THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 20.05.2014
+ W.P.(C) 4302/2013 & CM 9996/2013
CTCI OVERSEAS CORPORATION LTD ... Petitioner
versus
DIRECTOR OF INCOME TAX-I,
INTERNATIONAL TAXATION ... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr Deepak Chopra with Mr Harpreet
Singh Ajmani
For the Respondent : Mr Sanjeev Sabharwal, Senior Standing
Counsel with Mr Ruchir Bhatia
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. By way of this writ petition, the petitioner seeks quashing of the
conclusion of the Authority for Advance Rulings in its ruling dated
01.02.2012, whereby it held that there existed an association of persons
(AOP) between the petitioner (CTCI Overseas Corporation Limited,
Hongkong) and CINDA Engineering and Construction Private Limited,
India in terms of the consortium agreement dated 06.03.2009.
WP(C) 4302/2013 Page 1 of 6
2. Insofar as the alternative prayer questioning the jurisdiction of the
Authority for Advance Rulings to adjudicate on the existence of an AOP
is concerned, the learned counsel for the petitioner has not pressed the
same before us.
3. On the question of AOP, the Authority for Advance Rulings has
concluded as under:-
"11. The Revenue has argued that the case of the applicant is
covered under the provisions of the Act as the Government of
India has not entered into a Tax Treaty under section 90(2) of
the Act with the Government of Hong Kong. It has a business
connection in India for the reasons that it is a part of the
consortium constituting an AOP as also in terms of Explanation
2(b) to section 9(1)(i) of the Act since it is providing offshore
supplies. We notice that under section 2(31) of the Act, the
consortium of CINDA and CTCI forms an Association Of
Persons (AOP) to carry out the project awarded by Petronet.
Whether the consortium's object is to derive profit or share the
profit in a particular manner is not relevant in'view of the fiction
created under the Explanation to section 2(31) of the Act. The
responsibilities of the consortium members mentionecr under the
terms of the contract would also not affect conferring AOP status
to the consortium in view of the formation of a consortium by
CINDA and CTCI. That being so, the applicant can be said to
have a business connection in India for the purpose of application
of section 9(1) of the Act. As the applicant is excluded from the
relief under section 90(2) of the Act, the fiscal jurisdiction to tax
the offshore supplies would be governed under the Act."
WP(C) 4302/2013 Page 2 of 6
4. The above conclusion of the Authority for Advance Rulings cannot
now stand in view of our decision in the case of Linde AG, Linde
Engineering Division v. Deputy Director of Income Tax: [WP(C)
3914/2012] decided on 23.04.2014.
5. In Linde (supra), this Court held as under:-
"33. Therefore, it emerges from the above discussion that the
Association of Persons is one in which two or more persons
join together for a common purpose or common action and
there is a joint management or joint action by the said two or
more persons. In order to treat persons as an association, it is
necessary that the members must have a common intention and
must act jointly for fulfilling the object of their joint enterprise.
34. However, it is also necessary to bear in mind that the
purpose of treating two or more persons as an association of
persons is to impose tax on the income that may be attributed to
their joint enterprise. It is, thus, obvious that it would be
necessary to consider the extent and the nature of the common
purpose and the common action, in order to determine whether
the said persons form an association for the purposes of
imposing tax or not. As explained by the Calcutta High Court in
B. N. Elias (supra), the intention of the Legislature was to treat
combinations of persons, who were engaged together in some
joint enterprise but did not in law constitute partnerships, as a
separate taxable entity. It is, thus, essential that an Association
of Persons has the trappings of a partnership for conducting the
joint enterprise which makes it amenable to be treated as a
separate taxable entity. A person carrying on business may in
the usual course cooperate with others for a common purpose.
In many instances, the test of common purpose and common
action, if literally applied, may also hold true. However,
treating every instance of such cooperation between two or
WP(C) 4302/2013 Page 3 of 6
more persons as resulting in an Association of Persons would
militate against the purpose of considering an association as a
separate tax entity. Whether an arrangement or collaborative
exercise between two or more persons results in constituting an
Association of Persons as a separate taxable entity would
depend on the facts of each case including the nature and the
extent of collaboration between them. The Supreme Court in
Indira Balkrishna (supra) had also clarified that:-
"there is no formula of universal application as to
what facts, how many of them and of what nature
are necessary to come to a conclusion that there is
an association of persons within the meaning of
Section 3".
35. It is obvious that unless the facts lead to a conclusion that
there is sufficient joint participation for a common enterprise, it
would not be appropriate to treat two or more persons as an
Association of Persons for the purposes of assessing them as a
separate taxable entity. A mere cooperation of one person with
another in serving one's business objective would not be
sufficient to constitute an Association of Persons merely
because the business interests are common. A common
enterprise, which is managed through some degree of joint
participation, is an essential condition for constituting an
Association of Persons.
36. It follows from the above discussions that before an
association can be considered as a separate taxable entity (i.e an
Association of Persons), the same must exhibit the following
essential features:
(i) must be constituted by two or more persons.
(ii) The constituent members must have come
together for a common purpose.
WP(C) 4302/2013 Page 4 of 6
(iii) the association must move by common action
and there must be some scheme of common
management.
(iv) the cooperation and association amongst the
constituent members must not be perfunctory
and/or merely in form. The association amongst
members must be real and substantial which is
sufficient to treat the association as a separate
homogenous taxable entity."
6. The question as to whether the petitioner herein and CINDA
constituted an AOP would have to be examined on the basis of the above
principles. Since the matter was not examined in this light by the
Authority for Advance Rulings, it would be appropriate that the matter
with regard to the question of AOP is remitted to the said Authority to
return a finding, on facts, based upon the above legal principles. It is
ordered accordingly.
7. We make it clear that the only issue urged before us was the
question with regard to the existence of an AOP as a taxable entity. No
other issue was agitated before us either by the petitioner or by the
respondent. Consequently, this writ petition is disposed of with the
direction that the finding of the Authority for Advance Rulings in the
impugned ruling dated 01.02.2012 concerning the AOP issue is set aside
WP(C) 4302/2013 Page 5 of 6
and the matter is remitted to the said authority for the limited purpose of
determining, on facts, as to whether the petitioner and CINDA constituted
an AOP in terms of the legal principles set down in Linde (supra).
There shall be no order as to costs.
BADAR DURREZ AHMED, J
SIDDHARTH MRIDUL, J
MAY 20, 2014
SR
WP(C) 4302/2013 Page 6 of 6
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