Curtailing Treaty Conduit Transactions: Limitation of Benefits in the India-Singapore DTAA
- Meyher Chawla
- 6 days ago
- 26 min read
The author is Meyher Chawla, a Fourth Year B.A. LL.B. Student from Jindal Global Law School.
Keyword : Treaty Shopping
Overview
Historically, the India-Singapore Double Taxation Avoidance Agreement (“DTAA”)[1] served as a primary mechanism for facilitating foreign direct and portfolio investment, primarily due to its favorable treatment of capital gains on Indian equity. However, India has since pivoted from this investment-centric model toward a robust protection of source-based taxing rights to mitigate fiscal evasion.[2] This article contends that the India-Singapore DTAA now functions less as a conduit for treaty-based nvestment routing and more as a calibrated anti-abuse regime. This transition has been characterized by the integration of Limitation of Benefits clauses, domestic General Anti-Avoidance Rules, and the Principal Purpose Test introduced via the OECD’s Base Erosion and Profit Shifting framework and the Multilateral Instrument operating together to preserve source taxation and deny benefits to artificial structures.
This analysis explores the evolution of "treaty shopping" and the efficacy of Limitation Of Benefits (“LOB”) provisions, specifically examining Article 24A and the limitation-of-relief mechanisms under Article 24 of the India-Singapore DTAA. It traces the shift from a liberal residence-based capital gains regime to a stringent architecture that layers treaty-specific anti-abuse rules with domestic General Anti-Avoidance Rules (“GAAR”) and international Principle Purpose Test (“PPT”) standards. The discussion then turns to the Supreme Court's January 2026 decision in Authority for Advance Rulings v. Tiger Global International II Holdings[3] which sharply reinforced the shift toward substance-based treaty analysis. That ruling dismantled the perceived inviolability of grandfathering clauses and established that a Tax Residency Certificate (“TRC”) does not constitute conclusive evidence of treaty eligibility, thereby prioritizing economic substance over formal legal structure.
I. Treaty Shopping: Concept and Policy Concerns
A. Nature of Treaty Shopping
The OECD/G20 BEPS Action 6 paper, "Preventing the Granting of Treaty Benefits in Inappropriate Circumstances," (“Report”), explained that “Treaty shopping happens when a person who is not entitled to favorable treaty benefits in their home jurisdiction interposes an entity in a third State that has a more lucrative treaty with the source State, solely for the purpose of accessing those benefits rather than for real business reasons.”[4] This is often accomplished by creating a shell or conduit corporation in a low- or no-tax jurisdiction and routing investments or income flows through it, therefore utilizing treaty provisions on reduced withholding rates or capital gains exemptions.[5]
Treaty shopping raises significant policy concerns because it results in erosion of the source State's tax base and double non-taxation, while bestowing windfall advantages on citizens of non-treaty States who were not the intended beneficiaries of the treaty. The Report[6] cites tax treaty misuse, including treaty shopping, as one of the most serious sources of BEPS issues and recommends minimal requirements to tackle it.[7]
B. India’s Early Judicial Approach: Azadi Bachao Andolan
Prior to the inclusion of LOB clauses in several of its treaties, India's approach to treaty shopping was heavily influenced by the Supreme Court's ruling in Union of India v. Azadi Bachao Andolan[8] about the India-Mauritius DTAA. In that case, the Court upheld CBDT Circular No. 789[9], which urged tax authorities to consider a TRC issued by Mauritian authorities as conclusive proof of residency and beneficial ownership for claiming treaty benefits, such as capital gains exemption on Indian shares. In the absence of an express limitation clause in the Indo-Mauritius treaty[10], the Court decided that "treaty shopping" by third-country investors using Mauritius holding companies could not be considered illegal, as long as the structure complied with the treaty and domestic law.[11]
This position was dramatically unsettled nearly two decades later by the January 2026 Tiger Global ruling. The Supreme Court (“SC”) clarified that the GAAR may supersede treaty safeguards, even if the underlying investment was undertaken before the GAAR went into effect in 2017. The Court also determined that a TRC is no longer sufficient proof of residency under Section 90(4) of the Income-tax Act of 1961. [12] In doing so, the court challenges the basis of Azadi Bachao Andolan, which considered treaty shopping lawful in the absence of clear limitation of benefits terms. This jurisprudence pushed India to rewrite its investment treaties with Mauritius, Cyprus, and Singapore, introducing LOB provisions and shifting to source-based capital gains taxation.
II. International Response: BEPS Action 6 and Anti-Abuse Standards
A. BEPS Action 6 and Minimum Standards
The Report[13] contends that treaty shopping weakens fiscal sovereignty by allowing taxpayers to claim treaty benefits where such claims were not intended, thereby, robbing governments of its revenue. To address this, the Report recommends that countries should include the following in their treaties: (i) a clear statement in the preamble that the treaty is not intended to create opportunities for non‑taxation or reduced taxation through tax evasion or avoidance; (ii) a specific anti‑abuse rule such as an LOB clause; and/or (iii) a GAAR based on a (PPT).[14]
The difference in design is made explicit in the Report that states “Treaty benefits may be denied under the PPT if, after considering all relevant facts and circumstances, it is reasonable to conclude that one of the primary purposes of an arrangement or transaction was to obtain treaty benefits, unless such benefits are consistent with the treaty's object and purpose.”[15] In contrast, the LOB method uses objective criteria such as legal form, listing status, ownership, and activity tests to limit treaty benefits to businesses with a sufficient connection and substance in the contracting state.[16]
B. India’s Treaty Policy Post-BEPS
India has largely aligned its treaty policy with BEPS Action 6 by concurrently adding LOB sections to important treaties and adopting the PPT through bilateral renegotiations or the Multilateral Instrument (“MLI”).[17] For example, the post-2016 modifications to the India–Mauritius, India–Cyprus and India–Singapore DTAAs shifted capital gains on shares from residence-based to source-based taxation. However, the pre-April 2017 investments were grandfathered, and transitional benefits were subject to anti-abuse conditions, including LOB provisions. Against this backdrop, India's adoption of the PPT reflects a broader policy shift toward refusing treaty benefits where an agreement has sufficient commercial substance and is primarily intended to achieve tax benefits.[18]
This anti-abuse architecture is further strengthened by India's domestic GAAR regime, which went into effect in the assessment year 2018–19 (the fiscal year 2017–18) and gives tax authorities the power to declare arrangements as impermissible avoidance arrangements when the primary goal is to obtain a tax benefit and specific "tainted element" tests are met.[19] GAAR can coexist with treaty-level Specific Anti-Avoidance Rules (“SAAR”), including LOB clauses, according to CBDT clarifications, with GAAR filling where particular provisions of the treaty fail to sufficiently address abusive structures.
III. Structure of the India-Singapore DTAA
A. Basic Framework and Significance
In order to prevent double taxation and fiscal avoidance with regard to income taxes, the India-Singapore DTAA was signed on January 24, 1994. Since then, Singapore has become a major hub for directing investments into India because of its established banking sector, favorable tax policy, and the generous capital gains provisions in the pre-amendment treaty wording.[20] This issue became more prominent following increased scrutiny of the India-Mauritius route. In response, India implemented protocols in 2005 and 2016, which included limited grandfathering and transitional measures, progressively stricter LOB provisions, and a shift to source-based capital gains taxation. Prior to the 2016 Third Protocol[21], capital gains on shares of an Indian firm acquired by a Singaporean tax resident were taxable only in Singapore (the State of residence), giving many investors a de facto exemption in cases where Singapore's domestic law did not tax such profits.[22]
B. Article 24: Limitation of Relief
Although it has a similar anti-abuse purpose, Article 24 of the India-Singapore DTAA[23], titled "Limitation of Relief," is fundamentally different from a LOB clause. The clause deals with circumstances in which income generated in one contracting State[24] is exempt from taxation under the treaty (for instance, by exemption or lower rate), but the State of resident only levies remittance taxes on that income and does not eventually impose a corresponding tax.[25] In order to prevent double non-taxation, Article 24 essentially restricts treaty relief to income that is actually sent to and taxed (or at least received) in the State of resident, which is often Singapore.
C. Article 24A: Limitation of Benefits (LOB)
Article 24A of the India-Singapore DTAA[26] (“Article 24A”), which was included by the 2005 Protocol[27] and later modified in 2016, contains the actual LOB provision. In order to prevent treaty shopping, Article 24A prohibits certain capital gains benefits where a Singaporean resident's affairs are set up primarily to take advantage of those benefits or when the entity is a shell or conduit firm with no actual economic reality. The clause aims to guarantee that only Singaporean firms with a legitimate commercial presence and expenditures in Singapore are eligible for residence-based or grandfathered capital gains exemptions. It is specifically linked Article 13(4A) and 13 (4C) of the India-Singapore DTAA concerning capital gains on shares of an Indian corporation.[28]
According to Article 24A(2), a shell or conduit company is one that does not engage in any actual, ongoing business activities in Singapore or that has very little or no commercial operations.”[29] A Singapore resident is considered to be a shell or conduit company under Article 24A(3) if its yearly expenditure on operations in Singapore is less than 200,000 Singapore dollars (or 50,00,000 Indian rupees) in each of the 12-month periods in the 24 months prior to the date on which the gains arise. On the other hand, meeting this expenditure requirement serves as a safeguard against being assumed to be a shell, even though authorities and courts are still able to assess the entity's actual business substance.
IV. Capital Gains, Grandfathering and the Third Protocol (2016)
A. Shift to Source-Based Taxation and Grandfathering
Following comparable renegotiations with Mauritius and Cyprus, India and Singapore signed the Third Protocol updating their DTAA on December 30, 2016.[30] With effect from April 1, 2017, the Third Protocol modified the distribution of taxing rights over capital gains from the sale of shares in an Indian firm from being solely residence-based to source-based, enabling India to tax such profits with regard to shares purchased on or after that date. The Indian government defended the change by arguing that it was required to reduce revenue loss, avoid double non-taxation, and simplify investment flows by coordinating treaty policies across important investment jurisdictions.[31]
To maintain investor expectations and prevent retroactive disruption, the Third Protocol states that investments in shares made before April 1, 2017, are grandfathered, which means that capital gains from their sale are taxable only in the State of residence (Singapore), subject to the fulfillment of LOB requirements in Article 24A. Additionally, source-based taxation in India is permitted at just 50% of the appropriate domestic tax rate during a transition period from April 1, 2017, to March 31, 2019, provided that the LOB clause is followed. From the fiscal year 2019–20 forward, India taxes such earnings at full domestic rates.
B. Interplay with Article 13 and Article 24A
Subject to the LOB clause in Article 24A, the Third Protocol also added a new Article 13(4A) to the India-Singapore DTAA, which exempts Singapore residents from capital gains resulting from the alienation of shares in an Indian company acquired prior to April 1, 2017. Thus, Article 24A serves as a gatekeeper even for investments made before to 2017. As a result, a Singaporean person cannot claim the grandfathered capital gains exemption if it violates the primary purpose or shell/conduit requirements.
V. Anatomy of the LOB Clause in Article 24A
A. Primary Purpose Test within Article 24A
According to Article 24A(1), a Contracting State resident is ineligible for the benefits of Articles 13(4A) or 13(4C) if their affairs are largely designed to profit from such capital gains benefits. While the BEPS PPT standard is triggered by the presence of "one of the principal purposes," the "primary purpose" test constitutes a narrower threshold. Nevertheless, the application of this test still necessitates an assessment of the fundamental objective of the arrangement within its broader factual context. In practice, Indian tribunals have increasingly construed this limb of the LOB provision in a manner closely resembling a PPT-oriented approach, prioritizing substantive commercial rationales over mere formal adherence to legal requirements.[32]
B. Shell or Conduit Company and Expenditure Safe Harbour
Under Article 24A, "shell" or "conduit" corporations are defined by a lack of substantive commercial presence or ongoing business activities within Singapore. To operationalize this, Article 24A provides a quantitative safe harbor, wherein, an entity is presumed to be a conduit if its local operational expenditure falls below S$200,000 (or INR 5,000,000) for two consecutive 12-month periods.
Furthermore, while the specific expenditure requirements of the LOB clause generally do not apply to individual residents, they remain subject to scrutiny under fundamental anti-avoidance regulations, particularly when utilizing closely held corporate structures. This oversight is reflected in a wider jurisprudential shift seen in the Tiger Global ruling where a TRC is no longer considered conclusive evidence of treaty entitlement if anti-abuse measures are triggered.[33]
VI. Case Law Applying Articles 24 and 24A in India-Singapore Context
A. Citicorp Investment Bank (Singapore) Ltd. and Limitation of Relief
In this case, the Bombay High Court examined whether Article 24 (Limitation of Relief) may be used to deny treaty advantages for shipping and investment income that was exempt or subject to special treatment in Singapore. The tax authorities contended that Article 24 permitted India to refuse treaty relief offered under substantive articles (such as Articles 8 or 13) in order to avoid double non-taxation because certain income was not taxed in Singapore until it was received. However, the Court held that Article 24 was not meant to supersede the specific distribution of taxing rights in other treaty provisions and that limitation-of-relief could not be used to deny benefits in cases where income was taxable in Singapore under its domestic law, even at a zero or concessional rate.
The rationale in Citicorp and subsequent Tribunal decisions underlines that Article 24 is not a comprehensive anti-avoidance weapon, but rather a narrow protection against instances in which the treaty offers an exemption but no taxes are levied in either State. This is especially true when comparing Article 24 to Article 24A's more stringent LOB structure, which expressly targets main purpose arrangements and shell or conduit enterprises in terms of capital gains.
B. D.B. International (Asia) Ltd. and Capital Gains under Article 13(4)
In this case, the Mumbai ITAT looked into whether Article 24's clause may apply to capital gains earned by a Singaporean resident from the sale of shares, debt instruments, and derivatives of Indian companies.The Tribunal ruled that Article 24 does not apply to such capital gains because Article 13(4) expressly confers Singapore taxing rights, and profits are taxable there on an accrual basis, regardless of whether they are later exempted or not taxed due to domestic legislation. The Tribunal emphasized that Article 13(4) is a distributive rule that grants one State the authority to tax specific income, not an exemption clause, and that Article 24 cannot be read to invalidate this allocation.
This ruling aids in defining the distinction between Article 24 and Article 24A: the LOB clause in Article 24A may still limit access to those benefits for shell or primary-purpose entities, but limitation-of-relief does not apply where capital gains fall under the pre-2017 regime of residence-based taxation. Rather than serving as a general anti-avoidance provision for all capital gains, Article 24A's major function following the Third Protocol's transition to source-based taxes is to police grandfathered gains on investments made prior to April 2017 and transitional circumstances.
C. The Fullerton Ruling and Convergence with PPT
According to commentary on the Fullerton Financial Holdings ruling[34], the Mumbai ITAT has taken a step toward reading the primary-purpose limb of Article 24A(1) similarly to the PPT. The Tribunal ruled that if the claimant's affairs were set up primarily to take advantage of the capital gains exemption, Article 13(4A) benefits for grandfathered shares acquired prior to April 2017 would be denied. The Tribunal further held that the evaluation should take into account whether the structure is in line with the object and purpose of the treaty. On the basis of the facts, however, the Tribunal determined that Fullerton was eligible for treaty remedy since it was a long-standing regional investment platform with substantial operations that satisfied the principal purpose and substance requirements.
Particularly in the post-BEPS setting, judges and administrators are increasingly integrating both objective and subjective anti-abuse measures, which is reflected in the blurring of the borders between LOB and PPT norms. For practitioners, this means that while meeting Article 24A's mechanical requirements is still required, it may no longer be sufficient; strategic consideration must also be given to proving business purpose and compatibility with treaty objectives.
VII. Domestic Anti-Avoidance: GAAR and Its Interaction with LOB
A. Overview of GAAR under the Income-Tax Act
The Income Tax Act's Chapter X-A, which covers Sections 95 to 102, contains the GAAR requirements,[35] which are applicable starting with the assessment year 2018–19 (financial year 2017–18). According to Section 95,[36] an arrangement may be deemed an "impermissible avoidance arrangement" regardless of anything stated in the Act, and the tax ramifications may be assessed appropriately, including the denial of treaty advantages when necessary. According to Section 96,[37] an arrangement that satisfies at least one of the tainted element tests -such as creating non-arm's-length rights, leading to misuse or abuse of the Act, lacking commercial substance, or being carried out in a non-bona fide manner -and whose primary goal is to obtain a tax benefit is considered an impermissible avoidance arrangement.
The CBDT clarifications and professional commentary emphasize that business reasons and commercial rationale will be crucial in a GAAR environment and that routing investments through tax-efficient jurisdictions without substantive activity may trigger GAAR if the primary purpose is tax avoidance. GAAR is designed as a broad, principles-based anti-avoidance regime that supplements specific anti-abuse rules, such as LOB clauses and domestic SAARs.
B. CBDT Clarifications on GAAR-LOB Interplay
Circular No. 7 of 2017[38] and accompanying CBDT advice answer various questions about the intersection of GAAR and treaty LOB requirements. The CBDT clarifies that GAAR and SAAR, including LOB clauses, can coexist since particular anti-avoidance measures may not cover all abusive situations. Therefore, even if a SAAR exists, GAAR may be applied if the arrangement remains oppressive. At the same time, the clarifications clarify that if an instance of avoidance is "sufficiently addressed" by the applicable treaty's LOB article, there should be no need to utilize GAAR further.
Furthermore, the CBDT has stated that GAAR would not impede a taxpayer's ability to choose between appropriate alternatives or a tax-efficient jurisdiction, so long as the decision is motivated by non-tax commercial factors and the primary goal is not to receive a tax benefit.[39] This suggests that in situations where the LOB clause is satisfied by genuine substance and the structure has a clear business rationale (such as regional management, access to capital markets, or regulatory advantages) for foreign portfolio investors (FPIs) and other investors through Singapore, GAAR should not normally be used to override treaty benefits.
In addition to treaty-level grandfathering in the India–Singapore DTAA, recent developments after high-profile GAAR litigation have led the CBDT to reiterate that income from investments made prior to April 1, 2017, is grandfathered and excluded from GAAR. Despite formal treaty compliance, GAAR is still a powerful instrument for post-2017 investments and agreements that require intricate conduit structures or lack commercial substance.
C. Role of Sections 90 and 90A and TRC Requirements
The Income-tax Act's Sections 90 and 90A[40] give the Central Government the authority to enter into DTAAs with foreign nations and designated associations in order to apply treaty provisions within domestic law and provide relief from double taxation. While Section 90A reflects these principles for agreements with specific associations rather than sovereign States, Section 90(2)[41] permits taxpayers to apply either the Income Tax Act or the applicable treaty, whichever is more advantageous. Formal conditions, such as the requirement for a valid TRC in order to collect treaty benefits, have been imposed over time by additional subsections like Section 90(4).
This development has been crystallized by the Supreme Court's Tiger Global ruling, which clarified that a TRC is merely an eligibility requirement under Section 90(4)[42], and not definitive proof of tax residency. Since the implementation of GAAR, a TRC by itself is unable to stop an investigation into whether an interposed entity is a means of evading taxes. This essentially eliminates years of investment dependence on the Azadi Bachao Andolan precedent and Circular No. 789 (2000). Although a TRC definitively establishes residency, it does not preclude the application of LOB provisions, GAAR, or PPT to deny benefits in cases where the structure is merely a conduit or lacks business substance, according to judicial and administrative criticism. This change is best illustrated by the India-Singapore DTAA, wherein a Singapore TRC permits treaty claims, but GAAR and Article 24A serve as effective barriers to treaty shopping.
VIII. PPT and LOB in the India-Singapore Context
A. Incorporation of PPT and Its Scope
India has integrated the PPT into numerous DTAs in accordance with BEPS Action 6. The MLI and bilateral modifications provides a general anti-abuse provision that can reject treaty advantages where obtaining such benefits is one of the main goals of an arrangement. The PPT applies prospectively from the dates mentioned in Article 35 of the MLI,[43] which generally correspond to the tax periods following the instrument's entrance into force in both contracting States., Furthermore, to move the analytical focus from formal compliance alone to commercial substance and contextual purpose, Indian guidance highlights that under the PPT, taxpayers must show that granting treaty benefits would be consistent with the object and purpose of the treaty.
The PPT functions in tandem with the particular LOB clause in Article 24A of the India-Singapore DTAA, providing the Indian Revenue with a number of anti-abuse tools, including the ability to deny benefits under the PPT, reject claims under LOB for shell or primary-purpose entities, and possibly apply domestic GAAR for arrangements that are not fully covered by treaty rules. [44] Critics warn that while this complex system raises uncertainty, it also brings India into compliance with international norms meant to prevent treaty misuse.
B. Normative Assessment: LOB versus PPT
From a normative standpoint, both PPT and LOB clauses offer benefits and drawbacks. LOB rules, such as those in Article 24A, offer greater ex- ante certainty due to their objective standards (expenditure thresholds, listing status, ownership patterns). However, they can be strict and occasionally over- or under-inclusive. PPT provisions, on the other hand, let tax authorities to deal with creative avoidance techniques, but because of their broad discretion and open-textured language, they may inject subjectivity and pose rule-of-law issues.[45]
The shortcomings of both approaches -the formal complexity of LOB and the indeterminacy of purpose-based analysis -may be combined in the current Indian tendency of interpreting Article 24A(1)'s primary-purpose test in a PPT-like fashion. However, when utilized intelligently, a purpose test and expenditure-based safe harbors can help distinguish genuine regional holding and treasury platforms in Singapore from merely tax-driven shell firms, so better aligning treaty benefits with actual investment and economic activity. As a result, the preferred option is a calibrated LOB framework supported by a restricted PPT, which provides assurance for real investors while also allowing tax authorities to combat abusive structures.
IX. Policy Evaluation: Effectiveness of LOB in Curtailing Treaty Conduit Transactions
A. Successes in Targeting Shell Structures
LOB clauses, along with a shift to source-based capital gains taxation, have significantly curtailed the availability of treaty conduit structures between Singapore and India. The practical cost of running a Singapore-based shell company has risen, owing to Article 24A, which requires real and continuous business activity, a primary purpose other than obtaining treaty benefits, and an annual operational expenditure of at least SGD 200,000 in each of the two years preceding the relevant exemption claim. treaty advantages are frequently disallowed where expenditure is mostly for professional fees or where the company lacks personnel and actual operational substance.
Further, the grandfathering and transition provisions in the Third Protocol, paired with GAAR and PPT, have dulled the drive to establish conduit firms for capital gains exemptions, as investments post-2017 generally face source-based taxation in India. Although the India-Singapore route is becoming less effective for third-country investors, the draw remains for true regional investment firms.
This trend has been compounded by the Tiger Global decision, in which the Supreme Court held that the indirect transfer of Indian shares is not covered by Article 13(4) of the India-Mauritius DTAA and that GAAR is applicable to cases post-2017 even if the underlying transactions took place pre-2017. In many cases, grandfathering protection is, as a practical matter, lost.
B. Remaining Challenges and Risks
Despite these developments, certain obstacles remain. Firstly, establishing a link between the application of spending thresholds and economic substance may prove challenging. For example, efficient or asset-light business models may incur minimal local outlays, and artificial business models may even bolster intra-group payments to meet the spending threshold with little to no substantive business presence in Singapore. The Indian tribunal’s willingness to look beyond actual spending and consider the business activity, in a sense, mitigates the risk, but this unavoidably adds further subjectivity and may, in fact, make it more difficult for the taxpayer.
Secondly, the existence of LOB, PPT, and GAAR together most likely generates several overlapping anti-avoidance layers, which raises the concern of proportionality and legal certainty. Although the CBDT has stated that GAAR should not be used where the treaty's LOB provisions adequately address abuse, this does not rule out the potential of parallel challenges in complicated or high-risk circumstances. Moreover, recent cases and the subsequent CBDT revisions concerning the exclusion of GAAR for investments made prior to April 2017, show that differences in the timing and scope, i.e. GAAR grandfathering for investments made prior to 2017, compared to treaty grandfathering under Article 13(4A), also bring about complex issues of interpretation.[46]
Thirdly, there are concerns that the agreed balance between certainty and anti-abuse may be undermined if plain treaty language is pushed beyond its original scope due to interpretative drift toward considering Article 24A(1) as similar to PPT. An express treaty revision that incorporates PPT-style wording and provides clear administrative guidelines on its application in conjunction with LOB and GAAR could be a more open approach.
X. Tiger Global and the Erosion of Grandfathering Comforts
A. The Tiger Global Judgement: A Paradigm Shift
The Supreme Court of India rendered a historic decision on January 15, 2026, in Authority for Advance Rulings (Income-tax) v. Tiger Global International II Holdings,[47] radically changing India's cross-border taxes and treaty entitlement environment. The case involved Tiger Global's 2018 exit from Flipkart, in which three Mauritius-incorporated companies (Tiger Global International II, III, and IV Holdings) sold Walmart shares in Flipkart Private Limited, a Singapore-incorporated business with significant value derived from Indian assets, for about USD 1.6 billion.
The taxpayers claimed a capital gains exemption under Article 13(4) of the India-Mauritius DTAA, which assigns taxing rights over residual capital gains to the seller's state of residence. They held major bank accounts and accounting records in Mauritius, had offices and employees there, and had genuine TRCs issued by Mauritius revenue officials. Tiger Global requested a nil withholding certificate under Section 197 of the Income-tax Act prior to the sale, claiming exemption under Article 13(4). However, the tax authority produced certificates that specified withholding tax rates ranging from 6.03% to 8.47%.[48]
In August 2024, the Delhi High Court decided in favor of Tiger Global, ruling that treaty-based rights cannot be contested based only on the source of investment and that TRCs are sacred and adequate evidence of domicile and beneficial ownership. The Supreme Court reversed this ruling, maintaining India's capital gains tax obligation and rejecting treaty protection.
B. Key Holdings of the Supreme Court
Three cumulative requirements for DTAA relief were the foundation of the Supreme Court's 152-page ruling, none of which the Taxpayers met:
Condition for Treaty Relief | Supreme Court’s Holding | Tiger Global’s Position |
Direct holding of shares | Indirect transfers are not covered by Article 13(4), which mandates that the Mauritian business own Indian shares directly. | Instead of directly owning Indian assets, taxpayers held stock in a Singaporean corporation. |
Taxation in resident State | Treaty benefits require income to be taxed in the state of residence; double non-taxation is unacceptable. | Under the Global Business Licens e scheme, income was exempt in Mauritius. |
Effective control from Mauritius | Effective control remained in the United States, but Mauritius must have real control and decision-making authority.[49] | Tiger Global Management LLC, the final holding company, was created in the United States, and Charles P. Coleman arranged the deal |
Even though the underlying investment was made prior to April 1, 2017, the Court determined that the transaction constituted an illegal avoidance scheme under GAAR. The Delhi High Court's 2024 decision was overturned when Justice Mahadevan, who wrote the main opinion, decided that Tiger Global was required to pay capital gains tax in India.
C. Supreme Court’s Interpretation of Article 13(4) of Indirect Transfers
The Supreme Court interpreted Article 13(4) narrowly, concluding that advantages require the Mauritian resident company to directly own the movable property or Indian shares that are the subject of the transaction. Therefore, Article 13(4) does not apply to an indirect transfer of Indian shares, which is the transfer of shares of a foreign business that derive value from Indian assets.[50]
This interpretation deviates from the previous court opinion that any indirect transfer should fall under the residuary clause, or Article 13(4), and that Articles 13(1)–13(3B) deal with transfers of property or shares held directly by the seller. The Court upheld that "income taxes" levied under the Income-tax Act, including capital gains tax on indirect transfers, are covered by Article 2 of the DTAA. Nonetheless, the Court came to the conclusion that such taxes are not covered by the DTAA framework.[51]
The verdict affects the India-Singapore DTAA, which includes a similar residual clause, as well as other treaties with similarly worded residual clauses, because they may be interpreted to exclude indirect transfers from treaty protection, subjecting such transactions to Indian capital gains tax.
D. GAAR Applicability Despite Pre-2017 Grandfathering
The Supreme Court made a distinction between "arrangements" from which tax benefits result after April 1, 2017, and "investments" grandfathered under Rule 10U(1)(d) prior to that date. If a subsequent transaction carried out after 2017 yields a tax benefit, GAAR may be applicable even in cases where the underlying investment was made prior to 2017.
The investment in Tiger Global was made between 2011 and 2015 (pre-GAAR), but the Taxpayers' boards approved the sale deal in 2018 (post-GAAR). As it was approved in 2018, the Court ruled that agreements that produced the tax benefit, including the indirect share transfer, could be examined.
F. Judicial Anti-Avoidance Rules (JAAR) Continue Alongside GAAR
The Supreme Court noted that tax authorities may nevertheless use Judicial Anti-Avoidance Rules (JAAR), which are incorporated in the idea of substance over form, even in situations where GAAR is not applicable. Alongside the formalized GAAR framework, JA AR principles -such as substance-over-form -remain applicable.
The Court determined that the transaction was an illegal avoidance plan and that the taxpayers had no economic substance in Mauritius. The ruling emphasizes that treaty clauses cannot be interpreted in a way that encourages misuse.
G. Impact of India-Singapore DTAA and LOB Clause
Although the India-Mauritius DTAA was the focus of Tiger Global, the LOB provision in Article 24A and the India-Singapore DTAA are also affected. The Supreme Court's expansive GAAR interpretation, rejection of TRC conclusiveness, and emphasis on substance over form are similar to the LOB test's focus on whether affairs were established primarily to benefit from treaties.
The Court held that if an organization's primary goal is tax avoidance or if it lacks genuine commercial substance, it may not be eligible for treaty advantages even if it satisfies the 200,000 Singapore dollar expenditure criterion under Article 24A(3). This is consistent with the ITAT's methodology in Fullerton Financial Holdings, where the Tribunal treated the LOB primary-purpose limb by interpreting Article 24A(1) in accordance with the PPT under Article 29A.
H. Critical Doctrinal Critique
There has been much doctrinal criticism of the Tiger Global ruling. Investor clarity and reasonable expectations are called into question by the Supreme Court's elevation of GAAR to an almost supreme status over bilateral treaties and pre-April 2017 grandfathering clauses.
The Court's preemptive labeling of a transaction as an impermissible avoidance arrangement without a formal invocation of GAAR under Section 144BA, as well as its inventive distinction between "investments" and "arrangements" to circumvent GAAR's temporal protection, seem to be at odds with the DTAA's object, purpose, and negotiated intent. The judgment provides no explanation of how avoidance was established because it just discusses AAR's initial views.[52]
In contrast to Azadi Bachao Andolan, where the Supreme Court recognized the advantages of the Mauritius route as a purposeful governmental choice to enhance foreign investment inflow, the ruling places a strong focus on tax sovereignty. Tigers Global may suggest that during periods of economic growth, India may raise the "entry fee" for treaty benefits.
XI. Practical Implications for Taxpayers and Advisors
A. Designing Substance-Driven Structures
For investors and foreign companies using Singapore as an investment platform into India, the current environment necessitates frameworks based on real corporate substance. This entails establishing shared services, treasury, or regional management in Singapore; employing competent personnel; maintaining specialized office space; and integrating the Singapore business into the group's operational value chain rather than considering it pass-through. Furthermore, s pending patterns should reflect actual activities rather than just professional fees for operating a paper company. Similarly, governance documentation (board minutes, policies, functional analysis) should show that significant decisions and risk management occur in Singapore.
When evaluating the feasibility of treaty-based assets, advisors must also consider the timing of investments, the grandfathering status of shares, and the connection between Article 24A, PPT, and GAAR. In addition to this, at the time of requesting capital gains exemptions on grandfathered assets, it is crucial to show that the LOB conditions were met during the pertinent 24-month pre-exit period and that the business objectives align with the goals of the treaty.
B. Litigation Strategy and Evidence Gathering
It is essential to prepare evidence when dealing in disputes. According to many Tribunal decisions, Courts assess a few particular factual matrices, in addition to formal standards such as the type of revenue, the source of expenditure, group organization charts, employment contracts, and the pattern of investments and exits. Taxpayers should be prepared to provide contemporaneous documents supporting their Singapore operations, such as board minutes, service agreements, transfer pricing documentation, and local regulatory filings, to counter accusations that they are shells or conduits.
In complex instances, such as overlapping LOB, PPT, and GAAR issues, taxpayers should think about whether advance rulings, mutual agreement procedures under the DTAA, or alternative dispute resolution mechanisms are appropriate. The possibility of an aggressive GAAR invocation may occasionally be reduced by proactive interaction with the tax authorities and open disclosure, especially when the structure has obvious non-tax commercial justifications.
XII. Conclusion
India's general policy trajectory on treaty abuse and base erosion is reflected in the evolution of the India-Singapore DTAA from a relatively liberal residence-based capital gains regime to a complicated structure that includes LOB provisions, source-based taxes, PPT, and the GAAR. Article 24A's LOB requirements, particularly the primary-purpose and shell company tests paired with an objective spending threshold, are critical in limiting treaty conduit transactions while preserving benefits for Singapore-based organizations with genuine economic substance.
This trend was accelerated by the Tiger Global verdict in January 2026, which removed the comfort of grandfathering clauses and confirmed that TRCs are no longer conclusive evidence of treaty claim. The Supreme Court's emphasis on substance over form, rejection of double non-taxation, and expansive interpretation of GAAR's applicability to post-2017 arrangements -even when the underlying investments were made before 2017 -indicate a strong trend toward tax sovereignty over treaty certainty.
However, the layered interaction of LOB, PPT, and GAAR -now exacerbated by Tiger Global's doctrinal ambiguities adds complexity and potential legal danger as courts progressively integrate objective and subjective anti-abuse criteria . The effectiveness and fairness of this architecture will depend going forward on balanced application by tax authorities and courts, , and continued alignment between treaty text and domestic anti-avoidance policy to ensure that the India-Singapore corridor remains open for lawful investment while effectively discouraging treaty shopping.
References
[1] Agreement between the Republic of India and the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (India–Singapore DTAA).
[2] Bajpai S, “Double Taxation Avoidance Agreements: A Critical Analysis from an Indian Perspective” (2025) 11 International Journal of Environmental Sciences 1207 <https://doi.org/10.64252/g10xyr92>
[3] Authority for Advance Rulings (Income-tax) v Tiger Global International II Holdings 182 Taxmann 375 (SC)
[4] OECD/G20, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - 2015 Final Report(OECD Publishing 2015)
[5] Ibrahim A, “Tax Treaty Abuse and Treaty Shopping: An Analysis of Countermeasures and Best Practices” [2023] SSRN Electronic Journal <http://dx.doi.org/10.2139/ssrn.4539851>
[6] OECD/G20, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - 2015 Final Report(OECD Publishing 2015)
[7] OECD, “BEPS Action 6” (2015) <https://www.oecd.org/en/topics/sub-issues/preventing-tax-treaty-abuse.html>
[8] Union of India v Azadi Bachao Andolan (2003) 263 ITR 706 (SC)
[9] Central Board of Direct Taxes, Circular No 789 (13 April 2000) [India-Mauritius DTAA - Tax Residency Certificate]
[10] Agreement between the Government of the Republic of India and the Government of the Republic of Mauritius for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains' (signed 24 August 1982, as amended)
[11] “UOI v. Azadi Bachao Andolan (2003) 263 ITR 706/132 Taxman 373/184 CTR 450 (SC) – Digest of Case Laws” <https://itatonline.org/digest/uoi-v-azadi-bachao-andolan-2003-263-itr-706-132-taxman-373-184-ctr-450-sc/>
[12] Income Tax Act 1961 (India), s 90
[13] OECD/G20, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - 2015 Final Report (OECD Publishing 2015)
[14] OECD, “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - 2015 Final Report” (OECD Publishing, Paris 2015) report <http://dx.doi.org/10.1787/9789264241695-en>
[15] Ibid
[16] Luts J, “BEPS Action 6: Tax Treaty Abuse” (2015) 43 Intertax 122 <https://doi.org/10.54648/taxi2015011>
[17] Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting' (signed 7 June 2017, entered into force for India–Singapore DTAA 1 October 2019)
[18] “India and Singapore Sign a Third Protocol for Amending the Double Taxation Avoidance Agreement (DTAA)” <https://www.pib.gov.in/newsite/PrintRelease.aspx?relid=156015®=48&lang=2>
[19] Ibid
[20] RSM Astute Consulting Pvt. Ltd., “NEWSFLASH - KEY CHANGES IN THE NEW PROTOCOL TO AMEND INDIA-SINGAPORE TAX TREATY” (2017) <https://www.rsm.global/india/sites/default/files/media/RSM%20India/Publications/2017/newsflash_-_key_changes_in_the_new_protocol_to_amend_india-singapore_tax_treaty.pdf>
[21] Third Protocol Amending the Agreement between the Government of the Republic of India and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income' (signed 30 December 2016, entered into force 1 April 2017) [inserting art 13(4A) and amending art 24A]
[22] - -, “Article 13(4): Taxation of Capital Gains on Shares in Indian Companies: An Analysis of the Grandfathering Cla...” (King Stubb & Kasiva, April 6, 2026) <https://ksandk.com/tax/india-singapore-dtaa-capital-gains-grandfathering/>
[23] India–Singapore DTAA art 24
[24] Danon RJ, “The PPT in Post-BEPS Tax Treaty Law: It Is a GAAR but Just a GAAR!” (2020) 74 Bulletin for International Taxation <https://doi.org/10.59403/136hxah>
[25] “Capital Gains Tax India-Singapore DTAA | Rates & Rules” (Beacon Filing, March 24, 2026) <https://beaconfiling.com/dtaa/capital-gains-tax-india-singapore>
[26] India–Singapore DTAA art 24.
[27] Protocol Amending the Agreement between the Government of the Republic of India and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income' (First Protocol, signed 29 June 2005) [inserting art 24A]
[28] Kuzniacki B, “The Limitation on Benefits Provision in BEPS Action 6/Multilateral Instrument: Ineffective Overreaction of Mind-Numbing Complexity Part 2” (2018) 46 Intertax 124 <https://doi.org/10.54648/taxi2018014>
[29] India–Singapore DTAA art 24A(2)
[30] Third Protocol Amending the Agreement between the Government of the Republic of India and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income' (signed 30 December 2016, entered into force 1 April 2017) [inserting art 13(4A) and amending art 24A]
[31] Bajpai S, “Double Taxation Avoidance Agreements: A Critical Analysis from an Indian Perspective” (2025) 11 International Journal of Environmental Sciences 1207 <https://doi.org/10.64252/g10xyr92>
[32] Kuźniacki B, “The Principal Purpose Test (PPT) in BEPS Action 6 and the MLI: Exploring Challenges Arising from Its Legal Implementation and Practical Application” (2018) 10 World Tax Journal 233 <https://doi.org/10.59403/3vnt53r>
[33] Kotha, Ashrita Prasad, "Tiger Global: SC says ‘tax sovereignty comes first’ but verdict raises questions" (2026). Popular Media. 213.https://repository.nls.ac.in/popular-media/213
[34] Fullerton Financial Holdings Pte Ltd v ACIT ITA No 1137/Mum/2025, Order dated 28 October 2025 (Mumbai ITAT) [TS-1458-ITAT-2025]
[35] Income Tax Act 1961 (India), ss 95–102 (Chapter X-A - General Anti-Avoidance Rules)
[36] Income Tax Act 1961 (India), s 95
[37] Income Tax Act 1961 (India), s 96
[38] Central Board of Direct Taxes, Circular No 7 of 2017 (27 January 2017) 'Clarifications on Implementation of GAAR Provisions under the Income Tax Act 1961
[39] Ibid
[40] Income Tax Act 1961 (India), s 90A
[41] Income Tax Act 1961 (India), s 90(2)
[42] Income Tax Act 1961 (India), s 90(4)
[43] Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting' (signed 7 June 2017, entered into force for India–Singapore DTAA 1 October 2019) art 35
[44] Kok R, “The Principal Purpose Test in Tax Treaties under BEPS 6” (2016) 44 Intertax 406 <https://doi.org/10.54648/taxi2016033>
[45] Ibid
[46] Anna A. Kornikova, 'Solving the Problem of Tax-Treaty Shopping through the Use of Limitation on Benefits Provisions' (2008) 8 Rich J Global L & Bus 249
[47] Authority for Advance Rulings (Income-tax) v Tiger Global International II Holdings 182 Taxmann 375 (SC)
[48] Supreme Court Observer, “Tiger Global: SC Says ‘Tax Sovereignty Comes First’ but Verdict Raises Questions - Supreme Court Observer” (Supreme Court Observer, February 19, 2026) <https://www.scobserver.in/journal/tiger-global-sc-says-tax-sovereignty-comes-first-but-verdict-raises-questions/>
[49] “Indian Supreme Court Re-Defines Treaty Claim Principles” (Oxford University Centre for Business Taxation) <https://oxfordtax.sbs.ox.ac.uk/article/indian-supreme-court-re-defines-treaty-claim-principles>
[50] Ibid
[51] Ibid
[52] “India Supreme Court Rules on Tax-Treaty Eligibility and Taxation of Mauritius-Based Investment Fund’s Indirect Transfer of Shares of Indian Company” <https://taxnews.ey.com/news/2026-0305-india-supreme-court-rules-on-tax-treaty-eligibility-and-taxation-of-mauritius-based-investment-funds-indirect-transfer-of-shares-of-indian-company>
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