Summary:
The Supreme Court’s ruling in Tiger Global International Holdings has redrawn the contours of India’s tax landscape. By rejecting treaty shopping structures and affirming the reach of GAAR even for legacy investments, the Court has signalled a decisive shift toward substance-over-form in cross-border taxation. TRCs are no longer conclusive shields, and investors must now demonstrate genuine commercial substance to claim treaty benefits. This landmark judgment underscores India’s firm stance against tax avoidance and sets the tone for heightened scrutiny of offshore investment structures going forward.
In a landmark decision that has sent shockwaves through India’s foreign investment landscape, the country’s Supreme Court (“SC”) allowed the Tax Authority’s appeals in the Tiger Global case, holding that the transactions were ‘illegal’, ‘sham’ and constituted ‘impermissible avoidance arrangements’.
Marking a fundamental shift in the tax treatment of offshore investment structures, the judgment underscores India’s firm stance against treaty shopping and tax avoidance. The SC has clarified that foreign investors can no longer rely solely on Tax Residency Certificates (“TRC”) to secure treaty benefits. Importantly, the ruling confirms that India’s General Anti‑Avoidance Rules (“GAAR”) may apply even to investments made prior to their formal introduction, if the exit or transfer takes place thereafter.
BACKGROUND: TRACKING THE TIGER’S TRAIL
The taxpayers, Tiger Global International II/III/IV Holdings, were Mauritius‑based companies with GBL‑I licences and TRCs from the Mauritius Revenue Authority. Operating out of Mauritius, with local boards and banking arrangements, they held shares in Flipkart Singapore. As part of Walmart’s acquisition of Flipkart in 2018, these entities sold their Flipkart Singapore holdings to a Luxembourg buyer, generating significant capital gains.
The taxpayers had engaged an US-based entity Tiger Global Management LLC (“TGM LLC”) to provide investment support services without conferring contractual authority. Upon review of Section 197 of the Income-tax Act, 1961 (“IT Act”), Indian tax authorities rejected the applications for lower withholding certificates by denying Double Taxation Avoidance Agreement (“DTAA”) benefits and issued withholding certificates specifying the withholding tax rates.
The taxpayers approached the Authority for Advance Rulings (“AAR”) for clarification on whether the capital gains arising from the sale were taxable in India under the IT Act, read with the India-Mauritius DTAA. The AAR rejected the applications as not maintainable under the IT Act, holding that the arrangement was prima facie designed for tax avoidance, highlighting that the “head and brain” (i.e., the control and management of the taxpayers were exercised from outside Mauritius) of the entities were located outside Mauritius.
However, the Delhi High Court overturned the AAR’s order, granted treaty benefits, and ruled that capital gains are not taxable in India. The Court held that the AAR’s ‘prima facie’ findings were improper at the threshold stage and, inter alia, accepted that the taxpayer had economic substance based on its broad investor base, long holding period TRCs and registrations issued by Mauritius authorities. Subsequently, the SC stayed this ruling, which led to the Tax Authorities’ appeals before it.
DECISION: WHEN THE SUPREME COURT ROARS, THE TAX JUNGLE LISTENS
The SC upheld the tax authority’s appeals and held the impugned transactions to be impermissible tax‑avoidance arrangements covered by GAAR and agreed that the AAR had rightly rejected the applications under the prima facie bar in Section 245R of the IT Act. In delivering its decision, the SC laid down and reaffirmed several critical principles that will shape future tax disputes involving cross‑border transactions.
TRCs Don’t Seal the Deal
The Court held that a TRC is an eligibility condition to obtain DTAA benefits, but it is not conclusive proof of residence or beneficial ownership. The SC clarified that considering the statutory amendments made to the IT Act, TRCs have limited evidentiary role.
In a significant departure from the previous view that TRCs served as presumptive proof of residence and beneficial ownerships — an argument advanced by taxpayers — the SC held TRCs to be ‘non-decisive, ambiguous and ambulatory, merely recording futuristic assertions without any independent verification’. Thus, the court held that TRCs lack the qualities of a binding order issued by an authority, and permitted tax authorities to investigate matters related to effective management and commercial substance.
GAAR Hunts Post‑2017 Exits
One of the most significant aspects of the judgment concerns the application of GAAR to legacy investments. Rule 10U(1)(d) of the Income-tax Rules, 1962 (“IT Rules”), provides protection for ‘investments’ made before April 1, 2017, suggesting they are shielded from GAAR. The SC held that the grandfathering protection under Rule 10U(1)(d) is limited by Rule 10U(2), which provides that GAAR applies to any arrangement that yields a tax benefit on or after April 1, 2017, irrespective of the investment date or duration of holding.
Consequently, the SC held that since the Flipkart sale and approvals happened in 2018, GAAR scrutiny applies even though the shares were acquired before 2017. Thus, the SC accepted the Tax Authorities’ position, narrowing the grandfathering protection that many investors had assumed for pre‑GAAR investments.
Safari Map: Three Tiers of Scrutiny
The SC also endorsed the Tax Authorities’ three‑step framework for analysing cross‑border transactions — step one: establish domestic taxability on indirect transfers; step two: examine whether DTAA relief is available, checking residence, the relevant capital gains provisions, and any Limitation of Benefits clauses; and step three: apply anti‑abuse rules such as GAAR or judicial anti-avoidance rules.
By laying out this structured sequence, the SC has provided tax authorities with a clear roadmap on how treaty‑based claims should be approached in complex transactions.
A Changed Terrain: Treaty Benefits Curtailed
The SC observed that subsequent changes, including GAAR and the 2016 Protocol to India-Mauritius DTAA, have reshaped the legal landscape. Consequently, treaty benefits are no longer absolute. They can be denied if aggressive tax‑planning structures are used.
The SC further clarified that earlier rulings like Azadi Bachao Andolan and Vodafone, which upheld treaty benefits for Mauritian entities and validated CBDT circulars, must be read in light of these developments. Further, the SC also observed that under Article 13(4) of the India-Mauritius DTAA, treaty protection is available only if the claimant is a genuine ‘resident’ of Mauritius.
Tax Sovereignty and Safeguards
Justice Pardiwala, in his concurring opinion, underscored the importance of tax sovereignty and the need to preserve source‑based taxation in international arrangements. He stressed that treaties must be equipped with strong anti‑abuse safeguards, including Limitation of Benefits clauses, GAAR overrides, clear permanent establishment rules, exit and renegotiation rights, and effective monitoring mechanisms, to ensure that treaty practice remains balanced and resilient.
KEY TAKEAWAYS: TIGER GLOBAL’S FOOTPRINTS
The Tiger Global judgment marks a turning point for India‑focused investments. Foreign investors will now face heightened scrutiny as tax authorities can look beyond TRCs to assess effective management, control, and genuine commercial substance. While the ruling was delivered in the context of capital gains article under the India‑Mauritius DTAA, its footprint may extend to other tax treaties and beneficial provisions, especially considering the SC’s observation on limited evidentiary value of a TRC.
Looking ahead, investors should brace for increased litigation and uncertainty as tax authorities may reopen assessments and challenge existing structures. Even legacy investments made before April 2017 are no longer fully protected if the exit occurred after that date, with GAAR overriding the grandfathering relief many had relied upon. Future transactions and exit planning must factor in GAAR risks and the need to demonstrate genuine substance. Specifically, foreign investors and private equity funds will need to reassess their investment structures, with factors such as location of effective management, composition and independence of Boards, decision-making processes, and commercial rationale being critical. It would also be prudent for stakeholders to revisit transaction documents, including indemnities tied to exits, where comfort was previously derived from older interpretations of GAAR and past judicial precedents.
At the same time, India’s alignment with global standards underscores its commitment to protecting its tax base while balancing the need to attract foreign investment. The clear message is that the era of relying on treaty benefits without any real economic substance is over, in the tax jungle, only structures with genuine commercial roots will survive.
For further information, please contact:
S.R. Patnaik, Partner, Cyril Amarchand Mangaldas
sr.patnaik@cyrilshroff.com
