13 .sx The Appellants , immediately after the determination of the appeal , declared to us their dissatisfaction therewith as being erroneous in point of law and in due course required us to state a Case for the opinion of the High Court pursuant to the Finance Act , 1937 , Fifth schedule , Part =2 , Paragraph 4 , and the Income Tax Act , 1952 , Section 64 , which Case we have stated and do sign accordingly .sx 4 .sx The question of law for the opinion of the High Court is whether the sum of +4,072 referred to in paragraph 2 hereof was an amount applied for the benefit of Mr. Hawke within the meaning of Section 36(1)(c ) of the Finance Act , 1947 .sx R. W. Quayle N. F. Rowe Commissioners for the Special Purposes of the Income Tax Acts .sx Turnstile House , 4-99 , High Holborn , London , W.C.1. th October , 1959 .sx The case came before Cross , J. , in the Chancery Division on 13th July , 1960 , when judgment was given in favour of the Crown , with costs .sx Sir Lynn Ungoed-Thomas , Q.C. , and Mr. Alan Orr appeared as Counsel for the Crown , and Mr. P. J. Brennan for the Company .sx Cross , J.- This case concerns the Profits Tax liability of the respondent Company , H. Dunning & Co. ( 1946 ) , Ltd. , for two chargeable accounting periods , 1st March , 1955 , to 31st October , 1955 , and 1st November , 1955 , to 29th February , 1956 .sx The question arises in this way .sx The Company was incorporated in 1946 , and carries on the business of light engineering .sx It is director-controlled , within the meaning of the Profits Tax legislation .sx A Mr. Hawke has been a director of the Company since its incorporation , though he is not a whole-time service director , and he has been at all material times a member of the Company holding one +1 share out of the 1,000 issued shares .sx In 1951 Mr. Hawke invented a special type of " cable gland " for engineering purposes and obtained patent protection for this invention some time in 1952 .sx On 31st December , 1954 , he entered into an agreement with the Company whereby he granted to the Company a licence for a period of years to manufacture and to sell the patented article , and the Company covenanted during the continuance of the licence to pay him a commission of +7 10s .sx per cent .sx of the selling price of each patented article .sx There was provision for the termination of the agreement before the expiry of the period , and it was in fact terminated in September , 1955 .sx It is found in the Case that that was a perfectly genuine commercial agreement under which the Company got full consideration for the payments which they had to make to Mr. Hawke .sx The total of the payments which were made under the agreement for the period from 1st March , 1955 , to its termination in September , 1955 , was +4,072 , and the whole question at issue is whether or not these payments were " distributions " by the Company within the meaning of Section 36 of the Finance Act , 1947 .sx If they were distributions , then , on the assumption which hitherto has been made that they would not be deductible for the purpose of ascertaining the gross relevant distribution for the purpose of Section 35 , the amount of Profits Tax payable by the Company for the accounting periods in question would be larger than it would be if the payments were not distributions .sx Section 36(1 ) is in these terms :sx " Subject to the provisions of the next succeeding subsection , wherever- ( a ) any amount is distributed directly or indirectly by way of dividend or cash bonus to any person ; or ( b ) assets are distributed in kind to any person ; or ( c ) where the trade or business is carried on by a body corporate the directors whereof have a controlling interest therein , " - which is the case here- " an amount is applied , whether by way of remuneration , loans or otherwise , for the benefit of any person , there shall be deemed for the purposes of the last preceding section to be a distribution to that person of that amount or , as the case may be , of an amount equal to the value of those assets :sx " - then there is a proviso- " Provided that no sum applied in repaying a loan or in reducing the share capital of the person carrying on the trade or business shall be treated as a distribution .sx " That proviso certainly seems to suggest that , if it were not there , a sum applied by the Company in repaying a loan would be a distribution .sx I do not think I need read Sub-section ( 2 ) , but Sub-section ( 3 ) contains special provisions in regard to loans , to this effect :sx " Where- ( a ) a loan has been treated as part of the gross relevant distributions to proprietors for a chargeable accounting period ; and ( b ) as a result , the amount of tax payable for that period has been increased , " then , if the loan is repaid , the gross relevant distributions to the proprietors are to be treated as reduced by the amount corresponding to the increase caused by treating the loan as a distribution .sx The question which I have to decide is , of course , whether these payments were amounts applied by the Company for the benefit of Mr. Hawke " by way of remuneration , loans or " .sx They were certainly not " remuneration " or " loans" ; but do they come under the head of " or " ?sx They were , as I have said , payments made under a commercial agreement for full consideration given by Mr. Hawke to the Company in the form of a grant to the Company of a licence to exploit his patent .sx If the words had been simply " an amount is applied for the benefit of any " , I should have thought it very doubtful whether this Sub-section would have covered payments , whether of capital or income , under an ordinary commercial agreement .sx According to the ordinary use of the English language , a payment for which you have given full consideration is not an amount applied for your benefit by the payer .sx But , of course , the words are not simply " an amount is applied for the benefit of any " ; there are the additional words " whether by way of remuneration , loans or " .sx In Commissioners of Inland Revenue v. Chappie , Ltd. , 34 T.C. 509 , the Court of Appeal had to consider the case of loans made by a company to one of its members , an associated company , on what were found to be ordinary commercial terms , and the Court , affirming the decision of Danckwerts , J. , held that such a loan was a distribution within the meaning of this Section .sx It has been argued by Mr. Brennan in this case that the decision turned simply on the special provisions made in regard to loans .sx The Section , of course , refers to loans expressly , and there is in Sub-section ( 3 ) a provision for adjusting the matter if and when the loan is repaid .sx In the case of loans , therefore , it is particularly difficult to avoid the conclusion that they count as distributions even if they are made on commercial terms ; but I do not regard the decision in the Chappie case as throwing no light on the construction of the rest of this Sub-section .sx The members of the Court of Appeal , as I read their judgments , definitely rejected the idea that there had to be an element of bounty in a payment in order to bring it into the scope of the Section .sx It is true that they were dealing with loans , but they were construing the Section as a whole .sx The Section expressly refers to remuneration as well as loans .sx Remuneration does not normally contain any element of bounty , yet the Sub-section says that all payments by way of remuneration are to be treated as distributions .sx It is , therefore , very difficult to say that what falls under the heading " or otherwise " as opposed to what falls under the heading " remuneration " or " loans " must contain an element of bounty .sx Then it is said :sx " If you read the Sub-section as widely as that , any payment made by a company , whether it be an income or a capital payment , and whether there is consideration for it or not , will be a distribution .sx If the company buys a motor-car from a member for a proper price , even that will be a distribution .sx " Well , it appears to me that the members of the Court of Appeal in the Chappie case were aware that that might be the result of their decision .sx That is shown by what was said by Mr. Tucker and Jenkins , L.J. , at the end of the case ( at page 527 of this report) .sx But , of course , it is true to say that the decision itself related only to loans .sx The Section was considered again a little later by Harman , J. , in Commissioners of Inland Revenue v. Lactagol , Ltd. , 35 T.C. 230 .sx There the company had made a lump-sum payment to a director-member , Mr. Adams , in consideration of a covenant that after his term of service with the company ceased he would not compete with the company .sx So for a lump-sum payment the company got the benefit of a capital asset in the form of Mr. Adams's covenant .sx Harman , J. , was impressed , as anybody must be , with the absurdity of treating such a payment- a capital payment for a capital asset under a genuine commercial transaction- as being an amount applied for the benefit of the payee .sx He was not prepared to accept the view that in the Chappie case the Court of Appeal had decided that all payments were distributions .sx He thought that a line must be drawn somewhere , and influenced , I think , by the fact that this Act taxes profits , he drew the line at payments of capital for capital assets .sx Whether it is really logical to draw any line or to draw it there it is not for me to say .sx If I were faced with a similar case to that which was before Harman , J. , I should , of course , follow his decision .sx But the case before me is not one of a payment of capital for a capital asset , but of recurring payments of income .sx I do not therefore think that decision of Harman , J. , covers this case , and I feel myself at liberty to reach the conclusion at which , but for his decision , I would have arrived without hesitation in view of the decision of the Court of Appeal in the Chappie case .sx I should have said that the Commissioners decided this case in favour of the taxpayer on the ground that the Chappie case dealt only with loans , and that this case was covered by the Lactagol case .sx For the reasons I have tried to give , I think that their decision was wrong , and therefore I shall allow the appeal .sx Sir Lynn Ungoed-Thomas .sx - Your Lordship will , then , allow the appeal with costs ?sx Cross , J.- Yes .sx Mr. P. J. Brennan .sx - Would your Lordship hear me on that point about costs ?sx Cross , J.- Yes .sx Mr. Brennan .sx - My Lord , the Lactagol case was decided some years ago , and this matter has been left in a state of grave uncertainty ; and my clients went before the Commissioners on the basis of the Lactagol case .sx They succeeded before the Commissioners , and I submit that it might be a proper case where your Lordship might make an Order whereby each side would bear its own costs .sx Sir Lynn Ungoed-Thomas .sx - My Lord , it is the same sort of difficulty that arises in any case where there has been a decision upon which one side relies .sx Cross , J.- I think I must allow the Crown to have their costs in this case .sx I quite understand that the Commissioners were in a difficulty in view of the two authorities , but I have taken a different view of Harman , J.'s decision to that taken by them , and I think the ordinary result must follow .sx Sir Lynn Ungoed-Thomas .sx - And would your Lordship make a declaration ?sx Cross , J.- Yes .sx There is no question of figures , is there ?sx