2004 (9) TMI 66 - HC - Income Tax

Penalty for concealment of income - Assessment - taxpayer s morcellement receipts - morcellement scheme - it might be possible to allow the Commissioner to amend the assessments by substituting for the present entries relating to the taxpayer s morcellement receipts entries representing the Commissioner s estimate of the profit element in the receipts. He could make this estimate according to the best of his judgment by deducting from the receipts a sum equal to 50.04% of the market value of the 75 arpents prior to the implementation of the morcellement scheme. For the avoidance of doubt their Lordships opinion is that the sum to be deducted should reflect the then existing development potential of the land. If the taxpayer wishes to challenge the Commissioner s estimate, the case would have to be remitted to the Tax Appeal Tribunal for that purpose - The findings necessary to justify a conclusion that wilful neglect had been established against the taxpayer were absent. It follows that the making of the assessments for 1989/90 and 1990/91 cannot be justified by reliance on section 130(2). The assessments were out of time.

Summary

Issues Involved
1. Taxability of the taxpayer's morcellement receipts.
2. Time bar on assessments for the years 1989/90 and 1990/91.

Detailed Analysis

1. Taxability of the Taxpayer's Morcellement Receipts

Relevant Statutory Provisions:
- The case primarily hinges on the interpretation of section 11(1)(h) of the Income Tax Act 1974, which requires the inclusion of "any sum or benefit, in money or money's worth, derived from the carrying on or carrying out of any undertaking or scheme entered into or devised for the purpose of making a profit" as "gross income."
- The taxpayer argued that his receipts were capital in nature and should not be taxable under this provision, while the Commissioner treated the entire receipts as taxable income.

Facts and Findings:
- The taxpayer, Paul de Maroussem, had entered into a scheme with Medine and Societe Roger de Chazal for the development and sale of 75 arpents of land.
- The taxpayer received substantial payments from the sale of building plots, which he did not include in his tax returns for the relevant years.
- The Tax Appeal Tribunal and the Supreme Court of Mauritius found that these receipts constituted income from a profit-making scheme and were taxable under section 11(1)(h).

Judgment:
- The judgment concluded that the whole of the morcellement receipts could not be treated as taxable income. The taxpayer's leasehold interest in the land had a substantial market value prior to the development scheme, and only the profit element derived from the scheme should be taxable.
- The court held that section 11(1)(h) must be construed to equate the "sum or benefit" subjected to tax with the profit or gain derived from the undertaking or scheme.
- The Commissioner's treatment of the entire receipts as taxable income was found to be mistaken.

2. Time Bar on Assessments for the Years 1989/90 and 1990/91

Relevant Statutory Provisions:
- Section 130 of the Income Tax Act 1995, which limits the Commissioner from making assessments beyond four years of assessment unless there is evidence of "fraud or wilful neglect."

Facts and Findings:
- The assessments for the years 1989/90 and 1990/91 were issued outside the four-year period.
- The Tax Appeal Tribunal and the Supreme Court upheld these assessments on the grounds of "wilful neglect" by the taxpayer for failing to disclose the morcellement receipts.

Judgment:
- The judgment disagreed with the findings of wilful neglect. The tribunal's conclusion was based on a mere failure to disclose information without establishing that the taxpayer intentionally or purposively omitted the information knowing he had a duty to disclose it.
- The necessary findings to justify a conclusion of wilful neglect were absent, making the assessments for these years out of time and invalid.

Conclusion
- The assessments for the years 1989/90 and 1990/91 were set aside due to being out of time.
- The case was remitted to the Supreme Court to be disposed of in accordance with the judgment, with the Commissioner required to pay the costs of the appeal.