Supreme Court Taxes Tiger Global’s Flipkart Exit, Overhauling Treaty Interpretations

The Supreme Court of India has rejected a petition filed by Tiger Global challenging the levy of capital gains tax on its 2018 sale of a stake in Flipkart, as per news reports. The court held that tax authorities were right in denying the exemption sought by the investor.  

The order was delivered by a bench comprising Justices J B Pardiwala and R Mahadevan. A detailed judgment is awaited. 

Details of the Transaction 

The dispute relates to Tiger Global’s sale of its Flipkart stake to Walmart in 2018. The deal was valued at ₹144.4 billion, or about $1.6 billion, and formed part of Walmart’s $16 billion acquisition of the ecommerce business.  

Tiger Global had invested in Flipkart through entities based in Mauritius and Singapore between 2011 and 2015. 

Claim Under Tax Treaty 

Tiger Global had sought exemption from capital gains tax under the India-Mauritius Double Taxation Avoidance Agreement.  

The firm relied on the treaty’s grandfathering provision, which exempts gains on shares acquired before April 1, 2017. It also cited a Tax Residency Certificate issued by Mauritius to support its claim for treaty benefits. 

Stand of Tax Authorities 

The income tax department rejected the exemption plea, stating that the structure of the transaction was for avoiding tax in India.  

Authorities argued that the Mauritius-based entities lacked commercial substance and functioned as conduits for Tiger Global’s US operations. On this basis, the department maintained that the treaty benefits were not available. 

Court’s Observations 

According to Bar and Bench, the Supreme Court held that once a transaction is found to be prima facie structured to avoid tax, the bar under Section 245R(2) of the Income Tax Act applies. In such cases, tax authorities are not required to examine the merits of taxability.  

The court also noted that treaty interpretation must align with legislative intent and later amendments introduced to curb tax avoidance. 

High Court Ruling Overturned 

The appeal before the Supreme Court arose from an August 2024 decision of the Delhi High Court, which had ruled in favour of Tiger Global.  

The high court had overturned an earlier ruling by the Authority for Advance Rulings. The Supreme Court’s decision has now restored the tax department’s position. 

Read More: Flipkart’s Shadowfax Investment: From Early Stake to IPO Monetisation! 

Conclusion 

The ruling settles a long-running dispute linked to the Flipkart stake sale and clarifies the limits of treaty-based tax exemptions in cases involving alleged tax avoidance. 

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