Tiger Global And Beyond: Anti-Avoidance, Grandfathering And Investor Protection

Tiger Global and Beyond: Anti-Avoidance, Grandfathering and Investor Protection

Introduction

On 15 January 2026, the Supreme Court of India delivered its judgment in The Authority of Advance Rulings (Income Tax) and Others v. Tiger Global International II Holdings, Tiger Global International III Holdings, and Tiger Global International IV Holdings (Civil Appeal Nos. 262, 263 and 264 of 2026).

The decision analysed the interplay between India’s Double Taxation Avoidance Agreement (“DTAA”) with Mauritius, the General Anti-Avoidance Rules (“GAAR”) under the Income-tax Act, 1961, and the extent to which treaty protection is available to Mauritius-based entities investing through multi-layered structures.It is a landmark ruling affirming India’s sovereign right to scrutinise treaty claims and deny benefits where arrangements are structured for tax avoidance.

This decision is particularly significant not only for the Court’s reasoning, but also for the Government’s prompt response. Within weeks, the Central Board of Direct Taxes (“CBDT”) issued two notifications on 31 March 2026, amending Rule 10U of the Income-tax Rules, 1962, and Rule 128 of the Income-tax Rules, 2026, to strengthen and clarify the grandfathering protection available to investments made before 1 April 2017. This article analyses the ruling and the subsequent legislative response, and contends that, when read together, they present a balanced and constructive outlook for the investment community.

Background and Litigation Trajectory

The respondents, Tiger Global International II Holdings, Tiger Global International III Holdings, and Tiger Global International IV Holdings (“Assesses”), were private companies incorporated under the laws of Mauritius, holding Category I Global Business Licences issued by the Financial Services Commission of Mauritius. They held valid Tax Residency Certificates issued by the Mauritius Revenue Authority. Their stated objective was to undertake investment activities aimed at long-term capital appreciation.

Between 2011 and 2015, the Assesses acquired shares in Flipkart Private Limited, a company incorporated in Singapore. Flipkart's value was derived substantially from its assets situated in India. In 2018, as part of Walmart Inc.'s acquisition of a controlling stake in Flipkart, the Assesses sold their shares to Fit Holdings S.A.R.L., a Luxembourg company, realising aggregate gross consideration of approximately USD 2.08 billion.

The Assesses applied for nil withholding certificates under Section 197 of the Income-tax Act, 1961, which were declined. They subsequently approached the Authority for Advance Rulings (“AAR”) seeking a ruling on whether the capital gains arising from the sale would be taxable in India under the Income-tax Act read with the India–Mauritius DTAA. The AAR rejected the applications, holding that the transaction was prima facie structured for avoidance of income tax within the meaning of proviso (iii) to Section 245R(2) of the Income-tax Act.

In August 2024, the Delhi High Court set aside this finding, following which the Revenue preferred an appeal before the Supreme Court.

Treaty and Statutory Framework

The India-Mauritius DTAA, signed on 24 August 1982 and effective from 1983, became one of the most significant treaties shaping foreign investment into India. Article 13 of the DTAA governed the taxation of capital gains. Article 13(4) provided that gains from the alienation of property, other than immovable property and certain business assets, were taxable only in the State of which the alienator was a resident. This provision, read with Mauritius's domestic tax regime, effectively resulted in capital gains on Indian investments being exempt from tax in both jurisdictions.

To mitigate concerns regarding treaty abuse and round-tripping, the DTAA was amended through a Protocol dated 10 May 2016. Articles 13(3A) and 13(3B) were inserted, conferring on the State of source the right to tax capital gains arising from shares acquired on or after 1 April 2017. Investments made prior to 1 April 2017 were expressly grandfathered and remained exempt from capital gains tax in India. A Limitation of Benefits clause was also introduced under Article 27A, applicable only during the transitional period from 1 April 2017 to 31 March 2019.

Within the domestic legal framework, GAAR was introduced through Chapter X-A of the Income-tax Act, with effect from 1 April 2017. Rule 10U of the Income-tax Rules, 1962 (“IT Rules 1962”), prescribed the scope and exclusions. Critically, Rule 10U(1)(d) provided that GAAR would not apply to income from the transfer of investments made before 1 April 2017. However, Rule 10U(2) stated that GAAR would apply to any arrangement, irrespective of the date on which it was entered into, in respect of tax benefits obtained on or after 1 April 2017. This created an important distinction between “investments” and “arrangements”, a distinction that lay at the core of the Tiger Global dispute.

Supreme Court’s Key Findings

The Supreme Court upheld the Revenue’s appeals and set aside the High Court’s judgment. The Court’s analysis proceeded on multiple grounds.

The Court held that a Tax Residency Certificate is necessary but not a sufficient condition for claiming DTAA benefits in the post-amendment regime. Section 90(4) treats the Tax Residency Certificate as an "eligibility condition" only. It does not constitute conclusive or binding evidence of residency, and the income-tax authorities are entitled to enquire behind the Tax Residency Certificate and examine the true nature of the entity's residency and the substance of the transaction. The Court observed that the circulars issued in the pre-amendment era, including Circular No. 789 of 2000, have been superseded by the statutory amendments to Chapter IX and the introduction of Chapter X-A and cannot be relied upon to claim exemption.

On the applicability of GAAR, the Court drew a clear distinction between "investments" (which are grandfathered under Rule 10U(1)(d) for pre-2017 investments) and "arrangements" (which remain subject to scrutiny under Rule 10U(2) regardless of when they were entered into, provided a tax benefit was obtained on or after 1 April 2017). The Court relied on the Shome Committee Report, the Finance Minister's speeches, and the text of the IT Rules,1962  to hold that the grandfathering was intended to protect "investments" and not "arrangements". The Shome Committee had expressly recommended that all investments (though not arrangements) made by a resident or non-resident and existing as on the date of commencement of the GAAR provisions should be grandfathered.

The Court affirmed the AAR's finding that the transaction was apparently designed for avoidance of income tax. The standard under Section 245R(2) is one of clear satisfaction, which requires a much lower threshold than proof of a fact. In view of its finding that the effective management and control of the Assesses were not in Mauritius but in the United States, and that the Assesses were part of a complex multi-layered structure, the AAR's rejection of the applications was held to be justified.

In a concurring opinion, Justice Pardiwala emphasised the importance of tax sovereignty, noting that economic sovereignty is gaining importance and occupying centre stage in geopolitical affairs. He observed that the strength of any nation lies in its ability to exercise sovereign functions, including the power to tax, in advancement of the best interests of its people.

Government's Response: CBDT Notifications of 31 March 2026

While the ruling significantly affirmed the Revenue’s powers, it also highlighted the interplay between Rule 10U(1)(d) and Rule 10U(2).. In particular, concerns arose that the broad language of Rule 10U(2), which applies GAAR to “any arrangement” granting tax benefits post-2017, could be interpreted as diluting the grandfathering protection afforded to pre-2017 investments.

The Government acted swiftly. On 31 March 2026, the CBDT issued two notifications (“Notifications”) amending the grandfathering provisions.

The first notification, No. 54/2026, amended Rule 10U of the IT Rules, 1962. It substituted clause (d) of sub-rule (1) and replaced sub-rule (2) in its entirety. The amended Rule 10U(2) now provides that while GAAR shall apply to any arrangement irrespective of the date on which it was entered into, it shall not apply to "income which accrues or arises to, or deemed to accrue or arise to, or is received or deemed to be received, by any person from transfer of such investments which were made before the 1st day of April, 2017 by such person. The Explanatory Memorandum issued in support of the amendment confirmed that Chapter X-A would not be invoked where income arises from the transfer of pre-2017 investments.

The second notification, No. 55/2026, effected an identical amendment to Rule 128 of the IT Rules, framed under the Income-Tax Act, 2025 (“IT Act 2025”). This ensured that the same protection would carry forward under the new tax code which takes effect from 1 April 2026. Under the amended Rule 128(2), the provisions of Chapter XI (the GAAR chapter of IT Act, 2025) shall correspondingly not apply to income from the transfer of investments made before 1 April 2017.

The effect of the two amendments is clear and significant. Income arising from the transfer of pre-2017 investments is expressly excluded from the scope of GAAR, even where the underlying arrangement is otherwise subject to GAAR scrutiny. The earlier “without prejudice” language in Rule 10U(2), on which the Court had relied to conclude that the grandfathering protection stood diluted, has been clarified.. The amended provisions explicitly  safeguard income from the transfer of pre-2017 investments, even where the arrangement otherwise falls within the ambit of GAAR.

Impact and Key Takeaways

The combined effect of the ruling and the Notifications conveys a reassuring message to the investor community on several fronts.

The amendments reinforce the Government’s commitment to honouring the grandfathering assurance. When GAAR was introduced, the Finance Minister had stated that it would apply prospectively to investments made on or after 1 April 2017, and the Shome Committee had recommended that all investments made prior to the commencement date be grandfathered. The Notifications give full legislative effect to this intent by ensuring that income arising from the transfer of pre-2017 investments is protected, irrespective of the nature of the arrangement within which the investment is held.

The corresponding amendments to Rule 10U (under the IT Rules, 1962) and Rule 128 (under the IT Rules, 2026) ensure consistency and continuity across India’s existing and new tax regimes. Investors transitioning to the framework under the Income-tax Act, 2025, can be assured that the grandfathering protection remains preserved.

The Government’s response reflects a sound balance between tax sovereignty and investor protection. The ruling appropriately affirms India’s right to scrutinise abusive structures and deny treaty benefits where justified. The subsequent rule amendments ensure that this sovereign power is exercised fairly and does not extend to investments that were legitimately made in reliance on the then-prevailing legal framework. This measured approach is consistent with the expectations of a mature tax jurisdiction.

The promptness of the Government’s response is, by itself, a positive indicator. The ruling was delivered on 15 January 2026, and the clarificatory amendments were notified within approximately two and a half months. This timely action demonstrates the Government’s responsiveness to investor concerns and its willingness to act decisively to provide clarity.

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Conclusion

The ruling is a significant affirmation of India’s anti-avoidance framework. It clarifies that treaty benefits are not conclusive, that a Tax Residency Certificate does not preclude inquiry, and that the Revenue is empowered to recharacterise arrangements lacking genuine commercial substance. These principles are well established in jurisdictions seeking to safeguard their tax revenues.

The CBDT’s swift amendments to Rule 10U and Rule 128 demonstrate the Government’s commitment to protecting the legitimate expectations of investors who made investments in good faith prior to 1 April 2017.The carve-out for income arising from the transfer of pre-2017 investments, now expressly incorporated in the existing and amended Rules, ensures that the grandfathering protection is honoured in letter and spirit.

Considered together, the ruling and the Notifications present a balanced and constructive picture. India will act firmly against tax avoidance structures while honouring its commitments. For the global investment community, this combination of judicial precision and legislative responsiveness reflects s India’s maturity as an investment destination.

Ashoo Gupta, Partner, Shardul Amarchand Magandas & Co. Views expressed are personal

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