A small island nation like Mauritius perhaps generates more black money than all the SEZs put together because of the two-decade-old bilateral agreement between India and Mauritius, the Double Taxation Avoidance Convention (DTAC). Indian and Foreign companies masquerading as Mauritian companies have invested in India. Taking advantage of the DTAC, they avoid paying taxes not only in Mauritius which is a tax haven but also in India. The probe by a Joint Parliamentary Committee into the 2001 stock market scam in which Ketan Parekh was among the kingpins, had revealed large-scale corruption by Mauritius-based companies.
In 2001, a controversy had arisen when Income Tax authorities started investigating the real identities of the investors who were investing in India through Companies registered in Mauritius. As there was a Double Taxation Avoidance Agreement(DTAA) between India and Mauritius, investors were making black money by investing through pseudo Companies in Mauritius which had the benefit of zero tax, a tax haven. To help the black money hoarders, Atal Behari Vajpayee led Central Government (CBDT) issued a circular in 2002 asking I.T. officers to accept at face value the certificate of residence provided by the Mauritian authorities, effectively preventing the IT Officers from investigating whether they were really residents of Mauritius or not.
A case was filed in the Delhi high court against the misuse of DTAC way back in 2002. THE CBDT circular was challenged in the Delhi High Court by public interest petitions filed by the Azadi Bachao Andolan (represented by Prashant Bhushan). Delhi high court had quashed NDA Government’s circular and had nullified the central government’s order regarding the convention with Mauritius. However, in October 2002, the NDA government filed an appeal in the Supreme Court against the high court order.
A consortium of international investors, represented by the Global Business Institute (GBI), joined the government in filing the appeal. In February 2003, Arun Jaitley, who was the Law Minister in NDA Government, had appeared on behalf of Global Business Institute (GBI) in the Supreme Court. Arun Jaitley, while appearing for GBI, had pointed out that the circular prevented officers from discharging their duties by investigating the matrix of facts to determine whether a company seeking benefits under the convention was really a Mauritian resident. Arun Jaitley was successful in getting the Delhi High Court order overturned, thus reopening the doors for black money hoarders.
The irony is that the same Arun Jaitley who appeared for the GBI to argue for the continuation of DTAC goes and sits at Rajghat demanding that black money should be brought back to India! Such is the hypocrisy of our times.