Tiger Global Monday moved the Delhi High Court seeking a stay against an order that had termed the private equity investor's stake sale in Flipkart to US retail major Walmart in 2018 for Rs 14,500-crore, as prima facie designed to avoid tax.
According to people familiar with the matter, Tiger Global International IV Holdings has filed an appeal in the Delhi High Court where it has sought an injunction against a Mumbai Authority of Advance Rulings' order issued in March this year. It has also asked that income tax authorities should not take coercive action – which in this case would be raising a demand – against the company basis the order.
The Delhi High Court will hear the matter on Tuesday, September 22.
The US-based private equity firm had held the stake through an arm in Mauritius. It had sought to treat the transaction under the India-Mauritius Double Tax Avoidance Agreement, and three of its companies had approached the AAR after the income tax department rejected its request that Walmart shouldn’t be asked to withhold tax on capital gains arising from its $16 billion buyout of Flipkart.
However, the AAR rejected this contention and ruled in favour of the income tax authorities that had argued that the transaction was designed to avoid tax emanated from the changes that were made to the India-Mauritius tax treaty in 2016.
The AAR had also rejected the application made by the Mauritius-based investment company. The AAR said the benefits of the India-Mauritius tax treaty would not be available in this transaction.
Stakes of Mauritius-based Tiger Global International II, III, and IV Holdings in Flipkart Singapore, the parent company of Flipkart, were sold to Luxembourg-based Fit Holdings for more than Rs 14,500 crore in 2018.
Tiger Global was among the leading investors in Flipkart and had sold 17% of its 22% in the company to Walmart. In September 2019, Flipkart’s co-founder Binny Bansal had sold his shares in the company worth $14 million to two Tiger Global funds – Internet Fund III Pte Ltd and Tiger Global Eight Holdings.
Experts had cautioned that the ruling was bound to have been challenged as it could open doors for scrutiny of other investments that may have been routed through Mauritius.
“Lately, there has been a spate of negative orders from AAR and this particular ruling was bound to be challenged. This ruling has also caused a lot of furore in the private equity industry,” said Amit Maheshwari, partner at consultancy firm AKM Global.
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