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Cite as: [1905] UKHL 572, 43 ScotLR 572

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SCOTTISH_SLR_House_of_Lords

Page: 572↓

House of Lords.

(On Appeal from the Court of Appeal in England.)

Tuesday, November 28 1905.

(Before Lords Macnaghten, Robertson, and Lindley.)

43 SLR 572

Alianza Company, Limited

v.

Bell (Surveyor of Taxes)

Subject_Revenue — Income Tax — Profits — Nitrate Grounds — Exhaustion of Material — Deductions — Income Tax Act 1842 (5 and 6 Vict. c. 35), sec. 100, Sched. D, 1st Case, Rule III, sec. 159.
Facts:

An English company owned lands, buildings, and plant in Chili, digging out of the land a substance called “caliche” and extracting from it soda, potash, and iodine, from the sale of which they made their profits. The lands, &c., when all the “caliche” has been extracted would be of almost no value.

Held that in computing their profits for income tax under Schedule D they were not entitled to deduct any yearly sum to meet the exhaustion of the “caliche.”

Headnote:

Appeal from a judgment of the Court of Appeal ( Collins, M.R., Stirling and Mathew, L.JJ.), who had affirmed a judgment of Channell, J., upon a case stated by the Commissioners for the General Purposes of the Income Tax Acts for the City of London.

The Income Tax Act 1842 provides, sec. 100, Schedule D, 1st Case, Rule I—“The duty to be charged in respect thereof shall be computed on a sum not less than the full amount of the balance of the profits or gains of such trade, manufacture, adventure, or concern upon a fair and just average of three years.”

Rule III—“In estimating the balance of profits and gains chargeable under Schedule D, or for the purpose of assessing the duty thereon, no sum shall be set against or deducted from, or allowed to be set against or deducted from, such profits or gains on account of any sum expended for repairs of premises occupied for the purpose of such trade, manufacture, adventure, or concern, nor for any sum expended for the supply or repairs or alterations of any implements … nor on account of any capital withdrawn therefrom; nor for any sum employed or intended to be employed as capital in such trade, manufacture, adventure, or concern; nor for any capital employed in improvement of premises.” …

Section 159—“In the computation of duty to be made under this Act in any of the cases before mentioned … it shall not be lawful to make any other deductions therefrom than such as are expressly enumerated in this Act … nor to make any deduction from the profits or gains from any property herein described … on account of diminution of capital employed, or loss sustained in any trade, manufacture, adventure, or concern, or in any profession, employment, or vocation.”

The appellants were an English company incorporated under the Companies Act, with a registered office in London. They owned land, buildings, and machinery in Chili, the land being a large tract of nitrate grounds. The upper stratum of these grounds consisted of a substance called “caliche,” and it was the presence of this substance which gave value to the land. The caliche was dug up and taken to the company's works, where there was extracted from it nitrates of soda, potash, and iodine, from the sale of which the company's profits were derived. When ultimately the caliche in the company's property becomes exhausted their land and plant will have little or no value.

An assessment having been made upon
Page: 573↓
the appellants under Schedule D of the Income Tax Act 1842, based on their printed accounts and statements of profits for the proceeding three years, they appealed to the Commissioners of Income Tax claiming to be entitled, for the purpose of computing their profits, to deduct a yearly sum to meet the exhaustion of the nitrate grounds.

The Commissioners of Income Tax, Channell, J., on a stated case, and the Court of Appeal, having all decided against them, they appealed to the House of Lords.

At the conclusion of the argument for the appellants their Lordships gave judgment as follows:—

Judgment:

Lord Macnaghten—I do not think it necessary to say more than a very few words. I think that your Lordships are satisfied with the judgment of the Court of Appeal, and with the reasons by which that judgment is enforced. It seems to me that this claim comes within the third rule, and that it is money wholly and exclusively laid out and expended as capital. For these reasons I move your Lordships that this appeal should be dismissed, and that the appellants should pay the costs.

Lord Robertson—I think it undesirable that any doubt should be thrown upon a settled course of decisions on the income tax law, and it seems to me that although the case has been argued with a vigour which did full justice to it, the arguments advanced are of a most familar character. The propositions required to be established in order to bring it within the provisions and decisions are these—I begin by stating, of course, that it is under Schedule D that the case is to be judged. First of all, is this capital for which it is proposed to obtain a deduction? Now, that seems to me to be entirely concluded by the findings in the case. There is no doubt whatever that the scheme of the enterprise of this company was to invest their capital in the acquisition of this property, and then to proceed to work it as a mining concern. That being so, Collins, M.R., seems to me to be abundantly justified in saying that this is merely another case where capital has been embarked in a wasting subject-matter. The whole of the argument for the appellants is really founded on what I suppose that no one would doubt, that as the output takes place there is a consumption of a certain proportionate amount of the capital. But that is concluded, as Lord Macnaghten has said, by rule 3. I agree with Stirling, L. J., further, that section 159 is never to be laid out of account in these instances, because in its express prohibition of an allowance being made for capital it, on the face of it, refers to all the various cases under the various schedules. Accordingly the argument that there is something peculiar to Schedule A in the principle which has been applied in Adaie's case (February 10, 1875, 2 R. 431), and in the other cases which have been mentioned, fails before the universal conspectus which in express terms is given by section 159 to this very principle.

Lord Lindley—I am entirely of the same opinion. It appears to me that it is quite impossible to get out of rule 3. I cannot see my way to do it at all.

Order appealed from affirmed and appeal dismissed with costs.

Counsel:

Counsel for the Appellants— Danckwerts, K.C.—Bremner. Agents— Ashurst, Morris, Crisp, & Company, Solicitors.

Counsel for the Respondent— The Attorney—General (Sir R. B. Finlay, K.C.)—The Solicitor-General ( Sir E. Carson, K.C.)— Rowlatt. Agent— Sir F. C. Gore, Solicitor of Inland Revenue.
1905