Question 1

A Tax Residency Certificate guarantees protection under bilateral tax treaties regardless of domestic laws.

Accepted Answer

The Supreme Court clarified that a TRC is only an initial eligibility requirement and is insufficient for treaty benefits if the transaction triggers GAAR due to deliberate tax avoidance.

Question 2

Double Taxation Avoidance Agreements (DTAAs) are designed to ensure income is not taxed anywhere.

Accepted Answer

DTAAs are meant to prevent the same income from being taxed in two jurisdictions, not to facilitate 'double non-taxation' through artificial holding structures.

Question 3

Consider the following statements regarding the Supreme Court's January 2026 judgment on GAAR and Tax Treaties:
1. The Court ruled that a Tax Residency Certificate (TRC) issued by a foreign competent authority is absolute proof of residency and beneficial ownership.
2. The judgment established that General Anti-Avoidance Rules (GAAR) override the provisions of Double Taxation Avoidance Agreements (DTAAs) in cases of impermissible tax avoidance.
3. The 'substance over form' doctrine mandates that the economic reality of a transaction takes precedence over its legal structure for tax purposes.
How many of the above statements are correct?

Accepted Answer

(b) Only two — Statement 1 is incorrect. The SC explicitly overturned the previous stance from the 2003 Azadi Bachao Andolan case, ruling that a TRC is not absolute proof, but merely a starting eligibility condition under Section 90(4) of the Income-tax Act. Statements 2 and 3 are correct. The Court ruled GAAR overrides DTAAs and applied the 'substance over form' doctrine to deny the tax exemption.

Question 4

Match the following concepts or committees related to India's tax administration (List I) with their defining characteristic (List II):

List I:
A. Shome Committee (2012)
B. Base Erosion and Profit Shifting (BEPS)
C. Treaty Shopping
D. Judicial Anti-Avoidance Rules (JAAR)

List II:
1. An OECD initiative to prevent multinationals from shifting profits to low-tax jurisdictions.
2. A panel that recommended the framework and deferred implementation of GAAR in India.
3. The doctrine established by courts to look beyond the legal paperwork to the economic substance of a transaction.
4. The practice of routing investments through a third country solely to exploit favorable tax treaty provisions.

Accepted Answer

(a) A-2, B-1, C-4, D-3 — A matches 2: The Parthasarathi Shome Committee reviewed GAAR guidelines. B matches 1: BEPS is the OECD framework to combat corporate tax avoidance. C matches 4: Treaty shopping is the act of routing investments via a third country to gain treaty benefits. D matches 3: JAAR refers to court-made anti-avoidance principles like 'substance over form'.

Question 5

Assertion (A): The Supreme Court denied Tiger Global capital gains tax exemptions on its Flipkart exit despite the investment being made prior to April 2017.
Reason (R): Under the India-Mauritius treaty, grandfathering protection is primarily available to direct holdings of Indian shares, and the Tiger Global exit involved an indirect transfer of Indian assets via a Singaporean holding company.

Accepted Answer

(a) Both A and R are true and R is the correct explanation of A. — Both statements are true. The Supreme Court observed that the grandfathering benefit for investments made before April 1, 2017 applied to direct transfers. Because Tiger Global's Mauritian entities sold shares of a Singapore holding company (which derived value from Indian assets), it was an indirect transfer lacking economic substance. Thus, the grandfathering protection was denied, and R correctly explains A.

SC Rules GAAR Overrides Tax Treaties

Koneru Humpy Wins FIDE Women's Grand Prix Pune