The original point at issue was whether the cost of sinking new
pits was an allowable revenue deduction (see
BIM62010).
The company carried on the trade of coal and iron masters. It
had opened up several mineral fields and sank new pits as the old
pits became exhausted. The company claimed that the cost of sinking
the pits was a revenue cost of winning the minerals and not an
investment of capital.
The Commissioners and the Court of Appeal held that the
expenditure of sinking the pits was capital expenditure and not
allowable.
Further arguments having been introduced, which required the
establishment of additional facts, the House of Lords remitted the
case to the Commissioners for amendment. The Commissioners
established that the sum claimed as a deduction was not the actual
cost of sinking the pits, but an estimate of the capital expended
on pits during the accounting period. This was calculated by
reference to the amount of coal sold in the year.
The company accepted that the cost of sinking the pits was
capital and argued that a deduction was allowable for capital
expended and exhausted in the course of the company's trade.
Held that the deduction was capital and not allowable for tax
purposes.
Earl Cairns noted that:
"… as now explained, can a mine owner
write off and deduct from the gross earnings of his mine in a
particular year a sum to represent that year's depreciation of all
the pits in the mine whenever sunk. I am clearly of the opinion
that this cannot be done."
