When calculating profits liable for corporation tax, a Dunnes Stores company was entitled to deduct more than £400,000 interest which it paid on a bank loan of £6 million (€7.62 million), the High Court decided yesterday.

Mr Justice Budd disagreed with a claim by a Revenue Commissioners tax inspector that the £6 million borrowed by Ringmahon (a Dunnes firm) to redeem shares held by Dunnes Stores Ireland Company was raised for share restructuring rather than trade. He decided the recurrent cost of the loan was exclusively laid out for Ringmahon's trade.

The matter was before the High Court following an appeal by the tax inspector against a Circuit Court decision that the interest was deductible from the profits liable for corporation tax.

The tax inspector had assessed Ringmahon for corporation tax and argued that the £6 million loan was not spent on the company's trade but was raised to put cash into shareholders' pockets.

The company argued that Ringmahon was entitled to redeem the preference shares should shareholders require capital. Once it had paid over the £6 million to redeem the shares, it then needed £6 million to carry on its trading business.

Mr Justice Budd said it seemed to him that Ringmahon was entitled to redeem the preference shares. By doing so, it was then faced with the need to plug the gap in its finances by acquiring trading funds. It did that by acquiring a loan from the bank at the recurrent cost of interest.

Since the funds were used for trading and no new assets were acquired from the funds other than trading assets, he believed the Circuit Court judge was correct in holding that Ringmahon was entitled to a deduction of £435,764 in computing the profits on which tax should be paid.