New Delhi: In a landmark ruling with far-reaching implications for international investors, the Supreme Court on Thursday held that capital gains arising from American investment firm Tiger Global’s $1.6-billion stake sale in Flipkart to Walmart in 2018 are taxable in India. The judgment, which overturned a 2024 Delhi High Court decision that had favoured Tiger Global, is being seen as a major victory for the Union government and marks a pivotal moment in India’s efforts to tighten oversight on cross-border tax planning and treaty-based investment structures.

The Supreme Court bench, comprising Justices JB Pardiwala and R Mahadevan, ruled that the transaction in question constituted an “impermissible tax avoidance arrangement” under India’s tax laws. The bench held that Tiger Global’s Mauritius-based entities—Tiger Global International II, III, and IV Holdings—could not claim capital gains tax exemption under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).

The ruling underscores the judiciary’s emphasis on substance over form, allowing Indian tax authorities to look beyond legal structures and pierce corporate veils where necessary. This approach is likely to reshape how foreign investors structure their investments in India and could narrow the scope for aggressive treaty-based tax avoidance strategies.

Background of the Case

The dispute arose from Tiger Global’s early-stage investments in Flipkart, one of India’s largest e-commerce platforms. The American firm had invested through Mauritius-based entities between 2011 and 2015, which held shares in Flipkart’s Singapore-based holding company. These investments occurred prior to the 2016 amendment of the India-Mauritius tax treaty, which sought to curb treaty-shopping practices by making capital gains arising from indirect transfers taxable in India if shares were acquired on or after April 1, 2017. Earlier investments were “grandfathered” under certain conditions.

When Walmart acquired a controlling stake in Flipkart in 2018 for about $16 billion, Tiger Global sold part of its stake and received approximately $1.6 billion. The firm’s Mauritius entities then applied to Indian tax authorities for a nil withholding certificate, effectively seeking exemption from Indian capital gains tax on the transaction. The request was denied, with authorities arguing that the Mauritius entities were merely conduits, while real control and decision-making lay in the United States.

Following the rejection, Tiger Global approached the Authority for Advance Rulings (AAR), which in 2020 confirmed the tax department’s stance, stating that the arrangement was designed for tax avoidance and fell under the jurisdictional bar of the Income Tax Act. The firm then challenged the AAR’s decision in the Delhi High Court, which in August 2024 ruled in its favor, recognizing the Mauritius entities as genuine and entitled to treaty benefits.

Dissatisfied with the Delhi High Court ruling, the tax department appealed to the Supreme Court, which stayed the high court’s decision in January 2025. Thursday’s judgment now restores the position of the revenue authorities, affirming India’s right to tax the capital gains arising from the Flipkart transaction.

Key Legal Findings

The Supreme Court’s decision clarified several crucial aspects of cross-border taxation and treaty protections. A central question before the court was whether India’s General Anti-Avoidance Rules (GAAR) could apply even when investments were made prior to April 1, 2017. The bench ruled affirmatively, stating that what matters is not the date of investment, but whether a tax benefit was obtained from the arrangement after the cut-off date. In other words, even pre-2017 investments could be subject to GAAR scrutiny if subsequent transactions were part of impermissible tax avoidance arrangements.

Justice Mahadevan, writing for the bench, distinguished between passive investments and structured arrangements designed primarily to secure tax benefits. He emphasized that possession of a valid tax residency certificate (TRC) from Mauritius does not automatically entitle an entity to treaty benefits. Indian tax authorities are entitled to examine the place of effective management, control, and the commercial substance of transactions to determine the legitimacy of treaty claims.

The judgment also highlighted that indirect transfers of shares—such as the sale of shares in a foreign company deriving substantial value from Indian assets—do not automatically fall under the protection of Article 13(4) of the India-Mauritius DTAA. “An indirect sale of shares would not, at the threshold, fall within the treaty protection contemplated under Article 13,” the court observed.

Further, the court noted that Tiger Global had sought tax exemption both in India and Mauritius, a position inconsistent with the spirit of the DTAA. Section 96(2) of the Income Tax Act, which reverses the burden of proof in GAAR proceedings, places the onus on the taxpayer to demonstrate that a transaction is not an impermissible avoidance arrangement. The Supreme Court held that Tiger Global had failed to discharge this burden with sufficient material.

Implications for Foreign Investment

The ruling is expected to have wide-ranging implications for foreign investors, particularly venture capital and private equity funds that have historically routed investments through Mauritius to leverage favorable treaty provisions. India has long been a popular destination for investments channeled through Mauritius, which accounted for roughly 25% of total foreign direct investment (FDI) inflows into the country. Between April 2000 and September 2024, investments routed through Mauritius exceeded $177 billion.

By reaffirming the Indian tax authorities’ power to apply GAAR and scrutinize treaty claims, the Supreme Court has sent a clear message that aggressive tax planning through conduit structures will face heightened risk of challenge. Experts note that the decision prioritizes economic substance over legal form, signaling a stricter regime for treaty shopping and structured arrangements designed solely for tax benefits.

Legal analysts have highlighted that the judgment strengthens the government’s position in disputes over indirect transfers, clarifies the interaction between domestic tax law and DTAA provisions, and provides guidance on the application of anti-abuse doctrines in cross-border investment scenarios. By emphasizing that the timing of tax benefits, rather than merely the timing of investments, determines GAAR applicability, the ruling narrows potential loopholes previously exploited by multinational funds.

Economic and Strategic Significance

The Flipkart transaction was one of the largest cross-border deals involving an Indian startup, and the Supreme Court’s ruling reinforces India’s commitment to protecting its tax base on high-value transactions. It also provides clarity to other investors on the legal landscape surrounding cross-border acquisitions, indirect transfers, and the applicability of treaty benefits.

While the exact tax liability for Tiger Global will depend on the profits realized from the Flipkart sale and any applicable penalties, the ruling sets a precedent that could influence structuring and exit planning for future foreign investments in India. Analysts expect that funds planning exits from Indian companies may now need to reconsider reliance on Mauritius or similar treaty jurisdictions and explore alternative structures or direct investments to ensure compliance with GAAR provisions.

Conclusion

The Supreme Court’s ruling in the Tiger Global case represents a significant milestone in India’s international tax jurisprudence. By affirming that capital gains arising from structured cross-border transactions can be taxed in India, even if the underlying investments were made before treaty amendments, the judgment strengthens the government’s ability to curb treaty-based tax avoidance. The decision underscores the principle that commercial substance, effective control, and the timing of tax benefits are critical determinants of tax liability, providing much-needed clarity to both investors and tax authorities.

As India continues to attract global capital, the judgment serves as a reminder that compliance with domestic tax laws and anti-avoidance provisions is paramount. For Tiger Global and similar investors, the ruling may entail a significant tax outflow, while also reshaping strategies for structuring investments in Indian startups and companies in the years to come.

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