BIM62060 - Measuring the profits (particular trades): Mineral extraction: Robert Addie and Sons' Collieries Ltd v CIR [1924] 8TC671
The issue in this case was whether a sum representing the value of damaged lands was a capital or revenue payment for tax purposes (see BIM62030).
The company operated a coal mine and had been granted a lease of minerals that contained an obligation to restore all ground occupied under the lease, or that was damaged by mine workings. Alternatively, the company could choose to pay a sum based on the agricultural value of the land. The original lease was terminated and a lump sum payment was made in respect of the obligation.
It was held that the payment was capital expenditure on acquiring a fixed capital asset of the trade and was not an allowable deduction for tax purposes.
The Lord President Clyde noted that:
‘Now when this Company began to work its mine it was obvious that it would require to use a certain amount of the surface of the lessor’s estate for a number of purposes… The acquisition of rights (of a permanency equal to the duration of the lease) to make use of the lessor’s land for both purposes (roads, footpaths and disposal of debris) was one of the conditions precedent to the starting of the Company’s business at the mine, just as much as the right to occupy his land for the purpose of the works at the pit-head; and the expenditure involved does not seem to me to be any less a capital expenditure than, for example, the cost of sinking the shaft.’