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28 January 2026 India Supreme Court rules on tax-treaty eligibility and taxation of Mauritius-based investment fund's indirect transfer of shares of Indian company
In a significant and far-reaching ruling, the Supreme Court (SC or Court) of India, on 15 January 2026, upheld Indian Revenue's position in the case of Tiger Global International Holdings (Taxpayer) by approving the denial of an advance ruling sought by the Taxpayer from the Authority of Advance Rulings (AAR) seeking treaty exemption for indirect transfer. The Court concluded that the application for an advance ruling relates to a transaction or issue designed prima facie for the avoidance of income-tax. The SC examined the legal background of the India-Mauritius Treaty, various administrative Circulars issued from time to time, some earlier SC rulings and legislative developments that followed those rulings. The legislative developments discussed include: the introduction of the indirect transfer-source rule; General Anti-Avoidance Rules (GAAR) including grandfathering provisions and its treaty override effect; a statutory requirement to furnish a Tax Residency Certificate (TRC); and other documents/information that amend treaty expanding source taxing rights of India. Analyzing these developments, the SC held that Circular No. 789 is statutorily superseded and, hence, TRC alone is not sufficient to avail treaty benefits. The Tax Authority is empowered to investigate taxpayers' residential status by enquiring into location of central control and management and in appropriate circumstances, deny treaty benefits to residents of third countries by invoking GAAR or Judicial Anti-Avoidance Rule (JAAR). In the facts of the present case, the SC held that the Tax Authority had proved that the transaction was prima facie an impermissible tax avoidance arrangement; it was not protected by GAAR grandfathering provision; hence, the Taxpayer was not entitled to treaty benefit and the AAR had rightly rejected the advance ruling at threshold. The Taxpayer included Mauritius-incorporated investment holding companies within the Tiger Global group structure. These entities held shares in Flipkart Pvt. Ltd. (Singapore), whose value was derived substantially from Indian operating entities, thereby triggering India's indirect transfer regime under section 9(1)(i) of the Income-tax Act, 1961 (ITA). The Taxpayer's Board of Directors (BOD) consisted of three directors, two of whom were Mauritian residents and one was a United States resident. They maintained their principal bank accounts and accounting records in Mauritius. They held office premises in Mauritius and their statutory financial statements were prepared and audited in Mauritius. Further, the Taxpayer held a valid TRC issued by Mauritian tax authorities.
The AAR rejected the applications at the threshold under proviso (iii) to section 245R(2) of ITA, holding that the transaction was prima facie designed for tax avoidance. Although the Delhi High Court overturned the AAR and granted treaty relief, the Tax Authority appealed to the Supreme Court. The Court framed the issue for consideration as whether the AAR had correctly rejected the application for Advance Ruling on the ground of maintainability, by treating the capital gains generated by a Mauritian company (controlled by a US company) that sold shares of a Singapore Company (which holds shares of an Indian company) as derived under a tax avoidance arrangement. Further, the Court considered whether the capital gains are taxable in India under the ITA, when read with the relevant provisions of the India-Mauritius Treaty. In an earlier proceeding, the fact finder had found that the sale of shares of the Singapore company giving rise to the capital gains amounted to a transfer pursuant to an impermissible avoidance arrangement under GAAR under the ITA. Therefore, the Court concluded the Taxpayer was not entitled to claim a treaty exemption under Article 13(4) of the treaty. Further, the Court concluded that the Tax Authority had proved that the transaction in the instant case constituted an impermissible tax-avoidance arrangement under GAAR. As a result, the AAR had correctly rejected the application for treaty relief. Accordingly, the capital gain arising from the transfer was taxable in India, in accordance with applicable provisions of the treaty Following amendments to ITA such as indirect transfer source rule, introduction of GAAR, Rule 10U of Income Tax Rules and treaty changes, a Tax Residency Certificate (TRC) alone is not sufficient to avail the benefits under the DTAA, and reliance upon earlier SC rulings dealing with Circulars issued in the pre-amendment regime cannot be relied upon. The Court has clarified that possession of a TRC is not conclusive, satisfaction of formal treaty conditions does not automatically confer exemption and tax authorities are entitled to examine real control, decision-making and commercial substance To claim the benefit of Article 13(4), the person seeking to avail treaty protection must not only qualify as a "resident" of the other state (i.e., Mauritius) but also establish that movable property or shares forming the subject matter of the transaction are directly held by the resident entity. Thus, an indirect sale of shares generally would not fall within the treaty protection contemplated by Article 13. If a transaction is found to be designed as an impermissible avoidance arrangement, the taxpayer cannot rely on Article 13(4) of the India-Mauritius DTAA and loses protection even in indirect transfer situations. GAAR Rule 10U grants grandfathering for "investments" made before 1 April 2017 but not for "arrangements" entered prior to that date. For this purpose, the duration of such "arrangement" is irrelevant. Further, even if GAAR is held to be inapplicable, JAAR grounded on the substance-over-form principle could be invoked to deny treaty benefits in cases involving treaty abuse or conduit structures. The Tax Authority is now empowered to investigate taxpayers' actual residential status by investigating the center of their management and to deny treaty benefits to residents of third countries To reject the Taxpayer's application, AAR only needs to conclude, based on "prima facie" examination of the documents, that the purpose of the transaction is to avoid income tax. Treaty eligibility under the India-Mauritius tax treaty has been among the most contentious and litigated issues in Indian international tax jurisprudence. The interplay between form and substance, the evidentiary value of TRC and the role of anti-avoidance doctrines have been shaped by a series of judicial pronouncements, legislative amendments and administrative circulars, reflecting the evolving approach of courts and the Indian tax administration in balancing investor certainty with the protection of India's taxing rights. Against this backdrop, the Supreme Court's ruling in the Tiger Global case may transform India's approach to tax treaty eligibility and taxation of cross-border transactions, especially those investing through jurisdictions that provide treaty benefits. The judgment could affect a significant number of investment structures that rely on tax-treaty benefits, particularly as GAAR grandfathering is no longer a blanket shield. Further, even if GAAR is held to be inapplicable, the Tax Authority may invoke JAAR to pierce the structure and potentially deny treaty benefits. Multinational groups might therefore need to reassess their holding and transaction structures in which treaty benefits have been availed. India's Supreme Court has confirmed that treaty benefits remain available, but only if the holding structure has real commercial substance and decision-making autonomy. Arrangements grounded in demonstrable commercial substance, rather than primarily in treaty benefits, are more likely to withstand sustained scrutiny over time.
Document ID: 2026-0305 | ||||||
