The Supreme Court has sent out a clear message on how India should approach international tax agreements: national interest must come first.

While upholding the tax department’s decision to tax capital gains made by US-based investor Tiger Global on its exit from Flipkart in 2018, Justice JB Pardiwala used a separate but concurring opinion to spell out broader principles on tax treaties and India’s tax sovereignty.

The case arose from Tiger Global’s exit when Walmart Inc. acquired a controlling stake in Flipkart.

The investment firm had approached the Income Tax Department in February 2019, seeking an Advance Authority Ruling on whether the gains from the deal were taxable in India.

The court ultimately sided with the domestic revenue authorities, holding that the capital gains were indeed taxable.

But beyond the specific dispute, Justice Pardiwala’s opinion widened the conversation to how India negotiates and maintains international tax pacts.

"Tax treaties, international agreements, protocols and safeguards should be very engaging, transparent and capable of periodical reviews with the power to renegotiate with strong exit clauses to avoid unfair outcomes, safeguarding the nation's strategic and security, preventing erosion of tax base and loss or weakening of democratic control and introducing explicit carve outs safeguarding the sovereign's right of taxation. Treaties should be driven by national interest, not pressure from foreign governments or corporations," Justice Pardiwala said.

The observations come at a time when India has been reviewing several tax treaties amid concerns over revenue loss and treaty shopping.

Justice Pardiwala said that such agreements must protect the country’s economic sovereignty, revenue base and public interest. He suggested a set of safeguards that India should consider while negotiating or renewing international tax treaties.

These include limitation of benefits clauses to prevent shell companies from misusing treaty provisions, and ensuring that domestic anti-avoidance laws such as the General Anti-Avoidance Rule are not diluted by treaty obligations.

The judge also flagged the need for treaties to go beyond narrow diplomatic or bureaucratic objectives.

According to him, international tax agreements should reflect broader economic and public interest considerations, keeping democratic control and the sovereign right to tax firmly intact.