Ruling against Tiger Global Management Llc, the Supreme Court on Thursday, January 15 upheld the income tax department's claim that capital gains arising from Walmart's $1.6 billion exit from Flipkart in 2018 are taxable in India.

The apex court quashed the Delhi High Court's August 2024 judgement, which ruled in favour of Tiger Global.

The top court's judgement was pronounced by a bench consisting of J.B. Pardiwala and R. Mahadevan which is likely to alter the way India's taxes foreign investors and how it reads a pertinent tax treaty - India-Mauritius Double Taxation Avoidance Agreement (DTAA).

At the centre of the dispute was Tiger Global's $1.6-billion exit from Flipkart in 2018, when Walmart Inc. bought a controlling stake in the e-commerce major, making one of the largest cross-border deals in the south Asian nation.

The crux of this case revolved around whether Tiger Global could claim capital gains tax exemption under the India-Mauritius DTAA for the sale, or whether its Mauritius entities were merely front companies with vested US interest, translating to treaty was wrongly used and the profits should be taxed in India.

The story began more than a decade back. Tiger Global invested in Flipkart in its initial period. 

Several foreign investors during that time, including the global venture capital and equity firm directed its investment via Mauritius. This was a common practice as  the India-Mauritius tax treaty, signed in 1983, allowed firms based in Mauritius to sell shares of India-based firms without paying capital gains tax in the south Asian nation. 

Mauritius later emerged as India's biggest source of foreign direct investment (FDI), making for 25% of total inflows.

During April 2000 and September 2024, investments routed through Mauritius totalled over $177 billion, inclusive of $5.34 billion in the first half of 2024-25, as per data from the Department for Promotion of Industry and Internal Trade (DPIIT).

The US-based investment firm Tiger Global set up several companies in Mauritius such as Tiger Global International II, III, and IV Holdings.

These companies collected money from hundreds of investors worldwide and invested in Flipkart’s Singapore holding company between 2011 and 2015.

Back then, Flipkart was owned through a Singapore parent, a structure many Indian startups used to attract foreign funds.

In 2016, India altered the treaty to stop tax avoidance. It was decided upon that shares bought on or after 1 April 2017 would be taxed in India. However, older investments were “grandfathered”, which meant they would still benefit from tax exemption, subject to specified conditions.

Tiger Global’s investments were made before 2017, which meant they enjoyed the protection.

When Walmart agreed in 2018 to buy about 77% of Flipkart for around $16 billion, Tiger Global sold part of its stake. Its Mauritian companies together received about $1.6 billion.

Before the deal closed, these companies requested permission from Indian tax authorities to receive the money without tax deduction.

However, the tax department refused on the basis that Mauritius firms were only routing vehicles and that the real control was in the US. According to the department, the structure was created only to avoid India imposed tax.

Tiger Global then went to the Authority for Advance Rulings (AAR). In 2020, the AAR ruled that Tiger Global had sold shares of Flipkart’s Singapore holding company, not of an Indian company, and that the India-Mauritius tax treaty was not intended to grant exemption for the sale of shares in a foreign company, even if that company’s business was primarily conducted in India.

Tiger Global challenged this before the Delhi high court.

In August 2024, the high court ruled in Tiger Global’s favour, saying that Tiger’s Mauritian entities had business activity and long-term investments, and that the tax department could not dismiss the case without a full examination.

The tax department then appealed to the Supreme Court, which stayed the high court order in Jaunary 2025.

Before the top court, Tiger Global argued that its Mauritian companies are genuine residents of that country, supported by official Tax Residency Certificates, that their investments were made before 2017 and are therefore protected, and that real decisions were taken by boards in Mauritius.

The tax department countered that the Mauritius setup was only a cover, stating the residency certificate is not a “magic pass”, and that the real “head and brain” of the business was in the US.