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Business Income Manual

Measuring the profits (particular trades): Mineral extraction: CIR v Hope [1937] 21TC116

The point at issue concerned whether payments received from a mining company, by the surface landowner, were liable to sur-tax. This depended upon whether the payments were rent in respect of any land or easement within the meaning of the particular legislation in force at the time.

Hope was the owner of the surface land and upper strata. The coal deposits below these were owned by the Earl of Wemyss and leased to a mining company. Under an agreement between the parties the mining company could work the coal and lower the surface of the land in return for a payment of one penny per ton of coal or dross extracted.

Lord President Normand concluded 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, they would now be allowable. See BIM62035.

He noted, at page 122, that:

‘it is a right or benefit over the land of the surface owner, however narrowly one construes that part of the agreement which in express terms entitles the colliery owner to lower the surface… It may not have been a right in the Respondent’s lands because it was not a right which was exercised in the lands, but it was a right which affected them and which was exercised over them…It seems to me that a periodical payment in the nature of rent means any periodical payment, such as an annual payment, which is paid in return for an easement… It is in the nature of rent for the reason that it is a payment made by the grantee of a benefit for that benefit, and it is made not by a lump sum nor by instalments of a lump sum but by an annual payment.’