Able (UK) Ltd. v Revenue & Customs

Compensation takes its character as income or capital from the loss for which it is paid. The question is determined by practical business common sense, not by the method used to calculate the compensation. Where a trader suffers only temporary interference with the use of a fixed asset, and the compensation replaces profits that would have been earned during the interruption, the receipt is income. The sterilisation principle applicable to permanent deprivation of a capital asset does not apply where the asset remains intact and is merely used temporarily in a less profitable way. Duration may assist in classification, but it is not generally decisive.

Able appealed by way of case stated against the decision of the General Commissioners for the Division of Hartlepool with Stockton-on-Tees. The Commissioners had held that a £2.185 million payment received under section 31(3) of the Land Compensation Act 1961 was a revenue receipt.

The payment followed the withdrawal by Northumbrian Water Ltd of a compulsory purchase notice affecting land used by Able for landfill operations. Able contended that the compensation represented a diminution in the capital value of its land, or alternatively a permanent loss of a valuable opportunity. The central questions were what loss the compensation was paid for and whether that loss was capital or income in nature.

1. Appeal dismissed. The General Commissioners were entitled to find that the compensation was for loss of the opportunity to exploit the landfill market profitably during a favourable but short-lived period, rather than for diminution in the value of the land. Their conclusion was neither perverse nor erroneous in law.
2. Compensation takes its character from the character of the loss for which it is paid. The inquiry is primarily one of practical business analysis. A profits-based calculation does not determine whether the underlying loss is capital or income.
3. The notice to treat caused only temporary interference with Able’s use of its landfill site. The payment replaced monetary receipts, namely profits which Able might have earned from contracts entered into during the interruption. The rule stated by Diplock LJ in London & Thames Haven Oil Wharves v Attwooll therefore applied, making the compensation income.
4. The permanent sterilisation principle in Glenboig Union Fireclay Co Ltd v IRC was inapplicable. There was no permanent or complete sterilisation of the land, and no deprivation of a fixed asset. The same distinction made McClure v Peter and comparable capital-asset cases inapplicable.
5. The duration factor discussed in IRC v John Lewis Properties Plc was not decisive. The observations in that case concerned a different class of problem, and there was no general rule that the duration of a loss determines its character.
6. The agreed compensation, and the underlying loss, were accordingly revenue items. Judgment was entered by dismissing the appeal.

The judgment states that this was an appeal by way of case stated from the decision of the General Commissioners for the Division of Hartlepool with Stockton-on-Tees. The Commissioners had determined that the compensation payment was income. The High Court dismissed the appeal.