Introduction
under the Income-tax Act, 1961 Transfer pricing rules, ensure that transactions between related companies are conducted at fair market value or not. This prevents companies from reducing their tax liability and shifting profits. These rules apply only when a transaction qualifies as an international transaction under section 92B.
Background of the Case
The assesse, Maersk Tankers India Private Limited, an Indian resident company forming part of a Denmark-based multinational group, transferred its Indian Support Services division to Lionheart Shipping Private Limited, another Indian resident group entity, through a slump sale arrangement for consideration of approximately ₹6.88 crore.
During scrutiny assessment, the Assessing Officer observed that both companies were associated enterprises under common foreign ownership and referred the transaction to the Transfer Pricing Officer under section 92CA for determination of the arm’s length price. The Revenue’s position was that although the transaction was executed between two resident entities, the broader group restructuring context and foreign parent influence warranted examination under transfer pricing provisions.
The core controversy therefore arose as to whether the slump sale could be characterized as an international transaction under section 92B(1) or alternatively as a deemed international transaction under section 92B(2).
Opinion of the TPO and DRP
The Transfer Pricing Officer examined the slump sale valuation and concluded that the consideration declared by the assesse did not reflect the true economic value of the transferred undertaking. Applying the Discounted Cash Flow (DCF) method, the TPO estimated the enterprise value of the business division at ₹53.33 crore and proposed a corresponding adjustment exceeding ₹46 crores.
The jurisdictional basis adopted by the TPO was that both entities were associated enterprises under common foreign control and that the restructuring exercise was undertaken within a multinational group framework. According to the TPO, the foreign parent’s overarching control and strategic direction indicated that the transaction was influenced by associated enterprises beyond India, thereby attracting the deeming fiction under section 92B(2).
The assesse challenged the proposed adjustment before the Dispute Resolution Panel. However, the DRP upheld the TPO’s reasoning, observing that multinational group restructuring involving common foreign ownership warranted examination under transfer pricing provisions. The DRP therefore confirmed the adjustment, leading to incorporation of the addition in the final assessment order.
Submissions Before the Tribunal
Before the Tribunal, the assesse contended that the transaction was undertaken solely between two resident associated enterprises and therefore failed to satisfy the fundamental jurisdictional requirement under section 92B(1). It was argued that the existence of foreign shareholding or group control cannot transform a domestic transaction into an international transaction.
The assesse further submitted that section 92B(2) applies only where a transaction is entered into with a third party pursuant to an arrangement with an associated enterprise. Since the impugned slump sale was directly executed between associated enterprises without any third-party participation, the deeming provision could not be invoked.
The Revenue, however, maintained that the restructuring was driven by the foreign parent entity and therefore possessed an international character. On this basis, it was argued that the transaction should be regarded as a deemed international transaction under section 92B(2).
Decision of the Tribunal
The Tribunal examined the statutory framework of section 92B and emphasized that the existence of an international transaction is a jurisdictional precondition for application of transfer pricing provisions. It observed that both parties to the slump sale were resident entities, thereby negating the applicability of section 92B(1).
While analyzing section 92B(2), the Tribunal clarified that the deeming fiction is specifically designed for situations involving transactions with third parties where associated enterprises influence or predetermine the terms. In the present case, the transaction was executed directly between associated enterprises themselves, and therefore the statutory condition embedded in section 92B(2) was not satisfied.
The Tribunal also rejected the Revenue’s reliance on common foreign ownership as a determinative factor. It held that foreign parent control, in the absence of statutory conditions, cannot extend the scope of transfer pricing provisions beyond what is expressly provided in law.
Consequently, the Tribunal concluded that the Transfer Pricing Officer lacked jurisdiction to determine the arm’s length price of the slump sale and deleted the entire adjustment.
Conclusion
The ruling in Maersk Tankers India Pvt Ltd v ACIT provides significant clarity on the limits of transfer pricing applicability in domestic restructuring scenarios. This ITAT Mumbai section 92B ruling reaffirms that transfer pricing jurisdiction is strictly statutory and cannot be expanded solely on the basis of group structure or commercial substance. The decision emphasizes that domestic restructuring between resident associated enterprises falls outside the ambit of an international transaction under section 92B unless the specific conditions prescribed in section 92B(2) are satisfied.
By delineating the boundaries of deemed international transaction provisions, the Tribunal has enhanced taxpayer certainty and provided valuable guidance for multinational groups undertaking domestic reorganizations within India.