Supreme Court Reverses High Court, Holds Tiger Global Taxable for Flipkart Sale
The Supreme Court of India delivered a significant verdict on Thursday. It ruled that Tiger Global entities incorporated in Mauritius must pay capital gains tax in India. This tax liability arises from their 2018 sale of shares in Flipkart Private Limited to Walmart's entity, FIT Holdings SARL.
Court Overturns Earlier Delhi High Court Decision
A bench comprising Justices J B Pardiwala and R Mahadevan set aside the Delhi High Court's order from August 28, 2024. The High Court had previously upheld Tiger Global's position. It agreed that the firm was exempt from Indian tax obligations under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
The Supreme Court's ruling now reinstates the tax demand. This decision concludes a long legal battle over the multi-billion dollar transaction.
The Core of the Tax Dispute
After acquiring a stake in Flipkart, the Tiger Global entities—specifically Tiger Global International II, III, and IV Holdings—made several investments in Indian companies. They later approached Indian tax authorities seeking a "nil" withholding tax certificate for the Flipkart sale proceeds.
Their primary argument relied on the "grandfathering" clause within the India-Mauritius DTAA. They contended that since they acquired the Flipkart shares before April 1, 2017, the capital gains from their sale should be exempt from Indian tax.
Tax Authorities and AAR Reject Exemption Claim
Indian tax authorities rejected this application. They argued that the Tiger Global entities lacked independent decision-making power. Control over the purchase and sale of shares, they claimed, did not reside with these Mauritius-based units.
The matter then went before the Authority for Advance Rulings (AAR). On March 26, 2020, the AAR also rejected Tiger Global's claim. It provided two key reasons for its decision.
First, the AAR clarified that the Mauritius treaty exemption applies only to capital gains from selling shares of an Indian company. In this instance, Flipkart Private Limited was incorporated in Singapore. Therefore, the transaction did not qualify for the DTAA exemption.
Second, the AAR concluded the entire transaction was a "preordained arrangement" designed specifically for tax avoidance. It noted that the investment structure, involving a Singapore company with an Indian subsidiary, seemed primarily aimed at securing benefits under both the India-Mauritius and Mauritius-Singapore tax treaties.
The AAR further observed that the assessees were part of the larger Tiger Global Management LLC based in the USA. They were held through a complex web of entities in the Cayman Islands and Mauritius. Consequently, the AAR determined that the real "head and brain"—the control and management—of these companies was situated outside Mauritius, particularly in the United States.
High Court's Short-Lived Relief and Supreme Court's Final Word
Tiger Global appealed the AAR order to the Delhi High Court. The High Court quashed the AAR's ruling, calling it legally flawed. It stated the AAR's view was "wholly untenable and unsustainable." The High Court also found the conclusion of tax avoidance to be arbitrary. It ruled that the transaction was indeed protected by the grandfathering clause under Article 13(3A) of the DTAA.
This High Court order was challenged by the tax authorities, bringing the case to the Supreme Court. The apex court has now set aside the High Court's decision, effectively restoring the original tax liability as determined by the authorities and the AAR.
This ruling underscores the judiciary's scrutiny of complex cross-border investment structures. It reinforces the principle that treaty benefits cannot be claimed for transactions primarily designed to avoid tax, especially when the real control lies outside the treaty jurisdiction.
