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regards the first 1 think all the arguments in our letter of the 20th November apply just as much to realised profits and losses as to book profits and losses, and I think we should maintain our proposal that if such profits, whether realised or not, are included in the revenue liable to assessment, deductions should be made for losses. Nor should we agree to any distinction being drawn between changes due to ordinary appreciation or depreciation of securities and changes due to alterations in the value of the Hong Kong dollar. In any case the latter are much the more important and we could not confirm that the amount involved would only be very small (as War Office suggest).
Finally as regards treatment of income from investments made out of the proceeds of land sales, the War Office take the view that because the land sales have not been kept in a separate fund but have been paid into general revenue the investments
made must be treated as having been met from general
revenue.
It seems to me that as a matter of form they may be right since we cannot certify that the investments were not made from, say, the opium revenue and the land sale revenue used for ordinary administra- tion. At the same time I think the War Office are taking advantage of formal technicality and that, as already indicated, we are therefore justified in taking advantage of similar technicalities
which