Income Tax Act 2025: Section 173 for Tax Year 2026-27

Definitions of certain terms relevant to determination of arm’s length price, etc.

[Section-173 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

In this section and sections 161, 162, 163, 165, 171 and 172, unless the context otherwise requires,—

• (a) “arm’s length price” means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions;
• (b) “enterprise” means a person (including a permanent establishment of such person) who is, or has been, or is proposed to be, engaged in any activity relating to––
  • (i) the production, storage, supply, distribution, acquisition or control of articles or goods; or
  • (ii) know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature; or
  • (iii) any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or
  • (iv) provision of services of any kind; or
  • (v) carrying out any work in pursuance of a contract; or
  • (vi) investment or providing loan; or
  • (vii) business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate,
• whether such activity or business is carried on, directly or through one or more of its units or divisions or subsidiaries, or whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or places;
• (c) “permanent establishment”, referred to in clause (b), includes a fixed place of business through which the business of the enterprise is wholly or partly carried on;
• (d) “specified date” means the date one month before the due date for furnishing the return of income under section 263 (1) for the relevant tax year;
• (e) “transaction” includes an arrangement, understanding or action in concert,—
  • (i) whether or not such arrangement, understanding or action is formal or in writing; or
  • (ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding.

FAQs on Section 173 of Income Tax Act 2025

What is meant by “arm’s length price” under Section 173?
Arm’s length price means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions.

Who is considered an “enterprise” for the purpose of arm’s length pricing?
An enterprise is a person (including a permanent establishment) engaged in any of several specified activities such as manufacturing, licensing, services, investments, or dealings in securities, whether directly or through units, divisions, or subsidiaries located at any place.

Does the definition of “enterprise” include subsidiaries or divisions?
Yes, the definition of enterprise includes activities carried out through one or more of its units, divisions, or subsidiaries, regardless of location.

What kinds of activities are covered under the term “enterprise”?
Activities include production, storage, distribution of goods; use of intellectual property; provision of services; execution of contracts; investments or loans; and dealing in securities.

What is a “permanent establishment” in the context of Section 173?
A permanent establishment refers to a fixed place of business through which the business of the enterprise is wholly or partly carried on.

Is a branch office located in another country considered a permanent establishment?
Yes, if it is a fixed place of business through which business operations are conducted, it qualifies as a permanent establishment.

What does “specified date” refer to under this section?
Specified date means the date one month before the due date for furnishing the return of income under section 263(1) for the relevant tax year.

Why is the “specified date” important?
It is likely relevant for compliance or documentation purposes related to transfer pricing and arm’s length pricing.

What is included in the definition of “transaction” under this section?
Transaction includes any arrangement, understanding or action in concert, whether formal or informal, written or unwritten, enforceable or not.

Can an informal understanding between enterprises be considered a transaction?
Yes, even informal or unwritten understandings or actions in concert can qualify as transactions.

Does a transaction need to be legally enforceable to fall under this section?
No, a transaction is included whether or not it is intended to be legally enforceable.

Are only commercial transactions considered under the definition of “transaction”?
The term includes any arrangement or action in concert, so it is broad enough to include commercial and possibly other coordinated actions between enterprises.

Do the definitions in Section 173 apply only to this section?
No, they also apply to Sections 161, 162, 163, 165, 171, and 172 unless the context otherwise requires.