FII threatens to go court over taxation

Although the April 6 announcement of the Indian government appeared to nullify the effect of the notice issued to the fund, it will continue to take any action necessary to have the order rescinded, and if required, will vigorously appeal, the statement said.

The fund which is an investment company and is being traded on the New York Stock exchange said it had relied appropriately on the India-mauritius tax treaty.

Following considerable market confusion that saw the stock market crash on Tuesday, the government had clarified that FIIs who hold a certificate of registration from the Mauritius government would continue to be eligible for avoidance of double taxation under the treaty.

India Fund Inc was one of the twenty-four Mauritius-based FIIs which was served notice by the income tax department for past tax liabilities. The Finance Ministry had maintained that these FIIs were served tax notices because such investors were located not in Mauritius but elsewhere — in places like Luxembourg. However, India Fund Inc said it held such a certificate from the Mauritius government and hence would enjoy double taxation avoidance, the statement said.

The Finance Ministry had clarified on Friday last that no income tax cases of Mauritius-based foreign institutional investors would be re-opened and a circular to this effect would be issued by the central board of direct taxes (CBDT).

An official statement had said that the matter has been examined by the finance ministry and that cbdt has clarified that the capital gains earned by an investor from mauritius would be taxable only in mauritius and not in India.

After examination of the cases, cbdt has decided that for determination of the tax liability on dividend income, in case of an investor from mauritius, would be accepted by the tax authorities on the basis of certificate of registration issued by the mauritian government.

The statement also clarified that dividends are no longertaxed in the hands of the shareholders after June one, 1997.

But for the pre-June 1997 period, the taxation ofdividend income shall be governed only by the terms of the indo-mauritian treaty. As withholding tax would already been deducted, no further tax liability would arise, the statement said implying there would be no reopening of old cases.