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Issues Involved:
1. Whether the sum of lb1,384,569 paid by the respondent was properly chargeable to income or to capital for the purposes of determining the respondent company's taxable income. Issue-wise Detailed Analysis: 1. Nature of the lb1,384,569 Payment: The primary issue in this case was to determine whether the lb1,384,569 paid by the respondent (Nchanga) to Bancroft was an income expenditure or a capital expenditure for tax purposes. The Federal Supreme Court had reversed the High Court's decision, holding that it was an allowable deduction. The Commissioner of Taxes appealed this decision. Arguments by the Appellant: The appellant argued that the payment was capital expenditure, citing various legal precedents. The appellant emphasized that the payment was made to acquire a source of profit or income, which should be considered capital expenditure. Key references included *Atherton v. British Insulated and Helsby Cables Ltd.*, where Viscount Cave stated that expenditure bringing into existence an asset or an enduring benefit should be treated as capital. The appellant also referred to *John Smith & Son v. Moore*, where payments for acquiring a business were considered capital expenditure. Arguments by the Respondent: The respondent contended that the payment was an incident of a commercial arrangement designed to benefit all three companies in the Anglo-American group by stabilizing copper prices. The respondent argued that the payment was for a short-term arrangement and did not involve acquiring a business or a long-term benefit. The Federal Supreme Court had correctly held that the payment was part of the cost of performing income-earning operations. Judgment Analysis: The judgment delivered by Viscount Radcliffe focused on the nature of the expenditure. The court noted that the payment was made to have Bancroft out of production for 12 months, allowing Nchanga and Rhokana to increase their output. This arrangement was intended to benefit the group by stabilizing copper prices during a period of falling market prices. The court emphasized that the payment did not acquire a business or a long-term asset but was a commercial arrangement for a specific period. The payment was related to the production and sale of the year's output, making it an operating cost rather than a capital expenditure. The court distinguished this case from *John Smith & Son v. Moore*, where the payment was for acquiring a business and its assets. The court concluded that the payment was an operating cost and should be charged against the trading receipts. The judgment of the Federal Supreme Court was upheld, and the appeal was dismissed. Conclusion: The appeal was dismissed, and the court held that the lb1,384,569 paid by Nchanga to Bancroft was an allowable deduction as it was an operating cost related to the income-earning operations for the year. The payment was not considered capital expenditure as it did not acquire a long-term asset or business. The appellant was ordered to pay the respondent's costs of the appeal.
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