The apex court said tax authorities had correctly rejected Tiger Global’s application seeking exemption from capital gains tax arising from the transaction
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Supreme Court of India.(File Photo: PTI)
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The Supreme Court on Thursday ruled against US-based investment firm Tiger Global in its challenge to taxation on a major stake sale in ecommerce firm Flipkart.
The apex court said tax authorities had correctly rejected Tiger Global’s application seeking exemption from capital gains tax arising from the transaction.
The order was delivered by a bench comprising Justices J B Pardiwala and R Mahadevan. A detailed judgement is awaited.
According to Bar and Bench, the court held that once a transaction is found to be prima facie structured to avoid income tax, the statutory bar under the proviso to Section 245R(2) of the Income Tax Act, 1961 applies. In such cases, tax authorities are not required to examine the merits of taxability.
Treaty claims and tax avoidance
The dispute centred on whether taxes should apply to Tiger Global’s sale of its Flipkart stake to Walmart in 2018. The sale, valued at ₹144.4 billion, or about $1.6 billion, formed part of Walmart’s $16 billion acquisition of Flipkart.
Tiger Global relied on the India–Mauritius tax treaty to claim exemption from capital gains tax. Tax authorities argued that the firm had wrongly invoked the treaty and that the structure was designed to avoid tax in India.
Bar and Bench reported that the court rejected the argument that treaty eligibility by itself negates tax avoidance. “Once taxability has been established on the basis that the shares sold derived their value from assets in India, the inquiry cannot be diverted merely because the shares transferred were not of an Indian company,” the court held.
The bench also said treaty interpretation must align with legislative intent and later statutory amendments aimed at curbing abuse.
“Undoubtedly, the mere holding of a TRC cannot by itself prevent an inquiry subsequent to the amendments brought into the statute, particularly by the introduction of Section 90(2A) and Chapter X-A… if it is established that the interposed entity was a device to avoid tax,” the court said, according to Bar and Bench.
Tax officials have maintained that the Mauritius-based entities acted as conduits for Tiger Global’s US operations, a claim the investment firm has consistently denied. Tiger Global has argued that its structure complied with the law and that the treaty permitted the exemption.
What did the Delhi High Court order say?
The appeal before the apex court arose from an August 2024 judgment of the Delhi High Court, which had ruled in favour of Tiger Global.
The high court held that the firm was entitled to capital gains tax exemption under the India–Mauritius Double Taxation Avoidance Agreement (DTAA) and overturned an earlier ruling by the Authority for Advance Rulings, which had denied treaty benefits on the ground that the transaction was structured to avoid tax.
It relied on the DTAA’s grandfathering provision, under which capital gains from shares acquired before April 1, 2017 are exempt from Indian taxation. The high court also held that a valid Tax Residency Certificate issued by Mauritius was sufficient proof of eligibility for treaty benefits, citing the Supreme Court’s earlier ruling in Union of India v. Azadi Bachao Andolan. It rejected the tax department’s claim that the Mauritius entities lacked commercial substance.
Government’s objections
The government challenged the high court’s findings, pointing to amendments made to the India–Mauritius DTAA in May 2016, which allow India to tax capital gains from the sale of shares acquired on or after April 1, 2017.
While the grandfathering clause protected earlier investments, authorities argued that the 2018 transaction was routed through Mauritius entities solely to claim treaty benefits.
Tax officials also contended that the Mauritius-based entities were controlled by Tiger Global’s US parent, Tiger Global Management LLC, and lacked independent decision-making, effectively serving as conduits.
The AAR had earlier taken the view that the DTAA was intended to exempt gains from the transfer of shares of Indian companies, not foreign entities such as Flipkart Singapore, even if those entities derived substantial value from assets located in India.
Industry reaction
Tax experts described the ruling as a setback for foreign investors as they warned that it could alter how cross-border investments into India are structured.
Hemen Asher, Partner – Direct Tax at Bhuta Shah & Co. LLP, said the judgment undermines long-standing expectations around tax certainty for overseas investors. “Foreign investors who entered India through the FDI and FPI routes relied on the certainty provided by tax treaties and the overriding validity of the Tax Residency Certificate. That assurance is no longer available. Global investors will now need to factor capital gains tax costs into their investment models,” he told Business Standard.
Amit Baid, Head of Tax at BTG Advaya, described the ruling as “a major, 180-degree shift” in how treaty benefits have traditionally been claimed. “The Supreme Court has held that GAAR can override treaty grandfathering, which has serious implications for private equity funds, hedge funds and FPIs using Mauritius and Singapore-based structures,” he told Business Standard.
L Badri Narayanan, Executive Partner at Lakshmikumaran and Sridharan Attorneys, said the judgment made it clear that a Tax Residency Certificate alone would not be sufficient. “This marks a shift towards a substance-over-form approach in India’s tax regime. It also raises critical questions about what constitutes adequate commercial substance, creating fresh uncertainty for global investors,” he told Business Standard.
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