In the recent case of Alteo Energy Ltd v. Assessment Review Committee & Anor, the Supreme Court of Mauritius (“Supreme Court”) addressed a significant issue concerning tax exemption on interest income. The appellant, Alteo Energy Ltd (the “Company”), sought to overturn the Assessment Review Committee's (“ARC”) decision, which upheld the Mauritius Revenue Authority's (“MRA”) disallowance of an 80% exemption on its interest income for the assessment year 2019-2020.
Background of the Case
Alteo Energy Ltd, part of the Alteo Group and primarily engaged in electricity production, reported an interest income of Rs. 2,151,622 for the financial year ended 2019. The company claimed an 80% exemption on this income under item 7 of the Income Tax Act 1995 (“ITA”). However, the MRA contested this claim, stating that the interest income did not arise from the Company’s Core Income-Generating Activities (“CIGA”), leading to an assessment notice demanding Rs. 158,145. The Company lodged a notice of objection to the assessment for determination by the Objections, Appeals and Dispute Resolution but the assessment was maintained by the latter.
Legal Arguments
The crux of the appeal revolved around the interpretation of item 7 of the ITA and Regulation 23D(2) of the Income Tax Regulations 1996 (“IT Regulations”). The appellant argued that the ARC erroneously added a condition that interest income must be derived from CIGA, which was not explicitly stated in the law. The appellant maintained that the language of the law was clear and unambiguous, allowing for the exemption without additional conditions.
Conversely, the MRA contended that the substance of the activities must relate to CIGA, asserting that the interest income did not meet this criterion on the basis that interest income constituted only an insignificant portion of the Company’s total income. The ARC's findings reflected this interpretation, leading to the appeal.
Court's Findings
The Supreme Court found that the ARC's approach was rather confusing. The Supreme Court emphasized that tax provisions must be construed strictly, and any ambiguity should favour the taxpayer. The Supreme Court noted that the term "includes" in the definition of CIGA does not impose exhaustive conditions, allowing for a broader interpretation that does not necessitate the interest income to be derived from CIGA.
The Supreme Court concluded that the ARC had strained the language of the provisions, introducing conditions not expressly provided for in IT Regulations 23D(2). Consequently, the Supreme Court allowed the appeal and remitted the case to the ARC for proper application of the exemption provisions, affirming that the law does not restrict the exemption to interest income derived from CIGA.
Conclusion
While this Supreme Court judgment clarifies the criteria for eligibility to partial exemption on interest income, it is understood that the MRA has applied for leave to appeal to the Judicial Committee of the Privy Council. Accordingly, on a prudence basis, it is recommended for companies to seek advice on the matter prior to claiming partial exemption on interest income which are not derived from their CIGA.
If you wish to discuss these topics, please contact:
WTS Tax Consulting (Mauritius) Ltd.
