Big setback for Tiger Global as SC rules against Co in taxation claim over stake sale in Flipkart

Contributing sentiments towards policy:

56% : In a landmark ruling on the use of international tax treaties by companies, the Supreme Court on Thursday set aside the Delhi High Court's judgment that had exempted Mauritius-based private equity firm Tiger Global International III Holdings and its related entities from capital gains tax on the Flipkart stake sale toUS retailer Walmart in 2018.
56% : Welcoming the judgment, Additional Solicitor General N Venkataraman, who appeared for the department, told ET that "This judgment defines the emerging role of India in the new Geo Political tax jurisprudence and enhances the passionate vision of Viksit Bharat 2047." The High Court had, in August 2024, overturned a 2020 decision by the Authority for Advance Rulings (AAR), which had denied Tiger Global the benefits of the India-Mauritius Double Tax Avoidance Agreement (DTAA) on the grounds that the transaction was, prima facie, structured to avoid tax.
54% : The Flipkart Singapore shares were held by Tiger Global entities in Mauritius -- which, like Singapore, has a tax treaty with India.
53% : This reclamation was effected through legislative amendments introducing GAAR provisions and by the comprehensive renegotiation of the relevant tax treaty in 2016.
52% : " "In this backdrop, the Court held that earlier CBDT Circulars which suggested that the mere possession of a Tax Residency Certificate (TRC) constituted sufficient evidence of residency now stand eclipsed and superseded.
52% : Under the treaties, investors from treaty jurisdictions are exempt from capital gains tax on such indirect transfers of Indian assets.
52% : "The court's decision could have a significant impact on the taxation of global investment funds operating in India.
51% : Commenting on the judgment, Gagan Kumar, Partner, Khaitan Legal Associates said, "The Supreme Court has clarified that indirect transfers, as contemplated under the Act following the Vodafone judgment, do not fall within the protective ambit of tax treaties; consequently, there is no occasion to invoke treaty provisions in respect of such transactions.
51% : Pranav Sayta, National Leader, International Tax and Transaction Services, EY India, said, "In particular one would need to carefully understand the implications arising from the Judgement relating to applicability of GAAR (General Anti Avoidance Rules) under the Indian Income Tax Act (Act), including the observations regarding the grandfathering of capital gains arising on sale of investments made (shares acquired) before 1 April 2017 under the provisions of the amended DTAA (Treaty) between India & Mauritius." "Also of great interest may be the observations in regard to the Tax Residency Certificate, applicability of Circulars issued under the Act, and indeed the observations of Justice Pardiwala in regard to principles of Tax Sovereignty.
50% : Depending on the verdict, investment funds may have to factor in revised tax costs in their IRR (internal rate of return) calculations when evaluating Indian investments, which could influence their attractiveness," said Bijal Ajinkya, partner at the law firm Khaitan & Co, to ET Bureau before the ruling.
49% : The court found the transaction was structured to avoid taxes.
49% : The move raised questions about the reliability of TRCs used by foreign investors for tax planning.
47% : Insisting that Tiger Global Mauritius lacked "substance," the tax authorities raised a demand of ₹14,500 crore (over $1.7 billion at current exchange rates), disregarding the Tax Residency Certificate (TRC) that Tiger Global had obtained from the Mauritian authorities.
45% : The judgment ultimately reinforces the enduring adage that aggressive tax planning often invites equally stringent and far-reaching countermeasures from the Revenue," added Kumar.
44% : Sandeepp Jhunjhunwala, Partner at Nangia Global said, "While the detailed reasoning of the Court is awaited, the verdict signals a stricter approach to tax treaty interpretation and a heightened emphasis on economic substance over legal form." "The Supreme Court, while allowing the Revenue's appeal in the Tiger Global matter, held that the mere possession of a TRC does not preclude a detailed enquiry where an interposed entity is alleged to be a conduit for tax avoidance." "It sets out a clear prompt for investors to reassess holding structures and exit strategies, potentially dampening foreign investment appetite and altering how future M&A transactions involving India inbound, are structured." "This approach reinforces the principle that treaty benefits are available only to genuine tax residents and not to layered structures, if created to secure unintended tax advantages.
42% : This judgment impacts international investors using tax treaties.
34% : However, the Income Tax Department challenged the arrangement, arguing that Tiger Global Mauritius was merely a vehicle to avoid tax by exploiting the treaty.

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