The Supreme Court delivered a watershed judgment on January 15 that could fundamentally reshape how foreign capital structures investments into India. In a ruling that denied Tiger Global's capital gains tax exemption claim, the apex court held that the company's share sale routed through Mauritius constituted an impermissible tax avoidance arrangement under the India-Mauritius Double Taxation Avoidance Agreement.

The court allowed the Revenue's appeal and ruled that capital gains arising from the transaction are taxable in India, establishing a clear precedent that treaty benefits are reserved for genuine entities with demonstrable commercial substance rather than conduit or paper companies designed primarily for tax optimization.

Court Reinforces Tax Sovereignty Principles

The Supreme Court delivered strong observations emphasizing that the power to tax income arising within a country represents an inherent aspect of sovereignty. The court cautioned against arrangements that dilute this fundamental power, noting that allowing treaty benefits to entities lacking commercial substance poses a direct threat to economic sovereignty.

The judgment specifically acknowledges amendments made to the India-Mauritius DTAA that were introduced to curb treaty shopping and round-tripping practices, which had become widespread tools for tax minimization strategies.

Tax Residency Certificate Loses Protective Status

One of the most significant implications of this ruling concerns the treatment of Tax Residency Certificates. The court has fundamentally altered the evidentiary value of TRCs, departing from earlier jurisprudence including the Azadi Bachao Andolan ruling that accorded near-conclusive value to such certificates.

Amit Maheshwari, Managing Partner at AKM Global, emphasized that the ruling recalibrates two decades of settled understanding. The court has categorically established that a TRC does not constitute conclusive evidence of treaty entitlement when surrounding facts demonstrate lack of commercial substance. Treaty benefits cannot be claimed mechanically or in isolation from economic reality.

Maheshwari noted that the court's endorsement of the Revenue's position could have implications even for investments previously considered grandfathered under the amended India-Mauritius treaty, if found lacking in substance.

GAAR and Grandfathering Implications

Tax experts are closely analyzing the ruling's implications for General Anti-Avoidance Rules applicability, particularly regarding capital gains on investments made prior to April 1, 2017. Pranav Sayta, National Leader for International Tax and Transaction Services at EY India, highlighted several interpretational questions arising from the judgment.

Sayta emphasized that while the case specifically relates to the India-Mauritius treaty, the principles established could extend to other treaties, including the India-Singapore DTAA, potentially affecting a broader spectrum of cross-border investment structures.

Private Equity and Venture Capital Sector Impact

The judgment represents both a warning and a turning point for the private equity and venture capital industry. Investment structures that rely primarily on treaty residency without demonstrable economic substance or independent decision-making in the treaty jurisdiction will likely face heightened scrutiny from tax authorities.

Sandeepp Jhunjhunwala, Partner at Nangia Global, noted that the ruling reinforces the global shift towards substance-based taxation. The verdict signals a stricter approach to treaty interpretation, emphasizing economic substance over legal form. Where intermediary entities function merely as conduits lacking real business purpose or decision-making authority, the Revenue may pierce the structure and deny treaty protection.

However, Jhunjhunwala cautioned that the ruling could dampen foreign investment sentiment in the short term, particularly affecting inbound mergers and acquisitions transactions and exit planning strategies.

Industry Implications and Future Outlook

From a policy perspective, the judgment strengthens India's anti-abuse framework and aligns the country with global standards under the Base Erosion and Profit Shifting regime. It provides tax authorities with greater confidence to challenge aggressive structures while reducing opportunities for round-tripping and treaty shopping.

Ajay Rotti, Founder of Tax Compaas, emphasized that the ruling raises the bar but does not completely eliminate India-Mauritius structures. The judgment should be interpreted as a caution against aggressive, factually weak structures rather than a wholesale dismantling of the India-Mauritius DTAA. The real test will be how the court addresses the continuing relevance of CBDT Circular 789, which historically provided comfort on treaty availability based on TRC possession.

The Supreme Court's ruling marks a clear departure from form-driven treaty claims and reinforces India's commitment to substance-based taxation. For investors, the message is unambiguous: treaty benefits will be available only where there is demonstrable commercial rationale, genuine economic presence, and real decision-making authority in the treaty jurisdiction.

The US Supreme Court on Wednesday issued no ruling on the legality of tariffs imposed by Trump, leaving a significant trade policy question unresolved. The court maintains its practice of not announcing in advance which decisions are ready for release, only indicating that rulings in argued cases are possible when justices take the bench at 10:00 a.m. Washington time.

Tariff Details Under Review

The case involves Trump's April 2 Liberation Day tariffs, which established substantial trade barriers with international partners. The tariff structure and scope are detailed below:

Legal Authority Questions

Arguments presented on November 5 revealed the court's skepticism regarding Trump's authority to impose these tariffs under a 1977 law granting presidents special powers during emergency situations. The central legal question focuses on whether an American president can unilaterally impose such substantial levies on trading partners while citing national security or emergency powers as justification.

Broader Implications

The Supreme Court's eventual ruling will establish a landmark precedent extending beyond Trump's current tariff policies. The decision will set guidelines for how future presidents, regardless of party affiliation, can invoke emergency powers to shape economic policy. This precedent could significantly influence the scope of executive authority in international trade matters.

Administration's Position

Trump has defended the tariff policy against criticism, describing it as the "strongest and fastest economic turnaround" in United States history. In a Truth Social post, he highlighted the potential financial consequences if the Supreme Court rules against the tariff policy, stating: "The actual numbers that we would have to pay back if, for any reason, the Supreme Court were to rule against the United States of America on Tariffs, would be many Hundreds of Billions of Dollars."