CMA Final · Direct Tax Laws and International Taxation · Business Restructuring
Indian company X Ltd agrees with a non-resident person P, which is not its associated enterprise, on the terms of a supply. P has a prior agreement with X Ltd's non-resident associated enterprise Y Inc covering that same supply. How is the transaction treated under the Income-tax Act, 2025?
The transaction is deemed an international transaction between associated enterprises. A prior agreement between the other person and the associated enterprise, with a non-resident enterprise involved, triggers the deeming rule, even though the other person is not itself an associated enterprise.
- AIt is deemed to be an international transaction between associated enterprises because a prior agreement exists with the associated enterpriseCorrect
- BIt is not an international transaction because P is not an associated enterprise
- CIt is an international transaction only if P is resident in India
- DIt is an international transaction only if the terms are later revised
Explanation
Under section 163(2), a transaction with a non-associated person is deemed an international transaction if a prior agreement exists between that person and the associated enterprise, or the terms are determined in substance between them, and one of the enterprises is non-resident. Here the prior agreement exists and Y Inc is non-resident, so the deeming applies. Lack of association with P does not prevent it.
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