1. The Respondents (“the taxpayers”) had owned land since the 1930s, part of which was occupied by an orphanage. By September 1989, the taxpayers submitted plans to the Government to relocate the orphanage and to redevelop the land. In July 1990, the taxpayers obtained planning approval to redevelop the land into residential units. Then in December 1990, the taxpayers applied to the Government for a land exchange, which was subsequently approved. In 1993, the taxpayers accepted a tender from a property developer and entered into a joint venture agreement to develop an extensive residential complex on the new piece of land. Eventually, the taxpayers sold the residential units and car parking spaces allocated to them under the joint venture and made substantial profits. 2. Profits tax is chargeable only on profits arising in or derived from carrying on by a taxpayer of a trade, profession or business in Hong Kong and profits arising from the sale of capital assets are excluded from such charge. The Board of Review determined that the taxpayers were liable to profits tax on the profits assessed on the basis of the valuation of the land by September 1989 at the latest, or by December 1990. The issue before the Court was whether the taxpayers were carrying on a trade or business when they made the profits sought to be taxed, or whether those profits arose from the sale of a capital asset. 3. Whether an activity amounts to the carrying on of a trade or business is a question of fact and degree to be answered by the relevant fact-finding body on a consideration of all the circumstances. Trading requires an intention to trade; such intention may be formed before the relevant asset is sold. The intention then may be different to the intention when the asset was originally acquired. If a change of intention is to be relied upon as the basis for a finding of an intention to trade, precision in the fact finding process is required. 4. One of the factors that the fact-finding body may consider in ascertaining whether there has been a change of intention is whether the taxpayer has expended time, money or effort in selling the asset or commodity that goes beyond what might be expected of a non-trader seeking to sell an asset of that class. 5. Enhancement of the value of the property for the purpose of sale, if going beyond what might be expected of ,a non-trader preparing to sell a long term capital asset, may on its own be sufficient to support a finding of fact that the landowner has formed the intention to sell the land in the course of a trade or business. Thus, the taxpayers’ contention that a finding of change of intention can never, as a matter of law, be based solely on activities relating to the enhancement of the value of the property for the purpose of sale was rejected. 6. Nevertheless, the Court upheld the decision of the Court of Appeal to overturn the Board of Review’s finding of fact that, by September 1989 at the latest or, alternatively, by December 1990, the taxpayers had formed the intention to trade in the land, and to remit the matter to the Board of Review to ascertain when that change of intention occurred. The Court held that, on the facts found by the Board of Review, none of the conducts of the taxpayers had gone beyond what a non-trader owner might have done in similar circumstances and they did not support a finding of change of intention. As a result, the Board of Review’s conclusion was one which no reasonable Board of Review, properly instructed in the law, could find. 7. Fok PJ added that in 1993 when the taxpayers invited various property developers to submit tender offers, the invitations were either to purchase the new piece of land or to enter into a joint venture agreement for development of the new piece of land. The taxpayers could have accepted an outright sale of land then, so it could not be said that a firm intention to commit to one method of disposal rather than the other had been formed before the taxpayers decided to enter into a joint venture agreement with a developer. 8. Accordingly, the Court dismissed the appeal.