ITAT holds indirect transfer of Indian subsidiary through a foreign holding company not taxable under the India Ireland tax treaty

1.1 Few areas of Indian tax law have produced as much litigation as the taxation of indirect transfers. In the decision of Vodafone International Holdings BV [1] , the Supreme Court held that the transfer of shares of a foreign company could not be taxed in India merely because the foreign entity derived value from assets located in India. The decision effectively highlighted a legislative lacuna, permitting the indirect transfer of underlying Indian assets through offshore share transfers beyond the reach of the Indian tax net. Subsequently, as a response, the Parliament via the Finance Act, 2012, retrospectively inserted Explanation 5 to Section 9(1)(i) to the erstwhile Income-tax Act, 1961 (“the Act”), providing that a transfer of shares of a foreign company is deemed to be a transfer of an Indian asset if those shares derive substantial value from assets located in India.

1.2 While the 2012 amendment largely settled the question of domestic taxing rights over indirect transfers, disputes continued regarding the extent to which treaty protection could nevertheless shield such transactions from Indian taxation. The issue came to sharp focus through the Supreme Court's judgment dated 15 January 2026 in the case arising out of the Flipkart acquisition, i.e., Authority for Advance Rulings (Income Tax) v. Tiger Global International II Holdings [2] . In this judgment, the Apex Court held that where an arrangement lacks genuine commercial substance, the benefit of the treaty can be denied, including through the General Anti Avoidance Rules (“GAAR”). It also observed that GAAR operates alongside and not in substitution of judicial anti-avoidance principles such as the doctrine of substance over form. Therefore, it held that even where GAAR thresholds are contested, courts may independently deny treaty benefits by invoking judicial doctrines.

1.3 Against this backdrop, the debate has now assumed renewed significance following the judgement of the Delhi Bench of the Income Tax Appellate Tribunal (“the Tribunal”) in the case of FireEye Ireland Limited v. Assistant Commissioner of Income Tax, [3]  where the Tribunal has examined whether a deeming fiction under domestic law can be read into the term “alienation” appearing in Article 13 of the India-Ireland Double Taxation Avoidance Agreement (“Indian-Ireland Tax Treaty”), and whether the Principal Purpose Test (“PPT”) embedded in Article 6(1) of the Multilateral Instrument (“MLI”) can be invoked in absence of specific evidence of treaty abuse.

1.4 In this article, we have briefly discussed the background, arguments, and decision of the Tribunal, followed by the relevant takeaways.

2.1 FireEye Ireland Limited (“FIL” or “the Taxpayer”) is a company incorporated in Ireland and a tax resident of Ireland under the India-Ireland Tax Treaty and does not have a Permanent Establishment (“PE”) in India.

2.2 During Financial Year 2021-22, as part of an internal group restructuring, FIL sold its ownership interests in seventeen group entities to Mandiant Ireland Limited (“MIL”), another Irish group company. The transferred interests included FireEye International LLC (“FE LLC”), a company incorporated in the United States which in turn held the entire shareholding of Mandiant Cybersecurity Private Limited (“MCPL”), an Indian company.

2.3 FIL in its return of income disclosed that the capital gains arising from the transfer of ownership in FE LLC were not taxable in India under Article 13(6) of the India-Ireland Tax Treaty and further submitted that such alienation was also exempt under Irish domestic law by virtue of an intra-group transfer exemption.

2.4 The Assessing Officer (“AO”), however, did not accept this position and relying on Article 6 of the MLI, treated the gains arising from the transfer of ownership in FE LLC to MIL as capital gains under Article 13(5) of the India-Ireland Tax Treaty. It was contended by the Revenue that the transaction was taxable under Explanation 5 to Section 9 of the Act, as FE LLC derived substantial value from MCPL in India, subject to relief under the treaty as provided in Section 90 of the Act.

2.5 Accordingly, the AO in its interpretation of Section 90 noted that the provision is meant for the avoidance of double taxation and not for creating opportunities for double non-taxation. The Dispute Resolution Panel ("DRP") confirmed this interpretation of Section 90. Consequently, the AO, in the final assessment order passed pursuant to the directions of the DRP, made the addition and a consequential demand in respect of the capital gains was raised. Aggrieved, the Taxpayer preferred an appeal before the Tribunal.

The key issues before the Tribunal were:

1.  Whether interpretation of "alienation" in the India-Ireland Tax Treaty can be read as "transfer" under Section 2(47) of the Act.
2. Whether the transfer of ownership in FIL to MIL falls under the scope of Article 13 of the India-Ireland Tax Treaty.
3. Whether the recourse to Article 3(2) of the India-Ireland Tax Treaty is proper.

Interpretation of “alienation” under the India-Ireland Tax Treaty cannot be equated with the definition of “transfer”. 

4.1 The Tribunal considered whether the expression “alienation” in Article 13 could be equated with “transfer” as defined in Section 2(47) of the Act and observed that in interpreting the terms of the tax treaties, the ordinary meaning of the term should be taken into account. It further noted that ordinary meaning is not the legal meaning, but contextual meaning of the term, read with the relevant purpose and intent. Thus, it noted that recourse to the definition under the Act is warranted only if the treaty expression was ambiguous.

4.2 The Tribunal further noted that India-Ireland Tax Treaty, being an agreement rather than a taxing statute, cannot be interpreted by mechanically applying principles applicable to statutory legislation. Accordingly, since “alienation” was capable of being understood in its ordinary treaty context, there was no legal basis for substituting it with the wider domestic definition of “transfer”.

4.3 Thus, the Tribunal concluded that recourse to Article 3(2) of the India-Ireland Tax Treaty cannot be taken to expand the scope of the term “alienation” and to classify it as a “transfer”, consequently, taxing the transaction between FII and MIL as an Indirect transfer under the domestic law.

The transfer of ownership in FIL to MIL does not fall under the scope of Article 13 of the India-Ireland Tax Treaty 

4.4 Furthermore, with respect to the transfer of ownership in FE LLC o MIL, the Tribunal examined whether the transaction fell within the ambit of Article 13. Articles 13(1) to 13(4) were inapplicable because of the following reasons:

4.5 Furthermore, in analysing the applicability of Article 13(5), the Tribunal observed that Article 13(5) applies to gains from the alienation of shares in a company resident in a Contracting State. The property directly transferred was FIL’s ownership interest in FE LLC, a company incorporated and resident in the United States. Since FE LLC was not resident in India, the essential condition for applying Article 13(5) was not satisfied.

4.6 The transaction therefore fell within the residuary rule in Article 13(6), which covers property not addressed by Articles 13(1) to 13(5). The Tribunal noted that in the instant case, the transfer of ownership in FE LLC does not trigger any tax liability in India. Under Article 13(6), the gains were taxable only in Ireland, where FIL was resident. 

The recourse to Article 3(2) of the India-Ireland Tax Treaty is erroneous.

4.7 The Tribunal held that the recourse taken to Article 3(2) to invoke Section 2(47) of the domestic Act is erroneous. The Tribunal further made reliance on Telstra Singapore Pte. Ltd., [4]  which held that while Article 3(2) may be invoked only to resolve a genuine ambiguity in treaty language, it cannot be used to modify the taxing rights allocated by the treaty or to import a see-through or look-through rule from domestic law.

4.8 the Tribunal further relied on the principles laid down in Sanofi Pasteur Holding SA v. Department of Revenue [5]  and Sofina S.A. v. ACIT (International Taxation) [6]  wherein it was affirmed that Explanation 5 to Section 9(1)(i) is confined to the Act and cannot be imported into the India-Ireland Tax Treaty to create a look-through approach where the treaty itself places the transaction within a specific distributive rule. Accordingly, the scope of the treaty must be defined independently of the domestic provisions unless expressly incorporated.

4.9 The position, as argued by the Taxpayer was affirmed by the Delhi High Court in New Skies Satellite, [7]  and reaffirmed by the Supreme Court in Engineering Analysis, [8]  accordingly, the Tribunal held that unlike Article 13(4), the Article 13(5) does not explicitly provide for an indirect or a direct transfer. Hence, it does not permit a see-through approach. Consequently, the Tribunal rejected the Revenue’s attempt to extend the deeming fiction in Explanation 5 to Section 9(1)(i) of the Act to the India-Ireland Tax Treaty and held that the transfer of shares of the foreign holding company cannot be regarded as a transfer of shares of its Indian subsidiary. 

4.10 Finally, the Tribunal addressed the Revenue’s reliance on Article 6(1) of the MLI and Section 90(1)(b) of the Act. It found no specific enquiry or evidence establishing treaty abuse or impermissible double non-taxation. It noted that the share purchase agreement covered the transfer of ownership interests in seventeen group entities as part of a genuine global restructuring, and the arrangement could not be reduced solely to an indirect transfer of MCPL. Consequently, the Tribunal allowed the appeal of the Taxpayer.

5.1 The decision is significant for multi-tier indirect transfer structures because Article 13(5) applies only where the alienated entity is resident in the relevant Contracting State. The residence and treaty position of each transferred entity must therefore be examined independently.

5.2 While this is a welcome precedent for taxpayers, the precedential value of the ruling should be assessed with caution. The Tribunal in its entirety did not consider the Supreme Court’s decision in Tiger Global Holdings. While FireEye presents a significant favourable interpretation, its wider practical impact may remain limited unless the approach is sustained by higher judicial forums after addressing the principles laid down in Tiger Global Holdings.