Commentary

B2.204A Receipts of compensation and damages

Business tax
Business tax | Commentary

B2.204A Receipts of compensation and damages

Business tax | Commentary

B2.204A Receipts of compensation and damages

Receipts of compensation and damages are often treated associated with capital items which must be treated as capital receipts rather than trading income. Some of the cases in this area are set out below.

Damages for sterilisation of capital assets

The courts have considered a number of cases of compensation for sterilisation of an asset used in a trade. The most frequently quoted of these is Glenboig Union Fireclay Co Ltd1.

The appellant traded as a manufacturer of fireclay goods and merchant of raw fireclay. The company also leased fireclay fields in the neighbourhood of a railway. A dispute arose with the railway company as to the right to work the fields lying under the railway. An action by the railway company to prevent the appellant from working these fields was eventually unsuccessful, but during its pendency the appellant was interdicted by the Court of Session from working the fields, though it incurred expense in keeping them open. The railway company subsequently paid damages to the appellant in connection with the interdict. On losing the action, the railway company proceeded under its statutory powers to lay an embargo on the working of the underlying field subject to the payment of compensation for the fireclay left unworked.

The case concerned two sums, being the damages in respect of the interdict, and the compensation for the embargo. It was held that the damages were a reimbursement of sums expended, not in earning profits, but in protecting a capital asset

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