A landmark judgment delivered on 15 January 2026 by the Supreme Court of India has major adverse implications for the development of our offshore financial sector, 𝒃𝒚 𝒑𝒖𝒕𝒕𝒊𝒏𝒈 𝒂 𝒄𝒍𝒐𝒖𝒅 𝒐𝒗𝒆𝒓 𝒕𝒂𝒙 𝒑𝒍𝒂𝒏𝒏𝒊𝒏𝒈, 𝒕𝒓𝒆𝒂𝒕𝒚 𝒆𝒍𝒊𝒈𝒊𝒃𝒊𝒍𝒊𝒕𝒚, 𝒂𝒏𝒅 𝒕𝒉𝒆 𝒃𝒆𝒏𝒆𝒇𝒊𝒕𝒔 𝒖𝒏𝒅𝒆𝒓 𝒕𝒉𝒆 𝑰𝒏𝒅𝒊𝒂–𝑴𝒂𝒖𝒓𝒊𝒕𝒊𝒖𝒔 𝑫𝒐𝒖𝒃𝒍𝒆 𝑻𝒂𝒙 𝑨𝒗𝒐𝒊𝒅𝒂𝒏𝒄𝒆 𝑨𝒈𝒓𝒆𝒆𝒎𝒆𝒏𝒕 (𝑫𝑻𝑨𝑨)
In August 2018, three Mauritian Cos holding Category 1 global business licences (Tiger Global International Holdings II, III and IV) sold their shares in Flipkart, an Indian e commerce business. These holding companies were engaged in investment activities and managed by Tiger Global Management, a US company. The sale was worth USD 2 bn, and Tiger Global applied to the Indian Income Tax Authorities for exemption from capital gains taxation, as provided for under the DTAA.
After a revision in the DTAA in 2016. capital gains on shares on Indian resident companies were taxable in India, but shares acquired before 2017 were grandfathered, so that capital gains on the sale of these shares would be exempt from taxation. The Flipkart shares were acquired by Tiger Global through a Singapore Co. between 2011 and 2015, and the capital gains should therefore be considered tax-exempt.
Nevertheless, the Indian tax authorities denied treaty exemption benefits and prescribed in August 2018 a withholding tax on the sale of shares. The Tiger Global GBCs then approached AAR, the Authority for Advance Rulings, a quasi-judicial body under the Indian Income Tax Act, that also rejected the request for capital gains exemption in March 2020, 𝒐𝒏 𝒕𝒉𝒆 𝒈𝒓𝒐𝒖𝒏𝒅 𝒕𝒉𝒂𝒕 𝒕𝒉𝒆 𝒕𝒓𝒂𝒏𝒔𝒂𝒄𝒕𝒊𝒐𝒏𝒔 𝒘𝒆𝒓𝒆 “𝒑𝒓𝒊𝒎𝒂 𝒇𝒂𝒄𝒊𝒆 𝒅𝒆𝒔𝒊𝒈𝒏𝒆𝒅 𝒇𝒐𝒓 𝒕𝒉𝒆 𝒂𝒗𝒐𝒊𝒅𝒂𝒏𝒄𝒆 𝒐𝒇 𝒊𝒏𝒄𝒐𝒎𝒆 𝒕𝒂𝒙.”
The Tiger Global Cos went to court, and the Delhi High Court reversed the AAR ruling in August 2024, and allowed for capital gains exemption by relying instead on the evidence of Mauritian Tax Residence Certificates (TRCs) and economic substance under the DTAA.
However, following appeal by the Indian revenue authorities, the Supreme Court has now restored the AAR’s ruling and denied capital gains tax exemption. The Mauritian TRC was not considered as conclusive evidence of residency because of the lack of real control and management. AAR is entitled to look through an arrangement that appears designed for avoidance. Control and management was located in the United States, namely by Mr. Charles Coleman of Tiger Global Management exercising real decision making authority, including approval of major transactions. 𝙈𝙖𝙪𝙧𝙞𝙩𝙞𝙖𝙣 𝙙𝙞𝙧𝙚𝙘𝙩𝙤𝙧𝙨 𝙡𝙖𝙘𝙠𝙚𝙙 𝙨𝙪𝙗𝙨𝙩𝙖𝙣𝙩𝙞𝙫𝙚 𝙖𝙪𝙩𝙤𝙣𝙤𝙢𝙮. 𝙈𝙖𝙪𝙧𝙞𝙩𝙞𝙪𝙨 𝙬𝙖𝙨 𝙣𝙤𝙩 𝙩𝙝𝙚 𝙥𝙡𝙖𝙘𝙚 𝙤𝙛 𝙚𝙛𝙛𝙚𝙘𝙩𝙞𝙫𝙚 𝙢𝙖𝙣𝙖𝙜𝙚𝙢𝙚𝙣𝙩.
The Mauritian entities had no activity other than holding Flipkart shares. This conduit-like structure was set up solely to take advantage of treaty benefits. 𝑰𝒏 𝒗𝒊𝒆𝒘 𝒐𝒇 𝒕𝒉𝒆 𝒍𝒂𝒄𝒌 𝒐𝒇 𝒄𝒐𝒎𝒎𝒆𝒓𝒄𝒊𝒂𝒍 𝒔𝒖𝒃𝒔𝒕𝒂𝒏𝒄𝒆, 𝑮𝒆𝒏𝒆𝒓𝒂𝒍 𝑨𝒏𝒕𝒊 𝑨𝒗𝒐𝒊𝒅𝒂𝒏𝒄𝒆 𝑹𝒖𝒍𝒆𝒔 (𝑮𝑨𝑨𝑹) 𝒖𝒏𝒅𝒆𝒓 𝑰𝒏𝒅𝒊𝒂𝒏 𝒕𝒂𝒙𝒂𝒕𝒊𝒐𝒏 𝒄𝒂𝒏 𝒐𝒗𝒆𝒓𝒓𝒊𝒅𝒆 𝒕𝒓𝒆𝒂𝒕𝒚 𝒃𝒆𝒏𝒆𝒇𝒊𝒕𝒔. Moreover, the grandfathering of capital exemption prior to 2017 is held to be applicable only on direct transfers of shares of Indian companies, not on indirect transfers like the sale of Flipkart shares which involves a Singapore company.
The Supreme Court Judgment also makes recommendation on the strengthening of national tax sovereignty to deny tax benefits to shell entities, to apply GAAR to override tax treaty benefits in artificial transactions, and to levy tax on digital platforms operating without physical presence in India.
The Supreme Court judgement represents a major reinterpretation of the Indian tax avoidance framework, by reaffirming Indian tax sovereignty. Treaty shopping advantages by using Mauritian structures will become less certain, unless these prioritize substance over form, and demonstrate genuine commercial presence and decision making in Mauritius. It is a wake-up for the Mauritian financial services sector to upgrade from minimal company administration services to higher value-added activities.
𝙏𝙝𝙚 𝙎𝙪𝙥𝙧𝙚𝙢𝙚 𝘾𝙤𝙪𝙧𝙩 𝙟𝙪𝙙𝙜𝙢𝙚𝙣𝙩 𝙖𝙡𝙨𝙤 𝙖𝙥𝙥𝙚𝙖𝙧𝙨 𝙩𝙤 𝙧𝙚𝙛𝙡𝙚𝙘𝙩 𝙄𝙣𝙙𝙞𝙖’𝙨 𝙣𝙚𝙬 𝙜𝙚𝙤-𝙥𝙤𝙡𝙞𝙩𝙞𝙘𝙖𝙡 𝙤𝙧𝙞𝙚𝙣𝙩𝙖𝙩𝙞𝙤𝙣, 𝙚𝙨𝙥𝙚𝙘𝙞𝙖𝙡𝙡𝙮 𝙞𝙣 𝙩𝙝𝙚 𝙡𝙞𝙜𝙝𝙩 𝙤𝙛 𝙐.𝙎. 𝙖𝙙𝙫𝙚𝙧𝙨𝙖𝙧𝙞𝙖𝙡 𝙩𝙖𝙧𝙞𝙛𝙛𝙨 𝙖𝙣𝙙 𝙤𝙩𝙝𝙚𝙧 𝙪𝙣𝙛𝙧𝙞𝙚𝙣𝙙𝙡𝙮 𝙐.𝙎. 𝙥𝙤𝙡𝙞𝙘𝙞𝙚𝙨. 𝙍𝙚𝙖𝙨𝙨𝙚𝙧𝙩𝙞𝙣𝙜 𝙄𝙣𝙙𝙞𝙖𝙣 𝙩𝙖𝙭 𝙨𝙤𝙫𝙚𝙧𝙚𝙞𝙜𝙣𝙩𝙮 𝙗𝙮 𝙘𝙪𝙧𝙗𝙞𝙣𝙜 𝙩𝙝𝙚 𝙧𝙚𝙩𝙪𝙧𝙣 𝙤𝙣 𝙐.𝙎. 𝙞𝙣𝙫𝙚𝙨𝙩𝙢𝙚𝙣𝙩𝙨 𝙘𝙤𝙪𝙡𝙙 𝙥𝙧𝙤𝙫𝙞𝙙𝙚 𝙖 𝙛𝙞𝙩𝙩𝙞𝙣𝙜 𝙧𝙚𝙨𝙥𝙤𝙣𝙨𝙚 𝙞𝙣 𝙧𝙚𝙩𝙖𝙡𝙞𝙖𝙩𝙞𝙤𝙣 𝙩𝙤 𝙩𝙝𝙚 𝙐.𝙎. 𝙘𝙤𝙣𝙛𝙧𝙤𝙣𝙩𝙖𝙩𝙞𝙤𝙣𝙖𝙡 𝙨𝙩𝙖𝙣𝙘𝙚 𝙩𝙤𝙬𝙖𝙧𝙙𝙨 𝙄𝙣𝙙𝙞𝙖.
