s.92A — Meaning of associated enterprise
The definition that decides whether Chapter X applies at all, built as a participation test in sub-section (1) and thirteen deeming clauses in sub-section (2), with the relationship between the two still contested.
Income-tax Act, 1961
s.92A
Income-tax Act, 2025
s.162
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 92A of the Income-tax Act, 1961 defines an associated enterprise in sub-section (1) as one which participates, directly or indirectly or through intermediaries, in the management, control or capital of the other, or in respect of which the same persons so participate in both. Sub-section (2), which since the Finance Act, 2002 opens "For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year,", sets out thirteen clauses, (a) to (m), covering a 26 per cent voting power holding in the other enterprise or in each of two enterprises, loan and guarantee thresholds, board appointments, dependence on know-how, supply of raw materials, sale of manufactured goods, control by the same individual or his relative or by a Hindu undivided family or its member, a ten per cent interest in a firm, association of persons or body of individuals, and any prescribed relationship of mutual interest, though no rule prescribing such a relationship has been traced, so clause (m) appears to have no content in practice. Whether satisfying a clause of sub-section (2) is by itself enough, or whether participation under sub-section (1) must also be shown, is unsettled: ITAT Ahmedabad held in Sun Pharma Advance Research on 15 October 2026 that participation is then necessarily presumed, while the Karnataka High Court in Page Industries and again in Obulapuram Mining has held the sub-sections interlinked and to be read together. Section 162(1) of the Income-tax Act, 2025 drops the language of deeming altogether and defines an associated enterprise in a single definition of twelve clauses, with the voting power tests inside clause (a) as manners of participating; section 162(2) separately extends the meaning for a specified domestic transaction.
What the provision does
Fixes the gateway to the whole transfer pricing chapter, so that no arm's length price question arises at all unless the counterparty is an associated enterprise. It does NOT require any tax avoidance motive, any erosion of the Indian tax base, or any finding that the price was in fact manipulated; and it does not itself make a transaction an international transaction, which is the separate work of section 92B.
Threshold questions
- Whether one enterprise holds, directly or indirectly, shares carrying not less than 26 per cent of the voting power in the other
- Whether one person or enterprise holds, directly or indirectly, shares carrying not less than 26 per cent of the voting power in each of two enterprises
- Whether a loan advanced is not less than 51 per cent of the book value of the total assets of the other enterprise
- Whether guarantees given amount to not less than 10 per cent of the total borrowings of the other enterprise
- Whether more than half the board, or one or more executive directors, is appointed by the other enterprise
- Whether 90 per cent or more of raw materials and consumables are supplied by the other enterprise or persons specified by it, on influenced prices and conditions
In practice
The recurring disputes.
Is a clause of sub-section (2) enough on its own
The Revenue's case is that the 2002 prefix "For the purposes of sub-section (1)" makes sub-section (2) the route into sub-section (1), that "shall be deemed" leaves no discretion, and that a deeming fiction must be given full effect, which is how ITAT Ahmedabad read it in Sun Pharma Advance Research in 2026; ITAT Mumbai in Kaybee in 2018 also refused to require both sub-sections, though by the different route of treating section 92A(1) as the operative test. On the Revenue's reading the thirteen clauses are law rather than evidence, and the drawn thresholds of 26, 51 and 90 per cent do real work instead of being illustrations an officer may depart from in either direction. The assessee's case is that the Memorandum to the Finance Bill 2002 gives the prefix the opposite purpose, as a clarification that participation alone will not do unless a sub-section (2) criterion is met, that the Karnataka High Court in Page Industries and in Obulapuram Mining held the sub-sections interlinked, and that a reading which dispenses with participation renders sub-section (1) otiose. Two things bear on the weight: no High Court has taken the Revenue's view, and the Mumbai Bench departed from its own 2018 reasoning in the same assessee's case in February 2020, holding that section 92A(1) cannot be applied on a standalone basis. There is no Supreme Court decision and the point is open.
What the Gujarat authority actually decides
ACIT v. Veer Gems and the Gujarat High Court's affirmance are routinely cited by assessees in Ahmedabad for the proposition that both sub-sections must be satisfied, and the Revenue's special leave petition against that affirmance was dismissed on 5 January 2018. The assessee's case is that the Tribunal below held in terms that the sub-sections are to be read together and that the affirmance carries that reasoning. The Revenue's answer is that what was affirmed was a decision about the clauses of sub-section (2), so the affirmance establishes that sub-section (2) is necessary without establishing that it is insufficient, and that a dismissal of a special leave petition, particularly in limine, declares no law under Article 141. The distinction between necessity and sufficiency is where this argument is won or lost.
Whether an order deciding the point without authority binds a later bench
Where a bench decides the construction of section 92A without reference to High Court decisions, to coordinate bench authority or to the Memorandum, the assessee will say the decision is per incuriam or at best sub silentio and carries little weight. The Revenue will say that decisions of another High Court do not bind the bench in question, that the jurisdictional High Court has not decided the point, and that on facts showing a substantial common shareholding the result would be the same however the section is read. The argument is worth most where the shareholding is the only material the Revenue has.
Indirect holdings and how far the chain runs
Both limbs of the 26 per cent test speak of holdings "directly or indirectly", and the Revenue reads that as reaching through any number of intermediate entities, so that a promoter's indirect stake in a listed parent carries down to every step-down subsidiary. The assessee will argue that an indirect holding must still be a holding of shares carrying voting power, and that a diluted economic interest several layers down is not that. The point is seldom decided because the figures are usually admitted.