Section 92C of the Income Tax Act
Income-tax Act, 2025: s.165
Section 92C of the Income-tax Act, 1961 corresponds to section 165 (Determination of arm’s length price) of the Income-tax Act, 2025.
Read section 165 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 92C is Sony Ericsson Mobile Communications India Pvt. Ltd. v. CIT (374 ITR 118), cited in 499 of the 1,769 judgments on BharatTax that turn on this section.
Leading authorities on Section 92C
The existence of an international transaction for Advertising and Marketing Promotion (AMP) expenditure requires the revenue to discharge the burden of proof. An explanation inserted under Section 92B does not automatically make AMP expenditure an international transaction.
Transfer pricing adjustments for outstanding receivables are permissible only if the Tax Officer establishes, through analysis over a period, a pattern indicating an international transaction intended to benefit an associated enterprise. The Tax Officer cannot question purely business decisions like royalty payments or exceed jurisdiction by applying cost-benefit analysis to determine the arm's length price of services.
The Bright Line Test (BLT) is not a recognized method under the Income-tax Act and Rules for benchmarking advertising, marketing, and promotion (AMP) expenses or for determining the existence of an international transaction or its Arm's Length Price. The Revenue must first establish the existence and price of an international transaction before seeking an ALP adjustment.
The existence of an international transaction must be established before its arm's length price can be determined. An alleged 'excessive' AMP expenditure cannot unilaterally expand the scope of an international transaction if its existence is contested.
This case determines the Arm's Length Price (ALP) for intra-group services and reimbursements, clarifying when charges constitute services warranting a mark-up versus mere pass-through costs. It provides guidance on the circumstances under which an ALP adjustment, including an ALP of 'nil', is appropriate for such transactions.
Advertisement, Marketing, and Promotion (AMP) expenditure incurred by an Indian entity directly benefits its own business and cannot be automatically treated as an international transaction for global brand building by associated enterprises without specific statutory provisions or proper analysis.
A Transfer Pricing Officer (TPO) must adhere to prescribed methods under Section 92C for determining Arm's Length Price (ALP); an ALP determination at Nil or an adjustment using the 'Other Method' is unsustainable without proper comparability analysis. The TPO's jurisdiction is confined to ALP determination, respecting the commercial expediency of the assessee's business strategy, such as shared advertisement expenditure.
Expenditure incurred for exploring the feasibility of expanding or extending an existing business by setting up a new unit in the same line of business is revenue expenditure, not capital expenditure. Such expenditure, including obtaining project reports or legal opinions on desirability or feasibility, does not constitute the setting up of a new business.
Ad-hoc transfer pricing adjustments are not justified if the Transfer Pricing Officer fails to apply one of the prescribed methods under Section 92C. The arm's length nature of international transactions, including intra-group services and management fees, should be determined through a detailed FAR analysis and benchmarking study.
The Supreme Court may dismiss an appeal challenging the allocation of intra-group cross-charges if the entire transaction is found to be revenue neutral for the relevant assessment year.
