H.J. Rorke, Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 13 July 1960 |
| Date | 13 July 1960 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Profits Tax - Payments by open-cast coal mining company for right of entry and diminution of value of land - Whether capital or revenue expenditure.
The Appellant Company carried on the business of open-cast coal mining and entered into agreements with owners of land for this purpose. Under each of three such agreements, the Company undertook to make two lump sum payments to the owners, the first for the right to enter upon the land, and the second as compensation for the diminution in the value of the land.
In assessments to Profits Tax on the Company for the chargeable accounting periods ending 31st March, 1958, and 30th April, 1958, the payments were not deducted in computing the profits. On appeal to the Special Commissioners the Company contended, inter alia, that, in computing on Income Tax principles its profits or gains for Profits Tax purposes, the payments should be allowed as deductions, under the provisions of Section 137 of the Income Tax Act, 1952. The Special Commissioners held that the right of entry payments were capital payments and could not be allowed as deductions, but that the payments for diminution in value were of a revenue nature and allowable.
Held, that both types of payment were of a capital nature.
Stated under the Finance Act, 1937, Fifth Schedule, Part II, Paragraph 4, and the Income Tax Act, 1952, Section 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 25th February, 1959, and thence adjourned to 26th February, 1959, and 6th March, 1959, H.J. Rorke, Ltd. (hereinafter called "the Company"), appealed against assessments to Profits Tax as under:
Chargeable accounting period |
Profits Tax payable |
£ |
|
1st May, 1957, to 31st March, 1958 |
2550 |
1st April, 1958, to 30th April, 1958 |
200 |
The grounds of the appeal were that, in computing the amounts of the profits or gains of the Company for the purposes of the said assessments, certain disbursements made by the Company, as hereinafter appears, in the course of carrying on the business of open-cast coal mining and quarrying had not been allowed as expenses contrary to law.
2. Evidence was given at the hearing of the appeal by Hubert Joseph O'Connor Rorke, civil engineer, managing director of the Company; Edgar Cameron Stott, managing director of Hollin Dyke Colliery Co., Ltd., Hollin Dyke Recoveries, Ltd., and Hollin Dyke Sales, Ltd.; Donald Parker (hereinafter referred to as "Mr. Parker"), a farmer, of Strands Farm, Netherton; William Wilson McKinlay, an Associate of the Scottish Institute of Chartered Accountants, secretary of William Pepper & Co., Ltd., a company concerned in open-cast coal mining; Thomas Wynford Evans, a mining specialist employed by Hollin Dyke Recoveries, Ltd.; and James Wild, a Member of the Institute of Chartered Accountants of England and Wales.
The following documents were produced and admitted or proved:
(i) memorandum and articles of association of the Company;
(ii) profit and loss account of the Company for the year ended 30th April, 1958, with balance sheet at that date;
(iii) agreement dated 16th December, 1957, between Mr. Parker and the Company;
(iv) draft agreement (undated) of 1958 between Mr. Parker and the Company;
(v) agreement dated 18th January, 1958, between George Norton and the Company;
(vi) a schedule summarising the expenditure claimed by the Company. The above documents are not attached to and do not form part of this Case, but are available for the use of the High Court of Justice if required.
3. We found the following facts admitted or proved on the evidence adduced at the hearing of the appeal.
-
(2) The Company was incorporated on 19th February, 1955, with a share capital of £2,000 divided into 2000 shares of £1 each. The memorandum and articles of association of the Company contained, inter alia, the following objects:
(A) To purchase, take on lease, or otherwise acquire (either with or without the surface) for any estate or interest, any coal mines, iron mines, and other mines, mining ground and minerals, and any mining rights, grants, concessions and easements, and any lands or other property necessary or convenient for the advantageous possession and use of the mines or works for the time being owned or worked by the Company or any interest therein and to search for, get, bring to surface, make merchantable, and sell and dispose of coal, ironstone and other ores, metals and minerals, and substances of the earth whatsoever. (B) To carry on business as colliery and mine proprietors, mining engineers, metallurgists, electricity manufacturers and suppliers, gas manufacturers and suppliers, coal masters, iron masters, smelters, engineers, ironfounders, patent fuel manufacturers, blast furnace proprietors, steel makers, steel converters, metal and alloy makers, tinplate makers, and contractors for and dealers in coal, coke, iron, or ironwork in all the branches of such businesses and to carry on the business of brick makers and farmers, to make, purchase, hire, let out and sell railway and other plant, fittings, machinery, rolling stock, stock in trade or any portions or parts of such articles or things.
(3) During the period relevant to the appeal, the Company's trade or business was open-cast coal mining, and it was one of the leading companies in Yorkshire carrying on such business.
(4) Open-cast coal mining became generally practised as a trade in the United Kingdom from 1942 to 1943 onwards, and at the relevant time comprised about 100 operators. The trade required specialised machinery, and the Company owned all its own plant and machinery, different plant being used at different stages in operations. In order to employ economically and fully the staff, machinery and equipment of the Company, it was necessary to have three or four sites actively producing coal at the same time.
(5) The method of operating employed by the managing director and staff of the Company was as follows.
(a) In order to find a beneficial site they first obtained information locally, from farmers and miners, of the presence of a coal seam. On occasions they made payments of introductory commission to persons who informed them of coal deposits. They also studied the geological maps to see if they could be checked up with the local information. There was no reliable geological survey covering the whole of the United Kingdom. Only about one in ten of the sites which thus came to their knowledge as potential coal-bearing sites was eventually worked for coal. The sites which they used were all on agricultural land in Yorkshire.
(b) Having obtained information about a site and studied the geological survey, they approached the landowner concerned (usually a farmer) and endeavoured to enter into an agreement whereby, in return for an immediate payment of £5, they were granted permission to prospect the site and an option to take a lease thereof if found suitable. Such an agreement having been made, not always in writing, the specialised staff went on to the land and bored it extensively. The boring machines were not large, and the operation was done by hand, which was the best and most reliable method. The depth of the bore varied, but it could be 100 feet deep if necessary. The bore went through the coal and they thus knew its thickness and quality, and had a good idea of the overlying strata. They normally worked from the basset edge, i.e. where the coal seam came to the surface, and followed the coal down from there. If the coal seam lay too deep, the operation of removing the overburden was too costly. If the coal seam itself went deep, then the thicker it was, the more economical to work. Provided the ratio of the over-burden to the coal, i.e. the depth of overburden overlying the coal compared with depth of the coal itself, was below 10:1 they could make a site pay with as little as 5000 tons on it. The preparations were lengthy, and it might take any time between one and six months between the time they got to know of a possible site and the time they actually decided to work it.
(c) As soon as they decided that a site was worth working, they exercised their option and made an agreement for a lease with the landowner or farmer, such agreement being made either subject to the granting of the appropriate licence by the National Coal Board or after such had been obtained. Thereafter, application was made to the local authority for planning permission. The right to extract coal was vested in the National Coal Board, which, however, allowed the smaller sites of up to 25,000 tons of coal to be excavated under licence by independent operators. The National Coal Board licence was not a general licence but one which specified a delineated area, usually between four and ten acres. The National Coal Board analysed the coal, and directed where it was to be sold and the price which was to be charged for it. The Company paid 7s. a ton royalty to the National Coal Board, and the payment to the landowner under the lease was generally calculated on a royalty basis.
(d) Upon obtaining the National Coal Board licence and the consent of the local authority, the Company installed their plant and machinery on the site and removed and stacked up the topsoil and subsoils. A site normally produced coal within two or three weeks after being entered and, weather permitting, the whole operation was completed in about six to nine months. After extracting the coal they were obliged to replace the topsoil, but could not replace hedges, trees and walls, except at considerable expense, or the natural drainage. The result was a definite and permanent impairment to the site from an agricultural point of view.
...
To continue reading
Request your trial
-
Strick v Regent Oil Company Ltd ; Regent Oil Company Ltd v Commissioners of Inland Revenue
...was based on any such general proposition I would not agree with it. 34 There was reference in the judgments below to Rorke v. C.I.R. 39 T.C. 194 and earlier similar cases. But as counsel did not found on them before your Lordships I shall only say this. I think that the decision of my nobl......
-
Lion Company
...Knight v Calder Grove EstatesTAX(1954) 35 TC 447; Stow Bardolph Gravel Co Ltd v PooleTAX(1954) 35 TC 459; HJ Rorke Ltd v IR CommrsTAX(1960) 39 TC 194. In two of them the question of transience was raised, and in each it was decided that, once the conclusion was reached, on other considerati......