Section 92A

Section 92A — the law in short

What the courts have decided on section 92A, 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.
• Indorama Synthetics (India) Ltd v Additional CIT High CourtHelps taxpayerHigh Courts differ
  The Assessing Officer referred my case to the TPO in a one-paragraph letter without dealing with my objection that there was no international transaction at all. Can I attack the reference itself?
  Yes. The Delhi High Court held that the Assessing Officer's satisfaction, even prima facie, that there IS an international transaction or specified domestic transaction is a sine qua non for a reference under s.92CA(1); where the assessee raises a threshold objection to jurisdiction, the officer must deal with it and must give a hearing before recording his satisfaction. The three references were set aside and the officer directed to decide afresh after hearing the assessee. The Court concurred with the Bombay High Court in Vodafone India Services and declined to follow the contrary Gujarat decision in Veer Gems, noting that CBDT Instruction No. 3 of 2016 has itself adopted the Bombay position.
• SP Imperial Star Private Limited v National Faceless Assessment Centre ITATCuts both waysUnder appeal
  The Transfer Pricing Officer has treated all the lenders named in my Form 3CEB as associated enterprises and applied section 94B to the whole interest. Can I still show that two of them are not associated enterprises?
  Yes. The Tribunal held that the first and foremost criterion for invoking section 94B is to identify whether the enterprise is an associated enterprise or a deemed associated enterprise, and that question must be settled before any arm's length or thin capitalisation computation is made. It remanded the matter for the disallowance to be recomputed on the basis of the revised Form 3CEB, holding that the statute prescribes no time limit for filing that form.
• Statutory position — s.92CE(1): the FIVE gateways into a secondary adjustment, the one crore threshold, the AY 2016-17 cut-off, and the word "and" that was retrospectively replaced by "or" CBDT Circulars & InstructionsCuts both ways
  The TPO's order says I must now make a secondary adjustment. Which primary adjustments actually trigger s.92CE, and is there any threshold or year below which the section simply does not apply to me?
  Section 92CE(1) is triggered by a primary adjustment to transfer price arising in any one of FIVE ways — made suo motu by the assessee in his return; made by the Assessing Officer and accepted by the assessee; determined by an advance pricing agreement entered into under s.92CC on or after 1 April 2017; made under the safe harbour rules framed under s.92CB; or arising from a resolution under the mutual agreement procedure under an agreement entered into under s.90 or s.90A. In any of those cases "the assessee shall make a secondary adjustment". The first proviso then takes the case out of the section altogether if EITHER (i) the amount of primary adjustment made in any previous year does not exceed one crore rupees, OR (ii) the primary adjustment is made in respect of an assessment year commencing on or before 1 April 2016. The word joining those two limbs was originally "and"; it was substituted by "or" by Act No. 23 of 2019 with retrospective effect from 1 April 2018, and that single word is what makes the exclusions workable.
• Statutory position — section 94A: the consequences of dealing with a person located in a notified jurisdictional area, and whether any area is notified today CBDT Circulars & InstructionsCuts both ways
  My client is remitting money to a company in a low-tax jurisdiction. Does section 94A apply, and is any country actually notified as a notified jurisdictional area at the moment?
  Section 94A lets the Central Government notify a country or territory as a notified jurisdictional area having regard to the lack of effective exchange of information, and once notified the consequences are severe and automatic: all parties to a transaction with a person located there are deemed associated enterprises, the transaction is deemed an international transaction so the entire transfer-pricing machinery applies, deductions are barred unless prescribed authorisations and documents are furnished, unexplained receipts from such a person are deemed to be income, and withholding is at the highest of the rate in force, the rate in the relevant provision and thirty per cent. The only notification under section 94A(1) that could be located was Notification No. 86/2013 notifying Cyprus, and it was rescinded by Notification No. 114/2016 with retrospective effect from 1 November 2013. No subsisting notification was found and no departmental list of notified jurisdictional areas could be opened, so nothing here certifies that no jurisdiction is notified today — section 94A should be neither treated as live against a jurisdiction nor written off as a dead letter without checking the current list.
• 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.