UKPC 11
Privy Council Appeal No 0050 of 2009
Société Royal Gardens et Compagnie & 138 Others
The Mauritius Revenue Authority
From the Supreme Court of Mauritius
JUDGMENT DELIVERED BY
29 June 2010
Heard on 29 April 2010
Mr Ivan Collendavelloo, S.C.
Michael King Fat
(Instructed by MA Law LLP)
Philip Baker QC
(Instructed by Royds Solicitors LLP)
LORD BROWN :
"You will also note that the losses as at 30 June 1994 transferrable from Ste Royal Gardens to Royal Gardens Ltd have been adjusted to Rs111,361,885 in accordance with sections 28A and 32A of the Income Tax Act 1974 ie initial and investment allowances claimed on the purchase consideration of the leasehold rights and uncompleted buildings and structures have been disallowed. Moreover, the 'ski lane' has not been taken into consideration for computing capital allowances as it does not qualify for such allowances."
"The Commissioner further felt that, consequently:
(i) The losses for assessment year 1994/95 are attributable to Royal Gardens Ltd and not Appellants and consequently, the losses shown in the return of the Société Royal Gardens have to be disregarded and the share of losses of the associates have to be considered to be nil.
(ii) The capital expenditure allowance for hotel construction (section 28A) and the investment allowance (section 32A) on the purchase consideration of the leasehold rights and uncompleted buildings and structures claimed by Société Royal Gardens should also be disallowed."
The use of the word "consequently" at the start of that quotation is somewhat puzzling: paragraph (ii) necessarily assumed the failure of the Commissioner's case under paragraph (i). But the reference to paragraph (ii) clearly showed that issue (ii) was still in play.
"Contention of the respondent
. . .
The initial allowance of 50% and the investment allowance of 25% should not be allowed on the purchase consideration of the leasehold rights and the costs of the uncompleted buildings and structures.
. . .
In answer thereto, it is submitted that
. . .
(ii) Capital expenditure was incurred by Société Royal Gardens et Compagnie for the acquisition of physical assets (ie the uncompleted building of what was to have become Mariya Hotel) and completion of the hotel building. As at 30 June 1994 there was no income produced.
(iii) The Société is, according to the provisions of the Income Tax Act 1974 (ie sections 2, 9(2), 9(4), 28A, 32A(1) and 28A(8), duly entitled to investment and initial allowances on the whole cost of the construction of the hotel building (ie the sum of Rs110m incurred for the acquisition of the uncompleted hotel building and the completion costs)."
"Finally we wish to conclude by perhaps stating the obvious: we accept the evidence led by appellants as true and we are satisfied that they have discharged the burden of proving that the transactions, considered by the Commissioner as an anti-avoidance scheme under section 44, were genuine commercial transactions and that the tax benefits were only incidental and not the result of any scheme. . . .
Last but not least the respondent in spite of the efforts, has not been able to establish that the documents were a 'mere façade or cloak' for some other transaction and therefore a sham.
We therefore determine all the above appeals in favour of appellants.
(i) "The Tribunal found that it could do no better than reproduce verbatim some of those documents . . . which . . . set out the case for the applicants but not before making this statement: 'It is worth mentioning that the other issues relating to the relevant Income Tax Act, time barred assessments, ski land, etc, have neither been pressed nor submitted upon by Appellants. We are therefore relieved from determining these issues'."
(ii) "[T]he issue of disallowance of capital allowances was neither pressed nor decided upon by the Tribunal."
(iii) "No evidence was adduced by the only witness for the applicants before the Tribunal on the issue of capital allowances; nor was that issue of capital allowances pressed before the Tribunal. And accordingly there was no finding from the Tribunal on that issue."
"28A Allowances for Hotels
. . . (3) In computing the capital expenditure incurred on the erection of any building, no account shall be taken of expenditure incurred on the acquisition of, or of rights in or over, any land, . . ."
"32A Investment Allowances
. . .
(2) No deduction shall be allowed under subsection (1) [a deduction by way of investment allowance of 25% of the capital expenditure incurred on the acquisition of new machinery and plant] in respect of expenditure incurred in the acquisition of any machinery or plant which is - (a) used or second-hand at the date of its acquisition; . . . "
Was the Supreme Court right to have understood the Tribunal to be saying, in the extract from their determination quoted in the first of the above three passages, that the issue of capital allowances had "neither been pressed nor submitted upon by Appellants"? This is the critical question.
"The respondent took the perilous decision of raising assessments on the sole ground that what was done amounted to anti-avoidance and therefore contravened section 44 of the Income Tax Act 1974. No alternative ground was given and this, at his risk and peril. Therefore, although the issues may have been raised in the Statements of Case or address of Counsel, we cannot, in fairness, go into issues not raised by the assessment letter issued by the Commissioner, as they are irrelevant."
Secondly, the appellants rely upon the concluding words of the determinations already quoted, particularly the final line: "We therefore determine all the above appeals in favour of Appellants."
"Given that the Commissioners' determination is binding on the parties only in relation to the issues raised on the appeal, it will sometimes be important in connection with a dispute between the taxpayer and the Inland Revenue to identify the issues which were raised and resolved in a previous appeal. The starting-point is the taxpayers' notice of appeal which is supposed to specify the grounds of appeal; but it is unfortunately common practice for a notice to omit to specify the issues and instead to state baldly that the assessment is 'excessive and estimate.' Even where the notice of appeal is more explicit, further issues may have emerged in the course of the hearing. It is clearly in the parties' interests to ensure that a note is made before the end of the hearing of all those issues, not only those which the Commissioners are being asked to resolve, but also those which have been raised but conceded by one side or the other. A copy of the notice should be given to the Commissioners to incorporate in some form in their decision. Then there should be no difficulty in identifying the issues raised on the appeal. Where, as in most appeals, particularly those heard by General Commissioners, this has not been done, it may be necessary to consider the pre-hearing correspondence between the parties and the parties' notes of the hearing in order to find out what the Commissioners actually decided."
The importance of that paragraph hardly requires emphasis in the circumstances of the present case. Had its wise words been observed, a great deal of dispute, delay and expense would surely have been avoided.