COMMISSIONER OF INLAND REVENUE v. HANG SENG BANK LTD.

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J U D G M E N T

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Cons, V.-P.:

1. These proceedings concern the liability of the Hang Seng Bank Limited ("The Bank") to assessment of Profits Tax under Sections 14 and 15 of the Inland Revenue Ordinance Cap. 112. They come before us by way of Case Stated direct from the Board of Review, pursuant to Section 69A of the Ordinance and the leave given by a single judge of this Court on 18th November, 1988. We are concerned with the three financial years from 1978/9 co 1980/81 and it will be convenient to set out immediately the relevant portions of the two sections -

"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:

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15. (1) For the purposes of this Ordinance, the sums described in the following paragraphs shall be deemed to be receipts arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong -

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(i) sums, not otherwise chargeable to tax under this Part, received by or accrued to a financial institution by way of interest which arises through or from the carrying on by the financial institution of its business in Hong Kong, notwithstanding that the moneys in respect of which the interest is received or accrues are made available outside Hong Kong;'"

2. The material facts may be briefly summarised as follows.

3. The Bank, which is a financial institution within the Ordinance, has for many years carried on in Hong Kong the business of a licensed bank through a network of branches within the territory. As such it received, during the years in question, deposits from its customers in both local and foreign currencies. As to the latter the Bank attempted at all times to match its investments to its liabilities, both as to the nature of the currency and to the periods involved. To this end it monitored continuously its foreign currency position and acquired or disposed of foreign currency assets as appropriate. The Bank also obtained US dollars, the currency with which we are concerned, from swap deposits with other banks and from exchange transactions.

4. Prior to 1978 the Bank had relied largely upon placing its US dollars with offshore financial institutions on fixed deposit. But from that year onwards, prompted at least in part by an amendment to Section 15, it turned to certificates of deposit. These are instruments repayable at a time certain in the future, frequently paying interest on fixed dates in the meantime. Being instruments "payable to bearer" they are freely negotiable. By 1978 recognised markets for thee instruments existed in Singapore and London, but not in Hong Kong. The practice of the Bank was to acquire certificates of deposit on one or other of the two markets, through the agency of corresponding banks in Singapore or London, and then sell likewise, usually a few days before the certificate or interest was due to mature. The general decision to buy or sell was made as part of the ordinary business of the Bank itself, but the choice as to the exact transactions by which those decisions were to be carried out was left to the personnel of the Foreign Exchange Department, who would contact brokers and review the money market information available to them from various sources, including the knowledge that the Department had itself acquired through the handling of currency transactions generally. Instructions would then be telexed accordingly. The prices at which the instruments were traded would reflect, inter alia, the amount of interest which would become payable on the certificate in due course. Payments and receipts would be effected through an appropriate account of the bank in New York.

5. The certificates of deposit owned in this way by the Bank were not remitted to Hong Kong, but retained until sale in the custody of the offshore bank. During the years in question such certificates formed a substantial part of the Bank's assets, being accepted, if covered by a prime bank guarantee to discount within 24 hours, as "first line" liquid assets within the Banking Ordinance. At the end of 1979 and again in 1980, together with a small amount of bonds bought and sold in similar fashion, but upon the New York market, certificates of deposit accounted for approximately 20% of the Bank's total current assets.

6. I should add, for the sake of completeness, that in addition to the small amount of bonds, the Bank dealt likewise in an even smaller amount of gilt edged securities, it had also placed US dollars with brokers in London to be managed for the Bank at the brokers' discretion. However the total of such business was no more than 5% of the offshore US dollar transactions and as far as the argument on Section 14 is concerned I shall refer only to certificates of deposit.

7. There is no dispute that the Bank carried on business in Hong Kong or that the profits in question, some $300 million overall, came from that business. The sole question at issue throughout has been whether those profits arose in or were derived from Hong Kong. The Commissioner of Inland Revenue thought that they did. The Board of Review took the opposite view. Nor were the Board willing to accept an alternative suggested by counsel for the Commissioner, i.e. that the profits amounted to interest earned overseas, thereby falling in within Section 15(1)(i). The questions thus posed for us, at the request of the Commissioner, are -

" (i) whether there was evidence on which we could properly arrive at our decision that the relevant profits accruing to Hang Seng did not arise in or derive from Hong Kong from a trade, profession or business carried on by Hang Song in Hong Kong and

(ii) whether money received by Hang Seng is chargeable as including sums accrued to a financial institution by way of interest within the meaning of section 15(1)(i) of the said Ordinance."

However Mr. Lindsay who has appeared for the Commissioner before us, but not below, accepts that the first question does not fully or accurately reflect his position. He suggests that the Board misdirected itself in various ways and further, that on the evidence as it was before them, the true and only reasonable conclusion would be contrary to the Board's actual determination.

8. It is perhaps wise to remind ourselves at this juncture that whether or not the profits in question arose in or were derived from Hong Kong is not necessarily a pure question of fact. Edwards v. Bairstow [1956] A.C. 14 was concerned with the income Tax Act of 1919. At p.33 Lord Radcliffe observed -

"     My Lords, I think that it is a question of law what meaning is to be given to the words of the Income Tax Act 'trade, manufacture, adventure or concern in the nature of trade' and for that matter what constitute 'profits or gains' arising from it. Here we have a statutory phrase involving a charge of tax, and it is for the courts to interpret its meaning, having regard to the context in which it occurs and to the principles which they bring to bear upon the meaning of income. But, that being said, the law does not supply a precise definition of the word 'trade': much less does it prescribe a detailed or exhaustive set of rules for application to any particular set of circumstances. In effect it lays down the limits within which it would be permissible to say that a 'trade' as interpreted by section 237 of the Act does or does not exist."

9. To assist us in setting the limits of "arising in or derived from" in our own ordinance, counsel have referred us to many authorities. Those from this territory treat the two phrases as having the same meaning and frequently use them interchangeably. Thus in Commissioner of Inland Revenue v. Hong Kong and Whampoa Dock Co. Ltd. [1959] H.K.L.R. 625 the judge at first instance was able to say -

"It is common ground that the words arise in or be derived from amount, in effect, to the same thing."

10. This was accepted in the Full Court, [1960] H.K.L.R. 106, by reference to the words of Lord Davey in Commissioners of Taxation v. Kirk [1900] A.C. 500 at 592 -

"Their Lordships attach no special meaning to the word 'derived', which they treat as synonymous with arising or accruing.''

11. Mr. Lindsay however points out that the legislation considered by their Lordships in that case provided for income "arising on accruing .... from" and derived from". He emphasizes that the preposition in each instance there is the same, namely "from", whereas in our legislation there is the contrast with "in". He also relies on the difference in the participles used, the present for "arising" and the past for "derived". I accept the subtle distinction he thereby draws between the two concepts, but its effect cannot be to enlarge the proper ambit of the words "derive from". For that we must go to the decision of the Full Court in Hong Kong and Whampoa Dock Co. Ltd.

12. Before doing so I should mention an alternative suggestion which relies on what came to be called the "extended definition" In Section 2 of the Ordinance, which provides -

"2.(1) In this Ordinance, unleas the context otherwise requires -

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'profits arising in or derived from Hong Kong' for the purposes of Part IV shall, without in any way limiting the meaning of the term, include all profits from business transacted in Hong Kong, whether directly or through an agent;"

13. The suggestion is that "profits from business transacted" carries with it a wider implication than "profits arising in or derived from". With respect I am not able to agree. In my view the definition extends Section 14 only in so far as it brings into the tax net profits made in Hong Kong by or on behalf of a person who does not carry on a trade, profession or business here.

14. As I read the leading judgment of Reece, J. in Hong Kong and Whampoa Dock Co. Ltd., in particular from pages 178 to 185, he accepted two principles to be appropriate in this respect. The first is what is commonly known as "the operations test", first propounded, in relation to a different question, by Lord Atkin in Smidth v. Greenwood [l921] 3 K.B. 583 at 593 -

"I think that the question is, Where do the operations take place from which the profits in substance arise?"

The second, which brings in the concept of "source", as has been expressly done in other Commonwealth legislation, again relies on the words of Lord Atkin, from Rhodesia Metals Ld. v. Commissioner of Taxes [1940] A.C. 774 at 789 by which approval is given to the passage -

"'Source means not a legal concept, but something which a practical man would regard as a real source of income'; 'the ascertaining of the actual source is a practical hard matter of fact.'"

15. Whether or not this Court is bound by the opinion of its predecessor, in my judgment the two principles accepted in that decision provide a sound approach to the question at issue. However they do not go far enough. They give no guidance as to how far the practical man may extend his vision when looking for the real source. Therein lies the heart of the dispute between the Commissioner and the Bank in the present instance. The Commissioner contends for a broad view, taking into account any and all of the Bank's activities in Hong Kong which might have some reference to the profit eventually made offshore. If I understand the submissions correctly these activaties would fall under the following heads -

1. The Bank's capital assets in the form of buildings, equipment, staff and goodwill,

2. Its managerial and policy making machinery;

3. The means by which it acquired US dollars;

4. The Foreign Exchange Department;

5. The means by which the decisions of that Department were put into effect; and

6. The documentation of the Bank's activities in this respect.

16. The Bank on the other hand would confine the practical man's eyes to the purchase and resale of the certificates alone.

17. The issue between the parties can alternatively be put in this way: Were the profits in question derived, as Mr. Lindsay puts it, from the "putting out at a higher rate of interest the sums of money which have been attracted by the Bank at a lower rate of interest in the course of its operation as a bank in Hong Kong"?, or were they, as Mr. Pinson who appears for the Bank suggests, simply the price received from the sale of the certificates less the cost of purchase and appropriate expenses.

18. I may say at once, (as I think Mr. Lindsay in effect eventually conceded) that if the approach of the Bank be wrong, I still cannot accept the alternative of the Commissioner to the extent to which it has been put. In substance, I think, it must be limited to the gathering in of the funds in Hong Kong. The decision of the Privy Council in Commissioner of Income Tax (Bombay) v. Chunila1 Mehta (1938) I.T.R. 521 shows that nothing turns on the location of where decisions are taken or instructions issued, and the other heads of activity are relevant only in so far as they may be part and parcel of the fund gathering system.

19. None of the authorities to which we have been referred have direct application to the peculiar field of business in which we now find ourselves. Different approaches too have been adopted in different circumstances. Thus in Kirk, where a company mined and processed mineral ore in New South Wales, but made sales and received the purchase moneys elsewhere, the company was held to have made some of its profits in New South Wales. Lord Davey giving the advice of the Privy Council, at page 593 warned against being too shortsighted-

"     The fallacy of the judgment of the Supreme Court in this and in Tindal's Case is in leading out of sight the initial stages, and fastening their attention exclusively on the final stage in the production of the income."

20. On the other hand, where a different kind of business was involved, that of selling on commission in London goods shipped from New Zealand (Lovell & Christmas Ltd. v. Commissioner of Taxes.(N.Z.) 1907 A.C. 46, it was observed, at p.52 -

''     But the decisions do not seem to furnish authority for going further back, for the purpose of taxation, than the business from which profits are directly derived, and the contracts which formed the essence of that business."

21. I have to say that at first, and for a long time, I was attracted by the argument for the Bank. I felt that it was not right to equate a bank with an industrial undertaking which acquires raw material to process into a finished article for sale in the open market. Money is not raw material in that sense, nor is it processed into a finished article. It is used in its own right to purchase property, being recovered again, hopefully in a larger amount, when the property is subsequently sold. Or to put it another way, the responsibility for the profit made lies in the buying and selling of the Certificates, not in the original acquisition of the money. The buying and selling could not, of course take place, without it, but it is a factor which in other branches of the law would be considered as a causa sine qua non rather than a causa causans.

22. Since then I have had the advantage of reading in draft the judgment which my Lord Clough J.A. is about to hand down. I have respectfully to acknowledge the strength of his analysis of the situation and have eventually felt bound to accept that on balance the better view is that the Board of Review were wrong to ignore completely the acquisition of funds in Hong Kong. To be fair to the Board no argument was addressed to them limited to that one aspect of the Bank's activities here. As I see it now the position in Hong Kong can be likened, in physical terms, to the damming of a river to form a reservoir for the production of hydro-electric power. If the practical man were then asked where was the electricity derived from, he would include, albeit to a limited extent, the upstream waters.

23. The hypothetical answer foreshadows the next question, for Hong Kong legislation makes no provision for the geographical apportionment of profit. The Board of Review is required to ascribe to it only one location. In Hong Kong and Whampoa Dock Co Lud. at p.193/4 Reece J. approved the suggestion of Dickson J. in Hillsdon Watts Ltd. that in that circumstance, i.e. where the profit is derived from more than one location, "the locality where it arises must be determined by considerations which fasten upon the acts more immediately responsible for the receipt of the profit". (There was much argument before us as to whether "immediately" was intended to refer to time or space.) My Lord Clough will prefer a need to identify "a dominant factor or factors'". It seems to me that both expressions contemplate the same underlying concept, which is equally to be found in Lord Atkin's use of the words "in substance" in Smidth v. Greenwood.

24. Once that is accepted there can, in my mind, be no other conclusion than that the profits in the present instance were derived from Singapore or London as the case may be. That is where, financially speaking, the real action took place, where the money was put to work. If I might be allowed to return to the analogy I ventured to draw earlier and imagine that by some means the water that had been collected in bulk behind the Hong Kong dam were transported to a reservoir somewhere else, that somewhere else would, I am sure, be where the practical man would say that the electricity was in substance derived from. I am satisfied therefore that although the Board of Review may have failed to take into account one relevant consideration, they came in the end to the correct conclusion.

25. I have come to this decision on the assumption that the profits did in fact come from the sale and purchase of certificates of deposit in offshore markets, as was assumed and eventually found by the Board below. That assumption was not challenged there, indeed counsel for the Commissioner made his submissions expressly upon it. It is suggested now however that the assumption was incorrect, at least to some extent.

26. In a close analysis of the documents put before the Board to illustrate a "typical" transaction, Mr. Lindsay asks us to note that, although the Bank refers to the initial transaction in terms of purchase, the three million dollar certificate in question was not in fact purchased, but issued by the Manufacturers Hanover Trust Company, the Bank's agent in New York, in their own right. Whether that is a matter of significance is perhaps open to doubt, for I would have thought that it was the nature of what was obtained, i.e. a negotiable instrument, rather than from whom it was obtained, that was important. Then again our attention is drawn to the closing note from Manufacturer Hanover Trust Company which begins "We have withdrawn from your account the following securities which have matured ..... value 14th May 1980". This is clearly a mistake, for the body of the document refers to the certificate's being "payable to bearer on 16th May 1900". Yet we are asked to draw from these documents the inference that the transactions were truly no more than loans for a fixed period, but which could be and were, called in early in reliance upon the special provision for repurchase at 24 hours' notice.

27. Mr. Lindsay very properly advised Mr. Pinson before the hearing that he intended to take this point and Mr. Pinson has raised no objection, other than to observe that had it been raised below, other evidence might well have been adduced. That is likely, for it is primarily a question of fact. That being so I cannot see how this Court can cope with it. Our jurisdiction, under Section 69 of the Ordinance, is to "hear and determine any question of law". We may, in accordance with our decision, "confirm, reduce, increase or annul the assessment determined by the Board". We may also, as we are reminded, remit the case to the Board with our opinion thereon, but that opinion would have to relate to a question of law. We have no power to remit for the Board to reconsider their findings on the facts. We have to take these as the Board has found them. We may only interfere if the findings are not justified by the evidence.

28. The Bank called three witnesses before the Board: a Director and Deputy General Manager, and two Accountants from the Foreign Exchange Department. Although at times two of he witnesses spoke of "investing" in the certificates of deposit and on one occasion of "moneys placed into certificates", all spoke generally of "buying and selling" the certificates, and on an offshore market. This was accepted when they were cross-examined. The only evidence inconsistent with that position are the matters now raised by Mr. Lindsay. These were not drawn to the attention of the Board and in all the circumstances I am satisfied that the Board were fully justified in assuming the position to be in this respect as they eventually found it. For my part I am prepared to go no further.

29. The submission with regard to Section 15 (1) turns also on the wording of the documents. Thus she telex from Salomon Brothers in New York, dated I June 1979, confirming the purchase for the Bank of Australia 8? bonds for settlement 8th June records the price as follows:-

30. The bonds were sold as at the 15th June by Wood Gundy Ltd. in London. Their telex records the price as:

31. A confirmatory note, presumably despatched by post the same day, makes the same distinction.

32. The wording on the sale note from Manufacturers Hanover Trust Company, referring to the certificates of deposit which I have already mentioned, were simply -

"Principal plus interest totalling 3,215,601,20 oredited to your account with our New York Office, ."

It is submitted that in the circumstances, where the amounts paid have been calculated by reference to both time and an identified principal, have been specifically referred to as interest, and in one instance at least have been paid by a party obliged to pay interest, the payments are sufficiently within the nature of interest to be caught by the phrase "by way of interest" that is used in paragraph (i) of the subsection. Those words are said to give a degree of latitude which would not be found, for example, in the phrase "as interest". Support for the suggestion is looked for in the dictum of Evershed M.R. in Potts' Executors v. Inland Revenue Commissioners [1949] 2 K.B. 706 at 715 -

"Though I think the expression 'by way of' may in some contexts involve a somewhat wider meaning than the single word 'as', I am prepared to assume that in the present case no material significance can be attached to them."

His Lordship did not give any example of what those contexts might be. I am not persuaded that this is one of them. The purchase moneys either included interest or they did not.

33. In my view the latter is the correct opinion. Authority for it is to be found in Wigmore v. Thomas Summerson & Sons Ltd. (1926) 1 K.B. 131 where a similar contention to the present was rejected by Rowlatt J., who said, at page 143 -

"The truth is that the seller does not receive 'interest' from the buyer, and it is interest which is the subject matter of the taxation. He receives the price of the expectancy of interest, and that is not the subject matter of the taxation. The whole contention on behalf of the Crown depends upon the fallacy that the price of the expectation of interest is interest."

34. Page v. Commissioner of Inland Revenue (1938) 21 Tax Cases 677, is to the same effect.

35. It may well be that in the case of the bonds the purchase and sale prices included a factor representing exactly the amount of interest which had "acerued" since the last payment of interest, (which, we are told, is the explanation of the entries) and that the sale price of the certificate of deposit reflected similar interest in some way or another. But that cannot alter the true nature of the transaction, which remains, and remains only, the sale and purchase of an expectancy. In my judgment no part of the Bank's profits on these transactions is taxable within the subsection.

36. For these reasons, I would dismiss the appeal.

Clough, J.A.:

37. I gratefully adopt all that has been said by Cons V.-P. regarding the relevant facts and agree with his conclusions on the issue raised under section 15(1)(i) of the Inland Revenue Ordinance (Cap. 112), including the belated attempt by the Commissioner to question the true nature of Fank's transactions in certificates of deposit and bonds.

38. Accordingly I will deal only with the issue arising under section 14 of the Ordinance and give my reasons for coming to the same conclusion as Cons V.-P. on that issue.

39. I respectiully agree with Cons V.-P. that the definition in section 2 of the Ordinance of "profits arising in or derived from Hong Kong" does not widen the meaning of that expression in any sense material to the facts of the present case. I also accept Mr Lindsay's contention, which Mr Pinson did not contest, that "derived from" is not synonymous with "arising in" and that the former expression has a broader meaning importing the concept of immediate or mediate origin or source.

40. Section 14 of the Ordinance seems to contemplate that a person who carries on business in Hong Kong may conduct business operations which give rise to either (1) assessable profits which arise in or are derived from Hong Kong or (2) profits which are not assessable for tax purposes because they do not arise in or are not derived from Hong Kong. Indeed the section seems to permit a person, in appropriate circumstances, to conduct a business in Hong Kong but to confine his profit making business operations to those in category (2) which are not taxable.

41. In the present case it was common ground that the Bank was a financial institution within the terms of paragraph (a) of the definition of that term in section 2(1) of the Ordinance and that the Bank carried on business in Hong Kong for the purposes of section 14 of the Ordinance. The issue between the Commissioner and the Bank was whether the relevant profits were derived from Hong Kong. It was never seriously contended that the profits in question were profits arising in Hong Kong.

42. Profits tax is levied under Part IV of the Ordinance on "assessable profits" which are made chargeable by section 14 and defined in section 2(1) as meaning "the profits in respect of which a person is chargeable to tax for the basis period for any year of assessment, calculated in accordance with the provisions of Part IV".

43. Section 15 contains provisions specifying various sums which, when received, are to be deemed to be receipts arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong. Some of these provisions are designed to catch specified receipts only if not otherwise chargeable. Such a case is to be found in section 15(1)(1) which would undoubtedly make the Bank's relevant profits taxable to-day if not otherwise chargeable, but that provision was not introduced at the material time and it is not relevant to the present consideration of the application of section 14.

44. The remainder of the provisions of Part IV are concerned with the machinery of assessment of profits tax and the treatment of losses. Section 16 contains the following provisions which are of particular relevance to the Bank as a financial institution:

"16. (1) In ascertaining the profits in respect of which a person is chargeable to tax under this Part for any year of assessment there shall be deducted all outgoings and expenses to the extent to which they are incurred during the basis period for that year of assessment by such person in the production of profits in respect of which he is chargeable to tax under this Part for any period, including-

(a) Where the conditions set out in subsection (2) are satisfied, sums payable by such person by way of interest upon any money borrowed by him for the purpose of producing such profits, and sums payable by such person by way of legal fees, procuration fees, stamp duties and other expenses in connexion with such borrowing;

(2) The conditions referred to in subsection(1)(a) are that -

(a) the money has been borrowed by a financial institution;"

45. Whether or not the relevant profits of the Bank are chargeable under section 14 as being profits of its business in Hong Kong derived from Hong Kong is in one sense a question of fact. As Cons V.-P. has indicated, by reference to the dictum of Lord Radcliffe in Edwards v. Fairstow [1956] AC 14 (B.L.) at p. 33, it is not necessarily a pure question of fact because the law must rule whether any given set of facts can or cannot amount to the making by a bank of profit arising in or derived from Hong Kong from its business. The role of the Board in deciding that question has to be exercised within those limits. Lord Radcliffe again stated the position clearly (in relation to the question whether for the purposes of Schedule D, paragraph 1(a)(iii) of the Income Tax Act 1918 a trade was being exercised by a company in the United Kingdom) in Firestone Tyre and Rubber Co. Ltd. v. Lewellin [1957] 1 WLR 464 (B.L.) when be observed at p.470:

"The question whether a trade has been exercised within the United Kingdom is a question of fact in this sense, that, although the law must rule whether any given set of facts can amount to such an exercise or cannot but amount to such an exercise, it is for the Special Commissioners, within those limits, to decide in the particular case before them whether a trade has or has not been so exercised. That done, there remains only the question whether they made any error of law in the decision that they came to."

46. In the course of argument various tests were advocated as appropriate for determining whether the profits in question arose in or were derived from Hong Kong. I can see no objection to a broad practical "operations" test being applied was done in the cases cited by Cons V.-P. in his judgment. However, I emphasise that the words "arising in or derived from" are ordinary unambiguous words. It is those words which constitute the law to be construed and applied and they are not to be superseded by judicial statements as to the construction and intention of the Ordinance or other similar enactments: see Ogden Industries Pty Ltd. v. Lucas [1970] AC 113 (H.I.) per Lord Upjohn at p.127F.

47. For my part, whilst I an mindful of the fact that it was a decision on wholly different facts and on differently worded legislation, I have derived considerable assistance from the approach of the Privy Council when considering questions of source and derivation as a matter of statutory interpretation and application in Commissioners of Taxation v. Kirk [1900] (P.C.). The Board was there concerned with the question whether two companies incorporated in and having their head offices in Victoria respectively had any income in 1897 within the meaning and operation of the relevant New South Wales taxation legislation.

48. The relevant legislation provided machinery for apportionment where income of the taxprayer was derived from more than one source and not every such source was in New South Wales. The Board was not therefore required to determine any one source or derivation of the whole income of the companies. The two companies carried on mining business on land leased from the Crown in New South Wales. Most of the crude ore was processed in New South Wales. The processed ore was sold in Victoria (Melbourne), Europe or London. Both companies had made large net profits from their business operations. The material provisions which the Board had to consider were contained in the Land and Income Tax Assessment Act of 1895. Under section 15 income tax was chardged in respect of annual income -

"(1) Arising or accruing to any person wheresoever residing from any profession, trade, employment or vocation carried on in New South Wales, whether the same be carried on by such person or on his behalf wholly or in part by any other person.

(3) Derived from lands of the Grown held under lease or licence issued by or on behalf of the Crown

(4) Arising or accruing to any person wheresoever residing from any bind of property except from land subject to land tax as hereinafter specifically excepted, or from any other source whatsoever in New South Wales not included in the preceding sub-sections."

49. The following provisions were also set out in the advice of the Board delivered by Lord Lavey:

"Sect. 27. - (3) No tax shall be payable in respect of income earned outside the Colony of New South Wales.

"Sect. 28. From the taxable amount so ascertained as aforesaid every taxpayer shall be entitled to deductions in respect of the annual amount of (inter alia):

"(1) Losses, outgoings, including interest and expenses actually incurred in New South Wales by the taxpayer in the production of his income."

"(5) Notwithstanding the limitation in sub-s. 1 hereof the Commissioners shall in cases where it may seem to then just allow losses, outgoings, and expenses even if incurred beyond the Colony."

50. Having set out the relevant facts and taxing provisions and excluded the irrelevancies Lore Davey observed:

"The real question, therefore, seems to be whether any part of these profits were earned or (to use another word also used it the Act) produced in the Colony. This is a question of fact."

Here Lord Davey was identifying the substance of the matter by reference to the language of sections 27(3) and 28(1) of the Act. The next stage in the reasoning of the Board was to identify the processes which gave rise to the income in question and to determine whether any of them had a New South Wales location. Lord Davey observed:

"It appears to their Lordships that there are four processes in the earning or production of this income - (1) the extraction of the ore from the soil; (2) the conversion of the crude ore into a merchantable product, which is a manufacturing process; (3) the sale of the merchantable product; (4) the receipt of the moneys arising from the sale. All these processes are necessary stages which terminate in money, and the income is the money resulting less the expenses attendant on all the stages. The first process seems to their Lordships clearly within sub-s.3 and the second or manufacturing process, if not within the meaning of "trade"in sub-s. 1, is certainly included in the words so far as relates to these two processes, therefore, their Lordships think that the income was earned and arising and accruing in New South Wales."

The Board was here identifying the business operations, in the sense of activities and transactions which were the "necessary stages which terminate in money". They regarded the income of the companies as "the money resulting less the expenses attendant on all the stages". The sale of the merchantable ore and the receipt of the sale proceeds were each regarded as being parts of the process of earning or production as much as the extraction of the ore and the manufacturing process required to make it merchantable.

51. In coming to their decision the Board overruled the earlier decision of the Supreme Court in In re Tindal 18 N.S.W.L.R. 378. Lord Davey commented:

"The question in that case, as here, should have been what income was arising or accruing to Tindal from the business operations carried on by him in the Colony."

It seems to me, therefore, that the true origin of the "operations" test is to be found in the Kirk case and that, properly understood, the case provides guidance on the correct approach to the derivation issue that is before this court. The fact that the Kirk case was concerned with the mining, processing and sale of ore does not, in my opinion, render the approach inappropriate to the present case where this court is concerned with the derivation of the net profit of a bank's business operations.

52. In particular the Kirk case emphasises the fallacy of leaving out of sight the intial stages "in the production of income" and fastening attention exclusively on the final stage. The case also indicates that it is not of much value when considering a "source" or "derivation" issue of the kind which arose in that case, to have regard to the line of Schedule D cases (which begins with Sulley v. Attorney-General (1860) 5 B. & N. 711 and Grainger & Son v. Cough [1896] AC 325 and includes Smidth v. Greenwood [1921] 3 KP 583 (C.A.) and Hirestone Tyre and Rubber Co. Ltd. v. Levellin [1957] 1 WLR 464 (B.L.)) where the question was whether the person sought to be charged with English income tax was exercising a trade in the United Kingdom within the meaning of the English Income Tax Acts.

53. Endeavouring to approach this case in the same way as the Board approached the Kirk case but bearing in mind that the Ordinance makes no provision for appontionment in a "multi-source" situation, it seems to me that it is not possible to ignore the fact that the Commissioner is seeking to tax the net profits of a banking business. But in very simple terms the business of a bank is to acquire funds at one rate of interest or cost and to invest or apply those funds at a higher rate of interest or in such other manner as to produce a profit. This is clearly recognised in section 16(1)(a) and (2) which contemplate that a financial institution does borrow money at interest "for the purpose of producing .... Profits". The interest liability of a bank on borrowed money is therefore a permitted deduction together with other outgoings and expenses which are deductible under section 16(1) as having been incurred by it during the period of assessment "in the production of profits in respect of which" it "is chargeable to tax" under Part IV.

54. The findings of the Board confirm that the Bank's investments in certificates of deposit, bonds and gilt-edged securities were an integral part of the Bank's business. The Board found (it was never in issue), as Cons V.-P. has indicated, that the Bank acquired working funds from its general banking activities in Hong Kong, including customer's dopesits, "swap deposits" with other banks and exchange transactions. The policy of the Bank was to match its commitments and obligations in foreign currencies, both regarding currency and period. When preparing its accounts for tax purposes the Bank purported to apportion the cost of its funds pursuant to rule 2A of the Inland Revenue Rules as between its Hong Kong and offshore profits respectively. The Board found that the Procedure adopted (in the understandable absence of any accounts of the actual cost of the funds invested offshore) was to use averages and percentages without differentiating between offshore and Hong Kong funds.

55. Having regard to the manner in which the Bank conducted its business operations involving the raising of working funds and investment of part of those funds offshore, it seems to me to be indisputable from the primary facts found by the Board (and to have been implicit from the Board's findings) that the purpose of raising the relevant part of the Bank's funds which were invested offshore during the relevant period must have been to produce the profit which was achieved by that investment.

56. In my opinion the business operations which were required to raise or purchase the relevant funds were the initial and a necessary stage in the process which eventually produced a sum of money in the form of the proceeds of sale of the certificates of deposit, bonds and gilt-edged securities. The net profit that arose was the amount of the proceeds of sale of the various instruments less the expenses incurred at all stages. It is this net profit which is assessable and chargeable under section 14 of the Ordinance if it is to be given a Hong Kong derivation. It seems to me that it would be unrealistic in the circumstances to deduct the relevant expenses incurred in the acquisition of the funds which ultimately produced the final offshore proceeds of sale for the purposes of calculating the net profit achieved but to ignore the acquisitions and their purpose when looking for the derivation of the net profit.

57. Mr. Pinson sought to persuade us that the correct approach was to examine the Bank's profit and loss accounts on the income side and notionally delete any income which had arisen from offshore business. Having isolated the offshore income, the next stage was to comply with rule 2A of the Inland Revenue Rules and identify the expenses attributable to such income, because those expenses were not deductible when assessing the taxable Hong Kong income of the Bank. He contended that this was the course taken by the Bank which had apportioned 6.8 per cent of the entire cost of the funds to the offshore income.

58. Mr. Pinson contended that it was clear from the Ordinance itself that it was necessary to look first at the income before determining (after deduction of attributable expenses) the assessable profits which are chargeable under section 14. He went on the submit that when applying section 14 it was required to go first to the source of the income, ascertain where it arose, and then deduct the attributable expenses.

59. I am unable to accept this argument because it seems to me that, as Mr. Lindsay contended, the tax chargeable under section 14 is a tax on net profit and not on "income". Moreover, for the reasons given above, I consider that all the costs of producing a sum of money, which includes profit, and the business operations by which those costs are incurred are relevant considerations when determining the derivation of that sum and the profit it includes.

60. In this connection I consider, with respect, that the Board made a mistake of law when determining the nature of the income which the Commissioner sought to tax. The Board found that:

"The income which is the subject of this appeal is the net difference between the price which the Appellant paid for certificates of deposit, bonds and gilt-edged securities and the price which the Appellant received when the same were sold. This form of income can only be described as trading income. It is the profit which arose on the resale of assets which had been previously purchased with a view to such resale."

61. Assuming that this finding is intended to refer to "profit" when referring to "income" it is consistent with a subsequent passage in the Board's Decision where it had this to say :

"     The moneys used by Bang (sic) in purchasing certificates of deposit, bonds and gilt-edged securities came from its customers in Hong Kong but this does not mean that profits arising from the overseas investment of those moneys must likewise derive from Hong Kong.

    The source of the income which the Commissioner has sought to tax is not the source of the funds invested by the Bank but the activities of the Bank and the property of the Bank from which the profits arose.

    The moneys received by the Bank from its customers were converted into totally different property namely Certificates of Deposit, bonds and gilt-edged securities.

    The activities of the Bank from which the income arose was the buying and selling of this property in overseas market places and not the decision making process in Hong Kong or any other activities in Hong Kong.

    Likewise the income arose from the trading in property situate outside of Hong Kong and not the moneys of customers situate in Hong Kong."

62. The combined effect of the two passages cited above is that the Board ignored the business operations (and their cost) entered into by the Bank for the purpose of providing funds to be invested offshore with a view to making an ultimate profit when the investments were re-sold. With respect this seems to me to be not only unrealistic (since the Bank itself attributed a rateable part of the overall cost of its working funds to the funds invested offshore) but erroneous in law because, for the reasons given above, I consider that the Board failed to bring into consideration a necessary stage in the Bank's profit making process.

63. For my part I am unable to derive any real assistance on this issue from the decision of the Privy Council in Lovell & Christmas Ltd. v. Commissioner of Taxes (M.2.) [1907] AC 46. Although the Board was there considering a broadly similar taxing provision which imposed a tax upon income derived from business, and derived from New Zealand the issue arising on the facts of the case was stated at page 51 by Sir Arthur Wilson to be :

"Whether the business from which the profits have been derived is a business carried on in New Zealand, in such a sense as to bring the profits within the scope of the New Zealand taxing Act."

64. So stated the question has a marked similarity to the question that arose in the English "Schedule D" cases such as Grainger v. Gough [1896] AC 325 (H.L.) which the Board considered to be in point in the circumstances. The dictum of Sir Arthur Wilson at pp. 51-52 seems to have indicated that it was only where the business in question ordinarily consists in making certain classes of contracts which form the essence of the business that the place where those contracts were made was to be regarded as the locality from which the income was derived. In the present case, (as in the Kirk case) where it is common ground that the Bank carries on a profit making business in Hong Kong, I cannot derive assistance from Grainger v. Gough or from its application in the Lovell & Christmas case.

65. Furthermore, I apprehend that the latter case was not applied in Liquidator, Rhodesia Metals Ltd. v. Commissioner of Taxes [1940] AC 774 (H.C.) because it was distinguished as being one of a line of commodity trading cases which established no general rule but in which the place of business and the place where the contracts of purchase and sale were made were treated as conclusive: see the dicta of Lord Atkin at pp. 788 and 790.

66. Starke J. seems to me to have expressed the same view when he observed as follows in Mount Morgan Gold Mining Company Limited v. Commissioner of Income Tax (Queensland) (1922-3)33 Q.L.R. 76 at p. 110:

"The income must, as I understand the cases, arise or accrue directly from the operations carried on in Queensland. But the Acts do not contemplate going further back for the purpose of taxation than the locality of the business operations from which profits are directly derived. If contracts from "the essence of the business" (Lovell's Case [1968] AC at p. 51), then, for the purpose of determining the locality from which the income is derived, you look no further back than the place where the contracts are made. But, as was pointed out in substance by my brother Isaacs in Meeks' Case (1915) 19 Q.L.R. at p. 588, if the essence of the business is a "whole set of operations" from production to realistion, then the place where one operation is performed - be it the extraction of ore from the earth or the making of a contract - cannot be fastened upon as the locality from which the whole income is derived. All these operations "are necessary stages which terminate in money, and the income is the money resulting less the expenses attendant on all the stages" (Kirk's Case [1900] AC, at p. 592).

67. It is relatively common for profit or income to be decrived from more than one source or originating cause. This was recognised in Q.L.R. v. Lever Brothers & Unilever Limited. [1946] SATC1 where at page 8 Watermeyer C.J. olserved regarding the originating cause of the receipt of income :

"....this originating cause is the work which the taxpayer does to earn them, the quid pro quo which he gives in return for which he received them. The work which he does may be a business which he carries on, or an enterprise which he undertakes, or an activity in which he engages and it may take the form of personal exertion, mental or physical, or it may take the form of employment of capital either by using it to earn income or by letting its use to someone else. Often the work is some combination of these".

At page 10, before citing Kirk as an example, the Chief Justice said :

"Turning now to the problem of locating a source of income, it is obvious that a taxpayer's activities, which are the originating cause of a particular receipt, need not all occur in the same place and may even occur in different countries, and consequently, after the activities which are the source of the particular 'gross income' have been identified the problem of locating them may present considerable difficulties, and it may be necessary to come to the conclusion that the "source" of a particular receipt is located partly in one country and partly in another. See remarks of Lord Atkin in Rhodesia Metals, Ltd. (in Liquidation) v. Commissioner of Taxes (1946, A.I. 432, at p. 436) Such a state of affairs may lead to the conclusion that the whole of a receipt, or part of it, or none of it is taxable as income from a source within the Union, according to the particular circumstances of the case, but I am not aware of any decision which has laid down clearly what would be the governing consideration in such a case".

68. In my judgment this case is a "multi-source" case and the Board made an error of law in ignoring the fund raising husiness operations of the Bank in Hong Kong when determining the derivation of the profits which actually arose when the investments were sold outside Hong Kong. If there were provision in the Ordinance for apportionment that would be the end of the matter, as in Kirk. In the absence of such provision the profit has to be put on one side of the line or the other. However it does not follow that the Board's failure to give any weight to the Bank's Hong Kong business operations is necessarily fatal to the Board's determination of the derivation issue in this case.

69. Whilst it is not permitted to ignore any factor material to the derivation issue, it seems to me that in a "multi-source" situation, in the absence of provision for apportionment it is necessary to identily a dominant factor or factors which put the profits on one side of the line or the other. Alternatively it may be that in appropriate circumstances part of the ultimate profits may be identifiable at any particular stage of the business operations albeit in an unrealised form. This was recognised in the following dictum of Dixon J. in Commissioner of Taxation (N.S.W.) v. Billsdon Watts Ltd. [1936] 57 CLR 36 at page 51 :

"In the absence of such a provision, when a single profit is recovered as a result of operations which extend beyond the political boundary of the taxing State, the profit must be considered as arising on one side of the boundary rather than another. If it is possible to ascertain how much of the profit is obtained although in an unrealized form at successive stages of the operations, the sum realized may be sedissected and parate parts of it attributed accordingly, the sum realized may be dissected and separate parts of it attributed accordingly to the places where the respective stages of the operations are completed. If this cannot be done and the total profit recovered is an inseparable whole obtained as the indiscriminate result of the entirety of the operations, the locality where it arises must be determined by considerations which fasten upon the acts more immediately responsible for the receipt of the profit (See Commissioner of Taxation (W.A.) v. D. & W. Murray Ltd. ((1929) 42 OII 332); Federal Commissioner of Taxation v. W. Angliss & Co. Pty. Ltd. ((1931) 46 CIR 417)".

70. On the facts of the present case it seems to me that it is not possible to attribute any quantified or quantifiable part of the ultimate profits realized by the Bank to any Hong Kong business operations. The fund raising operations produced no actual unrealized profits, they only produced the funds for investment at a cost in interest and otherwise which was material to whether ultimate profits would be achieved when the offshore investments were sold.

71. The Commissioner relied before the Board on no less than twelve operations of the Bank from which it was submitted on his behalf that the relevant profits were derived. They were as follows :

"1. the providing of the whole business of the Bank including the building, its contents like computers, telexes and other plant and equipment, its staff and its capital including its goodwill. Without these no money would be available for investment overseas. (The word 'investment' is used in a non-technical, general sense throughout. Money is a bank's stock in trade however it may be described by the bank in its accounts,  'investing' by a bank is its 'trading activity.' These might be regarded as the provisions of 'things' which have to be used in order that the Bank may operate at all.)

3. the provision of a management and Board of Directors which act or operate in order to make decisions about the overall trading policies of the Bank, the distributior of its funds, its inter-bank relationships, assessment about where and when to place its funds and the provision of legal and economic advice about these matters in general.

4. the provision of a credit assessment panel and/or 'investment' managers, who select 'investments', assess the balance of the portfolio, projected needs of funds etc. Which lead up to a decisionthe portfolic, to purchase a particular bond or OD and to provide the necessary funds.

5. the documentation and arranging of the particular purchase, the preparation of and sending of telexes and letters in order to implement the decision to purchase the bond or OD.

6. providing the funds which is done by means of a telex from Hong Kong to the banker/agent of the Bank coverseas.

7. the actual transfer of the funds from the Bank's account to the seller's account carried out by the banker/agent of the Bank overseas.

8. the recording of the transaction in the Bank's accounts.

9. the provision of management, Board of Directors and other machimery referred to in paragraphs 1 to 4 leading up to the decision to sell.

10. the documentation and arranging of the particular sale, the preparation and sending of telexes and letters in order to effect the sale.

11. the transfer of the proceeds of the sale into the Bank's account overseas.

12. the documentation to record the sale transaction, book entries etc."

72. The Commissioner accepted that items 7 and 11 were indicative of derivation of profits from outside Hong Kong and relied on all the other items as indicating derivation from Hong Kong. On appeal Mr Lindsay complained that the Board had wrongly brushed aside all the items which pointed to Hong Kong derivation of profits.

73. For my part I do not consider that minute sub-division of the machinery of business operations and the enumeration of facilities and staff made available for carrying out those operations assists in the exercise of determining the derivation of profits. In particular it is important to distinguish between business in the sense of the business of the Bank and business in the sense that there is a transaction of the Bank : see the argument of Sir Roland Burrows to this effect (which seems to have been impliedly accepted in the decision of the Board) in the Rholdesia Metals case at page 781-2.

74. In my opinion the derivation of the relevant profits of the Bank is attributable to three basic stages, namely :

(1) The acquistion of working funds by the Bank's business operations in Hong Kong;

(2) The investment of the funds in question outside Hong Kong; and

(3) The sale of the investment outside Hong Kong.

75. I regard stage (1) as indicating a Hong Kong derivation. Stages (2) and (3) indicate an offshore derivation. Whilst I consider the Board was wrong in law to have regard only to stages (2) and (3) when determining the derivation of the ultimate profits, I am unable to conclude that this was an error which requires this court to set aside the Board's decision. In the Rhodesia Metals case at p. 789 Lord Atkin expressed the doubt of the Board whether the "productive employment of capital" formula really offered a universal test of when an amount is "received from a source within the territory". However in the circumstances of this case it seems to me that Mr Pinson was right when he contended that if this was a "multi-source" case the balance should tip in favour of an offshore derivation because the profits in question were investment profits and such profits cannot arise until after the investment is made.

76. Accordingly, being of the opinion that even if the Board had given due weight to stage (1) when considering the derivation issue, it could only reasonably have come to the conclusion it did, I too would dismiss this appeal.

O'Connor J.

77. I agree with the conclusions arrived at by my Lords, the Vice President and Clough J.A., that this appeal should be dismissed. In regard to the Section 15(1) submission I adopt the reasoning of the Vice President, and there is nothing that I can usefully add. I have something to say about the Section 14 submission.

78. I adopt what the Vice President says about Section 2(1) not enlarging the meaning of 'arising in or derived from' for the purposes of this case. I accept that the words 'derived from' are wider than 'arising in', so it suffices to consider whether the profits in question were 'derived from Hong Kong'. Whether the profits 'derived from Hong Kong' is a question of fact, within the parameters of what the law says that phrase could encompass. As to what the phrase could encompass, it is helpful to look at cases dealing with similar words or expressions, though it must be kept in mind that those cases are only authoritative insofar as they state the law. In particular it is helpful to consider cases dealing with 'source'.

79. The authoritative local decision is that of the Full Court in C.I.R. v. The Hong Kong and Whampoa Dock Co. Ltd. [1960] H.K.L.R. 166. In that case Reece J. with whose judgment the other judges concurred, referred to passages in Smidth v. Greenwood [1921] 3 K.B.D. 583, and Firestone Tyre Co. Ltd. v. Lewellin [1957] 1 All E.R. 561, wherein it was pointed out that, depending on the facts of particular cases, the decisive factor, in answering the question, may differ. In some cases it may be where the contract was made, but in other cases another factor may be more significant. In some cases the factor would be where the operations take place from which the profits in substance arose. Reece J. appreciated that those cases were dealing with a different issue, but nevertheless he found that 'where do the operations take place from which the profits in substance arose' was, as he put it, 'a correct principle to be taken into consideration in determining the question to be decided'. I would apply some emphasis to his use of the indefinite article before the word 'principle'. That is, he was not saying that it was the only relevant principle to be taken into considered. In the passage referred to he was making a statement of law, applicable generally to cases where Section 14 applies. He went on to consider all the facts in the case and what if any weight should be attached to various factors in that case. He decided that in that case, the test in the Smidth and the Firestone cases was appropriate, or to put it another way, in that case that test identified the most significant factor in the case. This seems clear from the passage at page 114, where he said :-

"Accordingly, I feel driven irresistibly to the conclusion that on these facts the questions posed by Lord Atkin in Smidth and Greenwood when he stated 'I think the question is, where do the operations take place from which the profits in substance arise?', is the question which a practical man would ask in this case, and he could only answer it by saying that those operations took place at the Paracels, and generally outside the Colony."

80. Reece J. also found assistance by identifying 'derived from' with 'source', and considering cases that dealt with the source of income or profits. He pointed out that some profits may be derived from more than one source, and that in some tax legislation, but not in Hong Kong, provision is made for apportionment. He adopted remarks of Dixon J. in Commissioner of Taxation (New South Wales) v. Hillsdon Watts Ltd. 57 C.L.R. 36, to the effect that in the absence of such a provision, the locality where the profits arise 'must be determined by considerations which fasten upon the acts more immediately responsible for the receipt of the profit'. I consider the concept is better conveyed by Clough J.A.'s expression 'a dominant factor or factors', in a case where there are a number of sources, but one has to plump for one source.

81. The case of Commissioner of Taxation v. Kirk [1900] A.C. 588 requires consideration. In that case the taxpayer was a company which was incorporated in and had its head office in Victoria, carried on the business of mining on leasehold lands held from the Crown in New South Wales, where the company had an office. The income of the company came from (1) extracting ore from the soil; (2) the conversion of the ore into a merchantable product by a manufacturing process; (3) the sale of the merchantable product; and (4) the receipt of moneys arising from the sale. The first two of these processes took place in New South Wales. The question was whether any part of the profits were earned in New South Wales. The Privy Council answered in the affirmative. As the legislation applicable in that case provided for apportionment, and the question related to whether New South Wales was a source of any part of the profits, not whether it was the source, it is readily understandable that Lord Davey said at page 593 :-

"The fallacy of the Supreme Court in this and in Tindals' case is in leaving out of sight the initial stages, and fastening their attention exclusively on the final stage in the production of the income."

82. When considering what assistance can be drawn from Kirk, it should be kept in mind that it was dealing with a source, not the source, it should also be noticed that in Kirk, the intrinsic value of the material which earned the profit, increased while the material was in New South Wales, due to work done on it there by the taxpayer, whereas in our case the funds gathered in by the Bank in Hong Kong was a wasting asset while the funds were in Hong Kong, in fact would have been costing the bank money as it was paying interest on those funds without getting in a return, or at least the return the subject matter of this case. It was when the funds were invested abroad that they started earning the profits the subject matter of the case. I consider Kirk helpful in that it brings home that there can be more than one source. When considering what is the source, as in our case, I consider it helpful to identify what would be the sources if the legislation provided for apportionment, because any factor that would be relevant in identifying a source, must be relevant in deciding where is the source.

83. I do not think it would be helpful to endeavour to state, as a matter of law, how far back in the chain of causation, or how widely one should range, when considering the source of profits. Those matters are concerned with relevance, and would differ from case to case. Questions of relevance are more appropriately considered as a matter of commonsense and reason than of law. It has been said that it is 'based upon a blend of logic and experience lying outside the law'. A court of course, as a matter of law may adjudicate, on an ad hoc basis, whether some fact was or was not relevant, but the parameters of relevancy cannot be appropriately stated in isolation from a body of facts.

84. I conclude that in considering where profits are derived from', resort may be had to a number of tests, I prefer to call them tests rather than principles. In some cases the one suggested by Lord Atkin will be appropriate, in others the most helpful approach may be to look at where a sale took place or where property, leased or sold, is situated. It is not helpful to endeavour to list all the tests that may be appropriate in various cases. Such a list could never be exhaustive, it would always be liable to be added to, as circumstances give rise to previously unconsidered combinations of facts which may give birth to new tests. Any test is merely a guide or aid to, a fact finder. One cannot even say with confidence that any particular test will always be the most appropriate one for any particular class of case. What is important is, that in every case the fact finder considers all relevant facts and identifies the dominant or most significant matter or matters, when deciding from which side of the territorial boundary the profits accrued.

85. I consider the gathering in by the Bank, in Hong Kong, of the funds which were later invested outside Hong Kong, was a relevant fact, and it made Hong Kong a source of the profits. That was a relevant factor to be weighted and borne in mind when deciding whether Hong Kong was the source of the profits. I consider the Board was in error in that, it simply mentioned this matter in order to brush it aside as irrelevant. However looking at the matter overall, I am satisfied that on a proper consideration of all the relevant facts, if a single territorial source has to be plumped for as the source of the profits, that place could only be, where the funds were invested and later realised, at a profit outside of Hong Kong.

86. I would accordingly dismiss the appeal.

Cons, V.-P.:

87. The Appeal is therefore dismissed, with an Order Nisi that the Respondent is to have its costs.