In a significant development, the Supreme Court, by its judgment dated January 15, 2026, has ruled against the Mauritian investment entities of Tiger Global in relation to their claim of treaty benefits qua taxability of capital gains arising from their 2018 divestment of stake in Flipkart Private Limited (‘Flipkart’), a company incorporated in Singapore, to the Walmart Group. The Supreme Court has recognised the statutory mandate of the principle of ‘substance over form’ in the post General Anti-Avoidance Rule (‘GAAR’) era which came into force in India by insertion of Chapter X-A in the (Indian) Income-tax Act, 1961 (‘ITA’) with effect from April 1, 2017.

Factual Background

i.    Tiger Global International II Holdings, Tiger Global International III Holdings and Tiger Global International IV Holdings (‘Taxpayers’) are entities of the Tiger Global group, incorporated in Mauritius.

ii.   The Taxpayers acquired certain shares of Flipkart between 2011 to 2015, which were sold by them in 2018 to a Walmart group company incorporated in Luxembourg. Such shares derived their value substantially from assets located in India due to Flipkart having multiple investments in various entities in India.

iii.  While gains arising from such indirect transfer of Indian investee entities were subject to tax under the relevant provisions of the ITA, the Taxpayers adopted the position that such gains were tax-exempt under the Double Taxation Avoidance Agreement between India and Mauritius (‘DTAA’).

iv.   Thereafter, the Taxpayers approached the Authority for Advance Ruling (‘AAR’) under the ITA. The AAR, by way of Order dated March 26, 2020, rejected the applications on the ground that the transactions were prima facie designed for tax avoidance and accordingly, the applications were not maintainable under the ITA, for want of examination under the provisions of GAAR.

v.    The Taxpayers challenged the findings of the AAR before the Delhi High Court. The High Court, by way of its judgment dated August 28, 2024, quashed the AAR’s order and held that investments originating from Mauritius cannot be inherently suspected, a valid tax residency certificate (‘TRC’) issued by the Mauritian tax authorities must be sacrosanct, and it is only in limited circumstances of tax fraud, sham transactions, that the presumption of validity of the concerned arrangement may be disregarded. Further, the High Court held that, in any event, any investment made prior to April 1, 2017, stands grandfathered even under the provisions of GAAR. Basis this, the High Court held that the Taxpayers were entitled to DTAA benefits and that their income was held not to be chargeable to tax in India.

vi.   Appeals were preferred before the Supreme Court, challenging this judgment of the Delhi High Court.

Key Findings of Supreme Court

The Supreme Court, inter-alia, held that:

i.    The applicability of the DTAA will be contingent on the transaction being taxable in the state of the non-resident. Further, where a taxpayer seeks exemption from tax in the source state while simultaneously contending that the transaction is also exempt from tax in the state of residence, such a position runs contrary to the spirit of the DTAA and provides a strong basis for the tax authorities to question the availability of DTAA benefits in the source state.

ii.   Article 13(4) of the DTAA provides capital gains tax exemption only where the Mauritian resident directly holds and disposes of the shares/ movable property in India. Accordingly, gains arising from indirect transfers would not enjoy the benefit of Article 13(4) of the DTAA.

iii.  In light of the provisions of the ITA (particularly those dealing with GAAR), a TRC by itself does not preclude the Indian tax authorities from piercing the form to examine control, management, and commercial substance. Hence, the Supreme Court reduced the TRC to be only one of the relevant evidences for establishing residency, rather than being conclusive in itself.

iv.   Earlier positions based on the Supreme Court’s judgments and the circulars issued by the authorities in India, clarifying that a TRC constituted sufficient proof of residence for treaty benefits, cannot prevail after the introduction of subsequent statutory amendments, including those relating to GAAR. Accordingly, the Supreme Court confined the applicability of such circulars as well as the decisions upholding their validity, to the period prior to the coming into force of GAAR.

v.    The principle of ‘substance over form’ or the judicial anti-avoidance rule (‘JAAR’) has been given a statutory mandate post the coming into force of GAAR and treaty interpretation must at all times align with the domestic anti-abuse law. Therefore, the benefit under the DTAA is not absolute, the same being subject to the arrangement not being an impermissible tax avoidance arrangement under the provisions of GAAR.

vi.   An arrangement may fall within GAAR if its main purpose is to obtain a tax benefit and lacks commercial substance. Even if GAAR is held to be inapplicable, JAAR, grounded in the doctrine of substance over form and consistently recognised in the Indian jurisprudence, can be invoked. Accordingly, courts and tax authorities may pierce the corporate veil, where entities lack real substance.

vii.  GAAR can be invoked even where the original investment predates April 1, 2017, if capital gain, in respect of which a tax benefit is obtained, arises on an exit occurring post April 1, 2017.

viii. On facts, the Supreme Court held that the concerned structure, at least prima facie, appeared to be a tax-driven arrangement, justifying denial of the benefits under the DTAA.