Detailed Explanation
How it works
Section 92A defines the relationship through tests such as 26% voting power, substantial loans, dependence on intangibles, or common control.
The two limbs of Section 92A
Section 92A(1) sets the principle — participation in management, control or capital, directly or indirectly, by one enterprise in another, or by the same persons in both. Section 92A(2) then lists the specific situations that constitute that participation: holding 26% or more of voting power, advancing a loan of at least 51% of the book value of the other's total assets, guaranteeing at least 10% of its borrowings, appointing more than half the board or one or more executive directors, complete dependence on intangibles owned by the other, supply of 90% or more of raw materials on influenced prices, or sale of manufactured goods on influenced prices.
Why the relationship between the limbs is litigated
A recurring dispute is whether Section 92A(2) merely illustrates Section 92A(1) or independently defines it. The taxpayer position, supported by the Explanatory Memorandum to the Finance Act 2002 and a line of Tribunal decisions, is that both limbs must be satisfied — shareholding alone will not create an associated enterprise unless one of the 92A(2) tests is also met. Because the answer decides whether the transfer-pricing machinery applies at all, document the specific clause relied on rather than asserting the relationship generally.
Worked example
An Indian company holds 20% of a Singapore entity but has lent it an amount equal to 60% of that entity's total assets. The shareholding falls short of the 26% test; the loan clears the 51% test. The two are associated enterprises, every transaction between them becomes an international transaction, and Form 3CEB is due — a conclusion many groups miss because they screen only on equity percentages. The tests apply at any time during the previous year rather than merely at year-end, so a relationship that subsisted for a single month still draws that year's transactions into the net.
Frequently asked questions
What is an associated enterprise?
An enterprise linked to another by management, control or capital, as defined in Section 92A.
Why does it matter?
Transactions between associated enterprises are subject to transfer-pricing rules and Form 3CEB.
This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.