ON COMMON MEASURE OF VALUE IN DIRECT TAXATION. 227 



XII. It appears to be sometimes thought that the capitalisation of in- 

 comes is equivalent to the conversion of an Income Tax into a Property 

 Tax. This however is not so. An Income Tax, whatever the measure 

 used, always demands an income. A Property Tax, however, would take 

 effect if there were no income. It is indeed the necessary condition of 

 property, having value, to produce income sooner or later, and equal 

 properties in the long run produce equal incomes ; but the advantage of 

 an Income Tax over a Property Tax, is that it falls on the property only 

 when it does produce an income, and in proportion to the amount pro- 

 duced. One of the advantages of a Property Tax over an Income Tax is 

 said to be that of its incidence on certain forms of value not reached by 

 the Income Tax, as for example, lands annually increasing in value in the 

 neighbourhood of growing towns, but yielding no corresponding rent, 

 and also the furniture, &c, of private houses. If true income be in- 

 crement or increase of value it may be fairly questioned whether the 

 annual increase of value in these lands is not true income, and truly liable 

 to Income Tax. Under the present system, a capital invested in such 

 property year by year increases in value, but pays no Income Tax on the 

 increase, whilst the same capital invested in funds or farms would be 

 annually assessed on its increase. It may be also questioned whether pro- 

 perty in furniture, rightly considered,is not as much property yielding an in- 

 come to its owner as the house which he owns and at the same time inhabits. 

 It has an annual utility, and its value invested in other forms would yield 

 income. Moreover, in this same form, if hired instead of owned, it yields 

 an annual income annually taxable, and it is difficult to see how the fact 

 of the same property being owned by one and used by another, and being 

 owned and used by the same person, can make a difference in the nature 

 of its annual use, value, or product. Questions of this kind, however, 

 belong rather to the province and extension of a direct tax than to its just 

 valuation. 



XIII. Many of the objections which have been urged against capital- 

 value are probably grounded, not so much on a repugnance to the measure 

 itself, as to the mode in which it has been used, as for example, in re- 

 ference to the subject of tenures pointed out in the last Report. Uni- 

 formity of basis and application, whatever the measure may be, is of the 

 last importance, and the confusion that may attend the use of a true 

 measure was well exemplified in the arguments on the Knowles case, a 

 colliery Income Tax appeal, recently decided in the Court of Exchequer. 

 In this important case for Income Tax reform, the plaintiffs, maintaining the 

 principle that real income or profit is the difference between expenditure 

 and receipts, claimed at law a deduction from the taxable receipts of coal 

 mines for the exhaustion of the coal. Among the replies made by the Inland 

 Revenue Office as defendants, was " that if real income be the difference 

 between expenditure and receipts, why should not a person who buys a 

 lease in lands or consols be assessed to the Income Tax on the difference 

 between what he gives for his lease and what he receives from it" — a 

 difference that would practically amount not to the interest-value of the 

 consols or land, but .to the interest-value of his purchase money. The 

 answer is, " real income is the difference between expenditure and re- 

 ceipts, but the analogy of a lease is a fallacious one. In expending 

 money on a lease, you are not, as such, producing an income, nor are you 

 buying that which produces it ; you are simply buying incomes already 

 made or to be made independently of your purchase. You are in fact a 



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