According to officials from the government, the Centre is set to start recovering the taxes owed to it by Tiger Global Management after the Supreme Court of India determined that capital gains realised by the investment firm when it divested its ownership in Flipkart are subject to taxation in India.
This ruling allows the Income Tax department to restart tax assessment proceedings, which were stopped during the pendency of the court case and to issue tax assessments for the associated tax assessment year.
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Top court ruling
A ruling from the Delhi High Court that granted Tiger Global taxation relief under the India-Mauritius Double Taxation Avoidance Agreement (DTAA) was set aside by the Supreme Court. The apex court stated that Tiger's structure did not fit within treaty coverage, therefore its profits are taxable in India.
The matter pertains to Tiger Global's sale of shares in Flipkart, which occurred in 2018 when Walmart purchased a majority interest in Flipkart. The sale resulted in a large capital gain for Tiger.
Recovery process
After the ruling, tax officials will continue their assessment for the 2019–20 tax year that was put on hold due to the ongoing court case. Once the assessment has been completed according to the Supreme Court ruling, the department will issue demand notices.
As part of this recovery, the government will refund the amounts previously withheld from the transaction against any tax owed.
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According to a Finance Ministry official, the amount of Rs 970 crore which Tiger Global claimed in regards to their refund that has been withheld by the Finance department will also be added to the current tax demand from the department.
This ruling could establish a precedent for how India interprets tax treaties for global investors who have left their companies; creating a future of ambiguity regarding capital gains.
The Finance Ministry and Tiger Global did not respond for comment, according to a report by Business Standard.
