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TMI Blog1937 (7) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of the earth used up in the manufacture of bricks during the year in question should be deducted as depreciation of its property. Later the position taken up was that it was expenditure incurred solely for the purpose of earning profits or gains within the meaning of Sec. 10(2)(ix) of the Income-tax Act. The question referred to the High Court is whether the applicant is entitled on these facts to a deduction of the amount claimed as expenditure on account of the price or value of the earth dug and utilised for manufacturing bricks from the total profits of the business or otherwise as a depreciation in the value of the land. If the company had been purchasing merely raw materials for the purpose of manufacturing bricks, it would cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to me more analogous to that of a company which is working a quarry or mine rather than to an ordinary manufacturer who purchases raw materials for the purpose of his manufacturing business. In the latter case the taxable income is the net gain or profit made by him which necessarily is the difference between the amount realised by him and the total amount spent by him; whereas in the case of a lessee of a mine, quarry or brick-field, the property already exists and is taxed as realised property yielding a certain annual income to the owner or lessee. No case which is directly in point has been cited before us by the learned counsel, but there are observations in several English cases which show that the value of the materials found in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he former case the mining company would have to be credited with receiving the price of the raw material handed over to the manufacturing company if there were supposed to be two distinct businesses. This view was upheld by the Court of Appeal in Alianza Company v. Bell, (1905, 1 K.B. 184) and was affirmed by the House of Lords in Alianza Company v. Bell (1906 A. C. 18). In the case of John Smith Son v. Moore, the assessee had after the death of his father acquired a certain business and taken over the assets at a valuation, which assets included certain forward coal contracts made by his father with several colliery owners for the delivery of coal. The coal contracts had been valued at 30,000. The assessee claimed that in arriving a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m by which the value of his mine has depreciated in consequence of the extraction of that coal, for the mine is regarded as being fixed capital. He then observed:- If .... instead of buying the mine, the gas manufacturer had bought a quantity of coal already extracted from the mine and stacked on the surface, the price of the coal would have been regarded as part of the circulating capital .... In such a case the purchase of the mine is not the purchase of coal but a purchase of land with the right of extracting coal from it. The land is regarded merely as one of the means provided by the manufacturer for causing coal to be brought to his gas works, and therefore as much part of his fixed capital as would be any railway trucks or lorrie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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