Harshita Dhinwa and Ram Sundar Singh Akela
Introduction
The Tax Residency Certificate was never a complete answer to the question of treaty entitlement on a proper reading of a treaty text and international law. It functioned primarily as a proof of jurisdiction, but over time, institutional practice elevated it to a substantial safeguard, which was further institutionalized by CBT Circular No. 789 of 2000. In Practice, a non-resident investor holding a valid certificate from Mauritius or Singapore was treated as conclusively entitled to treaty benefit. This whole certainty collapsed on 15 January 2026, when the Supreme Court in Authority for Advance Rulings (Income Tax) v. Tiger Global International II Holdings denied capital-gains exemption on the Mauritius-routed sale of Flipkart Singapore shares to Walmart, holding that a TRC is a must but not a conclusive condition of treaty benefit. For nearly two decades, a TRC production was the end of the analysis. The decision in Tiger Global has now rectified this, but at a rule-of-law price which is worth recognition even in a case where the correction itself was long overdue by law.
The Mauritius Route And Its Unravelling
India had a double taxation agreement with Mauritius in 1983, which imposed tax on the capital gains realized on Indian shares in the state of residence only and no tax in Mauritius. This led to Mauritius and later Singapore being the preferred destinations for portfolio and private-equity investments in India, and at one point, Mauritius alone accounted for roughly a fifth of India’s inbound FDI. The Supreme Court in Azadi Bachao Andolan confirmed that CBDT’s Circular No. 789/2000 was correct and that TRC production was enough proof of residence, and in Vodafone, it was reiterated that deference should be shown to the legal form of holding structures. The introduction of GAAR was first proposed in the 2012 Finance Bill, but was stalled twice after the Shome Committee’s reviews highlighted the implementation issues, and was finally introduced from 1 April 2017, nearly five years, which gave funds ample time to assume that GAAR was not a reality, but a future possibility.
Tiger Global’s facts lie on that fault line. Between 2011 and 2015, three Mauritius entities within the Tiger Global group acquired shares in Flipkart Singapore, the intermediate holding company for Flipkart’s Indian business. As part of Walmart’s purchase of Flipkart, the companies sold their Flipkart Singapore shares to a Walmart affiliate in 2018 for a profit of nearly USD 2 billion, preventing them from paying tax on the deal under Article 13(4). The tax department refused to grant relief, saying the transaction was being “managed” by the fund’s founder from the U.S. and not from Mauritius. In 2020, the AAR was agreed to, but overturned in 2024 by the Delhi HC that a fraud investigation was not needed for the present TRC, and in January 2026, the Supreme Court reiterated the AAR’s view.
The Statutory Misreading
The legal ground for treating TRC as conclusive rested on two pillars: Section 90(4) of the Income Tax Act and the CBDT circulars pursuant to the Indo-Mauritius treaty implementing it. While the former states that a non- resident is not entitled to the benefits of the treaty unless a certificate of residence is obtained from the government of the treaty state, which makes the arrangement a gatekeeping requirement, as the TRC is required to get access to treaties. The necessary and sufficient interpretative move was never forced by this statutory provision.
A step ahead was taken when CBDT Circular No. 789 of 2000 was issued, which explicitly stated that a valid TRC would constitute sufficient evidence of residency and beneficial ownership. It stated –
“In order to be a resident of Mauritius, a company has to obtain a certificate of residence from the Mauritius Revenue Authority… Such a certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership.”
The circular was a unified documentary act that reduced the two distinct inquiries of residency and beneficial ownership under a single head. Under domestic law, residence is a matter of jurisdiction. The question of economic relationship is beneficial ownership, which falls under the treaty and international law. Mauritius Revenue Authority has institutional competence to identify the first but not to ascertain the latter.
When the Apex Court in Azadi Bachao Andolan vs. Union of India affirmed the circular, its reasoning was on institutional grounds rather than substantive. The Court held that treaty interpretation falls within executive power, and courts should not judicially reverse what the government itself has negotiated and implemented. That argument justified the circular as a legal use of executive discretion. It made no assertion of the fact that the circular properly outlined what treaty entitlement demands.
People who invested in Bonafide through Mauritius and Singapore between 2003 and 2017, based on this authority, are justified in grievance. The rule of law cost of correcting these misreadings falls on genuine investors who acted in accordance with the Law at the time. Further, section 90(4) is a gating section and not a completeness section. CBDT Circular extended TRC’s evidentiary reach than any domestic administrative document that may legally certify,and the fact that Azadi’s endorsement of the Circular’s validity was read incorrectly as an endorsement of that extension.
Sequencing the treaty inquiry
The Bench’s reasoning was based on three cumulative requirements to grant relief – the assessee has to be the direct holder of the shares transferred, paying taxes in Mauritius, and has to be effectively controlled and managed from Mauritius. None was satisfied. The power to make the exit decision rested with the leadership of the fund in New York, and not with any board members residing in Mauritius, and the three holding entities were discovered to have had no independent operating function beyond carrying out instructions issued from the United States. This is the control finding, and not the absence of a TRC, that did the work in the judgment.
The key move of the Court is sequential, as Section 90(2) provides that a treaty overrides domestic law, and GAAR under Section 95 operates in different phases of the treaty inquiry. Here, GAAR determines whether the arrangement is eligible to invoke the treaty or not. Section 90(2) establishes the legal impact once it is established, while its residence precondition is discharged by the TRC. So, it is unable to reject the GAAR element of commercial substance and genuine economic purpose.
Particularly significant is what the court did not hold. The Court did not believe that GAAR takes precedence over treaty provisions, nor did it pronounce Azadi wrongly determined, nor held that every pre-2017 structure is tainted. However, it provided a more specific conclusion that GAAR applies to the act of invoking the treaty and not the treaty itself. This distinction between the amendment of a treaty and the resetting of the evidentiary conditions on which alone the benefits of a treaty are uncertain is a doctrinally important distinction, and the Court was deliberately left in the latter.
The treatment of TRC by courts was a major blunder compared to its predecessors, as it held the certificate was “non-decisive, ambiguous and ambulatory”, recording future assertions of residence without independent verification of the underlying facts. Equally significant, the court held that the Circular 789’s language clearly provided that the TRC was sufficient to give rise to the existence of an administrative law legitimate expectation on revenue authorities where there was a pre-GAAR exit transaction. So, even if GAAR is found inapplicable, a residual judicial Anti-Avoidance Rule (“JAAR”), developed independently of statute, can be invoked to deny treaty benefit on substance grounds.
Beneficial Ownership Lacuna
The main consequential deficiency in a TRC-Centric treaty is its silence on beneficial ownership. Whereas the India- Singapore DTAA includes the textual meaning in Articles 10, 11, and 12, the same principle can be proposed based on an interpretive rule used concerning capital-gain provisions not explicitly mentioned. Conversely, Article 13 of the pre-2016 India-Mauritius DTAA provided no specific beneficiary-ownership clause for capital gains, and therefore, the common law interpretation of such an agreement was that capital gains were determined by residence.
This reading misapplies the Vienna Convention since Article 31(1) prescribes that interpretation of treaties should be done in good faith in light of the object and purpose of the treaty, yet Article 31(3) (c) requires the consideration of applicable rules of international law.
According to the OECD Commentary, a beneficial-ownership standard is the economic dominion over income or gains, without any legal or contractual requirement to transmit the same, and the fact that the standard expresses no textual phrase simply suggests that it is applied by an interpretive, not by an express clause.
In the case of Indofood International Finance Ltd. v. JP Morgan Chase Bank, the Court of Appeal directly questioned beneficial ownership. An Indonesian bond interest was channeled to downstream bondholders by a Mauritius-based special purpose vehicle, and had a valid residency certificate. The Court affirmed that the existence of a beneficial ownership depends on the presence of a residency certificate, but upon the ability to use and enjoy the income without any duty to transmit it, that is, the presence of economic dominion and not documented residency is an operative criterion.
Furthermore, in Velcro Canada Inc. vs. The Queen, the Tax Court of Canada reached the same conclusion, where a Dutch company with an authentic residency certificate in the Netherlands was under a contractual obligation to transfer the major part of its royalty payment earned by its Canadian subsidiary to a Swiss upstream company. The Court refused to approve of the benefits of treaties and articulated the dominion test. It means that beneficial ownership must have substantive power to guide the economic fate of the income.
An entity that is merely a transit point, as a contractually bound agency, which holds a specified amount but has no discretion over funds, is not a beneficial owner, no matter where it is certified to reside. The Velcro ruling would directly apply to the Indian fund structure where Mauritian or Singapore structures are required to assign capital-gain proceeds upwards under limited partnership agreements, and thus forgo discretion to deploy funds.
Another textual point can also be noticed in Article 13(4) of the India- Mauritius DTAA that provides a share-disposal gains exclusive taxation authority to the state of residence of the alienator. Alienator refers to actual economic control over the disposal decision and not merely having a legal title to the shares. For Instance, a Singaporean entity whose exit timing and pricing will be stipulated by a U.S. based general partner at the fund level cannot be considered as the alienator in the context of the treaty, but it is merely a legal vehicle to achieve the disposal.
The impact of the consequence on fund structures is specific and not general. It is not the volume of documentation that matters, but whether the board minutes, delegation instruments, and internal approval records actually show the offshore entity, instead of an upstream general partner, who will exercise the disposal decision, and a board resolution ratifying the decisions made elsewhere will definitely not survive the scrutiny of the Bench applied here.
The Evidence Act Reclassification
A look into section 4 of the Evidence Act makes a distinction between conclusive presumption (irrebuttable), shall-presume facts(rebuttable), and may-presume facts(discretionary). The Circular’s language made the term sufficient evidence of both residency and beneficial ownership mean that the TRC was a definitive presumption that prevented revenue authorities from investigating after its end. Tiger Global does reclassify the TRC as prima facie evidence.
Section 114 provides that a court may presume facts likely given the common pattern of events; therefore, the TRC creates a rebuttable presumption of treaty-jurisdiction residence that is adequate for section 90(4) but not for GAAR inquiry. Once a prima facie GAAR case is established by revenue authorities, the burden shifts under section 144BA (7) of the Income Tax Act, requiring the taxpayers to rebut the approving panel’s preliminary determination. This weight cannot be prevented by the production of the certificate, but instead, it requires a positive evidentiary record of commercial substance, independent decision-making, and genuine economic exposure.
The Calibration Deficit: Enough Substance Is Enough?
Tiger Global detects the substance inquiry without assessing its threshold. The possibilities of having Mauritius account for about a sixth of India’s annual FDI inflow are not just about the funds already under notice, but it is also a race to get this threshold right in the future. For Mauritius, Singapore and Cyprus investments, CBDT Circular No. 1 of 2025 restored the grandfathering of the Principal Purpose Test but with effect from 31 March 2026. Every exit that had been closed from 1st April 2017 until the notification date (when Tiger Global’s own transaction failed) is subject to the murky terms the judgment leaves unexplicit.
Section 97 of the Act says that an arrangement is non-commercial to the extent that it does not materially impact the business risks or net cash flows of any party other than the tax benefit, or it has uncommercial terms between independent parties. They are not prescriptive rules but evaluative standards, which, unless specified at the threshold, will establish a discretionary area that can be applied selectively at will by the revenue authorities and place an impossible advance compliance burden on the taxpayers.
In the case of AAR of Castleton Investment Ltd. (AAR No.999 of 2010), the court refused to give the benefits of treaties in situations where the Mauritius company had no employees and no independent directors, providing a floor. But requirements above this floor were not defined in the AAR. On the other hand, the AAR in Re: Timken France SAS (AAR No. 625 of 2003) has made clear that a TRC is a tool of treaty administration, not a replacement of treaty interpretation, and that the entitlements in the treaty should be evaluated in the context of international-law criteria within the treaty itself.
When we see the standing in the United States, the economic substance is codified in Section 7701(o) of the Internal Revenue Code, which requires something beyond tax avoidance and a significant change in economic position, and the meaning of the term meaning change is a subject of further development by the courts in case-specific factual circumstances. The ruling in Anson v. HMRC held that the issue of whether a particular treaty entitlement constituted a legal issue or an administrative one was determinable in content.
The two jurisdictions demand quality legal requirements, and the post-GAAR framework in India has not been able to attain this quality. At least three benchmarks would be necessary to come up with a working arrangement. First, the discretion in regard to investment should be applied at the entity level of the treaty jurisdiction, by individuals whose powers could not be overridden by the general partner of the upstream, and the resolution of the board that pre-prepared decisions should be considered inadequate. Second, the entity must have true economic risk on an entity level, as opposed to a pass-through margin that has been contractually guaranteed. Third, the commercial reason should pass a test – does the entity stay resident in Singapore when the capital-gain exemption is eliminated? In case the answer is in the negative, the structure proves to be legally vulnerable on its own.
Conclusion
The TRC was never the full answer to treaty entitlement. While it was intended to be a document of legal status, it has been treated as a document of economic reality. The Tiger Global decision addresses this by treating the TRC as a rebuttable presumption and ascribing importance to factors such as beneficial ownership and economic substance. This shift introduces some uncertainty and will require clear judicial guidance standards as the benchmarks of change are currently not codified. Until then, through CBDT circulars, appellate tribunal elaboration, or legislative specification, the post-GAAR regime will be formally rigorous and practically unpredictable.
Harshita Dhinwa and Ram Sundar Singh Akela are both final year BA.LLB (Hons.) Students at National University of Study and Research in Law (NUSRL), Ranchi
NUALS Law Journal 