Rule 77 — Meaning of expressions used in determination of arm’s length price. Made under s.162, s.173 of the Income-tax Act, 2025.
Rule 77 gives effect to Section 162 and Section 173 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 a definition clause for itself and for rules 78 to 84. "Associated enterprise" takes the meaning assigned to it in section 162. "Enterprise" takes the meaning assigned to it in section 173(b) and, for the purposes of a specified domestic transaction, also includes a unit, an enterprise, an undertaking or a business of a person who undertakes such transaction. "Property" includes goods, articles or things and intangible property. "Services" include financial services. "Transaction" includes a number of closely linked transactions. "Uncontrolled transaction" means a transaction between enterprises other than associated enterprises, whether resident or non-resident.
Rules 78 to 84 work out the arm's length price, and they use words the Act either defines elsewhere or does not define at all. This rule anchors two of them to the Act — associated enterprise to section 162 and enterprise to section 173(b) — and settles the remaining four itself, so that the comparability exercise in the later rules operates on a fixed vocabulary. The extension of "enterprise" for specified domestic transactions is what allows the machinery, built for transactions between separate enterprises, to be applied to a unit or undertaking within one person.
Two of the definitions do real work beyond labelling. "Transaction" includes a number of closely linked transactions, so the comparison in rules 78 to 84 need not be made deal by deal where the deals are closely linked; and "enterprise" reaches inside a single person for a specified domestic transaction, covering a unit, an undertaking or a business, which is how a transfer between two divisions of the same assessee can be tested at all. "Uncontrolled transaction" is defined by the absence of an associated-enterprise relationship and expressly not by residence — a transaction between unrelated parties qualifies whether they are resident or non-resident. These meanings are given "For the purpose of this rule and rules 78 to 84", so they do not travel to other rules of their own force.
A company sells components to a foreign group company in twelve monthly consignments under one supply arrangement. Because "transaction" includes a number of closely linked transactions, the twelve consignments may be tested together under rules 78 to 84 rather than one by one. A comparable sale by an unrelated Indian supplier to an unrelated foreign buyer is an uncontrolled transaction under clause (f), the residence of the parties being immaterial.
A reader meets it not on its own but inside any transfer pricing study, Transfer Pricing Officer's order or assessment that applies rules 78 to 84, wherever the meaning of enterprise, property, services, transaction or uncontrolled transaction is in issue.
"transaction" includes a number of closely linked transactions
"uncontrolled transaction" means a transaction between enterprises other than associated enterprises, whether resident or non-resident