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TMI BlogSpecial provisions concerning the avoidance of tax, specifically empowering to Board to make "safe harbour" rules : Clause 167 of the Income Tax Bill, 2025 Vs. Section 92CB of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the arm's length price and income deemed to accrue or arise in India. This clause is a significant legislative mechanism aimed at providing certainty, reducing litigation, and simplifying compliance in transfer pricing and related international taxation matters. Section 92CB of the Income-tax Act, 1961, inserted in 2009 and amended in 2020, is the existing statutory provision on the Board's power to make safe harbour rules. Both Clause 167 and Section 92CB serve similar objectives but differ in scope, language, and underlying legislative context. This commentary provides a detailed analysis of Clause 167, followed by a comprehensive comparison with Section 92CB, with a focus on each item/provision, legislative intent, practi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied circumstances. * Arm's length price u/s 165 or 166: These sections presumably correspond to the new Bill's provisions on transfer pricing for international and specified domestic transactions, replacing or updating the current sections 92C and 92CA of the 1961 Act. The phrase "shall be subject to safe harbour rules" makes it mandatory for such determinations to consider safe harbour rules if they exist, thereby providing a statutory foundation for such rules. Sub-section (2): Power of the Board This provision confers explicit rule-making authority on the Board (CBDT) to prescribe safe harbour rules for the transactions/income specified in sub-section (1). The delegation of powers is consistent with the need for flexibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer pricing or deemed income, provided they comply with the prescribed parameters. * Reduced Compliance Burden: Safe harbour rules typically prescribe simplified documentation and compliance requirements, reducing the administrative burden. * Eligibility Criteria: Not all taxpayers or transactions may be eligible; the rules may set thresholds based on transaction value, industry, or risk profile. * Potential Trade-Offs: In exchange for certainty, taxpayers may accept less favourable pricing or income recognition terms than might be achieved through full transfer pricing analysis. Impact on Tax Administration * Resource Allocation: The administration can focus its resources on complex or high-risk cases, improving overall effi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1), as declared by the assessee. Analysis of Key Provisions 1. Scope of Transactions Covered * Section 92CB: Applies to income u/s 9(1)(i) (business connection, property, asset or source of income in India, transfer of a capital asset situated in India) and to arm's length price u/ss 92C (computation of arm's length price) and 92CA (reference to Transfer Pricing Officer). * Clause 167: Refers to income u/s 9(2) (which may reflect an updated or restructured provision in the new Bill, potentially covering broader or different categories of deemed income) and arm's length price u/ss 165 or 166 (presumably the Bill's analogues to 92C and 92CA). The shift from "section 9(1)(i)" to "section 9(2)" may indicate an expansion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced in 2009, at a time when India was grappling with a surge in transfer pricing litigation and uncertainty. The provision has since been amended to expand its scope, notably in 2020, to cover deemed income u/s 9(1)(i). Clause 167, as part of the new Bill, seeks to consolidate, update, and possibly expand the safe harbour concept to reflect contemporary business realities and international developments. 6. Potential Issues and Ambiguities * Overlap or Gaps: The transition from the old to the new provisions may create interpretative challenges, especially if the scope of section 9(2) in the new Bill differs from section 9(1)(i) in the old Act. * Interaction with International Tax Norms: The safe harbour rules must be crafted carefull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Practice and OECD Guidelines Safe harbour rules are recognized in the OECD Transfer Pricing Guidelines (Chapter IV), which recommend their use in limited circumstances to reduce compliance burdens and administrative costs. However, the OECD cautions against overly broad safe harbour regimes that may undermine the arm's length principle or create risks of double taxation or non-taxation. The Indian approach, as reflected in both Section 92CB and Clause 167, is consistent with OECD recommendations in providing for safe harbour rules by delegated legislation, subject to appropriate safeguards and limitations. Conclusion Clause 167 of the Income Tax Bill, 2025, represents an evolution of India's statutory framework for safe ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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