B2.436 Finance—costs of maintaining
In relation to the cost of raising finance, Matthew J said in Texas Land and Mortgage Co Ltd 1:
'“The amount paid in order to raise the money on debentures, comes off the amount advanced upon the debentures, and, therefore, is so much paid for the cost of getting it, but there cannot be one law for a company having sufficient money to carry on all its operations and another which is content to pay for the accommodation.”'
This approach extended to interest paid to maintain the accommodation obtained. Thus, in Anglo-Continental Guano Works v Bell2, a London branch of a German company paid interest to its head office and to certain foreign banks. It accepted that no deduction was available for the interest paid to head office: such a payment is not interest at all but merely a transfer of funds between two accounts maintained by the same person3. A deduction was also denied for the bank interest paid because the sums borrowed were used to finance the business.
In European Investment Trust Co Ltd 4, a company which sold motor cars on the hire purchase system borrowed money for the purpose of financing the purchase of cars to be sold in that way. It was held that the interest payable on the borrowed money was not deductible because the borrowed money was the fixed capital employed in the business. It was significant in that case that the company had a small equity capital and, apart from a