Total Mauritius Ltd v Mauritius Revenue Authority
| Jurisdiction | UK Non-devolved |
| Judge | LORD PHILLIPS,LORD MANCE |
| Judgment Date | 25 October 2011 |
| Neutral Citation | [2011] UKPC 40 |
| Date | 25 October 2011 |
| Docket Number | Appeal No 0098 of 2010 |
| Court | Privy Council |
[2011] UKPC 40
Privy Council
Lord Phillips
Lord Brown
Lord Mance
Lord Wilson
Sir Stephen Sedley
Appellant
Sir Hamid Moollan QC
Iqbal Moollan
(Instructed by Streathers Solicitors LLP)
Respondent
Philip Baker QC
Rajesh Ramloll
(Instructed by Royds Solicitors)
LORD PHILLIPS AND
The appellants, are suppliers of liquefied petroleum gas to customers in Mauritius. They have succeeded to the rights and liabilities of a company in the Elf group with which they have merged. The Board will use the name Total to describe both the appellants and their predecessors. Most of their domestic customers purchase their gas in portable 6 kg metal bottles. When one bottle is empty the customer exchanges it for a full one, at a retail outlet, paying for the gas. The bottles at all times remain the property of Total. Commercial customers will typically keep on their premises a larger gas container, equally owned by Total. Gas that these customers purchase is delivered to them by a gas tanker. All customers are required to pay to Total deposits in respect of the bottles or containers in which their gas is stored. The issue raised by this appeal is the impact that the receipt of these deposits has on Total's liability to pay value added tax ("VAT") and income tax. Total contend that they give rise to no liability at all. The respondent ("the Revenue") contends that they give rise to a liability to both types of tax.
The contracts
Total sell their gas in Mauritius under two standard form contracts setting out their General Conditions of Sale, which are in the French language. Form C is for those who use the larger containers. Form D is for those who purchase their gas in the smaller bottles. Sir Hamid Moollan QC, who appeared for Total, explained to the Board that these forms were designed for the French market. The supplier in the version of Form C that has been supplied to us is named as Elf Antargaz and the supplier in Form D as Elf Gas (Maurice) Ltd. The Board was provided with English translations of these forms.
The relevant provisions of Form C, in translation, read as follows:
"CLAUSE 2. - Deposit - Delivery to a user of a liquefied gas unit shall take place solely for and on behalf of elf antargaz against payment of a guarantee deposit at the rate in force on the day of the delivery.
Deposit slips are essentially personal and nominative and non-assignable. Bottles delivered to users shall always remain the property of elf antargaz. They shall not be given, or sold, or exchanged, or lent by the holder of this slip, on pain of proceedings, or seized by the latter's creditors.
CLAUSE 5. - Duration of use - The user may ask at any time for the equipment on deposit to be taken back from him/her/it.
At the time when it is put to the use of the elf antargaz unit by either party, the equipment is returned by the user, while the guarantee deposit is repaid to the latter according to the procedures laid down in Clause 6.
CLAUSE 6. -Cancellation of supply agreement - The amount of the guarantee deposit shall be returned to the user on the request he/she/it shall make to any elf antargaz distributor subject to delivery to the latter:
1 of the equipment in deposit
2 of the deposit slip
After verification, the amount of the guarantee deposit shall be repaid directly by our company (where appropriate by delegation of powers, through our network of regional concessionaries or of distributors), after deduction:
1 - Of the accrued annual maintenance charges, as they are authorised by the Public Authorities payable from the date of supply of the elf antargaz unit until its return, any year that has been commenced being due in full.
2 - Where appropriate of the costs of making good the equipment that are provided for in Clause 3."
The reference to maintenance charges as authorised "by the Public Authorities", while meaningful in France, has no sensible application in Mauritius.
The relevant provisions of Form D, in translation, read as follows:
"Clause 2 - PRICES OF THE GAS AND DEPOSITS ON THE BOTTLES…
Reservation of title. ELF Gaz (Maurice) Ltd shall remain the owner of the LPGs contained in the bottles until the date of payment in full for them. The delivery notes or deposit slips (signed or not by the Customer) shall be good evidence between the parties of the quantities delivered that are referred to by this clause. The Customer shall however be solely responsible for the gas delivered whether it belongs to it or not and it shall make its concern the insurance of the risks relating to such.
Price of the gas. The price of the gas delivered, would conform to the price in force to the public, on the date of delivery and determined according to the sale price scale and/or to the price mentioned in the Special Conditions.
Deposit on the bottles. The bottles necessary to ensure a sufficient autonomy of functioning shall have a deposit placed on them at the rate in force on the day of supply and in accordance with the general conditions of sale of ELF Gaz (Maurice) Ltd.
Clause 9 - OWNERSHIP OF THE CONTAINERS
All the containers made available to the user shall remain the inalienable and non-seizable property of ELF Gaz (Maurice) Ltd. In the event of cessation of commercial relations an inter partes inventory shall be carried out, before return of the containers. Shortfalls that may be established shall be billed in cash at the replacement value. In this case, ELF Gaz (Maurice) Ltd shall take back the gas of which it has remained the owner pursuant to Clause 2. The deposit shall be repaid after deduction of a charge for maintenance of the containers accounting to 5% of the rate of deposit for each year of use."
The facts
This summary of the relevant facts is taken from evidence given to the Mauritian tax Assessment Review Committee ("ARC"), which forms part of the Record. Total began supplying gas in Mauritius in 1986. The total of the deposits paid and not yet reimbursed has grown steadily as Total's business has expanded from Rs 53.55m at 31 December 1996 to over Rs 72.12 m at 31 December 2003. One would not expect reimbursement to be claimed until the customer in question ceases to rely on liquid petroleum gas. Evidence shows that some reimbursements have been made but that claims for reimbursement are uncommon. Total have not been able to provide a comprehensive picture of the reimbursements that have been made.
It does not appear that Total have ever made deductions from refunds in respect of the annual maintenance charge under clause 9 of Form D. Mr Jhumka, Total's Finance Director, who joined the company in 1993, had no recollection of a deduction ever being made and stated "In fact we waived that clause". This evidence was not challenged in cross-examination.
For many years Total paid no income tax or VAT on the deposits which they received and then held or used in their business in one way or another. However in or about June 2004 Total received the following assessments for tax, together with penalties, on the basis that Total had been wrong in failing to pay income tax and VAT: Rs 5,668, 560 for VAT for the period May 1999 to March 2004 and Rs 9,667, 812 for income tax for the tax years 2000-2001, 2001-2002, 2002-3 and 2003-4. This appeal arises out of Total's challenge to those assessments.
Accounts
Total's annual accounts were prepared by KPMG, audited by Ernst & Young and regularly submitted to the Registrar of Companies. In such audited accounts, deposits received did not appear as profit in the profit and loss accounts; instead, the total of all deposits held at the end of each year was included in their balance sheets as "deposit on cylinders", on the basis of Total's liability to refund them as and when their customers returned the bottles and containers in question. Total also did not include deposits received as consideration for supplies in their VAT returns. The Revenue's assessments for income tax and VAT were calculated by reference to the net increase in each year of total deposits shown in Total's accounts; the net increase consisted necessarily of the total new deposits received, less the (unknown) total of any deposits refunded.
Section 4(1) of the Income Tax Act requires tax to be paid on income derived during the relevant year, and section 5(2)(a) deems income to be derived by a person when (a) it has been earned or has accrued; or (b) it has been dealt with in his interest or on his behalf, whether or not it has become due and receivable. It is the (a) which is here relevant, since there is no suggestion that (b) applies. More specifically, section 10 provides that gross income shall include "(b) any gross income derived from any business", which is defined to include "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 …..". The basic question remains, whether the receipt is a trading receipt or profit, falling properly to be entered in a company's profit and loss account. The authorities relevant to this appeal on this point relate to United Kingdom taxation. This does not appear, however, to differ in principle from that imposed in Mauritius. There is an abundance of authority that, when considering how income and expenditure should be treated for tax purposes, the court should normally apply correct principles of commercial accounting. It suffices to cite the following statement from the judgment of Sir Thomas Bingham MR in Threlfall v Jones; Gallagher v Jones [1994] Ch 107:
"Subject to any express or implied statutory rule, of which there is none here, the ordinary way to ascertain the profits or losses of a business...
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