De Maroussem (Legal Representative of Succession) v Director General, Mauritius Revenue Authority
| Jurisdiction | UK Non-devolved |
| Judge | LORD WALKER AND SIR DAVID KEENE |
| Judgment Date | 09 August 2011 |
| Neutral Citation | [2011] UKPC 30 |
| Date | 09 August 2011 |
| Docket Number | Appeal No 0081 of 2010 |
| Court | Privy Council |
[2011] UKPC 30
Privy Council
Lord Walker
Lord Mance
Lord Dyson
Sir Stephen Sedley
Sir David Keene
Appellant
Mr Desire Basset SC
Mr Nandras Patten
(Instructed by Blake Lapthorn Solicitors)
Respondent
Mr Patrick Way
Mrs Karuna Gunesh-Balaghee
(Instructed by Carrington & Associates)
Introduction
This appeal is concerned with the taxation of a gain realised by the sale in 1988 of 75 arpents of development land at Wolmar on the west coast of Mauritius. The land was part of an estate of about 1,000 arpents (other parts of which had already been sold for development). The area of 75 arpents included a disused sandpit and its infilling was an important element in various infrastructure works undertaken before the morcellement (subdivision) of the area into 456 housing plots. These were sold to members of the public, the prices depending largely upon proximity to the sea. On each sale the purchase price was payable by a down-payment followed by a payment of instalments, with interest at 14% per annum. The instalments were meant to be paid in full within three years but in practice some payments were still being made eight years later.
Three parties were involved in the development: the developer, Société Roger de Chazal ("the Société"), which undertook responsibility for the infrastructure works and the general management of the project; Medine Sugar Estate Co Ltd ("Medine") which owned the estate, but subject to a 99-year lease of which 50 years were unexpired in 1988; and Mr Paul de Maroussem ("the taxpayer") who was the owner of this lease. Under written agreements entered into between them in December 1988 the Societe was to bear all the costs of the project and receive one half of the proceeds of the sales (after land transfer tax). Medine and the taxpayer were to share the other half in proportions of 49.96% and 50.04% respectively. These were the proportions in which compensation had been divided between them under an arbitration on the compulsory purchase of another part of the estate earlier in 1988.
This appeal is therefore concerned with a sequence of events which began over 20 years ago. The litigation has been protracted for a number of reasons. Initially the taxpayer did not recognise that he was or might be under a tax liability arising out of the sales. In June 1995 an assessment for 1991-92 was made on him under the Income Tax Act 1974 ("the 1974 Act"), and in June 1997 further assessments were made on him for all the years from 1989-90 to 1994-95 except the year which had been already assessed. The later assessments were made under the Income Tax Act 1995 ("the 1995 Act"), which repealed and replaced the 1974 Act with effect from 1 July 1996 (in Mauritius the tax year starts on 1 July and ends on 30 June).
The taxpayer appealed against all these assessments, but unfortunately he died shortly before the hearing of these appeals. The appeals were taken over by his heirs (who are included where appropriate in references to the taxpayer). The taxpayer failed in his appeals to the Tax Appeal Tribunal and in further appeals to the Supreme Court, but was successful in his final appeal to the Board, whose opinion ( [2004] UKPC 43, [2004] MR 213) was delivered by Lord Scott of Foscote on 22 July 2004. The matter was remitted to the Supreme Court to be disposed of in accordance with the Board's opinion. The sequence of events down to 2004 is fully set out in paras 1 to 30 of the Board's opinion, to which reference may be made for further detail.
As Lord Scott explains in the opinion, Mauritius has no tax on capital gains as such. But section 11(1) of the 1974 Act required some particular receipts to be brought into account as "gross income" (that is, income before allowable deductions), including in para (h):
"Any sum or benefit, in money or money's 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 main issue before the Board in 2004 was whether (i) all or (ii) none or (iii) the part representing profit or gain of the taxpayer's receipts representing his share of the proceeds of sale of the development land was caught by section 11(1)(h). The Mauritius Revenue Authority ("the MRA") contended that the whole share was caught; the taxpayer contended for the other extreme; and the Board decided (for reasons set out in paras 32 to 39 of the opinion delivered by Lord Scott) that the intermediate view was correct. The second issue was whether the assessments for 1989 - 90 and 1990 - 91 were out of time, which depended on whether there had been wilful neglect on the part of the taxpayer. The Board held that it was not a case of wilful neglect, and that the two assessments were out of time. They reached this conclusion by applying the time limit in section 130(2) of the 1995 Act.
Had the Board acceded to either party's extreme position disposal of the appeal (in relation to the valid assessments) would have been straightforward. Had the MRA won, the assessments would have been confirmed; had the taxpayer won, the matter would have been remitted to the Tax Appeals Tribunal to perform the ministerial exercise of amending the assessments to exclude any receipt from the sales of development land. The decision that the Board actually reached meant that further steps which were not merely ministerial (and might prove contentious) would be necessary. In the event they have been so contentious that the litigation is now before the Board for a second time.
Proceedings since the Board's directions in 2004
At the end of its opinion the Board set out its conclusions (paras 46 and 47):
"It follows that, in their Lordships' opinion, the assessments for 1989/90 and 1990/91 should be set aside. The question as to what should be done about the other four assessments is not so straightforward. The simple course would simply be to strike out from each of the assessments the entry relating to the taxpayer's morcellement receipts. The tax due could then be re-calculated accordingly. Alternatively it might be possible to allow the Commissioner to amend the assessments by substituting for the present entries relating to the taxpayer's morcellement receipts entries representing the Commissioner's estimate of the profit element in the receipts. He could make this estimate 'according to the best of his judgment' by deducting from the receipts a sum equal to 50.04 per cent of the market value of the 75 arpents prior to the implementation of the morcellement scheme. For the avoidance of doubt their Lordships' opinion is that the sum to be deducted should reflect the then existing development potential of the land. If the taxpayer wishes to challenge the Commissioner's estimate, the case would have to be remitted to the Tax Appeal Tribunal for that purpose.
Their Lordships have not had any submissions from counsel as to whether amendment of the assessments in the manner suggested is possible or, if it is, what procedural steps may need to be taken. In the circumstances their Lordships allow the appeal and remit the case to the Supreme Court to be disposed of in accordance with this opinion. The Commissioner must pay the costs of this appeal."
The Mauritius Revenue Authority Act 2004 made important administrative changes in the tax system. It established the MRA under a Director-General. The Tax Appeals Tribunal was replaced by the Assessment Review Committee ("ARC") whose procedure was regulated by Part IV of the Act (which came into force on 1 July 2006) and by the Assessment Review Committee (Appeal) Rules 2007. Section 19 provided for written representations to be lodged by the taxpayer with ARC; section 20 provided for the hearing of representations by ARC; and section 21 provided for an appeal from a decision of ARC by way of case stated to the Supreme Court.
It is to be noted that the Board's conclusions set out in para 7 above were expressed in tentative terms, and the Board drew attention to the fact that they had not had any submissions from counsel as to the appropriate procedure. The pending changes in the tax system may have contributed to the uncertainty. When the matter was mentioned to the Supreme Court on 10 October 2005 (as appears from a transcript of the short hearing) Mr Basset SC referred to a letter dated 11 August 2005 from the Chief State Attorney to the taxpayer's attorney. That letter is not in the record but it seems to have put forward figures for chargeable income and tax due for the outstanding years of assessment. Senior state counsel moved for an order directing the Commissioner of Income Tax to issue a revised assessment for the outstanding years, adding,
"… and following the revised assessment, the appellant, of course, will be able to appeal to the Assessment Review Committee if he is dissatisfied with the revised assessment issued."
Mr Basset said that he had no objection to that, though he had a complaint about the tax paid for the years for which the assessments were out of time. Neither side referred the Court to any provision of the 1995 Act or of the Tax Appeal Tribunal Act 1984. Matadeen J (who was sitting with Domah J) is recorded as having disposed of the matter as follows:
"In the light of the statements from counsel made on behalf of both parties, what we propose to do is simply to remit the matter to the Commissioner of Income Tax for him to proceed in accordance with the guidelines given in the judgment."
He then repeated the disposal in slightly different words:
"In the light...
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