Section 92 — Computation of Income from International Transactions having regard to Arm's Length Price

Section 92 of the Income-tax Act, 1961, deals with the computation of income from international transactions between associated enterprises, ensuring that such transactions are conducted at arm's length. This section applies when there are cross-border transactions between related parties, and it mandates that the income arising from such transactions should be computed as if the transactions were between unrelated parties. The significance of this section lies in its role in preventing tax evasion through transfer pricing manipulation. The statutory test involves determining the arm's length price using prescribed methods, and the burden of proof generally lies with the taxpayer to demonstrate that their pricing is consistent with the arm's length principle. In practice, this section is crucial for multinational enterprises operating in India, as it influences their tax liabilities and compliance requirements.

Common Litigation Flashpoints

1. Determination of the most appropriate transfer pricing method
2. Selection of comparable transactions or entities
3. Adjustments for differences in comparability analysis
4. Documentation and substantiation of arm's length price

Judgments on Section 92 — Computation of Income from International Transactions having regard to Arm's Length Price

• M/s. Goldman Sachs Services Pvt. Ltd. vs Joint Commissioner of Income Tax — ITAT, 2020
  Disallowance under section 14A is not applicable if no exempt income is earned during the assessment year.
• DCIT-7(1)(1) vs Goldman Sachs (India) Securities Pvt. Ltd. — ITAT,
  Discount on issue of employees stock options is allowable as deduction in computing the income under the head profits and gains of business.
• Vodafone International Holdings B.V. vs Union of India & Anr. — SC,
  Section 9 of the Income Tax Act does not cover indirect transfers of capital assets situated in India.
• The Authority for Advance Rulings (Income Tax) and Others vs Tiger Global International II Holdings — SC,
  The DTAA between India and Mauritius allows capital gains to be taxed only in Mauritius, provided the entity holds a valid TRC.
• SAP Labs India Private Limited vs Income Tax Officer, Circle 6, Bangalore — SC,
  The High Court can scrutinize the Tribunal's determination of the arm's length price if it is alleged to be perverse or not in accordance with the guidelines under the IT Act and Rules.
• Sony Ericsson Mobile Communications India Pvt. Ltd. vs Commissioner of Income Tax – III — HC,
  AMP expenses can be considered an international transaction if they benefit the foreign AE and require compensation at arm's length price.
• Hyatt International Southwest Asia Ltd. vs Additional Director of Income Tax — SC,
  A Permanent Establishment exists if the enterprise has a fixed place of business at its disposal through which it carries on its business activities.
• M/s DIT (International Taxation), Mumbai vs M/s Morgan Stanley & Co. INC — SC,
  A Permanent Establishment exists if services are furnished through employees in India, and the arm's length price should be determined using the most appropriate method, such as TNMM.
• Maruti Suzuki India Ltd vs Commissioner of Income Tax — HC,
  AMP expenses incurred by an assessee cannot be treated as an international transaction under Section 92B unless there is evidence of an agreement or understanding with the associated enterprise.
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax — HC,
  The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.
• M/s. Texas Instruments (India) Private Limited vs ACIT (LTU), Bengaluru — ITAT,
  Expenses incurred for software usage and IT support services, which do not result in acquisition of any asset or enduring benefit, are revenue in nature.