Substitution of new sections for section 92.

49. For section 92 of the Income-tax Act, the following sections shall be substituted with effect from the 1st day of April, 2002, namely:—

‘92. Computation of income from international transaction having regard to arm’s length price.—(1) Any income arising from an international transaction shall be computed having regard to the arm’s length price.

(2) In computing income under sub-section (1), the allowance for any expense or interest shall also be determined having regard to the arm’s length price.

(3) Where in an international transaction, two or more associated enterprises enter into a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a bene­fit, service or facility provided or to be provided to any one or more of such enterprises, the cost or expense allocated or appor­tioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm’s length price of such benefit, service or facility, as the case may be.

92A. Meaning of associated enterprise.—(1) For the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, "asso­ciated enterprise", in relation to another enterprise, means an enterprise—

 (a)  which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or

 (b)  in respect of which one or more persons who partici­pate, directly or indirectly, or through one or more intermedi­aries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.

(2) Two enterprises shall be deemed to be associated enterprises if, at any time during the previous year,—

 (a)  one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or

 (b)  any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or

  (c)  a loan advanced by one enterprise to the other enter­prise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise; or

 (d)  one enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or

  (e)  more than half of the board of directors or members of the governing board, or one or more executive directors or execu­tive members of the governing board of one enterprise, are ap­pointed by the other enterprise; or

  (f)  more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or

 (g)  the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or

 (h)  ninety per cent or more of the raw materials and con­sumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influ­enced by such other enterprise; or

  (i)  the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons speci­fied by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or

  (j)  where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or

  (k)  where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family, or by a relative of a member of such Hindu undivided family, or jointly by such member and his rela­tive; or

  (l)  where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or

 (m)  there exists between the two enterprises, any relation­ship of mutual interest, as may be prescribed.

92B. Meaning of international transaction.—(1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any con­tribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.

(2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise.

92C. Computation of arm’s length price.—(1) The arm’s length price in relation to an international transaction shall be deter­mined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely:—

 (a)  comparable uncontrolled price method;

 (b)  resale price method;

  (c)  cost plus method;

 (d)  profit split method;

  (e)  transactional net margin method;

  (f)  such other method as may be prescribed by the Board.

(2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm’s length price, in the manner as may be prescribed:

Provided that where more than one price may be determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices.

(3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that—

 (a)  the price charged or paid in an international transac­tion has not been determined in accordance with sub-sections (1) and (2); or

 (b)  any information and document relating to an interna­tional transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or

  (c)  the information or data used in computation of the arm’s length price is not reliable or correct; or

 (d)  the assessee has failed to furnish, within the speci­fied time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D,

the Assessing Officer may proceed to determine the arm’s length price in relation to the said international transaction in ac­cordance with sub-sections (1) and (2), on the basis of such material or information or document available with him:

Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm’s length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer.

(4) Where an arm’s length price is determined by the Assessing Officer under sub-section (3), the Assessing Officer may compute the total income of the assessee having regard to the arm’s length price so determined:

Provided that no deduction under section 10A or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section :

Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm’s length price paid to another associated enterprise from which tax has been deducted under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm’s length price in the case of the first mentioned enterprise.

92D. Maintenance, and keeping of information and document by persons entering into international transaction.—(1) Every person who has entered into an international transaction shall keep and maintain such information and document in respect thereof, as may be prescribed.

(2) Without prejudice to the provisions contained in sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that sub-section.

(3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard:

Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days.

92E. Report from an accountant to be furnished by persons enter­ing into international transaction.—Every person who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed.

92F. Definitions of certain terms relevant to computation of arm’s length price, etc.—In sections 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires—

  (i)  "accountant" shall have the same meaning as in the Explanation  below sub-section (2) of section 288;

 (ii)  "arm’s length price" means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions;

(iii)  "enterprise" means a person (including a permanent establishment of such person) who is, or has been, or is proposed to be, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights, or the provision of services of any kind, or in invest­ment, or providing loan or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securi­ties of any other body corporate, whether such activity or busi­ness is carried on, directly or through one or more of its units or divisions or subsidiaries, or whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or places;

 (iv)  "specified date" means,—

 (a)  where the assessee is a company, the 31st day of Octo­ber of the relevant assessment year;

 (b)  in any other case, the 31st day of July of the relevant assessment year;

  (v)  "transaction" includes an arrangement, understanding or action in concert,—

 (A)  whether or not such arrangement, understanding or action is formal or in writing; or

 (B)  whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding.’.