Chapter X - Special Provisions Relating to Avoidance of Tax
Section 173
Section 173: definitions for the transfer pricing provisions
Section 173 collects the key definitions used across the transfer pricing chapter - arm's length price, enterprise, permanent establishment, specified date and transaction - and applies them to Sections 161, 162, 163, 165, 171 and 172.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
For the purposes of 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.
Introduction
Section 173 supplies defined terms for the transfer-pricing and anti-avoidance provisions, including arm's-length price, enterprise, permanent establishment and transaction. These definitions determine the scope of earlier sections and should be read alongside each operative rule.
Key takeaways
Chapter X definitions
This section defines expressions used in the transfer-pricing and avoidance provisions, including enterprise, permanent establishment and transaction.
Broad transaction meaning
A transaction can include an informal or unwritten arrangement, understanding or concerted action even if it is not intended to be legally enforceable.
Scope
These definitions apply for the purposes of this section and Sections 161, 162, 163, 165, 171 and 172, unless the context otherwise requires.
Arm's length price
"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.
Enterprise
"Enterprise" means a person (including a permanent establishment of that person) who is, has been, or is proposed to be engaged in any activity relating to:
- production, storage, supply, distribution, acquisition or control of articles or goods;
- know-how, patents, copyrights, trade-marks, licences, franchises or similar business/commercial rights;
- data, documentation, drawing or specification relating to a patent, invention, model, design, secret formula or process owned (or exclusively rightful) to another enterprise;
- provision of services of any kind;
- carrying out work under a contract;
- investment or providing loan; or
- business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of another body corporate, whether carried on directly or through units, divisions or subsidiaries, at the same or different locations.
Permanent establishment, specified date and transaction
| Term | Meaning under Section 173 |
|---|---|
| Permanent establishment | Includes a fixed place of business through which the business of the enterprise is wholly or partly carried on |
| Specified date | The date one month before the due date for furnishing the return of income under Section 263(1) for the relevant tax year |
| Transaction | Includes an arrangement, understanding or action in concert, whether or not formal or in writing, and whether or not intended to be legally enforceable |
Step-by-step flow for applying Section 173
- 1
Is the term used in Section 161, 162, 163, 165, 171, 172 or 173?
- No: Check the definition in the provision being applied; for example, Sections 170 and 176 import some of these meanings expressly.
- Yes: Use the Section 173 meaning unless the context requires otherwise.
- 2
Is the counterparty an "enterprise"?
A person, including its permanent establishment, engaged (or proposed to be engaged) in any of the listed activities, such as goods, intangibles, services, contract work, investment or lending, or dealing in securities, directly or through units, divisions or subsidiaries, wherever located.
- 3
Is there a "transaction"?
It includes an arrangement, understanding or action in concert, whether or not formal or in writing, and whether or not intended to be legally enforceable.
- 4
Compare with the "arm's length price"
The price applied or proposed in a transaction between persons other than associated enterprises, in uncontrolled conditions.
- 5
Work out the "specified date"
One month before the due date for the return under Section 263(1) for the relevant tax year.
Practical checklist
Do
- When applying Sections 161–172, identify the exact defined term used and verify its Section 173 meaning.
- For a permanent establishment or transaction classification, document the facts against the relevant clause.
Avoid
- Do not use ordinary commercial meanings where the Act defines a term differently.
- Do not treat a definition as an independent tax charge without an operative provision.
Illustrative example
Worked example: an informal understanding and the specified date
Hypothetical facts (illustration only, not a real taxpayer): Two group companies agree orally that one will buy all its raw material from the other at a fixed price. Nothing is in writing. For illustration, assume the due date for the buyer's return under Section 263(1) is 15 November.
Enterprise
Both companies are engaged in the supply or acquisition of goods, so both are "enterprises" under Section 173(b).
Transaction
The oral understanding is a "transaction" even though it is not in writing and may not be enforceable (Section 173(e)).
Arm's length price
The price is tested against what persons other than associated enterprises would apply in uncontrolled conditions.
Specified date
One month before the assumed due date of 15 November is 15 October, which is the date relevant for the accountant's report under Section 172.
Outcome
- Informal arrangements cannot be left out of the transfer pricing analysis just because they are undocumented.
- The actual specified date depends on the due date that applies to the assessee for that tax year.
Glossary
- Defined term
- A word or phrase assigned a specific statutory meaning for this Chapter.
- Permanent establishment
- A business presence defined in this section for applying the relevant international tax rules.
Frequently asked questions
Which sections rely on the definitions in Section 173?
Sections 161, 162, 163, 165, 171 and 172, in addition to Section 173 itself.
What is the "specified date" for the accountant's report under Section 172?
One month before the due date for furnishing the return of income under Section 263(1) for the relevant tax year.
Does "transaction" require a written or legally enforceable agreement?
No - it includes an arrangement, understanding or action in concert, whether or not formal or in writing, and whether or not intended to be enforceable by legal proceedings.
Need help applying this provision to your situation?
Talk to our tax team about transfer pricing complianceLast updated 10 October 2026