DTAA with Mauritius & CBDT Circular 789

CA friend please study DTAA with Mauritius & CBDT a circular 789. 

http://www.allindiantaxes.com/circular%20:%20no.%207892000it.php

You will find it so much anti national & prejudicial to our interest. It was quashed by Honourable Delhi HC 

http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=915

But it is still operative as Union Government saved it should it some how in SC.

DTAA with all nation prescribe single taxation at point of income instead of ownership but for some mysterious reason only DTAA with Mauritius prescribe taxation at point of ownership.

Now biggest portion of FDI investment to India is via Mauritius route as these cunning MNC pay zero tax in India & negligible tax in Mauritius. 

This issue is so evidently farce now that even Chinese companies invest in a India via Mauritius.

While we ordinary people pay more than 30% as taxes but MNC open a post box office in Mauritius and get Bogus residency certificate their and end up paying zero tax in India for Income generated in Bharat.

They pay bribes and little tax in Mauritius and enjoy huge tax free income from their Indian operations.

Ordinary citizen don't understand these legal complexities  but we as CA professionals can expose this MNC loot to ordinary people in simple term.

Due to these DTAA & CBDT circular 789 legal farce Hutch & Vodaphone could save Till now Rs16000 crore tax on Rs50000 profit.

Every year we lose lacs of crore in revenue via Mauritius route. This route still thrive as many corrupt leaders use this route to bring back their ill gotten wealth to India. 

Yesterday I met high Commissioner of Mauritius in this regard. He put up a spirited but very weak defence for this treaty.

We all CA professionals should demand quashing of circular 789, and review of DTAA with Mauritius. All of us have binding responsibility in this regard to our motherland.

More details given below:

http://www.allindiantaxes.com/circular%20:%20no.%207892000it.php

Circular : No. 789, dated 13-4-2000. 734. Clarification regarding taxation of income from dividends and capital gains under the Indo-Mauritius Double Tax Avoidance Convention (DTAC) 1. The provisions of the Indo-Mauritius DTAC of 1983 apply to residents of both India and Mauritius. Article 4 of the DTAC defines a resident of one State to mean any person who, under the laws of that State is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. Foreign Institutional Investors and other investment funds, etc., which are operating from Mauritius are invariably incorporated in that country. These entities are liable to tax under the Mauritius Tax law and are, therefore, to be considered as residents of Mauritius in accordance with the DTAC. 2. Prior to 1-6-1997, dividends distributed by domestic companies were taxable in the hands of the shareholder and tax was deductible at source under the Income-tax Act, 1961. Under the DTAC, tax was deductible at source on the gross dividend paid out at the rate of 5% or 15% depending upon the extent of shareholding of the Mauritius resident. Under the Income-tax Act, 1961, tax was deductible at source at the rates specified under section 115A, etc. Doubts have been raised regarding the taxation of dividends in the hands of investors from Mauritius. It is hereby clarified that wherever a Certificate of Residence is issued by the Mauritian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the DTAC accordingly. 3. The test of residence mentioned above would also apply in respect of income from capital gains on sale of shares. Accordingly, FIIs, etc., which are resident in Mauritius would not be taxable in India on income from capital gains arising in India on sale of shares as per paragraph 4 of article 13.

http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=915

DTAC WITH MAURITIUS: DELHI HC QUASHES CBDT CIRCULAR NO 789 

By Taxindiaonline News Service

EW DELHI, 31 MAY : FOR the double taxation avoidance treaty nothing could have been more historic and far-reaching in implications than the ruling given by the Delhi High Court today. The long-reserved order on the PIL filed by the income tax former Chief Commissioner, Mr Shiv Kant Jha and noted PIL juggernaut, Mr Prashant Bhushan, against the CBDT Circular (789, dated April 13, 2000) in the context of Double Taxation Avoidance Convention (DTAC) with Mauritius was pronounced today about 4.30 PM.

Without mincing words the HC has quashed this much-reported and much-interpreted Circular which had come under fire for putting obstacles in taking action against the FIIs and OCBs operating from Mauritius and resorting to predatory style of investment in the stock market and walking away with their cash registers ringing aloud.

Another important observation which was made by the court is that it has termed 'treaty shopping' as illegal and bad in law. With the counsels pleading to the court that how such treaties are hijacked by ill-intentioned global investors who abuse them for their personal interests and get away with virtually no tax payment to either of the contracted countries, the court strongly noted that such a practice is illicit and cannot be allowed to prevail.

Having intensively studied how double taxation avoidance treaty with Mauritius worked neither in the interests of Republic of India nor the Mauritian Government, the Court observed that no law promotes an opaque system to prevail. In the globalised business environment what is required is a transparent system which alone should be encouraged.

While pronouncing the operative part of the judgement in the case which has now become Shiva Kant Jha Vs Union of India, the HC noted that the certificate of resident cannot be conclusive as directed by the CBDT Circular which had put a full stop to the ongoing investigations worth more than Rs 6000 crore. In fact, thanks to this fundamentally bad- intentioned circular, leave aside the global predators, even Indian stock market professional players had also begun to set up OCBs in Mauritius. This can now be seen in plenty in the case of Ketan Parikh and Shankar Sharma who channelised their funds through their OCBs and robbed the small investors of their life-long savings. They also paid virtually no tax on their 'booty' and the Union of India appeared to be promoting such dirty business practices.

So, the Assessing Officers have now been described as the competent authority to take action in such cases and, by implication, are free to reopen even old cases which were closed under dubious circumstances. The court has also pointed out the 'limitation of power' of the Board to issue such circulars which can be at best only administrative in nature and cannot interfere with the statutory power of the assessing officers. In other words, the AOs of the Mumbai Income Tax Department if want can now decide to reopen some cases on merit and the CBDT cannot stop them from investigating and establishing the ownership of business and removing the corporate veil.

The HC order can also be interpreted that the concept of double taxation treaty doesn't mean that one doesn't have to pay tax in either countries. It clearly says that one has to pay tax in one of the countries.

While concluding the order the HC has advised the Central Government to look into some of the suggestions made by the counsels and some of them may be acted upon in the larger interest of a healthy global taxation practices and also in the interest of the exchequer.