Tiger Global Not Exempt from Taxation for Sale of Shares in Flipkart
The Supreme Court of India (SC) has ruled, in the cases of The Authority for Advance Rulings vs. Tiger Global International II Holdings, The Authority for Advance Rulings vs. Tiger Global International III Holdings, and The Authority for Advance Rulings vs. Tiger Global International IV Holdings, that the Tiger Global entities in Mauritius (the taxpayers) executed an impermissible avoidance arrangement under the domestic general anti-avoidance rules (GAAR) provisions. Accordingly, they cannot claim the grandfathering benefit on capital gains under article 13 of the India-Mauritius Income Tax Treaty (1982) on the sale of shares of a Singapore company that derived substantial value from assets in India. Further, a mere tax residency certificate (TRC) is not conclusive evidence for establishing tax residency, and the tax authority can make an enquiry into the commercial substance of the entity.
(a) Facts. The taxpayers, being Mauritius tax residents holding a Category 1 Global Business License (GBL) and a TRC, held shares of Flipkart Singapore (SCO). SCO made multiple investments in India, and the value of its shares was derived substantially from assets located in India. In 2018, the taxpayers sold the shares of SCO to a Luxembourg company (as part of a broader transaction involving the majority acquisition of SCO by Walmart US, from several shareholders, including the taxpayers).
The taxpayers approached the Authority for Advance Rulings (AAR) for an advance ruling on whether the sale transaction would be chargeable to tax in India. The AAR concluded that the transaction was prima facie designed for the avoidance of income tax and therefore, rejected the same considering the jurisdictional bar to maintainability, as per proviso (iii) to section 245R(2) of the Income Tax Act, 1961 (the Act).
The taxpayers approached the High Court (HC), which held that they were entitled to treaty benefits and that their income would not be chargeable to tax in India (seeTaxpayer Entitled to Benefit on Capital Gains under India-Mauritius Treaty, TRC Valid, Says Indian Court (30 Aug. 2024)).
The SC stayed the decision of the HC, stating that the issues required thorough consideration (seeSupreme Court Stays Judgment of Earlier Ruling that Allowed Treaty Benefits on Capital Gains of Mauritius Company (27 Jan. 2025)).
(b) Issue. Currently, the SC examined whether the share sale transaction was "an arrangement for tax avoidance" under the Act and whether capital gains therefrom is taxable in India under the Act and the Treaty.
(c) Decision. The SC ruled in favour of the tax authority with observations set out below.
Upholding AAR's Rejection
The AAR was correct in rejecting the applications as being non-maintainable as it is barred from allowing an application if the issue relates to a transaction "prima facie" designed for the avoidance of tax.
TRC is Not Conclusive Evidence
A TRC is merely an "eligibility condition" and is not sufficient on its own to establish the tax residence of a taxpayer. The tax authority is entitled to make an enquiry. In the given case, the tax authority had established that the transaction lacked commercial substance. Further, income from the transfer of shares of SCO was taxable in India as those shares derive substantial value from Indian assets, as per Explanation 5 to section 9(1)(i) of the Act.
Applicability of GAAR
The SC emphasized that while investments made before 1 April 2017 are generally grandfathered, there is no absolute benefit under the Act. In other words, treaty provisions would not be available if a GAAR is invoked. As the transaction was found to be an "impermissible avoidance arrangement," the taxpayers were not eligible for capital gains tax exemption under article 13(4) of the Treaty.
Assertion of Tax Sovereignty
The SC highlighted that tax sovereignty is an inherent right of a nation to tax income arising from its soil and retaining it is a vital tool against tax avoidance.
The SC's decision in Civil Appeal Nos. 262, 263 and 264 of 2026 was pronounced on 15 January 2026 and is available here.
Report from our correspondent Urvi Asher, Chartered Accountant, India. Follow our reporting on this via our daily Tax News Service (subscribers only).