Director General, Mauritius Revenue Authority v Claude Didier de Senneville and 7 others (Mauritius)

For section 10(3)(c) of the Income Tax Act 1995, the relevant question is whether land was acquired in the course of a business whose main purpose was acquiring and selling immovable property. The provision contains no requirement that the land be sold as bare land or constitute trading stock. A business may be established by the purchase itself. Holding land idle, or holding it for many years, does not alter its character at acquisition. An intention from the outset to develop and sell subdivided plots may be sufficient. The De Maroussem method of taxing only development uplift does not apply where section 10(3)(c) governs.

The respondents, associates of a Mauritian société, were assessed to income tax on profits from selling subdivided land. The Assessment Review Committee found that the land had been acquired from the outset with the intention of carrying out a profitable morcellement scheme and held that the respondents were engaged in a land-acquisition and sale business. It nevertheless used the land’s market value immediately before development as the base cost.

The Supreme Court of Mauritius upheld that result, but held that section 10(3)(c) did not apply because the land was sold after being parcelled into residential lots. It instead applied section 10(3)(a) and the approach in De Maroussem. The central issue before the Board was whether historical acquisition cost or pre-development market value was the correct base cost.

The appeal was allowed. The assessments for the years 2004/05 to 2006/07 were restored. The original acquisition cost, rather than the March 1999 market value, was the relevant base cost.

1. New arguments. Appeals from the Assessment Review Committee are by way of case stated and are limited to points of law. The Board refused permission to raise the respondents’ new challenges to the factual findings. The arguments could and should have been advanced before the Supreme Court, and no exceptional circumstances justified departing from the Board’s settled practice: see St Nicholas Grammar School Ltd v Arnulphy [2022] UKPC 23. The Board added that the proposed Edwards v Bairstow challenge [1956] AC 14 appeared difficult on the evidence.
2. Section 10(3)(c). The provision contains no “bare land” qualifier. It asks whether the property was acquired in the course of a business whose main purpose was the acquisition and sale of immovable property. It also contains no requirement that the property be trading stock. A business may be established by the purchase of the land itself. Subsequent events, including a lengthy period during which the land is held or left idle, cannot alter the tax character of the acquisition. A contrary approach would create uncertainty and permit manipulation.
3. Application. The Assessment Review Committee rejected the respondents’ personal-use explanation and found that the land was acquired with an intention from the outset to carry out a profitable morcellement. In the circumstances, that finding was sufficient to establish that the acquisition occurred in the course of a land-dealing business. The Supreme Court therefore erred in treating section 10(3)(c) as inapplicable and in applying section 10(3)(a).
4. De Maroussem. The approach in De Maroussem v Commissioner of Income Tax [2004] UKPC 43 concerned a capital asset later included in a profit-making development scheme, with only the scheme uplift treated as income. That approach does not govern land acquired in the course of a business covered by section 10(3)(c). The Revenue’s assessments were accordingly restored.

1. Privy Council. Allowed the Revenue’s appeal and restored the income-tax assessments, using the historical acquisition cost as the base cost.
2. Supreme Court of Mauritius. On 15 March 2023, upheld the Assessment Review Committee’s result on different grounds. It treated the transaction as falling under section 10(3)(a) and applied the De Maroussem approach.
3. Assessment Review Committee. Found that the land had been acquired from the outset for a profitable morcellement business, but calculated the taxable profit using the pre-development market value as base cost.