Delhi High Court Stays Tax Proceedings Against Tiger Global on Flipkart-Walmart deal

Delhi High Court
India TV News

Synopsis: Tiger Global claimed nil withholding tax because the companies that made the investment in Flipkart were based in Mauritius before 2017.

In 2018, the Delhi High Court ordered a stay against the tax authorities’ initiation of assessment proceedings for the sale of Tiger Global’s 17 percent stake in Flipkart to Walmart for Rs 14,500 crore. Tiger Global stated a nil witholding tax on exit capital gains, which was rejected by the Authority of Advance Rulings (AAR).

Tiger Global Management LLC challenged the AAR decision before the Delhi High Court, which in June this year refused the U.S.-based private equity business tax treaty benefits. The bench of  Justices Manmohan and Sanjeev Narula’s decided to hear the appeal, and stayed further proceedings against Tiger Global.

Flipkart
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Senior Advocate Arvind Datar, appearing for Tiger Global, argued before the high court that companies are established in Mauritius with the purpose of making investments and that the findings of the Authority For Advance Decisions against the fund require the court to interfere. The AAR ruling relates to the taxability of capital gains resulting from Tiger Global’s investments in the Singapore-based holding company of Flipkart India.

In 2018, Tiger Global’s Mauritian branch sold to Walmart more than 26 million shares in Flipkart Singapore and approached the tax authorities to claim tax exemption from capital gains under the double tax avoidance agreement between India and Mauritius. The department had rejected Tiger Global’s  clam for the treaty benefit and the AAR had upheld this decision. The AAR arrived at a ‘inescapable conclusion’ after a close examination of the management and control system that the Mauritian companies were set up under the tax treaty just to derive benefit.

The DTAA exemption may only apply to the immediate transfer of the shares of an Indian company, it said, while denying the treaty benefits. In the Azadi Bachao case, Datar argued that the AAR ruling was contrary to the judgement of the Supreme Court. In compliance with the previous judgement of Azadi Bachao, if a person is a citizen of Mauritius and has a certificate of tax residence, the person is automatically exempted.

As a consequence of today’s order, the tax authorities unable to, for the time being, to raise any tax claim based on the AAR finding. The High Court granted 10 weeks to the tax department to file its reply. On  January 2021, the court will again take up the matter.

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