CMA Final · Direct Tax Laws and International Taxation · Business Restructuring
An Indian company, Kaveri Ltd, sells goods to Delta Traders, an unrelated person in Singapore. Before the sale, Delta Traders and Kaveri Ltd's associated enterprise in Mauritius had agreed the price terms of that sale. Under the Income-tax Act, 2025, how is the Kaveri-Delta transaction treated for transfer pricing?
The transaction is deemed an international transaction between associated enterprises. A transaction with an unrelated person is covered when a prior agreement on it exists between that person and the associated enterprise, and the enterprise or its associate is non-resident. Delta's not being an associate does not prevent this.
- ANot an international transaction because Delta Traders is not an associated enterprise
- BDeemed an international transaction between two associated enterprises because a prior agreement exists between the other person and the associated enterpriseCorrect
- CAn international transaction only if Delta Traders is resident in India
- DAn international transaction only if the price is below cost
Explanation
Section 163(2) deems a transaction with an unrelated person to be an international transaction if a prior agreement exists between that person and the associated enterprise, or terms are determined in substance between them. Here the Mauritius associate agreed terms with Delta, and non-resident status of the parties is met. Option A ignores this deeming rule.
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