After the Supreme Court ruled in favour of the Income Tax Department in the Tiger Global case, the Central Board of Direct Taxes (CBDT) has clarified that old cases will not be reopened. The clarification is intended to reassure foreign investors and Indian businesses concerned that the verdict could trigger retrospective scrutiny of past transactions structured through jurisdictions such as Mauritius and Singapore.
CBDT Clarification on Past Deals
In response to queries from businessline on whether the Supreme Court’s decision would affect completed transactions or lead to reopening of concluded assessments, CBDT sources categorically stated that it would not.
This assurance is particularly relevant for entities involved in earlier IPOs and M&A transactions that were routed through treaty jurisdictions under the prevailing legal framework at the time.
What the Supreme Court Decided in the Tiger Global Case
On Thursday, the Supreme Court set aside the Delhi High Court’s judgment, which had earlier quashed a tax demand raised against Tiger Global. The apex court ruled that capital gains arising from the sale of unlisted equity shares worth about $1.6 billion were taxable in India.
A division bench comprising Justices J.B. Pardiwala and R. Mahadevan held that once it is factually established that the transaction was carried out through an arrangement impermissible under law, the assessees cannot claim exemption under Article 13(4) of the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
Impermissible Avoidance Arrangement Proven, Court Says
The bench observed that the Revenue had demonstrated that the transactions amounted to impermissible tax-avoidance arrangements. It held that capital gains arising from transfers made after April 1, 2017, are taxable in India, in accordance with the Income Tax Act read with the applicable DTAA provisions.
Accordingly, the Supreme Court ruled that the Delhi High Court judgment deserved to be set aside.
Why the Supreme Court Disagreed with the High Court
Explaining the implications of the ruling, Rajan Sachdev, Partner at Nangia Global, said that the Delhi High Court had earlier ruled in favour of the assessees on the basis that they held valid Tax Residency Certificates (TRCs), satisfied Limitation of Benefits (LOB) conditions, and were protected by the grandfathering provisions under the India–Mauritius DTAA, in the absence of proven fraud or sham.
However, the Supreme Court took a different view after a detailed analysis of:
- The India-Mauritius DTAA
- CBDT Circulars 682 and 789
- Earlier rulings such as Azadi Bachao Andolan and Vodafone
- GAAR provisions
- The Finance Act, 2013
- The 2017 amendments to the tax treaty
The Court noted that these amendments were introduced specifically to address treaty abuse and roundtripping and clarified that mere possession of a TRC does not bar tax authorities from examining the substance of a transaction. It also held that CBDT circulars cannot override subsequent statutory amendments.
GAAR Applicability Clarified
Crucially, the Supreme Court ruled that General Anti-Avoidance Rules (GAAR) apply to any tax benefit arising on or after April 1, 2017, regardless of when the investment was originally made. On the facts of the case, the Court concluded that the Revenue had established an impermissible avoidance arrangement and was justified in denying treaty benefits.
Impact on Future Structuring, Not Past Cases
According to a tax expert, while the ruling is unlikely to reopen concluded assessments, it could influence how future investments are structured.
“Foreign investors may reconsider the use of treaty jurisdictions such as Mauritius or Cyprus and move towards substance-based structures. We may also see greater interest in jurisdictions like GIFT City,” the expert said.
Source: Hindu Business Line
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