Case J. Kalachand & Co Ltd

J. Kalachand & Co. Ltd, a major retailer in Mauritius, provides hire purchase facilities to its clients. The Finance Act 2018 amended the Income Tax Act (ITA) to exempt 80% of interest income derived by companies (other than banks) from income tax. However, the Income Tax (Amendment of Schedule) (No. 4) Regulations 2020 (“2020 Regulations”) excluded companies providing hire purchase facilities from this exemption, with retrospective effect from 1 January 2019.

As a result, J. Kalachand & Co. Ltd was required to pay Rs. 17,056,929 in income tax for the years 2019-2020 and 2020-2021, which it did under protest. The company challenged the retrospective application of the regulation, first before the Supreme Court (via judicial review) and then, following the Supreme Court’s direction, before the ARC.

Key Legal Issues

1. Retrospective Taxation:

The central issue was whether the retrospective application of the 2020 Regulations, which withdrew the 80% exemption for hire purchase companies, was constitutional, fair, and reasonable.

2. Jurisdiction of the ARC: The Mauritius Revenue Authority (MRA) objected to the ARC’s jurisdiction, arguing that only the Supreme Court could rule on constitutional matters. The ARC, however, held that it could hear the case, especially as the Supreme Court had directed the applicant to bring the matter before the ARC.

3. Power to Make Retrospective Regulations: The ARC examined whether the Minister had the legal authority to enact regulations with retrospective effect. It found that Section 22 of the Interpretation and General Clauses Act (IGCA) allow for subsidiary legislation to operate retrospectively, provided it does not impose penalties before publication. Section 161 of the ITA further empowers the Minister to amend schedules via regulation.

Decision and Reasoning

• Constitutionality: The ARC concluded that retrospective tax legislation is not inherently unconstitutional. The Supreme Court’s jurisprudence (notably D’Unienville & Anor v Mauritius Commercial Bank) confirms that Parliament—and by delegated authority, the Minister—can enact retrospective tax laws, provided they do not violate explicit constitutional protections.
• Fairness and Reasonableness: While the ARC acknowledged that the retrospective withdrawal of the exemption was “unjust and hard” for the taxpayer, it held that such hardship does not, by itself, render the law unconstitutional. The Committee emphasized the principle “dura lex, sed lex” (the law is harsh, but it is the law).
• Discrimination: The ARC found no evidence that the regulation was discriminatory under the Constitution, as it did not differentiate on prohibited grounds such as race, caste, or creed.
• Policy Merits: The ARC reiterated that it is not its role to assess the wisdom or merits of government policy, but only to ensure conformity with the law and Constitution.

Outcome

The ARC dismissed all grounds of representation by J. Kalachand & Co. Ltd, upholding the validity of the 2020 Regulations and the MRA’s retention of the tax paid. The Committee, however, noted that the MRA could, as a matter of fairness, seek legal advice on whether to insist on the retroactive application in future cases, referencing past instances where the tax authority exercised discretion in similar circumstances.

Final Remarks

This decision underscores the broad powers of the Mauritian government to enact retrospective fiscal legislation, the limited scope for constitutional challenge in such matters, and the importance for taxpayers to be aware of potential changes in tax law that may affect prior periods. The ARC further clarified that its role is limited to applying the law and ensuring conformity with constitutional norms, not assessing the fairness or policy merits of legislative decisions. The ARC further clarified that its role is limited to applying the law and ensuring conformity with constitutional norms, not assessing the fairness or policy merits of legislative decisions.