Executive summary

The Judicial Committee of the Privy Council (JCPC), on 8 April 2025, overturned decisions of the Assessment Review Committee (ARC) and the Supreme Court of Mauritius (SCM), which had both found in favor of the Mauritius Revenue Authority (MRA). In Marie Henri Dominique Galea (the appellant) v. Assessment Review Committee (ARC), et al. (the respondents), the JCPC agreed that the appellant was eligible to treat his share of losses in Société Agricole de Mont sur Mont (SAMM) as deductible against his non-employment taxable income. The MRA had asserted that the losses were not deductible because SAMM's activities were not in the nature of a business.

SAMM owned land in Mauritius that it used to breed deer and monkeys; it earned money from contributions paid by deer hunters, selling venison and selling live monkeys, but had consistently lost money from approximately 1996 to 2007.

The Board of the JCPC concluded that the ARC and the SCM erred in their interpretation the words "with a view to profit" to assess whether the activities of SAMM qualified as a "business" under section 2 of the Income Tax Act (the Act). The Board ruled that the correct test to apply in such an assessment is a subjective one and the ARC was wrong to apply an objective test. The ARC was therefore wrong when it concluded that SAMM did not carry out a business because it did not expect to make a profit in the near future.

The Board reiterated that the ARC made a material error of law by equating the words "with a view to profit" to "with a reasonable expectation of making a profit in the near future." The Board emphasized that SAMM undertook a number of steps to optimize a return from its land, which was sufficient evidence to demonstrate that the activities were carried out with a view to profit.

Further, the Board chose to consider court decisions that SAMM had not raised at the ARC and SCM, lending to the objectivity of its conclusion in this case.

Detailed discussion

Facts of the case

SAMM was formed on 18 January 1993 and is a fiscally transparent entity in Mauritius, so that each associé (i.e., partner) is liable for tax on his share of the société's net income. Mr. Galea owned 92% of SAMM and the remaining interest was owned by another individual.

In 1993, SAMM purchased two plots of land at Baie du Cap in Mauritius, totaling 234 Mauritian Arpents (i.e. approximately 200 acres) for a purchase price of approximately 4,000,000 Mauritian rupee (Rs4m). In 1999, SAMM commenced deer shooting activities (chassée) when deer were introduced onto the land and has since organized three or four deer hunting expeditions a year. The chassée therefore provided two sources of income: annual payments by the members of the chassée and income from sales of venison to local butchers.

In the early years 1996/97 and 1997/98, SAMM also sold live monkeys, which generated income for SAMM. However, due to local restrictions in 1998/99 and 2001/02, the sale of monkeys was interrupted but was carried out again in the years 2002/03, so that SAMM received income from these sales when it was permitted by law.

SAMM also tried to launch the business of rearing wild boar in an enclosure, but the animals did not survive. "Tourisme de chasse," eco-tourism, renting of a house on its land and allowing the picking of Chinese Guavas were among the other activities that SAMM considered launching, but these were not successful.

On 13 March 2007, the MRA initiated an investigation into the appellant's tax affairs for the relevant years. On 25 June 2009, the MRA issued assessments to the appellant in respect of those years, denying deductions for the share of losses in SAMM against Galea's business income from other sources. On 20 July 2009, the appellant objected to those assessments and by notice dated 17 November 2009, the MRA maintained the assessments, after which the appellant lodged written representations to the ARC.

On 11 November 2013, the ARC dismissed the appellant's representations and he appealed to the SCM. The SCM heard the case on 11 July 2016 and upheld the decision of the ARC in its judgment of 15 March 2023.The appellant subsequently appealed to the Board of the JCPC upon the conditional leave of the SCM dated 4 September 2023.

Matters in dispute

The matters in dispute relate to whether SAMM carried a business with a view to profit. The Board concluded that a subjective test should be applied to determine whether the SAMM's activities were "carried on with a view to profit." The decisive factors in this case were the facts and evidence demonstrating the intention to conduct a business as demonstrated by the statements made by the appellant.

The Board stressed that the respondents and the SCM applied an incorrect test to ascertain whether SAMM was engaged in a business. Many businesses, like the chassée, may operate at a loss, but this does not mean they do not qualify as a business for the purposes of section 2 of the Act, the Board concluded.

Case law referred to by the Board

Grieve v. Commissioner of Inland Revenue of New Zealand

The Board was invited to examine the case of Grieve v. Commissioner of Inland Revenue of New Zealand, (1984) 6 NZTC 61682. The definition of the term "business" in New Zealand's Income Tax Act is similar to that of Mauritius, which includes any profession, trade, manufacture or undertaking carried on for pecuniary profit. At issue was whether a husband and wife who purchased a run-down farm and incurred losses for many years were not conducting a business. While the taxpayers initially lost the case, they won their appeal.

In this case, it was established that the taxpayers had a genuine intention to make a profit. The judgment highlighted that even if a business is loss-producing, it is sufficient to establish a business motive if the actual intention is known. Emphasis was placed on the nature of the activities being carried out and the intent of the taxpayer in engaging in those activities. Statements by the taxpayer regarding their intentions are relevant.

The decision further reiterated that businesses do not cease to be businesses merely because they are unprofitable or if the taxpayer derives personal satisfaction from the venture.

Ingenious Games v HMRC

In Ingenious Games v Her Majesty's Revenue and Customs (HMRC), [2019] UKUT 0226 (TCC), the HM Courts & Tribunals Service and Upper Tribunal (Tax and Chancery Chamber) ruled that profit-making does not need to be the predominant aim of a business.

Conclusion of the JCPC judgment

The Board clarified how the words "with a view to profit" should be interpreted and confirmed that a subjective test is to be applied taking into consideration the facts and circumstances. The Board further emphasized that profit-making does not need to be the sole objective; rather, a genuine intention to conduct business is the key matter to consider.

By recognizing that persistent losses do not imply that an activity does not qualify as business, the Board has established a significant precedent and clarified the appropriate tests to be applied. This judgment serves as a reminder that each case must be evaluated on its own merits, taking into account the relevant facts and circumstances.

The Board rejected the view that the sale of venison meat and monkeys was a means to reduce costs rather than being done in the course of a business. The Board also reiterated the point that the profit could be generated in the longer run.

As businesses navigate the complexities of tax obligations, this judgment reinforces the need for clear evidence of intent and the understanding that financial performance alone is not decisive in assessing whether a person is carrying on a business.

Implications

The judgment specifically deals with a business carried out by a tax transparent entity so that the owners can effectively use the loss. Hence, its impact is likely to be relevant to resident partnerships. In the case of companies, the computation of any tax loss may be academic and may remain unrelieved due to the five-year restriction on the utilization of tax losses. The key point is that, once a profit motive is established as evidenced by meaningful steps, the loss may be legitimate for tax purposes.

Companies that run a business similar to SAMM in conjunction with other profitable businesses will take comfort in the Board's decision.

For similar cases of a similar nature, the approach the MRA takes in its audit is likely to shift based on the nature of the expenses and the tax treatment of the disposal of the land. It is important to remember that consideration of the words "with a view to profit" should not be confined to taxable profits.

If SAMM were required to comply with International Financial Reporting Standards, its land would have been stated at its fair market value so that the increase in the value of the land would have been apparent in its balance sheet. The income statement may well have reported a commercial profit.