Rule 97 — Safe harbour for eligible specified domestic transaction. Made under s.165, s.171, s.172 of the Income-tax Act, 2025.
Rule 97 gives effect to Section 165, Section 171 and Section 172 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) requires the income-tax authorities to accept the transfer price declared by an eligible assessee for an eligible specified domestic transaction for a tax year, if the option exercised is treated as validly exercised under rule 98 and the transaction is in accordance with the circumstances specified in sub-rule (2).
Sub-rule (2) carries a Table of two entries. For supply of electricity, transmission of electricity or wheeling of electricity, the circumstance is that the tariff is determined, or the methodology for determining the tariff is approved, by the Appropriate Commission in accordance with the Electricity Act, 2003. For purchase of milk or milk products, the circumstance is that the price is determined at a rate fixed on the basis of the quality of milk, namely fat content and Solid Not Fat (snf) content, and that rate is irrespective of the quantity of milk procured, the percentage of shares held by the members in the co-operative society and the voting power held by the members in the society, and such rates are routinely declared by the co-operative society in a transparent manner and are available in public domain.
Sub-rule (3) bars any comparability adjustment and any allowance under section 165(3)(a)(ii) to a transfer price declared by the eligible assessee and accepted under sub-rule (1). Sub-rule (4) preserves sections 171 and 172 in respect of a specified domestic transaction irrespective of the assessee having exercised his option for safe harbour in respect of that transaction.
Where the price of a transaction is already fixed by an outside discipline — a regulator's tariff order under the Electricity Act, 2003, or a publicly declared quality-based milk rate that cannot vary with shareholding or volume — a transfer pricing enquiry has little left to find. The rule recognises that by directing acceptance of the declared price in those two circumstances. Sub-rules (3) and (4) then draw the boundary of what acceptance buys: no adjustment, but no escape from the documentation and reporting provisions either.
Acceptance is conditional on two things together and either one alone is not enough — a valid option under rule 98, and the transaction actually answering the circumstances in the Table. The milk entry is the harder of the two: the rate must be quality-based on fat and Solid Not Fat content, must be blind to quantity procured and to members' shareholding and voting power, and must be routinely declared in a transparent manner and available in public domain, so a rate negotiated with individual suppliers falls outside it whatever its level. Sub-rule (3) makes the accepted price final in the sense that no comparability adjustment and no allowance under section 165(3)(a)(ii) may be made to it, which cuts both ways for the assessee. Sub-rule (4) is the reminder that safe harbour is not an exemption from the specified domestic transaction regime: sections 171 and 172 continue to apply irrespective of the option.
A co-operative society buys milk from its members at a rate declared publicly each fortnight, fixed only by fat and Solid Not Fat content and identical for a member holding one share and a member holding a hundred. Having validly exercised its option under rule 98, it declares that price for the eligible specified domestic transaction, and the income-tax authorities are required to accept it, with no comparability adjustment under sub-rule (3). It must still comply with sections 171 and 172 for the transaction.
A reader meets it in the option exercised under rule 98 and thereafter in the transfer pricing proceeding for a specified domestic transaction, where the declared price is accepted rather than benchmarked.
No comparability adjustment and allowance under section 165(3)(a)(ii) shall be made to the transfer price declared by the eligible assessee and accepted under sub-rule (1).
The provisions of sections 171 and 172 in respect of a specified domestic transaction shall apply irrespective of the fact that the assessee exercises his option for safe harbour in respect of such transaction.