Supreme Court Rules Tiger Global’s Flipkart Exit Taxable in India, Flags Impermissible Tax Avoidance

The Supreme Court on Thursday held that capital gains arising from Tiger Global’s exit from Flipkart in 2018 are taxable in India, concluding that the investment structure amounted to impermissible tax avoidance. A Bench comprising Justices J.B. Pardiwala and R. Mahadevan allowed the appeals filed by the income tax department, overturned an August 2024 judgment of the Delhi High Court, and restored an earlier adverse decision of the Authority for Advance Rulings (AAR). The High Court had previously granted tax treaty relief to Tiger Global International II, III and IV Holdings, all Mauritius-based entities. Court finds prima facie tax avoidance The apex court held that the Revenue had demonstrated, at least at a prima facie level, that Tiger Global’s offshore investment arrangement was designed to avoid Indian tax. As a result, the court ruled that the statutory bar under Section 245R(2) of the Income Tax Act was attracted. This provision mandates rejection of advance ruling applications where the transaction involves tax avoidance. While acknowledging that tax planning is permissible under Indian law, the Bench drew a clear distinction between lawful planning and abusive arrangements. “Once the mechanism is found to be illegal or a sham, it ceases to be permissible avoidance and becomes impermissible avoidance or evasion,” the court observed. Section 245R(2) lays down the circumstances in which the AAR must decline to entertain applications, including cases where the primary purpose of the transaction appears to be the avoidance of tax. Background of the Flipkart transaction The controversy arose from Tiger Global’s exit from Flipkart following Walmart Inc.’s acquisition of a controlling stake in the Indian e-commerce company in 2018. Tiger Global’s investments were routed through Mauritius-based entities, which held shares in a Singapore-incorporated company. That company, in turn, derived substantial value from assets and business operations located in India. Tiger Global claimed exemption from capital gains tax under the India–Mauritius Double Taxation Avoidance Agreement (DTAA). The assessees relied on tax residency certificates issued by Mauritian authorities and asserted that the investment and exit were commercially driven and genuine. The Indian tax department, however, rejected this position. It argued that the Mauritius entities lacked real commercial substance, that effective control and decision-making were exercised outside Mauritius, and that the structure had been interposed primarily to avoid Indian tax. Disregarding the tax residency certificates, the Revenue raised a tax demand of around ₹14,500 crore (approximately $1.7 billion), alleging that the entities were mere conduits. AAR decision, High Court relief, and Supreme Court reversal In 2020, the AAR refused to rule on Tiger Global’s applications, holding that the transaction was prima facie structured for tax avoidance and therefore fell within the jurisdictional bar under the Income Tax Act. It also noted that the India–Mauritius treaty was not intended to exempt gains arising from the transfer of shares in non-Indian companies. The Delhi High Court subsequently set aside the AAR’s decision, holding that the assessees were entitled to treaty protection and that the capital gains were not taxable in India. The Revenue challenged this ruling before the Supreme Court. Allowing the department’s appeals, the apex court found fault with the High Court’s interference. It held that the Revenue was well within its rights to examine whether the treaty claim was legitimate and whether the investment structure amounted to permissible tax planning. “The Revenue is entitled to enquire into the transaction to determine whether the claim for exemption is lawful,” the Bench said, adding that the material on record indicated that the arrangement did not qualify as acceptable tax planning. Treaty benefits not automatic A key aspect of the ruling is the court’s rejection of the argument that possession of a tax residency certificate alone guarantees treaty benefits. The Supreme Court clarified that treaty protection cannot be claimed where the underlying arrangement itself is found to be impermissible. It held that once it is established that the transfer of unlisted equity shares occurred pursuant to an arrangement barred by law, the assessees cannot seek exemption under Article 13(4) of the India–Mauritius DTAA. The court also endorsed the Revenue’s position that the gains arose from the transfer of shares of a foreign company deriving substantial value from Indian assets, bringing the transaction within India’s taxing rights under domestic law read with treaty provisions. Stress on economic and tax sovereignty In a separate concurring opinion, Justice Pardiwala placed the decision in a wider economic and geopolitical context, emphasising the growing relevance of tax sovereignty. He cautioned that complex offshore structures and treaty frameworks should not be used to erode a country’s legitimate right to tax income connected to its economy. While recognising that tax treaties are meant to encourage investment and prevent double taxation, he underlined that they cannot be interpreted to enable non-taxation through artificial or contrived arrangements. Case Details Case Title: The Authority For Advance Rulings (Income Tax) Versus Tiger Global International II Holdings Case No.: CIVIL APPEAL NO. 262 OF 2026 Date: 15/01/2026 Click Here To Read Order Read More: Blasting Services for Digging Agricultural Wells Fall Under Service Tax Negative List: CESTAT

Supreme Court Rules Tiger Global’s Flipkart Exit Taxable in India, Flags Impermissible Tax Avoidance

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