Supreme Court Delivers Landmark Ruling on Tiger Global's Flipkart Exit
The Supreme Court of India delivered a significant judgment on Thursday. It ruled that private equity firm Tiger Global must pay taxes in India on its $1.6 billion stake sale in Flipkart to Walmart. This decision sets a crucial precedent for foreign investors who rely on international tax treaties.
Court Rejects High Court Order, Cites Tax Avoidance
A bench comprising Justices J B Pardiwala and R Mahadevan set aside an earlier order from the Delhi High Court. The justices held that the transfer of unlisted shares occurred through an arrangement that was not permissible under Indian law.
The detailed 152-page order stated that the revenue department successfully proved the transactions were designed for tax avoidance. The evidence prima facie established they did not qualify as lawful arrangements. The bench noted that applications from the assessees related to a transaction primarily aimed at avoiding taxes. Therefore, the court rightly rejected them due to a jurisdictional bar on maintainability.
Tax Residency Certificate Not Conclusive Proof
The Supreme Court also upheld a key contention from the revenue department. It clarified that merely possessing a Tax Residency Certificate (TRC) does not automatically shield an entity from scrutiny. Authorities can investigate further if they suspect the entity acts as a conduit for tax avoidance.
The court emphasized that a TRC is not conclusive evidence for claiming treaty benefits. This is especially true when surrounding facts indicate a lack of genuine commercial substance in the transactions.
Background of the Tiger Global-Flipkart Case
The case originated from Tiger Global's acquisition of shares in Flipkart Singapore between October 2011 and April 2015. These shares were later transferred to Fit Holdings SARL, an entity based in Luxembourg. In 2018, Tiger Global exited Flipkart when Walmart acquired a controlling stake in the Indian e-commerce giant.
When Tiger Global sought guidance from the Authority of Advance Ruling, it held the transaction was prima facie for the avoidance of income tax. The ruling noted that the actual management and control rested with TGM LLC, a US-based entity, not a Mauritius-based one as claimed.
Expert Analysis on the Judgment's Impact
Amit Maheshwari, managing partner at tax and consulting firm AKM Global, commented on the ruling's broader implications. He stated the judgment will likely have an overriding effect on investments previously grandfathered under the India-Mauritius treaty amendment. These investments may now face questions based on their economic reality.
Maheshwari added that the decision has far-reaching consequences for private equity, venture capital, and offshore investment structures. It signals the end of mechanical claims for treaty benefits based solely on TRCs and formal residency. The ruling reinforces India's alignment with global anti-abuse standards in taxation.
Key Legal and Tax Principles Reinforced
Pranav Sayta, national leader for international tax at EY India, highlighted several critical aspects of the judgment. Experts must carefully understand the implications regarding the applicability of General Anti Avoidance Rules (GAAR) under the Income Tax Act.
Sayta pointed to important observations concerning the grandfathering of capital gains from investments made before April 1, 2017. These gains were protected under the amended Double Taxation Avoidance Agreement (DTAA) between India and Mauritius. The court's views on this matter are now under scrutiny.
Additionally, the observations regarding the TRC's role, the applicability of circulars issued under the Act, and Justice Pardiwala's remarks on principles of tax sovereignty are of great interest to the legal and financial community.
This Supreme Court verdict marks a pivotal moment in India's tax jurisprudence. It underscores the judiciary's commitment to examining the substance of transactions over their form. The ruling empowers tax authorities to scrutinize complex cross-border deals more rigorously.
