The Supreme Court on Thursday ruled that capital gains arising from American investment firm Tiger Global’s $1.6-billion stake sale in Flipkart to Walmart in 2018 are taxable in India, handing a major victory to the Union government in an important judgment that is set to shape the future of cross-border investments and treaty-based tax planning.
Setting aside a 2024 Delhi High Court ruling that had favoured Tiger Global, a bench of justices JB Pardiwala and R Mahadevan held that the transaction was structured as an “impermissible tax avoidance arrangement” and that the firm’s Mauritius-based entities could not claim capital gains tax exemption under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
The ruling is being keenly watched by foreign investors as it clarifies how Indian tax authorities can apply anti-avoidance principles, look behind corporate structures, and deny treaty benefits even where entities hold valid tax residency certificates (TRCs).
While the exact tax and penalty Tiger Global will now have to pay will depend on the profits it made from the Flipkart deal, the judgment marks a decisive shift in India’s international tax jurisprudence by prioritising substance over form and narrows the scope for treaty-based tax avoidance. By affirming the tax department’s power to pierce corporate structures and apply anti-abuse doctrines, the Supreme Court has also signalled a stricter approach to treaty shopping and aggressive tax planning.
Writing the judgment for the bench, Justice Mahadevan said that the case raised “significant questions as to the reach of treaty protections, the relationship between treaty provisions and domestic tax law, and the principles that must guide the grant or denial of treaty benefits”.
The court held that once it is found that a transaction is an impermissible tax avoidance arrangement, the assessee cannot claim exemption under Article 13(4) of the India-Mauritius DTAA.
“The Revenue has proved that the transactions in the instant case are impermissible tax-avoidance arrangements, and the evidence prima facie establishes that they do not qualify as lawful,” held the judgment, adding that India’s General Anti-Avoidance Rules (GAAR) were squarely attracted. As a result, capital gains arising from transfers effected after April 1, 2017, were held to be taxable in India under the Income Tax Act read with the DTAA.
The dispute arose from Tiger Global’s exit from Flipkart in 2018, when Walmart Inc acquired a controlling stake in the Indian e-commerce company for about $16 billion, one of the largest cross-border deals involving an Indian startup.
Tiger Global had invested in Flipkart in its early years through Mauritius-based entities — Tiger Global International II, III and IV Holdings, which held shares in Flipkart’s Singapore holding company. These investments were made between 2011 and 2015, before India amended the India-Mauritius tax treaty in 2016 to curb tax avoidance.
Under the amended treaty, shares acquired on or after April 1, 2017, became taxable in India, while earlier investments were “grandfathered”, subject to conditions. Tiger Global argued that its investments were protected by this grandfathering clause.
When the firm sold part of its stake in 2018 and received about $1.6 billion, its Mauritius entities sought a nil withholding certificate from Indian tax authorities. The request was rejected, with the tax department alleging that the Mauritius companies were mere conduit entities and that real control and decision-making lay in the United States.
Tiger Global then approached the Authority for Advance Rulings (AAR), which in 2020 rejected its applications, holding that the transaction was prima facie designed for tax avoidance and therefore hit by the jurisdictional bar under the Income Tax Act.
The firm successfully challenged the AAR’s decision before the Delhi High Court, which in August 2024 held that the Mauritius entities were genuine and entitled to treaty benefits. The tax department appealed to the Supreme Court, which stayed the high court ruling in January 2025.
On Thursday, the Supreme Court overturned the high court’s judgment, restoring the tax department’s position.
A key issue before the court was whether GAAR could be invoked even though Tiger Global’s investments were made before April 1, 2017. The court answered this in the affirmative, holding that what matters is not merely the date of investment, but whether a tax benefit was obtained from an arrangement after the cut-off date. “The prescription of the cut-off date of investment stands diluted if any tax benefit is obtained based on such arrangement on or after 01.04.2017. The duration of the arrangement is irrelevant,” it held.
Justice Mahadevan distinguished between a passive investment and a structured arrangement designed to obtain a tax benefit, observing that even pre-2017 investments could come under GAAR scrutiny if the subsequent transfer was part of an impermissible arrangement.
The court also rejected the argument that possession of a TRC from Mauritius was sufficient to claim treaty benefits. It held that tax authorities are entitled to examine where effective management and control actually lie, and whether the transaction has genuine commercial substance.
“Section 96(2) places the onus on the taxpayer to disprove the presumption of tax avoidance,” stated the judgment, adding that Tiger Global had failed to rebut the presumption with sufficient material. Under the said provision of the Income Tax Act, once the tax authorities invoke GAAR and allege that a transaction is an “impermissible avoidance arrangement”, the law reverses the burden of proof.
The court noted that Tiger Global had sought exemption from Indian tax while simultaneously claiming exemption under Mauritian law- a position that, it said, ran contrary to the spirit of the DTAA.
The bench also examined the scope of Article 13 of the India-Mauritius DTAA, which governs taxation of capital gains. It held that treaty protection under Article 13(4) is available only where shares or movable property are directly held by a Mauritian resident entity. Indirect transfers of shares, such as the sale of shares of a foreign company deriving substantial value from Indian assets, do not automatically fall within treaty protection.
“An indirect sale of shares would not, at the threshold, fall within the treaty protection contemplated under Article 13,” the court said.
The ruling is expected to have far-reaching implications for foreign investors, particularly private equity and venture capital funds that have historically routed investments through Mauritius to take advantage of treaty benefits.
Mauritius has long been India’s largest source of foreign direct investment, accounting for around 25% of total inflows. Between April 2000 and September 2024, investments routed through Mauritius amounted to over $177 billion, according to government data.