SC stays order in Tiger Global treaty abuse case

The stay comes amid broader implications for tax treaty interpretation, as Tiger Global seeks relief from Indian tax on capital gains from Flipkart sale.
SC stays order in Tiger Global treaty abuse case
Updated on
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NEW DELHI: The Supreme Court on Friday stayed a Delhi High Court order granting Tiger Global fund relief in a treaty ‘abuse’ case. The Supreme Court in its order said that the issue has pan-India implication and needs thorough attention.

In August 2024, the Delhi High Court delivered a judgment in favour of Tiger Global International III Holdings, a Mauritius-based entity, concerning the applicability of the India-Mauritius Double Taxation Avoidance Agreement (DTAA) to capital gains arising from sale of shares. This ruling had overturned an earlier decision by the Authority for Advance Rulings (AAR), which had denied treaty benefits to Tiger Global.

Tiger Global, a Mauritius-based entity, had sought tax exemption in India on gains from selling shares in Flipkart Singapore under provisions of India-Mauritius tax treaty. The Mauritius-based entity had contended that the shares, acquired before 1 April 2017, were exempt under India-Mauritius tax treaty. However, the Indian tax authorities denied the exemption, claiming Tiger Global was a ‘conduit’ company established solely for tax avoidance.

The high court ruled in favour of Tiger Global, stating that the India-Mauritius treaty provides a grandfathering provision, exempting capital gains tax in India for shares acquired before April 1, 2017. Since Tiger Global’s investment occurred prior to this date, the court held that the capital gains from the 2018 sale were exempt from taxation in India.

The HC held that Tiger Global’s investments were legitimate as it had been investing in Flipkart Singapore since 2011, well before the amendment of India-Mauritius DTAA in 2017, and that these investments were commercially driven.

As per tax experts, there are several key areas which could possibly need a thorough attention ranging from the interpretation of tax treaties in cases of indirect transfer cases, clarity on what constitutes a conduit company and what is the economic substance as well as how relevant are the people sitting in that entity for proving the substance since investment entities need not necessarily have employees sitting there in that jurisdiction.

“These issues need a clear and consistent approach to be followed by the authorities and a judgment would be awaited and welcome in this regard,” says Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm.

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