The Supreme Court delivered a significant blow to Tiger Global Management LLC on Thursday. India's highest judicial body upheld the income tax department's position that capital gains from the US-based investor's $1.6 billion exit from Flipkart in 2018 are indeed taxable within Indian jurisdiction.
Court Overturns Earlier Ruling
A bench comprising Justices J.B. Pardiwala and R. Mahadevan pronounced this landmark judgment. They set aside the August 2024 decision of the Delhi High Court, which had previously quashed the tax demand and ruled in favor of Tiger Global. This Supreme Court verdict carries profound implications for how India taxes foreign investors and interprets its crucial tax treaty with Mauritius.
The Core Dispute Explained
At the heart of this legal battle lay Tiger Global's substantial $1.6 billion exit from Flipkart. This transaction occurred in 2018 when Walmart Inc. acquired a controlling stake in the prominent Indian e-commerce company, marking one of India's largest cross-border deals.
The central question revolved around whether Tiger Global could legitimately claim capital gains tax exemption under the India-Mauritius Double Taxation Avoidance Agreement (DTAA) for this sale. Alternatively, the tax department argued that Tiger Global's Mauritius companies served merely as "front" entities controlled from the United States. If true, this would constitute treaty misuse, making the profits taxable in India.
Historical Context and Investment Structure
This story traces back more than ten years. Tiger Global invested in Flipkart during its early growth stages. Like numerous foreign investors at that time, this global venture capital and private equity firm routed its investments through Mauritius. This approach became commonplace because the India-Mauritius tax treaty, originally signed in 1983, permitted companies based in Mauritius to sell shares of Indian companies without paying capital gains tax in India.
Mauritius consequently emerged as India's largest source of foreign direct investment (FDI), accounting for approximately 25% of total inflows. Official data from the Department for Promotion of Industry and Internal Trade (DPIIT) reveals that investments routed through Mauritius between April 2000 and September 2024 amounted to over $177 billion. This includes $5.34 billion in just the first half of the 2024-25 financial year.
Tiger Global's Mauritius Setup
Tiger Global established several specific companies in Mauritius—Tiger Global International II, III, and IV Holdings. These entities collected funds from hundreds of investors worldwide and channeled investments into Flipkart's Singapore holding company between 2011 and 2015. During that period, Flipkart utilized a Singapore parent company structure, a model many Indian startups adopted to attract foreign capital.
India amended the treaty in 2016 to curb tax avoidance. The new rule stated that shares purchased on or after April 1, 2017, would be taxed in India. However, older investments received "grandfathering" protection, meaning they could still enjoy tax exemption subject to certain conditions. Since Tiger Global's investments predated 2017, they appeared to qualify for this protection on paper.
The 2018 Exit and Tax Dispute
When Walmart agreed in 2018 to purchase about 77% of Flipkart for around $16 billion, Tiger Global sold part of its stake. Its Mauritian companies collectively received approximately $1.6 billion from this transaction.
Before finalizing the deal, these companies sought permission from Indian tax authorities to receive the money without tax deduction. The tax department refused this request. Officials contended that the Mauritius firms functioned merely as routing vehicles, with genuine control and decision-making residing in the United States. According to the department, this structure was created specifically to avoid Indian taxation.
Legal Journey Through Courts
Tiger Global then approached the Authority for Advance Rulings (AAR). In 2020, the AAR ruled that Tiger Global had sold shares of Flipkart's Singapore holding company, not shares of an Indian company. It further stated that the India-Mauritius tax treaty was not designed to grant exemption for selling shares in a foreign company, even if that company conducted most of its business in India.
Tiger Global challenged this ruling before the Delhi High Court. In August 2024, the High Court ruled in Tiger Global's favor. The court asserted that using a tax-friendly country does not automatically equate to tax evasion. It determined that Tiger's Mauritian companies were genuine entities with real business activity and long-term investments. The court also held that the tax department could not dismiss the case without conducting a full examination.
The tax department subsequently appealed to the Supreme Court, which stayed the High Court order in January 2025.
Final Arguments Before Supreme Court
Before the top court, Tiger Global presented several key arguments. The firm maintained that its Mauritian companies are legitimate residents of Mauritius, supported by official Tax Residency Certificates. It emphasized that investments were made before 2017 and therefore deserved protection under grandfathering provisions. Tiger Global also argued that real business decisions were taken by boards operating in Mauritius.
The tax department countered these points vigorously. Officials described the Mauritius setup as merely a cover. They argued that a residency certificate does not act as a "magic pass" and that the true "head and brain" of the business operated from the United States.
The Supreme Court's ruling now settles this prolonged dispute, reinforcing the tax department's stance and potentially reshaping the landscape for foreign investments and tax treaty applications in India.
