India’s Supreme Court issued a pivotal decision on 15 January 2026 in Tiger Global International III Holdings and others, holding that a tax residency certificate (TRC) issued by the Mauritius tax authorities is not conclusive proof of eligibility for tax treaty benefits. The decision marks a notable departure from the long-standing judicial view that a TRC is sufficient to claim treaty relief.
The Supreme Court concluded that capital gains arising from the sale of shares were taxable in India under the India-Mauritius tax treaty because the transaction constituted an impermissible tax avoidance arrangement under India’s general anti-avoidance rule (GAAR). In reaching its conclusion, the court emphasised economic substance over legal form to deny treaty benefits and overturned a taxpayer-favourable decision of the Delhi High Court.
For decades, disputes involving offshore holding structures have focused on whether foreign investment vehicles holding valid TRCs are eligible for treaty benefits—particularly capital gains tax exemptions—under India’s treaties. A TRC issued by the Mauritius tax authorities certifies that a taxpayer is resident in Mauritius for income tax purposes. Until the Tiger Global ruling, the Supreme Court had consistently taken the position that a TRC was “conclusive” evidence of residence for tax treaty purposes, effectively guaranteeing treaty benefits to the TRC holder.
Mauritius Route
The 1982 India-Mauritius treaty has long been used as a preferred structure for foreign investment into India. Under the original treaty, capital gains on the sale of Indian shares were taxable only in Mauritius. Because Mauritius did not tax capital gains, investors could avoid tax in both countries, creating a widely used opportunity for tax arbitrage.
Concerns about treaty abuse led India’s Central Board of Direct Taxation (CBDT) to issue guidance in 1994, confirming that capital gains derived by Mauritius residents were taxable only in Mauritius, which effectively bolstered the Mauritius route as a preferred investment structure. A 2000 circular further stated that a Mauritius TRC was sufficient to prove beneficial ownership, and the Supreme Court upheld the validity of this position.
2016 Protocol
The India-Mauritius tax treaty was amended by a protocol in 2016 to close the loophole that allowed residents of the contracting states to avoid capital gains taxation by granting India the right to tax capital gains on the disposition of Mauritius shares acquired on or after 1 April 2017. Residence-based taxation remained for capital gains on shares acquired before that date.
A New Test Case
The Tiger Global case gave the Supreme Court an opportunity to revisit these issues in the context of a large multinational acquisition, raising questions about treaty entitlement, tax treaty abuse, the effect of CBDT circulars, the scope of India’s GAAR and the circumstances under which treaty relief may be denied despite the existence of a TRC.
The case before the Supreme Court involved Mauritius-incorporated investment companies (the taxpayers) holding Category-I Global Business Licences and valid TRCs under the India–Mauritius tax treaty. The taxpayers held shares in a Singapore company, whose value was substantially derived from assets located in India. The taxpayers sold the shares to a Luxembourg entity as part of a broader acquisition, receiving substantial capital gains. Before the transfer, the taxpayers sought nil withholding certificates from the Indian tax authorities asserting that the gains were exempt under the treaty. The authorities denied the request, citing the absence of independent decision-making, and directing withholding at specified rates.
The taxpayers’ application to the Authority for Advance Rulings (AAR) was unsuccessful, with the AAR rejecting the applications as being prima facie a tax-avoidance arrangement and concluding that because the capital gains arose from the sale of the shares of a Singapore company, the transaction did not qualify for a tax exemption under the India-Mauritius treaty. However, the further appeal to the Delhi High Court was successful; the court quashed the AAR’s order and held that the validity of the TRC issued by the competent authority in Mauritius must be considered sacrosanct and hence, based on the tax treaty, the capital gains are not taxable in India. The tax authorities then appealed to the Supreme Court.
The Supreme Court held that the possession of a TRC is not conclusive evidence of residence in Mauritius and does not automatically entitle a taxpayer to treaty benefits. Treaty relief may be denied where arrangements lack commercial substance. Key findings of the court are as follows:
The Supreme Court decision—which is likely to have far-reaching implications for foreign investors—places clear priority on economic substance over legal form. In doing so, it requires taxpayers to establish commercial substance in order to claim tax treaty benefits. By holding that a TRC is merely an “eligibility” document and not conclusive proof of residence or substance, the court has effectively increased the burden on taxpayers to demonstrate commercial substance.
The court further held that indirect transfers of shares, i.e., shares deriving substantial value from assets located in India, are not protected under the treaty. It remains uncertain whether this principle applies broadly to all indirect share transfers or only to transactions undertaken pursuant to arrangements deemed impermissible under law.
These developments create challenges for foreign investors who have historically routed investment into India through intermediate treaty jurisdictions. The grandfathering of past investments is no longer a comprehensive shield against capital gains tax. For exits involving long-standing holdings, investors may need to reassess their tax positions and revisit expected tax costs.
Niranjan Govindekar
Tushar Desai
BDO in India
The Supreme Court concluded that capital gains arising from the sale of shares were taxable in India under the India-Mauritius tax treaty because the transaction constituted an impermissible tax avoidance arrangement under India’s general anti-avoidance rule (GAAR). In reaching its conclusion, the court emphasised economic substance over legal form to deny treaty benefits and overturned a taxpayer-favourable decision of the Delhi High Court.
Background
For decades, disputes involving offshore holding structures have focused on whether foreign investment vehicles holding valid TRCs are eligible for treaty benefits—particularly capital gains tax exemptions—under India’s treaties. A TRC issued by the Mauritius tax authorities certifies that a taxpayer is resident in Mauritius for income tax purposes. Until the Tiger Global ruling, the Supreme Court had consistently taken the position that a TRC was “conclusive” evidence of residence for tax treaty purposes, effectively guaranteeing treaty benefits to the TRC holder.Mauritius Route
The 1982 India-Mauritius treaty has long been used as a preferred structure for foreign investment into India. Under the original treaty, capital gains on the sale of Indian shares were taxable only in Mauritius. Because Mauritius did not tax capital gains, investors could avoid tax in both countries, creating a widely used opportunity for tax arbitrage.
Concerns about treaty abuse led India’s Central Board of Direct Taxation (CBDT) to issue guidance in 1994, confirming that capital gains derived by Mauritius residents were taxable only in Mauritius, which effectively bolstered the Mauritius route as a preferred investment structure. A 2000 circular further stated that a Mauritius TRC was sufficient to prove beneficial ownership, and the Supreme Court upheld the validity of this position.
2016 Protocol
The India-Mauritius tax treaty was amended by a protocol in 2016 to close the loophole that allowed residents of the contracting states to avoid capital gains taxation by granting India the right to tax capital gains on the disposition of Mauritius shares acquired on or after 1 April 2017. Residence-based taxation remained for capital gains on shares acquired before that date.
A New Test Case
The Tiger Global case gave the Supreme Court an opportunity to revisit these issues in the context of a large multinational acquisition, raising questions about treaty entitlement, tax treaty abuse, the effect of CBDT circulars, the scope of India’s GAAR and the circumstances under which treaty relief may be denied despite the existence of a TRC.
Facts of the Case
The case before the Supreme Court involved Mauritius-incorporated investment companies (the taxpayers) holding Category-I Global Business Licences and valid TRCs under the India–Mauritius tax treaty. The taxpayers held shares in a Singapore company, whose value was substantially derived from assets located in India. The taxpayers sold the shares to a Luxembourg entity as part of a broader acquisition, receiving substantial capital gains. Before the transfer, the taxpayers sought nil withholding certificates from the Indian tax authorities asserting that the gains were exempt under the treaty. The authorities denied the request, citing the absence of independent decision-making, and directing withholding at specified rates.The taxpayers’ application to the Authority for Advance Rulings (AAR) was unsuccessful, with the AAR rejecting the applications as being prima facie a tax-avoidance arrangement and concluding that because the capital gains arose from the sale of the shares of a Singapore company, the transaction did not qualify for a tax exemption under the India-Mauritius treaty. However, the further appeal to the Delhi High Court was successful; the court quashed the AAR’s order and held that the validity of the TRC issued by the competent authority in Mauritius must be considered sacrosanct and hence, based on the tax treaty, the capital gains are not taxable in India. The tax authorities then appealed to the Supreme Court.
Supreme Court Decision
The Supreme Court held that the possession of a TRC is not conclusive evidence of residence in Mauritius and does not automatically entitle a taxpayer to treaty benefits. Treaty relief may be denied where arrangements lack commercial substance. Key findings of the court are as follows:
- To claim a capital gains tax exemption under the India-Mauritius treaty, the taxpayer must qualify as a ‘resident’ of Mauritius and directly hold the shares forming the subject matter of the transaction. An indirect sale of shares would not fall within the scope of the capital gains article.
- The Indian parliament has statutorily empowered the AAR to reject applications where a transaction appears prima facie to involve tax avoidance. The threshold is lower than that required to prove a fact conclusively.
- Section 90(4) of India’s Income Tax Act (ITA) makes a TRC an “eligibility requirement” not “sufficient” evidence of residence (a slightly higher threshold). A TRC is not binding on the authorities or courts—they must independently assess the facts.
- Holding a TRC does not preclude the authorities from examining whether an interposed entity was used to avoid tax.
- CBDT circulars issued before statutory amendments must be interpreted in their historical context and cannot override later amendments. Pre-amendment circulars therefore do not assist the taxpayer.
- The 2016 protocol to the treaty sought to curb treaty abuse, including treaty shopping, conduit structures, round-tripping, hybrid structures, shell companies, etc.
- Section 90(2A) of the ITA expressly subordinates tax treaty benefits to the GAAR. The GAAR is applicable for the period in question, enabling the tax authorities to declare the arrangement impermissible.
- Rule 10U(2) of the Income-tax Rules, 1962 clarifies that pre-existing arrangements are not automatically grandfathered. If a tax benefit arises on or after 1 April 2017, the GAAR may apply regardless of when the investment was made.
- Where prima facie evidence suggests that the arrangement was designed with the sole intent of avoiding tax, i.e., an impermissible avoidance arrangement, mere reliance on the possession of a TRC or pre-amendment circulars is insufficient to claim treaty relief.
- India’s judicial anti-avoidance rule continues to operate alongside the GAAR and empowers the Indian authorities to deny treaty benefits where commercial substance is lacking or where other tax treaty abuse or conduit structures are present.
BDO Perspective
The Supreme Court decision—which is likely to have far-reaching implications for foreign investors—places clear priority on economic substance over legal form. In doing so, it requires taxpayers to establish commercial substance in order to claim tax treaty benefits. By holding that a TRC is merely an “eligibility” document and not conclusive proof of residence or substance, the court has effectively increased the burden on taxpayers to demonstrate commercial substance.The court further held that indirect transfers of shares, i.e., shares deriving substantial value from assets located in India, are not protected under the treaty. It remains uncertain whether this principle applies broadly to all indirect share transfers or only to transactions undertaken pursuant to arrangements deemed impermissible under law.
These developments create challenges for foreign investors who have historically routed investment into India through intermediate treaty jurisdictions. The grandfathering of past investments is no longer a comprehensive shield against capital gains tax. For exits involving long-standing holdings, investors may need to reassess their tax positions and revisit expected tax costs.
Niranjan Govindekar
Tushar Desai
BDO in India