New Delhi: In a significant ruling with wide ramifications for cross-border investment structures and the scope of treaty protection under the India–Mauritius Double Taxation Avoidance Agreement (DTAA), the Supreme Court of India has allowed appeals filed by the Income Tax Department and upheld the Authority for Advance Rulings’ (AAR) refusal to grant capital gains tax exemption to Mauritius-based Tiger Global entities on their exit from Flipkart.
The judgment arises from the sale of shares of Flipkart’s Singapore holding company by Tiger Global International II, III and IV Holdings, all incorporated in Mauritius, as part of Walmart Inc.’s acquisition of Flipkart in 2018. While the Delhi High Court had earlier ruled in favour of the assessees, holding that the gains were grandfathered under the DTAA, the Supreme Court has now taken a fundamentally different view on treaty interpretation, indirect transfers, and anti-avoidance principles.
Tiger Global’s Mauritius entities had acquired shares in Flipkart’s Singapore holding company between 2011 and 2015. The Singapore company, in turn, held Indian operating subsidiaries, with the bulk of its value derived from Indian assets. In 2018, as part of Walmart’s global acquisition of Flipkart, the Tiger Global entities sold their Singapore shares to a Luxembourg entity and received consideration running into billions of dollars.
Prior to consummation of the transaction, the assessees approached Indian tax authorities seeking nil withholding certificates under Section 197 of the Income Tax Act, 1961. The Department rejected the request and imposed withholding, prompting the assessees to seek advance rulings from the Authority for Advance Rulings on whether the capital gains were taxable in India.
The AAR declined to entertain the applications, holding that the transaction was prima facie designed for tax avoidance and barred under Section 245R(2). The Delhi High Court overturned this finding, holding that valid Tax Residency Certificates, compliance with the Limitation of Benefits clause, and grandfathering under Article 13(3A) of the DTAA insulated the transaction from Indian taxation.
The Supreme Court framed the dispute against the broader backdrop of treaty shopping, indirect transfers, and India’s evolving anti-avoidance framework. It emphasised that while tax treaties allocate taxing rights, they do not amount to a surrender of sovereign taxing power, particularly where transactions are structured to defeat domestic tax law.
A central issue before the Court was whether Article 13(3A) of the India–Mauritius DTAA, which grandfathered gains from shares acquired prior to 1 April 2017, could apply to the sale of shares of a non-Indian company. Rejecting the High Court’s expansive interpretation, the Supreme Court held that both the original DTAA and the 2016 Protocol contemplated exemption only in respect of gains arising from the transfer of shares of an Indian resident company.
The Court held that extending treaty protection to the sale of shares of a Singapore company would amount to rewriting the treaty and stretching the grandfathering clause beyond its intended scope. According to the Court, indirect transfers deriving value from Indian assets fall squarely within Article 13(4) of the DTAA, which does not provide for any grandfathering or Limitation of Benefits protection.
The Supreme Court also endorsed the AAR’s detailed factual findings on control and management. It noted that despite the formal existence of boards in Mauritius, real decision-making authority—particularly for transactions exceeding prescribed thresholds—vested with individuals located outside Mauritius, including the ultimate beneficial owner.
The Court rejected the argument that the presence of Mauritian directors or bank accounts was sufficient to establish substantive residence. It held that Tax Residency Certificates, while relevant, are not conclusive where surrounding facts demonstrate that the “head and brain” of the enterprise is located elsewhere. The Court reiterated that treaty entitlement cannot be claimed mechanically on the basis of incorporation or documentation alone.
A crucial part of the judgment concerns the interplay between treaty provisions and domestic anti-avoidance law. The Supreme Court clarified that the introduction of General Anti-Avoidance Rules (GAAR) with effect from 1 April 2017 reflects legislative intent to scrutinise arrangements that lack commercial substance, even if elements of the structure pre-date GAAR.
The Court rejected the argument that all pre-2017 investments are immune from scrutiny, holding that what is grandfathered is the investment, and not necessarily the transaction or arrangement giving rise to income. Where the taxable event occurs after GAAR comes into force, and the arrangement is found to be impermissible, GAAR can operate notwithstanding the vintage of the underlying investment.
In doing so, the Court distinguished earlier precedents such as Azadi Bachao Andolan and Vodafone, noting that those decisions were rendered in a materially different statutory landscape, prior to the codification of anti-avoidance principles.
Case Details
- Case Title: Authority for Advance Rulings (Income Tax) v. Tiger Global International II, III & IV Holdings
- Court: Supreme Court of India
- Citation: 2026 INSC 60
- Bench: Justice R. Mahadevan
- Appeals: Civil Appeal Nos. 262–264 of 2026
- Impugned Judgment: Delhi High Court judgment dated 28.08.2024
- Counsel for Revenue: N. Venkataraman, Additional Solicitor General
- Counsel for Assessees: Harish Salve, Senior Advocate
