Section 92A(1)

Section 92A(1) — the law in short

What the courts have decided on section 92A(1), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• PCIT v Veer Gems High CourtHelps taxpayer
  The TPO says I control the foreign party in substance, so we are associated enterprises. Is de facto control enough under s.92A?
  No. s.92A(1) and s.92A(2) have to be read together. Sub-section (2) is not a list of examples of the participation described in sub-section (1) — it controls what counts as participation, so unless one of its clauses is actually satisfied, de facto or even de jure participation in the capital, management or control of the other enterprise does not make the two enterprises associated enterprises, and the transfer pricing machinery never starts.
• Statutory position — s.94B: the thirty per cent of EBITDA cap on interest paid to a non-resident associated enterprise, the one crore gateway, the guarantee proviso that catches third-party debt, the eight-year carry forward, and the three carve-outs in sub-section (3) — banking and insurance, a notified class of NBFC from 1 April 2024, and an IFSC Finance Company from 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  The officer has disallowed part of my interest under s.94B. Does the section even apply to me, how is the excess actually computed, and can I carry the disallowance forward?
  Section 94B(1) applies where an Indian company, or the permanent establishment of a foreign company in India, being the borrower, incurs interest or expenditure of a similar nature EXCEEDING ONE CRORE RUPEES, deductible under "Profits and gains of business or profession", in respect of any debt issued by a non-resident which is an associated enterprise of the borrower; to that extent the interest is not deductible so far as it arises from "excess interest". Sub-section (2) defines excess interest as "an amount of total interest paid or payable in excess of thirty per cent of earnings before interest, taxes, depreciation and amortisation of the borrower in the previous year or interest paid or payable to associated enterprises for that previous year, WHICHEVER IS LESS". The proviso to sub-section (1) extends the section to third-party debt: where the lender is not an associated enterprise but an associated enterprise "either provides an implicit or explicit guarantee to such lender or deposits a corresponding and matching amount of funds with the lender", the debt is deemed to have been issued by an associated enterprise. Sub-section (4) allows the undeducted interest to be carried forward and set off against business profits, subject to the same sub-section (2) ceiling, for not more than EIGHT assessment years immediately succeeding the year in which the excess was first computed. Sub-section (3) takes the borrower out of the section where the Indian company or the permanent establishment is engaged in the business of banking or insurance — and also, by words inserted by Act No. 15 of 2024 with effect from 1 April 2025, where it is "a Finance Company located in any International Financial Services Centre", and, by words inserted by the Finance Act, 2023 with effect from 1 April 2024, "or such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf", no such class having been notified so far as could be established. Sub-section (1A), inserted by Act No. 12 of 2020 with effect from 1 April 2021, is a different and often confused relief: it takes out interest on a debt issued by a LENDER which is a permanent establishment in India of a non-resident engaged in the business of banking.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.