Supreme Court stays Delhi High Court ruling in Tiger Global case

The Supreme Court on Friday stayed a Delhi High Court ruling in favour of private equity firm Tiger Global on the applicability of the India-Mauritius Double Taxation Avoidance Agreement to capital gains from the sale of shares of Flipkart to Walmart. Experts believe the ruling could lead to uncertainty for foreign investors.
 
The order by a division bench of Justices JB Pardiwala and R Mahadevan noted that the issue has pan-India implications and requires “thorough consideration”.
 
In its ruling, the Supreme Court has stayed the order of the Delhi High Court that had granted tax benefits under the India- Mauritius DTAA to Tiger Global. Prior to that, the Authority for Advance Rulings (AAR had denied treaty benefits to Tiger Global for the transaction.
 
The case relates to Tiger Global, which holds a Category 1 Global Business License and a Tax Residency Certificate (TRC) from Mauritius, and had acquired shares of a Singapore-based Flipkart between 2011 and 2015. The company held substantial investments in Indian entities. In 2018, Tiger Global sold its shares in the company, resulting in capital gains. The grandfathering provision under the India-Mauritius DTAA provides for grandfathering of investments and exemption from capital gains tax in India for shares acquired before April 1, 2017.
 
Tax experts noted that several implications could arise from the Supreme Court ruling.
 
Abhishek A Rastogi, founder of Rastogi chamber, tax and constitutional expert said that a stay would introduce ambiguity regarding the applicability of DTAA benefits, particularly for investments routed through Mauritius. This could affect investor confidence and influence decisions on structuring investments into India. “The government’s stance on tax treaties and the interpretation of their provisions could come under scrutiny, potentially leading to policy reviews or amendments to prevent treaty abuse while maintaining India’s attractiveness to foreign investors,” he further said.
 
Rakesh Nangia, Managing Partner, Nangia & Co said the stay by the Supreme Court poses a question-mark on the judgment of the Delhi High Court, and it appears that the stage is all set for a fierce round of debate concerning measures to be adopted to prevent potential treaty-abuse.
 
In its verdict issued last year, the Delhi High Court had upheld the plea of the taxpayer-assessee that grandfathering provisions contained in India-Singapore tax-treaty were self-sufficient to address potential allegations relating to treaty-abuse, and accordingly, “…..it would be impermissible for the Revenue to manufacture additional roadblocks or standards that the parties would be required to meet in order to avail DTAA benefits,…….”.
 
Amit Maheshwari, Tax Partner, AKM Global said there are several key areas which could possibly need thorough attention ranging from the interpretation of tax treaties in cases of indirect transfer cases, clarity on what constitutes a conduit company and what is the economic substance as well as how relevant are the people sitting in that entity for proving the substance since investment entities need not necessarily have employees sitting there in that jurisdiction. “These issues need a clear and consistent approach to be followed by the authorities and a judgment would be awaited and welcome in this regards,” he pointed out.