The CDL case enlightens us on what constitutes ‘plant’
On 15 April 2025, the Assessment Review Committee (ARC) ruled in favour of CDL Knits Ltd (CDL) allowing its claim for investment tax credit (ITC) (ARC/IT/381-21 & ARC/IT/572-22).
PwC Mauritius, as part of its ‘Tax Dispute Resolution’ services, acted as tax advisor to CDL on this case.
Background facts:
CDL is an export-oriented textile company which undertakes the production and dyeing of knitted fabrics for sale. During the income years ended 30 June 2017 and 30 June 2018, the company claimed ITC on plant and machinery (P&M) in accordance with section 161A(50A)(a) of the Income Tax Act (ITA).
To claim ITC, a manufacturing company has to:
- Incur capital expenditure on new P&M during the period 01 July 2016 to 30 June 2020; and
- The P&M must be used in the manufacture of goods.
The assets were imported in fragmented parts prior to 30 June 2016 and assembled and put into use post June 2016. Once the parts are assembled and tested by the technicians, a commissioning certificate is issued. The imported parts were reported as work-in-progress in CDL’s financial statements prior to commissioning.
The MRA disallowed the ITC claimed in respect of specific P&M on the ground that capital expenditure was incurred on the P&M prior to 30 June 2016 and raised assessments accordingly.
Arguments raised before the ARC:
The MRA argued that the shipment date of each respective spare part was the date on which capital expenditure was incurred as there was a transfer of ownership on that date.
CDL’s argued that:
- The date on which the order is placed cannot be taken as the date of acquisition of the asset;
- It cannot be said that an asset has been acquired for the production of gross income until it has been delivered and assembled;
- ITC cannot be claimed unless the asset is brought into use.
ARC determination:
The ARC applied the three-stage test called the ‘functional test’ which is described below to determine whether the asset constitutes plant:
- Is the item stock in trade?
- Is the item categorised as the business premises or part of the business premises?
- Is the item used for carrying on the business (the business-use test’)?
The ARC held that CDL is eligible for ITC on specific P&M since:
- The asset constitutes plant since the responses to (1) and (2) above are negative and the response to (3) above is positive;
- The spare parts are non-functional on their own and require assembly;
- CDL has incurred expenditure on P&M only once the spare parts were assembled and commissioned;
- The use of the plant only occurred after its assembly and commissioning which was post 01 July 2016.
PwC's comments:
In the absence of a definition of the term ‘plant and machinery’ in the ITA, the CDL case provides a good insight on the factors to be considered in determining whether an asset constitutes plant. This is relevant for companies claiming annual allowance and ITC. The case has also clarified that expenditure is deemed to be incurred when the asset is brought into use.
I am pleased with the outcome of this ruling, which sets a judicial precedent in Mauritius. This is much in line with our objective of servicing our clients to the best of their interests in a fair and transparent manner.
For more information please contact:
Yamini Rangasamy
Associate Director - Tax
yamini.rangasamy@pwc.com
Mobile: +230 5 472 7339 | Office: +230 404 5469
