The Supreme Court on Friday stayed the decision of the Delhi High Court in a case in which the decision in favor of Mauritius’s investment unit, Tiger Global International III Holdings. The case focuses on the capital gains related to selling its stake in Flipkart Singapore for more than Rs 14,500 crore in 2018.
The Supreme Court said in its order, “There is a need to consider the issues raised in this petition deeply. Meanwhile, the High Court order is prohibited from implementing, implementing and implementing. ” The next hearing of the case will be held in the Supreme Court on 14 February.
High court decision and exemption under DTAA
The Delhi High Court, in its judgment in August 2024, held Tiger Global as eligible for the capital profit tax exemption under the India-Mauritius Double Taxation Evolution Agreement (DTAA).
However, earlier the Advanced Ruling Authority (AAR) refused to give the benefit of the treaty to Tiger Global. AAR argued that this transaction was structured to save tax and India-Mauritius DTAA would not apply to such indirect transfers. But the High Court overturned AAR’s decision and acknowledged the validity of DTAA’s Grandfathering Provisions and Tiger Global’s Tax Residency Certificate (TRC).
The High Court admitted that under Article 13 (3A) of DTAA, the capital gains from shares purchased before 1 April 2017 are free from Indian taxes. The court considered the TRC issued by Mauritius to be sufficient proof for residence proof and treaty benefits. The court “Union of India v. Azadi Bachao Andolan gave this decision citing the case.
Government’s logic and DTAA Amendment
The DTAA between India and Mauritius was revised in May 2016. Under this amendment, the capital gains from the sale of shares of Indian companies purchased after 1 April 2017 can be taxed in India. But under Article 13 (3A) “Grandfather Claus”, the stocks purchased before 1 April 2017 were exempted from this tax.
Tiger Global bought shares between October 2011 and April 2015, which makes it eligible for exemption under the Grandfathering Provision. However, the government claims that after amendment in 2018, this sales through Mauritius units were structured to take advantage of only treaty.
Tax authorities argue that Mauritius units of Tiger Global do not have “Commercial Substance” and were used only as a medium. He claims that these units were actually controlled and decided-Making US-based Tiger Global Management LLC.
Expert opinion on seriousness of the case
Tax partner Amit Maheshwari of AKM Global said that the matter has a widespread impact, so the Supreme Court has stayed it.
He said, “The matter raises many important issues regarding the interpretation of tax treaties, clarity in indirect transfer cases, definition of conduit companies and their economic substance. How much importance the presence of employees is in the operation of investment units should also be clarified. In this case a clear and consistent approach is required, and its decision will be important. ”