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HMRC internal manual

Business Income Manual

Measuring the profits (particular trades): Mineral extraction: Earl Fitzwilliam's Collieries Co v Phillips [1943] 25TC430

The point at issue was whether certain payments under mining leases were rent payable in respect of any land or easement under the legislation applicable at the time.

The company was granted a lease over certain mines, surface lands and brick-works in consideration of rents. The lease included the right to work the minerals and lower the surface, without making any compensation for damages. In addition to various rental payments, the lease required specific payments for each acre of coal seam worked which were described as ‘liquidated damages in respect of the overlying surface belonging to the lessor’. The sums were ‘payable in lieu of paying compensation for damage or injury which may be occasioned by subsidence consequent on the winning working and getting of the demised minerals’.

Held that the payments were rent payable in respect of an easement and not an allowable deduction for tax purposes. Although the payments were disallowed due to the particular legislation in force at the time, the payments would now be allowable. See BIM62035.

Lord Greene, M.R. noted, in the Court of Appeal that:

‘The type of subject-matter in the present case is this particular type of “easement” within the meaning of this artificial definition clause. We therefore start with a subject-matter which, looked at from the strict point of view of law apart from the wording of this particular Section, involves a payment, which if analysed, is a commutation of a claim for damages. So be it. But once the right is an easement within this highly artificial definition, I cannot see how an annual payment made in respect of that easement can fail to be a payment in the nature of rent within the meaning of those words used in this context.’

In the House of Lords, Lord Russell of Killowen noted:

‘The actual words of [the legislation in force at the time] are not words of art or such as a conveyancer would use. They are popular in character; they do not suggest the idea of an easement in the strict legal sense of an incorporeal hereditament or of an estate or interest in land. The words, in my opinion, would be satisfied by a merely personal right, privilege or benefit, so long as it concerns or affects a piece of land.’