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TMI BlogMeaning of Associates Enterprise under Clause 162 of the Income Tax Bill, 2025 Vs. Section 92A of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ersight. The definition is crucial for preventing profit shifting and base erosion by multinational enterprises and large domestic groups. Section 92A of the Income-tax Act, 1961, currently serves as the statutory foundation for this concept within the Indian tax framework. It provides a detailed definition of "associated enterprise" and sets out various criteria for determining when two enterprises are considered associated for transfer pricing purposes. The 2025 Bill's Clause 162 appears to be a direct successor to Section 92A, with certain textual modifications and structural updates. This commentary provides a comprehensive analysis of Clause 162, evaluates its objectives, dissects its provisions, examines practical implications, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bill, 2025 General Definition Clause 162(1) defines "associated enterprise" in broad terms, establishing two principal limbs: * Participation in Management, Control, or Capital: An enterprise which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. * Common Participation by Same Persons: An enterprise in respect of which one or more persons who participate, directly or indirectly, or through intermediaries, in its management, control, or capital, are the same persons who similarly participate in the management, control, or capital of the other enterprise. This general definition sets the stage for a wide net, capturing not just direct relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is wholly dependent on the use of intangibles (e.g., patents, know-how) owned or exclusively held by the other enterprise. * Supply Dependence: 90% or more of raw materials and consumables required by one enterprise are supplied by the other enterprise or persons specified by it, and the prices and other conditions are influenced by such other enterprise. * Sales Dependence: Goods manufactured or processed by one enterprise are sold to the other enterprise or persons specified by it, with prices and other conditions influenced by such other enterprise. * Control by Individuals: Where one enterprise is controlled by an individual, the other is also controlled by such individual or their relative, or jointly by such individual and thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the existing Section 92A, certain interpretational issues persist: * The phrase "mutual interest" in clause (m) remains undefined except for reference to prescribed rules, which may lead to disputes regarding its scope. * The term "influenced by such other enterprise" in supply and sales clauses (h) and (i) is inherently subjective and may require further guidance. * The extension of the definition to include "other units or undertakings" under specified domestic transactions could raise questions about the boundaries of "associated enterprise" in internal restructurings and group reorganizations. Practical Implications The definition of "associated enterprise" has significant practical implications for taxpayers, tax authorities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act, 1961 Clause 162 of the Income Tax Bill, 2025 Comments General Definition Subsection (1): Participation in management, control, or capital; or common participation by same persons. Subsection (1): Identical language, with minor stylistic updates. No substantive change; language streamlined for clarity. Deeming Provisions Subsection (2): Criteria (a) to (m), e.g., 26% shareholding, 51% loan, 10% guarantee, board appointments, supply/sales dependence, control by individuals/HUF, mutual interest. Subsection (2): Criteria (a) to (m) mirror those in Section 92A, with minor textual updates (e.g., "at least" instead of "not less than"). Thresholds and criteria remain unchanged; minor language adjustments for consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r substantive content. Potential Implications of Changes: * The explicit inclusion of specified domestic transactions within the definition may reduce interpretational disputes and provide greater certainty for taxpayers engaged in such transactions. * Streamlined language may facilitate easier administration and compliance, though the underlying obligations and risks remain unchanged. Conclusion Clause 162 of the Income Tax Bill, 2025 represents a continuation and modest refinement of the framework established by Section 92A of the Income-tax Act, 1961. It preserves the two-tiered structure of a general definition supplemented by specific deeming criteria, with thresholds and relationships designed to capture a comprehensive range o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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