Glenboig Union Fireclay Co Ltd v IRC (1922) 12 TC 427

Facts

  • Glenboig Union Fireclay Co Ltd owned mineral rights that were effectively sterilised when a railway company acquired land to prevent subsidence, making extraction impossible.
  • The company received compensation for being unable to use these minerals, while legal ownership remained unchanged.
  • The compensation related to the permanent inability to use the minerals, thereby reducing the capital value of the company.
  • The issue before the court was the tax treatment of this compensation.

Issues

  1. Whether compensation received for the permanent sterilisation of a capital asset should be treated as a capital receipt or as income for tax purposes.
  2. How to distinguish between compensation for the loss of profits (income) and compensation for loss or sterilisation of a capital asset (capital).
  3. Whether the compensation substituted one capital asset for another, affecting the capital structure of the business.

Decision

  • The court held that compensation for the permanent loss or sterilisation of a capital asset, such as mineral rights, is a capital receipt and not taxable as income.
  • It was determined that the compensation replaced one capital asset (the minerals) with another (money).
  • The court clarified that if the compensation had instead been for lost profits, it would be classified as an income receipt and taxable.
  • The judgment established a clear standard for separating capital from income receipts, influencing subsequent tax law decisions.

Legal Principles

  • Compensation for the permanent sterilisation or loss of a capital asset constitutes a capital receipt, not taxable as income.
  • The distinction between capital and income receipts depends on whether the receipt is a substitute for a capital asset or for trading profits.
  • The principle applies not only to tangible assets but, as later cases show, to intangible assets forming part of a company’s capital structure.
  • Subsequent cases, such as Burmah Steam Ship Co Ltd v IRC and Van den Berghs Ltd v Clark, confirmed and extended this differentiation, particularly emphasising the need to separate permanent loss of assets from loss of profits or temporary business interruptions.

Conclusion

The decision in Glenboig Union Fireclay Co Ltd v IRC established that compensation for permanent asset sterilisation is treated as a capital receipt, not taxable as income, providing an important distinction in tax law for handling compensation related to asset loss or compulsory purchase.

The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising. This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.
No resources available.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
Assessment Day
One-time Fee
$20-39
Job Test Prep
One-time Fee
$90-350

Note the above prices are approximate and based on prices listed on the respective websites as of May 2025. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

All-in-one Learning Platform

Everything you need to master your assessments and job tests in one place

  • Comprehensive Content

    Access thousands of fully explained questions and cases across multiple subjects

  • Visual Learning

    Understand complex concepts with intuitive diagrams and flowcharts

  • Focused Practice

    Prepare for assessments with targeted practice materials and expert guidance

  • Personalized Learning

    Track your progress and focus on areas where you need improvement

  • Affordable Access

    Get quality educational resources at a fraction of traditional costs

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal