Tiger Global International II Holdings vs The Authority For Advance Rulings (Income-Tax) & Ors.

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This judgment disposed of connected matters. The same reasons were delivered in the following case.

Tiger Global International IV Holdings vs The Authority For Advance Rulings (Income-Tax) & Ors.

Headnote AI-drafted · Reviewed and approved

The three petitioners, private companies incorporated under the laws of Mauritius holding shares in Flipkart Private Limited (a Singapore-incorporated company), sought advance rulings from the Authority for Advance Rulings (Income-Tax) on their entitlement to exemption from capital gains tax under Article 13(3A) of the India-Mauritius Double Tax Avoidance Agreement (DTAA) in respect of the sale of shares acquired prior to 01 April 2017. The AAR dismissed the applications by order dated 26 March 2020, holding that the transactions were prima facie designed for the avoidance of tax within the meaning of clause (iii) of the Proviso to Section 245R(2) of the Income Tax Act, 1961, and that the petitioners were mere conduit companies lacking commercial substance whose establishment in Mauritius was principally aimed at deriving undue treaty benefits.

The petitioners challenged the AAR's order before the Delhi High Court by way of writ petitions. The core questions arising for consideration included whether the Mauritius-incorporated entities were entitled to claim treaty benefits under the India-Mauritius DTAA, whether the grandfathering provision under Article 13(3A) protected pre-01 April 2017 acquisitions from capital gains tax, the applicability of the General Anti-Avoidance Rules (GAAR) under Chapter X-A of the Income Tax Act, and the principles relating to treaty shopping, beneficial ownership, tax residency certificates, limitation of benefits (LOB) provisions, and economic substance.

The High Court undertook an extensive examination of the relevant Supreme Court and High Court precedents, international perspectives on treaty shopping, the significance of Tax Residency Certificates, the LOB provisions in the DTAA, the beneficial ownership concept, and the GAAR framework, with a view to determining whether the AAR's conclusions on tax avoidance were sustainable and whether the petitioners were disentitled to treaty protection.

Catchwords: Double Tax Avoidance Agreement · India-Mauritius DTAA · capital gains tax · treaty shopping · beneficial ownership · conduit companies · grandfathering · advance ruling · Authority for Advance Rulings · Section 245R · General Anti-Avoidance Rules · GAAR · Chapter X-A · Tax Residency Certificate · Limitation of Benefits · economic substance · Flipkart · private equity · treaty abuse · tax avoidance