A day after Supreme Court's ruling that the capital gains arising from Tiger Global's $1.6 billion stake sale in Flipkart to Walmart in 2018 are taxable in India, sources said the income tax department will revive the assessment proceeding for AY 2019-20 against Tiger Global. 

"As a consequence of the Hon’ble SC’s judgment, the assessment proceedings for AY 2019–20, which had remained stayed in substance, will now revive," sources in the Central Board of Direct Taxes (CBDT) pointed out. 

Tiger Global's withheld refunds will now be part of assessment: Sources

"The Assessing Officer will now proceed to complete the assessments in line with the Supreme Court’s ruling," sources said. 

"The refund claimed of approximately ₹967.52 crore, already withheld under section 241A, will now be dealt with as part of the assessment and consequential demand proceedings," the sources added.  

Tiger Global - a US-based private equity firm held its investments in Flipkart via three Mauritius-based investment entities, Tiger Global International II Holdings, Tiger Global International III Holdings and Tiger Global International IV Holdings. 

It may be noted that these investments were made before April 1, 2017, when the India–Mauritius Double Taxation Avoidance Agreement (DTAA) provided exemption from Indian capital gains tax, subject to treaty conditions.

In 2018, Walmart Inc., USA acquired a controlling stake in Flipkart in a global transaction valued at approximately $1.6 billion, with the three Tiger Global Mauritius entities exiting. "The exit resulted in significant capital gains, with the aggregate consideration received exceeding ₹14,500 crore," sources pointed out. 

CBDT sources said the receipts in the hands of the three entities formed the basis of the capital gains sought to be taxed by the Indian tax authorities. This exit event triggered the present tax dispute.

IT Dept established tax avoidance arrangement: SC

Tiger Global’s submission was that no capital gains tax was payable in India as the capital gains arose from investments made prior to 1 April 2017 and therefore covered by the grandfathering provisions of the India–Mauritius DTAA. It has submitted that the the Mauritius entities held valid Tax Residency Certificates (TRCs) issued by the Mauritius authorities. 

But setting aside an earlier High Court decision in favour of Tiger Global, the Supreme Court upheld the department of revenue's appeal and ruled in its favour.  

The Court held that mere possession of a TRC does not bar enquiry into whether an entity is a conduit, and amendments to the India–Mauritius DTAA were intended to curb treaty abuse. The SC observed the department had established an impermissible avoidance arrangement.