- (1.) LORD Denning, M. R. Mr. Hammond Innes is a writer of distinction who has for many years carried on the profession of an author. He has written many novel and travel books. He has kept his accounts on a cash basis and has submitted these to the revenue for tax purposes. On the one side, he has included his receipts from royalties and so forth. On the other side, he has included the expenses of his travels overseas to gather material; the expenses of his study at home and a small salary to his wife for her work for him.
(2.) IN this case we are concerned with one particular novel which he wrote called The Doomed Oasis. It was based on material which he gathered in the Persian Gulf in 1953. He started to write it in September, 1958, and worked on it up till 1959. He charged all the expenses in his accounts for those years. In 1960 he was about to publish it. But he felt he would like to do something to support his father, who had retired on modest resources. So Mr. Hammond Innes decided to transfer the copyright in the book. The Doomed Oasis to his father as a gift. By an assignment made on April 4, 1960, he assigned to his father, "in consideration of natural love and affection," the copyright, performing rights and all other rights in The Doomed Oasis.
(3.) THE question arises whether he is liable to tax on the value of those rights in The Doomed Oasis. If he had sold the right at that time in 1960 their market value would have been pound 15,425. The Crown say that that sum ought to the brought into his accounts and that he should be taxed on it, although he did not receive a penny for the rights because he had given them away. I may add that Mr. Hammond Innes had also before publication assigned right in two others of his novels, one to his mother and the other to his mother -n -law. So a like question may arise there. I start with the elementary principle of Income Tax law that a man cannot be taxed on profits that he might have, but has not, made : Sharkey v/s. Wernher. At first sight that elementary principle seems to cover this case. Mr. Hammond Innes did not receive anything from The Doomed Oasis. But in the case of a trader there in an exception to that principle. I take for simplicity the trade of a grocer. He makes out his accounts on an "earning basis". He brings in the value of his stock -in -trade at the beginning and end of the year : he brings in his purchases and sales; the debts owned by him and to him; and so arrives at his profits or loss. If such a trader appropriates to himself part of his stock -in -trade, such as tins of beans, and uses them for his own purposes, he must bring them into his accounts at their market value. A trader who supplies himself is accountable for the market value. That is established by Sharkey v/s. Wernher itself. Now, suppose that such a trader does not supply himself with tins of beans, but gives them away to a friend or relative. Again he has to bring them in at their market value. That was established by Petrotim Securities Ltd. v/s. Ayres. Mr. Monroe, on behalf of the Revenue, contends that the exception is not confined to traders. It extends, he says, to professional men, such as authors, artists, barrister, and many others. These professional men do not keep accounts on an "earning basis". They keep them on a "cash basis", by which I mean that on one side of the account they enter the actual money they expend and on the other side the actual money they receive. They have no stock -in -trade to bring into the accounts. They do not bring in debts owing by or to them, nor work in progress. They enter only expenses on the one side and receipts on the other. Mr. Monroe contended that liability to tax does not depend on the way in which a man keeps his accounts. There is no difference in principle, he says, between a trader and a professional man. And hesitated his proposition quite generally in his way : The appropriation of an asset, which has been produced in this ordinary course of a trade or profession, to the traders or professional mans own purpose, amounts to a realisation of that asset or the receipt of its value, and he must bring it into account. ;