[TO BE PUBLSIHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II,
SECTION 3, SUBSECTION (ii)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
[CENTRAL BOARD OF DIRECT TAXES]
Notification
New Delhi, the19th October, 2015
INCOME TAX
S.O. 2860 (E). In exercise of the powers conferred by section 92C read
with section 295 of the Incometax Act, 1961 (43 of 1961), the Central Board of
Direct Taxes hereby makes the following rules further to amend the Incometax
Rules, 1962, namely:
1. (1) These rules may be called the Incometax (16th Amendment),
Rules, 2015.
(2) They shall come into force on the date of their publication in the
Official Gazette.
2. In the Incometax Rules, 1962,
(I) in rule 10 B, 
(i) in subrule (4),
(a) after the words "relating to the financial year", the
brackets, words, figures and letters "( hereafter in this rule
and in rule 10 CA referred to as the `current year')" shall be
inserted;
(b) in the proviso, for the words "such financial year", the
words "the current year " shall be substituted;
(c) after the proviso, the following proviso shall be inserted,
namely:
"Provided further that the first proviso shall not apply
while analysing the comparability of an uncontrolled
transaction with an international transaction or a
specified domestic transaction, entered into on or
after the 1st day of April, 2014.";
(ii) after subrule (4), the following subrule shall be inserted,
namely:
"(5) In a case where the most appropriate method for determination of the
arm's length price of an international transaction or a specified domestic
transaction, entered into on or after the 1st day of April, 2014, is the
method specified in clause (b), clause (c) or clause (e) of subsection (1)
of section 92 C , then, notwithstanding anything contained in subrule (4),
the data to be used for analysing the comparability of an uncontrolled
transaction with an international transaction or a specified domestic
transaction shall be,
(i) the data relating to the current year ; or
(ii) the data relating to the financial year immediately preceding the
current year, if the data relating to the current year is not available
at the time of furnishing the return of income by the assessee , for
the assessment year relevant to the current year:
Provided that where the data relating to the current year is
subsequently available at the time of determination of arm's length price of
an international transaction or a specified domestic transaction during
the course of any assessment proceeding for the assessment year
relevant to the current year, then, such data shall be used for such
determination irrespective of the fact that the data was not available at the
time of furnishing the return of income of the relevant assessment year.";
(II) after rule 10 C, the following rule and illustrations shall be inserted,
namely:
"10 CA. Computation of arm's length price in certain cases.(1) Where in
respect of an international transaction or a specified domestic transaction, the
application of the most appropriate method referred to in subsection (1) of
section 92 C results in determination of more than one price, then the arm's
length price in respect of such international transaction or specified domestic
transaction shall be computed in accordance with the provisions of this rule.
(2) A dataset shall be constructed by placing the prices referred to in subrule (1)
in an ascending order and the arm's length price shall be determined on the
basis of the dataset so constructed:
Provided that in a case referred to in clause (i) of subrule (5) of rule 10B,
where the comparable uncontrolled transaction has been identified on the basis
of data relating to the current year and the enterprise undertaking the said
uncontrolled transaction, [not being the enterprise undertaking the international
transaction or the specified domestic transaction referred to in subrule (1)], has
in either or both of the two financial years immediately preceding the current
year undertaken the same or similar comparable uncontrolled transaction then,
(i) the most appropriate method used to determine the price of the comparable
uncontrolled transaction undertaken in the current year shall be applied in similar
manner to the comparable uncontrolled transaction or transactions undertaken in
the aforesaid period and the price in respect of such uncontrolled transactions
shall be determined; and
(ii) the weighted average of the prices, computed in accordance with the manner
provided in subrule (3) , of the comparable uncontrolled transactions undertaken
in the current year and in the aforesaid period preceding it shall be included
in the dataset instead of the price referred to in subrule (1) :
Provided further that in a case referred to in clause (ii) of subrule (5) of
rule 10B, where the comparable uncontrolled transaction has been identified on
the basis of the data relating to the financial year immediately preceding the
current year and the enterprise undertaking the said uncontrolled transaction,
[not being the enterprise undertaking the international transaction or the specified
domestic transaction referred to in subrule (1)], has in the financial year
immediately preceding the said financial year undertaken the same or similar
comparable uncontrolled transaction then, 
(i) the price in respect of such uncontrolled transaction shall be determined by
applying the most appropriate method in a similar manner as it was applied to
determine the price of the comparable uncontrolled transaction undertaken in
the financial year immediately preceding the current year; and
(ii) the weighted average of the prices, computed in accordance with the manner
provided in subrule (3) , of the comparable uncontrolled transactions undertaken
in the aforesaid period of two years shall be included in the dataset instead of
the price referred to in subrule (1):
Provided also that where the use of data relating to the current year in
terms of the proviso to subrule (5) of rule 10 B establishes that,
(i) the enterprise has not undertaken same or similar uncontrolled transaction
during the current year ; or
(ii) the uncontrolled transaction undertaken by an enterprise in the current year
is not a comparable uncontrolled transaction,
then, irrespective of the fact that such an enterprise had undertaken comparable
uncontrolled transaction in the financial year immediately preceding the current
year or the financial year immediately preceding such financial year, the price of
comparable uncontrolled transaction or the weighted average of the prices of the
uncontrolled transactions, as the case may be, undertaken by such enterprise
shall not be included in the dataset.
(3) Where an enterprise has undertaken comparable uncontrolled transactions
in more than one financial year, then for the purposes of subrule (2) the
weighted average of the prices of such transactions shall be computed in the
following manner, namely:
(i) where the prices have been determined using the method referred to in clause
(b) of subrule (1) of rule 10 B , the weighted average of the prices shall be
computed with weights being assigned to the quantum of sales which has been
considered for arriving at the respective prices;
(ii) where the prices have been determined using the method referred to in
clause (c) of subrule (1) of rule 10 B , the weighted average of the prices shall
be computed with weights being assigned to the quantum of costs which has
been considered for arriving at the respective prices ;
(iii) where the prices have been determined using the method referred to in
clause (e) of subrule (1) of rule 10 B, the weighted average of the prices shall be
computed with weights being assigned to the quantum of costs incurred or sales
effected or assets employed or to be employed, or as the case may be, any other
base which has been considered for arriving at the respective prices.
(4) Where the most appropriate method applied is a method other than the
method referred to in clause (d) or clause (f) of subsection (1) of section 92 C
and the dataset constructed in accordance with subrule (2) consists of six or
more entries, an arm's length range beginning from the thirtyfifth percentile of
the dataset and ending on the sixtyfifth percentile of the dataset shall be
constructed and the arm's length price shall be computed in accordance with
subrule(5) and subrule (6).
(5) If the price at which the international transaction or the specified domestic
transaction has actually been undertaken is within the range referred to in sub
rule (4), then, the price at which such international transaction or the specified
domestic transaction has actually been undertaken shall be deemed to be the
arm's length price.
(6) If the price at which the international transaction or the specified domestic
transaction has actually been undertaken is outside the arm's length range
referred to in subrule (4), the arm's length price shall be taken to be the median
of the dataset.
(7) In a case where the provisions of subrule (4) are not applicable, the arm's
length price shall be the arithmetical mean of all the values included in the
dataset:
Provided that, if the variation between the arm's length price so
determined and price at which the international transaction or specified domestic
transaction has actually been undertaken does not exceed such percentage not
exceeding three percent. of the latter, as may be notified by the Central
Government in the Official Gazette in this behalf, the price at which the
international transaction or specified domestic transaction has actually been
undertaken shall be deemed to be the arm's length price .
(8) For the purposes of this rule,
(a) "the thirtyfifth percentile" of a dataset, having values arranged in an
ascending order, shall be the lowest value in the dataset such that at
least thirty five percent. of the values included in the dataset are equal
to or less than such value :
Provided that, if the number of values that are equal to or less
than the aforesaid value is a whole number , then the thirtyfifth percentile
shall be the arithmetic mean of such value and the value immediately
succeeding it in the dataset ;
(b) "the sixthfifth percentile" of a dataset, having values arranged in an
ascending order, shall be the lowest value in the dataset such that at
least sixty five percent. of the values included in the dataset are equal
to or less than such value:
Provided that, if the number of values that are equal to or less
than the aforesaid value is a whole number , then the sixtyfifth percentile
shall be the arithmetic mean of such value and the value immediately
succeeding it in the dataset;
(c) "the median" of the dataset, having values arranged in an ascending
order, shall be the lowest value in the dataset such that at least fifty
percent. of the values included in the dataset are equal to or less than
such value :
Provided that, if the number of values that are equal to or less
than the aforesaid value is a whole number , then the median shall be
the arithmetic mean of such value and the value immediately succeeding
it in the dataset.
Illustration 1. The data for the current year of the comparable uncontrolled
transactions or the entities undertaking such transactions is available at the time
of furnishing return of income by the assessee and based on the same, seven
enterprises have been identified to have undertaken the comparable uncontrolled
transaction in the current year. All the identified comparable enterprises have
also undertaken comparable uncontrolled transactions in a period of two years
preceding the current year. The Profit level Indicator (PLI) used in applying the
most appropriate method is operating profit as compared to operating cost
(OP/OC). The weighted average shall be based upon the weight of OC as
computed below:
Sl. Name Year 1 Year 2 Year 3 Aggregation Weighted
No. [Current of OC and OP Average
Year]
1 2 3 4 5 6 7
1 A OC = OC = OC = 225 Total OC = 475 OP/OC =
100 150 12%
OP = 35 Total OP = 57
OP = 12 OP = 10
2 B OC = 80 OC = OC = 100 Total OC = 305 OP/OC =
125 8.2%
OP = 10 OP = 10 Total OP = 25
OP = 5
3 C OC = OC = OC = 250 Total OC = 730 OP/OC =
250 230 9%
OP = 18 Total OP = 66
OP = 22 OP = 26
4 D OC = OC = OC = 150 Total OC = 550 OP/OC =
180 220
OP = 20 Total OP = 33 6%
OP = ( OP = 22
)9
5 E OC = OC = OC = 125 Total OC = 365 OP/OC =
140 100 2.2%
OP = () 5 Total OP = 8
OP = 21 OP = ()
8
6 F OC = OC = OC = 140 Total OC = 420 OP/OC =
160 120 11.9 %
OP = 15 Total OP = 50
OP = 21 OP = 14
7 G OC = OC = OC = 155 Total OC = 435 OP/OC =
150 130 10.57%
OP = 13 Total OP = 46
OP = 21 OP = 12
From the above, the dataset will be constructed as follows:
S.I. No. 1 2 3 4 5 6 7
Values 2.2% 6% 8.2% 9% 10.57% 11.9% 12%
For construction of the arm's length range the data place of thirtyfifth and sixty
fifth percentile shall be computed in the following manner, namely:
Total no. of data points in dataset * (35/100)
Total no. of data points in dataset * (65/100)
Thus, the data place of the thirtyfifth percentile = 7*0.35 = 2.45.
Since this is not a whole number, the next higher data place, i.e; the value at the
third place would have at least thirty five percent. of the values below it. The
thirtyfifth percentile is therefore value at the third place, i.e, 8.2%.
The data place of the sixthfifth percentile is = 7*0.65 = 4.55.
Since this is not a whole number, the next higher data place, i.e; the value at the
fifth place would have at least sixty five percent. of the values below it. The sixty
fifth percentile is therefore value at fifth place, i.e, 10.57%.
The arm's length range will be beginning at 8.2% and ending at 10.57%.
Therefore, if the transaction price of the international transaction or the specified
domestic transaction has OP/OC percentage which is equal to or more than
8.2% and less than or equal to 10.57%, it is within the range. The transaction
price in such cases will be deemed to be the arm's length price and no
adjustment shall be required.
However, if the transaction price is outside the arm's length range, say 6.2%,
then for the purpose of determining the arm's length price the median of the
dataset shall be first determined in the following manner:
The data place of median is calculated by first computing the total number of
data point in the data set * (50/100). In this case it is 7 * 0.5 = 3.5.
Since this is not a whole number, the next higher data place, i.e; the value at the
fourth place would have at least fifty percent. of the values below it ( median).
The median is the value at fourth place, i.e., 9%. Therefore, the arm's length
price shall be considered as 9% and adjustment shall accordingly be made.
Illustration 2. The data of the current year is available in respect of enterprises
A , C, E, F and G at the time of furnishing the return of income by the assessee
and the data of the financial year preceding the current year has been used to
identify comparable uncontrolled transactions undertaken by enterprises B and D
. Further, if the enterprises have also undertaken comparable uncontrolled
transactions in earlier years as detailed in the table, the weighted average and
dataset shall be computed as below:
Sl. Name Year 1 Year 2 Year 3 Aggregation Weighted
No. [Current of OC and OP Average
Year]
1 2 3 4 5 6 7
1 A OC = OC = OC = 225 Total OC = 475 OP/OC =
100 150 12%
OP = 35 Total OP = 57
OP = 12 OP = 10
2 B OC = 80 OC = Total OC = 205 OP/OC =
125 7.31%
OP = 10 Total OP = 15
OP = 5
3 C OC = OC = OC = 250 Total OC = 730 OP/OC =
250 230 9%
OP = 18 Total OP = 66
OP = 22 OP = 26
4 D OC = Total OC = 220 OP/OC =
220
Total OP = 22 10%
OP = 22
5 E OC = 100 Total OC = 100 OP/OC =
()5%
OP = () 5 Total OP = ()5
6 F OC = OC = OC = 140 Total OC = 420 OP/OC =
160 120 11.9 %
OP = 15 Total OP = 50
OP = 21 OP = 14
7 G OC = OC = OC = 155 Total OC = 435 OP/OC =
150 130 10.57%
OP = 13 Total OP = 46
OP = 21 OP = 12
From the above, the dataset will be constructed as follows:
S.I. No. 1 2 3 4 5 6 7
Values ()5% 7.31% 9% 10% 10.57% 11.9% 12%
If during the course of assessment proceedings, the data of the current year is
available and the use of such data indicates that B has failed to pass any
qualitative or quantitative filter or for any other reason the transaction undertaken
is not a comparable uncontrolled transaction, then, B shall not be considered for
inclusion in the dataset. Further, if the data available at this stage indicates a new
comparable uncontrolled transaction undertaken by enterprise H, then, it shall be
included. The weighted average and dataset shall be recomputed as under:
Sl. Name Year 1 Year 2 Year 3 Aggregation Weighted
No. [Current of OC and OP Average
Year]
1 2 3 4 5 6 7
1 A OC = OC = OC = 225 Total OC = 475 OP/OC =
100 150 12%
OP = 35 Total OP = 57
OP = 12 OP = 10
2 C OC = OC = OC = 250 Total OC = 730 OP/OC =
250 230 9%
OP = 18 Total OP = 66
OP = 22 OP = 26
3 D OC = OC = 150 Total OC = 370 OP/OC =
220
OP = 20 Total OP = 42 11.35%
OP = 22
4 E OC = 100 Total OC = 100 OP/OC =
()5%
OP = () 5 Total OP = ()5
5 F OC = OC = OC = 140 Total OC = 420 OP/OC =
160 120 11.9 %
OP = 15 Total OP = 50
OP = 21 OP = 14
6 G OC = OC = OC = 155 Total OC = 435 OP/OC =
150 130 10.57%
OP = 13 Total OP = 46
OP = 21 OP = 12
7 H OC = OC = 80 Total OC = 230 OP/OC =
150
OP = 12 OP = 10 Total OP = 22 9.56%
From the above, the dataset will be constructed as follows:
S.I. No. 1 2 3 4 5 6 7
Values ()5% 9% 9.56% 10.57% 11.35% 11.9% 12%
Illustration 3. In a given case the dataset of 20 prices arranged in ascending
order is as under:
Sl. No. Profits (in Rs.
Thousands )
1 2
1 42.00
2 43.00
3 44.00
4 44.50
5 45.00
6 45.25
7 47.00
8 48.00
9 48.15
10 48.35
11 48.45
12 48.48
13 48.50
14 49.00
15 49.10
16 49.35
17 49.50
18 49.75
19 50.00
20 50.15
Applying the formula given in the Illustration 1, the data place of the thirtyfifth
and sixtyfifth percentile is determined as follows:
Thirtyfifth percentile place = 20* ( 35/100) = 7.
Sixtyfifth percentile place =20* ( 65 /100) = 13.
Since the thirtyfifth percentile place is a whole number, it shall be the average of
the prices at the seventh and next higher, i.e; eighth place. This is (47+48) /2
=Rs. 47,500
Similarly, the sixtyfifth percentile will be average of thirteenth and fourteenth
place prices. This is (48.5+49) / 2 = Rs. 48,750
The median of the range ( the fiftieth percentile place ) = 20* (50/100)= 10
Since the fiftieth percentile place is a whole number, it shall be the average of the
prices at the tenth and next higher, i.e; eleventh place. This is (48.35+48.45) / 2
=Rs. 48,400
Thus, the arm's length range in this case shall be from Rs. 47,500 to Rs. 48,750.
Consequently, any transaction price which is equal to or more than Rs 47,500
but less than or equal to Rs 48,750 shall be considered to be within the arm's
length range.".
Notification No. 83/2015 [F.No.142/25/2015TPL]
(Arju Garodia)
Under Secretary (Tax Policy and Legislation)
Note. The principal rules were published in the Gazette of India Extraordinary,
part III, section 3, subsection (i), vide notification number S.O. 969(E), dated the,
26th March, 1962 and were last amended vide notification number S.O. 2791 (E),
dated the 12th October, 2015.
