Rule 80 — Most appropriate method. Made under s.165 of the Income-tax Act, 2025.
Rule 80 gives effect to 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.
Sub-rule (1) states the test for section 165(2)(a). The most appropriate method is the method which is best suited to the facts and circumstances of each particular international transaction or specified domestic transaction, and which provides the most reliable measure of an arm's length price in relation to that transaction.
Sub-rule (2) lists the six factors to be taken into account in selecting it: the nature and class of the transaction; the class or classes of associated enterprises entering into it and the functions they perform, taking into account assets employed or to be employed and risks assumed; the availability, coverage and reliability of data necessary for application of the method; the degree of comparability existing between the transaction and the uncontrolled transaction, and between the enterprises entering into them; the extent to which reliable and accurate adjustments can be made for differences between the transactions or between the enterprises; and the nature, extent and reliability of assumptions required to be made in applying a method.
The rule sets no order of preference among the methods and names no method as presumptively correct.
Section 165(2)(a) requires the arm's length price to be determined by the most appropriate method but does not say what makes a method most appropriate. Left there, the choice would be a matter of assertion on both sides. The rule turns it into a two-part test with a stated object — the most reliable measure of an arm's length price for the particular transaction — and a closed list of factors that both the assessee and the Transfer Pricing Officer must work through in reaching that choice.
Appropriateness is judged transaction by transaction. The rule speaks of each particular international transaction or specified domestic transaction, so a method chosen for one class of transaction is not carried across to another by habit, and a single entity-wide margin is not a substitute for the exercise. Two of the six factors are about the quality of the evidence rather than the economics — the availability, coverage and reliability of data, and the extent to which reliable and accurate adjustments can be made for differences — so a method that is theoretically elegant but rests on data that cannot be obtained or on adjustments that cannot be made reliably is not the most appropriate one. The sixth factor cuts the same way against methods requiring heavy assumptions. Nothing in the rule ranks the methods, so an argument that one method is inherently superior does not answer it; the answer has to be built from the factors on the facts.
A company both imports a branded component from its parent and provides back-office support to another group entity. For the component it has reliable price data for the same component sold to unrelated buyers, and comparability is close, which points to a method resting on that price data. For the back-office service no such price data exists and any comparison would need large adjustments for scale and risk, so the factors in sub-rule (2)(c) and (e) point elsewhere. Applying a single method to both because it was used last year does not satisfy sub-rule (1), which requires the method best suited to each particular transaction.
A reader meets it in the transfer pricing study and the accountant's report supporting the return, and again in a section 166 reference where the Transfer Pricing Officer explains why he prefers a different method.
the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction or specified domestic transaction and which provides the most reliable measure of an arm's length price
the availability, coverage and reliability of data necessary for application of the method