Adhinath Singh Lutchumun (Appellants) Director General of the Mauritius Revenue Authority (Respondent) Director General of the Mauritius Revenue Authority (Appellant) Adhinath Singh Lutchumun (Respondents)
| Jurisdiction | UK Non-devolved |
| Judge | Lord Hope of Craighead |
| Judgment Date | 01 December 2008 |
| Neutral Citation | [2008] UKPC 53 |
| Court | Privy Council |
| Docket Number | Appeal No 94 and 114 of 2006 |
| Date | 01 December 2008 |
[2008] UKPC 53
Privy Council
Present at the hearing:-
Lord Hope of Craighead
Lord Rodger of Earlsferry
Lord Carswell
Lord Mance
Sir Paul Kennedy
and others
and others
[Delivered by Lord Hope of Craighead]
The parties to this case are Mr and Mrs Adhinath Singh Lutchumun and a number of other persons (to whom it will be convenient to refer collectively as "the taxpayers") on the one hand and the Director General of the Mauritius Revenue Authority, formerly the Commissioner of Income Tax (referred to hereinafter as "the Revenue") on the other. The central issue is whether a sum which the taxpayers received as compensation for the compulsory acquisition of land which they had acquired with a view to profit is taxable as part of their gross income or is a tax free capital sum because it was not obtained in the normal course of the taxpayers' business.
In McClure v Petre [1988] 1 WLR 1386, 1389 Sir Nicolas Browne-Wilkinson V-C described the approach that is to be taken to problems of this kind:
"In my judgment it is equally established by authority that to decide whether a particular receipt is in the nature of income or in the nature of capital one has to look at all the circumstances of the particular case and apply judicial common sense in reaching a conclusion as to how the receipt is to be classified."
In Inland Revenue Commissioners v John Lewis Properties plc [2003] Ch 513, para 16 Arden LJ suggested a classification that might be adopted to discover whether there was a principle by which such cases might be organised. The present case, according to her classification, is a compensation case. In para 45 she set out a series of propositions which she derived from the reported cases as to how a sum received as compensation should be classified. For the purposes of the present case it is necessary to refer to only two of them. First, every case depends on a careful examination of the particular circumstances. Second, the underlying asset from which the sum is derived may have a large influence on whether the payment is capital or income. To these propositions their Lordships would add a third, which has a direct bearing on the way the receipt should be treated in this case. This is that close attention must also be paid to the terms of the taxing statute.
The facts of this case are relatively simple. In 1991 the taxpayers obtained a provisional land conversion permit under Part IV of the Sugar Industry Efficiency Act 1988 to convert 50 arpents of agricultural land owned by Medine Sugar Estate at Coromandel to residential. On receipt of the permit they entered into an informal agreement to purchase the land. In 1993 they purchased it by authentic deed jointly and in undivided rights for Rs 50,000,000. At the beginning of October 1993 the parcelling of the land into 419 residential plots was approved by the authorities. But at the end of October 1993 the taxpayers were served with a notice under section 6 of the Land Acquisition Act 1973 ("the 1973 Act") that it was proposed to acquire two portions of the taxpayers' land extending in total to 12A52 on behalf of the government. This area was to be excised from the larger portion of 50A. The notice of compulsory acquisition which had been published in the Gazette under section 8 of the 1973 Act was transcribed in January 1994, thus vesting the excised portion of the land in the government.
The taxpayers made a claim for compensation under Part III of the 1973 Act. Section 19(3) of that Act provides that the value of any interest in the land shall be the amount which the interest, if sold on the open market by a willing seller, might be expected to realise at the date of the first publication of the notice under section 8. Section 18(6) provides that the Board of Assessment, in awarding compensation, may allow interest at the legal rate, calculated from the date of vesting under section 11 until the date of the award. In August 1995 the Board awarded the taxpayers a sum of Rs 2,805,000 per arpent, to be apportioned among them according to their respective shares, together with interest from the date of vesting. The result of this award was that the taxpayers received Rs 1,805,000 more per arpent than they had paid for it. In February 2000 a morcellement permit under section 7 of the Morcellement Act 1990 for the parcelling of the rest of the land into 280 residential lots was issued by the Minister.
The Revenue decided that the sum received as compensation was taxable in the hands of the taxpayers as part of their gross income within the meaning of section 11(1)(g) of the Income Tax Act 1974. Under that provision a person's gross income includes:
"any sum or benefit, in money or money's worth, derived from the sale of any property or interest in property, where the property was acquired in the course of a business the main purpose of which is the acquisition and sale of immoveable property."
The taxpayers were assessed to income tax in respect of their shares of the profit that resulted from the compulsory acquisition of the 12A52 of excised land on behalf of the government. The assessments were made on 30 June 1999 for the year of assessment 1994-95, based on the taxpayers' income for the preceding year 1993-94. Their shares of the profit were included under the description "trade, business, profession" as part of their total gross income for that year. Their shares of the interest on the principal award were included in the amount of their gross income under the description "dividends and interest".
The taxpayers appealed against the assessments. Their notices of appeal stated that the ground of the appeal was that amounts received for compulsory acquisition were not taxable. On 25 June 2002 the Tax Appeal Tribunal issued its determination. It held that the compensation payment and the interest thereon were not taxable under section 11 of the 1974 Act. It said that it was established clearly by the evidence that the taxpayers had invested money in what could not be described otherwise than as a business venture with profit in mind. The original extent of 50A of land was described as trading stock, having regard to the land conversion permit and the approval that was subsequently obtained for the subdivision of the remainder into 419 plots for residential purposes. But the Tribunal held that the appropriation of the 12A52 by the government could not be called a normal business transaction and that the compulsory acquisition was not a transfer of property on which the vendor was liable for land transfer tax. The compensation could not constitute income within the meaning of section 11. It could not be regarded as anything other than the realisation of capital. The Tribunal also held that the interest on the principal sum was part and parcel of the compensation. It was in the nature of a hedge against inflation for the period between the date of vesting and the date of the award.
The Revenue appealed against the determination of the Tax Appeal Tribunal to the Supreme Court. On 9 May 2005 the Supreme Court (Balgobin and Peeroo JJ) allowed the appeal. It took note of the facts that under section 19(3) of the Land Acquisition Act 1973 the compensation represented the amount which the interest in the land would have fetched if sold on the...
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