 "Supreme Court stays ruling favouring Tiger Global in Flipkart deal")
The Supreme Court (SC) on Friday issued a stay order on the Delhi High Court judgment in favour of Tiger Global International III Holdings, a Mauritius-based investment entity, in a case involving the sale of its stake in Flipkart Singapore to Walmart in 2018 for over Rs 14,500 crore, thus generating capital gains in India.
“The issues raised in this petition require thorough consideration. In the meantime, the impugned judgment and order passed by the high court shall remain stayed from its operation, implementation and execution,” the SC order said.
The next hearing of the case at the top court has been scheduled for February 14.
The high court’s decision in August 2024 had affirmed Tiger Global’s eligibility for capital gains tax exemptions under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
The Authority for Advance Rulings (AAR) had earlier denied Tiger Global treaty benefits, arguing that the transaction was structured to avoid taxes and that the India-Mauritius DTAA did not apply to such indirect transfers. However, the Delhi High Court overturned the AAR's ruling, citing the DTAA's grandfathering provisions and the validity of Tiger Global's Tax Residency Certificate (TRC).
The high court held that under Article 13(3A) of the DTAA, capital gains arising from shares acquired before April 1, 2017, are exempt from Indian taxes. The court stressed that the TRC issued by Mauritius is sufficient evidence of residency and eligibility for treaty benefits, citing the SC’s precedent in "Union of India v. Azadi Bachao Andolan". It rejected the argument that Tiger Global’s Mauritius-based entities lacked “commercial substance”, highlighting their compliance with Mauritian laws.
The India-Mauritius DTAA was amended in May 2016, introducing changes that allowed India to tax capital gains arising from the sale of shares of Indian companies acquired on or after April 1, 2017. However, a "grandfathering clause" in Article 13(3A) exempted shares acquired before April 1, 2017 from this tax. The shares in question were acquired by Tiger Global between October 2011 and April 2015, which qualifies them for the grandfathering clause. This means the capital gains arising from the sale of these shares should technically remain exempt from Indian taxes under the DTAA.
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Despite the grandfathering clause, the government argued that the sale in 2018 after the DTAA amendment was structured through Mauritius entities solely to claim treaty benefits. The government alleged that these entities lacked "commercial substance" and were used as conduits to avoid paying tax in India.
The tax authorities argued that Tiger Global’s Mauritius-based entities were not independent in decision-making. Instead, they were controlled by the US-based parent entity, Tiger Global Management LLC. The authorities claimed that the Mauritius entities were mere conduits and lacked economic substance, with the real control and decision-making originating from the US.
According to Indian AAR, if the Singapore company derived its value from the assets located in India, the fact remains that what the applicants had transferred was shares of Singapore company and not that of an Indian company. The objective of India-Mauritius DTAA was to allow exemption of capital gains on transfer of shares of Indian company only and any such exemption on transfer of shares of the company not resident in India was never intended by the legislator.
Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm, said the stay by the apex court in light of its pan-India implications reflects the gravity of this matter from the tax standpoint.
“There are several key areas which could possibly need a thorough attention, ranging from the interpretation of tax treaties in cases of indirect transfers, (to) clarity on what constitutes a conduit company and what is the economic substance as well as how relevant are the people sitting in that entity for proving the substance since investment entities need not necessarily have employees sitting there in that jurisdiction. These issues need a clear and consistent approach to be followed by the authorities and a judgment would be awaited and welcome in this regard,” Maheshwari said.