[Opinion] Sovereignty Over Sanctity | Reassessing the Tiger Global Ruling and Tax Sovereignty in India

Shruti Khanijow & Bhanu Upadhyay – [2026] 183 taxmann.com 725 (Article)

1. Introduction

The Hon’ble Supreme Court has ruled in favour of the tax authorities in the matter of Authority for Advance Rulings (Income-tax) v. Tiger Global International II Holdings, marking a fundamental shift in the taxing mechanism for cross-border transactions. For decades, the Mauritius Route was anchored by the belief that a Tax Residency Certificate (TRC) was a conclusive pass for obtaining tax benefits under the Double Tax Avoidance Agreement (DTAA) between India and Mauritius. This belief was largely built on precedents such as Union of India v. Azadi Bachao Andolan and Vodafone International Holdings BV v. Union of India, which prioritised legal form and investor certainty.

The core of the dispute lies in the Tiger Global’s 2018 exit from Flipkart Singapore. While the transaction happened offshore, the value was rooted in Indian territory. By upholding the Authority for Advance Ruling’s 2020 rejection of the tax-exemption claim, the apex Court has signalled that a TRC is no longer a veto against investigations into treaty abuse. The ruling clarifies that the Revenue can look behind the corporate veil if an entity appears to be a conduit lacking real commercial Nature or independent decision making.

The apex court also expounded on treatment of the General Anti-Avoidance Rule (GAAR) and its interplay with grandfathered investments. By interpreting Rule 10U(2) to apply to post-2017 arrangements regardless of when the initial investment was made, the judgment has opened a floodgate of risks for private equity and venture capital funds. In an era of global economic uncertainty, the Court has ultimately prioritised tax sovereignty, asserting India’s inherent right to tax income generated within its borders over its traditional reliance on strict treaty finality.

2. Factual Matrix

The issue in the current matter stems from a series of events that took place in the last decade. Between 2011 and 2015, three Mauritius-based entities, Tiger Global International II, III, and IV Holdings, acquired a significant stake in Flipkart Private Limited, a company incorporated under the laws of Singapore. In 2018, as part of a massive global M&A deal, Tiger Global transferred these shares to Fit Holdings S.A.R.L. (a Luxembourg based entity owned by the US Supermarket giant, Walmart) for a total consideration exceeding USD 2 billion.

Seeking to protect their gains, in 2020 the Tiger Global entities applied for a nil withholding tax certificate from Indian authorities. They argued that under the India-Mauritius DTAA, the capital gains accrued to them from the transfer and sale of shares to Fit Holdings, were exempt from Indian capital gains tax because the investments were made before April 1, 2017, and thus were grandfathered under the treaty’s 2016 Protocol. The Revenue Department, however, rejected this, contending that the Mauritius entities were mere conduits or shell companies lacking real economic substance. The tax authorities alleged that the ‘head and brain’ of these companies resided not in Mauritius but in the United States, specifically with Mr. Charles P. Coleman, who exercised ultimate control over bank accounts and major financial decisions. Unsatisfied with the AAR’s decision, Tiger Global filed writ petitions before the Hon’ble Delhi High Court, which initially turned the tide in their favor in August 2024. The Hon’ble High Court quashed the AAR’s order, holding that a TRC should be treated as conclusive evidence of residency and that the Mauritius based board exercised genuine decision-making authority, defying the head and brain argument of the Revenue department. It ruled that establishing investment vehicles in tax-friendly jurisdictions is a legitimate global practice and doesn’t automatically imply a sham transaction.

Aggrieved by this, the Revenue Department appealed against the Hon’ble High Court’s order, in the Supreme Court of India, which, in its judgment, reversed the previous relief-granting order of the Hon’ble Delhi High Court signifying India’s sovereign right to tax gains arising from its soil. The Apex Court upheld the AAR’s original refusal to grant a ruling, finding that the entire structure was prima facie designed for tax avoidance. The Court held that even if investments were made before 2017, the GAAR under Chapter XA of the Income Tax Act could be triggered if the arrangement itself lacked commercial substance and yielded a tax benefit after that date. The Apex Court further held that a TRC is an eligibility document but not a conclusive shield against investigation into actual control of the assessee.

3. Treaty in Question

The core of this dispute originates from the existence of a Double Tax Avoidance Agreement between India and Mauritius, signed in 1982. The DTAA is a bilateral agreement intended to prevent the same income from being taxed in two different jurisdictions, thereby facilitating mutual economic growth and trade. The Mauritius Route emerged as a dominant investment structure following India’s 1991 economic liberalisation and the enactment of the Mauritius Offshore Business Activities Act in 1992, which created a favourable environment for offshore investments. Central to this route was Article 13(4) of the original treaty, which before the 2016 amendment, stood as:

13(4). Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs (1), (2) and (3) of this article shall be taxable only in that State.

It provided that the capital gains derived by a resident from the alienation of a property, such as shares, would be taxable only in the state of residence, and because Mauritius does not tax capital gains under its domestic law, this provision often resulted in effective non-taxation in both India and Mauritius. For years, this allowed the investors to leverage Mauritius’s domestic tax exemptions to achieve effective non-taxation of capital gains in both the countries.

However, the positions changed when the 2016 Protocol shifted the taxing rights from a residence-based regime to a source-based regime. The protocol amended the DTAA and inserted a new provision as Article 13(3A), which granted India the right to tax gains from the sale of shares acquired on or after 01.04.2917. However, in order to provide safety and entrusting existing investors with security, the operation of Article 13(3A) was kept only to be prospective in nature and any investments made prior to 01.04.2017 were classified as Grandfathered, meaning that they remained exempt from Capital Gains Tax in India under the original Article 13(4), even if the actual transfer takes place after the cutoff date, i.e. 01.04.2017.

Furthermore, it inserted the Anti-abuse measures stipulated in the Limitation of Benefits (LOB) clause under Article 27A to prevent the instances of treaty shopping by shell or Conduit Companies and specifically denied treaty benefits to shell or conduit companies. A shell company is further defined as a legal entity with negligible business operations or no real and continuous business activities in the resident state. To identify a shell company, Article 27A provides an operational expenditure test:

A resident of a Contracting State is deemed to be a shell/conduit company if its expenditure on operations in that Contracting State is less than Mauritian Rs. 1,500,000 or Indian Rs. 2,700,000 in the respective Contracting State as the case may be, in the immediately preceding period of 12 months from the date the gains arise.

The DTAA is further read in conjunction with India’s income tax Act, 1961. Section 90 of the Income tax act, 1961 empowers the central govt. to enter into treaties to grant tax relief, and Section 90 (2A) provides for the GAAR under Chapter X-A, which can override treaty benefits if an arrangement is deemed as an impermissible avoidable arrangement. Rule 10U of the Income Tax rules, 1962 outlines the specific circumstances where GAAR shall not apply, including a provision for grandfathering investments made before April 1, 2017 and Section 9(1)(i), following its retrospective amendment, now includes Explanation 5, which codifies the ‘look-through’ principle for indirect transfers where shares of a foreign company derive substantial value from Indian assets.

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