Rule 79 - Determination of arm's length price under section 165

Determination of arm's length price under section 165. 79. (1) For the purposes of section 165(2), the arm's length price in relation to an international transaction or a specified domestic transaction shall be determined by any of the following methods provided in this sub-rule, being the most appropriate method, in the manner specified therein: comparable uncontrolled price method; resale price method; cost plus method; profit split method; transactional net margin method; or any other method as provided in rule 78. (2) For the purposes of sub-rule (1), the comparability of an international transaction or a specified domestic transaction with an uncontrolled transaction shall be judged with reference to the following factors (the comparability factors)— (a) the characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; and (d) the conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location, depth and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development, level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction, if— (a) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions, are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (b) reasonably accurate adjustments can be made to eliminate the material effects of such differences. (4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be the data relating to the financial year (the current year) in which the international transaction or the specified domestic transaction has been entered into. (5) In a case where the most appropriate method for determination of the arm's length price of an international transaction or a specified domestic transaction is resale price method or cost plus method or transactional net margin method, then, irrespective of anything contained in sub-rule (4), the data to be used for analysing the comparability of an uncontrolled transaction shall be— (a) the data relating to the current year; or (b) the data relating to the first preceding year, if the data relating to the current year is not available at the time of furnishing the return of income by the assessee for the tax year; and where the data relating to the current year is subsequently available at the time of determination of arm's length price during the course of any assessment proceeding for the tax year, then such data shall be used for such determination irrespective of the fact that the data was not available at the time of furnishing the return of income of the relevant tax year.