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CS Executive · Tax Laws and Practice · Direct Tax at a Glance

Under the Income-tax Act, 2025, the term 'transaction' for arm's length price purposes includes an arrangement, understanding or action in concert. Which statement is correct?

An arrangement, understanding or action in concert is a transaction whether or not it is formal or in writing, and whether or not it is intended to be enforceable by legal proceedings. Writing, formality or enforceability is not a condition for coverage.

  1. AIt is covered only if it is in writing
  2. BIt is covered whether or not it is formal or in writing, and whether or not it is intended to be legally enforceableCorrect
  3. CIt is covered only if it is legally enforceable
  4. DIt is covered only if it is formal, even if not enforceable

Explanation

The definition expressly says an arrangement, understanding or action in concert counts as a transaction irrespective of whether it is formal or in writing, and irrespective of whether it is intended to be enforceable by legal proceedings. The other options add conditions that the definition does not impose.

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