Hailing the Supreme Court verdict on tax exemption to Mauritius-based companies, the finance ministry said on Wednesday that it would help in higher inflow from foreign institutional investors.

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"It (Supreme Court's verdict) clears the cloud over FII inflows to India through the Mauritius route," chief economic advisor Ashok Lahiri told reporters.

Asked if FIIs would be making more money by exploiting the capital gains tax exemption as laid down in the Indo-Mauritian DoubleTax Avoidance Treaty of 1982, he said, "It depended upon the rate of return on investments and movements in the stock market."

The Supreme Court on Tuesday upheld a Income-Tax circular giving tax exemption on investments made by Mauritius-based companies.

Earlier, the Delhi high court, allowing a petition filed by Azadi Bachao Andolan, by an order dated May 31, 2002 had quashed the circular on the ground that the exemption amounted to giving a tax holiday to FIIs, which resulted in huge loss of revenue to the exchequer.

The order had led to a sharp decline in the FDI through the Mauritian route from 30 per cent to five per cent.

Financial market intermediaries felt the court's decision was a "positive signal" to foreign investors.

Capital gains tax is exempted in many countries and the I-T ruling would encourage investments, they said.