Not all disputes can be termed as tax terrorism: Tax dept clarifies after SC's Tiger Global verdict

Many differences arise from genuine differences of interpretation in evolving areas of law, Central Board of Direct Taxes officials said, requesting anonymity.

• Supreme Court ruled Tiger Global's Flipkart exit gains taxable under Indian law
• CBDT says high tax figures are due to large transactions, not aggressive action
• Tax department clarifies no delay on their part; case awaited judicial clarity

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Not all tax disputes arising out of different interpretations of the law amount to “tax terrorism”, tax department sources said, responding to concerns raised after the Supreme Court’s verdict in the Tiger Global case.

Many differences arise from genuine differences of interpretation in evolving areas of law, Central Board of Direct Taxes officials said, requesting anonymity.

The top court on January 15 said that capital gains arising out of the US-based investment firm’s exit from Flipkart are taxable under domestic laws. The order overturned a Delhi high court ruling, which had in 2024 accepted Tiger Global’s position that the transaction was tax exempt.

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The private equity firm acquired shares in India’s e-commerce giant in 2011 and 2015 through various Mauritius-based subsidiaries. In one of the largest cross-border acquisitions in the country, Tiger Global exited Flipkart in 2018 after Walmart bought a majority stake in the e-commerce company for $16 billion.

Tiger Global's argument

Tiger Global had argued that it was exempted from capital gains tax arising out of the deal because the investments in Flipkart were made before April 1, 2017, when the India–Mauritius Double Taxation Avoidance Agreement (DTAA) provided immunity from Indian capital gains tax, subject to treaty conditions.

Moreover, the US-based firm's Mauritius-based entities held valid Tax Residency Certificates (TRCs) issued by local authorities, on the basis of which the firm asserted full protection under the India–Mauritius tax treaty and a nil tax liability in India.

Centre to start recovery of taxes from Tiger Global after SC verdict

The sources also clarified that the tax figures are high due to high-value transactions, not because the tax department is taking any aggressive action. Such moves should not be automatically seen as “coercive”.

The CBDT officials said that in large transactions, tax amounts are bound to be large simply because of the scale involved, and that pending demands or withheld refunds in such cases should not be seen as arbitrary or coercive, as they often stem from unresolved legal questions awaiting final judicial clarity.

Given the ongoing proceedings, the Income Tax department withheld the refund claim of Rs 967.52 crore, with the assessment process becoming closely tied to the outcome of the legal dispute over treaty eligibility.

They added that a state needed to protect its tax base, as underlined by Justice JB Pardiwala in the judgment. The judgment, they said, recognised the centrality of the economic and fiscal sovereignty of a modern nation and state’s legitimate interest in safeguarding public revenue.

No delay caused by tax department

The officials also clarified that there was no delay on their part as the case travelled through various forums before reaching the Supreme Court.

The Authority of Advanced Rulings (AAR) had given its order in 2020 against Tiger Global, saying the holding arrangement was “designed to avoid tax and treaty benefits that were not available”.

Later in 2024, the Delhi HC reversed the AAR’s ruling and said Tiger Global was protected by the grandfathering provisions of the tax treaty.

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The matter was challenged in the top court in January 2025, leading to a stay on the HC order.

The officials said the stay had a “crucial practical effect” as the issue became sub judice and “assessment proceedings for assessment year 2019–20 could not meaningfully progress”.

Any assessment framed would have been entirely dependent on the final outcome of the Supreme Court proceedings, and the delay was not due to inaction but due to legal necessity, the sources said.

Tax department's position

The tax department said it did not accept that the treaty benefit was automatically applicable. "The Department’s concern was not merely the existence of the DTAA, but whether the treaty was being used in the manner intended," sources said.

The department argued that the real control and decision-making powers for investments were outside Mauritius and the arrangement with entities "appeared to be structured primarily to obtain treaty benefits"

What SC said

The top court allowed government's appeals and said Tiger Global's capital gains were taxable under Indian laws.

"The court held that mere possession of a TRC does not bar enquiry into whether an entity is a conduit; amendments to the India–Mauritius DTAA were intended to curb treaty abuse; and the revenue had established an impermissible avoidance arrangement. With this judgment, the central legal issue attained finality."