Scottish Court of Session Decisions

This was an appeal by Messrs Robert Addie & Sons, coal and iron masters, Lanarkshire, against the judgment of the Commissioners for General Purposes acting under the Property and Income-Tax Acts for the Middle Ward of the county of Lanark.

The following case was stated by the Commismissioners:—” Messrs Robert Addie & Sons, coal and iron masters, carrying on business at Langloan and elsewhere in the parish of Old Monkland and county of Lanark, appealed against the assessment made on them under schedule D of the Act 5 and 6 Vict., chapter 35, entituled, ‘An Act for granting Her Majesty duties on profits arising from Property, Professions, Trades, and Offices,’ and subsequent Income-Tax Acts referring thereto in respect of the profits arising from their business for the year preceding, in so far as the said assessment includes two sums of £5525, 19s. 9d. and £4435, being a percentage which they claimed to deduct for pit sinking and for depreciation of buildings and machinery respectively, and for which they maintained they were not assessable.

“Messrs Addie & Sons stated that they carry on, and have for a number of years past carried on, business as coal and iron masters. They manufacture pig-iron at their works at Langloan, and they hold a number of mineral fields under leases of thirty-one years, which leases are in various periods of their currency. The minerals wrought under these leases are coal, ironstone, and fireclay. As such lessees Messrs Addie have sunk, at there own expense, the pits from which the minerals are raised. They also require to erect, and do erect at their own expense, machinery and buildings of various kinds, including winding and pumping engines, pithead buildings, and the like.

The appellants submitted that in ascertaining the profits upon which they are liable to be assessed under the said Act there ought to be deducted from the gross annual receipts derived from their business—(1) A. SUM in respect of the cost of sinking the pits; and (2) a sum in respect of the cost of buildings and machinery.

(1) With respect to their pits, they explained that most of them are sunk and used for working ironstone, and are wrought only for comparatively short periods, as the ironstone seams are wrought out more speedily than seams of coal usually are, and that when a pit has ceased to be wrought they do not receive any payment from the landlord or any one else in respect of it, and that they are not recouped in the cost of sinking their pits in any other way than out of the gross annual returns derived from the minerals raised from them. There is scarcely any year in which the appellants are not engaged in sinking one or more pits. In these circumstances, they contended that the share of the gross annual receipts corresponding to the proportion of the cost of sinking the pits affeiring to the current year (regard being had to the number of years during which the several pits have been and will still continue to be wrought) was in no sense a profit, and that therefore it ought to be deducted from the gross annual receipts in arriving at the assessable profit.

(2) With respect to machinery and buildings, the appellants explained that where a pit is wrought out the price or value obtainable for the machinery and buildings thereat is very small as compared with the original cost, being what is generally known as breaking up value, and that they are not recouped in the difference between the original cost of the machinery and buildings and the price or value obtainable therefor when the pits are exhausted otherwise than out of the gross annual receipts derived from working the minerals.

They therefore contended that this difference is in no sense a profit, and that consequently in arriving at the profits upon which they are assessable there ought to be deducted from the gross receipts of each year a sum corresponding to the share of that difference effeiring to such year.”

Argued for the appellants—Under the statutes every person must pay tax upon what he received during the year of profits and gains. But how could there be profit without deducting what was expended to produce that profit? Thus, in this case there was no profit until the outlay made to reach the minerals had been deducted. The appellants were just as much entitled to make deductions claimed as to deduct miners' wages.

Argued for the respondent—The object of the Act was to impose a tax upon income—upon profits as destinguished from capital. But the oxpenditure

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here sought to be deducted was undoubtedly an expenditure or investment of capital. If that were so the provisions of the 3d rule of the 1st head of section 100 of the Property Tax Act was conclusive, and the judgment of the Commissioners should be affirmed.

At advising—