International transaction and associated enterprise tests under transfer pricing law require proof of statutory non-resident status and deemed control conditions.

Transactions with an Indian resident company did not become an international transaction merely because they were routed through a USA branch, since section 92B(1) requires an associated enterprise transaction involving a non-resident element. General Woods and Veneers Ltd. was also not proved to be an associated enterprise under section 92A because the Revenue failed to establish the statutory deeming conditions on evidence; common control, price influence, and threshold-based tests under clauses (h) and (j) could not be satisfied by aggregation or assumption. The transfer pricing adjustment therefore could not stand, and the connected interest grounds fell away with the deletion of the addition.

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Issues: (i) Whether transactions with the USA branch of Durian Industries Ltd. constituted an international transaction under section 92B(1) of the Income-tax Act, 1961. (ii) Whether General Woods and Veneers Ltd. was an associated enterprise of the assessee under section 92A of the Income-tax Act, 1961 so as to attract Chapter X and sustain the transfer pricing adjustment.

Issue (i): Whether transactions with the USA branch of Durian Industries Ltd. constituted an international transaction under section 92B(1) of the Income-tax Act, 1961.

Analysis: Section 92B(1) applies to transactions between associated enterprises where either or both are non-residents. The record showed that Durian Industries Ltd. was an Indian company and a tax resident in India. The assessee was also a resident. The mere fact that transactions were routed through the USA branch did not change the residential character of the counterparty for the purpose of the statutory test.

Conclusion: The transaction with Durian Industries Ltd. was not an international transaction and the assessee succeeded on this issue.

Issue (ii): Whether General Woods and Veneers Ltd. was an associated enterprise of the assessee under section 92A of the Income-tax Act, 1961 so as to attract Chapter X and sustain the transfer pricing adjustment.

Analysis: The statutory deeming tests in section 92A(2) had to be satisfied on the basis of evidence. The material relied upon by the Revenue did not establish that the alleged common directors or shareholders controlled General Woods, nor did it show that the price conditions for General Woods were influenced by such persons in the manner required by clause (i). Clause (h) could not be applied by aggregating purchases from different parties to cross the prescribed threshold. Clause (j) was also unsupported by evidence. On the facts, General Woods was not shown to be an associated enterprise.

Conclusion: General Woods and Veneers Ltd. was not an associated enterprise of the assessee and the transfer pricing adjustment could not be sustained.

Final Conclusion: The foundational jurisdictional objections succeeded, the transfer pricing addition was deleted, and the connected grounds concerning interest did not survive for separate adjudication.

Ratio Decidendi: A transaction can be treated as an international transaction only if it satisfies the statutory non-resident element under section 92B(1), and an entity can be treated as an associated enterprise only when the specific deeming conditions of section 92A(2) are proved on evidence without impermissible aggregation or assumption.

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