The Finance Act 2001 has, effective from assessment year 2002 to 2003, introduced specific transfer pricing regulations under the Income Tax Act 1961 (IT Act) for computing income and costs or expenses allocated or apportioned under an international transaction with an associated enterprise on an arm's length basis. Arm's length basis operates on the hypothesis that associated enterprises are independent of each other in their commercial and financial dealings. The basis for determination of whether an entity is an associated enterprise includes participation, whether directly or indirectly, by an enterprise in the capital, control or management of another enterprise. Where an enterprise is in a position to influence, restrain or regulate the other, the two entities are considered associated enterprises. An international transaction is defined as a transaction between two or more associated enterprises, either or both of them non-residents, involving a purchase, sale, lease, provision of services, lending, borrowing or any transaction having a bearing on profits, income, loss or assets of such enterprises.
September 30 2001
