De Maroussem and Others v Commissioner of Income Tax
| Jurisdiction | UK Non-devolved |
| Judge | Lord Scott of Foscote |
| Judgment Date | 22 July 2004 |
| Neutral Citation | [2004] UKPC 43 |
| Docket Number | Appeal No. 54 of 2003 |
| Court | Privy Council |
| Date | 22 July 2004 |
[2004] UKPC 43
Privy Council
Present at the hearing:-
Lord Scott of Foscote
Lord Hutton
Lord Millett
Lord Brown of Eaton-under-Heywood
Dame Sian Elias
and others (Heirs to the late Paul De Maroussem)
This is an appeal from the Supreme Court of Mauritius. It is not difficult to infer from the name of the respondent that it is a case about tax. Mauritius imposes no tax upon capital gains as such. The relevant legislation does, however, require that a number of types of pecuniary receipt, some of which might, at least in part, be regarded as having a capital receipt character, be brought into account as "gross income" for income tax purposes. The statutory provision in question is section 11(1) of the Income Tax Act 1974.
The specific provision under which, in the opinion of the Supreme Court, the taxpayer was chargeable is paragraph (h) of section 11(1). This paragraph requires to be brought into account as "gross income"
"any sum or benefit, in money or moneys worth, derived from the carrying on or carrying out of any undertaking or scheme entered into or devised for the purpose of making a profit, irrespective of the time at which the undertaking or scheme was entered into or devised…"
The short question on this appeal is whether, and if so how, paragraph (h) applies to a landowner who enters into a scheme with a developer under which the developer expends money so as to bring the development land into a state in which building plots can be sold off to individual purchasers and under which the landowner takes a proportion of the sum for which each plot is sold with the developer taking the balance. The taxpayer contends that the whole of his receipts under such a scheme constitute capital and should not be brought into account under paragraph (h) as "gross income". The Commissioner, on the other hand, seeks to uphold assessments under which the whole of the receipts are treated as taxable income and no deductions representing the capital value of the development land before the implementation of the scheme are made.
There is also a second question, namely, whether two of the assessments made against the taxpayer, those relating to the years 1989/ 90 and 1990/91, were out of time. On both these questions the Tax Appeal Tribunal and the Supreme Court of Mauritius found against the taxpayer. It is convenient at this point to outline the facts in evidence before the Tribunal.
The taxpayer, Paul de Maroussem, died shortly before the hearing of his appeals to the Tax Appeal Tribunal against assessments for six years 1989/90 to 1994/5 (inclusive). The appeals were taken over and continued by his heirs but the title of the proceedings was left unchanged. This procedural irregularity was commented on in the judgment of the Supreme Court but nothing turns on it. It is convenient to continue to refer to the late Paul de Maroussem as the taxpayer although it is his heirs who are the true appellants and taxpayers.
In 1947 the taxpayer acquired the residue of a 99 year lease of about 1,000 arpents of land at Wolmar, near Flic en Flac on the west coast of Mauritius (1 arpent of land equals 0.84625 of one acre). The lease was due to expire in 2038. By 1972, at latest, the owner of the land subject to the taxpayer's lease was a company, Medine Sugar Estate Co. Ltd ("Medine"). The taxpayer used the land principally for rearing cattle and deer. He also cut and sold timber from the land and made and sold charcoal. A part of the land had been at one time a sand quarry. Whether the taxpayer had ever exploited the sand quarry is not clear and at least by 1988 it had become a disused sand quarry.
The land clearly enjoyed development potential. In 1972 Medine, with the consent of the taxpayer, sold 32 arpents of the land for the construction of an hotel. The price was Rupees 800,000. The taxpayer received a compensatory payment from Medine of Rs.500,000 for surrendering his leasehold interest over the 32 arpents. In 1988 a further 50 arpents of the land were compulsorily acquired by the Government of Mauritius. Compensation for the compulsorily acquired land had to be paid. The amount of the compensation was determined by arbitration, with the taxpayer receiving 50.04 per cent and Medine receiving 49.96 per cent of the compensation. The evidence does not disclose what, if any, tax treatment these receipts by the taxpayer received. But their Lordships think it safe to assume that they received none. If any assessments in respect of them had been raised it is inconceivable that some reference to the assessments would not have been made in the course of the hearings of the taxpayer's appeals against the six 1989 to 1994 assessments.
Later in 1988 the prospect of the sale for the purpose of residential development of a further 75 arpents of the land arose. The 75 arpents had a frontage to the beach and included the disused sand quarry. It was proposed that the 75 arpents be sub-divided into 456 building plots and that the building plots be sold off to individual purchasers. Before, however, that could be done the consent of the Ministry of Works to the proposed sub-division of the land (the "morcellement" of the land) was necessary.
The implementation of the development proposal involved three parties: first, the developer, Societé Roger de Chazal ("the Societé") whose responsibility it would be to undertake all measuring and surveying of the 75 arpents, the demarcation of the 456 building plots, the in-filling of the disused quarry so as to render the area suitable for the building of houses, the construction of estate roads and drainage and, generally, the management of the project; secondly, Medine, the landowner; and, thirdly, the taxpayer, who would have to permit the Societé to have access to the site in order to carry out the necessary pre-sale development works and would also, on the sale of each building plot, have to release the plot from his lease. The documents in evidence before their Lordships, and in evidence before the Tribunal and the Supreme Court, include written agreements between the Societé and Medine. They include, also, letters passing between the taxpayer and Medine in which they agree the proportion that the taxpayer would receive of the purchase price of each plot. But they contain no document indicative of any direct agreement between the Societé and the taxpayer or constituting any written agreement to which all three were parties. This feature of the evidence has led to the submission made on behalf of the taxpayer that the development of the land as a building site and its sub-division into building plots was not an undertaking or scheme to which the taxpayer was a party. This submission is unrealistic and their Lordships cannot accept it. It is plain that the works necessary to prepare the 75 arpents as a building site and the construction of the necessary estate roads and drains, all of which had to be done before the sale of the individual building plots, required the prior consent of the taxpayer, the lessee of the land. The morcellement was clearly a scheme to which all three, the Societé, Medine and the taxpayer, were parties.
The written agreements between the Societé and Medine were dated 23 December 1988. Under these agreements the Societé was constituted agent for Medine to carry out the morcellement and obtain the requisite permission from the Ministry of Works. Under these written agreements the price paid by each purchaser of a building plot was to be applied first in discharging the land transfer tax attracted by the sale and then divided into two equal shares. Out of one of the half shares all the expenses of the development work carried out by the Societé and the other expenses of the morcellement were to be met with the Societé taking the balance. The other half share was to be taken by Medine. It was left to Medine to deal with the taxpayer. In letters passing between the taxpayer and Medine dated 9 December 1988 and 19 December 1988 they agreed that the half share taken by Medine would be divided between them in the same proportions as fixed in the then current arbitration regarding the compensation paid, or payable, by the Government for the compulsorily acquired land. In the event, this was 50.04 per cent to the taxpayer and 49.96 per cent to Medine.
By a letter dated 17 November 1988, addressed to Medine c/o the Societé, the Ministry of Works consented to the morcellement application that had been made. The consent was expressed to be subject to a number of conditions. These included that
"1. the acess roads be constructed and tarred to the satisfaction of the Highway Authority;
2. drains, kerbs and pipe culverts be provided to the satisfaction of the Highway Authority;
3. …
4. necessary back filling of the land with proper materials to be done and compacted to the satisfaction of the District Council …
5. electricity and street lighting conductors to be provided to the satisfaction of the Central Electricity Board;
6. …"
These conditions demonstrate that substantial expense had to be incurred before the sale-off of any building plots could take place, all of which expense was to be met from the Societé's half share of the prices paid for the plots. Medine and the taxpayer had to do nothing but make available the development land i.e. the 75 arpents.
The development of the 75 arpents into building plots and the sale-off of the plots took place over a seven year period. When each deed of sale was drawn up the taxpayer surrendered his lease over the plot in question and received 50.04 per cent of 50 per cent of the price paid by the purchaser. Over the period 1988 to 1995 he received...
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