Silver BV is a foreign company incorporated in Belgium. It is engaged in diamond mining and trading of raw diamonds. It sells raw diamonds globally.…

Section 92CB (1) provides that the determination of income referred to in section 9 (1) (i) shall be subject to safe harbour rules. Safe harbour means circumstances in which the income tax authorities shall accept the transfer price declared by the assessee. Section 92CB (2) empowers the CBDT to prescribe such safe harbour rules or circumstances under which the transfer price declared by the assessee shall be accepted by the Income-tax Authorities. Accordingly, in exercise of the powers conferred by section 92CB read with section 295 of the Income-tax Act, 1961, the CBDT has, vide Notification No.124/2024 dated 29.11.2024, prescribed the safe harbour rules for income referred to in section 9 (1) (i) chargeable to tax under the head “Profits and gains of business or profession". Silver BV is a foreign company engaged in the business of diamond mining, hence, it is an eligible assessee as per Rule 10TI and can apply for safe harbour rules. An eligible business, for this purpose, means a business of selling raw diamonds in any notified special zone as referred to in clause (e) of Explanation 1 to section 9 (1) (i) . Accordingly, display of uncut and unassorted diamonds is not an eligible business and Silver BV cannot declare profits from such display under safe harbour rules. Moreover, in case of a foreign company which is engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to display of uncut and unassorted diamonds in any notified special zone. Hence, profit of 2crores from display of diamonds in Special Notified Zone (SNZ) in Surat shall not be deemed to accrue or arise in India and not taxable in India. As per Rule 10TIA, if an eligible assessee declares 4% or more of the gross receipts as profits and gains of the eligible business chargeable to tax under the head "Profits and gains of business or profession", the option for safe harbour exercised by such eligible assessee in any relevant previous year shall be accepted by the income-tax authorities. During the P.Y. 2025-26, Silver BV wants to declare 3crores from trading of raw diamonds to Indian buyers which is only 3% of gross receipts of 100crores. Hence, the option for safe harbour exercised by Silver BV in P.Y. 2025-26 shall not be accepted by the income-tax authorities as the same is not in accordance with the circumstance mentioned in Rule 10TIA.