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Informist, Friday, Jan. 24, 2025

NEW DELHI – The Supreme Court on Friday stayed a Delhi High Court order that had granted exemption to Tiger Global International III Holdings and related entities from capital gains tax in the sale of stake in Flipkart to Walmart in 2018. The apex court's bench of Justice J.B. Pardiwala and Justice R. Mahadevan issued a notice to Tiger Global on a petition by Authority for Advanced Ruling (Income Tax) against the Delhi High Court's order and listed the case for hearing on Feb. 18.

Tiger Global and related entities had claimed that gains from the transfer of stake 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 had acquired the shares of Flipkart Singapore before Apr. 1, 2017. They acquired 23,670,710 shares of Flipkart Singapore between October 2011 and April 2015. In 2018, Tiger Global and related entities sold their stakes in Flipkart Singapore to Walmart for over INR 145 billion.

In 2020, the Authority for Advanced Ruling had held that Tiger Global and related entities were mere conduit companies and were not entitled to claim benefits under the agreement since the transaction lacked commercial substance. The establishment of an entity in Mauritius by Tiger Global 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, investment manager of Tiger Global International III Holdings, the Authority for Advanced Ruling said.

The high court had rejected the 2020 order by the Authority for Advanced Ruling, which said that the transaction was prima facie designed to avoid tax. The high court said that the order of Authority for Advanced Ruling suffered from "manifest and patent illegalities". "The transaction, in our considered opinion, stands duly grandfathered by virtue of Article 13(3A) of the DTAA (Double Tax Avoidance Agreement)," the high court had said. 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, the high court had ruled.

The high court had said that domestic tax legislation cannot be interpreted in a manner which brings it into direct conflict with a treaty provision or with an overriding effect over the provisions contained in a Double Tax Avoidance Agreement. There cannot be an assumption of treaty shopping and treaty abuse merely because a subsidiary or any related entity is established in a tax-friendly jurisdiction, the high court had said. "...it would be erroneous to characterise legitimate business activities undertaken by entities as constituting treaty shopping, merely because it was situated in a favourable tax jurisdiction," the high court had said.  End

Reported by Surya Tripathi

Edited by Ashish Shirke

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