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

Also reported in

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

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

Headnote AI-drafted · Reviewed and approved

The petitioners, private companies incorporated under the laws of Mauritius, had sought advance rulings from the Authority for Advance Rulings (Income-Tax) on the question of taxability of capital gains arising from the sale of shares of Flipkart Private Limited (a Singapore-incorporated company). They claimed exemption from capital gains tax under Article 13(3A) of the India-Mauritius Double Tax Avoidance Agreement on the basis that the shares had been acquired prior to 01 April 2017 and were thus grandfathered. The AAR, by its order dated 26 March 2020, rejected the applications under the proviso to Section 245R(2)(iii) of the Income Tax Act, 1961, holding that the transactions were prima facie designed for avoidance of tax, that the petitioners were mere conduit companies lacking commercial substance, and that their Mauritius establishment was principally aimed at deriving undue treaty benefits, thereby disentitling them from claiming DTAA benefits.

The Delhi High Court examined, inter alia, questions relating to treaty shopping, the applicability of the General Anti-Avoidance Rules (GAAR) under Chapter X-A of the Income Tax Act, beneficial ownership, the significance of Tax Residency Certificates, limitation of benefits (LOB) provisions in the DTAA, economic substance, and international perspectives on treaty abuse. The court also considered a series of Supreme Court and High Court decisions on the Mauritius route and tax avoidance.

The judgment addressed the scope of the AAR's jurisdiction to decline to rule on merits where a transaction is found prima facie to be designed for tax avoidance, and examined the organisational structure of the petitioner entities and their relationship with Tiger Global Management LLC, the Delaware-based Investment Manager. The court rendered detailed findings on each of these issues including the conceptual framework of conduit entities, favourable tax jurisdictions, and the legal consequences flowing therefrom under Indian tax law and applicable treaty provisions.

Catchwords: Double Tax Avoidance Agreement · India-Mauritius DTAA · capital gains · Flipkart · treaty shopping · General Anti-Avoidance Rules · GAAR · Chapter X-A · beneficial ownership · conduit company · tax residency certificate · Authority for Advance Rulings · Section 245R(2) · grandfathering · limitation of benefits · economic substance · tax avoidance · Mauritius route · advance ruling · writ petition