Tiger Global: Redefining Treaty Protection in India

1.1 The evidentiary value of a Tax Residency Certificate ("TRC") as sufficient proof of tax residency for the purposes of claiming benefits under a Double Taxation Avoidance Agreement (“DTAA”) has been a subject of prolonged judicial and legislative debate in India. Historically, Indian courts, most notably in Union of India v. Azadi Bachao Andolan, accorded significant sanctity to a TRC issued by the competent authority of the treaty partner country. A valid TRC was generally treated as sufficient evidence to establish tax residence and, consequently, eligibility to claim treaty benefits.

1.2 The historical development of the law relating to TRC and the associated litigation was discussed by us in the article titled “TRC – A Conclusive Proof of Residence?” [1]  

1.3 The recent decision of the Hon’ble Supreme Court (“SC”) in The Authority for Advance Rulings (Income Tax) v. Tiger Global International II Holdings [2]  has reignited the debate surrounding the evidentiary value of a TRC, the eligibility conditions for claiming benefits under a tax treaty, substance requirement and the role of the General Anti-Avoidance Rules (“GAAR”) in determining entitlement to treaty benefits. In this case, the SC denied the exemption from capital gains tax under the India–Mauritius DTAA to Tiger Global International II Holdings, Tiger Global International III Holdings, and Tiger Global International IV Holdings (hereinafter collectively referred to as “Tiger Global Entities”).

1.4 In this article, we have endeavored to briefly discuss the key facts, the decision of the SC, and certain key takeaways.

2.1 The Tiger Global Entities are private companies incorporated under the laws of Mauritius, established with the primary objective of undertaking investment activities and earning long-term capital appreciation and investment income. These entities were granted Category I Global Business Licenses (“GBL-1”) under Mauritian law. Each entity had three directors, of whom two were residents of Mauritius and one was a resident of the United States. The principal bank accounts and financial statements of the Tiger Global Entities were maintained in Mauritius. Tiger Global Entities holds valid TRCs issued by the Mauritius Revenue Authority, certifying them to be tax residents in Mauritius for tax purposes.

2.2 Tiger Global Entities engaged Tiger Global Management, LLC (“TGM”), a company incorporated in the USA, to provide services in relation to their investment activities. All services provided by TGM were subject to review and final approval by the board of directors of Tiger Global Entities. TGM does not have the right to contract on behalf of, or bind, Tiger Global Entities or take any decisions on their behalf without the approval of the board of directors of Tiger Global Entities.

2.3 Tiger Global Entities held shares of Flipkart Private Limited (“Flipkart”), a private company incorporated under the laws of Singapore. Thereafter, Flipkart invested in multiple companies in India and the value of its shares was derived substantially from assets located in India. Tiger Global Entities transferred the shares of Flipkart to Fit Holdings S.A.R.L., a company incorporated under the laws of Luxembourg (resulting in indirect transfer of shares of Indian companies). This resulted in majority acquisition of Flipkart by Walmart Inc, a company incorporated under the laws of USA.

2.4 A timeline chart highlighting the key events is set out below:

3.1 AAR

• After noting the organisation structure of the Tiger Global Entities, the AAR held that they were part of TGM and were held through its affiliates via a web of entities based in the Cayman Islands and Mauritius. 
• The overall control and management of Tiger Global Entities did not lie with their board of directors in Mauritius and that the authority to operate bank accounts for transactions above USD 2,50,000 was vested with Mr. Charles P. Coleman (resident of United States). While the principal bank account was maintained in Mauritius, no local person based in Mauritius was authorised to sign cheques on behalf of the directors.
• AAR held that the “head and brain” of the companies, was not in Mauritius and, therefore, their control and management were situated outside Mauritius, in the USA.
• Based on financial statements, the AAR noted that Tiger Global Entities had made no investment other than in the shares of Flipkart and therefore the real intention behind obtaining TRC was to avail benefit under India – Mauritius DTAA.
• AAR further observed that the exemption under India – Mauritius DTAA is available on capital gains arising from the alienation of shares of an Indian company. However, Tiger Global Entities sold shares of Flipkart (a Singapore company), benefit under the tax treaty is not available. 
• The AAR concluded that the transaction was a preordained arrangement created for the purpose of tax avoidance. It was therefore held that the transaction was prima facie designed for avoidance of tax and qualified as an “arrangement” under the law.

3.2  HC

• The HC held that the Tiger Global Entities could not be dismissed as entities lacking economic substance. They were structured to operate as pooling vehicles for investments and held GBL-I under Mauritian law.
• The HC further noted that the investor base comprised more than 500 investors from over 30 jurisdictions, and their assets and liabilities reflected significant economic activity, with total liabilities and shareholders’ equity amounting to over USD 1.76 billion, and a net increase in shareholders’ equity from operations exceeding USD 267 million.
• The HC concluded that the period of investment in Flipkart exceeded a decade and when viewed in conjunction with the expenditure incurred in Mauritius, these factors collectively dispelled any notion that the entities lacked economic substance.
• ·On control and decision making - while a parent or holding company may exercise supervisory functions over its subsidiaries, including by appointing directors or authorising key decisions, such influence does not render the subsidiary a mere puppet unless there is evidence of fraud, sham, or complete lack of independence.
• On the issue of beneficial ownership, the HC held that no evidence had been led by the Revenue to demonstrate that the Tiger Global Entities were contractually or legally obligated to pass on the gains from the share transfer to TGM, or that they acted on its behalf.
• The HC, relying on the decisions of the Supreme Court in UOI v. Azadi Bachao Andolan [3]  and Vodafone reiterated that the mere fact that an entity is located in Mauritius, or that investments were routed through that jurisdiction, cannot by itself lead to an adverse inference.
• The HC further stated that “treaty shopping” per se is not impermissible unless it is clearly shown to be a device for tax evasion or contrary to the intent of the tax treaty. The issuance of a TRC by the Mauritian authorities is sacrosanct and establishes presumption of legitimate tax residency and beneficial ownership. Such certification is to be respected and any attempt to pierce the corporate veil must be grounded on compelling evidence of tax fraud, sham transactions, or complete absence of economic substance. 
• The HC further held that once Limitation of Benefits (“LOB”) provisions are satisfied, the Revenue cannot erect additional barriers or invoke vague suspicions. Any challenge to DTAA benefits in the face of a satisfied LOB clause must meet an extremely high threshold and be based on evidence of fraud, sham, or intent to defeat the tax treaty.
• Finally, the HC noted that the LOB clause in the India–Mauritius DTAA was introduced alongside the enactment of Chapter X-A (GAAR) in the Income-tax Act, 1961 (“IT Act”). Article 27A of the treaty expressly grandfathered transactions relating to shares acquired prior to 1 April 2017. This, according to the court, reflected a conscious policy choice to align treaty protections with domestic anti-avoidance rules while preserving the benefit of grandfathering.
• The court further held that GAAR rules cannot override the treaty protection.  
• The HC further considered that the Circular 682 and 789 which clarified the position of the Revenue with respect to TRCs issued by authorities in Mauritius, such certificates constituting sufficient evidence for the purposes of ascertaining the status of residence as well as the application of principles of beneficial ownership.
• Lastly, the HC held that these transactions stood grandfathered under the DTAA and was not designed for avoidance of tax.

4.1 The key issue before the SC was – “Whether the AAR was right in rejecting the applications for advance ruling on the ground of maintainability, by treating the capital gains arising out of a transaction of sale of shares of Flipkart (a Singapore Co.), which holds the shares of an Indian company, by Tiger Global Entities (a Mauritian company controlled by an American company), to be prima facie an arrangement for tax avoidance, and hence, whether it can be enquired into to ascertain whether the capital gains would be taxable in India under the IT Act read with the relevant provisions of the India - Mauritius tax treaty or not”?”

5.1 At the outset, the SC started by emphasizing the principle of tax sovereignty. The SC observed that the power of taxation is an essential attribute of sovereignty and that India does not cede this power merely by entering into tax treaties. DTAAs operate within the framework of domestic law and cannot be interpreted to curtail India’s authority to tax income that arises from economic activity and value creation within India. The court emphasized that treaty provisions must be read in a manner that preserves the source country’s taxing rights, particularly where arrangements are structured without commercial substance 

5.2 The SC undertook a detailed examination of the structure adopted by the Tiger Global Entities and noted that the arrangements involved multiple layers of offshore entities with no substance or commercial justification other than availing treaty benefits.

5.3 The SC rejected the argument that possession of a valid TRC automatically entitles the taxpayer to treaty benefits. The SC further observed that, after the introduction of the GAAR provisions under the Act, a TRC by itself cannot be regarded as sufficient to claim benefits under a DTAA. Reliance on judicial precedents rendered in the pre-GAAR regime, particularly those interpreting CBDT circulars, cannot ipso facto be applied. Each case must be independently examined to determine the applicability of GAAR, having regard to its specific facts and circumstances. The Revenue is entitled to examine whether the entity claiming treaty benefits is a genuine resident with real commercial substance or merely a conduit entity created for tax purposes.

5.4 The SC further referred to its judgement in Vodafone International Holdings BV v. Union of India [4]  to reiterate that the DTAA and the Circulars would not preclude the department from denying treaty benefits in suitable cases and the department is entitled to examine the entire transaction as a whole, and if it is established that the Mauritian company was interposed as a device, it would be open to the department to discard the device and subject the real transaction to tax. 

5.5 On the issue of indirect transfer, the SC held that section 9(1)(i) of the IT Act squarely applies where the value of offshore shares is substantially derived from assets located in India. The court clarified that treaty protection under Article 13(4) cannot be extended where the shares transferred are not directly held by the treaty resident entity, and therefore no DTAA benefits are available for indirect transfer of shares.

5.6 The SC further observed that the object of the DTAA is to prevent double taxation and not to facilitate avoidance or evasion of tax. Therefore, for the treaty to be applicable, the assessee must prove that the transaction is taxable in the state of residence.

5.7 The SC also examined the applicability of GAAR and rejected the contention that “investments” made prior to the GAAR cut-off date (01 April 2017) are automatically immune from scrutiny. It held that where an “arrangement” continues to yield tax benefits after the introduction of GAAR, the Revenue is empowered to examine the arrangement at the time such benefit arises, irrespective of the date of investment. The court clarified that grandfathering is not absolute and does not protect tax-abusive arrangements.

5.8 The SC further held that once the Revenue establishes a prima facie case of tax avoidance, the burden shifts to the taxpayer to demonstrate commercial substance and business purpose.

5.9 In the alternative, the SC further observed that even if GAAR is held to be inapplicable, JAAR (doctrine of substance over form) continues to operate in parallel with GAAR and empowers the department to deny treaty benefits in cases involving treaty abuse or conduit structures.

5.10 With regard to rejection of AAR application, the SC held that the language employed in section 245R(2) uses the word “prima facie”, which implies that it is sufficient if the AAR, on an initial examination of documents, is satisfied that the transaction is for the avoidance of tax. The level of satisfaction required to arrive at a prima facie conclusion is much less when compared to a case where facts have to be proved.

5.11 In conclusion, the SC upheld the Revenue’s right to deny treaty benefits where the investment structure lacks commercial substance and constitutes an impermissible tax avoidance arrangement.

6.1 The SC ruling lays down the foundation for three important aspects, namely, (1) role of TRC to establish tax residency; (2) interplay of GAAR and tax treaties and (3) limited grandfathering to investments and not arrangements.

6.2 On the role of TRC to assess tax residency, based on the SC ruling, TRC will only qualify as an eligibility condition and not a sufficient condition to claim benefit under a tax treaty. This does not remove TRC as a requirement but certainly undermines its value in claiming tax treaty benefits.

6.3 This ruling further significantly expands the practical reach of GAAR, especially for exit transactions executed after 01 April 2017. The SC distinguished between investment and arrangement to hold that while grandfathering protects investment, arrangements are not protected. In this context, it was clarified that grandfathering is not absolute, and that Rule 10U(2) enables GAAR to apply to any arrangement that continues to yield tax benefits after the cut-off date (i.e. 1 April 2017), irrespective of when the investment was originally made. In our view, this position warrants reconsideration. Investments made before 1 April 2017 were undertaken at a time when GAAR was not in force, and post GAAR investors continue to retain and value these investments based on the clear expectation of grandfathering provided under the GAAR provisions and the applicable tax treaties. The intention to grant grandfathering has always been to not apply GAAR in cases where investment is made prior to 01 April 2017. Treating the exit of such investments as an impermissible avoidance arrangement merely because the tax benefit arises after 2017 weakens the legislative intent behind grandfathering and reduces tax certainty.

6.4 There is a pressing need for the government to provide clear guidance on the scope and operation of grandfathering under GAAR. The ambiguity around the application of GAAR to pre-existing investments, particularly at the exit stage, creates uncertainty for long-term investors. Clear legislative or administrative clarification on whether and to what extent investments made prior to the GAAR cut-off date remain protected would help in ensuring tax certainty. Such clarity would be critical in maintaining investor confidence and reinforcing India’s commitment to a stable and non-adversarial tax regime.

6.5 In relation to indirect transfers, the SC has clarified that treaty protection under Article 13(4) (residuary clause) is unavailable where shares are not directly held by the treaty resident entity. With due respect, this interpretation may warrant reconsideration. The language of Article 13(4) under the India – Mauritius DTAA, expressly provides that gains arising from the transfer of any property other than those specifically dealt with in the preceding clauses shall be taxable only in the State of residence. On a plain reading, the scope of the residuary clause is broad and does not expressly exclude indirect transfers of shares. 

6.6 In the absence of a specific exclusion, it may be argued that indirect transfers, which are not otherwise addressed in the earlier clauses of Article 13, ought to fall within the ambit of the residuary provision. This interpretation is also consistent with the well-established principle that treaty provisions must be interpreted in good faith, in accordance with the ordinary meaning of their terms, and in a manner that gives effect to the object and purpose of the treaty.

6.7 This ruling becomes critical to understand that GAAR operates alongside, and not in substitution of, judicial anti-avoidance principles such as “substance over form”. Even where GAAR thresholds are contested, courts may independently deny treaty benefits by invoking judicial doctrines.

6.8 Additionally, while it is correct that tax treaties are meant to prevent double taxation and not tax avoidance, the view that treaty benefits apply only if the income is actually taxed in the State of residence requires reconsideration. Most tax treaties allocate taxing rights between countries and do not require actual taxation in the residence State. Non-taxation may result from domestic tax policies of the residence country and does not, by itself, amount to treaty abuse. Reading such a requirement into the treaty could create uncertainty and go beyond the agreed treaty terms.

6.9  While the decision is fact-specific, this ruling marks a significant shift in India’s international tax jurisprudence to substance-based tax analysis. By clarifying the limited evidentiary value of a TRC, strengthening the application of GAAR, and reaffirming India’s tax sovereignty, the court has fundamentally altered the risk landscape for offshore investment structures into India.

6.10 The SC ruling is likely to empower Revenue to challenge treaty claims that rely solely on TRCs, as the SC has ruled that mere production of a TRC is insufficient to conclusively establish tax residence, and authorities/courts may independently examine the claim. Specifically in the context of post GAAR regime, where the focus is on curbing tax avoidance and applying substance over form principles, foreign investors (including PE / VC investors) should ensure that transactions are supported by clear commercial rationale and demonstrable economic substance, to mitigate the risk of being characterised as an impermissible avoidance arrangement attracting GAAR.