Interest paid by a Hong Kong property development company on short term loans that were used to fund the purchase price for property that was to be developed as a commercial complex was found (applying a test of what the loan proceeds were being used for at the point in time when the interest was paid), represented capital expenditures during the years that the property was held prior to becoming an income-earning capital asset. Accordingly, the prohibition in s. 17(1)(c) of the Inland Revenue Ordinance against the deduction of "any expenditure of a capital nature" was applicable. Lord Hoffman also stated (at p. 177) that "once the asset has been acquired or created and is producing income, the interest is part of the cost of generating that income and therefore a revenue expense".
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