New Delhi, Jan 16 (IANS) The Income Tax Department has revived the assessment proceedings against Tiger Global following the favourable Supreme Court judgment on the capital gains tax that has to be paid by the US equity investor on the sale of Flipkart shares to American retail giant Walmart for Rs 14,500 crore.
A senior official told IANS that the Income Tax Department has already withheld approximately Rs 967.52 crore as tax deducted at source, under Section 241A, for which the company had claimed a refund. This will now be dealt with as part of the assessment and consequential demand proceedings.
As a consequence of the SC’s judgment, the assessment proceedings for AY 2019–20, which had remained stayed in substance, will now revive. The Assessing Officer will now proceed to complete the assessments in line with the Supreme Court’s ruling, he said.
He said the Tiger Global case serves as a useful illustration of the realities of tax litigation and outstanding demands. Litigation cannot be wished away, as the right to appeal is a statutory right available to the taxpayers.
The taxpayers have the right to challenge an order and exhaust the available appellate channels for adjudication of the issue. The Department respects this right and therefore has to await the final outcome of the judicial process. This is a function of the legal process, not overreach or delay on the part of the department, the official said.
As emphasised by Justice J.B. Pardiwala in the judgment, 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. In high-value transactions, the tax figures will inevitably be large. The numbers flow from the size of the transaction itself.
Pending demands or withheld refunds in such cases should not automatically be viewed as arbitrary or coercive. They often reflect unresolved questions of law awaiting final judicial determination. All tax disputes cannot be labelled as overreach or “tax terrorism”. Many arise from genuine differences of interpretation in evolving areas of law, the official pointed out.
The Tiger Global matter arose from the tax treatment of capital gains generated on the exit of Tiger Global from Flipkart as part of Walmart’s acquisition in 2018. The transaction was one of the largest cross-border acquisitions in India’s digital economy and, by its very nature, involved very large monetary values.
In 2018, Walmart Inc., USA, acquired a controlling stake in Flipkart in a global transaction valued at approximately $16 billion. As part of this transaction, the three Tiger Global Mauritius entities exited a substantial portion of their investment. The exit resulted in significant capital gains, with the aggregate consideration received exceeding Rs 14,500 crore.
Tiger Global’s position was that no capital gains tax was payable in India on the transaction. The basis of this position was that the capital gains arose from investments made prior to April 1, 2017, and were therefore covered by the grandfathering provisions of the India–Mauritius DTAA.
The Indian tax authorities did not accept that the treaty benefit followed automatically. The tax department’s concern was not merely the existence of the DTAA, but whether the treaty was being used in the right manner for which it was intended.
Based on examination of the overall structure and surrounding facts, the tax department formed took a view that the Mauritius entities were interposed entities, with limited commercial substance of their own. The real control and decision-making in respect of the investments and the exit lay outside Mauritius. The arrangement appeared to be structured primarily to obtain treaty benefits, raising concerns of treaty abuse and impermissible avoidance.
--IANS
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