India: Supreme Court Stay Order Retaining Mauritius Treaty Circular
Last Updated: 2 December 2002

On 18th November 2002, Justice Ruma Pal and Justice Srikrishna of the Supreme Court of India granted a stay on an order dated 31st May 2002 of the Delhi High Court which quashed circular 789 of 2000 issued by the Central Board of Direct Taxes ("CBDT").

The circular 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". This circular was issued pursuant to the Double Tax Avoidance Treaty between India and Mauritius which states that the determination of residence of a ‘person’ of Mauritius shall be made according to the laws of Mauritius where such person is liable to tax. The High Court order had raised uncertainty amongst foreign investors regarding their tax liability in relation to their investments in India.

On 4th October 2002, the Global Business Institute Ltd. ("GBI"), filed a Special Leave to Petition ("SLP") with the Supreme Court of India, appealing against the Delhi High Court order. GBI, is a company incorporated under the laws of Mauritius, comprising of international investors, asset managers, management companies, banks, custodians, lawyers, accountants industry/professional associations and practitioners in the financial services sector. It is a platform to exchange views, conduct research, disseminate information and make policy recommendations to the concerned authorities in connection with the Mauritius global business sector. Although GBI was not a party before the Delhi High Court, the Supreme Court has allowed it to make the petition against the order. The Government of India and the CBDT being the respondents in the proceedings before the Delhi High Court had also filed a similar appeal before the apex court.

The SLPs filed by GBI and the Government of India, were heard together. Amongst other grounds, both SLPs challenge the power of the Indian income tax authorities to question residency of a Mauritius entity since determination of such residency is the sovereign right of the Mauritius government.

As a consequence of the stay of the Delhi High Court order granted by the Supreme Court, the circular shall remain in force till the Supreme Court makes further orders. The matter will be heard on an expedited basis and is likely to come up in eight weeks.

GBI was represented by P.H. Parekh & Co. with Bombay counsel Nishith Desai Associates and the Union of India was represented by the Attorney General Mr. Soli J Sorabjee.

Source: P.H. Parekh & Co.

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