Borthwick

The case is here on appeal from the Supreme Court of Plawaii. It involves the tax liability of appellant Hawaii Consolidated Railway upon its gross income from its public utility business for the calendar year 1933, under Act 43, 2d Sp.S.L.1932, as amended by Act 183, L.1933. The amended act is shown on the margin.

*287 The appellant in January, 1934, filed with the tax commissioner of the territory a return as the act requires. The return showed the taxpayer’s operating revenues from its utility business for 1933 and the deductions therefrom. In computing its net income for the purpose of arriving at the rate of tax on its gross income appellant deducted interest accrued and paid during the year on redemption bonds issued for indebtedness incurred in the construction of its railroad. The tax commissioner disallowed the interest deduction, and as a result the rate of tax upon appellant’s gross utility income was increased from 5.1796%, as shown by the return, to 7.4967%. An additional tax was accordingly assessed.

The controversy concerning the right to deduct interest was presented to the territorial Supreme Court on an agreed case stating the facts upon which the…