Profit-linked service payments remain deductible when they are genuine remuneration and taken into account before profits are ascertained.

Payments under a service agreement, although measured by reference to a percentage of profits, were deductible in computing trading profits because they were remuneration for services and not a distribution of profits. The agreement required the amount payable for services to be determined before divisible profits were finally ascertained, with a separate account used to calculate distributable profits. A profit-linked payment is not denied deduction where it is in substance part of the cost of earning the profits. The deduction was therefore allowable, and the company succeeded in claiming it against taxable profits.

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Issues: Whether payments made under the agreement, calculated as a percentage of profits for services rendered, were deductible in computing trading profits or were a distribution of profits.

Analysis: The payments were held to be remuneration for services and not a purchase or distribution of profits. The agreement required one account to ascertain the percentage payable for services and a separate account to determine divisible profits, showing that the sum payable was to be taken into account before the company's profits were finally ascertained. A payment measured by reference to profits is not disqualified from deduction where it is in truth consideration for services and forms part of the cost of earning the profits.

Conclusion: The payments were deductible business expenses and not amounts payable out of profits after ascertainment.

Final Conclusion: The appeal succeeded, and the company was entitled to the deduction claimed in computing its taxable profits.

Ratio Decidendi: A contractual payment for services remains a deductible expense where it is computed by reference to profits but must be brought into account before divisible profits are ascertained.

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