Answer

Introduction

The Tiger Global case (2026) involves a high-stakes tax dispute concerning the sale of a $1.6 billion stake in Flipkart to Walmart in 2018. At its heart lies the “substance over form” doctrine, where the Supreme Court (SC) prioritized the actual economic reality and commercial purpose of an investment structure over its legal documentation and technical compliance with tax treaties.

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Supreme Court Ruling and ‘Substance Over Form’

• Rejection of Shell Entities: The SC upheld the Revenue’s claim that Tiger Global’s Mauritius entities were mere “conduits” or pass-through vehicles lacking independent decision-making authority or commercial substance.
  Eg: The Court noted that the “head and brain” of these companies were located in the USA (Tiger Global Management LLC) rather than Mauritius.
• Dilution of TRC Sanctity: The ruling established that a Tax Residency Certificate (TRC) is no longer an “irrebuttable” shield against tax scrutiny if the underlying structure is found to be an impermissible tax avoidance arrangement.
  Eg: The SC reversed the Delhi HC’s 2024 view that TRCs are sacrosanct, allowing tax authorities to “look behind” the certificate.
• GAAR and Grandfathering: The Court ruled that General Anti-Avoidance Rules (GAAR) can override treaty benefits even for “grandfathered” investments (pre-2017) if the arrangement lacks commercial rationale.
• Sovereignty in Taxation: Justice J.B. Pardiwala emphasized that taxing income arising from Indian value-creation is an inherent sovereign right that cannot be diluted by artificial offshore routing.

Impact on Legal Certainty and Investor Confidence

• Erosion of Predictability: By overriding long-standing CBDT circulars and the 2003 Azadi Bachao Andolan precedent, the judgment reintroduces “treaty risk” into settled tax planning.
  Eg: Tax experts warn that this creates a “totally confusing message” for investors who relied on explicit government assurances of grandfathering.
• Increased Litigation Risk: The ruling opens a “Pandora’s box”, potentially allowing the tax department to reopen hundreds of past exits where treaty benefits were claimed through Mauritius or Singapore.
• Higher Compliance Costs: Foreign PE/VC funds must now demonstrate “deep substance” (local employees, office space, independent boards) in treaty jurisdictions, making deal-making costlier.
  Eg: Exit planning and indemnity clauses in Indian startup deals now require significant reassessment to account for potential tax liabilities.
• Deterrence to Capital Inflows: At a time when India faces net FPI outflows, the perceived judicial-policy divergence may dampen investor appetite in the unlisted equity space.

Conclusion

While the ruling rightfully asserts India’s fiscal sovereignty against aggressive tax avoidance, it risks creating a climate of regulatory instability. For a “Viksit Bharat,” the government must balance anti-abuse measures with clear, prospective legislative guidelines. Restoring investor confidence will require the Finance Ministry to clarify that “substance” tests will not be applied arbitrarily, ensuring that India remains a rule-based, competitive investment destination.

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