Supreme Court’s judgment on Thursday in the ‘Tiger Global International III Holdings vs Authority for Advance Ruling’ case shreds the old playbook for foreign investments into India.

Ruling against Tiger Global in the `14,000 cr Flipkart stake sale dispute, the apex court has done more than just settle a tax dispute — it has virtually signalled the end of the ‘form over substance’ era. For global investors, the message is stark: a tax residency certificate (TRC) is no longer a golden visa.

For decades, the global PE-VC ecosystem operated on a singular, comforting premise derived from the 2003 ‘Azadi Bachao Andolan’ ruling, affirming validity of the India–Mauritius Double Taxation Avoidance Agreement (DTAA): if you have a valid TRC, the Indian taxman cannot look behind it.

Today’s ruling shatters that certainty.

It is the end of the era of ‘TRC simpliciter’. If TRC were accepted as the absolute final word, the India–Mauritius pact would cease to be a bilateral agreement, and arguably become India’s tax treaty with the entire world. The apex court has signalled that a mere TRC cannot indefinitely mask the bona fides of an investment.

The top court has upheld the revenue’s view that Tiger Global’s Mauritius entities were ‘conduits’, mere pass-through vehicles with no independent commercial substance, designed solely to route capital and avoid taxes. By setting aside the Delhi High Court’s order, the apex court has established that ‘economic substance’ takes precedence over legal form. If an entity is found to be interposed using an ‘impermissible arrangement’ for realising tax-free capital gains, the treaty benefits under Article 13(4) stand extinguished.Grandfathering no longer a blanket shield

The most unnerving aspect for investors is the implication for ‘grandfathered’ investments (those made before April 1, 2017). The Tiger Global exit involved shares acquired before the treaty amendment, which were widely believed to be ring-fenced from capital gains tax. This judgment suggests that grandfathering is not an absolute immunity. If the structure itself is deemed to be a conduit, the date of acquisition becomes irrelevant. This opens a Pandora’s box for every major exit involving historical holdings.

Substance litmus test

The verdict places a heavy burden of proof on foreign investors. It is no longer enough to hold board meetings in Mauritius or pay local administrative fees. The revenue is now empowered to ask uncomfortable questions such as:

• Does the holding company have independent decision-making authority?

• Is there real economic activity in the treaty jurisdiction?

• Are the funds merely flowing through from a parent in a non-treaty jurisdiction?

Thursday’s judgment represents a judicial endeavour to find a point of equilibrium — a delicate balance where international treaty obligations are respected, yet do not subsume India’s fiscal sovereignty. The court appears to have drawn a line where ‘form’ must finally yield to ‘substance’.

For years, the ‘India premium’ in valuation models accounted for currency risk and regulatory flux. Today, investors must price in a new variable: ‘treaty risk’. The top court has effectively signalled that tax certainty is no longer a function of having the right papers — a TRC — but of having the right ‘substance’.

The era of low-cost, tax-neutral routing via island jurisdictions is effectively over. Tax efficiency now comes with a price tag of operational substance.

This marks the arrival of a more confident Indian tax administration, one that refuses to be bound by the ‘diplomatic niceties’ of a TRC when it senses revenue leakage. India is asserting that a treaty partner’s certification cannot sign away its fiscal sovereignty. Global investors must recognise this shift. India is demanding fair tax attribution for the value created on its soil.