COMMISSIONER OF INLAND REVENUE v. CHINACHEM FINANCE CO. LTD.

[Exchange losses on loans made to a finance company and repayable on demand are properly chargeable to revenue account for profits tax purposes.]

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. This is an appeal from a Board of Review constituted under the Inland Revenue Ordinance, Cap.112 ("the ordinance"). The appeal comes to the court by way of a case stated by the Board on 17th December 1990 under the provisions of s.69 of the ordinance. The appellant ("the commissioner") appeals from the Board's decision, given on 10th March 1989 after a 3-day hearing on 31st October and 1st and 2nd November 1988, in favour of the respondent ("the taxpayer") on the question whether certain exchange losses suffered by the taxpayer in repaying borrowings denominated in foreign currencies were (as the commissioner contended) losses on capital account or (as the taxpayer contended) losses on revenue account. The question is of significance because unless these losses are revenue items they are not deductible in arriving at the assessable profits of the taxpayer chargeable to tax under Part IV of the ordinance. The Board, agreeing with the taxpayer, held that the exchange losses on the borrowings were of a revenue nature and accordingly so deductible. I have to decide whether, as a matter of law, the Board was correct in so holding. The paid-up share capital of the taxpayer is only HK$20; but nearly HK$20,000,000 is at stake. The relevant years of assessment are 1981-82; 1982-83; and 1983-84.

2. Before me the parties agreed that the question whether the borrowings were borrowings on capital account or on revenue account is a question of law. In the light of the decision of the House of Lords on different facts but on the same sort of question in Beauchamp (Inspector of Taxes) v. F.W. Woolworth Plc. 61 TC 542 ("the Woolworth case") the parties could not do otherwise than so agree. That decision, however, which so characterised such a question, was given on 8th June 1989, after the decision of the Board in the present case. The Board had been referred to the decision of the Court of Appeal, which was given on 28th July 1988. As the Board mentions in paragraph 9.1 of the case stated, the Court of Appeal had treated the question before it as a question of fact. In doing so it had erred. The House of Lords treated the question as a question of law, and, on the facts of the Woolworth case reversed the decision of the Court of Appeal as erroneous in law.

3. This has more than somewhat muddied the waters, because the commissioner in the present case contends, as I understood his argument, that the Board must have misdirected itself, and that its whole approach to the matter must have been wrong, because it placed some reliance, in coming to its own decision, on an analogous decision which itself later turned out to be wrong. I reject this contention. It does not at all follow that the reversal by the House of Lords of the decision of the Court of Appeal in the Woolworth case means that the decision of the Board in the present case must have been or even is likely to have been wrong. It means only that the Board were wrong to characterise the question as a question of fact. In any event the Board had to make its findings as to the facts of the case and then conclude what on those facts was the correct result. If the Board's conclusion as to the correct result had been a conclusion upon a question of fact, as the Board (following the Court of Appeal) had thought it was, the court could not have disturbed it unless it was insupportable; i.e. one to which no person, acting judicially and properly instructed as to the relevant law, could have come. Since, however (as can now be seen) that conclusion was actually a conclusion upon a question of law, I have simply to decide, as a matter of law, whether (given the facts found by the Board) it was or was not correct. The reversal by the House of Lords of the decision of the Court of Appeal in the Woolworth case has no further or other effect on the instant case, although of course I will treat as of the highest authority anything said in the House of Lords about the legal principles involved.

4. The commissioner further contended (as a separate matter, if I correctly understood his argument) that while I did indeed have to take the facts of the case as found by the Board, it did not follow that I had to accept the Board's conclusions upon those facts. This muddies the waters still further. Insofar as the conclusions in issue are the Board's conclusions of fact, they must in my judgment be treated in exactly the same way as inferences drawn from the primary facts drawn by the Board (if there is any real difference between such an inference on the one hand and such a conclusion on the other hand). The inferences to be drawn from primary facts being within the exclusive competence of the Board as the tribunal of fact, it necessarily follows that so are the conclusions on matters of fact which that tribunal reaches. The commissioner here no doubt had cogent arguments which might well have persuaded the Board to reach different conclusions of fact but such arguments failed before the Board and are simply not open to him before me. Insofar as the conclusions in issue are conclusions of law based on the Board's findings of fact (including such factual inferences and conclusions as it has drawn and reached) the position is enitrely different; those conclusions of law are of course reviewable by the court. The commissioner's argument (as I understood it) that all the Board's conclusions were matters of law reviewable by the court is fallacious and must be rejected. It all depends on whether the conclusion in issue was one of fact, or one of law.

5. Having sorted that out I can now proceed to detail the facts of the present case. In this part of my judgment, and in line with the views I have already expressed, I mean to set out the primary facts (including those which appear from the loan documents); and the inferences which the Board drew from them; and the conclusions of fact to which the Board came; all of which comprehensively, in my judgment, fall to be treated as the Board's findings of fact.

6. The facts are as follows.

7. The taxpayer was incorporated on 25th May 1973. Its issued and paid-up capital is HK$20. It belongs to a group of companies ("the Chinachem group") comprising over 150 companies ("affiliates"). The taxpayer's activities include lending to affiliates, making mortgage loans to purchasers of property from affiliates, personal loans and financing the purchase of motor cars through hire purchase. Of these, its principal activities are the lending of money to affiliates and making mortgage loans to purchasers of property from affiliates. The main business of the Chinachem group is property development. The taxpayer plays the role of financier to the Chinachem group. In the years in question, about 60% of the borrowings of the affiliates were from the taxpayer. The taxpayer was licensed to carry on the business of a money-lender. In order to enable itself to make lendings, the taxpayer borrowed very substantial sums of money from independent third parties, denominated in US dollars, which were converted into HK dollars and lent on to the affiliates. The money was lent on at a higher rate of interest than that at which it had been borrowed. In this way, the taxpayer made its profit. It borrowed in US dollars because US dollar interest rates were comparatively cheap and stable. There were 4 lenders; West LB Asia Ltd.; Underwriters Bank (Overseas) Ltd.; Jan Financiera; and Grand Credit Bank Ltd. All the borrowed money was repayable on demand (or, in the case of borrowings from West LB Asia Ltd., within 6 months or less). The documentation, in the case of the West LB Asia Ltd. borrowings, shows that the money was borrowed pursuant to "a revolving credit facility" for the purpose of providing "general working capital". It has always been assumed (as I understand it) that in these respects the taxpayer's facilities with the other 3 lenders were of the same nature. Despite the repayment terms some of the borrowed money was not in fact repaid within l year, and some was outstanding for much longer than that (the precise details do not matter). The exchange losses with which this appeal is concerned were suffered in connection with the borrowings from these 4 lenders. The loans were used to fund short-term loans of which 93% or more were made to affiliates. In the year 1984-85, to avoid any further possible exchange losses, the taxpayer repaid the US dollar loans and replaced them by a HK dollar loan of HK$988,000,000 from an affiliate, the Chinachem Group Company Ltd., which had obtained the necessary funds, or a substantial proportion of them, from other affiliates in the Chinachem group. The exchange losses were dealt with as revenue items in the taxpayer's accounts on the footing that they arose from the ordinary trading activities of the taxpayer.

8. On these facts, the Board concluded that the taxpayer's business consisted of borrowing and lending money, thereby making a profit out of the interest differential. The borrowing of money to enable the taxpayer to lend money was an ordinary activity of running the business and indeed an integral part of the business, and the exchange losses were part of the cost of the borrowings. The US dollar loans were demand loans and therefore by nature could only be a means of temporary accommodation. It was true that the taxpayer was at all times in need of cash but such need was satisfied by arrangements which were liable to be terminated at any time and therefore were temporary accommodation. The Board noted the facts relied on by the commissioner, such as the size of the loans as measured against the taxpayer's own capital, the length of the time the loans had been outstanding (in the case of one of them, 3 1/2 years, and in the case of another, 9 1/4 years) and the fact that the loans appeared to be replaced by a large HK dollar loan in 1984-85. The taxpayer carried on its business by borrowing money for the purpose of lending on. Some of those borrowings were not repaid for long periods only because the lenders did not exercise their right to demand payment. That did not change the character of the loans, which were temporary accommodation on the dates when they were made and remained so until they were repaid.

9. Those are the facts and the Board's conclusions on them. On those facts, the Board further concluded that the borrowings were revenue transactions. It is this conclusion which I am entitled and bound to review.

10. Whether a borrowing is on capital account or revenue account is as the Woolworth case demonstrates a question of law to be determined on the facts of the particular case. The distinction, which ultimately depends, as it seems to me, on the difference between fixed capital on the one hand and circulating (or working) capital on the other hand, is easier to define in theory than to apply in practice.

11. The first reference in the authorities to the distinction between fixed and circulating capital appears to be the reference made in the course of the argument of Sir Horace Davey Q.C. in Lee v. Neuchatel Aspnaite Company 41 Ch.D I at p.13, where he refers to "the distinction drawn by economists, which is a very substantial one, between fixed capital, the money expanded in purchasing which is sunk once for all, and circulating capital, capital like stock-in-trade, which in the ordinary course of business is parted with and replaced by other". A gain or loss on fixed capital is an item on capital account and a gain or loss on circulating capital is an item on revenue account.

12. The effect of the authorities on this subject (which I shall review later) is that in order to determine whether or not a gain or loss arising from borrowing was made on capital or revenue account you have to look, primarily, at the length and other terms of the borrowing and at the nature of the trade. If the borrowing is long-term (i.e. for over l year) the gain or loss is more likely to be found to be an item on capital account than on revenue account; if the borrowing is short-term (i.e. for less than 1 year) the gain or loss is more likely to be found to be an item on revenue account than on capital account. The terms of the loan are, or at least may be, of crucial importance. If you find that the loan is at fixed interest and for a fixed term of more than 1 year, that is a strong indication in favour of a finding that the loan was on capital account. If you find that the loan was an ordinary overdraft facility at fluctuating rates of interest, repayable on demand, and with money coming in and going out in the daily course of business, that is a strong indication in favour of a finding that the loan was on revenue account. If the borrower is an ordinary trading company, a loan to it is unlikely to be treated as on revenue account unless it is temporary and fluctuating and is incurred in meeting the ordinary running expenses of the business. If the borrower is a company such as a bank, money-lender or finance company (the stock-in-trade of which is, in a sense, money) any borrowing which provides it with working capital for use in the ordinary course of business is likely to be held to be a borrowing on revenue account; in this respect, the position of such a company has to be distinguished from that of an ordinary trading company.

13. The taxpayer in the present case is a finance company and the loans were repayable on demand. The purposes of the loans, so far as material, was to provide the taxpayer with "general working capital". It will be recalled that it is expressly so stated in the "revolving credit facility" documentation relating to the taxpayer's loan from West LB Asia and the other loans are no different in nature. The borrowings did provide the company with additional working capital; but they did not add to the capital base of the business or, to put the same point in another way, become part of the taxpayer's capital structure. They were taken as required and repaid as opportunity permitted in the ordinary course of the taxpayer's business.

14. In my judgment, these facts dictate the conclusion that the exchange losses here are revenue items. That conclusion is a matter of law. It is the same conclusion as was reached by the Board.

15. I have not so far reviewed the authorities; and the waters to which I referred earlier in this judgment are in fact well-stocked. A number of authorities (by no means all that there are on the subject) was cited to me. They exhibit a considerable diversity of judicial opinion. I suspect this is because, as has long been recognised and as I have already pointed out, the familiar and much-discussed distinction between fixed and circulating capital, although clear enough in principle, is in practice sometimes difficult to draw on the facts of a particular case. None of the authorities cited to me bind me to come to the conclusion to which I have come; but I must briefly review them in order to demonstrate that, as I think, all of them are, on analysis, supportive of or at least consistent with my conclusion. I will deal with them in chronological order.

16. In The Scottish North American Trust, Limited v. Farmer 9 TC 693, the taxpayer traded in securities and borrowed money from bankers for this purpose both on a fluctuating overdraft at varying rates of interest and also on a secured loan fixed for 6 months at 6% renewed for a further 6 months and then terminated. The interest on all the borrowings was held properly chargeable to revenue account. The view of the General Commissioners, that the sums of money raised by the loan and overdraft as stated, were utilized as additional capital, was rejected. In the Court of Session, Lord Johnston described the loans as "short, in the sense that they were for short and indefinite periods, borrowed as occasion required and repaid as opportunity permitted" (see p.697). On the other hand, he said "it may be well said that if money is borrowed on a permanent footing, as from year to year, the capital of the concern is in a commercial sense enlarged thereby, and the business extended ... money lent to a business on a tract of future time, is capital involved in it ... " (see p.698). The Lord President said : "I cannot see how temporary accommodation in the course of business ever is or can be capital" (see p.702). In the House of Lords, the Surveyor of Taxes in his argument suggested that, if interest paid to debenture holders for additional facilities for investment achieved by borrowing upon debentures was not allowable as a deduction in the computation of profits, there was no reason why, if the taxpayer chose instead to get continuous overdraft facilities from a bank or to get a loan for a short period and then renew it, such a deduction should be allowed. But the House of Lords upheld the decision of the Court of Session. Lord Atkinson, after reviewing a number of authorities, said (at p.707) :

"These authorities show that money borrowed by such a Company as the Appellant Company in this case in the fluctuating temporary manner in which it has been borrowed by them - the daily borrowing and lending of money being part of their trade and business - is not to be treated under the Joint Stock Companies Act as 'capital'. There is nothing to show that that word should bear a different meaning in the Income Tax Acts when applied to the proceedings of Joint Stock Companies. The interest is, in truth, money paid for the use or hire of an instrument of their trade as much as is the rent paid for their office or the hire paid for a typewriting machine. It is an outgoing by means of which the Company procures the use of the thing by which it makes a profit, and like any similar outgoing should be deducted from the receipts, to ascertain the taxable profits and gains which the Company earns. Were it otherwise they might be taxed on assumed profits when, in fact, they made a loss."

17. Lord Atkinson distinguished the case of Anglo-Continental Guano Works v. Bell 3 TC 239 in which the English Court of Appeal had held that the interest paid on loans made to a trader in guano was not deductible because the loans fell to be treated as borrowed capital. He said (at p.708):-

"It does not appear to me that the reasoning on which this decision is based can apply to a bank whose business is the borrowing and lending of money; or to an investment company whose business is conducted as is that of the Respondents in the present case."

18. I find nothing in the judgments in the Court of Session nor in Lord Atkinson's speech (his was the only speech) which assists the commissioner in the present case; rather the contrary. It is, however, fair to note that the taxpayer's facilities in the present case were not ordinary overdraft facilities. It is also fair to note that, although the lending of money was part of the taxpayer's daily business here, the borrowing of money was of much less frequent occurrence. Nevertheless, the Board found and was entitled to find that the borrowing, like the lending, was part, indeed an integral part, of the taxpayer's business. In these circumstances I remain of the opinion that the facts of the present case do not warrant the conclusion of law for which the commissioner contends, i.e. that the borrowings in question made by the taxpayer here "whose business is the borrowing and lending of money", must be treated as borrowings on capital account. As it seems to me, the cost of that borrowing (including the additional cost incurred by reason of the increase in the value of the currency in which the borrowing fell to be repaid) was an outgoing by which the taxpayer procured the costs of the thing by which it made a profit (the borrowed money) and like any other outgoing has to be deducted from the taxpayer's receipts in computing its assessable profits. This view is I think supported, not contradicted, by the Scottish North American Trust case.

19. In European Investment Trust Company Limited v. Jackson 18 TC l, the taxpayer was a hire-purchase finance company. It had only a nominal paid-up capital and in order to commence trading it had to obtain what Finlay J. described as "a fixed loan with fixed interest". It then topped this up by additional advances as its trade expanded. No question arose as to "the fixed loan with fixed interest" which, it was accepted, was on capital account, so that the interest on it was not deductible in computing the taxpayer's assessble profits. The judge held that the additional advances were also employed as capital in the trade. After citing some authority he said (at p.11):-

"I do not think that it is necessary to cite any other case. The cases I have cited, I think, give a general view of the state of the law on this matter and, to my mind, the whole difficulty is to draw the line and to arrive at a correct conclusion on the facts of the particular case. It usually happens in cases of this sort that it is very much easier to state a general principle than to apply the general principle correctly.

 

Now, here it seems to me that the principle may be stated in this way : if you get a company dealing with money, buying or selling stocks or shares, Treasury bills, bonds, all sorts of things, and if you get that company getting, as such companies constantly do get, temporary loans from their bank - accommodation, I suppose, for sometimes twenty-four hours, or even less, sometimes for a good deal longer - if you get that sort of thing, the interest on that money, the hire, so to speak, paid for that money, may properly be regarded as an expenditure of the business, an outgoing to earn the profits. On the other hand, if the truth of the thing is that by the payment of the interest the company does not obtain mere temporary accommodation, day to day accommodation of that sort, but does, in truth, add to its capital and get sums which are used as capital and nothing else, then I think that in that case all the authorities show that that deduction cannot properly be made."

20. In the Court of Appeal, Lord Hanworth M.R. treated the question, in my respectful opinion rightly, as depending on the distinction between fixed capital and circulating capital (see p.13). He regarded the question as one of fact; but even if he was wrong about that, it does not assist the commissioner here, since if the question is a matter of fact he has the Board against him. Romer L.J. seems to have been of the same opinion as Lord Hanworth M.R., although he was not prepared to treat the Scottish North American Trust case as laying down as a matter of law that borrowed money used as circulating capital was not capital for the purpose of deciding whether interest on the borrowings did or did not fall to be deducted from the taxpayer's income in the computation of its assessable profits (see pp.16, 17). I do not find the case of any great assistance.

21. In Imperial Tobacco Co. (of Great Britain and Ireland) Ltd. v. Kelly 25 TC 292, the taxpayer made a windfall profit on dollars which it had bought for the purpose of a commercial transaction and had had to part with when the transaction was frustrated. That was (as Lord Greene M.R. described it, at p.299) "a perfectly clear case" of a transaction on revenue account. The case is of no help to me because its facts bear no resemblance to those in the present case.

22. In Davies v. The Shell Company of China, Ltd. 32 TC 133, a massive depreciation in the value of Chinese currency enabled the taxpayer to repay fidelity deposits made with it by its Chinese agents at a very considerable profit to itself. It was held that the deposits were not received by the taxpayer in the course of its trade but bore the character of loans by the agents to the taxpayer. Jenkings L.J. put the matter in this way (at p.157) :-

"After paying the best attention I can to the arguments for the Crown and those for the Respondent Company, I find nothing in the facts of this case to divest those deposits of the character which it seems to me they originally bore, that is to say the character of loans by the agents to the Company, given no doubt to provide the Company with a security, but nevertheless loans. As loans it seems to me that they must prima facie be loans on capital not revenue account; which perhaps is only another way of saying that they must prima facie be considered as part of the Company's fixed and not of its circulating capital. As appears from what I have said above, the evidence does not show that there was anything in the Company's mode of dealing with the deposits when received to displace this prima facie conclusion."

23. Again, the case is of no help to me on the question whether, on the very different facts of the present case, the loans fall to be treated as loans on capital account rather than on revenue account.

24. In Avco Financial Services Ltd. v. Federal Commissioner of Taxation 13 ATR 63, a decision of the High Court of Australia, a finance company which had suffered exchange losses in repaying overseas borrowings effected in the ordinary course of its business was held to be entitled to treat the loans as revenue items. Gibbs C.J. said (at p.68) :-

"Where a taxpayer carries on the business of borrowing and lending money, the moneys used for that purpose are analogous to trading stock - the taxpayer in effect deals in the money. Exchange gains and losses, regularly and frequently made and incurred in the course of making the payments of borrowed money which is used by a taxpayer in making loans in the course of its finance business are outgoings made in the day-to-day conduct of the business and for the purpose of carrying on the business as a going concern. The first matter to be considered in deciding whether a payment is of a capital or of a revenue nature is what was the character of the advantage sought by the payment ... The question has to be considered from a practical and business point of view ... From that point of view, the additional money paid as a result of the unfavourable exchange variations - the exchange losses - were part of the price by which the appellant obtained the money which it used to make a profit - part of the process by which the appellant obtained regular returns. The payments were recurrent and frequent, although irregular, and they involved the exercise of judgment by the officers of the appellant who put its borrowing policy into effect as part of the conduct of the business. The exchange losses were in my opinion losses on revenue account, and of course the gains have the same character."

25. In the joint judgment of Mason, Aickin and Wilson JJ, the view was expressed (at pp.74, 75) that :-

"... the borrowing of money and the repayment of loans by a finance company in the ordinary course of its business stand in a different situation from borrowings by a company not undertaken in the ordinary course of its income-earning business. The essence of the business of a finance company as carried on by the taxpayer is the borrowing and lending of money, the rate of interest payable on money lent being significantly higher than the rates payable on the money borrowed, for it is from the difference in the rates that the company generates its profit, after making provision for bad debts. There is therefore an important and material difference between borrowing by a finance company in the ordinary course of its business and borrowing by a manufacturing or trading company. In general the finance company's borrowings provide money which it turns over at a profit. Borrowing otherwise than for on-lending or for the repayment of funds borrowing for on-lending, that is, borrowing undertaken for capital rather than revenue purposes ... is an exception to the general rule. On the other hand, borrowing by a manufacturing or trading company is often undertaken to strengthen the capital or profit earning structure of a company. A finance company usually borrows in order to increase its working capital which is then turned over at a profit; a manufacturing or trading company frequently borrows to strengthen its permanent capital."

26. In the present case the Board concluded as a matter of fact that the taxpayer's business consisted of borrowing and lending money; and that the borrowing of money was an ordinary activity of running the business and indeed an integral part of the business. I cannot disturb those findings of fact. The commissioner's contention, if I understood it correctly, that, although the taxpayer's business was the lending of money, the borrowings which gave rise to the exchange losses here were not part of that business, cannot in my judgment be entertained. This is not because the contention is bizarre (although I am inclined to think that it is) but because the Board's findings of fact are within its exclusive competence so long as it acts judicially and properly instructs itself as to the relevant law. Given the Board's findings of fact, the Avco case is a strong authority in favour of the taxpayer and against the commissioner (and I should add that the case, at first instances of Lombard Australia Ltd. v. Federal Commissioner of Taxation 10 ATR 743, also cited to me, was to the same effect as the Avco case.)

27. In Pattison v. Marine Midland Ltd. 57 TC 219, the House of Lords declined to consider whether money borrowed on the security of subordinated loan stock redeemable after 10 years for use (it was said) as circulating capital was borrowing on capital or revenue account. At first instance, the judge had decided this question in the former sense but the point was not further examined in the superior courts where the case went off on a different point; and the facts are, obviously, far from those of the instant case. I do not think I need examine this authority further.

28. In Federal Commissioner of Taxation v. Hunter Douglas Ltd. 14 ATR 629, the Federal Court of Australia held (by a majority) that a trading company's exchange losses were incurred on borrowings made to augment the taxpayer's capital. Lock hart J. (one of the majority) described the different cases of a trading company and a finance company in these terms (at p.643) :-

"Borrowing by finance companies in the ordinary course of their business or borrowings by trading companies to purchase trading stock are examples of expenditure incurred in the earning of a taxpayer's income and not for the purpose of enhancing the business or organisation of the taxpayer as an income earning entity. It is well established that such borrowings are revenue items.

 

The essence of the business for a finance company is the borrowing and lending of money. Its borrowings provide funds which it turns over at a profit by lending the moneys borrowed at a higher rate of interest than is payable on the moneys which it borrows. A finance company generally borrows money for the purpose of increasing its working or circulating capital which it turns over at a profit. It deals in money. The money which it turns over by borrowing and lending is similar to trading stock .... There is a close similarity between the borrowing and lending of money by a finance company and the buying and selling of trading stock by a trading company.

 

Where a trading company buys goods which it turns over as trading stock gains or losses incurred are of a revenue nature. If monies payable by a taxpayer are allowable deductions, in general any increase or decrease in those amounts caused by fluctuations in the exchange rate are likewise allowable deductions or assessable income as the case may be. If a trading company borrows money overseas in circumstances where the borrowing is a necessary part of and has the purpose of purchasing trading stock exchange gains or losses will be revenue items.

 

Where a finance company borrows money overseas and then lends it in the course of its business as a financier, exchange losses made in the course of repaying the borrowed monies are outgoings made for the purpose of carrying on the business as a going concern and accordingly will be revenue items."

29. I adopt this reasoning which on the facts as found by the Board clearly favours the taxpayer here. The commissioner contended before me that in our sort of case it is not enough for a finance company to show that it borrowed the money and then lent it on in the course of its business as a financier. It had, he said, to be borrowing of a temporary nature, the sort of borrowing which fluctuates from day-to-day, with money being paid in and out all the time. In my judgment that is much too narrow a view. If the borrowing is made in the ordinary course of the business rather than for some special purpose, it does not seem to me to matter that the account between lender and borrower does not exhibit daily activity. I would accept that, if made for some special purpose, the borrowing might be on capital account; for example, if it were of a long-term nature, designed to strengthen the capital base of or improve the capital structure of the company. But I do not see how a loan to a finance company which is expressly made repayable on demand can ever be of such a character, even if no demand for repayment is in fact made for a very considerable time. The borrowing either is or is not a borrowing made in the ordinary course of the taxpayer's business at the date when the loan is made. It cannot in my judgment change its character from a short-term loan to a long-term loan merely because it can be seen with hindsight to have endured for a period longer than a year. Temporary accommodation remains temporary accommodation, even if it provides a roof over your head for much longer than originally intended or expected.

30. In Overseas Containers (Finance) Ltd. v. Stoker 61 TC 473, the judge expressed no concluded opinion on the question whether the exchange gains and losses there in question should go into capital or revenue account and in the Court of Appeal the question was not even considered. I do not in these circumstances find the case, although interesting, of any real help.

31. In the Woolworth case (with one irrelevant exception the most recent case cited to me) the House of Lords took the view that in the case of a trading company a "loan is only a revenue transaction if it forms part of the day-to-day incidents of carrying on the business"; it must be "temporary and fluctuating and ... incurred in meeting the ordinary running expenses of the business" (see per Lord Templeman at p.581). But the taxpayer here is a finance company, not a trading company; and the Board has found as a fact that the borrowings were made in the ordinary course of its business. Further, the loans in the Woolworth case were at an annual interest rate of 7% and repayable after 5 years (or earlier at the taxpayer's option on payment of a premium), whereas here the loans were repayable on demand.

32. The Woolworth case is not in my judgment in any way determinative of the issue I have to decide in the present case, and I am of the opinion that the authorities, on balance, overwhelmingly support the conclusion to which I have come, that on the facts of this case, where the taxpayer is a finance company and in which I am concerned with loans to the taxpayer (1) repayable on demand; and (2) found by the Board to have been made to the taxpayer in the ordinary course of its business, the decision of the Board was correct and must be upheld.