The Revenue Tribunal pushes back on Annual Allowance deferral
On 2 April 2026, the Revenue Tribunal (RT) ruled against CMT Spinning Mills Ltd (CMT) confirming the Mauritius Revenue Authority’s (MRA) disallowance of annual allowances (AA) (ARC/IT/361-19).
Background facts:
On 2 April 2026, the Revenue Tribunal (RT) ruled against CMT Spinning Mills Ltd, upholding the MRA’s decision to disallow the company’s AA claims (ARC/IT/36119).
CMT, a yarn spinning operator with two factories in La Tour Koenig, benefited from a 10 year tax holiday between 2005 and 2014 under section 161A(7A) of the Income Tax Act (ITA). During this period, it claimed AA at a nominal rate of just 0.5%. Once the exemption expired, however, CMT significantly increased its AA claims.
Viewing this shift as excessive and tax driven, the MRA invoked the general anti-avoidance rule under section 90 of the ITA to restrict the AA claimed for years of assessment 2015/16 to 2017/18. Combined with additional Corporate Social Responsibility (CSR) claims, this resulted in assessments totalling approximately Rs 139 million.
While the CSR element was later withdrawn at objection stage, the central issue before the RT remained: whether the MRA was justified in applying section 90 to curb what it viewed as a strategic deferral of AA.
Arguments raised before the RT:
CMT argued that:
- Section 24 of the ITA and Regulation 7 of the Income Tax Regulations (ITR) allows a taxpayer to claim AA flexibly to recoup its capital expenditure provided the rate of AA claimed does not exceed the prescribed rate;
- Neither the ITA nor the ITR mandates a fixed rate of AA or requires the same rate to be applied year after year;
- By varying its AA claims, CMT was simply exercising a legislative option deliberately built into the tax regime, rendering section 90 inapplicable.
- The higher AA claims for years of assessment 2015/16 to 2017/18 generated losses of approximately Rs 140 million carried forward into 2018/19, a year now time-barred. As the MRA did not challenge those brought forward losses, they must be treated as allowed, preventing any retrospective dispute of the underlying AA claims.
The MRA argued that:
- The pattern of claiming AA as low as 0.5% during the 10-year tax exemption period, followed by significantly increased rates once the exemption ended, demonstrates a deliberate postponement of AA claim resulting in the reduction of tax liability.
- The economic substance reveals that a 0.5% rate implies an unrealistic asset life of 200 years, inconsistent with financial statements.
- There was no commercial rationale for such distortion other than tax benefit.
- Section 90 applies because the “scheme” consisted of a series of intentional acts designed to secure a tax benefit.
Revenue Tribual’s decision:
The Reveue Tribunal held that:
- The deliberate pattern of deferring AA from the tax-exempt period to taxable years appears inconsistent with the underlying purpose of AA provisions, which is to allow taxpayers to recover the cost of capital assets over the period in which those assets are used. By shifting those deductions to a later period solely for tax advantage, the arrangement undermines the intent of the legislation.
- In light of the MFD Supreme Court (SC) case, Section 24 (1) of the Income Tax Act is to be interpreted as expressly providing that AA is to be claimed in that year and succeeding years without the choice to defer to a later year.
- CMT appears to have crossed the boundary between legitimate tax planning and impermissible tax avoidance given that the AA rate of 0.5% applied corresponds to an excessive life of 200 years to the economic life of the asset. The MRA is right to invoke section 90 of the ITA to counteract a tax benefit as the intent behind application of a lower AA during the tax holiday followed by a higher percentage of AA depicts a tax avoidance scheme.
Comment:
The RT’s conclusion is anchored on the Mauritius Freeport Development (MFD) Supreme Court decision that AA cannot be deferred. Yet, that judgment remains under appeal before the Privy Council. Until judicial certainty is achieved, is it prudent to elevate an unsettled position into a finding of tax avoidance?
Should the Privy Council rule in favour of MFD, CMT’s flexible claim of AA would fall squarely within section 24 of the ITA, leaving no basis for section 90 to apply. Conversely, if the appeal fails, the deferral of AA would already be prohibited by statute - again removing the need to invoke the anti-avoidance rule.
Either way, this case raises a fundamental question: where the statute itself resolves the issue, does section 90 truly need to be brought into play?
For more information please contact:
Yamini Rangasamy
Associate Director - Tax
yamini.rangasamy@pwc.com
Mobile: +230 5 472 7339 | Office: +230 404 5469
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