The Supreme Court on Friday upheld a Delhi High Court judgment in favor of private equity firm Tiger Global on the applicability of the India-Mauritius Double Taxation Agreement to capital gains on sale of Flipkart stock to Walmart. Experts believe the ruling could lead to uncertainty for foreign investors.

The order of a division bench of Justices JB Pardiwala and R Mahadevan noted that the issue has pan-India implications and requires “thorough consideration”.

In its judgment, the Supreme Court has upheld the order of the Delhi High Court which had granted tax benefits under the India-Mauritius DTAA to Tiger Global. Prior to this, the Authority for Advance Rulings (AAR) had denied treaty benefits to Tiger Global for the transaction.

The case relates to Tiger Global, which holds a Category 1 Global Business License and a Tax Residence Certificate (TRC) from Mauritius, and had acquired shares in Singapore-based Flipkart between 2011 and 2015. The company held substantial investments in Indian entities. In 2018, Tiger Global sold its shares in the company, resulting in capital gains. The grandfather provision of the India-Mauritius DTAA provides for notice of investments and exemption from capital gains tax in India for shares acquired before April 1, 2017.

Tax experts pointed out that several implications could be derived from the Supreme Court ruling.

Tax and constitutional expert Abhishek A Rastogi, founder of Rastogi Chamber, said a stay would introduce ambiguity regarding the applicability of DTAA benefits, especially for investments targeting Mauritius. This could affect investor confidence and influence decisions on structuring investments in India. “The government’s position on tax treaties and the interpretation of their provisions could come under scrutiny, which may lead to policy reviews or modifications to prevent treaty abuse while maintaining India’s attractiveness to foreign investors,” he further said.

Rakesh Nangia, Managing Partner, Nangia & Co said the Supreme Court’s stay raises a question mark over the Delhi High Court judgment, and the stage seems set for a fierce round of debates on the measures. which must be adopted To avoid potential abuses of the treaty.

In its verdict delivered last year, the Delhi High Court had upheld the taxpayer’s plea that the grandfather provisions contained in India Singapore’s tax treatment were self-sufficient to address potential related allegations with the treaty and, accordingly, “… .. It would be imperceptible for the revenue to manufacture additional blockages or standards that the parties would have to meet in order to obtain DTAA benefits, …… ”.

Amit Maheshwari, tax partner, AKM Global said there are several key areas that could possibly need comprehensive attention ranging from interpretation of tax treaties in cases of indirect transfer cases, clarity on what constitutes a conduct business and what is the economic substance and also What is the relevance of the people who sit in this entity to demonstrate substance as investment entities do not necessarily have to have employees sit there in this jurisdiction “These issues need a clear and consistent approach to be followed by the authorities and a judgment was expected and welcomed in this regard,” he noted.