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

Kaveri Ltd (India) agrees with an unrelated Dubai trader, Al Noor LLC, a prior understanding that Al Noor will buy goods from Kaveri's non-resident associated enterprise on terms set in substance by Kaveri's group. Al Noor is not an associated enterprise. Under the Income-tax Act, 2025, the transaction between the enterprise and Al Noor is:

The transaction is deemed an international transaction. Either a prior agreement with the associated enterprise or terms determined in substance with it is enough, and it applies where the enterprise or its associated enterprise is non-resident, whatever the residence of the third party.

  1. ANot an international transaction, as Al Noor is not an associated enterprise
  2. BAn international transaction only if Al Noor is a non-resident
  3. CDeemed an international transaction between associated enterprises if a prior agreement exists or terms are determined in substance with the associated enterprise, and one of the enterprises is non-residentCorrect
  4. DDeemed an international transaction only if both a prior agreement exists and the terms are determined in substance

Explanation

Section 163(2) deems a transaction with an other person to be international if there is a prior agreement with the associated enterprise or the terms are determined in substance between them, and the enterprise or associated enterprise is non-resident. The two conditions are alternatives (or), and the other person's residence is irrelevant.

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