Background of the Case

Events Leading to the Dispute

Tiger Global, a global investment group, divested a significant equity interest (approximately 17%) in Flipkart in 2018 as part of Walmart Inc.’s acquisition of the e-commerce group. The investment and subsequent exit were undertaken through Mauritius-incorporated entities.

Historically, investments routed through Mauritius were eligible for capital gains tax exemption under the India–Mauritius Double Taxation Avoidance Agreement (DTAA), particularly for investments made prior to 1 April 2017. The shares transferred pertained to a Singapore-incorporated company whose value was substantially derived from underlying assets located in India.

 

Challenge by the Income-tax Department

The Income-tax Department contested the claim of treaty exemption on the following grounds:

  • The Mauritius entities were alleged to be conduit or shell entities, created primarily to avail treaty benefits.
  • Effective control and management were alleged to be located outside Mauritius.
  • The arrangement was contended to be designed for avoidance of Indian tax.

On this basis, the Authority for Advance Rulings (AAR) declined to entertain the applications, invoking the jurisdictional bar under Section 245R(2) of the Income-tax Act, 1961, holding that the transaction was prima facie designed for tax avoidance.

 

Judicial History Prior to the Supreme Court Decision

Authority for Advance Rulings (2020)

The AAR rejected the applications at the threshold, holding that:

  • The overall arrangement lacked commercial substance.
  • The transaction was prima facie designed for avoidance of tax.
  • Treaty benefits under the India–Mauritius DTAA were not available.

 

Delhi High Court (August 2024)

The Delhi High Court set aside the AAR’s order and held that:

  • The assessees were valid tax residents of Mauritius, supported by Tax Residency Certificates issued by the Mauritius Revenue Authority.
  • The investments were long-term and genuine, not colourable or artificial.
  • Article 13(3A) of the India–Mauritius DTAA expressly grandfathered capital gains arising from investments made prior to 1 April 2017.
  • General Anti-Avoidance Rules (GAAR) could not override explicit treaty grandfathering provisions.
  • Mere allegations of treaty shopping were insufficient to deny treaty benefits.

 

Supreme Court Final Judgment (January 2026)

Final Outcome

The Supreme Court dismissed the appeals filed by the Revenue and affirmed the judgment of the Delhi High Court. It was held that:

  • Capital gains arising from the sale of the Flipkart stake were not chargeable to tax in India.
  • The transaction was validly protected under the grandfathering provisions of the India–Mauritius DTAA.
  • The Revenue was not justified in denying treaty benefits to the assessees.

Accordingly, the decision was rendered in favour of the assessees.

 

Core Legal Reasoning Adopted by the Supreme Court

The Supreme Court held that:

  • Tax Residency Certificates issued by the competent authority of Mauritius carry substantial evidentiary value and create a strong presumption of treaty eligibility.
  • Such certificates cannot be disregarded in the absence of clear evidence of fraud, sham, or artificial arrangement.
  • Treaty shopping, by itself, is not prohibited unless the structure is shown to be a colourable device.
  • The assessees demonstrated commercial substance, regulatory compliance in Mauritius, and long-term investment intent.
  • GAAR cannot be applied to defeat express and conscious grandfathering provisions agreed upon by both contracting states.
  • Article 13(3A) of the DTAA applies even where the transfer involves shares of a foreign company, provided the investment is grandfathered and derives value from Indian assets.

 

Broader Legal and Practical Implications

Treaty Interpretation and Alleged Treaty Abuse

The judgment reiterates that tax treaties must be interpreted in good faith, consistent with their object and purpose. Denial of treaty benefits requires a high threshold of proof demonstrating sham or abuse, not mere tax efficiency.

 

Impact on Foreign Investment and Tax Certainty

The ruling reinforces the credibility of India’s treaty commitments and provides reassurance to foreign investors who structured investments relying on grandfathering assurances under the India–Mauritius DTAA.

 

Substance versus Form

The Supreme Court harmonised established jurisprudence, reiterating that substance over form principles apply only where artificiality or colourable devices are demonstrated. Commercial investment structures do not lose legitimacy merely because they are tax-efficient.

 

Position Going Forward

  • For the assessees, no capital gains tax liability arises in India on the Flipkart transaction.
  • For Indian tax law, the judgment delineates clear limits on the invocation of GAAR against treaty-protected investments.
  • For foreign investors, the decision provides clarity on acceptable substance standards and reinforces the reliability of treaty-based grandfathering.

 

Case Reference

Tiger Global International Holdings v. Authority for Advance Rulings (Income Tax) & Others
Supreme Court of India — 2026 INSC 60

Income-tax Act, 1961

  • Section 9(1)(i) read with Explanations 4 and 5
    (Deeming provisions relating to indirect transfer of assets situated in India)
  • Section 45
    (Chargeability of capital gains)
  • Section 90(2), 90(2A), 90(4) and 90(5)
    (Applicability, override, and documentation requirements for DTAA benefits)
  • Section 197
    (Certificate for deduction of tax at lower or nil rate)
  • Section 245Q(1)
    (Application for advance ruling)
  • Proviso (iii) to Section 245R(2)
    (Bar on advance ruling where transaction is prima facie designed for tax avoidance)
  • Chapter X-A (Sections 95 to 102)
    (General Anti-Avoidance Rules – GAAR)
  • Rule 10U of the Income-tax Rules, 1962
    (Grandfathering and exclusions from GAAR)

 

India–Mauritius Double Taxation Avoidance Agreement (DTAA)

  • Article 4
    (Residence)
  • Article 13(3A)
    (Grandfathering of capital gains on shares acquired prior to 01.04.2017)
  • Article 13(3B)
    (Taxation of shares acquired on or after 01.04.2017)
  • Article 13(4)
    (Indirect transfer of shares deriving value from Indian assets)
  • Article 27A (Limitation of Benefits clause)

 

Key Constitutional Reference

  • Article 265 of the Constitution of India
    (No tax shall be levied or collected except by authority of law)


LINK TO DOWNLOAD THE ORDER
https://mytaxexpert.co.in/uploads/1768527243_TIGERGLOBALINTERNATIONALIIHOLDINGSVsTHEAUTHORITYFORADVANCERULINGSINCOMETAXANDOTHERS.pdf 

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