New Delhi, Feb. 5: The Supreme Court today asked the Centre to explain why the Central Board of Direct Taxes (CBDT) had issued a circular that allowed companies registered in Mauritius to avoid paying taxes in India on their capital gains — a facility that allegedly resulted in tax evasion that ran into thousands of crores.
In April 2000, the CBDT issued a circular that allowed companies to establish their bona fide as Mauritius-registered entities by producing a letter from the authorities there stating they were “resident companies” of the island nation.
Mauritius has emerged as the country from where the maximum foreign investment comes into the Indian stock market because of a double tax avoidance treaty between the two which provides special tax waivers to entities registered there.
A division bench of Justices Ruma Pal and B.N.Srikrishna is hearing a case in which a social activist organisation, Azadi Bachao Andolan, has alleged involvement of politicians.
The allegation is that the CBDT issued the circular when Yashwant Sinha was finance minister because his daughter-in-law, Puneet, worked for US-based India Fund, which routed its investments into India via Mauritius.
Earlier, Delhi high court had quashed the CBDT circular and the Centre has come before the apex court on a special leave petition.