Rule 103 — Meaning of expressions used in matters in respect of advance pricing agreement. Made under s.168, s.159, s.165 of the Income-tax Act, 2025.
Rule 103 gives effect to Section 168, Section 159 and Section 165 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 is the definition clause for the advance pricing agreement rules. It gives the meaning of thirteen expressions for the purposes of itself and rules 104 to 120.
"Agreement" is an advance pricing agreement entered into between the Board and the applicant, with the approval of the Central Government, as referred to in section 168(1). "Application" is an application for an advance pricing agreement made under rule 106, and "applicant" is a person who has made an application. "Covered transaction" is the international transaction or transactions for which an agreement has been entered into.
Three clauses classify agreements by how many administrations are behind them. A "bilateral agreement" is an agreement between the Board and the applicant, subsequent to and based on an agreement referred to in rule 122 between the competent authority of India and the competent authority of the other country regarding the most appropriate transfer pricing method or the arm's length price. A "multilateral agreement" is the same, based on an agreement with the competent authorities of more than one other country. A "unilateral agreement" is an agreement between the Board and the applicant which is neither a bilateral nor a multilateral agreement.
"Competent authority of India" is an officer authorised by the Central Government for the purpose of discharging the functions relating to any agreement entered into under section 159. "Critical assumptions" are the factors and assumptions which are so critical and significant that, if changed, the parties to the agreement shall not continue to be bound by it. "Most appropriate transfer pricing method" is a method referred to in section 165(1) that is the most appropriate having regard to the nature of the transaction or class of transaction or class of associated persons or function performed by such persons or such other relevant factors specified by the Board under rules 79 and 80. "Rollback year" is any tax year falling within the period not exceeding four tax years preceding the first of the tax years referred to in section 168(4). "Tax treaty" is an agreement under section 159 for the avoidance of double taxation. "Team" is the advance pricing agreement team consisting of income-tax authorities as constituted by the Board and including such number of experts in economics, statistics, law or any other field as may be nominated by the Principal Chief Commissioner of Income-tax (International Taxation).
The advance pricing agreement machinery runs across eighteen rules, and the same expressions carry the load in each of them. Rather than repeat them, the scheme defines them once and applies the definitions to rules 103 to 120. Two of the definitions do more than label: "critical assumptions" carries the condition on which the whole agreement stands or falls, and the three agreement types decide which procedural route an applicant is on.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Outer limit of the rollback period | Not exceeding four tax years | A cap, not an entitlement: a rollback year is any tax year falling within a period of at most four tax years preceding the first of the tax years referred to in section 168(4) | Clause (j) |
"Rollback year" is drafted as a ceiling. The definition marks out the outermost period from which a rollback year can be drawn — not exceeding four tax years preceding the first of the tax years referred to in section 168(4) — and does not by itself entitle an applicant to four years of rollback; how many of those years are in fact covered is settled elsewhere in the scheme. The classification of agreements is residual: an agreement is unilateral simply because it is neither bilateral nor multilateral, and what makes it bilateral or multilateral is that it is subsequent to, and based on, a competent authority agreement under rule 122 — so an application described as bilateral does not become a bilateral agreement until that underlying agreement exists. "Critical assumptions" is the definition with teeth: the factors caught by it are those whose change means the parties shall not continue to be bound by the agreement, which is why what goes into that list at negotiation matters more than its length. Everything here is definitional; none of these clauses creates an obligation of its own.
A company applies under rule 106 and becomes an applicant. Its application concerns transactions with associated enterprises in two countries, and the Board enters into an agreement with it only after the competent authority of India reaches agreements with the competent authorities of both countries under rule 122; that is a multilateral agreement under clause (i). Had there been no competent authority agreement at all, the resulting agreement between the Board and the company would be a unilateral agreement under clause (m), being neither bilateral nor multilateral.
A taxpayer meets these expressions in the advance pricing agreement application and in the agreement itself, particularly in the schedule of covered transactions and the list of critical assumptions; they are not encountered in any return or notice.
"critical assumptions" means the factors and assumptions which are so critical and significant, that if changed, the parties to the agreement shall not continue to be bound by the agreement
"rollback year" means any tax year, falling within the period not exceeding four tax years, preceding the first of the tax years referred to in section 168(4)
"unilateral agreement" means an agreement between the Board and the applicant, which is neither a bilateral nor a multilateral agreement