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India-Mauritius DTAA: Supreme Court stays Delhi High Court ruling on Tiger Global

India-Mauritius DTAA: Supreme Court stays Delhi High Court ruling on Tiger Global


Supreme Court on Friday stayed a decision by the Delhi High Court in the matter of Tiger Global with reference to India-Mauritius Double Taxation Avoidance Agreement (DTAA). Experts feel this could bring uncertainty for foreign investors.

A division bench of Justices J B Pardiwala and R Mahadevan said that the matter has “pan India implications” and requires “thorough consideration”. Accordingly the bench stayed the High Court ruling on a petition filed by Authority for Advance Ruling (AAR). The matter is expected to be taken up on February 18, the Supreme Court’s website said.

In August last year, the High Court delivered a judgment in favour of Tiger Global International III Holdings, a Mauritius-based entity, concerning the applicability of the India-Mauritius DTAA to capital gains arising from the sale of shares. This ruling overturned an earlier decision by the AAR, which had denied treaty benefits to Tiger Global.

Tiger Global, holding a Category 1 Global Business License and a Tax Residency Certificate (TRC) from Mauritius, acquired shares of a Singapore-based company before April 1, 2017. This Singapore company held substantial investments in Indian entities. In 2018, Tiger Global sold its shares in the Singapore company, resulting in capital gains. The company sought an advance ruling to determine the tax implications of this sale in India.

The AAR rejected the application, asserting that the transaction was primarily designed to avoid tax and that the India-Mauritius DTAA did not intend to exempt capital gains from the transfer of shares in non-Indian companies. Then the matter reached High Court.

The court emphasised that Article 13(3A) of the India-Mauritius DTAA provides a grandfathering provision, exempting capital gains tax in India for shares acquired before April 1, 2017. Since Tiger Global’s investment occurred prior to this date, the court held that the capital gains from the 2018 sale were exempt from taxation in India. It had also reaffirmed the significance of the TRC issued by Mauritian authorities, stating that it serves as sufficient evidence of residency and eligibility for treaty benefits.

The court referenced the Supreme Court’s decision in Union of India v. Azadi Bachao Andolan, which upheld the validity of TRCs for claiming treaty advantages. Addressing the tax department’s contention that Tiger Global’s Mauritius entities lacked commercial substance and were mere conduits, the court observed that the entities possessed valid TRCs and were in compliance with Mauritian regulations. The court noted that the investment structure should not be disregarded solely based on the control exerted by parent entities, especially when the entities are legally established and operational.

According to Abhishek Rastogi, founder of Rastogi Chambers, a stay would introduce ambiguity regarding the applicability of DTAA benefits, particularly for investments routed through Mauritius. This could affect investor confidence and influence decisions on structuring investments into India. “Entities that have relied on the High Court’s ruling might need to reassess their tax positions and prepare for potential tax liabilities, pending the Supreme Court’s final verdict,” he said. Further, a stay could set a precedent, affecting other cases where investors have claimed tax exemptions under the India-Mauritius DTAA. This might lead to increased litigation and a re-evaluation of existing structures.





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