TMI Blog1945 (10) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... The company was incorporated by Royal Charter on 29th October 1889. The Charter recites the petition by the Duke of Abercorn and others associated with him for incorporation and that the existence of a powerful British company controlled by Her Majesty's subjects in whom she had confidence and having its principal field of operations in that region of South Africa lying to the north of Bechuanaland and to the west of Portuguese East Africa would be advantageous to the commercial and other interests of Her Majesty's subjects in the United Kingdom and the Colonies and that the petitioners desired to carry into effect divers concessions and agreements which had been made by certain of the chiefs and tribes inhabiting the said region and such other concessions, agreements, grants and treaties as the petitioners might thereafter obtain within the said region or elsewhere in Africa with the view of promoting trade, commerce, civilization and good government as therein mentioned, and that the success of the enterprise is which the petitioners were engaged would be greatly advanced by a Royal Charter of Incorporation. By clause 2 of the Charter the company was authorised and em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipalities and Dominions together with full powers to do all things that they may deem necessary to win and procure the same and to hold, collect and enjoy the profits and revenues, if any, derivable from the said metals and minerals, etc. The territory over which these rights were granted corresponds roughly with what is now Southern Rhodesia. Subsequently the company acquired numerous further concessions of which may be noted : (1) on 25th July 1893, the sole and exclusive right to search for, work and win previous stones and minerals in the Khamis country (now the Bechuanaland Protectorate), (2) on 25th September 1893, under documents styled certificate of claim, the sole mining rights over certain territories in Central Africa (now included in the territories of Northern Rhodesia and Nyasaland); (3) on 17th October 1900, from Lewanika, the Paramount Chief or King of the Barotse nation, the sale and exclusive right to carry on any trade and to search for, win and keep precious stones and minerals in the territory of Barotseland (now included in Northern Rhodesia); and (4) on 11th August 1909, from Lewanika the right to certain Barotseland land subject to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n regard to mining rights in Northern Rhodesia. As appears from the preamble to the Mining Proclamation of 1912, it is based upon a recognition of the title of the company to the right of searching and mining for and disposing of all minerals and mineral oils in Northern Rhodesia. It is, therefore, from the company that any mining rights under the Proclamation must be derived. These are either in the form of a Prospecting Licence or a Special Grant. The former is defined by the Proclamation as a licence granted by the company to any person authorising him to acquire any mining right within the limits of this Proclamation, and in regard to the latter it is provided that the following shall be deemed to be the special grants : (1) any mining right within the limits of this Proclamation acquired from the British South Africa Co., subsequent to the commencement of this Proclamation otherwise than by issue of or under a Prospecting Licence; (2) any mining right acquired from the British South Africa Co., within the limits of this Proclamation and before its commencement which relates to areas of greater extent than the forms of location ordinarily applicable of reef or othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of its interest in the property (that is, its onethird interest under clause 14) upon a share basis (that is, the company taking shares in a company formed to acquire the property) or upon a royalty basis. The Proclamation repeats and gives effect to some of the contractual conditions of the Prospecting Licence and makes certain other provisions. Under section 6 the holder of a Prospecting Licence must first register his licence. By section 7 he is given in addition to the rights of prospecting for and working minerals and of pegging off a miming location thereby conferred certain ancillary rights on and over a prescribed area of land. Section 9 authorises him if he exposes or opens up a reef as therein mentioned to post a discovery notice, and under section 10 the posting of a discovery notice confers on him for 31 days the exclusive privilege of prospecting over the area defined in the section. Section 11 authorises him within the same period to peg off a mining location of such form and area as may be authorised by the licence and to post a registration notice in respect of it. Under section 13 he must apply for and obtain a certificate of registration of his mining loc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 1928, the company granted to Loangwa the exclusive right to prospect for minerals other than precious stones until 30th April 1933, and the right within that period of marking out mining claims over a prescribed area. The consideration for this grant included (a) 200,000 fully paid shares of 5s. each in Loangwa and a right to subscribe for further shares, (b) the right to an allotment of shares in such other company as was therein mentioned and to subscribe for shares in such company, and (c) the right of appointing certain directors. Under this agreement Loangwa undertook to spend certain minimum amounts varying between 600,000 and 10,000 annually in the areas comprised in the grant and were entitled to obtain further extensions of the period of the grant up to 30th April 1935. Provision was also made for payment of royalties to the company. (2) By a second agreement of 14th November 1929, the company made a special grant to Loangwa over an additional area upon substantially the same terms. (3) By a third agreement of 5th January 1933, the company extended the period of the aforesaid grants to 31st December 1940, in consideration of receiving further shares i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 1932, between the company and Rhokana expressed to be supplemental to the foregoing agreements, the period of the rights thereby conferred was extended from 30th April 1935 to 31st December 1940, subject to the spending of specified amounts on prospecting. For this extention Rhokana agreed to pay to the company the sum of 5,000 on 1st January in each of the years 1935 to 1940 inclusive. The first three of these sums of 5,000 are the second of the items of disputed assessment. The transaction with N'changa was as follows : By an agreement of 1st September 1937, between the company, Rhokana and N'changa after recital, s whereby it appeared that Rhokana was desirous of exercising its right under the R. C. B. grant to mark out two specified mining areas, that Rhokana had agreed to assign this right to N'changa and that the company had agreed to make to N'changa a special grant of mining rights in the selected areas, Rhokana surrendered its rights under the R. C. B. grant over the areas in question and the company granted to N'changa the sole and exclusive right of searching and mining for and keeping or disposing of minerals found therein. The consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the occupier for the purpose of residence or enjoyment and not for the purpose of gain or profit....; (f) rents, royalties, premiums and any other profits from property. Section 6 provides that tax shall be charged, levied and collected for each year of assessment upon the chargeable income of any person for the year immediately preceding the year of assessment, while Section 7 provides for special periods of assessment. Section 10 provides that for the purpose of ascertaining the chargeable income of any person there shall be deducted all outgoings and expenses wholly and exclusively incurred during the year preceding the year of assessment by such person in the production of the income. Amendments have been made to this section since the relevant date which can be disregarded. Certain other provisions of the Ordinance will be referred to later. It is now necessary to refer to the additional assessments which are in dispute. These were all made in the first place upon the footing that all the receipts in question came under Section 5 (f) of the Ordinance. They were all described in the notices of assessment as rents, royalties, premiums and profits arising from property, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss any final opinion upon the cross-appeal. The company has now appealed: there has been no cross-appeal by the Commissioner but it is conceded, and the argument before their Lordships has proceeded on the footing, that it is open to him to support the assessments under either Section 5 (a) or Section 5 (f). It is convenient first to deal with the claim that the sums in question fall within section 5 (f). Upon this point their Lordships are in agreement with the learned Chief Justice. After an examination of the several transactions he came to the conclusion that in each case the sum received was the price paid upon a transfer of property : thus the sum of 2,500 (being the par value of the shares received from N'changa) was in his opinion a fixed price paid on an outright transfer of certain benefits : the several sums of 5,000 in cash received from Rhokana were the consideration received upon a transfer : the transaction was a transfer for a price, or, in other words a sale : and so also with the other items. In their Lordships' opinion, this is an accurate analysis of the transactions, and, if so, the sums received cannot be regarded as rents, royalties, premiums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the purpose of British income tax it should be thus assessed. Their Lordships can see no justification in law for this contention. It is no doubt true from the point of view of accountancy that there is no other way of finding the company's ultimate profit and equally it may be convenient arrangement if the taxing authority chooses to adopt it. But it is impossible to find support for it in the terms of the ordinance. The question under the Ordinance is, what is the income of the company in the particular year of assessment, and it must be answered by applying its relevant provisions as best they can be applied, not by introducing some new and supposedly more convenient method of ascertainment. But while their Lordships cannot uphold this, the primary argument of the company, they are yet of opinion that the judgments of Courts of Rhodesia cannot be supported. For the question still remains what is the nature of the receipts in question. The Commissioner claims that they must be brought into account as gains or profits under Section 5(a) without any deduction, not because the cost of any particular asset is not ascertainable, but because in law no deduction is permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ministrative expenses of the company, a statement which was substantially embodied in the formal reasons presented by the respondent to their Lordships' Board. If, however, the business of the company was (as in their Lordships' opinion it was) to turn to account its mining rights or other property, it does not follow that the proceeds of such turning to account are chargeable to tax without any deduction for the cost of acquisition. Rather it would seem that the ordinary rule must apply and that no gain or profit can be said to arise unless and until a balance has been struck between the cost of acquisition and the proceeds of sale. Nor is it in their Lordships' opinion material that in dealing with its mineral rights the company has retained an interest either by way of a possible reverter of the property or by a shareholding in a company to which it made a special grant. The present case finds an analogy in Thew vs South West Africa Company ( 1025 ) 9 Tax Cas. 141 though it is not desirable to press too closely decisions under a different taxing Act. In that case the question, which arose the English Income Tax Act, was whether in computing the profits ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s desire (to use the words of the preamble) to carry into effect divers concessions and agreements.... and such other concessions, agreements, grants and treaties as the petitioners may hereafter obtain the acquisition and realisation of mining rights must take a leading place. If this conclusion is reached, it becomes, as has already been pointed out, immaterial what method is adopted by the company for the development and realisation of its asset. In his elaborate and realisation of its asset. In his elaborate and careful judgment in the Court of Appeal the learned President lays great stress on the fact that the company in effect participated in the results of the winning of minerals by prospectors, and it is this consideration that leads him to the conclusion that against the profits derived from such participation no allowance for cost can be made. The relevant transactions have already been stated in sufficient detail: they are in their Lordships' opinion in substance indistinguishable from outright sales of mining rights. But even if they are to be distinguished by the fact that the company remains interest as a a shareholder in other companies in the winning of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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