## Facts

- Ralph Hammond Innes was a professional author who published novels regularly.
- While writing a novel later published as *The Doomed Oasis*, he incurred research and travel expenses (including a 1953 trip to the Persian Gulf) that were allowed as deductions against his professional profits.
- On April 4, 1960, with the book in typescript form, Innes assigned the copyright and related rights in the novel to his father as a gift.
- The rights had an estimated market value of about £15,425 at the time of the gift.
- Innes computed professional profits on a cash basis and recorded no receipt for the gift because no money was received.
- The Inspector of Taxes raised an additional assessment under Case II of Schedule D for 1960–61, treating the market value of the gifted rights as a taxable professional receipt.

## Issues

1. Whether the principle requiring a market-value credit when goods are appropriated for non-commercial purposes applies to a professional author’s gratuitous assignment of copyright.
2. Whether cash-basis computation of professional profits can require inclusion of a notional (non-cash) receipt for the market value of gifted rights.
3. Whether an author’s copyright and related rights constitute stock-in-trade (or an equivalent) for income tax profit computation.

## Decision

- The Court of Appeal dismissed the Inspector’s appeal and upheld the decision for the taxpayer.
- The court held that the copyright and related rights, though created in the course of the author’s profession, were not stock-in-trade.
- Because the rights were not stock-in-trade, the market value of the gifted rights was not required to be brought into the computation as a taxable receipt.
- The court rejected reliance on statutory provisions aimed at actual lump-sum receipts from sales, because the transfer was a gift and produced no receipt.

## Legal Principles

- The market-value appropriation principle associated with withdrawals of stock-in-trade is confined to transfers of goods that are properly characterized as stock-in-trade (or closely analogous trading stock).
- Professional assets or rights produced through professional activity are not automatically treated as stock-in-trade merely because they are created in the course of earning income.
- Where professional profits are computed on a cash basis, a gratuitous assignment of an income-producing right does not create a taxable “receipt” absent actual receipt or specific statutory authority.

## Conclusion

The Court of Appeal held that an author who gives away copyright in a book does not realize a taxable professional receipt equal to market value, because the rights are not stock-in-trade and cash-basis professional profit computation does not require notional receipts for gratuitous transfers without clear statutory authorization.


Mason (Inspector of Taxes) v. Innes, [1967] 2 All E.R. 926 (Eng. C.A.)