KAURI TIMBER COMPANY.

Auckland Star, Volume XLIV, Issue 196, 18 August 1913, Page 9

KAURI TIMBER COMPANY.

PRIVY COUNCIL JUDGMENT. EXHAUSTED CAPITAL TAXABLE AS PROFIT. (From Our Special Correspondent.) LOXDOK, July 12. In delivering liie judgment yesterday of tlie i'rivy Council, refusing Uie appeal of tli* iCauri Timber tJonijKUiy twin a. ju-dgment of the New Zealand. Court of Appeal of May 3rd, 1012, Lord Shaw discussed, the question whether liie consumption of a conijranyVb capital should be considered in ascertaining pro-fits for the assessment of income tax. After pointing out that there was no ambig-ui-ty in the New Zealand Acts wkioh plainly put income derived from the ren.ovftl of timber into the profit accouiit for the year, his Lordship said that it had long bo-en the law of the United Kingdom, that the exhaustion of capital, however it might be treated on strict actuarial principles, might be considered as profit for the purposes of taxation.

Lord .Shcvw said: —The appeal is from am order mode by the Court of Appeal of New Zeaiand under the Declaratory Judgments Act, DOS, of that colony. An originating summons under that statute laid before the Court the following question:—"ln what cases (if at all) and to what extent tif at all) is a company which in manner set forth in the statement of facts hereto annexed carried on (inter alia) the business of cutting, milling and selling the standard timber owned by the plaintiff company entitled in its assessment for income-tax to deduct from the gross proceeds of its business the value of the standing timber so cut by it?" It was admitted that the true question was whether, in striking the annual profits of its business for the purposes of ta—at—in. the company was to deduct a proportion of the original capital on cost of acquiring the timber rights with t.he necessary possession of laind to enable these to be exercised.

After c'etsei-ibing the objects of the oompa-ny asset forth in its memorandum, his Lordship continued: —

'"Tlie present ease involves no refinement of distinction, for the transaction under which these timber rights were acquired was not one under which a mere possession of goods by a. contract of sale was given to the appellant company, but was one under which they obtained an interest in and possession of land. So long as the timber, at the option of the company, remained on tbe soil it derived its sustenance -and nutriment irom it. Tbe additional growths became, ipso jure, the property of the company. All rights of possesion necessary for working the business of cutting, or even for preserving uninjured, the standing amd growing timber were ceded under the leases. All this, together with the business facilities for removal and sale, was granted to the company, which became thereby invested witli the possession of and an interest in lhe land. This was so, undoubtedly, in a practical, ami indeed very ample sense, and it was so also in tbe eye or" tbe law. So far for the view of the common law. From the point of view of accounting and finance the matter appears equally clear. There can be no question that the cost of acquisition of this possession of and interest in lamd, and of tlie timber rights thereon, was just as plainly a capital on cost as if the land with the timber upon it, bad been bought outright. And just as plainly it was not a proper accounting debit item as against revenue. These general considerations would seem to settle the case. But there have been many litigated catses -on these topics, and frequent stages of legislative effort in the incidence and adjustment of taxation upon property so situated."

Bis Lord=hip then quoted from New Zealand Acts to show that timber was clearly removed from land t-xnlion, and continued: —"It Appears that when the New Zealand Statute ban expressly prohibited timber from being taken into account im estimating the value of land. _nd therefore from being taxed a.s parrt of the land, and b.-iis. on the other hand, expressly included profit n.rising from the extraction, removal, and sale of timber, howsoever the income hus been derived, no further language - on the part of trie Legislature, was required to make it clear that even though it be granted that all the arguments to the effect that the removal of .timber was the destiniction or exhaustion of capital were correct, the Legislature has plainly put the i-ncome derived from the removal of timber into tbe profit account for the particular year."

He added :— <; It has long been ihe law of the Un.ited Kingdom that the exhaustion of capital, however it might be treated on strict actuarial principles or according to certain principles of economics, may for the purposes of taxation he treated a profit. That profit may be temporary, and so when it ceasea the capital may be gone, a-nd with the going of the capital there will also go the subject and the possibility of tbe tax. Their Lordships do not fkid any ambiguity in the Xew Zealand Acts on tbe matter of this appeal, and they do not entertain amy doubt that, the Court below has come to a correct conclusion. Their lordships will accordingly humbly advi.se Hi? Majesty that the appeal be -refin-ed. The appellants will pay tbe costs."