Delhi High Court Overturns AAR Ruling, Grants DTAA Benefits For Tiger Global-Flipkart Transaction

Delhi High Court Overturns AAR Ruling, Grants DTAA Benefits For Tiger Global-Flipkart Transaction

In a significant ruling, the Delhi High Court has overturned the Authority for Advance Ruling (AAR) decision in the case concerning the Tiger Global-Flipkart transaction. The Court has granted the benefit of the India-Mauritius Double Taxation Avoidance Agreement (DTAA) to the petitioner, stating that the transaction is grandfathered under Article 13(3A) of the Indo-Mauritius Treaty.

The High Court held that a Tax Residency Certificate (TRC) issued by a jurisdiction is 'sacrosanct' and must be honored unless there is clear evidence of tax fraud or a sham transaction, as substantiated by the Revenue Department. This ruling challenges the AAR’s previous finding that the petitioners were merely conduit companies lacking commercial substance and thus ineligible for DTAA benefits.

Rejecting the concept of 'conduit' under Article 27 of the DTAA, the Court affirmed that a parent or holding company is entitled to exercise oversight and retain a supervisory role over its subsidiaries. Citing precedents from the Supreme Court decisions in Azadi Bachao Andolan and Vodafone, the Court emphasized that 'treaty shopping' cannot be condemned unless it is proven that the structure was created specifically to evade tax and contradict the intent of the treaty.

The High Court underscored that it is impermissible for the tax authorities to impose additional barriers or standards beyond what is outlined in the DTAA, except in cases of illegality or fraud. The Court’s judgment aligns with the principle that legitimate business activities undertaken through favorable tax jurisdictions should not be unfairly penalized.

In this case, the petitioner, a Mauritius-based company set up for investment purposes, acquired shares in Flipkart Singapore. The shares, deriving substantial value from assets in India, were sold to Walmart International Holdings in 2018. The petitioner sought a Nil withholding tax certificate, asserting that due to the TRC and the timing of the share acquisition, the capital gains should not be taxable in India.