The Supreme Court of India, in a major ruling with far-reaching implications for foreign investors and private equity funds, has ruled against Tiger Global International III Holdings, holding that the investment firm is not entitled to capital gains tax exemption on the sale of its stake in Flipkart. The verdict overturns a favourable order passed earlier by the Delhi High Court and restores the tax department's position that the transaction is taxable in India.
The dispute relates to Tiger Global's 2018 exit from Flipkart, when US retail giant Walmart acquired a majority stake in the Indian e-commerce company. Tiger Global had routed its investment and subsequent exit through Mauritius-based entities, claiming protection under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
What the Supreme Court Decided
The apex court held that treaty benefits cannot be claimed mechanically and must be denied where the underlying transaction lacks commercial substance or is structured primarily to avoid tax. The court observed that mere possession of a Tax Residency Certificate (TRC) from Mauritius is not conclusive proof of entitlement to treaty exemption.
According to the judgment, the Flipkart share sale involved an indirect transfer of Indian assets, as the value of the overseas shares was substantially derived from business operations and assets located in India. As a result, the income arising from the transaction is taxable under Indian law.
The ruling effectively reinstates the findings of the Authority for Advance Rulings (AAR), which had earlier denied treaty benefits to Tiger Global on the ground that the Mauritius structure was designed mainly for tax avoidance.
Background of the Case
- Tiger Global invested in Flipkart through Mauritius-registered entities
- In 2018, it exited its investment as part of Walmart's acquisition
- The fund claimed exemption from capital gains tax under the India-Mauritius DTAA
- Indian tax authorities challenged the claim, alleging treaty abuse
- The AAR ruled against Tiger Global
- The Delhi High Court overturned the AAR's decision
- The Supreme Court has now set aside the High Court ruling
The tax demand in the case reportedly runs into several thousand crore rupees, making it one of the most closely watched international tax disputes involving foreign funds.
Key Legal Principles Reaffirmed
The Supreme Court's decision reinforces several important principles in international taxation:
- Substance over form is critical in determining tax liability
- Treaty shopping and artificial structures will not be protected
- Economic presence and control matter more than paper entities
- India's right to tax income arising from Indian assets remains paramount
The ruling aligns with India's broader policy shift towards anti-avoidance measures, including the application of GAAR (General Anti-Avoidance Rules) and stricter scrutiny of cross-border investment structures.
Impact on Foreign Investors and Private Equity Funds
Tax experts say the judgment will have a significant impact on how foreign investors structure their India-focused investments and exits, particularly those routed through traditional treaty jurisdictions such as Mauritius and Singapore.
The verdict sends a clear message that legacy treaty benefits will not override tax avoidance concerns, even for transactions undertaken before recent amendments to tax treaties.
Foreign funds may now need to reassess:
- Holding structures
- Exit planning strategies
- Reliance on treaty exemptions
- Long-term tax exposure in India
Why This Judgment Matters
The Tiger Global-Flipkart ruling is expected to become a key precedent in future disputes involving:
- Indirect transfer of Indian assets
- Treaty abuse allegations
- Capital gains taxation of offshore transactions
It also strengthens the tax department's position in ongoing and future cases involving multinational investors with similar offshore structures.
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