Secan Ltd. v. Commissioner of Inland Revenue
Read the full judgment text of HCIA 3/1998 on BabelCite. This HCIA judgment was delivered on 27 November 1998.
1. Secan Limited ("Secan") was incorporated on 20th November 1987 under the Hong Kong Companies Ordinance . At all relevant times, Secan was and is ultimately beneficially owned by the following companies :-
Cited by 2 cases · Cites 1 case
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HCIA000003/1998 HCIA3&4/98 ----------------------- H E A D N O T E ----------------------- Appeal by taxpayers against the decision of Board of Review ("the Board"). Taxpayers were property developers and incurred interest in loans borrowed for the property development. The interest was capitalised, i.e. carried as part of the costs of the development. Taxpayers sought to deduct the interest when the properties were sold. The Commissioner of Inland Revenue disallowed the deduction. The Board affirmed the decision. Held
Observation on accountancy principles. IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE INLAND REVENUE APPEAL NOS. 3 AND 4 OF 1998 -------------------- HCIA3/98
AND HCIA4/98
-------------------- Coram : Hon Mr Justice Cheung in Court Dates of hearing : 16, 17 and 18 November 1998 Date of handing down judgment : 27 November 1998 ---------------------- J U D G M E N T ---------------------- The Appeal These are two appeals, by way of case stated, by two taxpayers, namely Secan Limited ("Secan") and Ranon Limited ("Ranon") against the decision of the Board of Review ("the Board"). The Board affirmed the decision of the Commissioner of Inland Revenue ("The Commissioner") which disallowed Secan and Ranon's deduction of interest paid by them in their tax computation. The Agreed Facts The issues in these two appeals are identical and the parties have concentrated on the facts in the appeal of Secan. The facts that were agreed by the parties for the Board are as follows. I have excluded from the Agreed Facts the appendices referred thereto. 1.Secan Limited ("Secan") was incorporated on 20th November 1987 under the Hong Kong Companies Ordinance. At all relevant times, Secan was and is ultimately beneficially owned by the following companies :-
At all relevant times, the nature of Secan's business, as described in its Report of Directors attached to its accounts, was "property development and investment". 2.By an agreement dated 28th January 1988 Secan acquired an interest in a substantial piece of land at Ap Lei Chau for the purposes of redevelopment. Secan's intention in respect of the redevelopment was recorded in resolutions of its directors dated 28th January, 1988. 3.The development carried out on the land was of a large housing and commercial complex known as "South Horizons" which was completed - and the occupation permit granted by phases as follows :-
Although Secan's board resolution of 28th January, 1988 referred to both development for resale of residential units and development for rental of commercial portions for long term investment, the latter only comprised a very small proportion of the overall development and in the event the only parts retained by Secan were the residential car parking and the kindergartens. The commercial area and one kindergarten were respectively sold and treated as sold in 1992, the proceeds of sale being brought into account for profits tax purposes. 4.The totality of the South Horizons development was developed for sale or sold (and liability to profits tax accepted thereon) save for the residential car parking and kindergartens referred to, which amounted in value to less than 2.3% of the development. 5.In consequence of the terms of the agreement dated 28th January, 1988 Secan was obliged to incur expenditure of HK$2,343,483,688 for the acquisition of its land at Ap Lei Chau. This was made up of payments as follows :
The above expenditure and development costs were financed by way of loans at interest from both banks and the ultimate shareholders or related companies as follows :
6.The amounts of interest payable by Secan on the loans referred to in paragraph 5 above for the periods relevant to the present dispute were as follows :
In addition to the interest referred to above loan arranging fees as follows were incurred :
The total financing costs up to 31st December 1991 were, therefore :
7.Secan approved accounts for the period from 20th November 1987 to 31st December 1988, the year to 31st December 1989 and the year to 31st December 1990 which included in the balance sheets, inter alia, the following items :
8.Included in the amounts shown as part of the cost of "Property under development" in the balance sheets were, inter alia, the following amounts of interest and financing charges :
9.The profit and loss account for the period to 31st December 1988 showed a loss for the period of $31,300 as computed in the detailed profit and loss account. In respect of the loss for the period, Note (3) to the accounts is as follows :
10.The profit and loss account for the year to 31st December 1989 showed a loss for the year of $20,270 as computed in the detailed profit and loss account. In respect of the Loss before Taxation, Note (3) to the accounts is as follows :
11.The profit and loss account for the year to 31st December 1990 showed a profit for the year of $552,564 as computed in the detailed profit and loss account. In respect of the Profit before Taxation, Note (3) to the accounts is as follows :
12.The profit / losses before taxation referred to above are derived from the detailed profit and loss accounts submitted with the tax computations. No amounts were included within those detailed profit and loss accounts for those years in respect of or representing the "Property under Development" or the cost thereof. 13.For the 1988/89 and 1989/90 years of assessment Secan, in its tax computations, showed losses of $26,300 and $20,270. For the 1990/91 year of assessment Secan, in its tax computation, showed assessable profits of $505,994 after setting-off of the losses brought forward. The receipts giving rise to this assessable profit (after the deduction of expenditure and losses) were derived mainly from interest receivable on purchasers' deposits on forward sales of uncompleted units and transfer fees in the developments. These losses and profits for the respective years were agreed by the Assessor. 14.Secan's balance sheet as at 31st December 1991 included, inter alia, the following :
In November 1991 the occupation permit in respect of the completion of part of Phase I of the development was issued. In consequence of that Secan brought into its profit and loss account the profit on that part of the completed development which had been held for sale and sold (see paragraph 15 below). As regards that part of the completed development which had not been sold, two new headings were created in the balance sheet ("fixed assets" and "properties for sale", as above) to which were transferred, from the heading "properties under development" the cost of the completed assets intended to be retained for rental (the residential carparking) (see Note (6) to the accounts) and the completed but as yet unsold property for sale - the kindergarten. The balance sheet as at 31st December 1991 indicated that the cost of Properties under development to date of the South Horizons project was $4,264,891,160 (including interest and loan arranging fees of $809,961,654) but excluding attributable cost of $866,167,886 of that part which had been sold in the year, of $6,726,111 of that part which was pending sale and of $18,670,017 which had been capitalised under fixed assets. 15.The profit and loss account for the year to 31st December 1991 showed a profit before taxation for the year of $1,066,230,873. The detailed profit and loss account for that year is set out at Schedule 2 of the tax computation. In consequence of the issuance of the occupation permit in the year in respect of a part of Phase I of the development an amount in respect of the profit on the sale thereof was brought into account as follows :
The above amount being computed as follows :
The above total figure of cost of sales (excluding selling expense) was calculated as being the appropriate proportion (for the property sold) of the total cumulative carried forward figure of the cost of properties under development. 16.The total cost of sales of $892,590,014 referred to in paragraph 15 above, taken into account in computing profit in the profit and loss account included a part of the total financing cost equal to $63,205,546. Consequently that amount was taken into account as a deduction in computing the profits recognised in the profit and loss account for the year to 31st December 1991. The cost of sales (including the amount of interest and loan arranging fees of $63,205,546 but excluding selling expense of $26,422,128) was $866,167,886. This amount had been deducted from the cumulative figure of cost for the properties under development of $5,156,455,174. That figure, together with the figures of $18,670,017 (fixed assets) and $6,726,111 (properties for sale) referred to above had been transferred out of the total figure of $5,156,455,174 in respect of properties under development. In consequence the latter (i.e. properties under development) as at 31st December 1991 stood at a figure of $4,264,891,160. Split between land and development and financing costs that figure (as at 31st December 1991) was made up as follows :
(as regards the financing costs see Schedule 6 to the 1991/92 tax computation). Included within the cost of properties for sale was a financing cost of $502,096 (2). The total of (1) and (2) above is $810,463,750. This figure together with the financing cost taken into account in computing the cost of completed flats sold in 1991 ($63,205,546) is equal to the total amount of interest and finance charges in the years 1988, 1989, 1990 and 1991 which were, respectively, as follows :
17.Prior to submitting its tax computation for the year of assessment 1991/92 Secan had made no claim for the deduction of interest whatever; nor had any amount of interest been deducted in computing the profit appearing in its profit and loss account. 18.In submitting its profits tax computation for the year of assessment 1991/92 Secan took as its starting point the figure of profit appearing in its profit and loss account ($1,066,230,873). As set out in paragraphs 15 and 16 above that figure had been arrived at by, inter alia, deducting the sum of $63,205,546 as the financing cost of the cost of sales. No other financing costs had been deducted. 19.As indicated in paragraphs 15 and 16 above the total financing cost incurred by Secan up to 31st December 1991 had been $873,669,296. 20.In its 1991/92 tax computation Secan claimed as a deduction financing expenses incurred by it to 31st December 1991 of $810,463,750. This amount together with the figure of $63,205,546 already deducted represented the total amount of interest and financing costs paid for the purposes of the development as set out above. This represented a claim for the then current year and a carry forward of the losses represented by such interest payments in the previous years. 21.The Assessor did not accept the profits as returned by Secan and on 19th October 1992 he raised on it the following assessment :
In effect the Assessor simply disallowed the whole of the claim to deduct the financing charges of $810,463,750 and the sole question in this case is Secan's right to deduct the same as financing charges payable in 1991/92 or earlier years and carried forward to be set off against the profits of 1991/92. 22.Secan objected the assessment. 23.The Commissioner rejected the said objection and determined the assessment for the year of assessment 1991/92 dated 19th October 1992 showing Net Assessable Profits of $1,063,344,435 with tax payable thereon of $175,451,831. The Agreed Issues and Decision of the Board The two issues agreed between the parties are :
Other agreements It is also agreed between the parties that :
Additional finding of fact The Board made an additional finding of fact as follows :
The Board's Reasons for Decision The Board's reasons for decision are as follows :
Case stated Secan required the Board to state a case under s.69(1) of the Ordinance on the following questions of law :
The question of law for my determination is whether in the light of the contentions of Secan as set out above, the decision of the Board pertaining to the two agreed issues is correct or incorrect. Basis of deduction The statutory basis for Secan to seek deduction of the interest and financial fees ("the interest") is pursuant to s.16(1)(a) and s.19C(4) of the Ordinance. Section 16(1)(a) provides that :
Secan seeks to deduct the interest in the periods in which the interest was payable and as Secan did not have profits in the first three years, the deduction gives rise to losses carried forward under s.19C(4) of the Ordinance which provides that :
The consequence is that the whole of the interest paid for the years ending 31st December 1988, 1989, 1990 and 1991 amounting to $873,669,296 is deducted from what would otherwise be taxable profits in the year of assessment 1991/92. The basis of deduction is not challenged by the Commissioner. Hong Kong cases on s.16 The parties referred to a number of Hong Kong cases on s.16. They do not directly touch on the issue that I have to determine but for completeness, I will set out these cases. In Commissioner of Inland Revenue v. Mutual Investment Co. Ltd. [1967] AC 587, the Privy Council held that
In Lo & Lo v. Commissioner of Inland Revenue 2 HKTC 34, the Privy Council held that under s.16, deductions are not confined to sums actually paid by the taxpayer but also where the taxpayer had an accrued liability for that sum. In Commissioner of Inland Revenue v. National Mutual Centre (HK) Ltd. [1997] HKRC 90-086 and [1988] HKRC 90-094, the Court of Appeal construed how an interest was treated as payable by the taxpayer. Accountancy treatment of interest The accountancy evidence is that interest may either be expensed or capitalised. In relation to expensing interest it means charging it to the profit and loss account in the year in which the interest incurred. The interest is deducted from the profit for that year. In relation to capitalising the interest, it means including it as part of the carrying cost of the property under development. If the interest is capitalised, it will not constitute an immediate charge in the profit and loss account but will be brought into account on the completion of the development, in computing profits therefrom by way of deduction as part of the cost of property sold. The accountancy evidence is that either of these methods of treating interest is acceptable. This is the evidence of Secan which is accepted by the Board. The Board further found that the prevalent if not the universal practice of publicly listed property companies in Hong Kong was to capitalise interest. This is because this method produces results which accord with their commercial objective. The rationale behind this is that publicly listed companies do not wish to have huge losses appearing in their financial statements because of the payment of interest when no flats have yet been sold. Was interest already deducted? The issue to be determined is whether Secan had already deducted the interest totalling $873,669,296 paid by it for the purpose of financing its developments at South Horizons in the years ending 31st December 1988, 1989, 1990 and 1991. It is clear that until the year of assessment 1991/92, Secan had not claimed deduction of the interest or actually made a deduction. This is clear from the agreed facts. However, the Commissioner of Inland Revenue stated that because of the way the interest was treated by Secan in their financial statements, the interest had already been deducted. To understand this, I will set out the Commissioner's reasoning as contained in its determination of 7th January 1994.
Commissioner's reasoning flawed The Commissioner's view is that the interest incurred each year was already included in the value of the stock in trade of Secan which had been taken into account in computing the profits / loss of Secan in each year. This is simply incorrect. For the year ending 31st December 1988, the interest paid by Secan was HK$130,607,084. In the profit and loss account for the same period, the turnover was HK$1,000 and there was an accounting loss of $31,300. The adjusted loss under s.19C(4) was HK$26,300 for the year of assessment 1988/1989. Thus, the interest paid in that year had not been taken into account in arriving at the profit / loss of that year. For the year ending 31st December 1989, the interest paid was $250,484,082. The turnover for that year was $1,000 and there was an accounting loss of $20,270. The tax loss for the year of assessment 1989/90 was also $20,270. Again the interest had not been deducted. For the year ended 31st December 1991, the interest paid was $281,827,582. The turnover was $572,229 and there was an accounting profit of $552,564. The interest was again not deducted. The loss and profits for these years were accepted by the Commissioner. Section 14 of the Ordinance provides that profits tax are charged to assessable profits. It is, of course, necessary to ascertain the profit of Secan for tax purpose. But it is clear that in the first three years the interest that was capitalised by Secan was not deducted in ascertaining the loss or profit for the purpose of tax assessment in those three years. It is demonstrated by the accountants' evidence given on behalf of Secan and Ranon. It is only in the year of assessment 1991/92 that Secan first claimed a deduction of all the interest and financial expenses. Mr Fong Hup Mr Fong Hup, the senior partner of the firm of accountants which audited the accounts of Secan stated in his evidence that :
Mr Nicholas Etches Mr Nicholas Etches, a Chartered Accountant, also confirmed that the cost of sale can be arrived at by either calculating the cost directly attributable to the items sold or deducing the amount by valuing the closing stock and attributing any decrease in the closing stock compared to the opening stock (after having taken into account costs incurred in that period) to the items sold in the period. In this case, the interest capitalised was included under the heading of "Properties under Development" in the balance sheet. When the property is sold, the interest capitalised will at that time, together with the land cost and cost of construction, be included in the cost of sale charged to the profit and loss account. He went on to explain why there was no deduction of the interest that had been capitalised.
Mr Etches also stated how, if the deduction of the interest is allowed, the matter should be dealt with to prevent a duplication of the deduction.
Mr Paul Franz Winkelmann Mr Paul Franz Winkelmann, Chartered Accountant, also confirmed what had been said by Mr Fong Hup in regard to Ranon's accounts.
Accounting practices not principles of law The accountant's evidence were not disturbed in the cross-examination. The Board in its decision had not dealt with this aspect of the evidence of these three accountants. Mr Milne, Q.C., Counsel for the Commissioner, submitted that the Board must have rejected their evidence. The question, however, is on what rational basis can such evidence be rejected. The Commissioner had certainly not called contrary evidence in this regard. The Board's conclusion that as a matter of legal analysis, the interest was already deducted in computing the true profit of Secan is simply without basis. The Commissioner seemed to have elevated the accounting practices, such as that expenditure on stock and work in progress which is unsold at the end of the year must be brought into the profit computation on some basis of valuation e.g. cost or market value or a comparison of the opening stock with the closing stock in order to determine the cost of work, to be statutory requirements or principles of law which must be observed in every case. It must be borne in mind that these practices are no more than methods used to ascertain the profits in a given year. If in the first three years there was no income receipt by Secan because the sale would only be recognized when the flats have been completed and sold, then one really cannot see the relevance of relying on such practices. After all, Secan was not computating a profit because at that time there was no sale at all. Further, if the cost of sale can be determined by another method, the accounting practice of comparing the opening and closing stocks in arriving at the same result would only be superfluous. What Lord President Clyde said in Whimster was that the profit is the difference between the receipt from the business and the expenditure laid out to earn those receipt. The example he gave of a merchant's profit and loss account of showing the value of the stock in trade at the beginning and at the end of the period entered at cost or market price was for the purpose of ascertaining the cost of sale in order to determine the profit. As Mr Fong said, provided one can identify the cost of sale, there is no need to bring in the figures of the opening and closing value of stock in the profit and loss account. It is only when sale of flat occurred, then there is a need to bring the related cost of such flats into the profit and loss account in order to determine the profit. This being the case, I just cannot see how the Commissioner can say the interest paid in the previous years had already been deducted because it was included in the stock in trade of Secan. Further, of the interest of $873,669,296 capitalised, only $63,205,546 thereof was included in the costs of sale charged to the profit and loss account in arriving at the assessable profit for the year of assessment of 1991/92. The costs of sale was attributable to those of the flats sold. As part of the costs of sale, the $63,205,546 obviously had been deducted. But the balance of the interest of $810,463,750 (i.e. $873,669,296 less $63,205,546), was still included in the value of properties under development or held for sale in the balance sheet. It was not included as the costs of sale of the flats that were sold. If s.16(1)(a) allows the deduction, then how can it be objected on the basis that it had already been deducted somehow or somewhere in the accounts? The Cases I will very briefly deal with the cases referred to by the Commissioner to see why the courts there needed to state the accounting practices. Their facts are very far removed from the ones we are dealing with. In Whimster, the taxpayers hired ships on time charter and used them either for carriage of cargo or by sub-chartering them to other party. As at 31st December, 1920, they had a number of such vessels on time charter under charter parties the currency of which did not expire until various later dates. In making up their accounts for the year 1920 they took the view that in 1921, in consequence of a depression in shipping business which had already set in, the rates payable for vessels on time charter and the amounts receivable as freights would fall very seriously, and they accordingly debited in the case of each vessel the hire payable from 31st December, 1920, to the end of the period of its charter, and credited the amount they would have had to pay if they had entered into a fresh charter at 31st December, 1920, for the unexpired period of the existing charter. It was held that the difference between these sums was not a proper deduction in computing the profits of the accounting period ended 31st December, 1920, inasmuch as it was not a loss actually incurred in that period. In Duple Motor Bodies Ltd. v. Ostime (39 TC 537), the taxpayer carried on the trade of building motor bodies and had, for a substantial period of time, used the direct cost method of ascertaining the cost of work in progress under which the cost of direct materials and labour were alone taken into account. The Revenue, however, assessed the work in progress by the on-cost method under which a proportion of indirect expenditure, i.e. factory and office expenses, etc., was added to the direct cost. The issue before the court is what was the correct method of ascertaining the cost of work in progress in order to determine the full amount of the profits or gains of the taxpayer's trade. Viscount Simonds at p.567, after referring to the Case Stated, gave the opinion that :
In Gallagher v. Jones (Inspector of Taxes) [1994] Ch.107, the taxpayer entered into commercial leasing agreements with a finance company for buying three boats. The taxpayer agreed to lease a boat for the primary period of 24 months for which the rental payments consisted of a substantial initial payment followed by 17 monthly payments and a secondary period of 21 years and an annual rent of ?5. The taxpayer charged the initial payments and five out of the 17 monthly payments against his income. The Revenue rejected the calculation and calculated the expenses on the basis of a commercial method of accounting whereby the capital expenditure was spread over the useful lives of the boats. It was held by the Court of Appeal that :
In Odeon Associated Theatres Ltd. v. Jones (H. M. Inspector of Taxes) [1971] 48 TC 257, Buckley L.J. held that :
Legal analysis of capitalising the interest The Board referred to the legal analysis of Nolan L.J. (as he then was) in Gallagher v. Jones and held that Secan's capitalisation of the interest involved the deduction of interest but credited against them of a closing figure for unsold stock and for work in progress as a notional receipt. Nolan L.J.'s legal analysis was based on what Lord Reid said in Duple Motor Bodies concerning the deduction of expenditure. Lord Reid at p.753, rejected the Crown's argument that all expenditure should be attributed to goods manufactured or partly manufactured during the year. He pointed out, relying on the Vallambrosa case, 5 T.C. 529, that expense might be deductible even though it led to no production during the year. He continued, at p.754 :
Nolan L.J. at p.136 held that :
I really do not see what Nolan L.J. said can assist the Commissioner because, in the first place, you have to ascertain whether there was a deduction. If there was none, then there clearly is no legal principle that will, nonetheless, treat Secan as having made such a deduction. Furthermore, as Mr Gardiner, Q.C., Counsel for Secan, pointed out, the effect of crediting a figure for closing stock, i.e. unsold stock and work in progress, as a notional receipt is to exclude from the account the expenses (i.e. the interest) forming part of that notional receipt. The result is that those interest which had been capitalised as part of the closing stock have not been deducted at all. Disclosure requirement Reference was made to Note 3 of Secan's accounts for the year ending 31st December 1989 (and also for the following year) which provided that :
This note is simply to comply with the disclosure requirement where interest was capitalised. This is not a statement that the interest had been expensed or deducted in calculating the profit for that year and then matched with a corresponding sum in the work in progress. Mr Milne had given a few examples of how entries should appear in the profit and loss account and balance sheet and how they would affect the bringing of a true picture of profits made by a taxpayer. I do not see how they will advance the Commissioner's case in the light of what I had said. Changing accounting basis The Commissioner also argued that having adopted the capitalisation basis, Secan is not entitled to change that basis for tax purposes. He relied on Johnson (Inspector of Taxes) v. Britannia Airways Ltd. [1994] STC 763. In that case there were three alternative basis of providing for the cost of major engine overhauls of commercial aircraft. The Revenue tried to force an airline to adjust its method for tax purposes. It was held that where accounts were prepared in accordance with accepted principles of commercial accountancy the court would be slow to accept that they were not adequate for tax purposes as a true statement of the taxpayer's profits for the relevant period. In particular, it would be slow to find that there was a judge-made rule of law which prevented accounts prepared in accordance with the ordinary principles of commercial accountancy from complying with the requirements of the tax legislation. The determination of which method should be adopted to attribute the costs of major overhauls to a period or periods of account was essentially a matter for accountancy judgment and there was no legal basis for excluding any of the possible methods. In my view, this case is of no assistance to the Commissioner. Secan is not seeking to change an acceptable accounting method because the deduction of interest is by the force of s.16(1)(a). Furthermore, Secan can only be treated to have changed its accountancy method if by capitalising the interest, deduction was already made in the computation of profits. This clearly is not the case here. Time for deduction The Commissioner submitted that when the whole of the development of South Horizons is completed, the full cost of the development which should reflect the interest capitalised will be allowed as a deduction in computing the assessable profits for that year. It is clear, however, by the operation of s.16(1)(a), this would in fact preclude the deduction of interest, because by then it would not be possible to bring the interest within its terms : it would not be incurred during the basis period for that year of assessment. Deduction but counterbalanced by notional receipt? Mr Milne also submitted that if the interest is allowed to be deducted, then there should be a counter-entry of a notional receipt representing the amount of the deduction. This submission might have been prompted by what I have said in the course of the submissions on the deduction of expenses not wholly attributable to the cost of goods sold as discussed by Lord Reid and Nolan L.J. I have not been addressed fully to whether a deduction under s.16(1)(a) is subject to what Lord Reid and Nolan L.J. said. But it seems such principle is not applicable because the effect of a contra entry is to prevent a deduction being made at all. Furthermore, if the interest was actually expensed or deducted in the first three years instead of being capitalised, there should not be a contra entry in the first place. Hence I do not consider it appropriate to adopt this approach in relation to s.16(1)(a) deduction. Arguments on the additional finding of fact There were some arguments whether the Board was entitled to make the additional finding on the agreed facts. In relation to the case of Ranon, it was agreed by the parties that the words in brackets in the additional finding, namely "(other than that matched by an equivalent contra entry for interest capitalised)", were part of the agreed facts and the Commissioner had overlooked the omission when the agreed facts for Secan were prepared. The additional facts, in my view, do not really affect the outcome of this case for the simple reason that both Secan and Ranon had not made an interest deduction until the time when the property was completed for sale. As Mr Fong explained in his evidence in the case of Secan, the interest was charged directly to or was debited directly to the work in progress account which was called the "development account". But in the case of Ranon, it was first debited or charged to an account called "interest paid" and from there before the accountants prepared the account, that amount was capitalised to work in progress. The difference was in the extra procedure adopted in accounting book-keeping in Ranon because the books of these two companies were handled by different accounting staff. In any event the amendment could not be made. Conclusion In the end I find that the Board was wrong to find the interest was already deducted or that Secan is no longer entitled to deduct the interest. The same reasoning applies to the case of Ranon as well. The four questions raised in the first part of the Case Stated are answered in the negative and I find that the Board's decision on the agreed issues is incorrect. The parties have indicated that a small proportion of the interests may in any event not be deductible because they were of capital rather than of revenue nature. I have not been fully addressed on this matter. This is something the parties have to adjust accordingly. I will further order costs nisi of the appeal to Secan and Ranon.
Representation: Mr John Gardiner, Q.C., leading Mr John Swaine Jr., inst'd by M/s Woo, Kwan, Lee & Lo, for the Appellants Mr David Milne, Q.C., leading Ms Jenny Fung, S.G.C., of Department of Justice, for the Respondent Appeal by the respondent to Court of Appeal dismissed. Please refer to CACV20/1999 dated 16 February 2000 |
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