New Delhi, Oct 10: Noting the enormous fiscal benefits of double taxation avoidance convention (DTAC) between India and Mauritius, the Supreme Court has said the recommendations of Joint Parliamentary Committee (JPC) for incorporating built-in safeguards in the treaty to check tax evasion was for Parliament to take note of. Upholding validity of DTAC, a bench comprising Justice R C Lahoti and Justice B N Srikrishna said in a recent judgement that "in our view recommendations of the working group of the JPC are intended for Parliament to take appropriate action."

Under the DTAC, any foreign company after obtaining a residency certificate from Mauritius could do business in India without being liable to pay tax on capital gains. Petitioner azadi bachao andolan had alleged that under DTAC, many foreign firms registered themselves in Mauritius to earn huge profits in India through their investments as they enjoyed complete exemption from tax liability.

While considering the causes which led to the stock market scam, the JPC had occasion to consider the working of the Indo-Mauritius DTAC. It noticed that area-wise foreign direct investment (FDI) inflow from Mauritius increased from Rs 37.5 million in 1993 to Rs 61672.8 million in 2001. Taking note of the facts and the reluctance of the government of Mauritius in the matter to renegotiate the terms of treaty, the JPC had recommended that though the exact amount of revenue loss could not be quantified "it could be assumed to be substantial."

Bureau Report