New Delhi, Jan 15 (PTI) The Supreme Court on Thursday upheld the decision of the Indian revenue authorities that capital gains arising from US-based investor firm Tiger Global’s exit from Flipkart in 2018 are taxable in India.
A bench of Justices J B Pardiwala and R Mahadevan set aside the Delhi High Court’s August 2024 judgment that had quashed the tax demand and ruled in favour of Tiger Global.
“In our view, once it is factually found that the unlisted equity shares, on the sale of which the assessees derived capital gains, were transferred pursuant to an arrangement impermissible under law, the assessees are not entitled to claim exemption under Article 13(4) of the DTAA,” the bench said.
Premier law firm Shardul Amarchand Mangaldas said the apex court’s verdict will impact all current and prior mergers and acquisitions (M&A) deals where tax treaty benefits have been claimed.
“Private equity players and FPIs (Foreign Portfolio Investors) need to look at their investment structures and rethink returns. Tax litigation around tax treaty claims may increase and impact the tax insurance market.
“Fine print of the Supreme Court’s decision will give a better sense of the factual nuances in the holding company structure that were relied upon to rule against tiger. But big takeaways are dilution of tax residency certificate and use of GAAR. This is a key landmark in the evolution of India’s tax treaty jurisprudence,” it said.
Between October 2011 and April 2015, Tiger Global acquired the shares of Flipkart Singapore and subsequently transferred its shareholding in the company to Fit Holdings SARL, a Luxembourg entity.
Tiger Global exited from Flipkart in 2018, when Walmart Inc. acquired a controlling stake in the Indian e-commerce company.
Tiger Global approached the Income Tax Department in February 2019 for an Advance Authority Ruling to adjudicate on the same matter.
The AAR ruled that the organisational structure of the Tiger Global Group demonstrated that the assessee and the companies that owned it were mere intermediaries in a tax-avoidance scheme.
It held that the actual control and management of the assessee and the other companies lay with TGM LLC, which was situated in the United States and not in Mauritius.
The Delhi High Court, in its judgement held that TGM LLC served only as an investment manager and could not be considered the parent or holding company. PTI PKS RHL
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