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CMA Final · Direct Tax Laws and International Taxation · Business Restructuring

Ananya Pvt Ltd, an Indian company, sells goods to an unrelated Dubai trader, Zaid LLC. Under a prior agreement between Zaid LLC and Ananya's non-resident associated enterprise in Mauritius, the sale price was fixed by the Mauritius entity. How is the transaction treated under the Income-tax Act, 2025?

The sale is deemed an international transaction. A transaction with an unrelated person is treated as one between associated enterprises when a prior agreement exists with the associated enterprise or its terms are determined in substance by it, and a party is non-resident, whichever country the other person belongs to.

  1. ANot an international transaction, since Zaid LLC is not an associated enterprise
  2. BDeemed an international transaction between associated enterprises, as terms were determined by a prior agreement with the associated enterpriseCorrect
  3. CAn international transaction only if Zaid LLC is a resident of India
  4. DDeemed international only if the price is later revised

Explanation

Section 163(2) deems a transaction with an outside person to be an international transaction if a prior agreement exists with the associated enterprise or terms are determined in substance between them, and either enterprise is non-resident. Here the Mauritius entity set the terms, so deeming applies. The first option ignores this deeming rule.

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