MAURITIUS TELECOM LTD & ANOR v THE DIRECTOR GENERAL MAURITIUS

REVENUE AUTHORITY

2020 SCJ 5
Record No. 113491 (Ter)

IN THE SUPREME COURT OF MAURITIUS

In the matter of:

1. Mauritius Telecom Ltd

2. Cellplus Mobile Communications Ltd
Appellants

v/s

The Director General, Mauritius Revenue Authority

Respondent

JUDGMENT

This is an appeal by way of case stated against a decision of the Assessment Review
Committee (“ARC”) maintaining the liability of the appellants to pay a “solidarity levy” imposed
by the respondent pursuant to the Income Tax Act 1995 (“the Act”).

Following an assessment of the appellants’ tax return for the year ending June 2009, the
respondent was of the view that the solidarity levy had not been correctly calculated in
accordance with section 50J of the Act. The solidarity levy was recalculated by the respondent
as a result of which respondent claimed the payment of Rs 49,093,368 (inclusive of penalty) as
solidarity levy from the appellants.

The appellants appealed to the Assessment Review Committee which, inter alia,
maintained that (1) solidarity levy was rightly imposed pursuant to section 50J of the Act on the
basis that the appellants’ ‘turnover’ included dividend, interest, rent, profit on disposal of assets
and other income; (2) solidarity levy was imposable on income including exempt income which
was not subject to income tax.

The present appeal raises 2 questions for our determination:

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1. whether the ARC was right in imposing solidarity levy on the basis that the term
‘turnover’ in section 50I of the Act includes dividend, interest, rent, profit on disposal
of assets and other income;
2. whether solidarity levy may be imposed on income, which, as exempt income, is not
subject to income tax under the Act.

The first issue turns essentially on the interpretation of the term ‘turnover’ in determining
liability for payment of a ‘solidarity levy’ under the Act.

The law

The imposition of a solidarity levy on ‘telephony service providers’ was enacted in the
Finance (Miscellanous Provisions) Act 2009 [Act No. 14 of 2009] which amended the Income
Tax Act by introducing a new section 50J in its Sub part AC.

Section 50J(1) created the liability to pay the solidarity levy in the following terms:

“50J Liability to Solidarity Levy

(1) Subject to this section, every operator shall be liable to pay to the Director-General a
solidarity levy calculated by reference to its book profit and turnover in respect of the
preceding year at the rate specified in subsection (2)”

Section 50J(2) went on to prescribe that the levy shall be calculated at the rate of 5
percent of the book profit and 1.5 per cent of the turnover of the operator in respect of each year
of assessment.

Section 50I of the Act, which is the interpretation section provides a definition of the
words ‘operator’, ‘levy’, ‘book profit’ and ‘turnover’ which are applicable for determining whether
the appellants were liable to pay the levy pursuant to section 50J of the Act.

““operator” –

(a) means a provider of public fixed or mobile telecommunication networks and services;
and
(b) includes information and communication services such as value added services and
mobile internet; but
(c) does not include a provider engaged exclusively in the provision of internet services
or internet telephony services or international long distance services as referred to in
the Information and Communication Technologies Act;”
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“book profit” means the profit derived by an operator from all its activities and
computed in accordance with the International Financial Reporting Standards;

“levy” –

(a) means the solidarity levy referred to in section 50J;”

“turnover” means the gross receipts derived by the operator from all its activities.”

It is not in dispute that the appellants were “operators” as defined under section 50I and
therefore liable to pay a solidarity levy within the purview of section 50J of the Act.

The dispute between the parties turns on the interpretation of ‘turnover’ for the purposes
of calculating “solidarity levy” in accordance with section 50I and section 50J of the Act. The
appellants challenge the ARC’s interpretation of the term ‘turnover’ as including dividend,
interest, rent, profit on disposal of assets and other income received in the course of its
activities. According to the appellants, ‘turnover’ must for the purpose of calculating the
solidarity levy which they have to pay, be limited to the income and proceeds derived by them in
respect of their telephony related activities and must not include money received from any other
source.

Learned counsel for the appellants submitted that when defining the term ‘turnover’ in
the Act, the legislator did not intend to give it a meaning which is different from the one
commonly understood by accountants. “Turnover” as a technical term is commonly understood
by accountants to have the meaning ascribed to it in the Statement of Standard Accounting
Practice (“SSAP”) and would consist of revenue arising from the principal activities of the
enterprise and would not usually include those items of revenue and gains that arise
incidentally. “Turnover” must therefore be given its technical meaning in the absence of any
contrary intention which appears in the Act.

Counsel also submitted that the respondent and the ARC erred in adopting, with regard
to the definition of “turnover”, a literal interpretation and the dictionary meaning of the words
“gross receipts derived by the operator from all its activities”. Such an interpretation is devoid of
common sense and leads to an absurd result. Counsel submitted that adopting the ARC’s
interpretation would mean for example that the term “turnover” would include the sale proceeds
of immovable property because this is an amount which the appellants have “received” from the
sale of its fixed assets. It was argued however that such an exercise would be contrary to the
basic principles of accountancy and it would be absurd to presume that the legislator intended
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to depart from such principles. As a matter of common sense therefore the legislator
specifically used the technical term “turnover” in a tax legislation because it intended the term to
have the same meaning as commonly understood by accountants who generally prepare the
annual tax returns of companies on that basis. Counsel added that similarly common sense
dictates that contrary to the respondent’s contention, the legislator cannot be taken to have
intended the words “gross receipts” to mean an amount received by the appellants as refund of
pre-paid expenses or to include any other income which is not related to its telephony activities.

Counsel for appellants went on to submit that the purpose of defining “turnover” was to
avoid any doubt in the payment of solidarity levy in respect of the activities of an operator which
is an exclusive provider of internet services under paragraph (c) of the definition of “operator” in
section 50I of the Act. Counsel argued that it would lead to an absurd result if an exclusive
provider of internet services, who is not an operator liable to solidarity levy by virtue of its
exclusion under paragraph (c), would cease to be exempted merely because it has received
some interest, rental or dividend. It would lead to an absurd result if “turnover” is extended to
include receipts by the appellants in respect of such activities as dividend, rental, sale proceeds
of immovable property and any other income. It could not have been the intention of the
legislator that solidarity levy should be computed by taking into account such other income. The
solidarity levy could only have been computed on the basis of receipts from the appellants’
telephony and connected services as set out in the definition of “operator” under section 50I(a)
and (b) of the Act. The respondent and the ARC therefore erred in including in the computation
of the solidarity levy any other income derived by the appellants otherwise than as a provider of
fixed or mobile telecommunications networks and services.

The legislative scheme, which creates liability for payment of solidarity levy pursuant to
section 50I and 50J of the Act, is straightforward and devoid of any confusion.

Firstly, it is incumbent upon “every operator” to pay the levy. Paragraphs (a),(b),(c) of
section 50I of the Act define precisely who is liable as an “operator” to pay the levy. There is no
dispute that the appellants were “operators” within the meaning of paragraphs (a) and (b) of
section 50I of the Act. Since they were not engaged exclusively in the provision of services,
they were not excluded under paragraph (c).

Section 50J(1) goes on to provide for the mode of computation of the levy payable by an
operator. The levy is calculated by reference to the operator’s ‘book profit’ and ‘turnover’ for
each year of assessment.
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In the present case, we are only concerned with the computation of “turnover”. But
again the legislator has chosen to define in precise terms what is meant by turnover: “turnover”
means the “gross receipts derived by the operator from all its activities”.

The above statutory meaning is clear and unambiguous. The operator is liable to pay a
solidarity levy in respect of its turnover calculated on “gross receipts” derived from “all its
activities”.

The deliberate inclusion by the legislator of the words “gross” and “all” in the definition of
“turnover” provide an explicit insight into the scope of application of the word “turnover”. By
combining “gross” with “receipts” and by incorporating the word “all” in conjunction with “its
activities”, the legislator could not be clearer in its intention as to what should be included in
“turnover” for calculating the quantum of solidarity levy. “Gross receipts” expresses in no
uncertain terms that the levy should be applicable to the total amounts received from all sources
by the operator without any deduction. “Turnover” includes “gross receipts” derived not only
from some of its activities but it is expressly provided “from all its activities”, meaning the gross
receipts derived from the totality of its activities.

There is a levy of 1.5 percent imposed on the gross receipts derived from all the
activities of the operator. The plain and ordinary meaning of “all its activities” would thus include
any proceeds, income or money received by the appellants as a result of their investments, the
renting out of premises, the sale of any property or as interests. Any other income other than
from their telephony related activities would also fall within the ambit of the definition “turnover”
for the purposes of computing the solidarity levy pursuant to section 50I and 50J of the Act. The
calculation of “turnover” is therefore not limited to only the principal or telephony related
activities of the appellants as submitted by Counsel for the appellants

The legislator has chosen to define “turnover” in clear and precise terms which simplifies
the administration of tax in respect of the imposition of the 1.5 per cent of the turnover with
regard to the calculation of the solidarity levy under section 50J(2) of the Act.

“Turnover” is thus defined in plain and clear language which gives rise to no ambiguity
as to its meaning and its application under the Act. There is no need to invoke any external
interpretative aid or any further rule of construction as learned counsel for the appellants has
attempted to do. The definition of “turnover” is free from any ambiguity and does not, as
submitted by learned Counsel for the appellants, give rise to any absurd result.
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The legislator has thus come up with a clear and explicit definition of “turnover” which
achieves the purpose of simplifying tax administration by providing a straightforward and precise
method of calculating the imposition of the solidarity levy, free from any computing or
administrative complexity in its implementation.

Furthermore, the legislator, by choosing to expressly provide a specific definition of

“turnover” for the purposes of computing the solidarity levy, excludes the need for resorting to a
definition from any other source: “where the literal meaning of a general enactment covers a
situation for which specific provision is made by some other enactment within the Act or
instrument, it is presumed that the situation was intended to be dealt with by the specific
provision” [Vinos v Marks & Spencer plc [2001] 3 All ER 784 (para. 27].

This principle is encapsulated in the maxim generalibus specialia derogant, which

means that special provisions override general ones. The definition of “turnover”, under section
50I of the Act of sub-part AC of the Act, has been tailored by the legislator to apply specifically
to the calculation of “turnover” under section 50J of the same sub-part of the Act. There is no
merit in the argument that the definition of “turnover” under the Act must give way to, or must in
any manner be read subject to a technical accounting definition adopted by Accountants in line
with the Statement of Standard Accounting Practice (SSAP). Had the legislator intended the
term “turnover” to have any other technical meaning, the legislator would have either (a)
abstained from providing any specific statutory definition in sub-part AC of the Act or (b) defined
it by reference to accounting standards as it has done under the same sub-part AC, for the
purpose of defining “book profit” which the legislator has expressly and purportedly enacted
should be “computed in accordance with the International Financial Reporting Standards”.

This is clearly not the case here and there is accordingly no reason to depart from the
plain and straightforward statutory definition of “turnover”. There is thus no merit in the
submission that the appellants’ liability should be limited only to their principal or their telephony
related activities. Once an entity qualifies as an “operator”, it becomes liable to pay 1.5 per cent
levy on its turnover which is calculated on “the gross receipts derived by the operator on all its
activities”. The legislator has unequivocally provided that the “gross receipts” are not limited to
gross receipts from telephony related activities only but extends to the total amounts received
by the operator from all its activities.

Again had it been the intention of the legislator to compute solidarity levy based on gross
receipts from telephony-related activities only, it would have said so as the legislator has
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consistently done in the other situations where it has limited the application of particular tax
provisions to some specific activities of the tax payer. To quote a few instances from the Act:

(a) under section 50M of the Act, the legislator has limited book profit to profit of banks
in relation to “banking transactions” only.
(b) under section 151(3)(b) of the Act, the legislator has specified that income derived
from any “business includes” income derived from “agricultural activities”.
(c) under 161A (Transitional provisions) sub-section 13(i), the legislator targets income
of a Freeport developer or operator from “paper trading activities”.
(d) under section 10A in sub part C, the legislator expressly targets income derived from
“bunkering activities”.

For the given reasons we consider that there is no merit in the submissions that
“turnover” in section 50J of the Act should not include “dividend, interest, rent, profit on disposal
of assets and other income”. We find no fault with the reasoning and legal approach adopted by
the ARC in reaching such a conclusion.

We accordingly hold that for the purposes of calculating solidarity levy pursuant to
section 50J of the Act, “turnover” is not limited only to the gross receipts by any of the appellants
of its telephony-related activities but includes the gross receipts derived from all its activities
during each year of assessment.

We shall now turn to the second issue raised on behalf of the appellants. It was
submitted by counsel for the appellants that the respondent and the ARC erred in reaching the
conclusion that solidarity levy is imposable on dividends received by the appellants which, as
exempt income, is not subject to income tax under the Act.

It was submitted on the other hand by counsel for the respondent that solidarity levy is
imposable on all gross receipts by the appellants irrespective of whether these receipts are
subject to income tax or not. Counsel argued that the liability to pay income tax arises from
section 4 of the Act, the provisions of which are of general application. Section 4(1)(b) of the
Act provides for that purpose that income tax is to be calculated “on the chargeable income” of
the person liable to pay income tax. Counsel submitted that this is not the case when it comes
to the imposition of the solidarity levy under the Act.

The legislator, by introducing solidarity levy in 2009 departed from the existing formula
under section 4 of the Act and came up with a distinct régime for the imposition and
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computation of solidarity levy. Income tax is calculated on ‘chargeable income’ in respect of

which there are exemptions under the Act but solidarity levy is computed by reference to “book
profit” and “turnover” which captures all the “gross receipts derived by the operator from all its
activities”. There is no provision for dividends as exempt income which was a applicable only in
respect of income tax charged under section 4 of the Act.

It is not disputed that section 2 of the Act provides that “exempt income means any
income specified in the Second Schedule” to the Act which in turn indicates in its “Sub-Part
B(1)(a)”, that “Dividends paid by a company resident in Mauritius” is exempt income.

It is not factually disputed that appellant no. 2 is a subsidiary of appellant no. 1 and as
such pays dividends to appellant no. 1 and that the respondent computed solidarity levy both on
the profits made by appellant no. 2 and the dividends paid from such profits to appellant no. 1.

It is significant to bear in mind that the definition of “income tax” under section 2 of the
Act includes under paragraph (b)(ii), “the levy imposed by Sub-Part AC of Part IV” of the Act,
which is indeed the solidarity levy imposed on the appellants pursuant to section 50J of the Act..

“Solidarity levy” falls therefore, to all intents and purposes, within the definition of
“income tax” under the Act. As enacted in the definition section, it applies to the whole of the
Act including section 50J which imposes the levy under sub-part AC of Part IV to which
reference is expressly made in section 2 (supra).

Section 7(2) of the Act, which is again of general application to the Act, provides that:

“Any income specified in Part II of the Second Schedule shall be exempt from
income tax”

As seen earlier “dividends” paid by a company resident in Mauritius is specified in Part II

of the Second Schedule as “exempt income”, which is exempt from Income Tax. Section 7(2) of
the Act, read together with Part II of the Second Schedule, therefore provides that dividends
shall be exempt from Income Tax, which as it has been seen earlier, includes solidarity levy.

The wording of section 7(2) is not subject to any other provisions of the Act.
Section 7(2) thus provides that any income, which includes dividends, shall be unconditionally
exempted from “income tax” which by virtue of its definition under section 2 (Supra) specifically
includes the solidarity levy imposed under section 50J in “Sub-Part AC of Part IV” of the Act.
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The legislator amended section 2 of the Act to include “solidarity levy” as an “income tax”
for the purposes of the whole of the Act at the same time as the legislator created the imposition
of a solidarity levy by introducing section 50I and J in a new Sub-Part C in Part IV of the Act.
This was done comprehensively and concurrently by the enactment of section 21 of the Finance
(Miscellaneous Provisions) Act 2009 which came into force on 30 July 2009.

A plain reading of the above-mentioned sections of the Act, unequivocally indicates that
“dividends” is an exempt income which is exempt from payment of income tax. By virtue of
section 7(2) of the Act, coupled with the definition of “income tax” under section 2 of the Act,
“dividends” received by a resident company is exempt from the payment of any form of income
tax under the Act which specifically includes the “solidarity levy” imposed under section 50J of
the Act. Had the legislator intended to exclude the application of “exempt income” in the
computation of solidarity levy it would have done so by either limiting the application of “exempt
income” under section 7(2) of the Act or by excluding its application under section 50J of the
Act. On the contrary by expressly incorporating “solidarity levy” as “income tax” under section 2
of the Act, the legislator has unequivocally brought “solidarity levy” within the purview of the
exempt income which is indiscriminately and unconditionally exempted from any form of income
tax under section 7(2) the Act.

To sum up therefore, the dividends paid by appellants is an “exempt income” [Part II of

Second Schedule] which is exempt from income tax [section 7(2) of the Act] in respect of any
income tax payable under the Act and which includes the solidarity levy [section 2 of the Act].

We accordingly hold that “dividends” received by the appellants as a resident company

is “exempt income” pursuant to section 2, section 7(2) and Part II of the Second Schedule to the
Act and as such is exempt from calculation of “Solidarity levy” under section 50J of the Act.

We need to make it clear however that it is only dividends received by the company
which is exempt income. This would not apply to any other “gross receipts” in respect of profits
or proceeds derived from the disposal of assets. Although there is no capital gains tax in our
legislation, solidarity levy is calculated by reference to all “gross receipts derived by the operator
from all its activities”, as has been explained earlier in this judgment. There is therefore an
applicable exemption in the present matter only in respect of dividends – section 7(2) of the Act
does not include, or extend, the exemption to proceeds emanating from the sale of fixed assets
which would fall within the purview of “gross receipts” derived from the activities of the operator.
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In view of the given reasons we hold that:

(1) the ARC was right in holding that the term “turnover” in section 50I of the Act
includes dividend, interest, rent, profit on disposal of assets and any other income
derived by any of the appellants from all its activities;
(2) Dividends received by any of the appellants, as a company resident in Mauritius, is
exempt from the computation of solidarity levy imposable under section 50J of the
Act.

We shall in the circumstances of the present case make no order as to costs.

A. Caunhye
Senior Puisne Judge

V. Kwok Yin Siong Yen

Judge
08 January 2020

Judgment delivered by Hon. A. Caunhye, Senior Puisne Judge

For Appellants : Mr A. Robert, SA

Mr R. Pursem, SC, together with Mr T. Ramtale, of Counsel

For Respondent : Ms V. Nirsimloo, Chief State Attorney

Mrs P. Ramjeeawon Varma, Principal State Counsel