Income tax – Mining – Royalties – Respondent having beneficial interest in half of settled estate – Trustees granting wayleaves to various mining companies to work coal under surface of land – Whether receipts falling to be treated as mineral royalties for tax purposes – Whether “mining” and “working” amounting to distinct and cumulative conditions – Appeal dismissed
The trustees of a settlement in which the respondent had a beneficial interest granted wayleaves to various mining companies to work the coal under the surface of land over which the trustees owned mineral rights. Those rights were to drill, prospect and explore for coal, to extract coal by opencast mining and to disturb other minerals for the purpose of mining coal.
A special commissioner of income tax was required to determine how the payments received by the respondent, via the trustees, should be taxed. The appellant commissioners took the view that the payments fell within section 119 of the Income and Corporation Taxes Act 1988 and were therefore taxable as income. The respondent contended that section 122 of the 1988 Act applied so that half the payments were taxable as income and the remainder as a chargeable gain.
Reserves of coal and related minerals were vested in the Coal Authority under the Coal Industry Act 1994. Landowners such as the trustees no longer owned the deposits of coal within their land, and those reserves could be lawfully mined only in accordance with a licence granted by the Coal Authority. The trustees could therefore grant, in respect of the land to which they retained the title, no more than a wayleave enabling the mining company to enter onto the land and exercise rights conferred by the Authority.
The respondent argued that the payments he received were properly described as “mineral royalties” within section 122(5) of the 1988 Act. He contended that a wayleave that enabled a mining company to enter onto and to disturb both the surface of the land and other minerals was a necessary precondition for the mining and working of minerals. The coal could not have been worked without a wayleave since lawful access to it was not available. Thus, a wayleave agreement was properly described as “a mineral lease or agreement as relates to the mining and working of minerals” within section 122(5), and the agreement itself came within section 122(6)(a) since it conferred a right to win and work minerals. The special commissioner accepted that the receipts fell within section 122: (2007) Sp C 637. The appellants appealed.
Held: The appeal was dismissed.
In all the circumstances, the court was satisfied that the special commissioner had not erred in law. He had been entitled to conclude that the respondent’s receipts fell within section 122 and that the relief provided by that section was available.
Section 122(6) defined “minerals” as “all minerals and substances in or under land which are ordinarily worked for removal by underground or surface working but excluding water, peat, topsoil and vegetation”. Coal indisputably fell within that definition.
Section 122(5) referred to the type of payments, which included “rents, tolls, royalties and other periodical payments in the nature of rent”. Those involved in the instant case clearly fell within that section. However, the payments had to be payable under “a mineral lease or agreement” and “[relate] to the winning and working of minerals”. The words “winning and working” were frequently used in mineral leases, but there did not appear to be very satisfactory definition of those activities. “Winning” seemed to cover searching for the mineral and obtaining access to it so that it could be effectively worked and “working” to cover its extraction.
Looking at the terms of the specimen wayleave agreement, it was plain that those payments relate to the winning and working of minerals. Not only did the periodical payments related to the winning and working of the mineral coal, but the making of those payments was a necessary precondition of any entitlement to carry out the activities.
The expression “mineral lease or agreement” was defined in section 122(6)(a) as “a lease…licence or other agreement conferring a right to win and work minerals…”. The controversial issue in the instant case was whether the relevant agreements could be said confer a right to win and work minerals. The wayleave was granted in consideration of the relevant payments “for the purpose of excavating by open cast working methods so as to extract the coal…located in, on or under the site, including the exclusive right to enter upon and occupy the surface of the site with vacant possession and the exclusive right to locate plant, machinery and equipment thereon for such purposes”. Power was also conferred on the miner to “occupy and operate the site to the exclusion of all other parties with power to break the surface and carry out such excavations as might be necessary to enable the [miner] to expose the seam or seams of Coal Authority minerals under the surface and generally to carry out any operations on the site necessary to enable the [miner] to win, work and carry away the Coal Authority minerals…”. Those provisions demonstrated that the proprietors were granting “a right to win and work minerals” under section 122(6) of the 1988 Act.
Iain Artis (instructed by the acting solicitor for Scotland) appeared for the appellants; Julian Ghosh (instructed by Anderson Strathern WS) appeared for the respondent.
Eileen O’Grady, barrister