Indo-Mauritus treaty aims to plug tax loopholes

Question: Will foreign funds which have invested on Indian stock bourses be adversely affected by the amendments to the Indo-Mauritius tax treaty?

ANSWER: A protocol has recently been signed by India and Mauritius to amend the Double Taxation Avoidance Agreement whereby an investor from Mauritius will not be able to claim treaty tax benefits merely on the basis of the entity being a resident of Mauritius. The investor will have to fulfill the conditions of the Principal Purpose Test (PPT), which is intended to curtail tax avoidance by ensuring that the treaty benefits are granted for transactions with a bona fide purpose.

In the past, there have been several ‘post box’ entities which operated out of Mauritius only to secure the tax benefit in India. These companies will have to satisfy the conditions of the PPT before they can avail of the treaty benefits. The protocol has been signed by the two countries to comply with the norms and guidelines laid down by the Organisation for Economic Co-operation and Development. As a result of the amendment, treaty shopping arrangements will now be reduced as only genuine investment funds will be able to avail of the treaty benefits. The Central Board of Direct Taxes in India is yet to clarify whether the amendment will apply to past investments or whether it will apply only to such investments which are made after the protocol is notified by the Indian government.

Question: Has the government been able to keep its promise of controlling inflation and at the same time maintaining the growth momentum?

ANSWER: According to the data released by the National Statistical Office, retail inflation has eased and come down to 4.9 per cent in March. This is partly attributable to food prices coming down marginally, more so in the urban areas. However, during the impending summer, it is expected that the prices of perishable commodities like vegetables and fruits will increase. With the onset of the monsoon in June, inflationary expectations are likely to be benign as more than normal rainfall is forecast by the Indian Meteorological Department.

The price of food grains may come down substantially by October as a bumper harvest is expected. As regards industrial output, there has been a marked increase in industrial production. The output of passenger vehicles has gone up dramatically registering a year-on-year growth of more than eight per cent. The growth is led by passenger vehicles which have touched five million units in total sales, including 4.2 million units being sold in the domestic market and 800,000 units being exported. Two-wheeler unit sales have surpassed all expectations and increased by 13.3 per cent over the last fiscal year, touching a figure of 17.97 million units as on March 31, 2024. Infra projects have registered a robust increase in productivity, boosting the output of cement, steel and other building materials.

Question: Courts in India are moving at a very slow rate and the backlog of pending cases is mounting. Can any steps be taken to expedite the process?

ANSWER: Under the stewardship of the present Chief Justice of India, positive measures are being taken to strengthen and streamline the justice delivery system. Recently, the Chief Justice emphasised the need to use technology, including tools of artificial intelligence. According to him, this will revolutionize judicial functioning and reduce the backlog of pending cases.

At a recent conference, he stated that the Supreme Court has already introduced AI-driven live transcription service in Hindi and 18 regional languages to ensure that legal information is available to a large section of the litigants. Efforts are being made to enhance efficiency of Court proceedings by automating routine tasks, such as document review, case management and scheduling.

According to the Chief Justice, the advancement of technology and AI has the potential to reduce delays and ensure timely disposal of cases. He has also called upon the legal fraternity to co-operate in invigorating the judicial process by refraining from seeking adjournments. It is therefore expected that in future delays will be avoided as far as possible and final judgments will be delivered in a time bound manner.

HP Ranina is a practicing lawyer, specialising in corporate and tax laws of India.

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