Union Of India and Anr Vs. Azadi Bachao Andolan (Supreme Court)
Introduction
The double taxation avoidance agreement is an agreement, which helps the taxpayer to get relief from double taxation on the same income. If India has signed any double taxation agreement with any foreign country; it’s meant that the taxpayer of those countries does not have to pay the tax on the same income in both the countries. So, double taxation avoidance agreement is a useful tool which helps the taxpayer to avoid “double taxation”. In case of claiming relief under double taxation avoidance agreement, the country of residence and source country are determining factors to do the same. The law with regards to the DTAA and the powers of Income Tax and other administrative authorities in its implementation have evolved with the development of various judicial trends ranging from the case of McDowell, Azadi Bachao Andolan to Vodafone-Hatchison Case, to name a few.
Factual Background of the case
The case of Union of India v. Azadi Bachao Andolan has played a substantial role in development of the law with regards to the same. In this case, the controversy arises because of the Double Taxation Avoidance Agreement entered between the Government of India the Government of Mauritius dated 1-4-1983. The purpose of this Agreement, as specified in the preamble, is “avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains and for the encouragement of mutual trade and investment”. By the circular issued by Central Board of Direct Taxes (CBDT), Government of India clarified that capital gains of any resident of Mauritius by alienation of shares of an Indian company shall be taxable only in Mauritius according to Mauritius taxation laws and will not be liable to tax in India. This was substantiated by the Circular further issued by CBDT dated 13th April, 2000. Certain income tax authorities also issued show cause notice to those companies that operated in India and Mauritius to justify why they should not be taxed which created panic amongst such FIIs and also led to withdrawal of funds by Foreign Institutional Investors.
