
a
capital
payment
would
prevent
it
from
being
regarded
as
an
income
payment
if
that
is
its
true
nature.
The
question
always
is
what
is
the
real
character
of
the
payment,
not
what
the
parties
call
it.
Secondly,
a
transaction
which,
on
its
true
construction,
is
of
a
kind
that
would
escape
tax
is
not
taxable
on
the
ground
that
the
same
result
could
be
brought
about
.by
a
transaction
in
another
form
which
would
attract
tax.
’
’
The
question
for
determination,
therefore,
is
‘‘
What
is
the
real
character
of
the
receipt?’’
and
in
answering
that
question
I
am
entitled
to
regard
the
surrounding
circumstances.
In
that
connection,
reference
may
be
made
to
the
speech
of
Lord
Tomlin
in
C.I.R.
v.
Westminster
(Duke),
[1936]
A.C.
1
at
page
20,
where
he
referred
to
‘‘the
indisputable
rule
that
the
surrounding
circumstances
must
be
regarded
in
construing
a
document’’.
In
my
view,
the
evidence
which
I
have
set
out
above
clearly
establishes
that
when
the
new
lease
(Exhibit
4)
was
signed,
the
parties
thereto,
notwithstanding
the
form
and
language
of
the
agreement,
intended
that
the
sum
of
$75,000,
the
right
to
which
in
form
only
was
waived
by
the
lessee,
should
be
accepted
by
the
appellant
in
return
for
the
lower
rental
which
the
new
lease
reserved.
The
original
Offer
to
Lease
dated
August
4,
1949,
clearly
stamped
the
proposed
deposit
of
that
sum
with
the
character
of
pre-paid
rent
only.
Then,
by
the
terms
of
the
original
lease,
it
was
to
be
applied
on
account
of
future
rent
unless
the
lessor
determined
the
lease
for
any
of
the
causes
referred
to
or
secured
a
judgment
declaring
that
it
had
a
right
to
determine
the
lease,
neither
of
which
events
actually
occurred.
Prior
to
the
signing
of
the
new
lease
of
March,
1954,
the
parties
were
aware
that
the
reduced
fixed
annual
rental
of
$65,000
provided
for
in
the
agreement
of
April
30,
1950
(Exhibit
3)
would
be
at
an
end
on
August
31,
1954;
that
on
that
date
the
original
rental
terms
providing
for
a
‘‘minimum
annual
rental’’
of
$75,000,
as
well
as
‘further
rental’’,
would
be
in
effect
for
the
succeeding
five
years;
and
that
in
each
of
these
five
years,
unless
a
forfeiture
occurred,
the
lessor
out
of
the
$75,000
previously
paid
to
him
was
bound
to
apply
$15,000
annually
on
account
of
rent.
All
this
was
in
accordance
with
the
terms
of
their
contract.
Mr.
Salzman,
the
president
of
the
appellant
company,
made
no
attempt
to
explain
the
circumstances
under
which
the
terms
of
the
new
lease
were
agreed
to
or
why
the
very
large
sum
of
$75,000
(the
exact
amount
of
the
pre-paid
rent)
should
have
been
agreed
to
as
the
consideration
for
the
grant
of
the
new
lease
and
the
release
of
the
lessee
from
the
terms
of
the
original
lease
;
and
counsel
for
the
appellant
was
content
to
rely
entirely
on
the
wording
of
the
lease
itself.
It
is
clear,
however,
from
the
terms
of
the
new
lease
that
the
lessee
not
only
waived
the
right
to
any
claim
to
the
sum
of
$75,000,
but,
by
the
same
document,
received
the
benefit
of
a
rental
for
the
ensuing
five
years
substantially
below
that
which
it
would
otherwise
have
been
obliged
to
pay.
The
new
rental
was
fixed
at
$65,000
per
annum,
replacing
the
original
provision
for
a
minimum
annual
rental
of
$75,000,
plus
‘‘further
rental’’,
the
amount
of
which
latter
item
might
vary
from
year
to
year.
I
attach
considerable
importance,
also,
to
the
provisions
of
Exhibit
5,
the
agreement
signed
on
the
same
date
as
the
new
lease,
and
the
terms
of
which
I
have
set
out
above.
That
agreement
does
not
in
terms
refer
to
the
pre-paid
rent
of
$75,000;
it
does
provide,
however,
for
payment
by
the
lessor
to
the
lessee
of
$15,000
‘‘for
each
year
or
a
proportionate
amount
for
a
part
of
the
year
remaining
of
the
unexpired
term
of
the
said
lease’’
(the
term
being
for
five
years),
in
the
event
that
the
lease
is
determined
because
of
the
destruction
of
the
property
by
fire,
or
is
determined
by
the
lessee
should
it
without
fault
on
its
own
part
lose
its
liquor
licence.
In
certain
circumstances,
therefore,
the
lessor
under
these
conditions
might
be
required
to
pay
the
lessee
as
much
as
$75,000—the
precise
amount
of
the
pre-paid
rent.
The
amount
to
which
the
lessee
was
entitled
under
these
provisions
was
based
on
the
unexpired
portion
of
the
five-year
term
at
the
time
the
lease
would
be
so
terminated.
Conversely,
the
appellant
was
released
from
liability
for
payment
under
that
agreement
for
such
part
of
the
five-year
term
as
the
lessee
remained
in
possession.
No
explanation
was
given
for
entering
into
this
agreement.
In
my
view,
only
one
inference
may
be
drawn
from
its
provisions,
namely,
that
the
parties
thereto,
notwithstanding
the
provisions
of
the
new
lease,
regarded
the
sum
of
$75,000
as
pre-paid
rent
which
in
the
circumstances
mentioned
in
Exhibit
5,
the
lessee
could
recover
in
whole
or
in
part,
if
through
no
fault
on
its
part,
its
lease
was
terminated
under
the
provisions
of
paragraphs
13
and
24
of
the
new
lease.
In
my
opinion,
therefore,
the
substance
of
the
transaction
by
which
the
lessee
purported
to
waive
its
right
in
the
deposit
of
$75,000
was
that
all
the
parties
to
the
new
lease
intended
that
sum
to
be
a
pre-payment
on
account
of
rent,
an
amount
payable
in
respect
of
the
user
of
the
appellant’s
capital
asset,
the
Barclay
Hotel.
It
was
therefore
received
on
revenue
and
not
on
capital
account.
A
somewhat
similar
case
came
before
Lawrence,
J.,
in
Greyhound
Racing
Association
(Liverpool)
Ltd.
v.
Cooper
(H.M.
Inspector
of
Taxes),
20
T.C.
373.
The
facts
are
stated
in
the
headnote
as
follows:
“In
July,
1927,
the
Appellant
Company
acquired
the
lease
of
a
racing
track
for
14
years
expiring
in
1941.
From
June,
1928,
a
receiver
for
debenture
holders
carried
on
the
business
as
agent
of
the
Company.
In
March,
1932,
the
Appellant
Company
granted
to
another
company
a
licence
to
use
the
track
from
1st
May,
1932,
to
29th
April,
1941,
in
consideration
of
a
percentage
of
the
gross
takings,
with
certain
minimum
weekly
payments.
The
licensee
company
went
into
voluntary
liquidation
in
March,
1934,
and
after
negotiations
the
receiver,
on
behalf
of
the
Appellant
Company,
agreed
to
a
surrender
of
the
hiring
agreement
if
a
new
company
to
be
formed
would
take
over
the
track
at
a
rent
to
be
agreed
and
provided
that
a
sum
was
paid
equal
to
the
difference,
on
an
actuarial
basis,
between
the
old
and
the
new
rents.
The
sum
so
paid
was
included
in
the
Appellant
Company’s
accounts
for
the
year
ending
31st
March,
1934,
as
a
revenue
receipt.
On
appeal
against
the
assessment
under
Schedule
D
on
the
Appellant
Company
for
the
year
1934-35,
it
was
contended
on
behalf
of
the
Company
that
the
sum
so
paid
was
a
pay-
ment
of
a
capital
nature
in
respect
of
the
diminished
value
of
the
goodwill
of
the
Company
for
the
period
from
1934
to
1941.
Held,
that
the
sum
was
a
trading
receipt
in
respect
of
which
the
Company
was
assessable
to
Income
Tax.”
In
that
case
it
was
argued
that
the
licence
of
March
11,
1932,
was
a
capital
asset
of
the
appellant
company
and
that
the
sum
paid
for
the
surrender
of
that
licence
was
a
part
realization
of
that
capital
asset.
There
as
here,
the
appellant
cited
the
cases
of
Van
den
Berghs,
Ltd.
v.
C.I.R.,
19
T.C.
390,
and
Mallett
v.
Staveley
Coal
Company,
13
T.C.
772.
Lawrence,
J.,
distinguished
both
these
cases
from
the
one
he
had
under
consideration.
In
his
judgment
he
said
at
page
378:
“The
question
as
to
what
receipts
are
revenue
and
what
are
capital
has
given
rise
to
much
difference
of
opinion;
but
it
is
clear,
in
my
opinion,
that,
if
the
sum
in
question
is
received
for
what
is
in
truth
the
user
of
capital
assets
and
not
for
their
realisation,
it
is
a
revenue
receipt,
not
capital.
.
.
.
But
here,
in
my
opinion,
the
only
capital
asset
in
fact
acquired
by
the
Appellant
Company
was
the
track
and
its
equipment.
The
user
of
that
track,
whether
by
the
Appellant
Company
or
its
licensee,
did
not
create
new
capital
assets,
nor
did
it
realise
the
original
capital
asset,
which
remains
the
property
of
the
Appellant
Company,
for
which
it
has
received,
in
the
year
1934,
the
sum
of
£15,640
and
is
to
receive
the
new
rents
provided
for
by
the
agreement
of
March,
1934.
The
sum
of
£15,640
was
nothing
more
than
a
lump
sum
payment
in
place
of
future
rents
similar
to
the
payments
in
question
in
Short
Bros.
Ltd.
v.
C.I.R.,
12
T.C.
1955,
and
similar
cases.
’
’
In
the
instant
case,
the
appellant
company
retained
the
full
ownership
of
its
only
capital
asset—the
Barclay
Hotel.
In
my
view,
the
receipt
of
the
sum
of
$75,000
by
the
appellant
in
its
1955
taxation
year,
was
entirely
referable
to
the
future
user
by
the
lessee
of
the
appellant’s
property.
It
represented
the
fruit
of
the
tree
and
not
the
realization
by
sale
of
the
tree
itself.
In
my
opinion,
it
was
therefore
income
from
property
within
the
provisions
of
Sections
3
and
4
of
the
Income
Tax
Act.
For
these
reasons,
the
appeal
fails
and
will
be
dismissed
with
costs.
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