Abstract

Section 92A (1) and (2) of the Income Tax Act, 1961 prescribe the conditions for determination of an Associated Enterprise (AE). On effectuating the said conditions an enterprise can be said to be an AE and transfer pricing regime of the Act can be attracted thereupon. A plain reading of Section 92A(1) provides two conditions, on satisfying which the determination of an AE can be effectuated. Clause (a) of the section says that if any enterprise participates directly or indirectly in the management, control, or capital of the other enterprise then such enterprise shall be an associated enterprise. Clause (b) says that if any one or more person participating in the decision and control of the main enterprise, also participates in the control of the other enterprise then the other enterprise shall be said to be the associated enterprise. Subsection (2) lays down the criteria under which direct or indirect control, as referred under section 92A(1), can be ascertained. There have been instances where one subsection overlaps another. Mechanically, one provision outgrows another rendering its affectability otiose. The interpretation of both the subsection has become a debatable matter in recent times. Though this article, the author proposes to bring out the issues involved in determination of an AE. The author has highlighted the issues in interpretation of both the subsections and how one overlaps the other. Several judgments, circular and memorandum have been relied upon to address the issue effectively.

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