TRANSFER PRICING

AMENDEMENTS:
SECTION 92A : THE TRANSFER PRICING IS FULLY BASED ON THE
INTERNATIONAL AND DOMESTIC TRANSACTIONS BETWEEN THE
TWO OR MORE ASSCOCIATES PARTIES .
THE TRANSFER PRICE IS FINDUNG ON THE ARMS LENGTH PRICE
(FARE MARKET VALUE ).

In the income-tax act, 1961 (“the act”), sections 92 to 92f govern

and regulate the transfer pricing provisions in india. Further,
sections 270a 271AA 271BA, 271GB provide for various type of
penalties in cases of non compliance with prescribed transfer
pricing provisions. The rules for interpretation and implementation
of the provisions are rules 10A to 10THD of the income tax rules,
1962 (“the rules”).

A summary of the legislation and the rules is given below :

 Section 92(1) provides that any income arising from an
international trsansaction shall be computed having regard to
the arms length price (“ALP”);
 Any allowance for an expenditure or interest or allocation of
any cost or express or any income in relation to the specified
domestic transaction (“SDT”) shall be computed having regard
to the ALP.
 Where in an international transaction or SDT two or more
associated enterprise (AEs) enter into a mutal agreement or
arangments for the allocation or apportionment of or any
contribution to , any cost or expense incurred or to be incurred
 in connection with the benefit service of facility provided or to
be provided to any one or more of such enterprise the cost or
expense allocated or apportioned to ,or as the case may be,
contributed by any such enterprises shall be determined having
regard to the arms length price of such benefit service or,
facility as the case may be ; and the above mentioned
provisions shall not
apply in a case where thw computation of income or determination
of the allowance for any exepens or interest ,or the case may be
contributed has the effect or reducing the income chargeble to tax or
increasing the loss as the case may be computed on the basis of
entries made in the books of accounts in respect of the previous year
in which the international transaction or SDT was entered into.

Associated enterprise
meaning of associates enterprise
For the purposes of this section and sections 92, 92B, 92C, 92D,
92E and 92F, "associated enterprise", in relation to another
enterprise, means an enterprise-
(a) which participates, directly or indirectly, or through one or
more intermediaries, in the management or control or capital
of the other enterprise; or
(b) in respect of which one or more persons who participate,
directly or indirectly, or through one or more intermediaries, in
its management or control or capital, are the same persons
who participate
indirectly, or through one or more intermediaries, in the
management or control or capital of the other enterprise.
(2) For the purposes of sub-section (1), two enterprises shall be
deemed to he associated enterorises if, at any time during the
previous year -
(a) one enterprise holds, directly or indirectly, shares carrying
not less than twenty-six per cent of the voting power in the
other enterprise; or
(b) any person or enterprise holds, directly or indirectly, shares
carrying not less than twenty-six per cent of the voting power
in each of such enterprises; or
(c) a loan advanced by one enterprise to the other enterprise
constitutes not less than fifty-one per cent of the book value of
the total assets of the other enterprise; or
(d) one enterprise guarantees not less than ten per cent of the
total borrowings of the other enterprise; or
(e) more than half of the board of directors or members of the
governing board, or one or more executive directors or
executive members of the governing board of one enterprise,
?
V more than half of the directors or members of the governing
board, or one or more of the executive directors or members of
the governing board, of each of the two enterprises
persons; or
9
the other enterprise;
y the same person