CO129-550-3 Empire Air Mail Services- cost of participation to be exempted from assessment for military contributions... 19-10-1934 - 17-1-1935 — Page 3

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could be accorded in two ways, either (a) the

full sum of £12,500 could be included in the

permissible deductions from gross revenue in

arriving at the figure on which the calculation

of Military Contribution is based, or (b) the new

Air Mail Service could be treated on a net revenue

basis, in which event Military Contribution

would be paid on the net excess (if any) of the

receipts from the Service over its cost.

The latter alternative would appear to

be the appropriate course, and the only one to

which we have any chance of obtaining the agree-

ment of the War Office and the Treasury, and in

order to introduce an arrangement on the lines of

that alternative it would be necessary to include

the receipts from and the payments in connection

with the Air Mail Service in a separate account,

and to include only the annual net profits (if any)

under that account in the revenue on which the

assessment of Miliary Contribution is based. The

conveyance of mails between Hong Kong and the

point of connection with Imperial Airways will

form an integral part of the new scheme as far

as Hong Kong is concerned and the revenue from

and expenditure on the Feeder Service should

presumably be included in the special account

if it is formed.

The approval of the War Office and

Treasury to the creation of such an account will

be necessary, and it will not be possible to

put complete and detailed proposals to them

for consideration until the plans for the

inauguration