05 December 2009
where a non- resident carried out business with the person resident in the taxable territory and it appeared to the Assessing Officer that on account of a “close connection†between such persons the business was so arranged that the business conducted by the resident with the non-resident either yielded no profit or, less than ordinary profit, which may be expected to arise in that business then, the Assessing Officer was empowered to tax profits which were derived or which may reasonably be deemed to be derived from the business in the hands of a person resident in the taxable territory. The term “arm’s length price†is defined in clause (ii) of section 92F of the Income Tax Act 1961 to mean a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled transaction. Section 92C (1) provides that the ALP has to be determined following 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 may be prescribed by the board. The various methods for determination of ALP as prescribed under section 92C(1) of the Act are as follows:
(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.
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