Section 92A of ITA, 1961 : Section 92A: Meaning Of Associated Enterprise

Explanation using Example

Imagine a scenario where Company A, based in India, holds 30% of the voting power in Company B, which is also established in India. According to Section 92A of The Income-tax Act, 1961, Company A and Company B would be considered associated enterprises because Company A holds shares that carry more than the specified threshold of 26% of the voting power in Company B.

In this context, both companies must comply with transfer pricing regulations, ensuring that any transactions between them are conducted at arm's length prices to avoid any tax evasion or avoidance. For instance, if Company A sells raw materials to Company B, the price set for these materials should be comparable to the price that would have been charged if the companies were not associated, and the transaction should be documented as per the transfer pricing rules under the Income-tax Act.