The Supreme Court (“SC”) judgment delivered on 08 May 2024 in the Dilloo case (2024 SCJ 191) provides clarity on the interpretation of the remittance rule under section 5(3) of the Income Tax Act (“ITA”).
Facts
Mr Dilloo, a Mauritian national was employed as sales manager of Microsoft Arabia, a company based in Saudi Arabia;
During the three years ended 30 June 2018, he transferred some Rs 25 million from his Saudi Arabian bank account into his Mauritius bank account;
Part of the money was used to acquire immovable property in Mauritius from which rental income was derived;
No income tax returns were furnished by Mr Dilloo during the years under review;
Mr Dilloo produced a letter from his employer attesting that he had paid tax in Saudi Arabia on the emoluments earned in Saudi Arabia.
The Mauritius Revenue Authority (“MRA”) raised assessments on the following grounds:
Being a resident of Mauritius, Mr Dilloo has failed to pay tax on the rental income derived from Mauritius as well as foreign sourced income remitted to Mauritius;
The letter emanating from Mr Dilloo’s employer does not constitute satisfactory evidence that the emoluments have been subject to tax in Saudi Arabia.
Mr Dilloo objected to the assessments on the ground that he was not a resident of Mauritius during the period under review and could not be assessed on foreign sourced income remitted to Mauritius. Since the assessments were maintained at objection level, Mr Dilloo made representations to the Assessment Review Committee (”ARC”) accordingly.
The ARC ruled in favour of the MRA but held that the remittance basis under section 5(3) of the ITA is applicable to residents as well as non-residents. Both the MRA and Mr Dilloo appealed to the SC against the ARC’s decision and challenged the ARC’s stand that the remittance basis applies regardless of whether an individual is resident in Mauritius or not.
In his appeal to the SC, Mr Dilloo also stated that the ARC had erred in:
Considering him as a resident of Mauritius; and
Treating income derived from Saudi Arabia and remitted to Mauritius as taxable income instead of savings.
The SC allowed the appeal of the MRA and ruled that it is imperative that an individual be a resident of Mauritius for his foreign sourced income which is remitted to Mauritius to be subject to tax in Mauritius.
Our Comments
Both the MRA and the industry have always interpreted the remittance basis as being applicable only to an individual who is a tax resident of Mauritius. The fact that the SC also subscribes to that view is a welcomed relief.
Further, the Dilloo case sheds light on the issue of remittance which has never been canvassed in a Mauritian court before. The SC upheld the decision of the ARC that remittance of employment income derived from outside Mauritius cannot alter its character as ‘income’. In other words, the sums remitted would be considered as employment income in Mauritius and cannot be treated as ‘capital’.
Lastly, the judgment confirms that a letter of attestation from an individual’s overseas employer is not sufficient to support his claim for foreign tax credit. Therefore, only documentary evidence from foreign tax authorities may be used for the purpose of claiming foreign tax credit.
