Tiger Global Faces Setback as SC Rules Against Tax Exemption in 2018 Flipkart Stake Sale

The Supreme Court on Thursday overturned a Delhi High Court decision linked to American private equity firm Tiger Global’s 2018 stake sale in e-commerce firm Flipkart to Walmart. The earlier ruling had granted capital gains tax relief to the PE firm, which had used its Mauritius-based entity, Tiger Global International III Holdings and its affiliates for the sale and claimed exemption from capital gains tax by citing the double taxation avoidance treaty between India and Mauritius.

While the detailed reasoning of the decision is still awaited, a report by the Economic Times (ET) said the Supreme Court ruled that where a transaction is found to be an impermissible arrangement aimed at securing capital gains benefits under the India–Mauritius treaty, relief under Article 13(4) of the DTAA would not apply. The apex court relied on evidence including CBDT circulars, the Shome Committee report and earlier rulings such as Vodafone and Azadi Bachao Andolan.

The Delhi High Court, in August 2024, had set aside a 2020 order of the Authority for Advance Rulings (AAR), which had denied Tiger Global the benefit of the India–Mauritius Double Tax Avoidance Agreement (DTAA). The AAR had held that the transaction appeared to be structured primarily to avoid tax and that the treaty was not intended to exempt capital gains arising from the transfer of shares in overseas entities.

The long-awaited judgment is expected to have far-reaching implications for global investors using jurisdictions such as Mauritius and Singapore as entry routes for foreign investment into India, potentially reshaping how long-term investments are structured going forward.

Following the Supreme Court ruling, Additional Solicitor General N Venkataraman told ET, “This judgment defines the emerging role of India in the new geopolitical tax jurisprudence and enhances the visionary goal of Viksit Bharat 2047.”

What was the dispute about?

The dispute dates back to 2018, when Tiger Global sold its stake in Flipkart Singapore—an entity that held shares in Flipkart India—to another overseas investor linked to Walmart. The Flipkart Singapore shares were owned by Tiger Global entities based in Mauritius, a jurisdiction that, like Singapore, has a tax treaty with India.

The transaction was part of a series under which Walmart acquired a 77% controlling stake in Flipkart for about $16 billion. Tiger Global sold part of its Flipkart shareholding to Walmart’s overseas entity, with its Mauritian entities receiving about $1.6 billion for their stake. In later years, Walmart continued to buy out other investor stakes, paying about $1.4 billion to acquire Tiger Global’s remaining Flipkart shares, valuing Flipkart at roughly $35 billion in that secondary transaction.

However, the Tiger Global International III Holdings transactions caught the attention of Indian tax authorities, as no capital gains tax was paid on the deal, which was treated as an indirect transfer. Rather than transferring shares of Flipkart India directly, the Mauritius-based entities sold shares in Flipkart Singapore. Under India’s tax treaties, investors from treaty jurisdictions are generally exempt from capital gains tax on such indirect transfers of Indian assets.

The Income Tax Department challenged the structure, arguing that the Mauritius entity was merely a conduit created to take advantage of treaty benefits. Claiming that the entity lacked economic substance, the tax authorities raised a demand of ₹14,500 crore (over $1.7 billion at current exchange rates), disregarding the tax residency certificate issued by Mauritian authorities.