TaxTMI 
TaxTMI 
2004 (9) TMI 66
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.... 1983 MR 67 Edwards v. Bairstow [1956] AC 14; [1955] 3 WLR 410; [1955] 3 All ER 48, HL(E) Eunson v. Comr of Inland Revenue [1963] NZLR 278 Federal Comr of Taxation v. Whitfords Beach Pty. Ltd. [1982] 12 ATR 692; 82 ATC 4031 Gilmour v. Comr of Inland Revenue [1968] NZLR 136 Hudson's Bay Co Ltd. v. Stevens [1909] 5 TC 424, CA Jones v. Inland Revenue Comrs [1920] 1 KB 711 Jones v. Leeming [1930] AC 415, HL(E) Liu Man Hin (Roger Philippe) v. Comr of Income Tax (unreported) 5 April 2001, Tax Appeal Tribunal of Mauritius McGuire v. Minister of National Revenue [1956] Ex CR 264. Premier Automatic Ticket Issuers Ltd v. Federal Comr of Taxation [1933] 50 CLR 268 Ransom v. Higgs [1974] 1 WLR 1594; [1974] 3 All ER 949, HL(E) Societe Bahemia and Co. v. Comr of Income Tax (unreported) 25 June 2003, Supreme Court of Mauritius Taylor v. Good [1974] 1 WLR 556; [1974] 1 All ER 1137, CA Wellington v. Reynolds [1962] 40 TC 209 Appeal from the Supreme Court of Mauritius Robert de Maroussem and other heirs of the estate of the taxpayer, Paul de Maroussem, deceased, appealed against the decision of the Supreme Court of Mauritius (Matadeen and Narayen JJ) dated 26 March 2003, affirming a ....
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....he taxpayer, those relating to the years 1989/90 and 1990/91, were out of time. On both these questions the Tax Appeal Tribunal and the Supreme Court of Mauritius found against the taxpayer. It is convenient at this point to outline the facts in evidence before the Tribunal. The facts The taxpayer, Paul de Maroussem, died shortly before the hearing of his appeals to the Tax Appeal Tribunal against assessments for six years 1989/90 to 1994/5 (inclusive). The appeals were taken over and continued by his heirs but the title of the proceedings was left unchanged. This procedural irregularity was commented on in the judgment of the Supreme Court but nothing turns on it. It is convenient to continue to refer to the late Paul de Maroussem as the taxpayer although it is his heirs who are the true appellants and taxpayers. In 1947 the taxpayer acquired the residue of a 99-year lease of about 1,000 arpents of land at Wolmar, near Flic en Flac on the west coast of Mauritius (1 arpent of land equals 0.84625 of One acre). The lease was due to expire in 2038. By 1972, at latest, the owner of the land subject to the taxpayer's lease was a company, Medine Sugar Estate Co Ltd. ("Medine"). The ta....
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....ermit the Societe to have access to the site in order to carry out the necessary pre-sale development works and would also, on the sale of each building plot, have to release the plot from his lease. The documents in evidence before their Lordships, and in evidence before the Tribunal and the Supreme Court, include written agreements between the Societe and Medine. They include, also, letters passing between the taxpayer and Medine in which they agree the proportion that the taxpayer would receive of the purchase price of each plot. But they contain no document indicative of any direct agreement between the Societe and the taxpayer or constituting any written agreement to which all three were parties. This feature of the evidence has led to the submission made on behalf of the taxpayer that the development of the land as a building site and its subdivision into building plots was not an undertaking or scheme to which the taxpayer was a party. This submission is unrealistic and their Lordships cannot accept it. It is plain that the works necessary to prepare the 75 arpents as a building site and the construction of the necessary estate roads and drains, all of which had to be done b....
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.... The development of the 75 arpents into building plots and the sale-off of the plots took place over a seven-year period. When each deed of sale was drawn up the taxpayer surrendered his lease over the plot in question and received 50.04% of 50% of the price paid by the purchaser. Over the period 1988 to 1995 he received payments in each income tax year. The total sum he received amounted to more than Rs 37m. The taxpayer's income tax return for the year 1989/90, in which taxable receipts received in the year 1 July 1988 to 30 June 1989 should have been included, was undated and unsigned. His return for the year 1991/92, dated 29 September 1991, contained an entry under para 7.6 ("Interest and dividends") of Rs 1,402,903. This sum included interest of Rs 1,137,256, which apparently had been earned by morcellement payments that the taxpayer had received and placed on deposit. The source of this interest was not, however, disclosed in the return. The Tax Appeal Tribunal, in its determination of 20 October 2000, said that in his return for the year 1990/91 the taxpayer had declared a sum of Rs 9,499,815 described in the return as "Compensation for giving up of leasehold right". It a....
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....he total of morcellement payments received by the taxpayer in that year. The comparable sum in the assessment for the year of assessment 1990/91, based on income in the year 1989/90, is Rs 9,499,815. In the assessment for the year of assessment 1991/92 the comparable sum originally included was Rs 5,500,000. But it was subsequently realised that the Rs 5,500,000 involved an element of double counting and the figure was reduced to Rs 4,362,744. Nothing, for present purposes, turns on this. In each of the six assessments the "Total net income" figure on which, after the deduction of personal allowances and reliefs, the tax payable was calculated, was exactly the same as the "Total gross income" figure, the major ingredient of which was the morcellement receipts for the year in question. It is apparent, therefore that the whole of these receipts was treated as taxable. No deductions, representing the cost to the taxpayer of obtaining these payments, was made. This is a feature of the assessments to which their Lordships must return. The taxpayer appealed against these assessments. He contended that his morcellement receipts represented capital receipts, not profit, and therefore wer....
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....graph (h). But the content of the other paragraphs of section 11(1), and in particular those cited above, are, their Lordships think, relevant to an understanding of how the legislature intended paragraph (h) to be applied. Thus, paragraph (a)(i) refers to "the gross income derived from a business". But the taxpayer's expenditure in carrying on the business would have to be deducted in order to arrive at the net income of the business. If the business was that of buying and selling immovable property, the case would fall within paragraph (g). But if in the course of this business a property were purchased for Rs X and later sold for Rs Y, no one could sensibly suggest that the net income for tax purposes of this item of business would be Rs Y. The net income would be at worst Rs Y-Rs X and, probably, there would be other deductions as well. As to the time bar point, there has been some uncertainty as to whether the relevant statutory provisions are those contained in section 75 of the Income Tax Act 1974 (as amended by section 2(n) of the Finance Act 1993) or those contained in section 130 of the Income Tax Act 1995. Section 163 of the 1995 Act provides for the Act to come into o....
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....e Commissioner in 1994 and continued: "There was indeed a failure on the part of the appellant to disclose information regarding compensation he had received at the relevant period of time ... It is therefore our considered view that this concealing of information entitled the respondent to raise assessments for those years under section 130(2) of the Income Tax Act 1995." As to the substantive point, the tribunal declined to accept that the "leasehold rights of the appellant was merely a capital asset" and held that "the money appellant received was in the nature of an 'income' from 'any other source', no more and no less". So the appeals were dismissed. The Supreme Court 28 A case was stated for the opinion of the Supreme Court. The case was heard by Matadeen and Narayen JJ who delivered a joint judgment on 26 March 2003. In para 1 of the judgment they described the tribunal's decision as reached "essentially on the ground that the money received constituted profits from a profit-making undertaking or scheme and not the realisation of a capital asset". On this point, the substantive point, the court agreed with the tribunal. The tribunal had founded its conclusion on the prov....
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....65(2)(e) of New Zealand's Income Tax Act 1976. Section 65(2)(e) says that the assessable income of any person includes "all profits or gains derived from the carrying on or carrying out of any undertaking or scheme entered into or devised for the purpose of making a profit". If section 11(1)(h) had been in the form either of section 26(a) of the 1936 Australian statute or section 65(2)(e) of the 1976 New Zealand statute, the Commissioner's treatment of the whole of the morcellement receipts as taxable income would be plainly wrong. It cannot be contended that the taxpayer's morcellement receipts represented "profit" derived from his arrangements with Medine and the Societe; Such a contention ignores economic reality. In order to obtain the morcellement receipts the taxpayer had to surrender his leasehold interest over the 75 arpents. Before he agreed to the arrangements with Medine and the Societe his leasehold interest in the 75 arpents had a market value. The development work carried out by the Societe, as a necessary preliminary to the sale of the building plots, presumably added value to the land. There is no actual evidence or finding to that effect but their Lordships are pr....
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....e taxpayer from the undertaking or scheme in question. It follows that, in their Lordships' opinion, the Commissioner's treatment of the whole of the morcellement receipts as taxable was mistaken. Mr. Goodfellow, counsel for the Commissioner, submitted that it was for the taxpayer to provide evidence of the value of his leasehold interest in 1988 prior to the implementation of the morcellement scheme. If the taxpayer had done so he would have been in a position to challenge the basis on which the Commissioner had treated the morcellement receipts. Since the taxpayer had not done so, there was nothing, submitted counsel, to show that prior to the implementation of the morcellement scheme the 75 arpents had any value at all. He pointed out that a large part of the 75 arpents consisted of a disused sand quarry the value of which might well have been negligible or even negative. Their Lordships are unable to accept counsel's submissions. First, the evidence in the case shows clearly that pre the morcellement scheme the 75 arpents did have substantial value, derived no doubt from its development potential. The evidence is to be found in the written agreements between the Societe and M....
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....ake an assessment "according to the best of his judgment". Where it is clear that in exercising his judgment he has misdirected himself in law and where, as here, the misdirection has had a material effect on the quantum of the assessments, their Lordships do not think the assessments can stand. Their Lordships have been referred to no authority on the point but it would seem a plain injustice to permit assessments suffering from such defects to be enforceable against the taxpayer. The time bar point Their Lordships can deal quite shortly with this point. The onus is on the Commissioner to establish "fraud or wilful neglect". In Hillenbrand v. Inland Revenue Comrs (1966) 42 TC 617, 623 the Lord President, Lord Clyde said: "To establish wilful default within the meaning of those words in section 47 of the Income Tax Act 1952, the onus is quite clearly upon the Crown, and the taxpayer is not in the position of having to prove himself innocent of such a charge without proof by the Inland Revenue that he is guilty of default." Similarly, in their Lordships' opinion, the onus is on the Commissioner to establish that the taxpayer was guilty of wilful neglect. Fraud has never been all....