8. Exchange Profits' assessability
8.5 It is incorrect merely to look at the use of the loan. If the loan is long term in nature, it is capital even though it may be used for acquisition of current assets (Beauchamp v FW Wooloworth plc (1989) 61 TC 542).
(C) Temporary credit facilities
8.8 Temporary credit facilities may be regarded as increasing the capital base of a taxpayer if the facilities keep being extended. In D 77/88, a trading company borrowed a US dollar loan from a bank. The borrowing was by means of the taxpayer accepting short-term bills. The bills were rolled over on a monthly basis for three-and-a-half years. The fund derived from the borrowing was placed with its parent company, partly to discharge the cost of goods purchased from the parent company and partly for other purposes. The exchange loss arising on the borrowing was held to be capital in nature.
8.11 Cash at bank of a trading company has been held to be a capital asset. Thus, exchange gains or losses arising from the translation of bank balances are capital in nature, even though the cash may have been derived from trading receipts (CIR v Li & Fung (1980) HKTC 1193).
8.12 However, the cash of a bank is analogous to the trading stock of a trading business, and exchange profits or losses arising therefrom are revenue in nature (CIR v Hang Seng Bank (1972) HKTC 583).