The Supreme Court docket on Thursday dominated that Mauritius-incorporated Tiger World entities have been liable to pay tax in India for capital beneficial properties earned on the 2018 sale of shares of Flipkart Personal Restricted, included in Singapore, to Walmart Inc entity FIT Holdings SARL.
A bench of Justices J B Pardiwala and R Mahadevan put aside the August 28, 2024, order of the Delhi Excessive Court docket, which upheld Tiger World’s declare that it was exempt from the tax obligation underneath the India-Mauritius Double Taxation Avoidance Settlement (DTAA).
After buying stake in Flipkart, the Tiger World entities — Tiger World Worldwide II Holdings, Tiger World Worldwide III Holdings, and Tiger World Worldwide IV Holdings — invested in a number of firms in India.
They then sought a “nil” withholding tax certificates from Indian tax authorities. Amongst others, they contended that their beneficial properties have been exempt from Indian capital beneficial properties tax when it comes to the “grandfathering” clause of the DTAA because the shares have been acquired earlier than April 1, 2017.
The tax authorities rejected this saying “they weren’t impartial of their decision-making and that management over the decision-making referring to the acquisition and sale of shares didn’t lie with them.” The Tiger World entities then approached the Authority for Advance Rulings (AAR) which, too, by order dated March 26, 2020, rejected their declare.
The AAR held that “exemption granted to a resident of Mauritius utilized solely to capital beneficial properties arising from the alienation of shares of an Indian firm. Within the current case, nonetheless, the capital beneficial properties arose from the sale of shares of a Singapore Co., and therefore, the transaction didn’t qualify for exemption underneath the Mauritius Treaty”. It additionally “concluded that the transaction was a preordained association created for the aim of tax avoidance.”
The Authority stated that “the funding made by the assesses within the Singapore Co., with an Indian subsidiary, was with a first-rate goal of acquiring advantages underneath the DTAA between Mauritius and India, and between Mauritius and Singapore. The AAR additional famous that the assessees have been a part of Tiger World Administration LLC, USA, and have been held by means of its associates through an internet of entities primarily based within the Cayman Islands and Mauritius…Due to this fact…the pinnacle and mind of the businesses and, consequently, their management and administration have been located not in Mauritius however exterior, significantly within the USA.”
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On attraction, the Delhi Excessive Court docket quashed the AAR order saying it “suffered from manifest and patent illegalities.” It stated the AAR’s view with respect to the transaction in query was “wholly untenable and unsustainable. Consequently, its conclusion that the impugned transaction was designed for tax avoidance was held to be arbitrary and incapable of being sustained. Within the opinion of the Excessive Court docket, the transaction stood duly grandfathered by advantage of Article 13(3A) of the DTAA.” This was challenged earlier than the Supreme Court docket which put aside the HC order.
