Supreme Court Rules Against Tiger Global, Holds Flipkart Exit Taxable in India

The apex Court ruling effectively means the foreign PE firm must now cough up tax on the $1.6-billion Flipkart stake sale to Walmart.

Allowing the Revenue's appeals, the apex court overturned the Delhi High Court's 2024 judgment, which had granted treaty protection to Tiger Global's Mauritius-based entities under the India-Mauritius Double Taxation Avoidance Agreement (DTAA). The Supreme Court held that the transaction amounted to an "impermissible tax-avoidance" arrangement, making treaty benefits unavailable and triggering the application of India's General Anti-Avoidance Rules (GAAR).

Indirect transfer, treaty benefit denied

The dispute arose from Tiger Global's sale of shares in Flipkart Singapore as part of Walmart's acquisition of the Indian e-commerce major in 2018. While the shares were held through Mauritius entities and acquired before April 1, 2017, Tiger Global claimed exemption from Indian capital gains tax, relying on treaty "grandfathering" provisions and valid Tax Residency Certificates (TRCs).

Rejecting this claim, the top Court ruled that once a transaction is found to be impermissible under law, exemption under Article 13(4) of the DTAA cannot be claimed, regardless of the form of the transfer. The Court held that the Revenue had successfully established that the arrangement lacked lawful commercial substance and was designed primarily to avoid tax in India.

In a significant finding, the Court clarified that mere possession of a TRC does not bar tax authorities from examining the substance of a transaction, particularly where interposed entities are alleged to function as conduits. Citing Section 96(2) of the Income Tax Act, the Court noted that the burden lies on the taxpayer to rebut the presumption of tax avoidance, a burden Tiger Global failed to discharge.

Consequently, the Court held that Chapter X-A (GAAR) applies, and that capital gains arising from transfers effected after April 1, 2017 are taxable in India under domestic law read with the DTAA, irrespective of when the underlying investment was made.

Vodafone principles revisited

Drawing from the principles laid down in the Vodafone judgment, the Supreme Court emphasised that the business and commercial intent behind a transaction is a key determinant in assessing whether it is genuine or artificial. While tax planning is permissible, the Court said, it must be carried out through lawful mechanisms. Once a structure is found to be sham or illegal, it crosses the line into impermissible avoidance or evasion.

The Court also flagged the contradiction in Tiger Global's stand of claiming tax exemption in both India and Mauritius, observing that such a position runs contrary to the spirit of the DTAA.

High Court ruling overturned

The Supreme Court set aside the Delhi High Court's decision, which had quashed an adverse ruling by the Authority for Advance Rulings and held that treaty benefits were available to Tiger Global. The apex court restored the Revenue's position, ruling that the applications seeking advance rulings were rightly rejected as they related to transactions prima facie designed for tax avoidance.

Wider policy signal on tax sovereignty

Beyond the immediate dispute, the judgment carries a strong policy message on India's tax sovereignty. The Court underlined that the right to tax income arising from Indian soil is an inherent sovereign function and warned against long-term compromises that could erode a nation's economic and strategic interests. In an era of geo-economic uncertainty, the Court said, retaining control over tax policy is essential to combating treaty abuse, round-tripping and illicit financial flows.

While the ruling settles the question of taxability, the exact tax liability will now be computed by the assessing authorities. The judgment is expected to reshape how foreign investors evaluate holding structures, treaty reliance and exit strategies involving India, particularly in large cross-border M&A transactions.

"The ruling has far-reaching implications on GAAR, grandfathering and the limited role of TRCs. While rooted in the India-Mauritius treaty, its principles could impact taxpayers using other treaties, including India-Singapore, said Pranav Sayta, National Leader - International Tax & Transactions, EY India

Sandeepp Jhunjhunwala, M&A Tax Partner, Nangia Global said. "The verdict underlines why IndiaMauritius treaty amendments were brought in - to curb round-tripping and treaty abuse. Post-Vodafone laws make it clear that tax exemptions are only for genuine residents with real commercial substance, reinforcing India's tax sovereignty, he added.