Supreme Court Rejects Tiger Global’s Tax Exemption Claim in Walmart-Flipkart Deal
The Supreme Court has ruled that private equity firm Tiger Global cannot claim tax exemption for capital gains from the $1.2 billion Walmart-Flipkart deal. The court upheld the Income Tax department’s decision, stating the firm failed to prove it was not a shell company based in Mauritius.
Key Takeaways
- The Supreme Court dismissed Tiger Global’s appeal against a capital gains tax levy on its 2018 Flipkart share sale to Walmart.
- The court ruled Tiger Global is not eligible for tax exemption under the India-Mauritius DTAA, calling it a “shell/conduit” company.
- This landmark judgment sets a precedent for taxing foreign investors using treaty benefits without genuine residency.
Court’s Verdict and Rationale
A bench of Justices Sanjiv Khanna and Dipankar Datta stated that Tiger Global International II Holdings failed to establish its Place of Effective Management (PoEM) was in Mauritius. The court supported the tax department’s move to “lift the corporate veil” and examine the transaction’s real nature.
“We hold that the appellant (Tiger Global) has failed to discharge the onus to establish that it is not a shell/conduit company and that its PoEM is in Mauritius. The appellant has failed to establish that it is a resident of Mauritius under Article 4 of the India-Mauritius DTAA,” the bench said.
The court explicitly stated that capital gains from the share sale are taxable in India and the firm is not entitled to DTAA benefits.
Background of the Case
In 2018, Tiger Global sold its entire Flipkart stake to Walmart for $1.2 billion. The Income Tax department levied capital gains tax on this transaction, which the firm challenged. Tiger Global argued its Mauritius residency granted it exemption under the DTAA, which prevents double taxation on such gains.
The tax department countered that Tiger Global was a shell company without genuine operations in Mauritius, making the DTAA inapplicable. The Supreme Court has now affirmed this position.
Wider Implications
This ruling is significant for several reasons:
- Precedent: It sets a legal benchmark for similar cases where foreign investors claim tax exemptions under Double Taxation Avoidance Agreements.
- Clarity: It brings clearer guidelines on taxing capital gains earned by foreign entities from Indian company share sales.
- Enforcement: It empowers tax authorities to scrutinize corporate structures and establish genuine residency for treaty benefits.
The judgment reinforces the principle that treaty benefits cannot be claimed by entities acting as mere conduits without substantive operations.
