An APA between your Indian company and the CBDT fixes the royalty. The officer says the second proviso to s.92C(4) still stops the foreign parent, who did not sign the APA, from being taxed on the reduced figure. Does it?
No, on this Bench's reasoning. Where an APA has been entered into between the Indian associated enterprise and the CBDT, that agreement governs the determination of the arm's length price for every year it covers, and the price falls to be determined solely on the basis of the APA. The second proviso to s.92C(4) is confined to the case where the Assessing Officer determines the arm's length price under s.92C(3); it does not reach a variation made pursuant to an APA.
Decided by the High Court (B.P. Colabawalla J and Firdosh P. Pooniwalla J) on 2026-06-16, reported as ITXA No. 2306 of 2022 with ITXA No. 945 of 2022, ITXA No. 73 of 2023, ITXA No. 779 of 2023, ITXA (L) No. 21874 of 2022, ITXA No. 72 of 2023, ITXA No. 2331 of 2022 and ITXA No. 553 of 2023; 2026:BHC-OS:13178-DB. It bears on section 92CC, section 92CD, section 92C(3), section 92C(4), section 9(1)(i), section 90, section DTAA art 5 of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Appeals matters.
It is the answer to the argument that the non-signatory foreign associated enterprise must still be taxed on the gross figure it originally received because the s.92C(4) provisos operate against it. The Bench treats the APA, once entered into, as the exclusive source of the price for the covered years, and takes the Karnataka High Court's approach in EYGBS across from the first proviso to the second.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Gemological Institute of America Inc is a United States company carrying on gem grading and certification. Its wholly owned Indian subsidiary, GIA India, incorporated in 2007, paid it royalty for technical know-how and expertise in diamond grading. For assessment year 2011-12 the non-resident had declared royalty income of Rs 68,53,46,239. An advance pricing agreement dated 7 May 2018 determined the arm's length price of the royalty at Rs 49,08,99,451, and the non-resident refunded the excess of Rs 19,44,46,788 to GIA India. The dispute was whether the non-resident was taxable on the amount originally received or on the amount it retained after giving effect to the APA. The Revenue relied on the second proviso to s.92C(4). A second group of questions, on whether GIA India constituted a permanent establishment of the United States company under Article 5 of the India-United States treaty, was also before the Court. The appeals were heard together, eight in number.
On the transfer pricing question the Court held at para 57 that s.92C(4) would not apply to the United States company, because an APA had already been entered into between GIA India and the CBDT, that the APA governs the determination of the arm's length price for all the years forming its subject matter, and that once an APA has been entered into the price has to be determined solely on the basis of the APA. The second proviso to s.92C(4), it held in the same paragraph, applies only where a transfer pricing adjustment is made by the Assessing Officer, that is where the price is determined by him under s.92C(3), and not where a variation or adjustment is made pursuant to an APA. At para 58 the Court held that reliance on the Karnataka High Court's decision in EYGBS (India) was well founded. The copy available did not run as far as the answers to the questions of law or the final order, which are therefore not recorded here.
The Court's own analysis begins at para 38 under the heading 'FINDINGS:-', opening with the observation that it had heard counsel at length. At para 57 it accepted that on a plain reading the Revenue's argument on the second proviso appeared at first blush to carry weight, and then displaced it on the facts: an APA was already in existence between the Indian entity and the CBDT, and it governed the price for every year covered. The distinction the Court drew is between a price arrived at by the Assessing Officer under s.92C(3), to which the second proviso attaches, and a variation made pursuant to an APA, to which it does not. At para 58 it took the Karnataka High Court's reasoning in EYGBS (India) as well founded and applied it, that decision having dealt with the first proviso while this appeal turned on the second.
Once an APA has been entered into, the ALP has to be determined solely on the basis of the APA.
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Handle my notice → Ask a CA on WhatsAppNo, on this Bench's reasoning. Where an APA has been entered into between the Indian associated enterprise and the CBDT, that agreement governs the determination of the arm's length price for every year it covers, and the price falls to be determined solely on the basis of the APA. The second proviso to s.92C(4) is confined to the case where the Assessing Officer determines the arm's length price under s.92C(3); it does not reach a variation made pursuant to an APA. This was decided by the High Court (B.P. Colabawalla J and Firdosh P. Pooniwalla J) and bears on section 92CC, section 92CD, section 92C(3), section 92C(4), section 9(1)(i), section 90, section DTAA art 5 of the Income Tax Act 1961. It is reported as ITXA No. 2306 of 2022 with ITXA No. 945 of 2022, ITXA No. 73 of 2023, ITXA No. 779 of 2023, ITXA (L) No. 21874 of 2022, ITXA No. 72 of 2023, ITXA No. 2331 of 2022 and ITXA No. 553 of 2023; 2026:BHC-OS:13178-DB. It is the answer to the argument that the non-signatory foreign associated enterprise must still be taxed on the gross figure it originally received because the s.92C(4) provisos operate against it. The Bench treats the APA, once entered into, as the exclusive source of the price for the covered years, and takes the Karnataka High Court's approach in EYGBS across from the first proviso to the second. If it applies to you, the first step is this: Identify which proviso to s.92C(4) the officer is invoking; the first and the second have been dealt with by different High Courts and the answer here turns on the second.
Gemological Institute of America Inc is a United States company carrying on gem grading and certification. Its wholly owned Indian subsidiary, GIA India, incorporated in 2007, paid it royalty for technical know-how and expertise in diamond grading. For assessment year 2011-12 the non-resident had declared royalty income of Rs 68,53,46,239. An advance pricing agreement dated 7 May 2018 determined the arm's length price of the royalty at Rs 49,08,99,451, and the non-resident refunded the excess of Rs 19,44,46,788 to GIA India. The dispute was whether the non-resident was taxable on the amount originally received or on the amount it retained after giving effect to the APA. The Revenue relied on the second proviso to s.92C(4). A second group of questions, on whether GIA India constituted a permanent establishment of the United States company under Article 5 of the India-United States treaty, was also before the Court. The appeals were heard together, eight in number. The matter was decided on 2026-06-16 by the High Court (B.P. Colabawalla J and Firdosh P. Pooniwalla J). On those facts the High Court held as follows. On the transfer pricing question the Court held at para 57 that s.92C(4) would not apply to the United States company, because an APA had already been entered into between GIA India and the CBDT, that the APA governs the determination of the arm's length price for all the years forming its subject matter, and that once an APA has been entered into the price has to be determined solely on the basis of the APA. The second proviso to s.92C(4), it held in the same paragraph, applies only where a transfer pricing adjustment is made by the Assessing Officer, that is where the price is determined by him under s.92C(3), and not where a variation or adjustment is made pursuant to an APA. At para 58 the Court held that reliance on the Karnataka High Court's decision in EYGBS (India) was well founded. The copy available did not run as far as the answers to the questions of law or the final order, which are therefore not recorded here.
The Court's own analysis begins at para 38 under the heading 'FINDINGS:-', opening with the observation that it had heard counsel at length. At para 57 it accepted that on a plain reading the Revenue's argument on the second proviso appeared at first blush to carry weight, and then displaced it on the facts: an APA was already in existence between the Indian entity and the CBDT, and it governed the price for every year covered. The distinction the Court drew is between a price arrived at by the Assessing Officer under s.92C(3), to which the second proviso attaches, and a variation made pursuant to an APA, to which it does not. At para 58 it took the Karnataka High Court's reasoning in EYGBS (India) as well founded and applied it, that decision having dealt with the first proviso while this appeal turned on the second. In the words reproduced by the source cited on this page: "Once an APA has been entered into, the ALP has to be determined solely on the basis of the APA." The decision followed or applied Principal Commissioner of Income-tax v. EYGBS (India) (P.) Ltd. [2025] 180 taxmann.com 681 (Karnataka) — reliance on it held to be well founded and its approach adopted (para 58).
It was decided by the High Court on 2026-06-16 and is reported as ITXA No. 2306 of 2022 with ITXA No. 945 of 2022, ITXA No. 73 of 2023, ITXA No. 779 of 2023, ITXA (L) No. 21874 of 2022, ITXA No. 72 of 2023, ITXA No. 2331 of 2022 and ITXA No. 553 of 2023; 2026:BHC-OS:13178-DB. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 92CC, section 92CD, section 92C(3), section 92C(4), section 9(1)(i), section 90, section DTAA art 5, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. On the transfer pricing question the Court held at para 57 that s.92C(4) would not apply to the United States company, because an APA had already been entered into between GIA India and the CBDT, that the APA governs the determination of the arm's length price for all the years forming its subject matter, and that once an APA has been entered into the price has to be determined solely on the basis of the APA. The second proviso to s.92C(4), it held in the same paragraph, applies only where a transfer pricing adjustment is made by the Assessing Officer, that is where the price is determined by him under s.92C(3), and not where a variation or adjustment is made pursuant to an APA. At para 58 the Court held that reliance on the Karnataka High Court's decision in EYGBS (India) was well founded. The copy available did not run as far as the answers to the questions of law or the final order, which are therefore not recorded here. It arises in Assessment & Scrutiny, How Tax Law Is Read and Appeals matters, on section 92CC, section 92CD, section 92C(3), section 92C(4), section 9(1)(i), section 90, section DTAA art 5 of the Income Tax Act 1961, and was decided by B.P. Colabawalla J and Firdosh P. Pooniwalla J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put the APA and its covered years on the record and show that the year in dispute falls inside them, including any rollback years. Meet the argument at its root: ask whether the arm's length price was determined by the Assessing Officer under s.92C(3) at all. If it came out of the APA, the provisos are not engaged. Where the excess has actually been refunded by the non-resident to the Indian entity, document the refund; that was the factual footing here. Read this alongside EYGBS before relying on it, and check whether the full Bombay High Court judgment has since become available, because the version on indiankanoon stops before the final order.
Searched for later treatment; none was found. That is not the same as a source affirming it. Decided on 16 June 2026 and too recent for later treatment. Nothing applying, doubting or overruling it was found, and no information about any special leave petition was located. The holding on the transfer pricing question rests on para 57, which was read; the disposition was not reached because the copy read stops at para 58. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two cautions on this judgment, both important. First, paragraph 34, which reads exactly like a holding on the APA point, is not one: it is part of the submissions of Mr Mistri for the assessee and opens 'Mr. Mistri submitted that where the ALP is determined by an APA...'. The Court's own findings begin at para 38 under the heading 'FINDINGS:-', and the operative holding on the second proviso is at para 57. Anyone writing from this judgment should go to para 57 and not to para 34. Second, the copy of the judgment on indiankanoon truncates: the highest paragraph number reachable is 58, so the Court's answers to the individual questions of law, its conclusion on the permanent establishment questions under Article 5 of the India-United States treaty, and the final order were not read and are not stated here. The eight appeal numbers and the neutral citation were taken from the cause title on the page read. The permanent establishment issue is left open in this entry because nothing of the Court's conclusion on it was reachable. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
On the transfer pricing question the Court held at para 57 that s.92C(4) would not apply to the United States company, because an APA had already been entered into between GIA India and the CBDT, that the APA governs the determination of the arm's length price for all the years forming its subject matter, and that once an APA has been entered into the price has to be determined solely on the basis of the APA. The second proviso to s.92C(4), it held in the same paragraph, applies only where a transfer pricing adjustment is made by the Assessing Officer, that is where the price is determined by him under s.92C(3), and not where a variation or adjustment is made pursuant to an APA. At para 58 the Court held that reliance on the Karnataka High Court's decision in EYGBS (India) was well founded. The copy available did not run as far as the answers to the questions of law or the final order, which are therefore not recorded here.
TaxSphere, “PCIT (IT)-2 Mumbai v Gemological Institute of America Inc”, https://taxnotice.vittsphere.com/caselaw/case/gemological-institute-of-america-apa-is-the-sole-source-of-alp-second-proviso-92c4/ (validity last checked 2026-09-16)
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