In a ruling with far-reaching implications, the apex court held that Tiger Global could not claim capital gains tax exemption under the India–Mauritius Double Taxation Avoidance Agreement (DTAA), concluding that the investment structure amounted to treaty shopping and tax avoidance. Crucially, the court ruled that treaty benefits cannot be granted merely on the basis of a tax residency certificate (TRC), and emphasised the need to examine commercial substance and intent.
While the case pertains to Tiger Global’s 2018 exit from Flipkart, experts caution that the judgment may expose a much wider universe of pre-2017 foreign investments to scrutiny—despite repeated assurances in the past that such investments were protected.
‘Grandfathering Has Been Effectively Neutralised’
Sachit Jolly, Senior Advocate at the Delhi High Court, said the ruling introduces deep uncertainty for investors who relied on the Mauritius route over the past two decades.
“You talked about grandfathering in the 2016 treaty amendments and the protection given under GAAR to pre-2017 investments. This judgment seems to say that if the tax consequences arise after April 2017, all of that protection can be undone,” Jolly told CNBC-TV18.
He expressed surprise that the Supreme Court accepted the tax department’s argument, even after acknowledging on record that the finance minister had clarified that GAAR and related amendments would not impact past investments.
“I am actually at a loss for words to explain this to any investor—how our tax administration and courts function. According to this judgment, nothing is grandfathered. Everybody who invested prior to April 1, 2017 is today in jeopardy,” Jolly said.
Tax Department Now Emboldened?
Tax experts believe the verdict could embolden the tax department to reopen and scrutinise a wide range of foreign investments routed through Mauritius, including those by private equity funds, venture capital firms, and foreign portfolio investors (FPIs).
“In short, yes,” said Sandeep Jhunjhunwala, Partner at Nangia Global, when asked whether pre-2017 investments could now face scrutiny.
However, Jhunjhunwala pointed out that the Tiger Global structure was set up in 2011–12, a period that predates significant shifts in international tax enforcement norms.
“Between 2012 and 2018, there was a change in the world order. GAAR came in. Several action plans were implemented under BEPS. What the court is saying is not that tax treaties should be disregarded, but that commercial substance and intent must be examined more closely,” he said.
According to Jhunjhunwala, GAAR is likely to be used more actively as a tool going forward, and investors must reassess their structures to ensure they have real substance.
“If substance and intent are addressed, it should not be a problem. But it will depend entirely on the facts of each case,” he added.
TRC No Longer Enough
One of the most significant takeaways from the ruling is the court’s clear message that possession of a tax residency certificate alone is insufficient to claim treaty benefits.
The Supreme Court observed that the India–Mauritius DTAA, amended in 2016, was designed to ensure that only genuine entities with real commercial substance can avail of its benefits. This marks a decisive shift from a form-driven approach to a substance-driven assessment.
Legal experts say this raises compliance costs and uncertainty for investors, particularly at a time when foreign capital inflows into startups and private markets have already slowed.
Indirect Transfers Under the Scanner
Jolly flagged another aspect of the ruling that could have wide ramifications—the court’s acceptance of the revenue’s distinction between direct and indirect holdings.
In the Tiger Global case, the Mauritius entity sold shares of a Singapore company that ultimately held the Indian asset. The court held that such an indirect transfer was not protected under the Mauritius treaty.
“That, to my mind, is baffling,” Jolly said. “Whether I sell shares of an Indian company or a Singapore company, Article 13 of the treaty protects the transfer of shares. This artificial distinction will have implications for everyone using layered holding structures.”
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Beyond Mauritius: Wider Fallout Feared
Experts warn that the reasoning adopted by the court may not remain confined to Mauritius alone. Structures routed through Singapore, Cyprus, or offshore jurisdictions such as the Cayman Islands could also come under closer examination if tax authorities apply similar substance-over-form tests.
The ruling comes at a sensitive time for India’s investment climate, as policymakers seek to attract long-term foreign capital while balancing revenue interests.
For foreign investors, the message from the Supreme Court is clear: treaty protection can no longer be assumed, even for legacy investments. For the tax department, the verdict appears to have opened the door to deeper scrutiny of past deals—potentially setting the stage for a new wave of litigation.
Watch accompanying video for entire discussion.
