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

Rani Ltd, an Indian company, has agreed in advance with Vega Pte Ltd, an unrelated Singapore company, that Vega will buy goods from Rani's associated enterprise, Rani Holdings Inc., a non-resident, on terms Rani Ltd fixes. Under the Income-tax Act, 2025, how is the Rani Ltd–Vega transaction treated?

The transaction is deemed an international transaction between associated enterprises. A transaction with an unrelated person is so deemed where a prior agreement exists with the associated enterprise or terms are determined in substance between them, and one of the enterprises is non-resident. The other person's residence does not matter.

  1. AIt is not an international transaction because Vega is not an associated enterprise
  2. BIt is deemed an international transaction between associated enterprises, because a prior agreement exists with the associated enterprise and one of them is a non-residentCorrect
  3. CIt is an international transaction only if Vega is also a non-resident
  4. DIt is deemed an international transaction only if the terms are approved by the Board

Explanation

A transaction with an unrelated person is deemed an international transaction if there is a prior agreement with the associated enterprise or terms are determined in substance by it, and the enterprise or its associated enterprise is non-resident. The residence of the other person is irrelevant, so the third option fails.

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