Desoutter Bros Limited v J E Hanger & Co Limited and Artificial Limb Makers
Limited   Income tax – Royalty – Sum paid in advance for anticipated use of patent.
By an agreement in writing dated 22 December 1934, the plaintiffs granted to the defendants
a licence to make use, exercise and vend (for certain specified purposes and over a certain
specified period) artificial legs or leg parts made in accordance with a patented invention of
the plaintiffs. In consideration of the licence and of the anticipated user of the invention the
defendants agreed to pay to the plaintiffs £3,000, £1,000 down and the remainder by
instalments. In discharge of one instalment the defendants paid £387 10s, being £500 less
income tax at the current rate. The plaintiffs contended that the sum of £500 was not income
of the plaintiffs from which any income tax was lawfully deductable, but was an instalment
of a capital sum and accordingly was capital:—