Supreme Court Stays Delhi HC Order Exempting Tiger Global from Capital Gains Tax in Flipkart-Walmart Deal
By: Admin Date: January 25, 2025 Category: TAX News Reading Time: 4 Min
Supreme Court Intervention
The Supreme Court on Friday stayed a Delhi High Court order exempting Mauritius-based private equity firm Tiger Global International III Holdings and its related entities from paying capital gains tax on their sale of Flipkart shares to Walmart in 2018.
The case revolves around the India-Mauritius Double Tax Avoidance Agreement (DTAA), which Tiger Global cited to claim tax exemption. The Supreme Court Bench, led by Justice J.B. Pardiwala, issued a notice to Tiger Global in response to a petition filed by the Authority for Advanced Ruling (Income Tax) (AAR), which had earlier denied the exemption. The matter will be heard again on February 18.
Background of the Case
In 2018, Tiger Global and its Mauritius entities sold a 77% stake in Flipkart Singapore to Walmart for $16 billion, realizing substantial capital gains. Tiger Global claimed that Article 13(3A) of the India-Mauritius DTAA “grandfathered” shares acquired before April 1, 2017, allowing them to avoid capital gains tax.
Between October 2011 and April 2015, Tiger Global had acquired 23,670,710 Flipkart Singapore shares. The “grandfathering” provision under the treaty exempts capital gains on the sale of shares acquired before the specified date.
AAR Ruling
In 2020, the AAR rejected Tiger Global’s claim, arguing:
- The transaction was structured to avoid taxes.
- Tiger Global’s Mauritius entities were “see-through entities,” with the real beneficiary being Tiger Global Management LLC, based in the U.S.
- The establishment of entities in Mauritius aimed to exploit treaty benefits, constituting treaty abuse.
Delhi HC’s Judgment
In August 2024, the Delhi High Court overturned the AAR decision, holding that the transaction was covered under the grandfathering provisions of Article 13(3A) of the DTAA. The HC stated:
- There was no evidence that Tiger Global Management LLC was the beneficial owner of the shares.
- Treaty benefits cannot be denied on the assumption of treaty shopping or abuse without concrete proof.
- Domestic tax laws must align with treaty provisions, and legitimate business activities cannot be dismissed as treaty abuse simply because they originate in tax-friendly jurisdictions.
Supreme Court’s Stay
The Supreme Court’s decision to stay the HC order provides a temporary reprieve for the AAR. The apex court will examine the matter, particularly whether the DTAA provisions were misused to evade taxes and whether the beneficial ownership concept applies in this case.
Implications of the Case
This case highlights key issues around treaty shopping, beneficial ownership, and the interpretation of tax treaties. The Supreme Court’s final judgment will significantly impact cross-border transactions and the use of tax treaties for structuring investments.
The next hearing is scheduled for February 18, where further arguments from both sides will be presented.
