LOUIS KWAN-NANG KWONG AND ANOTHER v. COMMISSIONER OF INLAND REVENUE

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J U D G M E N T

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Macdougall, J.A.:

1. This is an appeal from a decision of Mayo, J. upon a case stated of the Board of Review ("the Board") under section 69 of the Inland Revenue Ordinance, Cap, 112 in which he upheld the decision of the Board in favour of the Commissioner of Inland Revenue ("the Commissioner") holding that the appellant taxpayers were properly assessable to profits tax under section 14 of the Ordinance upon the rents received by them in the year of assessment 1979/80 in respect of the letting of a cinema.

2. The relevant provisions of the Ordinance are as follows:

"14. Subject to the provisions of this Ordinance, profits tax shall be charged for each year of assessment at the standard rate on every person carrying on a trade, profession or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business (excluding profits arising from the sale of capital assets) as ascertained in accordance with this Part:....".

"2(1)     In this Ordinance unless the context otherwise requires -

"business" includes agricultural undertaking poultry and pig rearing and the letting or sub-letting by any corporation to any person of any premises or portion thereof, and the sub-letting by any other person of any Premises or portion of any other held by him under a lease or tenancy other than from the Crown;"

Prior to 1965 the definition was expressed thus:

"business" includes agricultural undertaking, poultry and pig rearing and the sub-letting by any person of any premises or portion thereof rented by him,"

The following paragraphs of the stated case refer to those facts that were agreed before the Board, to those found by the Board and to other matters on which the Board made no exact findings.

"4.    The following facts were not in dispute:-

(a)     The taxpayers were assessed liable to profies tax for the year 1979/80. Their objection was determined against them so they appealed to us.

(b) In 1948 or 1949 the father of the taxpayers built a cinema (hereinafter called "the premises") and thereafter went into the business of running the same.

(c)     Their father died on the 6th June 1970 1eaving a Will in which the taxpayers were the executors. Under the said will the taxpayers also inherited the premises.

(d)     The taxpayers obtained probate on the 25th January1973 and executed a vesting assent of the premises in then own favour on the 14th March 1978.

(e)     Before that time, they ran the cinema themselves as executors, until the 1st June 1975.

(f)    On the 1st July1975 they entered into an agreement (hereinafter called "the said agreement") with an old friend of their father (hereinafter called "the tenant") who rented the premises, excluding a small portion let to the Royal Hong Kong Jockey Club and an office which the taxpayers retained for their own use in their own business.

(g)    The said agreement was for three years from 1st-June 1975 but it had been renewed from time to time thereafter although since 1st June 1982 it had been, renewed in the name of the son of the tenant.

(h)    At all times since 1967 the necessary licences were held in the name of Louis KWONG i.e. one of the two taxpayers.

5.     Although basically the said agreement was a Tenancy Agreement we consider the clauses therein most relevant to the issues before us are as follows:-

(a)    By clause 2(j)(i) the tenant was to insure the premise including all plant, equipment and furniture and fittings in the name of the landlords with insurers to be named by the landlords in the sum of at least $1,300,000.00 together with 24 months' rent, and to pay the insurance premium thereon.

(b)    By clause 3(b) the landlords Were to pay the Crown rent and property tax.

(c)    By clause 5 it was provided that 'It is hereby agreed by the Tenant that the Tenant shall use its best endeavour to maintain and service all existing plants and apparatus including the replacement of parts when necessary at the entire expense of the Tenant on the said Premises so as to ensure its smooth and effective running at all times and to comply with any by-law concerning the maintenance and servicing of such apparatus and in the case of air-conditioner and projector the Tenant shall employ such contractor or contractors to be named by the landlords and be solely responsible for all expenses incurred and to rewire the said premises as and when required by and to the satisfaction of all relevant Government Authorities in particular the Fire Department.'

(d) By clause 10 it was provided that 'Nothwithstanding anything hereinbefore contained the Tenant hereby expressly agrees that it will operate the said premises under its existing name... or under the licence name of (Louis) and that it will do its utmost to operate its business so as not to affect the goodwill of such name and not to bring such name into disrepute or whereby the licence to (Louis) to operate a cinema br affected.'

    We also considered that the provision for the rent as set out in clause I did not differentiate between the building and any of its contents. For the first 18 months the rental was to be $15,000.00 per month, for the next six months $20,000.00 per month and for the last year $25,000.00 per month. Clause 8(1) gave the tenant an option to renew for a further two years at $30,000.00 per month for the first year and $35,000.00 per month for the second. We heard evidence, which we accept, that the option was exercise and that thereafter there were three further renewals being (1) 01-06-80 to 31-05-82 at $70,000.00 per month, (2) 01-06-82 to 31-05-85 and (3) 01-6-85 to 31-05-92. We were not told the rentals for the periods in (2) and (3). The rentals which we were told about all exceeded the rateable or assessable value from time to time and to a greater or lesser degree.

6. We also found the following facts:-

(a) A the commencement of the tenancy the Tenant did work and spent money on the cinema but we did not accept the Appellants' contention that the cinema was at that time not fit for use as a cinema.

(b)     Louis KWONG received a monthly sum from the Tenant for shouldering the various responsibilities of the licence holder.

(c)    The cinema ways let as a going concern at rentals in excess of their rateable value or assessable value.

(d)    It was let on the basis that the name would continue to be used under the licence held by Louis KWONG.

(e)    The goodwill was to be protected and nothing was to be done to affect Louis KWONG's right to operate a cinema.

(f)    The rental must have included substantial (but undetermined) sum for the furniture, fittings and equipment.

7.    We made no exact findings as to how much the Tenant has spent. Evidence was given that there was no sound-proofing, the projectors worked but were in need of repair, the sound was distorted and some seats needed to be replaced. Also the Tenant gave evidence that it took about a month to put matters right including the installation of a new screen. He said he had spent about $300,000.00 in doing so but he could give no details as it was all so loon ago. His accounts submitted for the year ended 31st December l975 showed that he spent $4,589.90 on repairing the projectors, $8,038.00 for repairs to the air-conditioners, their maintenance fees, $20, 816.70 for general repairs and renewals, and $211,400.00 for decorations. Further, Louis KWONG gave evidence that he was employed by the Tenant presently at $5,000.00 per month. However, we did not think that it mattered whether or not he is strictly an employee of the Tenant.

3. In his submission to the Board, the Commissioner's representative contended that the facts were virtually identical to those in Case No. 3/81 Inland Revenue Board of Review Decisions 394. There the taxpayer, a Crown lessee, had formed a company with his wife to operate a ballroom. He leased premises to his company and when the company later ceased to exist he took over its fixed assets such as furniture, fixtures and fittings and leased the premises with fixed assets to another party. He was assessed for profits tax. On an appeal against that assessment the Board of Review held that the correct interpetation of the word "business" in section 2(1) of the Ordinance was that while any sub-letting by a person who is not a Crown lessee would automatically constitute a business, a sub-letting by a Crown lessee could and would constitute the carrying on of a business if the circumstances surrounding the sub-letting were such as to justify such a finding. The Board found that the taxpayer had leased the premises and its fixtures and fittings for operating a public dance hall together with the benefit of the licence so that the whole transaction constituted a business transaction or an adventure in the nature of a trade.

4. Although he conceded that at the commencement of tenancy agreement the tenant had expended approximately $210,000 on decorations, the Commissioner's representative had stressed before the Board that the only other expenditure of the tenant consisted of $15,000 for new furniture and equipment, some $12,000 on maintenance of the projectors and air-conditioning system and some $20,000 on genera repairs and renewals.

5. He also emphasised that after the lease was signed the cinema business had continued to operate, that the appellants had remained as owners of the premises, that one of them, Louis Kwong, had continued to hold the licence and permit without which the cinema could not be operated, and that they had retained the business name, and goodwill of "International Theatre" In short only the operation of the business had changed.

The Board arrived at the following conclusion:

"We were of the opinion that the facts here were on all fours with those in Case NO. D3/81, the only difference is that in the present case the taxpayers acquired the cinema by inheritance rather than by purchase, but we were of the opinion that the taxpayers could have and indeed may have already assented to the legacy of the cinema in their favour (i.c. by 1st July 1975) for which proposition we have cited in our decision Proud v. Janssens [1964] HKLR 863. Although we agreed we were not bound by the decision in Case No. D3/81 we could see no good reason to depart from it. We thought that Counsel for the taxpayers was probably right in his speculation as to why the definition of "business" has been changed, but we also thought that the Board of Review in Case No. D3/81 was right when they held that it could still include sub-letting by the Crown lessee if the circumstances are such as to justify such a finding. As we had found that the cinema was let as going concern at rentals in excess of the rateable or assessable value, as it was also let on the basis that the name would continue to be used under the licence held by Louis KWONG and the goodwill was to be protected and nothing was to be done to affect Louis KWONG's right to operate a cinema we must conclude that the taxpayers were in fact engaged in the business (or adventure in a nature of a trade) of letting out a cinema. We decline to apportion the rental attributable to the furniture fitting and equipment both because there was no evidence and also we could see no basis for holding that only the proportion of the rent attributable to them should be taxable."

6. The questions posed for the determination of Mayo J. were:

"1. Was the Board correct in law in holding that even after the 1965 amendment to the definition of business" in Section 2 of the Inland Revenue Ordinance, letting (as applied to a cinema building, by persons, not being a corporation) can still constitute a "business" in certain circumstances, for the purpose of the Inland Revenue Ordinance?

2.    Further or alternatively, did the Board err in law in failing to separate and estimate the proportion of the rental attributable to furniture, fittings and equipment (and/or goodwill) on the basis of such evidence as available and to hold that only that proportion should be subject to Profits Tax?

3.    Did the Board on the primary facts as agreed or found, fail to appreciate that the case of the taxpayers was different from the decision in Case NO. D3/81 which was founded on its own particular facts and, therefore err in law in holding that the Board saw no good reason to depart from the said decision?

4.    Did the Board err in law in holding that ,on the facts and evidence presented, the taxpayers' letting of the International Theatre constituted a business or trade or an adventure in the nature of trade?

7. Mr Bernacchi, who appeared for the appellant taxpayers both in this court and the court below, placed heavy reliance on a number of pre 1952 English cases in an attempt to support the contention that the appellants had done no more than lease the cinema premises to the tenant and had not engaged in the business of letting a cinema. The cases cited were Alfred Leney & Co. Ltd v. Whelan (Inspector of Taxes) [1934] 2 K.B. 511, Whelan v. Alfred Leney & Co. Ltd and Loughnan v. Marston's Dolphin Brewery Ltd. [1936] A.C. 393, Salisbury House Estate Ltd. v. Fry (Inspector of Taxes) (1931) 15 TC 266, Coman v. Governors of the Rotunda Hospital, Dublin [1921] A.C. 1 and Shop Investment Ltd. v. Sweet [1940] 1 AER 533.

8. Mayo J., however, was of the opinion that none of these cases was of any real assistance to him. He referred to the following passage from the speech of Lord Guest in Commissioners of Inland Revenue v. Hanover Agencies [1967] 681 at p.687:

"The appellant, however, submitted that in order to ascertain whether the respondents were carrying on business the terms of section 5 of the Income Tax Law must be looked at in order to see whether they were carrying on a business on the Profits of which they were taxed. This, it was said, was the proper question which arose. The scheme of the Income Tax Law as a whole must he looked at. Section 5 defines chargeable incomes. The classes of income profits or gains are respectively described as income profits or gains arising or accruing (a)(i) from any kind of property, (ii) from any trade, business, profession, employment or vocation and (b)(ii) rents, royalties, premiums and any other profits arising from property.  It was   submitted that the charge to income tax on the respondents was in respect of the rent arising from the "Bank Building". Thus, it was argued they were not carrying on business on the profits of which they were taxed, but the profits on which they were taxed arose from the rent. Counsel attempt to draw an analogy from Fry v. Salisbury Ho use Estate Ltd., This company, formed to acquire and manage a block of buildings, let out the rooms as unfurnished offices to tenants. The company also provided services at an additional charge. They were assessed under Schedule A to income tax on the gross annual value of the building. The Revenue claimed, in making an assessment under Schedule A (sic), to include the rents of the offices as part of the receipts of the trade, making allowance for tax assessed under Schedule A. This claim failed, the House of Lords holding that the assessment under Schedule A was exhaustive. There are expressions of opinion in some of the speeches that the company were not carrying on a trade, but these expressions must be taken in the context of the British Income Tax Law and particularly in the context of Schedule D. The real ratio decidendi is contained in the speech of Lord Atkin, when he says that annual income from the ownership of land can only be assessed under Schedule A and that the option of the Revenue to assess under whatever Schedule they prefer does not exist. The Schedules are mutually exclusive. In their Lordships' opinion the decision in the Salisbury House case has no hearing on the construction of the provisions of the Income Tax Law of Jamaica where there is no parallel to the division of the charge to income tax into various separate and distinct Schedules. Section 5 already referred to is an omnibus section which treats all profits and gains together whether arising from property or from a trade, business, employment or profession, or in respect of rent or emoluments, salaries or wages. These are all treated as profits or gains. These is no heading corresponding to Schedule A and there is no provision for income tax in respect of the ownership of lands and hereditaments, it is only the rent of leased property which is charged. There is in fact in Jamaica a separate property tax on the capital value of all property shown in the Valuation Roll and imposed on the person in possession of the property (Property Tax Law, c. 212). The question, therefore, reverts, to whether the respondents were carrying on a business.".

9. Mayo J. expressed, the view that the scheme of taxation in Hong Kong was entirely different from that in the United Kingdom in that the Ordinance provides for various heads of tax not one overall income tax and that the principles applicable to these heads are separate and distinct.

10. He then referred to a passage from the judgment of the Privy Council delivered by Lord Diplock in American Leaf Blending Co. Sdn. Bhd. v. Director-General of Inland Revenue [1979) A.C. 676 at p.683F to 684F, an appeal from the Federal Court of Malaysia, and to an extract from the judgment of Lord Sterndale M.R. in Inland Revenue Commissioners v. Korean Syndicate Ltd. [1921] 3 KB 258 at p.273.

11. In the former Lord Diplock expressed the view that in the case of a private individual, as distinct from a company incorporated for the purpose of making profits for its shareholders, it may well be that the mere receipt of rents from property that he owns raises no presumption that he is carrying on a business.

12. In the latter Lord Sterndale said:

"A great deal of argument was addressed to us to this effect. If in this case the Syndicate was an individual, he would not be carrying on a business and there can be no difference for this purpose between an individual and a limited company. I do not assent to either of those two propositions. I do not think would have been at all clear, if the Syndicate were an individual that he was not carrying on a business; and for this reason. You would have to see what he was doing and why he was doing it and if he was doing it under the circumstances in which the Syndicate was doing it namely trying to attain the object of acquiring a concession and turning the same to account--then I think he might very well be carrying on a business. I do not admit, either, that there can be no difference for this purpose between an individual and a company. If once you get the individual and the company spending money on exactly the same basis, then there would be no difference between them at all But the fact that the limited company comes into existence in a different way from that in which an individual comes into existence is a matter to be considered. An individual comes into existence for many purposes, or perhaps sometimes for none, whereas a limited company comes into existence for some particular purpose, and if it comes into existence for the particular purpose of carrying out a transaction by obtaining concessions and turning them to account, then that is a matter to be considered when you come to decide whether doing that is carrying on a business or not.

Mayo J. then had this to say:

"    What is clear from the facts of this case is that the transaction between the Taxpayers and the tenant amounted to more than a simple tenancy of a cinema.

    Prior to the granting of the tenancy to the tenant they ran the cinema as a business as Executors of their father. The licence for running the cinema was in Louis Kwong's name and continued to be in his name after the granting of the tenancy in 1975.

    It is clear from the convenants which the tenant was required to enter into that it was contemplated that the cinema would continue to be operated as a business.

    There was a requirement to insure the premises including 'all plant equipment and furniture and fittings' in the sum of $1.3m together with 24 months rent.

    There was also an obligation to maintain the plant and equipment and not to do anything to detrimentally affect the goodwill of the business or to bring its name into disrepute.

    These provisions were obviously intended to protect the Taxpayers interests in the cinema business.

    In my view there was ample material available to the Board for them to come to a conclusion that the letting of the cinema constituted to (sic) a business for the purposes of section 14 of the Inland Revenue Ordinance, cap. 112. I would go further and state that even if I was permitted to make a judgment of the situation myself I would have come to the same conclusion as-the Board did."

13. He then proceeded to answer questions 1 in the affirmative and questions 2, 3 and 4 in the negative.

14. In answering question 1 he expressed the view that nothing in the present definition of "business" in section 2(l) or in the original definition before it was amended to its present form in 1965 led him to the conclusion that what Lord Diplock and Lord Sterndale had said was in any way inapplicable to Hong Kong.

15. It being common ground that the taxpayers were Crown lessees, Mr Bernacchi submitted that Mayo J. was wrong in holding that the present definition of "business" did not have the effect of exempting a Crown lessee who sublets a cinema from assessment to profits tax on the rental received from that letting. Profits tax would only be payable if the tenancy agreement was shown to be a sham That had been entered into in order to mask what was really an arrangement such as a joint venture. Secondly, that even if Mayo J.s interpretation of the definition of "business" was correct, the agreed facts and those found by the Board failed to establish that the taxpayers had carried on the business of letting a cinema. It was Mr Bernacchi's contention that their activity had amounted to nothing more than the simple granting of a tenancy and that the rental so derived was not assessable to Profits tax. Thirdly, he contended that if the tenancy was more than the simple letting of a cinema, such was not relevant to the issue whether the taxpayers were carrying on a business for the purposes of section 14. If, however, contrary to that contention, the letting was relevant to that issue, it was so only to the extent of determining whether the taxpayers were liable to payment of profits tax on such portion of the rental that was attributable to the furniture, fittings and equipment or to that attributable to goodwill or to both.

16. Mr Bernacchi further contended that Mayo J was wrong in concluding that (1) the English cases on which reliance had been placed were of very little assistance in determining the issue of whether the taxpayers were carrying on the business of letting a cinema, (2) the observations of Lord Guest were equally applicable to Hong Kong and (3) for all relevant purposes the presents case was on all fours with the decision in No. D3 of 1981.

17. Like Mayo J., I am unable to gain any real assistance from the English cases cited by Mr Bernacchi. They are concerned with a different scheme of tax legislation and with profits arising from trade whereas liability to profits tax under the Ordinance arises from profits arising in or derived from a trade, profession or business. There can be no doubt that "business" is a wider concept than "trade".

In the American Leaf Blending Co. Case Lord Diplock said at page 684:

"On the other hand their Lordships do not think that the dicta to be found in some of the speeches in the Suiisbury House case [1930] A.C. 432 and in particular those of Lord Warrington of Clyffe and Lord Macmillan upon which the Federal Court relied and which suggest that the letting of land does not constitute a "trade" have any relevance to the question whether the letting of land by the company in the instant case amounted to carrying on of a "business" within the meaning of the Malaysian Income Tax Act 1967 "Business" is a wider concept than "trade"; arid in the Hanover Agencies case [1967] 1 A. C. 681 the Board uttered & a warning against seeking to apply these dicta outside the narrow context of British income tax law and in particular that of Schedule D."

18. Indeed the very fact that the legislature saw fit to add the word "business" to the words "trade" and "profession" in section 14 clearly indicates that it intended to render assessable to profits tax profits from sources other than trades and professions.

19. I am also unable to accept that the definition of "business" in section 2(1) has the effect for which Mr Bernacchi contends. This definition was amended to its present form consequent on a decision of the Full Court in Lam Woo Sham v. The Commissioner of Inland Revenue [1961] HKLR 609 the effect of which was that every sub-letting of a Crown lease by a Crown lessee automatically constituted the carrying on of a business every though the letting amounted to "no more than the passive receipt of the fruits of a landed investment". I see the amendment as nothing more than a mitigation of the extreme consequence of that decision.

20. The word "includes" in the definition clearly extends the meaning of the word business" It does not have the effect of restriction its meaning to the subject matter which it is stated to include. As Lord Selborne said in Robinson v. Barton-Eccles Local Board (1883) 8 App. Cas 798 at p.801 when considering the effect of the word "includes" in the definition of "street" in the Public Health Act 1875:

"I agree with an observation which was made in Baker v. Mayor of Portsmouth [3 Ex.D. 13] by Huddleston B., in which he said, after reading the words of the interpretation clause of the Public Health Act 1848 (11 & 12 Vict. C. 63 s.2) which was in similar terms, 'what is the meaning of "shall apply to and include," unless "street" means something more than the roadway that is to say, the street with the houses? That really seems the reasonable and proper interpretation of the word "Street". As I understand those words they mean this: The interpretation clause has said that (when there is nothing in the context to exclude it) the words shall be applicable to a mere highway, on neither side of which are houses. That is very true. But, he says, what is the use of saying it 'shall apply to and include,' unless in its natural sense (which there is nothing here to limit or restrain) it might be held not to apply to and not to include a mere highway without houses on each side? An interpretation clause of this kind is not meant to prevent the word receiving its ordinary, popular, and natural sense whenever that would be properly applicable: but to enable the word as used in the Act, when there is nothing in the context or the subject-matter to the contrary, to be applied to some things to which it would not ordinarily applicable. I look upon this portion of the interpretation clause as meaning neither more nor less than this, that the provisions contained in the Act as to streets, whether new streets or old streets, shall, unless there be something in the subject-matter and the context to the contrary be read as applicable to these different things. It is perfectly consistent with that that they should be read as applicable, and should be applied to those things to which they in their natural sense apply, and which do not require any interpretation clause to bring them in;".

21. In Nutter v. Accrington Local Board of Health (1879) 4 Q.B.D. 375 where the interpretation of the word "street" in section 2 of the Public Health Act 1848 fell for consideration, Cotton L.J. had this to say at page 384:

"It was argued that, looking to the terms of this enactment, even if the place in question were a street, it is part of a turnpike road, and therefore is not street within s.68. My pinion is the contrary. The interpretation clause is not restrictive. It does not say that the word "street" shall be confined to any highway not being a turnpike-road, but that it shall "apply to and include any highway not being a turnpike road, "&c. That is enlarging, not restricting the meaning of "street," and in my opinion, as I read these words,   the place in question is a street; that is to say, that which, independently of the Act of Parliament, in ordinary language is properly a street does not cease to be so because it is part of a turnpike road."

22. In my view the relevant part of the definition of "business" does no more than provide that the mere sub-letting by a Crown lessee of the properly which is the subject of the Crown lease does not of itself and without more come within the meaning of "business".

23. That brings me to a consideration of whether the activity in which the taxpayers engaged could properly be described as the carrying on of a business. Can it reasonably be said that this was something more than the passive receipt of rental from property in circumstances not amounting to the carrying on of a business? Mr Bernacchi accepts that a Crown lessee who sub-lets a number of cinemas could properly be described as carrying on the business of sub-letting cinemas but contends that where he merely sub-lets one cinema that inference does not fairly arise.

24. The evidence disclosed that the taxpayers, whom Mr Bernacchi accepted were the universal legatees under the will of their late father, had operated he premises as a cinema business for their own benefit. When they sub-let it to the tenant they incorporated in the tenancy agreement a clause to which the board referred in paragraph 5(d) of the case stated. Its precise terms are as follows:

"10. Notwithstanding anything hereinbefore contained the Tenant hereby expressly agrees that it will operate the said premises under its existing name i.e. International Theatre or under the licence name of Louis Kwan Nang Kwong and that it will do its utmost to operate its business so as not to affect the goodwill of such name and not to bring such name into disrepute or whereby the licence to Mr. Louis Kwan Nang Kwong to operate a cinema be affected."

25. The word "business" has a very wide meaning. Although the Privy Council in the American Leaf Blending Co. case were concerned with a company, not an individual it seems that Lord Diplock, in observing that "it may well be that the mere receipt of rents from property that he owns raises no presumption that he is carrying on a business" (emphasis added), had in mind, for example a situation where an individual sub-lets his premises while he is absent on an extended overseas trip. I do not conceive that he envisaged transactions such as that in the present case to be "the mere receipt of rents from property".

26. The taxpayers did not simply require that the premises be returned to them in good condition at the expiration of the tenancy but were concerned that the goodwill attached to the cinema and the licence to operate it would remain unaffected. In my view the Board arrived at an entirely reasonable conclusion that what was done went beyond the mere letting of premises and constituted the letting of a cinema as a going concern at rentals in excess of the rateable or assessable value. The entire transaction of letting the premises, fixtures, fittings and equipment for the application of a public cinema together with the benefit of the licence to operate it can reasonably be said to amount to a business transaction.

27. One of Mr Bernacchi's subsidiary contentions was that the Board were wrong in concluding that, save for the fact that in the present case the taxpayers acquired the cinema by inheritance rather than by purchase, the facts of the case and those of Case No. D3/81 were on all fours. He argued that the facts in Case No. D3/81 disclosed that the letting amounted to a sham and that this constituted a vital difference between that case and the present one. I am unable to agree. The Commissioner's representative in Case No. D3/81 did not contend that the taxpayer had engaged in a sham transaction nor do the findings of the Board in that case lend support to Mr Bernacchi's contention. Indeed, to succeed in cases of this kind, it is not necessary for the Commissioner to prove that the letting was a sham.

28. Mr Hinchen, who appeared on behalf of the Commissioner on this appeal, did not seek to uphold the Board's alternative finding that the taxpayers were engaged in an adventure in the nature of a trade because he contended that the meaning of "business" was wider than "trade" and it sufficed if the Commissioner succeeded in upholding the decision of the Board and the judge on the "business" issue. I agree and do not find it necessary under the circumstances to consider the question whether the Board rightly concluded that the taxpayers had engaged in an adventure in the nature of trade.

29. On the footing that it is not necessary to decide the question of adventure in the nature of trade, I am satisfied for the reasons I have given that Mayo J. correctly answered the questions posed in the case stated and that accordingly this appeal should be dismissed.

Kempster, J.A.:

30. I have had the advantage of reading in draft the judgment just delivered by Macdougall JA who relies for his conclusions on the letting of the cinema as a going concern and with the benefit of the existing licence at rentals in excess of the rateable or assessable values. The irresistible inference to be drawn from these facts is that, for the year of assessment, the appellant taxpayers were in receipt of a sum which exceeded that which the premises and fittings could by themselves have commanded by way of rent and, to the extent of that excess, represented a share of the tenant's anticipated profits. On that footing I agree that the members of the Board did not err in law when they found that the letting of International Theatre constituted a business.

31. I too would dismiss this appeal.

Clough, J.A.:

32. I too have had the advantage of reading the draft judgment of Macdougall J.A. For the reasons he has given would also dismiss this appeal.

Kempster, J.A.:

33. The appeal is dismissed and we make an order nisi for costs in the respondent's favour with liberty to either party to apply within 14 days. After the expiry of 14 days the order for costs will become absolute.