A construction company ("Mannix") had formed a joint venture (the "first joint venture") with two other arm's length companies to contruct a portion of a pipeline, with Mannix having an undivided 40% interest in the first joint venture. Mannix then entered into a second joint venture agreement with the taxpayer (which carried on an earth moving business) and another company under which the taxpayer acquired a 15% interest in Mannix's 40% interest in the first joint venture in consideration for its agreement to make cash payments. Mannix rented machinery and equipment to the first joint venture.
It was agreed, close to the conclusion of the first joint venture, that Mannix would acquire the interest of the taxpayer in that venture, thereby taking over the taxpayer's interest in the machinery and equipment, and that Mannix would pay to the taxpayer the taxpayer's total capital contributions to the second joint venture net of distributions made to date, plus an additional sum of $90,000.
The sum of $90,000 was found by Martland J. to be a taxable profit to the taxpayer given that: the taxpayer had entered into the second joint venture with a view to recouping its investment and making a profit at the conclusion of that venture; the $90,000 represented an estimate of the profit which the taxpayer would have become entitled to receive upon a winding-up of the joint venture; and it was not the intention of the taxpayer to sell, or of Mannix to buy, an interest in a going concern.