HENRIKSEN (INSPECTOR OF TAXES) Vs. GRAFTON HOTEL LTD

JUDGEMENT

(1.) stated the facts and continued : The General Commissioners decided in favour of the appellants, but their decision was reversed by Lawrence, J., and this appeal results.

(2.) A new justice on-licence granted under the Licensing (Consolidation) Act, 1910, Section 14, takes one of two forms. It may be an annual licence, or it may under sub-section (2) be a licence for a term not exceeding seven years. Paradoxically, the annual licence gives in practice a more secure tenure to the licence-holder. Where the licence is granted for a term, an application for a re-grant at the expiration of the term is treated as an application for the grant of a new licence, with all the difficulties which that involves. An annual licence, on the other hand, is in ordinary circumstances renewed every year as a matter of course. On the grant of a new on licence the justices are bound to attach conditions for securing to the public any monopoly value which is represented by the difference between the value which the premises will bear in the opinion of justices, when licenced, and the value of the same premises if they were not licenced. These conditions must be imposed which ever of the two forms above mentioned the licence may take but in practice there is a difference in application, since in the case of the licence for a term it is only payment of the part or slice" of the monopoly value which is referable to the term of the licence that is exacted. The advantage of this method of procedure is that the payments which the licensee is compelled to make for one period can be adjusted in a subsequent period so as to reflect what experience shows to be the real monopoly value. It will be seen, therefore, that in the present case the sums fixed by the Justices in the case of each of the three grants was intended to represent that part or slice" of the monopoly value which was referable to the period covered by the licence. These sums were made payable by annual installments but this circumstance clearly cannot affect the character which for present purposes must be described to the payments. If the sum payable is not in the nature of revenue expenditure, it cannot be made so by permitting it to be paid by annual instalments. These payments by installments in respect of monopoly value have not the annual quality of the payments for the grant of the annual excise licence, but are of a different character altogether.

(3.) It was not seriously argued that the payments now in dispute fall within the list of prohibited deduction set out in Rule 3 of the Rules to Case I and I of Schedule D. The question therefore is, to quote the language of Lord Summer in Ushers Wiltshire Brewery Co. V/s. Bruce, is the deduction claimed on the facts of the case a proper debit item to the charged against incoming of the trade when computing the balance of profits of it (8 4 L.J.K.B., at p. 435; [1915] A.C., at p. 468). This, of course, is to state the problem, not to solve it, since it remains to discover whether the item is proper one to be charged. For this purpose the first thing to do is to examine the nature of the payment, that is to say, the nature of the subject in respect of which the payment is made. In this connection the manner of payment may be relevant as throwing light appoints nature. In many cases-and in my opinion this is one of them-the question will be found to answer itself once the true nature of the payment is ascertained. Here the appellants were minded to acquire an asset in the shape of a licence for a term of years. As a condition of obtaining it, payment had to be made of a sum sufficient to secure to the public the apart or slice of the monopoly value which was referable to the period of the licence. The effect of the licensing law is, of course, to grant to a licensee what for practical purposes and in respect of a particular area is in truth a monopoly. What the grantee of a licence is under Section 14 compelled to do is, so to speak, to purchase the monopoly rights for a sum equal to their value. The public confreres the monopoly upon him, he must pay the public its value, although in the case of a licence granted for a period under sub- section (2) he pays not for the whole monopoly value but only for a part of it.