On 15 January 2026, the Supreme Court of India delivered a landmark judgment denying a capital gains tax exemption claimed by Tiger Global International II Holdings, Tiger Global International III Holdings and Tiger Global International IV Holdings (Tiger Global Group) under the double taxation avoidance agreement between Mauritius and India (DTAA).
The case related to the application of capital gains tax in India on the sale of the shares held by the Tiger Global Group in Flipkart Pvt Ltd (Flipkart Singapore), an entity incorporated in Singapore that derived substantial value from assets located in India.
The facts
The Tiger Global Group entities were incorporated in Mauritius, holding a Global Business Licence and a valid Tax Residency Certificate (TRC). The Tiger Global Group acquired shares in Flipkart Singapore prior to 1 April 2017 and sold the shares during the tax year 2018-2019.
Tiger Global Group sought a certification of nil withholding from the Indian Tax Authority prior to the transfer of shares. This was denied by the Indian Tax Authority on the basis that the Tiger Global Group was not independent in its decision-making and that control over the decision making relating to the purchase and sale of shares did not lie with it.
Tiger Global Group sought an advance ruling from the Authority for Advance Ruling (AAR) by relying upon, inter alia, the TRC issued by Mauritian Authority, Circular No. 789 dated 13 April 2000 issued by Central Board of Direct Taxes (CBDT) and earlier SC rulings upholding the significance of TRC for treaty eligibility.
The AAR rejected the application on the basis that both the control and the management of Tiger Global Group were situated outside Mauritius and that the real intention behind obtaining the TRCs was to take advantage of the benefit provided by the DTAA.
The AAR further observed that the exemption granted to a resident of Mauritius applied only to capital gains arising from the alienation of shares of an Indian company. In the present case, however, the capital gains arose from the indirect transfer of assets in India that did not qualify for exemption under the grandfathering clause.
Tiger Global Group challenged the order of the AAR before the Delhi High Court which reversed the AAR ruling holding that Tiger Global Group was entitled to the DTAA benefit and that its income would not be chargeable to tax in India.
The Tax Authority appealed to the Supreme Court of India which ruled in favour of the Tax Authority and held that the AAR had correctly rejected the application.
Key findings of the Supreme Court
- Validity of the TRC: The Court addressed a critical issue regarding TRCs. Whilst a TRC remains a necessary condition for claiming treaty benefits, the Court determined that it is not in itself sufficient evidence to claim treaty benefits. The Court emphasised that additional factors must be considered, including commercial substance, the legitimacy of the investment structure, and the location of the ‘head and brain’ of the investor. Where an entity is found to function as a conduit or shell, established primarily for the purpose of securing tax advantages, the TRC will not insulate the structure from scrutiny or adverse tax consequences.
- Substance over form: The judgment firmly endorsed the principle of ‘substance over form’ and drew a clear distinction between legitimate tax planning and tax evasion. In examining the facts, the Court found that effective management and control of the relevant entities were located outside Mauritius. Control over investment decisions did not lie in Mauritius – the ‘head and brain’ of the operations were with the non-resident director who lived in the United States of America , rather than in the board of directors in Mauritius. The Court made it clear that, where control and direction of an entity are exercised outside the jurisdiction of residence, treaty benefits cannot be invoked. This finding proved decisive in the Court’s analysis.
- Grandfathering clause in the DTAA: A central argument advanced by Tiger Global Group was that the investments made prior to the 2017 amendments to the treaty were protected by the grandfathering clause. The Court held that the grandfathering clause contained in the DTAA did not apply to the transactions in question. The shares sold belonged to a Singaporean company rather than an Indian company, even though the value of those shares was derived from assets held in India. The Court characterised this as an indirect transfer of Indian assets, thereby falling outside the scope of the grandfathering protections.
- Impact of amendments to the DTAA and GAAR: The Court highlighted the significance of the 2016 Protocol to the DTAA and the introduction of the General Anti-Avoidance Rule (GAAR). These measures were specifically designed to address treaty abuse, including practices such as treaty shopping and the use of conduit structures. Importantly, the Court confirmed that such amendments override treaty provisions and empower tax authorities to scrutinise transactions for tax avoidance.
Lessons for investors
This judgment establishes several important principles that investors should carefully consider as outlined below.
First, a TRC, whilst necessary, is not sufficient for claiming treaty benefits. Historically, TRCs have been regarded as sacrosanct and have received favourable treatment from courts in numerous tax cases. The Indian Tax Authority has also been hesitant to investigate the legitimacy of investment structures where a TRC has been produced. This judgment sets new standards and will undoubtedly serve as significant jurisprudence in India’s efforts against tax avoidance.
Second, there is a clear need for genuine commercial substance and legitimate investment structures. Investors cannot rely solely on formal compliance with residency requirements.
Third, the ‘head and brain’ of the investor must be genuinely and demonstrably located in the country of residence, the mere incorporation or registration in that jurisdiction is insufficient for treaty benefits.
Fourth, amendments to domestic law designed to address tax avoidance and evasion, such as GAAR, may override treaty provisions. These amendments may significantly alter the legal landscape, rendering earlier circulars and judicial precedents less applicable.
Recommendations
Considering this judgment, investors would be well advised to reassess their existing investment structures and administrative arrangements involving India to ensure they meet the standards established by the Supreme Court.
Where structures rely on treaty benefits, particular attention should be paid to ensuring genuine commercial substance, appropriate location of management and control, and compliance with the requirements that the Tiger Global Group was found to have fallen short of. Professional advice should be sought to identify necessary remedial steps.
