SC upholds tax exemption to entities based in Mauritius

New Delhi: The Supreme Court has upheld a finance ministry circular dated 13 April 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.

An SC Bench, comprising Justice Ruma Pal and Justice B N Srikrishna, set aside an earlier 31 May 2002 order of the Delhi High Court, which had quashed the Central Board of Direct Taxes' (CBDT) circular.

The HC order had upheld the petition of a non-governmental organisation, Azadi Bachao Andolan, which claimed that 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, held that the HC had erred in quashing the 13 April 2000 order, which, it said, was in consonance with law and could not be nullified merely on grounds of 'national interest'.