Walmart-Flipkart Deal: Delhi High Court Stays Tax Proceedings Against Tiger Global

Tiger Global Management LLC has approached the Delhi High Court against the AAR ruling that had denied the U.S.-based private equity firm tax treaty benefits in June this year. The high court bench of Justices Manmohan and Sanjeev Narula agreed to hear the petition and stayed further proceedings against Tiger Global.

Appearing for Tiger Global, Senior Advocate Arvind Datar argued before the high court that companies are set up in Mauritius with the objective of making investments and that the Authority For Advance Rulings' findings against the fund requires intervention by the court.

The AAR ruling pertains to the taxability of capital gains arising from investments made by Tiger Global in the Singapore-based holding company of Flipkart India. In 2018, Tiger Global’s Mauritian arm sold more than 26 million shares in Flipkart Singapore to Walmart and had approached the tax authorities to claim capital gains tax exemption under the India-Mauritius double tax avoidance agreement.

The department had denied the treaty benefit to Tiger Global and the AAR had upheld this decision.

After a close scrutiny of management and control structure, the AAR arrived at an ‘inescapable conclusion’ that the Mauritian entities were set up only to derive benefit under the tax treaty. The exemption under the DTAA can only apply to direct transfer of an Indian entity’s shares, it said while denying the treaty benefits.

Datar argued that the AAR ruling is contrary to the Supreme Court’s decision in Azadi Bachao case.

As a result of today’s order, the tax authorities cannot, for now, raise any tax demand based on the AAR finding. The high court has granted the tax department 10 weeks to file its response. The court will take up the case next in January 2021.