Supreme Court Upholds Sovereign Tax Powers, Sets Aside Delhi High Court Ruling on Mauritius-Singapore Share Transfer Taxability SC Rules Against Tiger Global Entities, Affirms Taxability of Capital Gains in India Despite Treaty Claims; Emphasizes GAAR Applicability and Sovereign Tax Jurisdiction
In a landmark judgment delivered on January 15, 2026, the Supreme Court of India has allowed appeals by the Authority for Advance Rulings (Income Tax) and set aside the Delhi High Court’s decision that had favored Tiger Global International II, III, and IV Holdings-Mauritius-incorporated companies claiming exemption from Indian capital gains tax under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
The case arose from the sale of shares in Flipkart Private Limited, a Singapore-incorporated company whose value substantially derived from underlying Indian assets. Tiger Global’s Mauritian entities contended that capital gains from the sale of these shares to a Luxembourg-based company were not taxable in India under the DTAA, relying on their status as residents of Mauritius with valid Tax Residency Certificates (TRC).
The Authority for Advance Rulings (AAR), however, rejected Tiger Global’s applications for advance rulings, finding that the transactions were prima facie designed for tax avoidance. The AAR concluded that the real control and management of the companies were exercised from the United States, not Mauritius, and that the shares sold were of a Singapore entity, not an Indian company, placing the transaction outside the DTAA’s protective scope.
The Delhi High Court overturned the AAR’s findings, holding that Tiger Global’s entities were genuine residents of Mauritius entitled to treaty benefits and that the sale transaction fell under the grandfathering provisions of the 2016 Protocol amending the India-Mauritius DTAA. It further held that the TRCs issued by Mauritius were sacrosanct and barred Indian authorities from piercing the corporate veil absent compelling evidence of fraud or sham.
The Supreme Court, however, reinstated the AAR’s view, emphasizing the sovereign right of India to levy tax on income accruing or arising in its territory, especially on capital gains from indirect transfers of shares deriving value substantially from Indian assets. The Court underscored that the TRC alone is not conclusive proof of tax residency or entitlement to treaty benefits, particularly post amendments to the Income Tax Act, 1961, including the introduction of the General Anti-Avoidance Rule (GAAR).
The apex court held that the transactions were impermissible avoidance arrangements under GAAR, lacking commercial substance and entered into primarily for tax benefits, thereby justifying denial of treaty benefits. It noted that Rule 10U of the Income Tax Rules specifically provides that GAAR applies to arrangements yielding tax benefits on or after April 1, 2017, irrespective of when the investment was made, thereby nullifying the respondents’ claim of grandfathering.
The judgment also highlighted the amended DTAA’s Limitation of Benefits (LOB) clause, introduced to curb treaty abuse, and reaffirmed India’s right to look beyond formal documentation to the substance and intent of arrangements claiming treaty benefits.
In a concurring note, Justice J.B. Pardiwala elaborated on the paramount importance of tax sovereignty for India’s economic security and global standing, cautioning against compromising sovereign taxing rights through international treaties or external pressures.
This decision reiterates the Indian judiciary’s commitment to combating aggressive tax planning and treaty abuse, balancing India’s obligations under international agreements with its sovereign right to protect its tax base.
Statutory provision(s): Income Tax Act, 1961 - Sections 4, 5, 6, 9(1)(i), 45, 73, 90, 90(2), 90(2A), 90(4), 90(5), 95 to 102 (Chapter XA - General Anti-Avoidance Rule), 195; Income Tax Rules, 1962 - Rule 10U; India-Mauritius Double Taxation Avoidance Agreement (DTAA), 1982 and 2016 Protocol; Sections 245Q(1), 245R(2) of Income Tax Act; Financial Services Act, 2007 (Mauritius); Circular No. 682 (1994), Circular No. 789 (2000), Circular No. 1/2003 (2003); Finance Act, 2012 and Finance Act, 2013 amendments.
