SC rules against Tiger Global, restores Rs.15,000 Cr tax demand in Flipkart deal
In a landmark judgment, the Supreme Court of India has said that international tax treaties should not become instruments that weaken India’s sovereign right to tax income generated from its own soil. Justices J B Pardiwala and R Mahadevan ordered that the foreign fund firm Tiger Global must pay more than Rs.15,000 crore as capital gain tax to the Income Tax, which they earned as profit by selling shares of Flipkart in the Walmart acquisition deal worth more than 10 billion dollars.
Interestingly, the apex court was quashing the stay order on paying tax by Tiger Global by a Delhi High Court Division Bench order passed by controversial Justice Yashwant Varma, who is now facing Impeachment by Parliament, after huge bundles of cash were found burnt at his residence in March 2025. The Bench headed by Justice Varma, comprising Justice Purushaindra Kumar Kaurav, in August 2024, rejected the Income Tax demand of Rs.15,000 crore from Tiger Global as capital gain tax. Income Tax served notice to Tiger Global in mid 2018, and the foreign fund firm claimed that all tax claims did not apply to them, citing the Mauritius tax treaty.
Tiger Global is a US-based firm, operated through Mauritius and Singapore-based shell firms. The shell firms had majority shares in India-based Flipkart. Tiger Global got more than 10 billion dollars by selling its Flipkart shares to Walmart.
Stressing on the sovereignty of India, in a 152-page order, the Supreme Court judges Justices Pardiwala and Mahadevan said: “The power of an independent Republic to levy and collect tax forms part of its inherent sovereign functions, and such power is circumscribed only by the requirement of being within the authority of law. Article 265 of the Constitution of India envisages the same. In a world where nations must necessarily engage with each other for mutual economic growth through trade, commerce and business, and for reasons of economic policy, international cooperation, and diplomatic balance, the power of each nation is often exercised in tune with such bilateral or multilateral agreements, which do not take away such inherent power but which now stand shaped by the legal framework agreed to between
the parties.
“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 Revenue has proved that the transactions in the instant case are impermissible tax-avoidance arrangements, and the evidence prima facie establishes that they do not qualify as lawful.
“The applications preferred by the assessees relate to a transaction designed prima facie for tax avoidance and were rightly rejected as being hit by the threshold jurisdictional bar to maintainability, as enshrined in proviso (iii) to Section 245R(2). Accordingly, capital gains arising from the transfers effected after the cut-off date, i.e., 01.04.2017, are taxable in India under the Income Tax Act, read with the applicable provisions of the DTAA. The judgment of the High Court, therefore, deserves to be set aside.”
Concurrent with the judgment written by Justice Mahadevan, Justice Pardiwala wrote 12 more pages separately, stressing the sovereignty of India in deciding on taxation on foreign fund companies gaining profits from India. “Taxing an income arising out of its own country is an inherent Sovereign right of that country. Any application of filters or diffusers to this is a direct attack or threat to its sovereignty, which can affect a Nation’s long-term interest.
“Tax treaties, international agreements, protocols and safeguards should be very engaging, transparent and capable of periodical reviews with the power to renegotiate with strong exit clauses to avoid unfair outcomes safeguarding Nation’s strategic and security, prevent erosion of tax base and loss or weakening of democratic control and introduce explicit carve outs safeguarding the Sovereign’s right of taxation,” pointed out Justice Pardiwala, suggesting measures to plug the tax avoidance by the International firms, making profits from Indian business. Tiger Global was represented by noted lawyer Harish Salve.
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