Demonstrated, Not Presumed: Managing Cross-Border Treaty Risk Under India's New Tax Framework

Demonstrated, Not Presumed: Managing Cross-Border Treaty Risk Under India’s New Tax Framework

Authored by R & D Law Chambers LLP | Practice led by Ravish Bhatt — Advocate, Bar Council of Gujarat (Enrolment G/504/2008) | Solicitor of the Senior Courts of England and Wales (SRA No. 492 477) | ADIT, Chartered Institute of Taxation, London | Published: June 2026 | Last reviewed: June 2026

 

Index of Topics

How Treaty Entitlement is Governed in terms of Income Tax Act, 2025 read with Tiger Global Judgment

1. What the Court Held
2. What the Court Did Not Hold
3. The Government’s Correction: Real but Narrow
4. The Remaining Sting
5. Foundation: Pre-Transaction and During the Life of the Structure
6. Pivot 1: The Section 197 Application
7. Pivot 2: The Draft Assessment Order
8. The 30-Day Window at the Draft Assessment Order Stage
9. The Three Questions That Must Be Answered
10. Conclusion
11. Services We Provide

 

Note on statutory references: The Income Tax Act, 1961 has been replaced by the Income Tax Act, 2025 (in force 1 April 2026), and the Income Tax Rules, 1962 have been succeeded by the Income Tax Rules, 2026. The substantive provisions and rules referenced in this article are carried forward in materially identical terms. For clarity, citations are to the 1961 Act and 1962 Rules throughout.

 

Treaty entitlement for non-residents in India is governed by Section 90 of the Income Tax Act, 1961, now replicated as Section 159 of the Income Tax Act, 2025, in force from 1 April 2026. Both provisions permit a tax treaty to override domestic law where the treaty is more beneficial to the taxpayer. That override is conditional. The General Anti-Avoidance Rules in Chapter X-A of the 1961 Act sit above it: under Section 90(2A), GAAR can displace treaty entitlement where the underlying arrangement is an impermissible avoidance arrangement. On 15 January 2026, the Supreme Court confirmed GAAR’s reach in Authority for Advance Rulings v. Tiger Global International II Holdings, 2026 INSC 60, upholding Revenue’s denial of treaty protection to Mauritius entities holding valid Tax Residency Certificates and pre-GAAR investments. Six weeks later, the government acted within the framework of the new Income Tax Act, 2025: Rule 128 of the Income Tax Rules, 2026 restored grandfathering protection for income from investments made before 1 April 2017, partially correcting the judgment’s impact. That correction is the only substantive point at which the 2025 Act’s framework introduces a change into this analysis. All other aspects of Tiger Global’s holdings, and the framework for managing the exposure they create, continue to be governed by provisions of the 1961 Act carried forward in materially identical terms. What the ruling changed is not the governing statute but the operative standard: treaty protection in India must now be built, maintained, and demonstrated across the lifecycle of a cross-border structure. It cannot be assumed.

In 2018, Walmart acquired Flipkart in one of India’s largest technology transactions. Among the sellers were three Mauritius-incorporated entities of the Tiger Global group, holding shares in Flipkart Singapore since 2011, before India’s GAAR came into force, with valid Tax Residency Certificates, in a structure unremarkable by the standards of its time.

On 15 January 2026, the Supreme Court dismantled it entirely.

In Authority for Advance Rulings v. Tiger Global International II Holdings (Civil Appeal Nos. 262-264 of 2026), Supreme Court of India held that the Mauritius entities were not entitled to treaty protection. Not only fund structures but any cross-border structure or transaction where treaty protection is claimed by a resident of a treaty partner jurisdiction is potentially affected by what the Court held, and equally by what it left open.

While the alarm that followed is justified in part, the judgment’s reach is frequently overstated.

What the Court Held

The Supreme Court held that a Tax Residency Certificate is necessary but not sufficient for treaty protection; that GAAR overrides treaty benefits under Section 90(2A) notwithstanding Section 90(2)’s beneficial treatment rule; and that Judicial Anti-Avoidance Rules operate independently without the Section 144BA process. On grandfathering, the Court’s holding was subsequently corrected by legislative amendment on 31 March 2026.

 

First, on TRC sufficiency: Sections 90(4) and 90(5) read together require more than a certificate of residence.

Second, on Section 90(2A): The Court held that GAAR provisions apply even if not beneficial to the assessee, notwithstanding Section 90(2)’s beneficial treatment rule.

Third, on grandfathering: Rule 10U(2) was held to override Rule 10U(1)(d). This holding has since been addressed by legislative correction, discussed below.

Fourth, on JAAR: The Court held that Judicial Anti-Avoidance Rules (uncodified principles of substance-over-form) operate independently of statutory GAAR and without the Section 144BA Approving Panel process.

Fifth, on double non-taxation: On double non-taxation, the Court observed at least three times that the object of a DTAA is to prevent double taxation and not to facilitate non-taxation, and that claiming exemption in India while simultaneously exempt in Mauritius runs contrary to the spirit of the DTAA and presents a strong case for Revenue to deny treaty benefits. The Court however stopped short of making this an absolute standalone rule – the observation reinforces rather than replaces the primary findings on substance and GAAR. In author’s view, this does not lay an absolute proposition and ratio regarding ‘liable to tax’ as settled in Azadi Bachao’s judgment is not adversely affected.

What the Court Did Not Hold

Tiger Global left two material questions open. Whether Section 90(2A) is triggered where a taxpayer relies on the treaty under Section 90(1) without invoking Section 90(2) was never argued or decided. Whether a treaty with a comprehensive PPT or LOB clause displaces GAAR before it is invoked also remains undecided. Both questions are live and available.

 

What the Court did not address and what neither party squarely raised, is whether Section 90(2A) is triggered where a taxpayer relies directly on the treaty under Section 90(1) without invoking Section 90(2). Tiger Global’s own Senior Counsel framed the case under Section 90(2), and the Court referenced Section 90(2A) in its analysis without qualification. Critically, neither party raised this question: Tiger Global’s own Senior Counsel argued the case on Section 90(2) grounds, and the distinct textual question of whether Section 90(2A) presupposes that invocation was never put to the Court. It is the author’s view that Tiger Global’s silence on this distinct textual question may, to that limited extent, have the character of a sub-silentio decision per Municipal Corporation of Delhi v. Gurnam Kaur (1989) 1 SCC 101, leaving the specific issue open for adjudication in a case where it is squarely raised.

Tiger Global did not address treaties with detailed PPT or LOB clauses. The India-Mauritius treaty at the relevant time had neither. The 2016 Protocol inserted only a narrow Article 27A LOB applicable solely to the transitional capital gains window between 1 April 2017 and 31 March 2019, and expressly limited to benefits under Article 13(3B) alone. The transaction under consideration involved an indirect transfer falling under Article 13(4), to which Article 27A did not extend, and the Court expressly held in paragraph 45 of the judgment that the LOB clause was inapplicable on this ground. The Court accordingly never reached the question of whether a sufficiently comprehensive LOB clause would have displaced or constrained GAAR. Notably, the CBDT’s own clarification of 27 January 2017, reproduced in the judgment, states that where a case of avoidance is sufficiently addressed by LOB provisions in a tax treaty, there shall not be an occasion to invoke GAAR. The broader proposition that follows is: in treaties where applicable PPT or LOB clauses exist and the taxpayer genuinely satisfies their conditions, and where that treaty framework sufficiently addresses the avoidance concern in question, there shall not be an occasion to invoke GAAR. That proposition rests on the CBDT’s own clarification and remains available to be tested directly in a case where the treaty anti-abuse framework is applicable and satisfied.

The Government’s Correction: Real but Narrow

On 31 March 2026, CBDT issued Notifications 54/2026 and 55/2026 amending the Income Tax Rules to restore grandfathering: GAAR does not apply to income from transfer of investments made before 1 April 2017. The correction is prospective on its face, but a clarificatory amendment argument supports retrospective operation in pending proceedings.

 

Within six weeks of the judgment, the government acted. On 31 March 2026, CBDT issued two notifications simultaneously: (i) Notification No. 54/2026 amending Rule 10U of the Income Tax Rules 1962, effective that day, and (ii) Notification No. 55/2026 amending Rule 128 of the Income Tax Rules 2026, effective 1 April 2026. Both make the same substantive correction, in structural tension with the government’s own litigation stance before the Supreme Court – GAAR applies to arrangements yielding tax benefits on or after 1 April 2017, except for income from transfer of investments made before that date. The amendments structurally foreclose the Tiger Global reading going forward.

The amendments are prospective on their face and taxpayers caught in the window between 2017 and 31 March 2026 obtain no direct relief. There is, however, a reasonable basis to argue that the amendments are clarificatory rather than substantive and therefore operate retrospectively as a matter of settled principle, declaring what the law always was rather than changing it. On that basis, taxpayers with pending proceedings can legitimately contend that Tiger Global’s grandfathering holding should not govern their cases. Concluded cases are a different matter.

The Remaining Sting

Four problems survive the grandfathering correction. JAAR now operates at the AAR threshold and on appeal without Section 144BA procedural safeguards. The TRC standard shifted from conclusive to merely necessary. Arrangement-level analysis runs from inception, not the transaction date. And Tiger Global’s double non-taxation observations add weight to an already demanding substance burden.

 

The dual amendments restored grandfathering. Everything else Tiger Global decided remains fully operative. The analysis that follows identifies what those holdings are and where their boundaries lie.

The most immediate concern arises from the Court’s confirmation that JAAR may operate without the procedural safeguards associated with statutory GAAR.

It however needs to be appreciated that observation was in context of proceedings arising from AAR ruling where JAAR was held to apply for threshold analysis. JAAR cannot have any application in proceedings arising from provisions pertaining to assessment. Revenue must invoke GAAR through Section 144BA there. JAAR exposure may arise at the AAR threshold and at the appellate stage, where a court dismissing an assessee’s appeal may sustain the outcome on JAAR grounds independently of the reasoning below. This means a taxpayer who succeeds at the assessment stage on substance grounds, but whose structure contains elements a higher court considers tax-avoidant, faces JAAR exposure on appeal without having had the procedural protection of the Section 144BA process at any stage. It would therefore be an overstatement to suggest that every cross-border payment is now subject to substance scrutiny without procedural constraint, but the exposure in specific forums and appellate contexts is both real and material.

The second remaining problem is the permanent reduction of TRC from conclusive to merely necessary. The evidentiary burden on a foreign entity claiming treaty benefits has materially risen. Documentation that was sufficient before Tiger Global is no longer sufficient after it. What sufficiency now requires is a question without a clear answer.

The third is the shift to arrangement-level analysis from inception. Tiger Global moved the enquiry from the transaction (Vodafone’s approach) to the entire arrangement from the moment of structuring. Structures that appeared unassailable at entry may be examined at exit through a retrospective lens that did not exist when they were built.

On the fourth point, the tension between Tiger Global’s taxability-in-residence-state observation and Azadi Bachao‘s settled position on liable-to-tax: as discussed above, the Court treated this as one contextual factor in a holistic analysis, not a freestanding rule. However, its recency, combined with the three problems above, adds to an already complex documentation and substance burden.

These are the problems the amendment could not fix. The tools to address them are set out in the sections that follow.

 

For entities resident in countries whose treaties with India contain comprehensive PPT or LOB clauses applicable to the arrangement or transaction in question, Tiger Global likely poses no additional risk beyond what the treaty’s own anti-abuse framework addresses. The proposition that in such treaties, treaty entitlement must first be tested through the treaty’s own anti-abuse framework and GAAR is invoked for consequences only if that test is failed, is referred to in this article as the sequencing argument. That argument is aligned with the CBDT’s own clarification of 27 January 2017 and is further supported by the customary international law principles of treaty interpretation recognised by the Supreme Court in Ram Jethmalani v. Union of India (2011) 8 SCC 1, under which a treaty’s own anti-abuse framework represents the agreed bilateral standard that domestic rules should not bypass.

The lifecycle framework that follows serves two purposes. For taxpayers with comprehensive PPT or LOB treaty protection, it is the evidentiary foundation for satisfying the treaty’s own anti-abuse test and making the sequencing argument work in practice.

If the sequencing argument is not accepted by a court, or if the applicable clause does not cover the arrangement in question, the same framework addresses the GAAR standard under Section 96(1) directly. For taxpayers under treaties without such clauses, it goes directly to that standard.

Tiger Global risk accumulates across the lifecycle of a cross-border structure from inception through to exit. After building the proper foundation, two independent intervention points may arise, each representing a distinct and time-critical window requiring specific action. Neither follows necessarily from the other; the Section 197 application may arise before a transaction is consummated while the draft assessment order may arise years later or independently of any prior certificate application. At both points, early action within the window widens the available options.

Foundation: Pre-Transaction and During the Life of the Structure

The response to Tiger Global is genuine commercial design and operational substance, not documentation alone. Commercial rationale must be primary and recorded at inception. Substance is determined holistically. Transfer pricing FAR documentation and an APA create a contemporaneous record making Revenue’s later recharacterisation internally contradictory. India signed 84 bilateral APAs in FY 2025-26 (CBDT, March 2026), confirming the route’s viability.

 

Tiger Global’s arrangement-level analysis from inception makes the entire lifecycle from structuring through to exit relevant. The appropriate response is not documentation alone. It is genuine commercial design, genuine substance, and a contemporaneous record of both.

At the structuring stage, the commercial rationale for the structure must be genuine and primary. Section 96(1) defines an impermissible avoidance arrangement by reference to whether the main purpose or one of the main purposes is to obtain a tax benefit. Tax efficiency as one consequence does not make a structure impermissible. Vulnerability arises where tax benefit is the sole or dominant purpose with no independent commercial rationale. That rationale (regulatory pooling, ring-fencing, regional management, investor diversification) should be recorded in founding documents and legal opinions created at the time of structuring, not reconstructed after a notice arrives.

After structuring, substance must be built and maintained as an operational reality. Substance is a question of fact determined holistically. There is no fixed checklist. Factors that have been relevant in decided cases include employees performing real functions in the treaty jurisdiction, board meetings actually held there, and decision-making genuinely independent of a third-country parent.

For MNCs with management fee, royalty, or financing flows, transfer pricing FAR documentation and an APA serve a specific additional purpose. A thorough FAR analysis creates a contemporaneous record of functional reality that makes Revenue’s subsequent recharacterisation of the same arrangement as lacking substance internally contradictory. A bilateral APA additionally strengthens the MAP position if a bilateral dispute subsequently arises.

Pivot 1: The Section 197 Application – The Most Overlooked Trigger

Where the AO denies a nil withholding certificate under Section 197, or applies a rate inconsistent with treaty entitlement, MAP evaluation through the home jurisdiction competent authority should begin immediately. Do not wait for express grounds. India’s average MAP resolution was 35.78 months in CY 2023 (OECD MAP Statistics 2023). Early initiation maximises the available window.

 

Tiger Global did not begin with a draft assessment order; Mauritius entities applied under Section 197 for nil withholding certificates before the transaction was consummated. Where the AO denies a nil certificate or issues a certificate at a rate inconsistent with treaty entitlement, whether on express grounds or by implication from the rate applied, that outcome may constitute taxation not in accordance with the applicable DTAA. The non-resident should evaluate initiating MAP through their home jurisdiction competent authority under the MAP article of the relevant treaty; India’s competent authority will engage upon notification from the treaty partner’s competent authority, as the CBDT MAP Guidance confirms. The practitioner should not wait for express grounds to be stated. Where the rate applied is inconsistent with treaty entitlement, MAP evaluation should begin immediately. Initiating MAP at this stage is the earliest bilateral engagement available. The competent authorities can engage on treaty interpretation, including whether the applicable treaty’s own anti-abuse framework has been properly applied and whether GAAR can be independently invoked, before a domestic assessment formalises Revenue’s position.

Pivot 2: The Draft Assessment Order – A Different Window

For foreign companies and eligible assessees under Section 144C, the AO must issue a draft assessment order before any final order. The assessee has 30 days to file objections before the Dispute Resolution Panel. Missing that deadline permanently forecloses DRP access. The draft order also independently triggers MAP evaluation, regardless of any prior Section 197 application.

 

For a foreign company and other eligible assessees under Section 144C, the AO must pass a draft assessment order before any final order can be passed. The assessee has 30 days to file objections before the Dispute Resolution Panel; non-filing permanently forecloses DRP. If filed, the DRP issues binding directions within nine months and the AO passes the final order within one month thereafter. Appeal to ITAT lies against the final order; DRP directions are not independently appealable.

The 30-Day Window at the Draft Assessment Order Stage

Within the 30-day window, two actions must run in parallel: DRP objections filed engaging the AO’s specific factual findings directly; and MAP evaluation initiated through the home jurisdiction competent authority. Filing both preserves maximum optionality. Missing the DRP deadline is permanent. The DRP and MAP proceedings run simultaneously without either requiring withdrawal of the other.

 

DRAFT ASSESSMENT ORDER RECEIVED UNDER SECTION 144C(1)
ACTION 1 — DRP Objections	ACTION 2 — MAP Evaluation	PREPARATORY ANALYSIS (feeds both)
File within 30 days Mandatory regardless Engage AO findings directly DRP bound by Tiger Global on what it decided Generic objection fails ⚠  Miss deadline = DRP permanently foreclosed	MAP — Home CA / DTAA Article 25 Runs alongside DRP Cannot challenge Tiger Global ratio Viable where:   •  PPT/LOB sequencing   •  Correlative relief   •  Stronger substance CBDT MAP Guidance	Q1: Treaty PPT/LOB?   → Satisfy treaty test?   → Sequencing argument? Q2: Substance distinction from Tiger Global? Q3: Tiger Global silences:   •  S.90(2A) open question   •  Double non-taxation / Azadi Bachao
▼  FINAL ASSESSMENT ORDER — Section 144C(13)  ▼
APPEAL TO ITAT — Section 253  |  DRP directions not independently appealable

 

Two things must happen in parallel within that window.

DRP objections must be filed within 30 days regardless. The objection must directly engage the AO’s specific factual findings, not merely assert error. The DRP is bound by Tiger Global on what it decided; a generic objection will not succeed. A precisely targeted objection on Tiger Global’s silences and treaty-specific arguments, however, is not foreclosed.

MAP must be evaluated simultaneously. Where a draft assessment order is received, it constitutes an independent trigger for MAP evaluation regardless of whether a Section 197 application was previously made. The non-resident should approach their home jurisdiction competent authority under the MAP article of the applicable DTAA read with home jurisdiction tax department’s guidance, which will then engage India’s competent authority. Both the DRP and MAP proceedings proceed simultaneously; filing one does not require withdrawing the other.

MAP is valuable only where genuine distinctions exist: the PPT/LOB sequencing argument, correlative relief, or materially stronger substance as explained below.

The Three Questions That Must Be Answered

Three questions determine the available strategy. Does the treaty contain a PPT or LOB clause the taxpayer can satisfy, enabling the sequencing argument? Is the substance profile materially stronger than Tiger Global’s on genuine independent decision-making? Does the DRP objection identify the Section 90(2A) question as a point the Supreme Court expressly left open? Each question carries independent weight.

 

Structured legal and factual analysis feeding both the DRP objection and MAP application will be required. For taxpayers under treaties without PPT or LOB clauses, all three questions carry equal weight. For taxpayers under treaties with comprehensive PPT or LOB clauses who can genuinely satisfy those tests, Question 1 is the primary ground; Questions 2 and 3 are supporting arguments if the sequencing argument fails.

First: does the treaty contain a PPT or LOB clause and does the taxpayer genuinely satisfy it? The sequencing argument, whose legal and doctrinal foundation is set out in the opening section of this article, is the primary ground for DRP objection and MAP application in such cases. Where the LOB or PPT clause is applicable and the taxpayer genuinely satisfies its conditions, the DRP objection should assert that the case of avoidance, if any, is sufficiently addressed by the treaty’s own anti-abuse framework and there was accordingly no occasion to invoke GAAR. Tiger Global never addressed this because no applicable LOB existed on its facts and that absence is precisely what leaves the sequencing argument available and undefeated for treaties where a comprehensive clause does exist.

Second: is the substance profile materially distinguishable from Tiger Global? The enquiry is holistic. Tiger Global had employees, office premises, and Mauritian resident directors, yet the Court found that real decision-making authority resided outside Mauritius with a US-based individual holding signatory authority over all material transactions. The substance finding turned on absence of genuine independent decision-making in the treaty jurisdiction, not on absence of all presence. A taxpayer where board governance is genuinely independent and decisions are demonstrably taken in the treaty jurisdiction starts from a materially stronger position, and the DRP objection can argue that Tiger Global addressed only the specific pathology of formal structure without genuine decision-making authority.

Third: what did Tiger Global not decide? The Section 90(2A) open question: whether it reaches an assessee standing on the treaty under Section 90(1) without invoking Section 90(2) at all – was not raised, not argued, and not decided, and carries the character of a sub-silentio decision per Municipal Corporation of Delhi v. Gurnam Kaur (1989) 1 SCC 101. This should be identified precisely in the DRP objection as a question the Supreme Court left open. The Court’s repeated observations on double non-taxation are better held in reserve, given that the Court treated them as contextual and reinforcing rather than a freestanding rule, and the ratio regarding liable-to-tax as settled in Azadi Bachao is not adversely affected.

Conclusion

The amendment closed the grandfathering controversy, and it is arguable that it does so retrospectively for pending proceedings on the clarificatory amendment argument. Everything else identified in this article remains open and live. The practitioner’s immediate priorities are universal: audit existing structures for contemporaneous commercial rationale and substance documentation now. Where a Section 197 denial occurs, evaluate MAP through the home jurisdiction competent authority immediately. Where a draft assessment order is received, file DRP objections within 30 days without exception and evaluate MAP simultaneously. The consequence is not that treaty protection has disappeared, but that it must now be actively planned, demonstrated rather than presumed.

 

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This article is for informational purposes only and does not constitute legal or tax advice. The views expressed are those of the author. Specific legal or tax matters should be referred to qualified advisers. Ravish Bhatt is an Advocate (Bar Council of Gujarat) and a non-practising Solicitor of England and Wales.