Former income tax chief commissioner Shiva Kant Jha's 'On the loom of time' turns the lens on the double taxation avoidance treaty India signed with Mauritius, exposing loopholes in it which allow the treaty's misuse. Jha had earlier taken on thquestioned the constitutionality of the government in entering such treaties.

In the backdrop of the drubbing the government has received on the black money issue, noted activist and Jan Lokpal champion Prashant Bhusan lauded the "timely" entry of the book at its release in the national capital on Monday.

The book is an autobiographical account by Jha, a leading authority on taxation in the country and a former union revenue service officer who has held many important posts in the government.

The book, apart from dealing with Jha’s growing up years and his tenure with the IRS, gives a detailed account of his fight against the misuse of taxation treaty with Mauritius.

Jha, after retiring in 1998, practiced law at the supreme court and filed a number of PILs. The most important of these was on the misuse of the taxation treaty (Shiva Kant Jha vs Union of India (2002) 175 CTR (Del) 371), filed with the Delhi high court.

Filed in 2002, the PIL questioned the union government's authority to enter into such treaties. The high court upheld Jha’s plea and came up with a landmark observation: “Several hundred foreign institutional investors have been trading in the share market in India, many of which are said to be post-box companies based in Mauritius; although in effect and substance, they are managed and controlled from India, or from their parent countries.”

The observation indicated that the tax treaty should be reviewed immediately to stop the illegal favour being bestowed to various Indian and foreign institutional investors using Mauritius as a conduit at a cost to the revenue of India.

However, the high court order was overturned by the supreme court after the government of India appealed against the high court order.

“The supreme court let down the nation by quashing the PIL,” Jha said, recounting the SC order.

The double taxation avoidance treaty that India signed with Mauritius was aimed at avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and capital gains and for encouragement of mutual trade and investment between India and Mauritius. However since Mauritious is also a tax haven, majority of the companies get registered their and the direct investment to India thus avoiding capital tax gain. 

How blatantly this treaty is being misused to save tax can be gauged from the fact that nearly 43 percent of FDI into India is routed through Mauritius. Again, 40 percent of the FII fund flow into the country is believed to be routed through the island nation.

The book is in three parts: first, ‘The fragrance years’ deals with the growing up years of the author; second, ‘A cog in the machine’ delineates his years as a tax man; and the third, ‘Illusion and reality,’ as the title suggests deals with illusions and realities of the world.