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The principle that a payment for the right to obtain trading stock is not a payment for trading stock itself, and is therefore non-deductible, has also been applied in relation to timber. In Kauri Timber Co¹, a company carried on the business of cutting, milling and selling timber. It sometimes acquired rights over bushland with standing timber, in some instances by purchasing the freehold interest in the land, and in others by purchasing the timber with the right to cut and remove it during a stated period, mostly 99 years. In almost all cases a lump sum was paid, but in a few cases there was a royalty payable per 100 feet of timber cut. No question arose as to the royalty payments, but it was contended by the respondent that the lump sums were non-deductible capital items for tax purposes. His contention was accepted in the Privy Council, which considered that under the transaction he obtained an interest in and possession of land.

In Murray², a timber merchant who purchased the standing