s.92B — Meaning of international transaction
The definition that decides whether a transaction between associated enterprises falls within the transfer pricing chapter at all.
Income-tax Act, 1961
s.92B
Income-tax Act, 2025
s.163
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 92B(1) of the Income-tax Act, 1961 defines an international transaction as 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, provision of services, lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and includes a mutual agreement or arrangement between associated enterprises for the allocation or apportionment of any cost or expense incurred in connection with a benefit, service or facility provided to any one or more of them. Section 92B(2) deems a transaction entered into with an unrelated person to be a transaction between associated enterprises where there exists a prior agreement in relation to the relevant transaction between that other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between them. Two requirements have to be kept apart: the counterparties must be associated enterprises under section 92A, and the transaction must fall within section 92B. Failing either takes the matter outside Chapter X. The counterpart in the Income-tax Act, 2025 is section 163.
What the provision does
Fixes the subject matter of a transfer pricing adjustment and, through sub-section (2), extends it to transactions routed through unrelated parties where the terms are in substance set by the associated enterprise. It does NOT make the parties associated enterprises, which is the separate work of section 92A, and it does not apply where neither counterparty is a non-resident.
Threshold questions
- Whether either or both counterparties are non-residents
- Whether the transaction has a bearing on the profits, income, losses or assets of the enterprises
- Whether a prior agreement exists between the unrelated party and the associated enterprise
- Whether the terms of the transaction are determined in substance between the unrelated party and the associated enterprise
In practice
The recurring disputes.
How far section 92B(2) reaches
The Revenue uses sub-section (2) to bring domestic transactions with unrelated parties into the net where a group entity has influenced the terms, and reads "determined in substance" broadly. Assessees argue that the sub-section requires a prior agreement in relation to the relevant transaction or a substantive determination of its terms, not merely group influence or a common commercial framework, and that a broad reading would sweep in ordinary arm's length dealings. The questions framed in Kodak India were on exactly this sub-section, and the Bombay High Court left them open.
Whether a transaction with no bearing on profits qualifies
The words "having a bearing on the profits, income, losses or assets" are treated by assessees as a qualifying condition for every limb of the definition, so that a transaction with no profit impact falls outside. The Revenue reads them as attaching only to the residuary limb, leaving the enumerated categories of purchase, sale, lease, services and lending within the definition regardless. The placement of the phrase in the sub-section is what the argument turns on.
Corporate guarantees and other shareholder acts
Whether a corporate guarantee given for a subsidiary is an international transaction at all, or a shareholder act outside the definition, has been litigated repeatedly and with inconsistent results across benches. The Revenue relies on the express inclusion of guarantees in the Explanation to section 92B inserted with retrospective effect. Assessees argue that a guarantee which costs the parent nothing and is given to support its own investment has no bearing on profits in the relevant sense.