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.