New Delhi: Taking a serious view of tax sops to Mauritius-based Foreign Institutional Investors (FIIs) under the Double Taxation Avoidance Treaty (DTAT), the Delhi High Court has allowed the Income Tax authorities to initiate probe against such companies.

"If assessing authorities intend to open any proceedings (against such FIIs) they would be entitled to take recourse to such proceedings as are open to them under law," a division Bench comprising Chief Justice S B Sinha and Justice A K Sikri said in its judgement.

While allowing two public interest litigations (PILs) challenging April 13, 2000 circular by Central Board of Direct Taxes putting an embargo on investigation by the Income Tax Officers (ITOs) against Mauritius-based FIIs if they produced a certificate about their residential status in that country, the Court said CBDT had exceeded its powers.

Imposing a litigation cost of Rs 10,000 on the government, the Court said assessing powers of ITOs, which are quasi judicial in nature "cannot be taken away by such a circular".

The Court while quashing the circular said CBDT's powers in this regard were "limited" and "it must act within four corners of law".

"Mere production of a certificate by a company that it was registered in Mauritius is not sufficient proof for claiming the benefit under DTAT, for tax on capital gains," the Court said, adding the government owed an explanation how the country "has been losing crores of rupees by allowing the opaque system to operate".

PTI