MACLEAN,
P.:—This
is
an
appeal
from
an
assessment
made
against
the
appellant,
under
the
Income
War
Tax
Act,
1917,
and
the
appellant
asks
that
the
said
assessment
be
set
aside.
The
appellant
is
a
corporation,
incorporated
under
the
laws
of
the
State
of
Maine,
U.S.A.,
having
its
head
office
and
principal
place
of
business
in
the
United
States,
and
having
no
office
or
place
of
business
within
Canada.
The
corporation
is
the
owner
of
certain
inventions
relating
to
improvements
on
machines
used
for
the
manufacture
of
paper,
and
letters
patent
have
been
issued
by
the
Dominion
of
Canada
in
respect
to
such
inventions.
The
appellant
has
by
several
licenses,
granted
to
certain
persons
and
corporations
in
Canada
the
right
to
use
inventions
covered
by
such
letters
patent,
and
such
persons
or
corporations
have
been
operating
in
Canada,
machines
embodying
such
inventions
and
have
paid
to
the
appellant
royalties
in
respect
of
the
licenses
granted
to
them.
The
appellant
does
not
manufacture
or
sell
the
patented
machines,
but
grants
to
licensees
the
right
to
use
the
inventions,
which
implies
the
right
to
make
them.
The
principal
paragraph
in
the
usual
form
of
license
is
as
follows
:
"The
licensor
hereby
grants
to
the
licensee
the
right
to
use
the
inventions
described
and
claimed
in
said
letters
patent
on
the
aforesaid
machines
of
the
licensee,
located
as
aforesaid
including
any
improvements
on
said
inventions
which
the
licensor
may
acquire
upon
the
following
terms
and
conditions.
‘
‘
The
licenses
are
not
assignable,
and
no
license
passes
with
the
sale
of
any
machine
sold
by
the
licensee,
but
the
licensor
agrees
not
unreasonably
to
refuse
to
grant
a
license
in
the
case
of
a
sale
of
a
machine
by
the
licensee.
The
royalty
paid
by
the
licensee,
is
fixed
on
the
basis
of
so
much
per
ton
of
paper
produced
on
machines
equipped
with
the
appellant’s
inventions;
for
instance,
the
royalty
is
10
cents
per
ton
for
machines
running
less
than
600
feet
per
minute,
and
25
cents
per
ton
for
machines
running
800
feet
and
over
per
minute.
Royalties
are
payable
quarterly
and
are
remitted
directly
to
the
appellant
at
its
place
of
business
in
the
United
States.
The
licensor
reserves
the
right
to
inspect
all
the
licensed
machines
in
the
mills
of
the
licensee,
and
all
pro-
duction
records
for
the
purpose
of
investigating
any
claims
for
royalty,
and
also
the
right
of
placing
plates
on
each
machine
containing
patent
dates,
etc.
The
licensor
may
cancel
the
license
upon
failure
to
pay
the
royalties,
or
for
any
non-performance
ot
the
licensing
agreement.
By
the
Statutes
of
Canada,
1924,
c.
46,
sec.
3,
there
was
added
to
subsec.
3
of
the
Income
War
Tax
Act,
1917,
the
following
paragraph
:
"Any
non-resident
person
soliciting
orders
or
offering
anything
for
sale
in
Canada
through
an
agent
or
employee,
and
whether
or
not
any
contract
or
transaction
may
result
therefrom
is
contemplated
within
Canada
or
without
Canada,
or
partly
within
and
partly
without
Canada,
or
any
non-resident
persons
who
lets
or
leases
anything
used
in
Canada,
or
who
receives
a
royalty
or
other
similar
payment
for
anything
used
or
sold
in
Canada,
shall
be
deemed
to
be
carrying
on
business
in
Canada,
and
to
earn
a
proportionate
part
of
the
income
derived
therefrom
in
Canada.
The
Minister
shall
have
full
discretion
as
to
the
manner
of
determining
such
proportionate
part.
‘
‘
The
appellant
claims
that
it
does
not
receive
royalty
for
"
*
anything
used
or
sold
in
Canada’’,
and
that
the
transactions
of
the
appellant
in
Canada
in
connection
with
the
licensing
of
patents,
is
not
a
carrying
on
of
business
in
Canada
within
the
contemplation
of
the
statute,
and
that
the
payments
made
to
the
appellant
by
the
licensees
are
not
taxable.
The
appellant
also
contends
that
the
licensing
in
Canada
of
its
patents
is
virtually
a
sale
of
their
patents
with
payments
deferred,
and
that
the
payment
of
royalties
therefore
periodically,
is
but
a
receipt
of
payments
on
account
of
such
sale,
and
are
capital
sums
and
not
income.
The
amendment
to
the
Income
War
Tax
Act,
to
which
I
have
referred,
clearly
discloses
I
think
the
object
of
the
amendment,
and
it
is
equally
clear
I
think
that
the
amending
sections
fully
accomplish
that
object.
The
licenses
granted
by
the
appellant
permit
the
use
in
Canada
of
machines
made
under
its
patents,
and
if
it
were
not
for
such
licenses,
the
machines
could
not
be
made
or
used
in
Canada,
unless
the
appellant
failed
in
some
way
to
meet
the
public
demand
or
requirements
for
such
patents,
in
which
circumstances
the
Patent
Act
makes
due
provision
for
such
default.
To
say
that
the
provisions
of
the
statute
do
not
apply
here
because
the
appellant
does
not
sell
a
tangible
or
physical
thing,
such
as
one
of
the
machines
made
under
its
patents,
but
merely
licenses
somebody
else
to
make
and
use
them,
is
altogether
too
narrow
a
construction
of
the
statute,
and
such
a
contention
is
not
I
think
tenable.
There
can
be
no
doubt
that
here
there
is
a
"thing
used
in
Canada’’,
within
the
meaning
of
the
statute.
Mr.
Wilson
for
the
respondent
referred
to
Holland
on
Jurisprudence,
at
page
101,
wherein
the
author
describes
a
thing”
as
the
"‘object
of
a
right’’,
1.e.,
is
whatever
is
treated
by
the
law
as
the
object
over
which
one
person
exercises
a
right,
and
with
reference
to
which
another
person
lies
under
a
duty.
This
text
writer
proceeds
to
state
that
‘‘things
are
of
two
kinds:
(1)
material
objects
or
physical
things,
and
(2)
intellectual
objects
or
artificial
things;
and
he
mentions
patents,
copyright,
trademarks,
ete.,
as
illustrative
of
the
second
group,
and
he
states
that
the
fiction
by
which
patents,
etc.,
are
regarded
as
‘‘things’’
is
not
only
harmless
but
indispensable.
It
seems
to
me
that
the
view
thus
expressed
by
this
writer
is
well
founded,
and
is
quite
pertinent
here.
I
am
of
the
opinion
that
the
use
of
the
appellant’s
patents
in
Canada
under
license,
is
clearly
a
use
of
a
thing
in
Canada
as
contemplated
by
the
statute.
If
I
am
right
in
this
view,
then
it
follows
that
there
is
a
“thing”
sold
or
used
in
Canada,
for
which
a
“royalty”
is
paid.
If
the
statute
covers
the
licensing
and
use
here
in
question,
and
I
think
it
does,
then
the
appellant
is
carrying
on
business
in
Canada,
because
the
statute
explicitly
states
that
the
receipt
of
royalty
or
other
similar
payments
for
anything
used
in
Canada,
shall
be
deemed
to
be
a
carrying
on
of
business
in
Canada.
The
contention
that
the
payments
made
under
the
licenses
is
a
capital
sum,
and
not
income,
cannot
I
think
be
maintained.
The
royalty
received
by
the
appellant
is
for
the
use
of
its
inventions.
The
payment
or
royalty
is
in
respect
of
the
user
of
the
inventions
measured
by
the
quantity
of
production
of
paper
which
may
vary
according
to
the
machine
to
which
the
invention
is
attached,
the
speed,
etc.
That
is
the
substance
of
the
arrangement.
The
bargain
is
that
the
licensee
pay,
not
a
capital
sum,
but
a
sum
dependent
on
the
volume
of
paper
produced,
and
which
would
vary
according
to
market
demands
and
other
factors.
What
the
appellant
receives
is
income
from
the
earnings
or
use
of
the
inventions.
These
payments
have
none
of
the
characteristics
of
a
capital
sum.
I
think
they
are
clearly
income
within
the
statute,
and
the
the
assessment
in
question
was
properly
made.
See
Jones
v.
Commissioners
of
Inland
Revenue
[1920]
1
K.B.
711;
Constantinesco
v.
Rex
(1926)
42
T.L.R.
385
and
685.
I
would
therefore
dismiss
the
appeal
with
costs
to
the
respondent.
Judgment
accordingly.
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