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CS Professional · Advanced Direct Tax Laws and Practice · Income Tax Implication on Specified Transactions

Under the Income-tax Act, 2025 (applicable from the June 2027 session), Veda Textiles Ltd enters into a transaction with a person located in a notified jurisdictional area. What is the effect on the status of the parties to that transaction?

All parties to the transaction are deemed to be associated enterprises. Once one party is located in a notified jurisdictional area, the section applies this deeming rule regardless of actual shareholding, control or any finding by the Assessing Officer.

  1. AAll parties are deemed to be associated enterprises, whatever their actual relationshipCorrect
  2. BOnly the Indian assessee is treated as an associated enterprise of the foreign party
  3. CParties become associated enterprises only if one holds 26% of the voting power in the other
  4. DThe parties remain unrelated unless the Assessing Officer records a finding of control

Explanation

Section 176(2)(a) states that where one party to a transaction is a person located in a notified jurisdictional area, all the parties are deemed to be associated enterprises. No shareholding or control test applies. The 26% and AO-finding options add conditions that the section does not contain.

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