Section 92B — Meaning of International Transaction

Section 92B of the Income-tax Act, 1961 defines what constitutes an 'international transaction' for the purposes of transfer pricing regulations. It includes transactions between two or more associated enterprises, either or both of whom are non-residents, involving the sale, purchase, or lease of tangible or intangible property, provision of services, lending or borrowing money, or any other transaction having a bearing on the profits, income, losses, or assets of such enterprises. This section is significant as it lays the groundwork for determining whether transfer pricing provisions apply, ensuring that transactions between associated enterprises are conducted at arm's length prices. The burden of proof typically lies with the taxpayer to demonstrate that their international transactions are at arm's length. This section is crucial in preventing base erosion and profit shifting by multinational enterprises.

Common Litigation Flashpoints

1. Determination of associated enterprises
2. Characterization of transactions as international transactions
3. Valuation of intangible assets
4. Application of arm's length principle

Judgments on Section 92B — Meaning of International Transaction

• 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.
• 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.