Section 92A — Definition of Associated Enterprise (AE)

Case Laws & Commentary

SECTION 92A — MEANING OF ASSOCIATED ENTERPRISE

Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)

A. SECTION COMMENTARY

A.1 Structural position & legislative purpose

Section 92A defines the gateway relationship for the entire TP code — 'associated enterprise' (AE). Unless two enterprises are AEs, no transaction between them is an 'international transaction' or an SDT, and Chapter X does not apply. The section operates on two levels: sub-section (1) lays down the conceptual test (participation in management, control or capital — directly or indirectly, or through one or more intermediaries), and sub-section (2) enumerates thirteen specific deeming situations (clauses (a) to (m)) in which two enterprises are deemed to be AEs.

The relationship can be vertical (parent-subsidiary), horizontal (common control), or based on economic dependence (e.g. supply of 90% or more of raw materials, dependence on intangibles, financing of a substantial part of borrowings, control over the board). The definition is deliberately wide to capture the full range of inter-dependence through which non-arm's-length pricing can be effected.

A.2 Sub-section / clause taxonomy

Sub-section (1)(a): One enterprise participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.

Sub-section (1)(b): The same person(s) participate, directly or indirectly, or through intermediaries, in the management or control or capital of both enterprises.

Sub-section (2): Deeming clauses (a)-(m) — two enterprises are deemed AEs if, at any time during the previous year, e.g.: (a) one holds shares carrying >=26% of voting power in the other; (b) a person holds >=26% in each; (c) a loan advanced by one constitutes >=51% of the book value of total assets of the other; (d) one guarantees >=10% of the total borrowings of the other; (e) more than half the board / one or more executive directors are appointed by the other; (f) board/executive directors of both appointed by the same person(s); (g) dependence on intangibles for >=90% of manufacture/processing; (h) >=90% of raw materials/consumables supplied by the other (or persons specified by it) on influenced prices/conditions; (i) goods manufactured/processed are sold to the other on influenced prices/conditions; (j)-(l) control via individual/HUF/relatives, firm/AOP/BOI interest of >=10%; (m) any prescribed relationship of mutual interest.

A.3 Core doctrinal themes

Theme (1) — Interaction of sub-sections (1) and (2): A recurring controversy is whether mere satisfaction of a clause in sub-section (2) suffices, or whether the conceptual 'participation in management, control or capital' test in sub-section (1) must also be met. CBDT Circular No. 14 of 2001 explains that sub-section (2) gives the situations in which enterprises are deemed AEs; the dominant Tribunal view treats sub-section (2) as illustrating/qualifying the participation contemplated by sub-section (1), so that the deeming clauses are the practical operative test.

Theme (2) — 'At any time during the previous year': AE status is tested with reference to the year of the transaction; a relationship existing at any time in the year can attract the regime.

Theme (3) — Economic dependence as control: clauses (g)-(i) capture de facto control through intangible dependence and captive supply/off-take arrangements, not merely equity ownership.

A.4 Legislative evolution / Finance Act amendment trail

FA 2001 (w.e.f. 1-4-2002): Section 92A introduced as part of the new TP code.

FA 2002 (w.e.f. 1-4-2002, retrospective): Sub-section (2) amended to clarify that two enterprises are AEs only if the conditions in sub-section (2) are met (linking the deeming clauses to the (1) test) — the legislative resolution of the (1)-(2) interplay.

Subsequent Finance Acts: No material change to the substantive definition.

FA 2026: No amendment to s.92A; AE definition preserved.

A.5 CA practitioner pointers

(1) Map every counterparty against each clause of s.92A(2) for the whole previous year, not merely at year-end — a >=26% holding or a >=51% asset-funding loan existing at any point triggers AE status.

(2) Watch the economic-dependence clauses (g)-(i): a captive contract manufacturer or a 90%-off-take arrangement creates AE status even without equity linkage.

(3) Where the Revenue asserts AE status only via a sub-section (2) clause, examine whether 'participation in management, control or capital' under sub-section (1) is genuinely present — the better view treats (2) as the operative gateway, but the (1) test remains the conceptual anchor.

B. FA 2026 IMPACT NOTE

Section 92A is NOT amended by the Finance Act, 2026. The associated-enterprise definition continues unchanged for AY 2026-27 onward.

No FA 2026 notification alters the 26%/51%/10%/90% thresholds in sub-section (2). All authorities below remain good law.

C. CASE LAW — CLUSTERED BY ISSUE

The meaning of 'associated enterprise' is largely a fact-driven enquiry; reported High Court / Supreme Court authority is comparatively limited and the jurisprudence is dominated by Tribunal decisions on the (1)-(2) interplay and on economic-dependence clauses. Verified, on-point authorities are set out below.

Cluster C-1 : Interplay of s.92A(1) and s.92A(2) — both limbs to be satisfied

1. Diageo India (P) Ltd. v. DCIT (2011) 47 SOT 252 (ITAT Mumbai)

Facts: The Revenue sought to treat the assessee and a counterparty as AEs by relying on a clause of s.92A(2), without establishing participation in management, control or capital under s.92A(1).

Issue: Whether satisfaction of a deeming clause in sub-section (2) alone makes two enterprises AEs, or whether the participation test of sub-section (1) must also be met.

Held: The Tribunal held, reading sub-sections (1) and (2) together in the light of the FA 2002 amendment and CBDT Circular No. 14 of 2001, that the two sub-sections are cumulative — the broad participation criteria of (1) are given concrete content by the specific situations in (2); mere satisfaction of a (2) clause without the (1) relationship does not by itself constitute an AE relationship.

Ratio: Sub-sections (1) and (2) of s.92A operate together; the deeming clauses in (2) define the manner of participation contemplated by (1).

Relevance: Leading Tribunal authority on the (1)-(2) interplay; widely followed in subsequent benches.

2. Kaybee (P) Ltd. v. ITO (2015) 69 SOT 137 / 53 taxmann.com 364 (ITAT Mumbai)

Facts: AE status was alleged on the strength of a sub-section (2) condition; the assessee contended that the management/control/capital test of sub-section (1) was not satisfied.

Issue: Whether enterprises can be AEs purely under s.92A(2) without the s.92A(1) participation being established.

Held: The Tribunal reiterated that sub-sections (1) and (2) must be read conjointly; to be AEs, the conditions of both the general test and a specific deeming clause should be satisfied.

Ratio: Affirms the cumulative reading of s.92A(1) and (2).

Relevance: Frequently cited where the Revenue rests AE status on a single (2) clause.

Cluster C-2 : Economic dependence / de facto control

3. Page Industries Ltd. v. DCIT (2016) 159 ITD 680 / 71 taxmann.com 172 (ITAT Bangalore)

Facts: The assessee held an exclusive licence from a foreign principal to manufacture and sell branded products in India. The Revenue argued that the licensing/dependence relationship made the parties AEs under the economic-dependence/intangible-dependence clauses of s.92A(2).

Issue: Whether an exclusive licensing arrangement, without the requisite participation in management, control or capital, makes the licensor and licensee AEs.

Held: The Tribunal held that a mere licensing or distribution arrangement does not, by itself, satisfy s.92A; the deeming clauses require the specified degree of dependence/control to be factually established. On the facts the parties were not AEs.

Ratio: Commercial licensing relationships do not automatically create AE status; the specific (2) threshold (e.g. >=90% intangible dependence) must be proved.

Relevance: Useful authority resisting over-broad AE characterisation of franchise/licence models.

D. PRACTITIONER'S NOTE

Practical test sheet: for each cross-border counterparty, record (a) shareholding %/voting power, (b) loans as % of the borrower's total asset book value, (c) guarantees as % of total borrowings, (d) board-appointment rights, (e) dependence on intangibles, (f) raw-material supply / off-take %. Any clause crossing its threshold at any time in the year = AE.

Where AE status is doubtful, build the defence on the conjoint (1)+(2) reading (Diageo, Kaybee) and on the absence of genuine management/control/capital participation (Page Industries). Conversely, when advising on structuring, do not assume that avoiding 26% equity defeats AE status — the economic-dependence clauses can still bite.

Caveat: This material is treatise-style commentary for practitioners and academic use. It is not legal opinion. Verify the current text, the latest CBDT circulars/notifications and the most recent appellate position before relying on any proposition in assessment, audit (Form 3CEB) or litigation.