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TMI BlogMeaning of International Transaction : Clause 163 of the Income Tax Bill, 2025 Vs. Section 92B of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... gislative intent behind both Section 92B and Clause 163 is to prevent tax avoidance through manipulation of prices in transactions between associated enterprises, particularly where at least one party is a non-resident. By defining "international transaction" in an inclusive and expansive manner, the law seeks to ensure that cross-border transactions are conducted at arm's length, thus protecting the Indian tax base from erosion due to profit shifting. The historical context reflects India's commitment to aligning with global best practices, particularly the OECD Transfer Pricing Guidelines, while also addressing domestic tax avoidance concerns. The evolution from Section 92B to Clause 163 is indicative of the need to modernize, clarify, and potentially expand the ambit of international transactions in light of new business models, intangible assets, and complex financial arrangements. Detailed Analysis of Clause 163 of the Income Tax Bill, 2025 1. Definition and Scope of International Transaction Clause 163(1) provides a comprehensive and inclusive definition of "international transaction." The essential elements are: * Transaction between two or more associated ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided or to be provided. This targets cost-sharing agreements, which are often used by multinational groups for shared services, research and development, or other group-wide functions. (g) Residual Clause Covers "any other transaction having a bearing on the profits, income, losses or assets of such enterprises." This catch-all ensures that no relevant transaction escapes the ambit of the law due to technicalities. 2. Deemed International Transactions Clause 163(2) addresses indirect arrangements, providing that a transaction between an enterprise and a person other than an associated enterprise ("other person") shall be deemed to be an international transaction between associated enterprises if: * There exists a prior agreement in relation to the transaction between such other person and the associated enterprise; or * The terms of the transaction are determined, in substance, between such other person and the associated enterprise; and the enterprise or the associated enterprise or both are non-residents, regardless of the residency of the "other person." This anti-avoidance provision is designed to prevent circumvention of transfer pricing rules through indirect dealin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Standards: The comprehensive scope aligns with OECD guidance and international best practices, enhancing India's credibility in global tax administration. Comparative Analysis: Clause 163 of the Income Tax Bill, 2025 vs. Section 92B of the Income-tax Act, 1961 1. Structural and Language Comparison Both Clause 163 and Section 92B are structured to provide an inclusive and non-exhaustive definition of "international transaction." The language and illustrative lists are substantially similar, with minor differences in structure and emphasis. Clause 163, however, demonstrates an effort to streamline and clarify the scope, possibly in response to interpretational issues and evolving business practices. 2. Associated Enterprises and Non-residency Requirement Section 92B defines an "international transaction" as a transaction between two or more associated enterprises, "either or both of whom are non-residents." Clause 163 modifies this to "one of which is necessarily a non-resident," which could be interpreted as a clarification rather than a substantive change, ensuring that at least one party must be a non-resident for the provision to apply. 3. Types of Transactions Covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction are determined, in substance, between the "other person" and the associated enterprise, and at least one of the enterprise or associated enterprise is a non-resident. The language in Clause 163 is more precise, specifying "irrespective of whether the other person is a non-resident or not," which aligns with the 2014 amendment to Section 92B(2). 5. Definition of Intangible Property Both provisions, especially after the 2012 Explanation to Section 92B, contain an identical, detailed, and illustrative list of intangible property, covering: * Marketing, technology, artistic, data processing, engineering, customer, contract, human capital, location, goodwill related intangibles * Methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, technical data * Any other similar item deriving value from intellectual content Clause 163(3) essentially reproduces the Explanation to Section 92B, ensuring continuity and clarity. 6. Notable Differences and Emphases * Structural Clarity: Clause 163 is more systematically arranged, with sub-clauses and sub-items, enhancing readability and precision. * Granularity: The 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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