Tiger Global liable to pay tax on gains from 2018 Flipkart deal: SC

Indian officials argued arrangement was meant to avoid tax

Capital gains arising from American investment firm Tiger Global’s Mauritius-based entities leaving ecommerce player Flipkart in 2018 are taxable in India because the nature of their transactions did not permit payment avoidance, the Supreme Court held on Thursday. 

Upholding the case of the Income-Tax Department, a Bench of Justice J B Pardiwala and Justice R Mahadevan set aside an August 2024 judgment of the Delhi High Court, which had granted treaty relief to Tiger Global International II, III and IV Holdings, and restored an order passed by the Authority for Advance Rulings (AAR). 

The Supreme Court said the department had established, at least prima facie, that the investment structure was designed to avoid Indian tax and attracted the statutory bar under Section 245R(2) of the Income-Tax Act, which prevents advance rulings in cases involving tax avoidance.

 

Section 245R(2) of the Act says when the AAR must reject an application.

 

“Though it is permissible in law for an assessee to plan his transaction so as to avoid the levy of tax, once the mechanism is found to be illegal or sham, it ceases to be permissible avoidance and becomes impermissible avoidance or evasion,” the court said.

 

Flipkart exit at the centre

 

The dispute has its origins in Tiger Global’s exit from Flipkart, following Walmart’s acquisition of a controlling stake in the ecommerce major in 2018.

 

Tiger Global’s investments were routed through Mauritius-based entities, which held shares in a Singapore-incorporated company, whose value was derived substantially from assets and operations located in India.

 

The assessees claimed exemption from capital gains tax under the India-Mauritius Double Taxation Avoidance Agreement (DTAA), relying on tax-residency certificates issued by Mauritian authorities and arguing that the transactions were genuine and commercially driven.

 

However, tax authorities in India denied them treaty benefits on the grounds that the Mauritius entities supposedly lacked real commercial substance and effective control and decision-making lay outside Mauritius.

 

Insisting that Tiger Global Mauritius lacked “substance”, the tax authorities raised a demand of ₹14,500 crore (over $1.7 billion at the current exchange rates), disregarding the tax-residency certificate that Tiger Global had obtained from the Mauritian authorities.

 

AAR, High Court, and reversal

 

In 2020, the AAR declined to entertain Tiger Global’s applications for advance rulings, holding that the transactions were prima facie designed for tax avoidance and were subject to the jurisdictional bar under the Act.

 

It stated that the India-Mauritius treaty did not intend to exempt capital gains arising from the transfer of shares in non-Indian companies.

 

The Delhi High Court later quashed the AAR’s order, holding that the assessees were entitled to treaty benefits and that their gains were not taxable in India.

 

The Income Tax Department challenged this ruling before the Supreme Court.

 

Allowing the department’s appeals, the Supreme Court held that the High Court had erred in interfering in the AAR’s findings. It observed that the department was entitled to examine whether the claim for treaty exemption was lawful and whether the arrangement qualified as a legitimate investment structure.

 

“The Revenue is entitled to enquire into the transaction to determine whether the claim of the assessees for exemption is lawful,” the Bench said, adding that evidence on record showed the arrangement did not qualify as permissible tax planning.

  Treaty protection not automatic

 

The court rejected the argument that tax-residency certificates alone were sufficient to secure treaty benefits. It held that treaty protection could not be claimed where the underlying arrangement itself was impermissible.

 

The Bench also endorsed the department’s view that the capital gains arose from the transfer of shares of a foreign company deriving substantial value from Indian assets, bringing the transaction squarely within India’s taxing jurisdiction under domestic law read with treaty provisions.

 

Emphasis on tax sovereignty 

In a separate concurring opinion, Justice Pardiwala placed the ruling in a broader policy and geopolitical context, underscoring the growing importance of tax sovereignty in cross-border transactions.

 

“Economic sovereignty is gaining importance and occupying centre stage in geopolitical affairs,” he said, cautioning that treaty frameworks and complex offshore structures cannot be used to undermine a nation’s legitimate taxing rights.

 

He noted while India had entered into tax treaties to promote investment and prevent double taxation, such agreements cannot be interpreted in a manner that facilitates non-taxation through artificial arrangements.

 

Implications of the court observations

 

Pallav Pradyumn Narang, partner, CA firm CNK, said: “The court has held that the mere possession of a tax residency certificate cannot prevent an inquiry where the interposed Mauritius entity is shown to be a conduit. Based on the amendments to the India-Mauritius DTAA and new anti-abuse framework, the court has affirmed that treaty benefits are unavailable where the tax department proves an impermissible avoidance arrangement was in place, buttressing the point that substance, commercial reality, and purpose now prevail over form.”

 

The financial impact on Tiger Global is significant. The demand on it exceeds the principal value of the stake sold ($1.6 billion) due to the accumulation of interest and penalties over eight years.

 

“The India-Singapore DTAA has historically been considered safer than Mauritius because it contains a specific Limitation of Benefits (LOB) clause (Article 24A). The LOB clause sets objective criteria for substance, primarily an expenditure test (spending 200,000 Singapore dollars annually in Singapore). Investors believed that meeting this quantitative test provided a ‘safe harbour’,” said Ankit Jain, partner, Ved Jain and Associates.

 

“However, the Supreme Court’s reasoning in Tiger Global — focusing on the ‘head and brain’ and ‘fraud unravels all’ — can undermine the Singapore LOB protection,” he added.

 

Talking about how the judgment will impact mergers and acquisitions (M&As) Gouri Puri, partner, Shardul Amarchand Mangaldas & Co, said: “Tiger Global’s case will affect all current and prior M&A deals where tax-treaty benefits have been claimed. Private-equity players and foreign portfolio investors (FPIs) need to look at their investment structures and rethink returns. Tax litigation around tax-treaty claims may increase and impact the tax-insurance market.”

 

Calling the ruling a turning point, Amit Baid, head of tax, BTG Advaya, said: “This marks a 180-degree shift in how DTAA benefits have been claimed so far, with the court holding that general anti-avoidance rules (GAAR) can override treaty grandfathering. The court clarified that GAAR can apply to any arrangement where a ‘tax benefit’ is claimed on or after April 1, 2017, making both the investment cutoff date and the longevity of the structure irrelevant if it lacks commercial substance.”  “The ruling has implications for private-equity funds, hedge funds, and FPIs using Mauritius- and Singapore-based structures, including for pre-2017 investment. While it does not automatically reopen closed cases, it significantly strengthens the tax department’s hand in reassessment proceedings where permitted by law,” he added.

 

Takeaways

• Treaty shopping under greater scrutiny: Tax residency certificates are not conclusive where entities lack real commercial substance
• GAAR (General Anti-Avoidance Rule) reinforced: Ruling strengthens tax dept’s ability to challenge offshore exit structures designed to avoid Indian tax
• Impact on PE/VC exits: Large secondary exits, routed through treaty jurisdictions, may face higher tax exposure
• Clear signal: Judgment aligns with India’s post-2017 shift towards source-based taxation and curbing aggressive tax planning

Case file 

2011-2018 

*  Tiger Global acquires stake in Flipkart Singapore; exits in 2018 by selling to Walmart, booking capital gains 

2019 

*  Tiger Global seeks capital gains tax exemption under India-Mauritius DTAA for shares acquired before April 1, 2017 

March 2020 

*  AAR rejects plea, holding the structure was designed for tax avoidance 

August 2024 

*  Delhi HC overturns AAR ruling and grants treaty relief to Tiger Global 

January 2025 

*  SC stays HC judgment and issues notice on tax department’s appeal