Supreme Court’s seminal judgment in the case of Tiger Global International is back in the spotlight, this time amid claims that its impact is being diluted, at least to some extent.
CBDT on March 31, 2026, issued notifications introducing amendments to the Income-tax Rules (both the 1962 and 2026 Rules), which seek to grandfather income arising from the transfer of investments made prior to April 1, 2017, from the application of the General Anti-Avoidance Rules (GAAR).
Background to the amendments
The Supreme Court, in Tiger Global International, had clarified that the grandfathering provisions cannot be read as conferring a blanket exemption from challenge on grounds of treaty abuse. Consequently, the grandfathering benefit would only be available if the pre-2017 investments do not form part of arrangements that lack commercial substance.
CBDT’s amendment sought to dilute the impact of the Supreme Court’s decision and clarify that grandfathered investments shall continue to be shielded from GAAR.
Relief is partial
In the post-Tiger Global era, this change undoubtedly brings clarity and certainty for taxpayers holding legacy investments through jurisdictions with favourable tax treaties and instils confidence that their exits from such investments will not face the GAAR hurdle. However, this is where the comfort ends.
The CBDT notifications unequivocally specify that these amendments will come into effect prospectively. The notification introducing changes to the erstwhile Income-tax Rules, 1962, states that the effect of these amendments is that GAAR provisions would not be invoked on or after the date of publication of such notifications in respect of transfer of grandfathered investments. Accordingly, while prospective transactions or transactions in respect of which GAAR provisions have not yet been invoked may benefit from these amendments, the applicability or impact of these amendments with respect to pending disputes or ongoing scrutiny remains unclear.
If the Government’s intention is indeed to clarify the applicability of GAAR to grandfathered investments in the post‑Tiger Global era, it would be appropriate for such amendments to be expressly made retrospective.
‘Substance over form’ prevails
Further, the narrative that, pursuant to these amendments and the grandfathering benefits offered in respect of the application of the 'principal purpose test’ under earlier circulars, taxpayers' treaty claims may enjoy blanket protection in respect of exits from legacy investments, does not appear to be consistent with the Supreme Court’s decision.
The Supreme Court had clearly noted in its judgment that the mere non-applicability of GAAR will not shield treaty claims from scrutiny. The tax authorities can continue to examine treaty claims under the judicial anti-avoidance rules, consistently recognised in Indian jurisprudence. Thus, despite the comfort of grandfathering being provided, taxpayers’ treaty claims may still be questioned and, in certain instances, denied if they do not satisfy the anti-avoidance principles grounded in the ‘substance over form’ doctrine.
Tiger Global judgement covered a wide spectrum
While these amendments dilute the Supreme Court's observation on the applicability of GAAR, albeit to a limited extent, the bite of the Tiger Global International judgment was much larger. Notably, the Supreme Court had noted that a 'tax residency certificate’, while relevant, is not conclusive proof of residency or beneficial ownership to preclude a scrutiny into the substance of the transaction.
Equally significant are the Court’s observations on the non-availability of treaty protection on transfer of capital gains arising from foreign assets deriving value from assets situated in India (indirect transfers), and on treaty exemptions being contingent upon taxation in the residence state, which continue to guide current and future scrutiny of treaty claims. These observations, along with the emphasis on the primacy of the substance over form doctrine in this decision, remain foundational guides in evaluating the legitimacy of current and future tax treaty claims.
Importantly, these observations, though rendered in the context of the availability of capital gains exemption under the India-Mauritius Tax Treaty, apply regardless of the tax treaty or the source of income in respect of which relief is claimed. Here, it would also be relevant to note that even after the aforesaid amendments, only income from transfer of grandfathered investments is protected from GAAR and treaty claims in respect of other incomes (such as dividends, royalty and fee for technical services) may still face scrutiny.
Viewed in this light, while these prospective amendments to the applicability of GAAR to grandfathered investments provide some statutory comfort, the fundamental takeaway remains that taxpayers must continue to ground their treaty claims in demonstrable substance. Accordingly, taxpayers are well advised not to rely solely on these grandfathering provisions and should maintain contemporaneous documentation evidencing business rationale and beneficial ownership, as only substance-driven structures would be immune to Tiger Global’s bite.
(Kunal Savani is Partner and Bipluv Jhingan, Principal Associate, in Cyril Amarchand Mangaldas.)
Views are personal, and do not represent the stand of this publication.
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