With the Supreme Court‘s landmark judgment delivered on January 15, ruling that capital gains from Tiger Global’s 2018 stake sale in Flipkart (as part of Walmart’s acquisition) are taxable in India, the assessment proceedings for the concerned firms for 2019-20, which had effectively remained in abeyance due to litigation, will now revive swiftly, sources from the Central Board of Direct Taxes (CBDT) said on Friday.
The assessing officer is expected to complete the assessments in line with the SC’s final ruling, the sources said. The firms’ refund claim of Rs 967.52 crore (withholding tax) will now be addressed as part of the assessment and any consequential demand proceedings, the sources added.
Pushing back against perceptions of aggressive enforcement, the CBDT sources asserted that all tax disputes cannot be labelled as overreach or ‘tax terrorism’. Many arise from genuine differences of interpretation in evolving areas of law.
They concluded that final certainty in such matters emerges only when the apex court settles the issue, binding both taxpayers and the tax administration to the judicial process.
The SC bench, comprising Justices JB Pardiwala and R Mahadevan, set aside the August 2024 Delhi High Court ruling that had favoured Tiger Global, and upheld the tax authorities’ position that the Mauritius-based entities were used in an impermissible tax avoidance arrangement.
The court denied treaty benefits to the firms under the India-Mauritius Double Taxation Avoidance Agreement (DTAA) despite Tax Residency Certificates (TRCs).
Complex Legal Interpretation
The CBDT sources pointed out that such high-stakes disputes, involving complex interpretations of statutes, treaty provisions, grandfathering clauses, and allegations of avoidance, often remain under litigation for extended periods due to their magnitude and evolving legal questions.
“There is no immediate remedy in such matters, except upon the case attaining finality at the highest judicial forum,” they noted.
They further clarified that in high-value transactions like the Walmart-Flipkart deal, the resulting tax figures are inevitably large and stem directly from the scale of the underlying consideration.
“Pending demands or withheld refunds in such cases should not automatically be viewed as arbitrary or coercive,” the sources added. “They often reflect unresolved questions of law awaiting final judicial determination.”
Protecting Fiscal Sovereignty
Echoing observations in the judgment, particularly those from Justice Pardiwala in his concurring opinion, the sources stressed the centrality of fiscal sovereignty. “As emphasised by Hon’ble Justice Pardiwala, it is important for a state to protect its tax base.
The judgment recognised the centrality of the economic and fiscal sovereignty of a modern nation and the state’s legitimate interest in safeguarding public revenue.”
The ruling is widely seen as a significant win for the revenue department and a cautionary signal to foreign investors regarding offshore structures lacking substantial commercial substance, even for pre-April 2017 investments claiming grandfathering protections.