Authority for Advance Rulings (Income Tax) v. Tiger Global International II Holdings
Supreme Court of India, 15 January 2026, 2 judges, 2026 INSC 60
The Court held that a Mauritian tax residency certificate is not conclusive of treaty entitlement after the statutory amendments, and that the AAR rightly rejected Tiger Global's applications as relating to a transaction prima facie designed to avoid income tax.
Facts
Three Tiger Global companies incorporated in Mauritius, holding Category I Global Business Licences and Mauritian tax residency certificates (TRCs), had acquired shares of Flipkart, a Singapore company deriving its value substantially from assets in India, between 2011 and 2015. In 2018 they sold shares to a Luxembourg buyer as part of Walmart's majority acquisition of Flipkart. The tax authorities refused nil withholding certificates, finding that control over their decisions did not lie with them. The AAR, finding that control and management lay with an individual in the USA and not with the Boards in Mauritius, rejected their applications on 26.03.2020 under proviso (iii) to Section 245R(2) of the Income Tax Act as relating to a transaction prima facie designed for tax avoidance. On 28.08.2024 the Delhi High Court quashed that order, holding the companies entitled to treaty benefits under the India Mauritius DTAA. The Revenue appealed.
Questions before the Court
- Was the AAR right in rejecting the applications as not maintainable under proviso (iii) to Section 245R(2), treating the capital gains from the sale of shares of a Singapore company holding Indian assets, by Mauritian companies controlled from the USA, as prima facie an arrangement for tax avoidance?
- Can such a transaction be enquired into to decide whether the gains are taxable in India under the Income Tax Act read with the India Mauritius DTAA?
What the Court held
- Under proviso (iii) to Section 245R(2), a prima facie satisfaction on an initial examination of the documents that the transaction is for avoidance of income tax is enough for the AAR to reject an application; the level of satisfaction is lower than proof.
- Section 90(4) makes a TRC only an eligibility condition, not sufficient evidence of residence. After Section 90(2A), Chapter XA and Rule 10U, a TRC alone does not prevent an enquiry where the interposed entity is a device to avoid tax, and earlier circulars and pre-amendment decisions do not help the assessees.
- Rule 10U(2) and Section 96(2) make Chapter XA (GAAR) apply to any arrangement, whatever its date, for a tax benefit obtained on or after 01.04.2017. The sale here was proposed only in 2018 and closed after the 01.04.2017 cut-off date, so grandfathering of pre-2017 investments did not protect it; JAAR was available in the alternative.
- The assessees did not rebut the presumption of tax avoidance. The transactions were prima facie impermissible avoidance arrangements, the AAR rightly rejected the applications, and the capital gains are taxable in India. The appeals were allowed and the High Court judgment set aside.
Why it matters
The judgment holds that, after the post Vodafone amendments, a tax residency certificate is not conclusive and does not bar the Revenue from looking into the control and commercial substance of a treaty claimant. It applies GAAR to an exit in 2018 from investments made before 01.04.2017 and confirms that the AAR may refuse an advance ruling at the threshold on a prima facie finding of tax avoidance.
In the Court's words
Copied from the official judgment; each passage links to its page.
“Section 90(4) of the Act only speaks of the TRC as an "eligibility condition". It does not state that a TRC is "sufficient" evidence of residency, which is a slightly higher threshold. The TRC is not binding on any statutory authority or Court unless the authority or Court enquires into it and comes to its own independent conclusion. The TRC relied upon by the applicant is non-decisive, ambiguous and ambulatory, merely recording futuristic assertions without any independent verification.”
“By the use of the words “without prejudice to the provisions of clause (d) of sub-rule (1)”, Chapter XA is made applicable to any arrangement, irrespective of the date on which it was entered into, in respect of a tax benefit obtained from such arrangement on or after 01.04.2017. Therefore, the prescription of the cut-off date of investment under Rule 10U(1)(d) stands diluted by Rule 10U(2), if any tax benefit is obtained based on such arrangement. The duration of the arrangement is irrelevant.”
“Though it is permissible in law for an assessee to plan his transaction so as to avoid the levy of tax, the mechanism must be permissible and in conformity with the parameters contemplated under the provisions of the Act, rules, or notifications. Once the mechanism is found to be illegal or sham, it ceases to be “a permissible avoidance” and becomes “an impermissible avoidance” or “evasion”. The Revenue is, therefore, entitled to enquire into the transaction to determine whether the claim of the assessees for exemption is lawful.”
“Taxing an income arising out of its own country is an inherent Sovereign right to 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.”
Provisions interpreted
- Section 245R(2), proviso (iii), Income Tax Act, 1961
- Section 90(2A), 90(4) and 90(5), Income Tax Act, 1961
- Chapter XA (General Anti-Avoidance Rule), including Section 96(2), Income Tax Act, 1961
- Rule 10U, Income Tax Rules, 1962
- Section 9(1)(i), Explanation 5, Income Tax Act, 1961
- Articles 4 and 13, India Mauritius Double Taxation Avoidance Agreement
Related judgments
- Explains Vodafone International Holdings B.V. v. Union of India (2012)“The Vodafone judgment provides crucial insight into this issue. It implies that business intent behind a transaction serves as strong evidence of whether the transaction is deceptive or an artificial arrangement.” (page 131)
Case and bench
- Parties
- The Authority for Advance Rulings (Income Tax) and Others v. Tiger Global International II Holdings
- Case
- Civil Appeal No. 262 of 2026 [Arising out of SLP (C) No. 2640 of 2025], with Civil Appeal Nos. 263 and 264 of 2026
- Decided
- 15 January 2026
- Bench
- J.B. Pardiwala, R. Mahadevan
- Opinions
- Judgment of the Court by R. Mahadevan, J., signed by both judges. J.B. Pardiwala, J. agreed fully and added a separate concurring opinion on tax sovereignty and safeguards in tax treaties; there is no dissent.