The Supreme Court of India is poised to deliver a crucial verdict on Tiger Global's claim for capital gains tax exemption related to its ₹14,440 crore ($1.60 billion) Flipkart stake sale to Walmart in 2018. This landmark case will determine whether international investment firms can legitimately use tax treaties to avoid capital gains obligations in major cross-border transactions.

Case Background and Transaction Details

The dispute centers on Tiger Global International III Holdings' (TGI) strategic use of the India-Mauritius Double Tax Avoidance Agreement (DTAA) to claim tax exemptions. Between 2011 and 2015, TGI systematically acquired shares of Flipkart Singapore, which held substantial investments in Flipkart India. The company subsequently sold these shares to Walmart in 2018, generating significant capital gains.

Legal Timeline and Key Developments

The case has witnessed several critical developments across multiple judicial forums over the past six years.

Recent Supreme Court Action (January 2025)

In January 2025, the Supreme Court stayed the Delhi High Court's ruling that had exempted Tiger Global from capital gains tax. The apex court issued notices to Tiger Global following a challenge filed by the Authority for Advanced Ruling (Income Tax) (AAR), bringing the case to its current decisive stage.

Delhi High Court Ruling (August 2024)

The Delhi High Court ruled in favor of Tiger Global International III Holdings in August 2024, exempting the company from capital gains tax under the India-Mauritius DTAA. This decision overturned the AAR's 2020 ruling and represented a significant victory for the investment firm. The court had reserved its judgment on Tiger Global's petition in May 2024.

Authority for Advanced Ruling Decision (March 2020)

The AAR rejected Tiger Global's initial plea in March 2020, determining that the transaction structure was designed primarily for tax avoidance purposes. This adverse ruling prompted Tiger Global to approach the Delhi High Court for relief.

Initial Tax Exemption Request (2019)

Tiger Global approached the Income Tax Department in 2019 seeking capital gains tax exemption under the India-Mauritius DTAA benefits. The company specifically relied on Article 13(3A) of the DTAA, which provides exemptions for Mauritian residents on capital gains tax for shares acquired before April 1, 2017.

Broader Implications for Cross-Border Investments

According to Mukesh Butani, managing partner of Indian law firm BMR Legal, which advises clients on international tax laws and treaties, the ruling is likely to redefine treaty interpretation law. The case is being closely monitored by overseas investors as it will establish important precedents for how India applies tax principles in cross-border transactions.

The Supreme Court's decision will significantly impact the investment landscape, particularly regarding the legitimate use of tax treaties by international firms operating in India. The verdict will clarify the boundaries between legitimate tax planning and arrangements designed primarily for tax avoidance, providing crucial guidance for future cross-border investment structures.

Overseas strategic investors, foreign portfolio investors, and private equity houses are closely watching the Supreme Court's pending verdict on Tiger Global's tax dispute, which involves a substantial ₹14,500 crore demand from Indian tax authorities. The judgment, reserved for months, could fundamentally reshape how international investors from treaty countries structure their investments in India.

The Flipkart Transaction Dispute

The controversy stems from Tiger Global's 2018 transaction involving the sale of Flipkart Singapore shares to Walmart-linked entities. The investment firm held these shares through Mauritius-based entities, leveraging the India-Mauritius tax treaty to avoid capital gains tax on what it classified as an "indirect transfer."

The Income Tax department challenged this arrangement, arguing that the Mauritius entities lacked economic substance and were merely vehicles designed to exploit treaty benefits. Despite Tiger Global possessing a valid tax residency certificate from Mauritian authorities, the tax office dismissed its adequacy and raised the significant demand.

Broader Implications for Foreign Investors

The Supreme Court's decision could impact multiple categories of international investors operating in India. Bijal Ajinkya, partner at Khaitan & Co, noted that investment funds may need to factor revised tax costs into their internal rate of return calculations, potentially affecting India's investment attractiveness.

Three key investor categories face potential impact:

• Foreign direct investors including private equity, venture capital, and multinational corporations making indirect equity sales
• SEBI-registered FPIs from treaty countries trading in equity derivatives who currently pay no tax on derivative profits
• Grandfathered investors who benefit from exemptions on shares purchased before April 1, 2017

Economic Substance and Treaty Access

The ruling will provide crucial clarity on the evidentiary value of tax residency certificates and whether tax authorities can examine economic substance beyond these documents. Ashish Karundia, founder of Ashish Karundia & Co, emphasized that the court's approach to assessing commercial rationale for tax-efficient structuring will be equally important.

Market Impact and Future Considerations

Rajesh Gandhi, partner at Deloitte India, highlighted that the ruling could reshape investor sentiment and India's risk profile. The judgment will determine whether Mauritius-India treaty benefits apply exclusively to direct transfers or extend to indirect transfers as well.

The case has experienced multiple judicial phases, with the Authority for Advance Ruling initially favoring the revenue department, followed by the Delhi High Court supporting Tiger Global's position, ultimately leading to the Supreme Court appeal.

Even if the court upholds treaty access based on tax residency certificates, the tax department retains options under anti-abuse provisions. The principal purpose test, once notified in the India-Mauritius treaty, could still be invoked to deny benefits where obtaining tax advantages was a principal objective of the arrangement.

The verdict's implications extend beyond this specific case, potentially establishing precedents for how India balances investor certainty with tax fairness in an increasingly complex cross-border investment landscape.