Tiger Global GAAR Ruling: SC on TRC & India-Mauritius DTAA

In a landmark decision concerning Tiger Global’s investment in Flipkart, the Supreme Court of India has overturned the Delhi High Court’s ruling, empowering tax authorities to look beyond a Tax Residency Certificate (TRC). This judgment redefines the landscape for treaty benefits under the India-Mauritius DTAA and reinforces the applicability of the General Anti-Avoidance Rule (GAAR) to transactions designed for tax avoidance.

Quick Case Details

  • Case Name: The Authority for Advance Rulings (Income Tax) & Others v. Tiger Global International II Holdings & Others
  • Authority: Supreme Court of India
  • Date of Judgment: January 15, 2026
  • Citation: 2026 INSC 60

Background and Context

The case involved three Mauritius-based investment entities, part of the Tiger Global group, that held shares in a Singapore-based company, Flipkart Private Limited. The value of Flipkart Singapore was substantially derived from its underlying assets located in India. In 2018, as part of Walmart Inc.’s majority acquisition of Flipkart, the Tiger Global entities sold their shares to a Luxembourg-based company, Fit Holdings S.A.R.L., realizing significant capital gains.

The core of the dispute revolved around the taxability of these gains in India. The Tiger Global entities, holding valid Tax Residency Certificates (TRCs) from Mauritius, contended that under Article 13 of the India-Mauritius Double Taxation Avoidance Agreement (DTAA), the right to tax such capital gains vested exclusively with the country of residence, i.e., Mauritius. Since Mauritian law does not tax capital gains, they claimed complete exemption from tax in India.

The tax authorities denied a nil withholding certificate, and the assessees subsequently approached the Authority for Advance Rulings (AAR). The AAR rejected their applications, holding that the transaction was prima facie designed for the avoidance of income tax, thus barring the application under Section 245R(2) of the Income Tax Act, 1961. The AAR found that the real control and management of the Mauritian entities lay in the USA, rendering them mere “see-through entities” lacking commercial substance.

However, the Delhi High Court quashed the AAR’s order, relying on earlier precedents like Azadi Bachao Andolan and Vodafone, which had established the primacy of the TRC. The High Court held that the Revenue could not pierce the corporate veil without compelling evidence of fraud or sham. Aggrieved, the Revenue appealed to the Supreme Court.

Key Legal / Regulatory Issues

The Supreme Court examined the following pivotal questions:

  1. In the post-GAAR regime, is a TRC conclusive proof of residency for claiming benefits under the India-Mauritius DTAA?
  2. Can an arrangement be scrutinized under GAAR if the investment was made before the grandfathering date (April 1, 2017), but the exit and realisation of gains occurred after?
  3. What is the scope of the AAR’s power to reject an application on the grounds that it is prima facie designed for tax avoidance?
  4. How do the principles of “substance over form” and the purpose of a DTAA interact with statutory anti-avoidance provisions?

What the Supreme Court Held

The Supreme Court allowed the Revenue’s appeals, setting aside the judgment of the Delhi High Court and upholding the AAR’s original order. The Court concluded that the transactions were impermissible tax-avoidance arrangements, making the resultant capital gains taxable in India.

Key Observations and Reasoning

The Supreme Court’s decision is anchored in the significant legislative changes to India’s tax laws following the Vodafone judgment.

  1. The Diminished Role of the TRC: The Court held that the legal landscape has fundamentally changed. Post the amendments to Section 90 of the Income Tax Act, a TRC is merely an “eligibility condition,” not “sufficient” or conclusive evidence of residency. The reliance by the High Court on pre-amendment era judgments was held to be incorrect. Tax authorities are now empowered to look behind the TRC to ascertain the real substance of an entity’s residential status and control.
  2. GAAR Overrides Grandfathering in Case of Abuse: The Court meticulously analyzed the GAAR provisions under Chapter XA and the corresponding Rule 10U. It observed that the sale transaction was finalized in 2018, well after GAAR became effective on April 1, 2017. Crucially, it interpreted Rule 10U(2), which begins with the phrase “Without prejudice to the provisions of clause (d) of sub-rule (1),” as diluting the grandfathering protection for pre-2017 investments. If a tax benefit is obtained from an arrangement on or after April 1, 2017, it can be scrutinised under GAAR irrespective of when the initial investment was made.
  3. AAR’s Prima Facie Test Affirmed: The Court affirmed that Section 245R(2) only requires the AAR to establish a prima facie case of tax avoidance to reject an application. The threshold for forming such an opinion is significantly lower than a conclusive finding. The AAR’s conclusion that the control and management of the Tiger Global entities were in the USA, and not Mauritius, was a valid basis for its prima facie determination.
  4. DTAA Prevents Double Taxation, Not Enable Double Non-Taxation: The judgment strongly reiterates that the objective of a DTAA is to prevent the same income from being taxed twice in two different countries. It is not intended to facilitate arrangements that result in the income not being taxed in either country (double non-taxation). The assessees’ attempt to claim exemption in both India and Mauritius ran contrary to the fundamental spirit of the treaty.
  5. Substance Over Form and Burden of Proof: The Court endorsed the application of judicial anti-avoidance principles (JAAR) and the statutory GAAR framework. It noted that under Section 96(2), once the Revenue establishes a prima facie case of an impermissible avoidance arrangement, the onus shifts to the taxpayer to rebut the presumption. The assessees, in this case, failed to provide sufficient material to disprove that the arrangement was designed for tax evasion.

Practical and Commercial Impact

This judgment sends a powerful signal to foreign investors, particularly those using intermediate holding companies in jurisdictions like Mauritius.

  • Increased Scrutiny: Structures that lack genuine commercial substance and appear designed primarily to gain tax advantages will face rigorous scrutiny.
  • Substance is Paramount: The physical location of incorporation and a TRC are no longer enough. The location of effective management, genuine business operations, and the commercial rationale for the structure will be critical determinants for availing treaty benefits.
  • End of Automatic Grandfathering: The notion that all pre-April 2017 investments are completely immune from GAAR is dispelled. The timing and nature of the exit transaction are now critical factors.

Key Learnings & Actionable Insights for Professionals

  1. Re-evaluate Holding Structures: Corporate advisors and CAs must advise clients that structures relying solely on a TRC from a treaty jurisdiction are high-risk. A thorough assessment of commercial substance, de facto control, and management in the stated jurisdiction is non-negotiable for future and existing structures.
  2. GAAR is a Present Reality for Exits: Tax consultants must understand that the grandfathering for pre-2017 investments is not absolute. The timing of the exit and the design of the overall arrangement can trigger GAAR. The entire lifecycle of an investment, from entry to exit, must be analyzed for GAAR compliance.
  3. Documentation is Necessary but Insufficient: While maintaining proper board minutes, local directors, and bank accounts remains essential, be prepared for tax authorities to probe deeper into who exercises actual control. The commercial rationale for the structure, independent of tax benefits, must be robust and defensible.
  4. Shift in Litigation Strategy: The burden of proof under GAAR is on the assessee to rebut the presumption of tax avoidance. Litigation strategy must now proactively demonstrate the commercial purpose and absence of a tax avoidance motive, rather than merely relying on the legal form and treaty text.
  5. Risk Assessment for AAR Applications: The Supreme Court has empowered the AAR to make a strong prima facie determination. Approaching the AAR with a complex structure that could be perceived as tax-avoidant now carries a significant risk of an early dismissal, which can be detrimental to the assessee’s position in subsequent proceedings.
  6. Advisory on the Spirit of DTAAs: Legal professionals should counsel clients that courts will now heavily weigh the underlying principle of a DTAA—to prevent double taxation, not to legitimize double non-taxation. This guiding principle will inform judicial interpretation in all treaty-related disputes.

Conclusion

The Supreme Court’s ruling in the Tiger Global case marks a pivotal moment in India’s international tax jurisprudence. It firmly establishes the supremacy of substance over form and brings the GAAR provisions to the forefront of tax assessment and litigation. For investors and corporations, this decision is a clear call to ensure their cross-border structures are built on a foundation of genuine commercial substance, failing which the protective shield of tax treaties may prove ineffective.

For deeper analysis, expert interpretation, and access to the complete judgment along with advanced research and litigation tools, sign up on Vaive AI to stay ahead.

Sign up now

Key Word: Tiger Global GAAR ruling | Supreme court GAAR ruling