The point at issue 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.
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."
