SC dismisses plea against its order on Mauritius tax treaty

MUMBAI: Amid reports of FIIs migrating from Mauritius to newer destinations seeking better tax and administrative environment, there comes good news for FIIs based in Mauritius.

The Supreme Court (SC) has dismissed a curative petition filed against its recent decision on the Indo-Mauritius Double Taxation Avoidance agreement.

A curative petition is the last appellate forum for the judicial process in the country. Hence, the implication of the petition’s dismissal is that the status quo on this issue continues.

Earlier, a two judge bench of the SC had upheld a government circular stating that even a certificate of residence from the Mauritius government made the company eligible for tax exemption under the Indo-Mauritius DTAA.

TP Ostwal, senior chartered accountant, said “Judicial challenge to the CBDT circular on this issue ends with the dismissal of the curative petition. It means the status quo continues.�

Bijal Ajinkya, an associate of Nishidh Desai Associates, told ET, “The decision is in tune with the principles of international taxation. This enhances India’s credibility in the international fora as the judgement of the Supreme Court is in line with the principles of public international law and also adds to the confidence of the international investor community.�

Earlier, the SC had dismissed a review petition on the same issue. The Supreme Court verdict had clearly underlined the tax benefits available for Mauritius-based companies in India. Litigation on the issue began with the I-T department’s decision to question the authenticity of claims by certain corporates that they were Mauritius-based.

As the department investigated these claims of residence in Mauritius, the CBDT issued a circular on April 13, ’00, stating that a certificate of residence issued by the Mauritius government should be accepted as proof of residence.

This circular was challenged by a host of entities, including the People’s Union for Civil Liberties and a retired income tax officer, SK Jha, before the Delhi High Court.

The Delhi High Court quashed the CBDT circular, holding it ultra vires Section 90 of the I-T Act, which allowed treaties only for the purpose of avoiding double tax and not for encouraging trade and investment.

It was also held that the circular took away the discretion of the I-T department in determining the residence of an entity.