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Computation of income from transaction with non-resident [Section 92] under The Indian Scenario – Income Tax

Computation of income from transaction with non-resident [Section 92] under The Indian Scenario :

Section 92 provides that any income arising from an “international transaction” shall be computed having regard to “the arm’s length price”. For this purpose the allowance for any expense or interest shall be determined on the basis of arm’s length price. The section further provides that in an international transaction between two or more “associated enterprises” when there is a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expenses in connection with a benefit, service or facility provided to any one or more of such enterprises, the allocation of cost, expenses etc. shall be determined having regard to arm’s length price of such benefit, service or facility. Similarly, the price received for exports and amounts received for services rendered to associated enterprise will be determined on the basis of arm’s length price. It will be noticed that in the international transaction, the income or expense will have to be at arm’s length price, if the transaction is between associated enterprises.

While determining arm’s length price under the provisions of transfer pricing regulations, if the income works out to a figure lower than the income shown in the books of accounts, the provision of transfer pricing regulations will not apply.

The Assessing Officer will have wide powers to determine what is an arm’s length price for such transactions and make adjustments for computation of income. The keywords in section 92 are (i) associated enterprises, (ii) international transactions and (iii) arm‟s length price. These terms are defined in sections 92A, 92B and 92C.

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