Supreme Court’s Tiger Global Tax Case: Flipkart Stake Sale and Capital Gains Ruling

Introduction

In a landmark judgment delivered on January 15, 2025, the Supreme Court of India ruled that Tiger Global’s approximately $1.6 billion stake sale in Flipkart to Walmart is subject to capital gains tax in India. The decision, delivered by a two-judge bench comprising Justices J.B. Pardiwala and R. Mahadevan, overturned the Delhi High Court’s favorable verdict and sided with the Income Tax Department, declaring that the transaction constituted an impermissible tax avoidance arrangement. The ruling has sent ripples through the international investment community, fundamentally reshaping how foreign investors structure their exits from Indian companies and reinforcing India’s sovereign right to tax income arising within its borders.

The case stemmed from Walmart’s monumental $16 billion acquisition of Flipkart in 2018, one of the largest mergers in India’s technology sector. During this transaction, US-based investment firm Tiger Global divested approximately 17 percent of its stake through its Mauritius-based entities, generating substantial capital gains. Tiger Global sought exemption from Indian capital gains tax by invoking the India-Mauritius Double Taxation Avoidance Agreement, arguing that its investments were protected under treaty provisions. The Income Tax Department challenged this arrangement, asserting that the Mauritius entities lacked commercial substance and served merely as conduits designed to exploit treaty benefits for tax avoidance.

The Legal Journey Through Multiple Forums

The dispute navigated a complex legal trajectory spanning multiple judicial forums over nearly five years. In March 2020, the Authority for Advance Rulings initially rejected Tiger Global’s application for an advance ruling, determining that the transaction was prima facie designed for tax avoidance and therefore barred under the Income Tax Act. This decision marked the beginning of a protracted legal battle that would eventually reach the apex court. The AAR held that the statutory bar under the proviso to the Income Tax Act, 1961 prevented it from entertaining applications related to transactions designed for tax avoidance [1].

However, in August 2024, the Delhi High Court reversed the AAR’s decision and ruled in favor of Tiger Global. The High Court held that Tiger Global’s Mauritius entities were entitled to capital gains tax exemption under the India-Mauritius DTAA and that the firm had satisfied all requirements for treaty benefits. This decision appeared to vindicate Tiger Global’s position and reinforced the principle that tax residency certificates issued by foreign authorities should generally be respected in determining treaty eligibility. The High Court emphasized that revenue authorities could not impose additional roadblocks beyond what the treaty itself required.

The Income Tax Department swiftly challenged this decision before the Supreme Court. On January 24, 2025, the Supreme Court issued a stay order on the Delhi High Court judgment, observing that the issues raised required thorough consideration and warranted examination by the apex court. The stay signaled the Court’s inclination to scrutinize the transaction more closely and assess whether the High Court had correctly interpreted the applicable tax laws and treaty provisions. Just weeks later, on January 15, 2025, the Supreme Court delivered its final verdict, comprehensively rejecting Tiger Global’s claims and restoring the tax department’s position.

Understanding the India-Mauritius Tax Treaty Framework

The India-Mauritius Double Taxation Avoidance Agreement has historically been one of the most significant tax treaties influencing foreign investment into India. Originally notified on December 6, 1983, the DTAA was designed to facilitate investment flows between the two countries by preventing double taxation and encouraging mutual trade and investment. Under the original treaty framework, capital gains arising from the alienation of shares were taxable only in the state of residence of the shareholder, not in the source country where the company was located [2].

This arrangement created a powerful incentive for foreign investors to route their Indian investments through Mauritius. Since Mauritius did not levy capital gains tax on the sale of shares, investors could effectively exit their Indian investments without paying capital gains tax in either jurisdiction. This zero-tax regime on capital gains made Mauritius the preferred jurisdiction for foreign portfolio investors and private equity funds investing in India. Between 2000 and 2015, over one-third of all foreign investments into India were channeled through Mauritius, demonstrating the treaty’s significant impact on investment patterns.

However, concerns about treaty shopping and round-tripping of funds led to significant amendments to the India-Mauritius DTAA in 2016. A protocol signed on May 10, 2016 introduced source-based taxation for capital gains arising from the sale of shares acquired on or after April 1, 2017. The amendment granted India the right to tax such capital gains, albeit at a reduced rate of 50 percent of the domestic tax rate for an initial transition period. Critically, the amendment included a grandfathering provision that protected investments made before April 1, 2017 from the new taxation regime [3]. This grandfathering clause became central to Tiger Global’s defense, as the firm had acquired its Flipkart shares between October 2011 and April 2015, well before the cutoff date.

Tiger Global’s Investment Structure and Tax Defense

Tiger Global’s investment in Flipkart was structured through multiple Mauritius-based entities, specifically Tiger Global International II Holdings, Tiger Global International III Holdings, and Tiger Global International IV Holdings. These Mauritius entities held shares in Flipkart Singapore, which in turn derived substantial value from assets and operations located in India. When Walmart acquired Flipkart in 2018, Tiger Global sold its stake through these Mauritius entities to Luxembourg-based entities affiliated with Walmart, generating capital gains of approximately Rs 14,500 crore.

Tiger Global’s defense rested on several key arguments. First, the firm contended that its Mauritius entities possessed valid Tax Residency Certificates issued by Mauritius Revenue Authorities, which should be conclusive proof of their eligibility for treaty benefits. Second, Tiger Global argued that since its shares were acquired before April 1, 2017, they fell within the grandfathering provisions of the amended treaty and remained protected from Indian capital gains tax. Third, the firm maintained that its corporate structure complied with all legal requirements and that the mere interposition of Mauritius entities could not, by itself, constitute tax avoidance. Tiger Global emphasized that tax planning within the framework of law was permissible and that it had legitimately structured its investments to optimize tax efficiency.

The Income Tax Department challenged these contentions on multiple grounds. Revenue authorities argued that the Mauritius entities lacked economic substance and commercial purpose, serving merely as shell companies designed to circumvent Indian tax laws. The department contended that the real transaction was between Tiger Global’s US parent company and Walmart, with the Mauritius entities acting as artificial conduits inserted solely to claim treaty benefits. Furthermore, tax authorities invoked the General Anti-Avoidance Rules and anti-abuse provisions to assert that the entire arrangement constituted treaty shopping designed primarily to avoid legitimate tax obligations in India.

The Supreme Court’s Landmark Analysis

The Supreme Court’s judgment delivered a decisive blow to Tiger Global’s position, holding that the transaction amounted to an impermissible tax avoidance arrangement that could not enjoy treaty protection. Justice R. Mahadevan, speaking for the bench, observed that the transaction was designed as an impermissible tax avoidance arrangement and therefore could not claim exemption from paying tax on the profits from the stake sale. The Court emphasized that once a transaction is found to be prima facie structured to avoid income tax, the statutory bar applies and tax authorities need not examine the merits of taxability in detail.

Central to the Supreme Court’s reasoning was the application of the proviso to the Income Tax Act, 1961, which explicitly bars the Authority for Advance Rulings from entertaining applications related to transactions designed prima facie for tax avoidance. The Court held that the AAR had correctly identified the arrangement as falling within this jurisdictional bar and that the Delhi High Court had erred in interfering with the AAR’s findings. The Supreme Court noted that the Revenue had successfully established, at least on a prima facie basis, that the investment structure was designed to avoid Indian tax and therefore attracted the statutory bar.

The judgment also addressed the fundamental question of sovereign taxing powers and treaty interpretation. The Supreme Court framed the dispute as an issue of sovereign rights, warning against artificial structures designed to dilute a country’s inherent authority to tax income arising within its borders. The bench stated that taxing income arising out of its own country is an inherent sovereign right of that country, and any dilution of this power through artificial arrangements constitutes a direct threat to sovereignty and long-term national interest [4]. This strong language underscored the Court’s view that protecting India’s tax base from aggressive planning schemes is essential to preserving economic sovereignty.

Application of General Anti-Avoidance Rules

A critical aspect of the Supreme Court’s judgment was its treatment of the General Anti-Avoidance Rules introduced under Chapter X-A of the Income Tax Act. GAAR provisions, which became effective from April 1, 2017, empower tax authorities to declare arrangements as impermissible avoidance arrangements and deny tax benefits where the main purpose of the arrangement is to obtain such benefits. The Supreme Court affirmed that GAAR can override treaty benefits, a position established through the Income Tax Act under the principle that domestic anti-avoidance rules apply notwithstanding treaty provisions [5].

The Court observed that while tax planning is permissible, once a mechanism is found to be a sham or impermissible under law, it ceases to be legitimate avoidance and becomes evasion, entitling the Revenue to deny treaty benefits and invoke GAAR. This distinction between legitimate tax planning and impermissible tax avoidance became a cornerstone of the judgment. The Court emphasized the substance over form principle, holding that if the commercial purpose is merely to route money for tax benefits without genuine economic activity, the arrangement should be taxed in India regardless of the technical compliance with treaty provisions.

Significantly, the Supreme Court clarified that GAAR can apply to any arrangement where a tax benefit is claimed on or after April 1, 2017, making both the investment cutoff date and the longevity of the structure potentially irrelevant if it lacks commercial substance. This interpretation has profound implications for grandfathered investments. While Tiger Global had acquired its shares before the 2017 cutoff, the Court’s reasoning suggests that the exit transaction in 2018 could still be examined under GAAR if it was structured primarily to obtain tax benefits. This effectively dilutes the protection that many investors believed grandfathering provisions would provide [6].

Tax Residency Certificates and Economic Substance

The Supreme Court’s judgment significantly diminished the weight accorded to Tax Residency Certificates in determining treaty eligibility. Tiger Global had relied heavily on TRCs issued by Mauritius Revenue Authorities as conclusive evidence of its entities’ residence status and eligibility for treaty benefits. However, the Court held that the mere possession of a TRC cannot prevent subsequent inquiry, particularly after amendments introducing anti-avoidance provisions. The Court specifically noted that the mere holding of a TRC cannot by itself prevent an inquiry subsequent to the amendments brought into the statute, particularly by the introduction of the Income Tax Act and GAAR provisions, if it is established that the interposed entity was a device to avoid tax [7].

This holding establishes that tax residency certificates are not conclusive where entities lack real commercial substance. Tax authorities retain the power to look beyond formal documentation and examine whether the foreign entity has genuine economic presence and business operations in the treaty jurisdiction. Factors such as the presence of employees, office infrastructure, decision-making authority, and the conduct of substantive business activities become relevant in determining whether treaty benefits should be granted. The Court’s reasoning aligns with international best practices that emphasize substance over form in combating treaty abuse.

The economic substance doctrine has gained prominence globally, particularly following the OECD’s Base Erosion and Profit Shifting initiative. The BEPS project, which India actively supports, recognizes that tax treaties should not be available for purely artificial arrangements lacking commercial reality. The Supreme Court’s emphasis on commercial substance reflects this international consensus and brings Indian tax jurisprudence in line with global anti-abuse standards. The judgment sends a clear message that foreign investors must demonstrate genuine economic activity and business purpose beyond merely obtaining tax benefits to qualify for treaty protection.

Implications for Foreign Investment Structures

The Supreme Court’s ruling has far-reaching implications for how foreign investors structure their investments into India. The decision particularly affects private equity funds, venture capital investors, and foreign portfolio investors who have traditionally relied on Mauritius and Singapore as preferred treaty jurisdictions. These investors must now carefully evaluate whether their offshore structures possess sufficient economic substance to withstand scrutiny under the enhanced anti-abuse framework established by this judgment.

Tax experts have described the verdict as a watershed moment that could fundamentally alter cross-border investment patterns. Foreign investors who entered India through the Foreign Direct Investment and Foreign Portfolio Investment routes had relied on the certainty provided by tax treaties and the validity of Tax Residency Certificates. That assurance is no longer available in its previous form. Global investors will now need to factor capital gains tax costs into their investment models from the outset, potentially making India marginally less attractive compared to jurisdictions with more favorable tax treatments [8].

The ruling strengthens the Income Tax Department’s ability to challenge offshore exit structures even for pre-2017 investments. While the judgment does not automatically reopen closed cases, it significantly bolsters the department’s position in reassessment proceedings where permitted by law. Investors with Mauritius and Singapore-based structures, including for investments made before 2017, may face increased scrutiny regarding the commercial substance of their arrangements. The tax department can now invoke the principles established in this judgment to deny treaty benefits where arrangements lack genuine business purpose.

Looking forward, investors are likely to reconsider their holding structures and may shift toward jurisdictions with more robust substance requirements that are explicitly recognized in treaties. The India-Singapore DTAA, which contains a specific Limitation of Benefits clause with objective criteria including an expenditure test, may become more attractive despite the need to meet higher substance thresholds. Alternatively, some investors may opt for direct investments without intermediate holding structures, accepting the tax costs but gaining certainty and simplicity. The verdict may also accelerate the trend toward investing through dedicated India-focused funds that maintain substantial operations and decision-making presence in recognized jurisdictions [9].

Regulatory Framework Governing Cross-Border Taxation

The Tiger Global case highlights the complex regulatory framework governing cross-border taxation in India. At the statutory level, the Income Tax Act, 1961 provides the foundation for taxing capital gains, including gains from the transfer of shares. The Act also contains specific provisions addressing tax avoidance, including the General Anti-Avoidance Rules under Chapter X-A and the Specific Anti-Avoidance Rules scattered throughout the statute. These domestic provisions interact with India’s network of Double Taxation Avoidance Agreements to create a multilayered tax framework.

Section 90 of the Income Tax Act governs the implementation of tax treaties in India. This provision empowers the Central Government to enter into agreements with foreign countries for granting relief from double taxation and avoiding taxation. Critically, the provision establishes that where treaty provisions are more beneficial than domestic law, the assessee can claim treaty benefits. However, this principle is now subject to anti-avoidance provisions that allow authorities to deny benefits where arrangements are designed primarily for tax avoidance. The interplay between treaty benefits and domestic anti-abuse rules has been a source of significant litigation, with the Tiger Global case providing important clarification on how courts will balance these competing considerations.

The Authority for Advance Rulings, established under Chapter XIX-B of the Income Tax Act, provides a mechanism for taxpayers to obtain certainty regarding the tax treatment of proposed transactions. However, the AAR’s jurisdiction is expressly limited by the Income Tax Act, which prohibits it from entertaining applications relating to transactions designed prima facie for tax avoidance. This statutory bar, reinforced by the Supreme Court’s judgment, means that taxpayers cannot use the advance ruling mechanism to obtain approval for arrangements that appear designed primarily to avoid tax, regardless of whether such arrangements technically comply with treaty provisions.

Lessons from International Jurisprudence

The Supreme Court’s reasoning in the Tiger Global case reflects a broader global trend toward strengthening anti-abuse measures in international taxation. Many developed countries have implemented General Anti-Avoidance Rules or similar doctrines to combat treaty shopping and artificial profit shifting. Countries including Australia, Canada, New Zealand, South Africa, China, France, and Germany had adopted GAAR provisions before India introduced its framework, providing valuable precedents for Indian courts to consider.

The OECD’s BEPS initiative has been particularly influential in shaping international approaches to treaty abuse. BEPS Action 6 specifically addresses treaty shopping and recommends that countries adopt minimum standards to prevent the granting of treaty benefits in inappropriate circumstances. These standards include incorporating Principal Purpose Tests or Limitation of Benefits clauses in tax treaties to ensure that treaty benefits are available only for genuine business arrangements. India’s adoption of these principles through both treaty amendments and domestic legislation reflects its commitment to international best practices in combating tax avoidance.

The recent amendments to the India-Mauritius DTAA, which introduced a Principal Purpose Test in the protocol signed in March 2024, further align the treaty with BEPS recommendations. Under the PPT, treaty benefits will not be granted if obtaining such benefits was one of the principal purposes of the arrangement. This standard, with its lower threshold compared to GAAR which requires tax avoidance to be the main purpose, may have broader application and could affect a wider range of transactions. The combination of treaty-level PPT provisions and domestic GAAR rules creates a robust framework for addressing tax avoidance in cross-border transactions.

The Path Forward for Investors and Tax Authorities

Following the Supreme Court’s landmark ruling, both foreign investors and tax authorities must adapt to the new legal landscape. For investors, the judgment necessitates a fundamental reassessment of investment structures and tax planning strategies. Entities investing through Mauritius, Singapore, or other treaty jurisdictions must ensure they have demonstrable economic substance, including physical presence, local employees, substantive business operations, and genuine decision-making authority in those jurisdictions. Merely incorporating an entity and obtaining a Tax Residency Certificate will no longer suffice to claim treaty benefits if the arrangement lacks commercial substance.

Tax authorities, armed with the Supreme Court’s endorsement of their anti-abuse powers, are likely to scrutinize cross-border transactions more aggressively. The judgment provides strong precedent for challenging offshore exit structures, particularly where the underlying assets or business operations are substantially located in India. Revenue officers can now invoke both GAAR provisions and the substance over form principle to deny treaty benefits even where taxpayers have obtained Tax Residency Certificates and appear to meet formal treaty requirements. However, authorities must exercise these powers judiciously to avoid creating excessive uncertainty that could deter legitimate foreign investment.

The judgment also raises important questions about the balance between protecting India’s tax base and maintaining an attractive investment climate. While the Supreme Court’s decision reinforces India’s sovereign taxing rights and strengthens anti-abuse mechanisms, it also introduces elements of uncertainty for foreign investors who must now navigate a more complex and potentially subjective assessment of their structures. Achieving the right balance requires clear guidelines from tax authorities on what constitutes sufficient economic substance, transparent application of anti-abuse rules, and fair dispute resolution mechanisms that respect legitimate commercial arrangements while preventing abusive planning.

Conclusion

The Supreme Court’s decision in the Tiger Global case represents a defining moment in India’s approach to international taxation and treaty interpretation. By holding that Tiger Global’s $1.6 billion stake sale in Flipkart is subject to Indian capital gains tax, the Court has sent an unmistakable message that India will not tolerate artificial structures designed primarily to exploit treaty benefits without genuine commercial substance. The judgment reinforces the principle that tax residency certificates are not conclusive and that authorities can look beyond formal compliance to examine whether arrangements possess real economic purpose.

The ruling’s implications extend far beyond this specific case, potentially reshaping how billions of dollars in foreign investment are structured. Private equity funds, venture capital investors, and portfolio investors must now carefully evaluate their offshore structures and ensure they meet enhanced substance requirements. The combination of GAAR provisions, treaty-level Principal Purpose Tests, and the Supreme Court’s robust interpretation of anti-abuse rules creates a formidable framework for combating tax avoidance in cross-border transactions. While this approach aligns India with international best practices, it also requires careful implementation to maintain investor confidence and preserve India’s attractiveness as an investment destination. As India continues to emerge as a major global economy, finding the optimal balance between protecting tax revenues and encouraging foreign investment will remain a critical challenge for policymakers, courts, and tax administrators alike.

References

[1] Business Standard. (2025). SC backs revenue in Tiger Global case, allows India to tax Flipkart gains. Retrieved from https://www.business-standard.com/india-news/sc-backs-revenue-in-tiger-global-case-allows-india-to-tax-flipkart-gains-126011501137_1.html 

[2] Income Tax Department, Government of India. (1983). Convention between India and Mauritius for avoidance of double taxation. Retrieved from https://incometaxindia.gov.in/dtaa/108690000000000054.htm 

[3] TaxGuru. (2024). Case Study: India-Mauritius Double Taxation Avoidance Agreement (DTAA). Retrieved from https://taxguru.in/corporate-law/case-study-india-mauritius-double-taxation-avoidance-agreement-dtaa.html 

[4] TechCrunch. (2026). Tiger Global loses India tax case tied to Walmart-Flipkart deal in blow to offshore playbook. Retrieved from https://techcrunch.com/2026/01/15/tiger-global-loses-india-tax-case-tied-to-walmart-flipkart-deal-in-blow-to-offshore-playbook/ 

[5] TaxGuru. (2022). General Anti Avoidance Rules (GAAR): Application, Obligation, Implication. Retrieved from https://taxguru.in/income-tax/general-anti-avoidance-rules-gaar-application-obligation-implication.html 

[6] Business Standard. (2025). Supreme Court rejects Tiger Global’s tax plea in Flipkart stake sale case. Retrieved from https://www.business-standard.com/india-news/supreme-court-rejects-tiger-global-tax-plea-flipkart-stake-sale-case-126011500719_1.html 

[7] New Kerala. (2025). SC Rules Tiger Global’s Tax Structure Impermissible, Allows Revenue Appeals. Retrieved from https://www.newkerala.com/news/a/sc-rules-tiger-global-structure-impermissible-tax-avoidance-allows-600.htm 

[8] Outlook Business. (2025). Supreme Court Rules Tiger Global Must Pay Capital Gains Tax on 2018 Flipkart Stake Sale. Retrieved from https://www.outlookbusiness.com/news/supreme-court-rules-tiger-global-must-pay-capital-gains-tax-on-2018-flipkart-stake-sale 

[9] India Briefing. (2024). India-Mauritius DTAA Amendment Closes Tax Avoidance Loophole. Retrieved from https://www.india-briefing.com/news/india-mauritius-dtaa-amendment-addresses-tax-avoidance-loophole-32041.html/