The Legal Representative of Succession Paul de Maroussem v Director General, Mauritius Revenue Authority (Mauritius)

In a tax appeal on a point of law, the choice between comparable and residual methods of land valuation ordinarily remains a factual valuation judgment. It becomes a legal issue only where the valuation proceeds on a legally impermissible basis, ignores a relevant consideration, relies on an irrelevant one, or is irrational. Irrationality sets a high threshold: the valuation must be one that no reasonable valuation body could reach when properly directed. Comparable transactions are normally the best evidence of open-market value. Residual valuation is reserved for exceptional cases where proper comparables are unavailable. A residual valuation must be based on the information available at the valuation date; hindsight from actual receipts and costs is impermissible.

The appellant, the legal representative of the taxpayer’s succession, challenged income-tax assessments arising from the development and sale of housing plots in Mauritius. An earlier Board decision allowed the appeal in part and remitted the matter for the taxpayer’s gain to be calculated.

The Assessment Review Committee accepted the Commissioner’s comparable-sales valuation, and the Supreme Court of Mauritius dismissed the taxpayer’s case-stated appeal on 11 November 2009. The central issue before the Board was whether the Committee had erred in law by preferring the comparable method to the residual method, or by reaching an irrational valuation. Procedural objections concerning amendment of assessments and statutory time limits were also considered.

The joint judgment of Lord Walker and Sir David Keene dismissed the appeal with costs.

1. Appellate framework. On an appeal from the Assessment Review Committee to the Supreme Court, the Committee acts as the tribunal of fact within the statutory framework. It finds facts de novo and may conclude that an assessment is incorrect without identifying a legal flaw. The Supreme Court may allow the appeal only for an error of law.
2. Valuation and legal error. The choice between comparable and residual methods for determining open-market land value does not ordinarily raise a question of law. A legal issue may arise where the valuation rests on an assumption contrary to the legal basis, omits a relevant consideration, takes an irrelevant consideration into account, or is irrational. The irrationality threshold is high: the valuation must be one at which no reasonable valuation body could have arrived when properly directing itself in accordance with the law. The Board applied the approach in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] KB 223.
3. Valuation methods. Comparable transactions are normally the best evidence of open-market value. The residual method is reserved for exceptional cases in which proper comparables are unavailable. The Board applied the reasoning in Mon Tresor and Mon Desert Ltd v Ministry of Housing and Lands [2008] UKPC 31, [2008] 38 EG 140. The taxpayer’s residual valuation improperly used hindsight, including actual receipts, sale speed and project costs. The comparable transactions were appropriate, and the valuation was not irrational.
4. Procedural points. The Commissioner had not formally amended the assessments under section 132 of the Income Tax Act 1995. The Assessment Review Committee’s appellate power to confirm, amend or cancel an assessment was distinct from that statutory power, so no out-of-time formal amendment was required. The Board also considered, in a non-dispositive observation, that the procedural time-limit reasoning in Société Bahemia & Co v Commissioner of Income Tax [2003] MR 87 and Hurhangee v Commissioner of Income Tax [2005] SCJ 205 was correct. A new criticism concerning the sitting tenant was too late because it had not been explored before the fact-finding tribunal or raised in the Supreme Court.

• Privy Council: The appeal was dismissed with costs.
• Supreme Court of Mauritius: The court dismissed the taxpayer’s appeal by way of case stated from the Assessment Review Committee in a reserved judgment delivered on 11 November 2009.
• Assessment Review Committee: The Committee upheld the Director-General’s comparable-sales valuation and directed that 50.04% of the estimated value be deducted from the morcellement receipts in calculating the profit element.
• Privy Council: In the earlier stage of the same litigation, the Board allowed the appeal and remitted the matter to the Supreme Court in [2004] UKPC 43.