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Informist, Thursday, Aug 29, 2024

 

NEW DELHI – The Delhi High Court has granted exemption from capital gains tax to Tiger Global International III Holdings and related entities in the sale of the stake in Flipkart to Walmart in 2018. The high court has rejected a 2020 order by the Authority for Advanced Rulings, which said that the transaction was prima facie designed to avoid tax.

 

The high court said that the order of Authority for Advanced Rulings suffered from "manifest and patent illegalities". The authority's conclusion that the transaction was aimed at tax avoidance is rendered arbitrary and cannot be sustained. "The transaction, in our considered opinion, stands duly grandfathered by virtue of Article 13(3A) of the DTAA (Double Tax Avoidance Agreement)," the court's order.

 

Tiger Global and related entities claimed that gains from the stake transfer would be exempt from taxation as Article 13(3A) of the India-Mauritius Double Tax Avoidance Agreement "grandfathered" all acquisition of shares before Apr 1, 2017.

 

Tiger Global and related entities sought exemption from capital gains tax as they acquired the shares of Flipkart Singapore before Apr 1, 2017. They acquired 23,670,710 shares of Flipkart Singapore between October 2011 to April 2015. In 2018, the petitioners sold their stakes in Flipkart Singapore to Walmart for over 145 bln rupees.  

 

The Authority for Advanced Ruling had held that petitioners were mere conduit companies and were not entitled to claim the benefits under the agreement since the transaction lacked commercial substance. The establishment of an entity in Mauritius by the petitioner was principally aimed at deriving undue benefits under the agreement, the Authority for Advanced Ruling held.

 

The Mauritius companies were only "see-through entities" created to take advantage of the tax treaty and the real beneficiary was the US firm Tiger Global Management LLC, the petitioner's investment manager, the Authority for Advanced Ruling said.

 

The high court ruled that it was apparent that the US firm could not be said to be the beneficial owner of shares since no evidence had been rendered to suggest that the petitioners were under a contractual or legal obligation to transmit revenue to the US firm.  End

 

Reported by Surya Tripathi

Edited by Saji George Titus

 

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