Section 92C — Computation of Arm's Length Price

Section 92C of the Income-tax Act, 1961, deals with the computation of the arm's length price (ALP) for international transactions and specified domestic transactions between associated enterprises. The section provides methods for determining the ALP, including the comparable uncontrolled price method, resale price method, cost plus method, profit split method, and transactional net margin method. Taxpayers must choose the most appropriate method to ensure that the transaction price is consistent with the price that would be charged between unrelated parties under similar circumstances. The significance of this section lies in its role in preventing profit shifting and ensuring that India receives its fair share of tax from multinational enterprises. The burden of proof initially lies with the taxpayer to justify the method and the ALP determined, but it can shift to the tax authorities if they challenge the taxpayer's determination.

Common Litigation Flashpoints

1. Selection of the most appropriate method for ALP determination
2. Adequacy of documentation supporting the ALP
3. Comparability analysis and selection of comparables
4. Adjustments made by tax authorities to the taxpayer's ALP

Judgments on Section 92C — Computation of 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.
• 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.