SC: Treaties must serve national interest, Not foreign pressure

The Supreme Court has emphasized that India’s international treaties, especially tax treaties, must prioritize the country’s national interest rather than yield to pressure from foreign governments or multinational corporations.

The observations came while the Court upheld the Income Tax Department’s decision that capital gains arising from the exit of US-based investor Tiger Global from Flipkart in 2018 are taxable in India.

The case arose after Walmart acquired a controlling stake in Flipkart in 2018, prompting Tiger Global to sell its shares in the Indian e-commerce firm. The company sought clarification from the Income Tax Department in February 2019 through an Advance Authority Ruling , a procedure that provides guidance on the applicability of tax laws. The dispute eventually reached the Supreme Court, which upheld India’s right to tax the capital gains, affirming that foreign investors are not exempt from Indian tax laws.

Justice JB Pardiwala , in a concurring opinion, laid down broader principles for how India should approach international agreements. “ Treaties should be driven by national interest, not pressure from foreign governments or corporations. Tax treaties, international agreements, protocols and safeguards should be transparent, capable of periodic reviews, and have strong exit clauses to avoid unfair outcomes, safeguarding the nation's strategic and security interests, preventing erosion of tax base, and protecting the sovereign's right of taxation,” he observed.

The Court noted that India’s treaties should be transparent and regularly reviewed, include provisions to prevent misuse such as shell companies exploiting loopholes, allow India’s domestic anti-avoidance laws, including the General Anti-Avoidance Rule (GAAR) , to remain effective, and serve broader economic and public interests rather than merely diplomatic or bureaucratic goals.

The ruling is seen as a significant step in safeguarding India’s tax sovereignty , preventing treaty abuse, and ensuring that international agreements reflect the country’s economic and strategic priorities.