Financial Daily from THE HINDU group of publications
Wednesday, Oct 08, 2003
Financial Daily from THE HINDU group of publications Wednesday, Oct 08, 2003 |
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Foreign Institutional Investors Industry & Economy - Taxation SC upholds tax exemption to Mauritius-based entities Our Bureau
New Delhi , Oct. 7 THE Supreme Court on Tuesday upheld a Finance Ministry circular dated April 13, 2000, allowing Foreign Institutional Investors and other investment entities incorporated in Mauritius to claim tax exemption under the Indo-Mauritius Double Taxation Avoidance Convention (DTAC) on the basis of a `certificate of residence' issued by Mauritian authorities. A Supreme Court Bench, comprising Ms Justice Ruma Pal and Mr Justice B.N. Srikrishna, set aside an earlier May 31, 2002 order of the Delhi High Court, which had quashed the Central Board of Direct Taxes' (CBDT) controversial circular. The High Court order had upheld the petition of a non-governmental organisation, Azadi Bachao Andolan (ABA), which claimed that the CBDT circular gave an opportunity to unscrupulous businessmen to make investments in India through fake front companies incorporated in Mauritius and benefit from tax exemption under the DTAC. Since the circular required the investor to only produce a certificate of residence issued by the Mauritian authorities for claiming tax exemption, it resulted in loss of revenue to the exchequer. The SC, however, on Tuesday held that the High Court had erred in quashing the April 13, 2000 order, which, it said, was in consonance with law and could not be nullified merely on grounds of "national interest". The apex court concurred with the views of the Government and the Global Business Institute (GBI), a consortium of Mauritius-based companies, that the High Court should not have interfered in fiscal matters involving economic policy decision-making, particularly in this case where the India-Mauritius DTAC was entered way back in 1982 and the circular had merely clarified its contents. The Bench upheld the legality of the circular, while accepting the Attorney-General, Mr Soli Sorabjee's contention that entering into a treaty with a foreign country was a sovereign function of the Government. The circular had clarified that FIIs and other investment funds incorporated in Mauritius were `liable to tax' under the Mauritius tax laws and a certificate of residence issued by Mauritian authorities would constitute sufficient evidence for accepting the status of residence as well as ownership for applying the Indo-Mauritius DTAC. The SC had, in November 18, 2002, placed a stay on the High Court order's implementation.
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