Supreme Court reaffirms sanctity of DTAA, TRC, and grandfathered capital gains under India–Mauritius Treaty
Full Case Name
The Authority for Advance Rulings (Income Tax) & Ors. v. Tiger Global International II Holdings & Ors.
Citation
2026 INSC 60 | Civil Appeal Nos. 262–264 of 2026
Judge
Justice R. Mahadevan
Background of the Case
The dispute arose from a large cross-border investment transaction involving Tiger Global, a well-known global investment group. The respondent entities—Tiger Global International II, III and IV Holdings—were companies incorporated in Mauritius, holding valid Global Business Licences and Tax Residency Certificates (TRC) issued by the Mauritian authorities.
These companies had invested in Flipkart, which was incorporated in Singapore but derived substantial value from its Indian assets and operations. In 2018, as part of Walmart Inc.’s global acquisition of Flipkart, the respondent entities sold their shares in the Singapore company and earned significant capital gains.
Before completing the transaction, the respondents applied for nil withholding tax certificates under Section 197 of the Income Tax Act, 1961. The Indian tax authorities declined full relief, alleging that the Mauritian companies were merely conduit entities created to avoid taxation in India.
Legal Framework and Provisions Involved
The controversy involved an examination of both domestic tax law and international treaty obligations, particularly Section 9(1)(i) of the Income Tax Act dealing with indirect transfers, Sections 90 and 90(2A) and Chapter X-A (GAAR), provisions relating to Advance Rulings under Sections 245Q and 245R, Article 13 of the India–Mauritius DTAA concerning capital gains and grandfathering, Article 4 of the DTAA on tax residency, and CBDT Circulars No. 682 and 789, which recognise a TRC as sufficient evidence of residence.
Findings of the Authority for Advance Rulings
The Authority for Advance Rulings (AAR) rejected the applications at the threshold. It held that the Mauritian entities lacked commercial substance, that effective control and management were exercised outside Mauritius, and that the overall structure was prima facie designed for tax avoidance. According to the AAR, treaty benefits under the India–Mauritius DTAA were never intended to apply to the sale of shares of a non-Indian company. Relying on proviso (iii) to Section 245R(2), the AAR refused to examine the issue on merits.
Delhi High Court’s Decision
The Delhi High Court disagreed with the AAR’s approach and held that the authority had exceeded its jurisdiction by recording conclusive findings at a preliminary stage. The High Court emphasised that a valid Tax Residency Certificate cannot be disregarded unless there is clear evidence of fraud or sham. It also noted that the respondent companies had economic substance, a long-term investment presence, and genuine business activity. Most importantly, the Court held that capital gains arising from shares acquired prior to 1 April 2017 were expressly grandfathered under the DTAA. Consequently, the AAR’s order was quashed and the gains were held to be not taxable in India.
Issues Before the Supreme Court
The Supreme Court was required to decide whether treaty benefits could be denied despite valid TRCs, and whether GAAR could override grandfathered protections provided under the India–Mauritius DTAA in the absence of proven tax abuse.
Supreme Court’s Opinion and Core Findings
The Supreme Court upheld the High Court’s judgment and reaffirmed settled principles of international taxation. It held that a Tax Residency Certificate carries a strong presumption of validity and cannot be ignored lightly. The Court clarified that treaty shopping by itself is not illegal unless accompanied by evidence of a sham or colourable device. It further ruled that grandfathering under Article 13(3A) of the DTAA is binding, and domestic anti-avoidance provisions cannot retrospectively dilute treaty protections. The Court also found fault with the AAR for refusing to decide the issue on merits and for treating suspicion as proof.
The judgment reiterated that tax treaties are solemn international obligations and must be interpreted in good faith, ensuring certainty and predictability for foreign investors.
Conclusion
This decision firmly establishes that treaty protections cannot be defeated by suspicion or hindsight. By upholding the sanctity of the DTAA, the evidentiary value of TRCs, and the principle of grandfathering, the Supreme Court has reinforced India’s commitment to a stable and credible tax regime. The ruling draws a clear line for tax authorities that anti-avoidance measures must operate within the boundaries of law, while assuring investors that legitimate structures will be respected by Indian courts.