Tiger Global’s Flipkart stake sale taxable: SC

Ruling extends applicability of anti-abuse provisions

- KULDEEP SINGH

THE SUPREME COURT on Monday ruled that private equity firm Tiger Global is required to pay capital gains tax in India for its 2018 stake sale in Indian e-commerce firm Flipkart to American retailer Walmart, setting aside an August 2024 Delhi High Court verdict.

While holding that the transfer of the unlisted equity shares by the PE firm occurred under an impermissible arrangement which lacked real commercial substance, the apex court held that benefit under Article 13(4) of the India-Mauritius Double Taxation Avoidance Agreement (DTAA) would not be available to the firm and its subsidiaries involved in the transaction.

Importantly, the ruling dilutes the grandfathering provisions with April 1, 2017 as the cutoff date under the 2016 amendments to India's key tax treaties with Mauritius and Singapore.

It could also potentially take away the leniencey available under the General Anti-Avoidance Rules (GAAR), introduced simultaneously.

The 2016 amendments chiefly removed the tax exemption for capital gains made from investment in equities for prospective cases, under the two treaties. Essentially, a two-member SC Bench comprising Justices JB Pardiwala and R Mahadevan ruled that once a transaction is found to be prima facie designed for tax avoidance, the tax authorities are not required to examine the merits of taxability.