The Supreme Court on Tuesday upheld a government notification not to tax companies doing business in India if they were registered in Mauritius.

Setting aside a Delhi high court judgement which had quashed the April 13, 2000 notification, a bench comprising Justice Ruma Pal and Justice B N Srikrishna said the Delhi high court had erred in quashing the notification.

On the basis of Double Taxation Avoidance Treaty between India and Mauritius, the Union government had issued the notification saying if the Mauritius government gives residency certificate to a company doing business in India, then the same company will not be taxed by Income Tax authorities in India.

Allowing the appeal of the Union Government, the Bench said the April 13, 2000 notification was valid and legal.

The petitioner organisation, Azadi Bachao Andolan, had contended that nearly 50 per cent of India's foreign investment comes through companies registered in Mauritius, where they are not even allowed to do business or own property.

It had alleged that these companies, merely because of being registered in Mauritius, should not be allowed a tax holiday as their main business and income was from India.

The Delhi high court, while accepting the plea of Azadi Bachao Andolan, had said even if a firm was registered in Mauritius, the income tax officials can lift the foreign corporate veil and find out whether it was actually a foreign company or not.

The petitioners had alleged that these unscrupulous firms were taking advantage of the Double Taxation Avoidance Treaty between India and Mauritius and have effectively translated it into no taxation treaty.