- ₹15,000 cr. capital gains tax demand likely on Tiger Global for sale of shares in Flipkart after Supreme Court ruling
- Tiger Global claimed that it is exempted from Indian capital gains tax under the "grandfathering" clause of the India-Mauritius DTAA, since it had acquired the shares before April 1, 2017.
In a major legal shift, the Supreme Court of India ruled on January 15, 2026, that Tiger Global is liable to pay capital gains tax on its 2018 exit from Flipkart. This landmark judgment overturned a previous Delhi High Court ruling and has significant implications for how foreign investments are structured in India.
The Supreme Court upheld the Indian revenue authorities' refusal to entertain Tiger Global's advance ruling applications in the case of Authority of Advanced Ruling v. Tiger Global.
A bench of Justices JB Pardiwala and R Mahadevan ruled that if a transaction is prima facie designed for tax avoidance, the tax authorities are not required to examine the merits of taxability.
This decision relies on the statutory bar under the proviso to Section 245R(2) of the Income Tax Act, 1961.
The Core Dispute
The case originated from Walmart’s $16 billion acquisition of Flipkart in 2018. Tiger Global, a US-based investment firm, sold its stake (worth roughly $1.6 billion) through several Mauritius-based entities.
Tiger Global's Argument: They claimed tax exemption under the India-Mauritius Double Taxation Avoidance Agreement (DTAA). They argued that because their investments were made before April 1, 2017, they were protected by "grandfathering" clauses.
Tax Department's Argument: Authorities contended that the Mauritius entities were merely "conduits" or "shell companies" with no real commercial substance. They argued the "head and brain" of the operation was in the US, and the structure was designed solely for impermissible tax avoidance.
The Supreme Court Ruling (January 2026)
A bench consisting of Justices J.B. Pardiwala and R. Mahadevan ruled in favor of the Income Tax Department, establishing several key legal precedents:
Substance Over Form: The Court held that the transaction was an "impermissible tax avoidance arrangement." It emphasized that the real purpose and control of the entities matter more than where they are registered.
TRC is Not a "Blank Check": The court clarified that holding a Tax Residency Certificate (TRC) from Mauritius is not sufficient to claim treaty benefits if the entity is found to be a conduit for tax avoidance.
GAAR Applicability: The ruling invoked the General Anti-Avoidance Rule (GAAR), stating that tax authorities have the right to look through complex offshore structures to determine the actual beneficiary.
Tax Liability: Tiger Global is now reportedly facing a tax demand of approximately ₹14,500 crore to ₹15,000 crore (roughly $1.7 billion–$1.8 billion), including potential interest and penalties.
Why This Matters
This case is considered a "watershed moment" for international taxation in India because:
Venture Capital Impact: Other major firms (like Peak XV, Accel, and Blume) that use Mauritius or Singapore structures may face increased scrutiny.
End of "Treaty Shopping": It signals that India will no longer tolerate structures that use tax-haven jurisdictions without genuine business operations (economic substance) in those locations.
Retroactive Scrutiny: Even "grandfathered" investments (pre-2017) can now be challenged if the underlying structure is deemed a sham.
To understand the Tiger Global ruling, it is essential to look at the two legal "pillars" that were at the heart of the argument: the Grandfathering Clause (which Tiger Global relied on) and GAAR (which the Tax Department used to override it).
1. The Grandfathering Clause
The India-Mauritius tax treaty was amended in 2016 to stop "tax-free" exits. However, to protect existing investors, a Grandfathering Clause was introduced.
The Rule: Any shares of an Indian company acquired before April 1, 2017, are protected. When these shares are sold (regardless of the year of sale), the capital gains tax is determined by the old treaty rules—meaning the tax is paid in Mauritius (which is 0%) and not in India.
Tiger Global’s Position: Since they invested in Flipkart before 2017, they argued they had a "vested right" to this exemption.
2. General Anti-Avoidance Rule (GAAR)
Introduced in India on April 1, 2017, GAAR gives the Income Tax Department the power to "look through" a legal structure and tax it based on its real economic substance.
An arrangement is flagged as an Impermissible Avoidance Arrangement (IAA) if its main purpose is to get a tax benefit and it meets any of these "tainted element" tests:
Lacks Commercial Substance: The entity (like a Mauritius shell company) has no real employees, office, or decision-making power.
Abuse of Law: It uses the treaty in a way that wasn't intended (Treaty Shopping).
Arm's Length: It creates rights/obligations that wouldn't exist between independent parties.
The "Conflict" in the Tiger Global Case
The 2026 Supreme Court ruling effectively decided which of these two rules is stronger.
Key Takeaway: The Court ruled that Anti-Avoidance (GAAR) overrides Treaty benefits. If a structure is found to be a "sham" designed only to save tax, the Grandfathering protection will be denied.
Impact on Future Investments
Investors can no longer rely solely on a Tax Residency Certificate (TRC). To be safe under Indian law now, an offshore fund must show "Economic Substance" in the country where it is registered, such as:
Local Directors: Who actually make investment decisions (not just rubber-stamping US orders).
Local Office & Employees: A physical presence with operational costs.
Commercial Purpose: A reason for being in that country other than just the 0% tax rate.
Tiger Global was represented by Senior Advocates Porus Kaka and Harish Salve.
The revenue was represented by Additional Solicitor General N Venkataraman.
