The Supreme Court’s decision in the Tiger Global–Flipkart case is not just another capital gains dispute. It is a watershed moment in India’s international tax jurisprudence, fundamentally altering how tax treaties, tax residency certificates, and anti-avoidance rules will be interpreted going forward.

At its core, the judgment answers one critical question:
Can treaty benefits be claimed purely on legal form, or must they withstand scrutiny on economic substance?

Background: The Flipkart–Tiger Global Exit

Tiger Global, a global private equity investor, invested in Flipkart through Mauritius-based entities, a structure historically favoured due to the India–Mauritius Double Taxation Avoidance Agreement (DTAA).

In 2018, when Walmart acquired Flipkart, Tiger Global exited part of its investment, resulting in significant capital gains. Tiger Global claimed that these gains were exempt from tax in India, relying on the India–Mauritius DTAA and the fact that its shares had been acquired prior to 1 April 2017.

This claim was based on two long-standing assumptions:

1. That Mauritius residence, evidenced by a Tax Residency Certificate (TRC), was sufficient to claim treaty benefits.
2. That grandfathering provisions under the DTAA protected all pre-2017 investments from Indian capital gains tax.

Both assumptions were put to the test.

Revenue’s Case: Allegation of a Conduit Structure

The Indian tax department challenged Tiger Global’s position by alleging that:

• The Mauritius entities were merely “front” or “conduit” companies.
• Real control, management, and decision-making rested with Tiger Global entities in the United States.
• The structure lacked genuine commercial substance.
• The arrangement was prima facie designed to avoid tax in India.

Based on these allegations, the Revenue denied DTAA benefits and sought to tax the capital gains in India.

Authority for Advance Rulings (AAR): The First Turning Point

In 2020, the Authority for Advance Rulings (AAR) sided with the tax department.

The AAR held that:

• Tiger Global’s Mauritius entities were “see-through entities”.
• The structure was created solely to take advantage of the India–Mauritius DTAA.
• The transaction was prima facie designed for tax avoidance, attracting the bar under Section 245R(2) of the Income Tax Act.

Accordingly, the AAR denied treaty benefits.

Delhi High Court: A Reversal Based on Treaty Protection

In 2024, the Delhi High Court overturned the AAR ruling.

The High Court held that:

• The transaction was grandfathered under Article 13(3A) of the India–Mauritius DTAA.
• A valid Tax Residency Certificate could not be lightly disregarded.
• Domestic tax law could not override treaty provisions.
• Treaty shopping, by itself, could not invalidate a transaction.

As a result, the High Court quashed the ₹14,500-crore tax demand against Tiger Global.

For many investors, this judgment appeared to reaffirm the long-standing sanctity of treaty structures.

Supreme Court’s Intervention: Final Word on the Issue

The Supreme Court, however, took a markedly different view.

It set aside the Delhi High Court’s judgment and endorsed the findings of the AAR, holding that Tiger Global was not entitled to DTAA benefits.

The Court’s reasoning reshapes several core principles of international taxation.

Key Legal Findings of the Supreme Court

1. Treaty Benefits Are Not Mechanical

The Court categorically held that treaty benefits cannot be claimed mechanically.

Once it is factually established that shares were transferred pursuant to an arrangement impermissible under law, exemption under the DTAA automatically fails.

Treaties exist to prevent double taxation, not to facilitate tax avoidance.

2. Tax Residency Certificate (TRC) Is Not Conclusive

Perhaps the most consequential aspect of the judgment is the Court’s treatment of TRCs.

The Supreme Court clarified that:

• Mere possession of a Tax Residency Certificate does not preclude scrutiny by Indian tax authorities.
• A TRC is not conclusive evidence of entitlement to treaty benefits.
• Where facts demonstrate lack of commercial substance, authorities are entitled to lift the corporate veil.

This marks a clear departure from the earlier perception—rooted in Azadi Bachao Andolan—that TRCs were virtually sacrosanct

3. GAAR Overrides Treaty Benefits in Abuse Cases

The Court explicitly invoked Chapter X-A (GAAR) of the Income Tax Act.

It held that:

• The Revenue had successfully established an impermissible tax avoidance arrangement.
• Consequently, GAAR becomes applicable, even in treaty cases.
• Once GAAR applies, treaty benefits can be denied.

This firmly establishes that GAAR can override DTAA protections where abuse is proven.

4. Grandfathering Is Not Absolute

Tiger Global’s central defence was grandfathering under Article 13(3A) for pre-2017 investments.

The Supreme Court rejected this argument.

It clarified that:

• Grandfathering protects genuine investments, not abusive arrangements.
• If the structure itself lacks substance, grandfathering does not apply.
• Capital gains arising after 1 April 2017 from such arrangements are taxable in India.

This significantly narrows the scope of grandfathering relied upon by foreign investors.

Why This Judgment Is a Landmark

This ruling marks a decisive shift in India’s treaty interpretation approach:

• From form-based to substance-based analysis.
• From automatic treaty entitlement to conditional treaty eligibility.
• From TRC-centric assessments to holistic economic evaluation.

Tax experts quoted in the Economic Times rightly note that this decision will impact:

• Private equity and venture capital structures.
• Offshore holding companies.
• Past and future M&A transactions involving treaty claims.
• Investment return models and exit strategies.

Implications for Investors and Advisors

For foreign investors, the message is clear:

• Treaty benefits are not rights, but privileges subject to scrutiny.
• Substance, control, and decision-making location matter more than jurisdictional labels.
• Structures lacking real economic presence face increased risk.

For advisors, CAs, and legal professionals, the responsibility is now greater than ever:

• Investment structures must be reviewed through a GAAR lens.
• Reliance solely on TRCs is no longer sufficient.
• Exit planning must factor in substance risk and litigation exposure.

Conclusion: A Redefined Tax Treaty Era

The Supreme Court’s ruling does not signal hostility towards foreign investment. Instead, it reflects a mature, globally aligned anti-abuse stance.

India will honour its treaties.
But only where they are used as intended.

Form without substance will no longer survive scrutiny.

This judgment redraws India’s tax map—and every cross-border investor must now navigate it carefully.

To download the full Supreme Court judgment, click on the link provided here.
https://counselvise.com/direct-tax/judgements/the-authority-for-advance-rulings-income-tax-and-others-tiger-global-international-ii-holdings-and-tiger-global-international-iii-holdings-and-tiger-global-international-iv-holdings-262-2026

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