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Informist, Thursday, Jan. 15, 2026

 

--SC: No capital gains tax exemption to Tiger Global on Flipkart stake sale

 

NEW DELHI – The Supreme Court on Thursday held that Tiger Global International III Holdings and related entities were not entitled to an exemption from capital gains tax in the sale of their stake in Flipkart Singapore to Walmart Inc. for over INR 145 billion in 2018. Setting aside a Delhi High Court's order that had given tax exemption to Tiger Global, the top court said that the capital gains arising from the sale of shares after 2017 were taxable in India under the Income Tax Act, 1961 and applicable provisions of the India-Mauritius Double Tax Avoidance Agreement.

 

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 acquisitions of shares before Apr. 1, 2017. Tiger Global and its related entities sought an exemption from capital gains tax on the basis that they had acquired Flipkart Singapore's shares before Apr. 1, 2017. They acquired 23,670,710 shares of Flipkart Singapore between October 2011 and April 2015. In 2018, Tiger Global and its affiliated entities sold their stakes in Flipkart Singapore to Walmart.

 

The Supreme Court held that, once it was found on the facts that Tiger Global's sale of its stake in Flipkart constituted an impermissible arrangement for realising capital gains under the India-Mauritius treaty, the benefits under the agreement would not be available. The court said Tiger Global's arrangement was a tax avoidance scheme. Its transaction was prima facie designed to avoid tax, and the evidence prima facie established that it does not qualify as lawful, the court said. Merely holding a tax residency certificate would not mean that investigations to check an arrangement would be foreclosed, the apex court said.

 

The apex court said that taxing an income arising out of its own country is an inherent sovereign right of that country. Any application of filters or diffusers to this constitutes a direct attack or threat to its sovereignty, and can affect a nation's long-term interests, the court said. 

 

In 2020, the Authority for Advance Ruling 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 primarily intended to derive undue benefits under the agreement, the Authority for Advance Ruling had 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 Advance Ruling had said.

 

The Delhi High Court had set aside the authority's order, holding that it 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 produced to show that the petitioners were under a contractual or legal obligation to remit the 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 that brings it into direct conflict with a treaty provision or overrides the provisions of the 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 Saji George Titus

 

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