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CA Final · Direct Tax Laws & International Taxation · Profits and Gains of Business or Profession

Sagar Traders, an eligible assessee with a validly exercised safe harbour option for raw diamonds, sells diamonds to its overseas associated enterprise in the relevant tax year. Under rule 100(4), what is the position about transfer pricing provisions for this transaction?

Sections 171 and 172 continue to apply. Rule 100(4) says these provisions apply to an international transaction or specified domestic transaction entered into by the eligible assessee while carrying on the eligible business, so the safe harbour option does not exempt such transactions.

  1. ASections 171 and 172 continue to apply to the international transactionCorrect
  2. BSections 171 and 172 do not apply because the safe harbour option is valid
  3. CThey apply only if profit is below 4% of gross receipts
  4. DThey apply only to specified domestic transactions, not international transactions

Explanation

Rule 100(4) states that sections 171 and 172 apply to an international transaction or specified domestic transaction entered into while carrying on the eligible business. Safe harbour on income does not exclude them, and they apply irrespective of the 4% test.

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