Monday, January 23, 2017

Participation by one Co. in management of other won’t create AE if Sec. 92A(2) criteria isn’t fulfilled

Section 92A(1) lays down the basic rule that in order to be treated as associated enterprise one enterprise, in relation to another enterprise, participate, directly or indirectly, or through one or more intermediaries, "in the management or control or capital of the other enterprise".

Section 92(A)(2) only provides illustrations of the cases in which such an enterprise participates in management, capital or control of another enterprise. In other words, what Section 92A (1) decides is the principle on the basis of which one has to examine whether or not two or more enterprise are associated enterprise or not. The principle is as long as an enterprise participates in any of the three aspects of the other enterprise, i.e. (a) management; (b) capital; or (c) control, these enterprises are required to be treated as associated enterprise, as also is the position when common persons participate in management, control or capital of both the enterprises.

However, the expression 'participation in management or capital or control' is not a defined expression. To find the meaning of this expression, one has to take recourse to Section 92(2) which gives practical illustrations, which are exhaustive and not simply illustrative.

Section 92A(2) governs the operation of Section 92A(1) by controlling the definition of participation in management or capital or control by one of the enterprise in the other enterprise. Mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) of Section 92A are fulfilled”. - [2017] 77 taxmann.com 127 (Ahmedabad - Trib.)
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