Taxability of Share Sale under India–Mauritius DTAA

Case Description

Case Background

Tiger Global International II Holdings, Tiger Global International III Holdings and Tiger Global International IV Holdings are private companies incorporated in Mauritius. They hold Category I Global Business Licences under Section 72(6) of the Mauritius Financial Services Act, 2007 and Tax Residency Certificates (TRC) issued by the Mauritius Revenue Authority. Between 2011 and 2015, these entities acquired shares in Flipkart Private Limited, a company incorporated in Singapore. Flipkart derived substantial value from assets located in India.

In 2018, Walmart Inc, incorporated in the United States, acquired a majority stake in Flipkart. Tiger Global Mauritius entities transferred substantial portions of their shareholding to Fit Holdings S.A.R.L., a Luxembourg-based entity.

Prior to the finalisation of the transaction, Tiger Global entities approached the Indian tax authorities seeking nil withholding of tax under Section 197 of the Income Tax Act, 1961 (IT Act). By certificates dated 17 August 2018, the tax authorities declined this request and prescribed rates of deduction at source. In doing so, they recorded a prima facie view that the decision-making and financial control of the Mauritius entities did not lie with boards in Mauritius but with Tiger Global Management LLC in the United States.

Following this Tiger Global entities filed applications under Section 245Q(1) of the IT Act before the Authority for Advance Rulings (AAR). They asked whether gains arising from the sale of shares of Flipkart could be taxed in India under the IT Act, read with the India–Mauritius Double Taxation Avoidance Agreement (DTAA).

On 26 March 2020, the AAR rejected the applications. It held that the transaction was prima facie designed to avoid tax liability. Further, that the “head and brain” of the Tiger Global Mauritius entities was not located in Mauritius. The key financial powers were exercised outside Mauritius and that the entities functioned as a conduit or “see-through” entities created to access treaty benefits. Having invoked the jurisdictional bar, the AAR held that it was not required to rule on the merits of treaty eligibility.

The Tiger Global entities approached the Delhi High Court. On 28 August 2024, the High Court set aside the AAR’s ruling. It held that the TRC issued by the Mauritian authorities was “sacrosanct” to establish a presumption of legitimate tax residency and beneficial ownership. It noted that any attempt to pierce the corporate veil must be grounded in compelling evidence of tax fraud, sham transactions or complete absence of economic substance.

Before the Supreme Court

In its judgement dated 15 January 2026, a Bench of Justices J.B. Pardiwala and R. Mahadevan held that Section 245R(2)(iii) expressly empowers the AAR to decline an application where the transaction is prima facie designed to avoid income tax. It further held that such an inquiry necessarily permits scrutiny of the entire arrangement, including control, management and real ownership.

The Court relied on Union of India v Azadi Bachao Andolan (2003) to observe that while treaty shopping per se is not impermissible, treaty benefits may be denied where a structure is a device to avoid tax and that domestic authorities are not denuded of the power to examine abuse merely because a DTAA exists. The Court relied on Vodafone International Holdings BV v Union of India (2012) to hold that the Indian tax authority is entitled to look at the whole transaction and apply the principle of substance over form.

The Court noted that the Delhi High Court had erred in treating the AAR’s findings as impermissibly final. It observed that the AAR had confined itself to determining whether the statutory bar under Section 245R(2)(iii) was attracted and that it was entitled to do so on the basis of material placed before it.

The Bench observed that Articles 13(3A) and 13(3B) of the India–Mauritius DTAA govern direct transfers, whereas indirect transfers of shares deriving value from assets located in India fall under Article 13(4), which does not contain any grandfathering protection. It also held that the invocation of domestic anti-avoidance provisions, including Chapter X-A (GAAR), could not be excluded merely on the basis that investments were made prior to 1 April 2017.

Allowing the appeals, the Court set aside the Delhi High Court’s judgement holding that the applications filed by Tiger Global entities were barred at the threshold as relating to a transaction prima facie designed for the avoidance of income tax.