Alteo Energy and partial exemption

The file

Alteo Energy Ltd produces electricity and sells it to the Central Electricity Board. In the tax year 2019/20 that activity was about 95.7 per cent of its income. It also received interest on loans it had made. The interest was about 0.25 per cent of total income, and it was incidental to the electricity business. Alteo claimed the 80 per cent partial exemption on that interest under section 7(2) and item 7 of Sub-part B of Part II of the Second Schedule to the Income Tax Act 1995. The Mauritius Revenue Authority assessed the interest in full. The Assessment Review Committee upheld the assessment. The Supreme Court allowed Alteo’s appeal. The Director-General appealed to the Privy Council.

The sole issue was whether Alteo satisfied the first condition in regulation 23D(2)(a) of the Income Tax Regulations 1996: that the company “carries out its core income generating activities in Mauritius.” All of Alteo’s activities were carried out in Mauritius. The argument was about what those words require.

Issues the court decided

The Board decided two linked questions of construction. First, in the phrase “core income generating activities,” does “income” mean all of the company’s income, or only income of the kind that can benefit from the exemption — here, interest? Second, does “core” mean that the activities which generate that income must be the company’s main business?

The MRA’s case was that lending was not a core business activity of an electricity company, so the condition failed and the interest stayed fully in charge. The Supreme Court had read “income” as the company’s income at large, which on the agreed facts was generated in Mauritius. Alteo’s primary argument on the further appeal was narrower: even if “income” means interest, the condition asks where the core activities that generate that interest are carried out, not whether lending is the company’s main trade.

The holding in the court’s words

Lord Leggatt, for the Board, held that the Supreme Court was wrong about the word “income,” and that the MRA was wrong about the word “core.” The appeal was dismissed. The reasons differ from the Supreme Court’s. The result for Alteo’s exemption does not.

“The Board concludes that, on the proper interpretation of the phrase ‘core income generating activities’, wherever the phrase is used in the legislation the word ‘income’ refers to income of the type capable of benefiting from the relevant exemption. For the purpose of item 7, therefore, the word ‘income’ when used in regulation 23D(2) refers only to interest income.”

“The word ‘core’ qualifies the ‘income generating activities’ which the company carries out. It signifies that, even if the company does not carry out in Mauritius all the activities generating the relevant income, it must carry out in Mauritius the ‘core’ activities which generate that income. The provision does not say and cannot be read as saying that the activities which generate the relevant income must be core business activities of the company, central to its main operations.”

“As all Alteo’s activities were carried out in Mauritius, it makes no difference to the outcome of this case which view is adopted. On either view the company carried out its core income generating activities in Mauritius.”

“For these reasons, which differ from those of the Supreme Court but lead to the same conclusion, the appeal will be dismissed.”

The Board preferred the broader view of which activities count for a company in Alteo’s position: look at the substance of the activities that generate the company’s revenue, including interest that is a by-product of that business. It recorded that the second and third conditions in regulation 23D(2)(a) — people and expenditure — were consistent with that reading on these facts. They were not the issue on which the appeal was lost.

What the court did not decide

The Board did not decide a case in which the activities that generate the interest are outside Mauritius. It did not decide that every incidental receipt qualifies, whatever the other conditions say. It did not reopen the employee-count or minimum-expenditure conditions as a separate fight. It did not hold that a Global Business Licence, or any licence, is the test. Item 7 and regulation 23D are the text.

It also did not adopt the Supreme Court’s construction. A reader who stops at “the Supreme Court allowed the appeal” has the result and the wrong reason. The Board said so.

The trap

The trap for a promoter or an officer is the sentence Alteo’s opponent wanted: “interest only qualifies if lending is the main trade.” The Board rejected that sentence. The opposite trap is to treat electricity income as the “income” in the phrase, and then claim the exemption because the power station is in Mauritius, without asking the item 7 question at all. The Board rejected that reading too.

The useful habit is the one the judgment uses. Name the exemption. Name the income that exemption can cover. Ask where the core activities that generate that income are carried out. Then read the other prescribed conditions before anyone announces a rate.

The judgment

[2026] UKPC 27, Privy Council Appeal No 0103 of 2025, given on 30 June 2026. The PDF is on the source register. Quotes on this page are taken from that judgment. The Income Tax Act and the Income Tax Regulations remain the working texts for any later year. This case decides the construction above. It does not compute a later return.