Indian Supreme Court Re-defines Treaty Claim Principles

2 March 2026
By Aditya Singh Chandel and Sarvagya Bilgaiyan (AZB & Partners)

Introduction 

The Supreme Court (SC) of India's ruling in the Tiger Global case (Authority for Advance Rulings (Income-tax) v. Tiger Global International II Holdings, [2026] 182 taxmann.com 375 (SC)) is a reset for every past assumption about benefits under the India–Mauritius Double Taxation Avoidance Agreement (DTAA) and, more generally, about access to and eligibility for tax treaty benefits. Claims for treaty benefits have long been a subject matter of litigation between Indian tax authorities and non-resident taxpayers. The shift in India's anti-avoidance framework from the Judicial Anti-Avoidance Rules (JAAR), including doctrines such as substance over form, to the codified General Anti-Avoidance Rule (GAAR) under Chapter X-A of the Income-tax Act, 1961 (ITA 1961), has provided Indian tax authorities with more tools to pierce structures with interposed entities located in favourable tax jurisdictions. 

The ruling marks a perceptible shift from the hitherto settled position regarding treaty claims. The SC denied Mauritian taxpayers the right to claim treaty benefits for indirect transfers of Indian assets (an “indirect” transfer is typically made by transferring the shares of a company which owns Indian assets whereas a “direct” transfer would simply involve the transfer of those assets). The SC held that, prima facie, the concerned transaction was mainly designed to avoid taxes, and clarified that GAAR scrutiny is not precluded, even for grandfathered (i.e., otherwise protected) investments, if tax benefits arise from the concerned arrangement after the introduction of the GAAR. Regarding tax residency certificates (TRCs), the SC clarified that merely holding a TRC is insufficient to prevent anti-avoidance scrutiny under the GAAR. It further affirmed that JAAR principles would continue to apply alongside the GAAR.

Brief Facts 

Tiger Global International II Holdings, Tiger Global International III Holdings, and Tiger Global International IV Holdings (collectively, the "Taxpayers") were incorporated in Mauritius. They held valid TRCs issued by the Mauritian revenue authorities and Category I Global Business Licenses. The Taxpayers maintained offices in Mauritius, employed personnel there, and maintained their principal bank accounts and accounting records in Mauritius. Their boards comprised three directors, including two residents of Mauritius and one resident of the United States. 

Between 2011 and 2015, the Taxpayers acquired shares in Flipkart Private Limited, a Singapore-incorporated company that derived substantial value from assets located in India. In 2018, the Taxpayers transferred such shares to a Luxembourg-based entity. Under the ITA 1961, capital gains arising to a non-resident from the transfer of shares of a foreign company that derives value substantially from assets located in India are taxable in India. 

Under Article 13(4) of the DTAA, capital gains arising from the transfer of any property by a Mauritian tax resident, other than property referred to in paragraphs 1, 2, 3, and 3A  of that article, are exempt from capital gains tax in India. As indirect transfers of Indian shares do not fall within paragraphs 1 to 3A, the Taxpayers claimed exemption under Article 13(4). 

The tax authorities alleged that the Taxpayers were merely conduit entities without material economic substance in Mauritius and were therefore not eligible to claim benefits under the DTAA. It was alleged that the Taxpayers did not have an independent source of income, that investments were funded through capital contributions from shareholders, and that effective control and decision-making lay outside Mauritius. On this basis, treaty benefits were denied.

Delhi High Court's Ruling 

The Delhi High Court held that an investment originating in Mauritius cannot be questioned merely on its origin, and that the residence status of a Mauritian entity does not warrant inquiry into treaty-based claims. The High Court held that a TRC issued by the revenue authorities is sacrosanct and sufficient proof of residency and beneficial ownership, and that its evidentiary value can be questioned only in limited circumstances involving tax fraud, sham transactions, or a lack of commercial substance. It further held that supervisory influence by a parent company does not render a subsidiary a mere puppet, absent fraud or a complete lack of independence. Observing that board resolutions reflected collective decision-making power, the High Court rejected the tax authorities' contentions and upheld the Taxpayers' entitlement to treaty benefits.

What the Supreme Court Held 

The SC underscored that the power to levy and collect taxes is an inherent attribute of India's sovereignty under Article 265 of the Constitution and is constrained only by the authority of law. While tax treaties regulate the exercise of taxing rights, they do not divest sovereign power. 

On the scope of Article 13(4), the SC held that benefits presuppose that the movable property or Indian shares forming the subject matter of the transaction are directly held by the Mauritian resident entity. Accordingly, an indirect transfer of Indian shares does not fall within Article 13(4). 

The SC observed that the object of the DTAA is to prevent double taxation, not to avoid or evade taxes. To claim treaty benefits, a taxpayer must prove that the relevant transaction is taxed in the resident state. In the present case, since the income was exempt in Mauritius, the SC held that granting an exemption in India would run contrary to the spirit of the DTAA.

On the sufficiency of a TRC, the SC held that, under Section 90(4) of the ITA 1961, a TRC constitutes only an eligibility condition, not conclusive evidence of tax residency. Following the introduction of the GAAR, a TRC alone is insufficient to claim treaty benefits.  Pre-GAAR circulars issued by the tax authorities,  affirming the sanctity of a TRC to prove residency of a non-resident for treaty claims cannot operate in the GAAR regime, as such circulars were issued before the introduction of GAAR, and GAAR would override such circulars. The mere holding of a TRC cannot prevent an inquiry where an interposed entity is a device to avoid tax. 

On the applicability of the GAAR, the SC distinguished between pre-April 1, 2017 "investments" grandfathered under Rule 10U(1)(d) and "arrangements" from which tax benefits arise after that date. The GAAR may apply even where the underlying investment was made before 2017 if a subsequent transaction undertaken post-2017 results in a tax benefit. The SC further observed that even where the GAAR is inapplicable, tax authorities may still invoke JAAR, embodied in the doctrine of substance over form. In light of the above, the SC held that the Taxpayers lacked economic substance in Mauritius and that the transaction constituted an impermissible avoidance arrangement.

Analysis 

The SC’s judgement in the Tiger Global case reflects a number of surprising features and, in several respects, appears to unsettle what was previously regarded as a settled position on treaty entitlement.

A bare perusal of Article 13 indicates that Article 13(1) to 13(3B) deal with the transfer of property or shares directly held by the seller. Accordingly, any indirect transfer should fall within the ambit of the residuary clause, i.e., Article 13(4). This interpretation had been affirmed in judicial rulings.1 However, the SC held that Article 13(4) requires the Mauritian entity to hold Indian shares directly. Article 2 of the DTAA brings within its scope "income taxes" imposed under the ITA 1961, including capital gains tax on indirect transfers. Accordingly, such taxation should fall within the framework of the DTAA. 

Regarding TRCs, the controversy stems from the decision in the case of Azadi Bachao Andolan2, where the evidentiary value of a TRC was affirmed. Courts and tribunals consistently held that a TRC constitutes sufficient evidence of residence and that tax authorities cannot go beyond it.3 The SC's findings represent a departure from that position. While GAAR can override the evidentiary value of a TRC where an arrangement constitutes an impermissible avoidance arrangement, such override requires satisfaction of statutory tests. The ruling discusses the GAAR conceptually but does not clearly explain how those thresholds were satisfied on the specific facts. 

On double non-taxation, Article 4(1) requires that a person be "liable to taxation" in the resident state. The DTAA does not require that income be taxed there. The term "liable to tax," as clarified in domestic law, includes a person who has subsequently been exempted from such liability. The Delhi tribunal in its ruling has affirmed that an exemption in the resident state does not automatically confer taxing rights on the source state.4 The SC's observation that treaty benefits may be denied if income is exempt in the residence jurisdiction runs contrary to the scheme of the DTAA, as outcomes of double non-taxation often arise from conscious treaty policy choices. 

On the GAAR, Rule 10U(1)(d) grants grandfathering protection to investments made before April 1, 2017, while Rule 10U(2) permits the invocation of GAAR where tax benefits from an arrangement arise thereafter. The judgment does not clearly delineate the relationship between these provisions, leaving the scope of grandfathering protection uncertain. The SC's observation that JAAR continues to operate alongside the GAAR also raises concerns, particularly where a detailed statutory anti-avoidance framework already exists.

Conclusion

A tax treaty represents a carefully negotiated bargain between sovereign states. It must be interpreted in good faith, in accordance with the ordinary meaning of its provisions and the shared intent of the contracting states. While the ruling in this case emphasises a state's sovereignty and its right to tax, it overlooks the principle that a negotiated tax treaty is itself an exercise of sovereignty. Once entered into, such treaties reflect binding commitments between states and should be applied in a manner consistent with the agreed allocation of taxing rights. 

In this context, the denial of treaty benefits by holding that indirect transfers are not covered under the DTAA, the introduction of a requirement of taxation in the residence state, the application of the GAAR to pre-2017 investments without a detailed fact-based examination of the GAAR, all appear inconsistent with the object, purpose, and negotiated intent of the DTAA. Although the precise impact of the ruling will become evident over time, it has disrupted the previously settled position concerning the availability of treaty benefits. It is likely to result in increased scrutiny of treaty claims. Maintaining an appropriate balance between the enforcement of anti-abuse provisions and the policy objectives of the contracting states will be crucial going forward.

References

1 Sanofi Pasteur Holding SA v. Department of Revenue, Ministry of Finance, [2013] 354 ITR 316; Sofina S.A.  v. Assistant Commissioner of Income-Tax (International Taxation), [2020] 116 taxmann.com 706 (Mumbai - Trib.); GEA Refrigeration Technologies GmbH, In re v. [2018] 89 taxmann.com 220 (AAR - New Delhi).

2 Union of India v. Azadi Bachao Andolan, (2004) 10 SCC 1.

3 Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd. v. Assistant Commissioner of Income Tax (International Taxation), [2023] 146 taxmann.com 569 (Delhi); Reverse Age Health Services Pte Ltd. v. Deputy Commissioner of Income Tax, [2023] 147 taxmann.com 358 (Delhi - Trib.); Commissioner of Income Tax (IT)-2 v. Citicorp Investment Bank (Singapore) Ltd., [2023] 151 taxmann.com 501 (Bombay); Sapien Funds Ltd. v. CIT (International Taxation), Delhi-3, TS-308-ITAT-2023 (Delhi); Leapfrog Financial Inclusion India (II) Ltd. v. ACIT, ITA Nos. 365/Del/2023 and 366/Del/2023.

4 Sapein Funds Ltd. v. Commissioner of Income-tax (International Taxation), [2023] 108 ITR(T) 180 (Delhi - Trib.).