Delhi HC overturns AAR ruling on Tiger Global-Flipkart transaction

The Delhi High Court on Wednesday overturned an order of quasi-judicial body Authority of Advance Rulings (AAR) denying private equity firm Tiger Global tax exemption under the India-Mauritius Double Tax Avoidance Agreement (DTAA) when it exited Flipkart in 2018.

Tiger Global International IV Holdings had filed an appeal in the high court seeking injunction against a Mumbai AAR’s order issued in March 2020 that said the stake sale was prima facie designed to avoid tax. 

Tiger Global had sold its stake in Flipkart to Walmart during the year. It claimed exemption from capital gains tax on the sale under the DTAA.

Amit Maheshwari, managing partner at AKM Global said, “The ruling emphasises the sanctity of Tax Residency Certificates (TRCs). It will provide greater certainty for private equity investors as it sends a positive signal to the foreign investors.” 

He added that the high court decision strikes a balance between protecting the interests of the revenue and providing a conducive environment for foreign investments. 

In the 200 plus page order, the court held that TRC issued by a jurisdiction is “sacrosanct” sans tax fraud/sham transaction proof presented by the revenue department. 

HC also rejected beneficial ownership concept in the matter, saying, “TGM LLC cannot be said to be the beneficial owner of shares since no evidence has been rendered to suggest that the writ petitioners are under a contractual or legal obligation to transmit revenue to TGM LLC or that the revenue obtained from transfer of shareholding was as a result of actions undertaken by the writ petitioners at the behest of TGM LLC.”