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The Supreme Court Tuesday wondered how could the Double Taxation Avoidance Agreement (DTAA) was applicable to the people who do not pay income tax either in their country or in the countries where they have businesses.

The apex court bench of Justice B. Sudershan Reddy and Justice S.S. Nijjar remarked: “DTAA is also applicable to people who don’t pay tax either here or there and stash away money in tax havens.”

The apex court’s observation came during the hearing of a petition by eminent jurist Ram Jethamalani seeking directions to the central government to take steps to bring back the illicit money stashed away in tax havens by Indian citizens.

Addressing the court for Ram Jethmalani, senior counsel Anil Divan assailed the High Level Committee (HLC) set up by the central government April 22 to co-ordinate investigation by different agencies in money laundering cases.

Divan said: “The HLC is merely a ruse and a façade to keep total control over all investigations by bureaucrats and officials who are subservient to the political executive and cannot take action against them.”

He argued that the setting up of the HLC was a ploy to pre-empt the setting up of an “independent high ranking monitoring group.”

Amidst protest by Solicitor General Gopal Subramanium, Divan told the court that setting up of the HLC was a “disingenuous and clever attempt to derail and render infructuous the hearing before this bench” as the presiding judge of the bench Justice B. Sudershan Reddy is retiring on July 08, 2011.

Justice Reddy’s retirement would lead to reconstitution of the bench that would still have Justice S.S. Nijjar on it.

The senior counsel also told the court that on its direction in the Jain Hawala case, a nodal agency under the stewardship of the union home secretary, which has representatives of various investigation agencies, was constituted but it never worked.

He asked why was this agency not activated in tracking and recovering the illicit and black money stashed abroad.

Divan argued that the entire effort of the central government was to “protect “big-fish – the high and mighty – by keeping exclusive control of the investigation.”

He told the court that the recent protocol on DTAA signed between India and Switzerland would totally black out any information on past account holders as it is effective prospectively from April 1, 2011, and has no retrospective application.

When Justice Nijjar wanted to know what would happen if all the account holders withdrew their money and moved out (before April 01, 2011), Divan said that at least we should know who were these account holders and what amounts they were holding at any given point of time before their exit.

As Divan and senior counsel Shanti Bhushan made an impassioned plea for setting up an independent multi-disciplinary investigation team with a sitting judge of the high court or a retired judge of Supreme court supervising it, Justice Reddy asked what were the other alternatives.

“What is the alternative?” Justice Reddy asked and said, “If the investigation be done by the HLC and the same is monitored by the judge.”

At this Divan said he was not suggesting complete change-over and added that the Enforcement Directorate does not inspire confidence.

“I am not suggesting complete change-over. The ED does not inspire confidence. He did nothing in last three and half year till apex court was moved.”

The central government has constituted an HLC under the chairmanship of the revenue secretary.

Its members include the deputy director of the Reserve Bank of India (RBI), directors of the Intelligence Bureau, the Enforcement Directorate, the Central Bureau of Investigation (CBI), chairman of the Central Board of Direct Taxes, director generals of Narcotic Control Bureau (NCB) and Revenue Intelligence, director of Financial Intelligence Unit (FIU) and the joint secretary of the Central Board of Direct Taxes.

The chairman of the committee will report to the apex court on the investigations carried out by different departments represented in the HLC.

Since Divan has concluded his arguments, Solicitor General Subramanium will make his submissions Wednesday.


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