Rule 102 — Mutual agreement procedure not to apply where safe harbour for income attribution in case of income from business and profession is exercised. Made under s.159 of the Income-tax Act, 2025.
Rule 102 gives effect to Section 159 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule makes the safe harbour under rule 101 and the mutual agreement procedure alternatives rather than cumulative remedies. An assessee is not entitled to invoke the mutual agreement procedure under an agreement for avoidance of double taxation as referred to in section 159, in relation to an eligible business, if it has exercised the option for safe harbour under rule 101 in respect of that business and that option has not been declared invalid under rule 101.
The bar is business-specific and conditional. It attaches to the eligible business for which the option was exercised, and it lifts if the option is declared invalid under rule 101.
A safe harbour for income attribution settles the Indian share of profits by the taxpayer's own election, on terms the rules fix in advance. The mutual agreement procedure exists to settle the same question by negotiation between two competent authorities. Section 159 does not say what happens when a taxpayer wants both, and rule 102 answers it: having chosen the certainty of the safe harbour, the taxpayer cannot ask India to reopen the attribution with the other State. The exception for an option declared invalid keeps the treaty remedy alive for a taxpayer whose election never took effect.
The election has a treaty cost, and it is paid in advance of any dispute: once the rule 101 option stands, the mutual agreement procedure is closed for that eligible business even if the other State later taxes the same profits. The bar does not extend beyond that business, so a taxpayer with other operations retains the treaty remedy for them. The one way back in is the invalidity route — if the option is declared invalid under rule 101, the condition in rule 102 is not satisfied and the mutual agreement procedure is available again.
A non-resident with an eligible business in India exercises the safe harbour option under rule 101 for a tax year and the option is not declared invalid. Its home State later taxes part of the same profits, leaving them taxed twice. Rule 102 bars a mutual agreement procedure request under the treaty referred to in section 159 in relation to that business for that year, and the assessee is left with the attribution the safe harbour fixed.
You meet it when a mutual agreement procedure request is filed and the competent authority of India checks whether a rule 101 safe harbour option is standing for the same eligible business.
The assessee shall not be entitled to invoke mutual agreement procedure under an agreement for avoidance of double taxation as referred to in section 159 in relation to an eligible business, if the assessee has exercised the option for safe harbour under rule 101 in respect of such business and such option is not declared invalid under the said rule.