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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Meaning of trade: scope of trade: The Alianza Company Ltd v Bell [1905] 5TC60 and 172

The point at issue was whether the cost of acquiring a bed of minerals was an allowable deduction of the company’s trade for tax purposes, i.e. was the expenditure to acquire a mine to work, or was it to acquire raw materials for use in a manufacturing process.

The company acquired a bed of mineral deposits (‘caliche’) that was at or near the surface. The mineral was dug up and processed into nitrates and iodine at a manufacturing plant the company built on the site. The amount of ‘caliche’ used each year could be ascertained without difficulty.

The company claimed their trade was not that of a mining concern, but the manufacture and sale of nitrate, and sought a deduction for a sum representing the cost of raw materials consumed in the accounting period.

The Commissioners disallowed the company’s claim. In the High Court Channell J confirmed their decision, noting that:

‘The question in this case which we have to consider is what is the nature of the adventure or concern which this particular company is carrying on. If it is merely a manufacturing business, then the procuring of the raw material would not be a capital expenditure. But if it is like the working of a particular mine or bed of brick earth, and converting the stuff worked into a marketable commodity, then the money paid for the prime cost of the stuff so dealt with is just as much capital as the money sunk in machinery or buildings’.

The Court of Appeal and House of Lords affirmed the decision, Lord Robertson, noting at page 172:

‘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.’