TMI Blog2012 (6) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... at the joint responsibility of the four Members of the Consortium who came together to perform the contract. Members of the Consortium were all in business and they came together in pursuance of an intention to promote their businesses. There was a common purpose and there was concerted action. Thus, applicant, along-with the other members of the Consortium, formed an Association of Persons liable to be taxed as such. Hence, Contract the Consortium of which the applicant is a member, cannot be split up to treat a part of it as confined to offshore supply of equipment not capable of being taxed in India, and that the income from it is taxable as a whole both under both Income-tax Act and under the Double Taxation Avoidance Convention relied upon. - A.A.R. No. 958 of 2010 - - - Dated:- 7-6-2012 - Mr Justice P.K. Balasubramanyan, J. Present for the applicant : Mr. N. Venkatraman, Sr.Counsel Mr. Satish Aggarwal, FCA Mr. Akhil Sambhan, ACA Mr. Vinay Aggarwal, ACA Mr. Atul Awasthi, CA Present for the Department : Mr. Bhupinderjit Kumar, ADIT (Int. Taxation) R U L I N G On 4.6.2009, the Bangalore Metro Rail Corporation Limited (hereinafter referred to as BMRCR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The contractor was to complete whole of the works within 178 weeks from the commencement date. The contract was enforceable and was to be construed under the applicable laws of the Republic of India. 2. The applicant approached this Authority for a Ruling on the basis that as one of the Consortium members, it was concerned with offshore supply of plant and materials including supply of spare parts and offshore designing and training of operating and maintenance personnel and asking whether the payments received for those activities would be taxable in India under the provisions of the Income-tax Act, 1961 and the Double Taxation Avoidance Convention between India and France and whether the amounts received by the applicant under the contract for offshore services are chargeable to tax in India under the Act and the Convention. Having overruled the objections of the Revenue to the allowing of the application under section 245R(2) of the Act, this Authority allowed the application for giving a ruling under section 245R(4) of the Act on the following two questions: 1. On the facts and circumstances of the case, whether the amounts received/receivable by ALSTOM Transport SA ( A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Association of Persons and the income from the transaction was chargeable to tax in India. 5. Since the question of Consortium Members being an AOP was agitated by the Revenue only at the time of hearing under section 245R(4) of the Act, at the request of the counsel for the applicant time was given to him for argument on this question and the application was further heard on that question. Before the ruling which was reserved could be given, Member (Revenue) who was part of the Authority at the time of hearing, retired and in view of that, the hearing was re-opened and the application was posted again for a fresh hearing so as to ensure that the ruling was given by the very Authority which finally heard the application. The ruling is being delivered thereafter, after hearing both sides afresh. A detailed written submission has also been made. 6. The tender floated by BMRC was a composite tender. The bid submitted by the Consortium of which the applicant is the leader was for the work tendered. Subsequently, the contract that was entered into by the consortium with BMRC, is a contract for design, manufacture, supply, installation, testing Commissioning of signaling/ train ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he task of the Revenue/Court to ascertain the legal nature of the transaction and while doing so it has to look at the transaction as a whole and not to adopt a dissecting approach. Thus, the approach adopted in Ishikawajima Harima Heavy Industries Limited vs. DIT now stands disapproved or overruled, if not expressly, definitely by clear implication. In fact, with great respect, the basic principle in interpretation of a contract is to read it as a whole and to construe all its terms in the context of the object sought to be achieved and the purpose sought to be attained by the implementation of the contract. Reading parts of the contract as imposing distinct obligations may not be the proper way to understand a composite contract especially for installation and commissioning and delivery of a project or a system. 8. What was the purpose for which the tender was invited by BMRC cannot be in doubt in this case. It was for installing the signaling and communication system for the metro rail. It was not for supply of offshore equipments independently of the installation and commissioning. Nor was it for independent installation and commissioning, divorced from the design and supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no difficulty in holding that the applicant, alongwith the other members of the Consortium, formed an Association of Persons liable to be taxed as such. 11. Learned Senior counsel for the applicant contended that the observations in the decision in Vodafone should be understood in the context in which they were made and they cannot be relied on in construing a contract like the present one especially in the face of the decision in Ishikawajima Harima Heavy Industries Limited. It is true that the observations in Vodafone were made in the context of that case. But, what the Court has laid down as guidance to the Revenue and the Courts is that a transaction must be taken as a whole and not dissected from the angle of taxation. As I understand it, it is a reiteration of a principle in the approach to taxation of a transaction by the Authorities under the Income-tax Act. To refuse to follow the look at‟ test clearly postulated by the Supreme Court, would in effect be a refusal to follow the ratio of that decision. 12. It is true that the Supreme Court in Vodafone has not overruled Ishikawajima Harima Heavy Industries Limited or dealt with a situation similar to the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work. The coming together is to meet the obligations to the tenderer arising out of that tender notification. On winning the bid, the contract entered into is for the purpose of performing that obligation. Thus, the tender is the rai-son d etre and the contract with the tenderer is the foundation for the combination of the members coming together to perform the obligation thereunder. After committing themselves to perform the contract in terms of the contract with the tenderer, however the members of the Consortium divide the performance of the obligation, that would not affect the nature and content of the obligation undertaken by them jointly. Their arranging the inter se relationship while performing that joint and common obligation, cannot alter the status they acquire as Consortium members in performing a joint obligation undertaken by the Consortium. Even in the Consortium agreement, the joint and several liability to the tenderer is reiterated. I am therefore satisfied that the members dividing the obligation among themselves after the bid is knocked down in favour of the Consortium cannot alter the status they acquire while entering into a contract with a common purpose an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial arrangement of convenience between the parties and that it is a combination of people or resources desiring or attempting to execute a particular venture or project to the satisfaction of the customer and has the prior acceptance of the customer for such a formation. I find that this in no way affects the coming together with a common object with a common obligation vis- -vis the customer with a view to earn an income or profit by a performance of the obligations jointly undertaken. 18. It is contended that there would be problems in taxation if the Consortium is considered as a AOP and hence this Authority must be slow to come to such a conclusion. It cannot be said that the Consortium which is an AOP does not have a common income, arising out of a transaction with ONGC in this case. That income can be assessed in the hands of the AOP as provided for in the Act. 19. Thus, on the facts of this case and on the basis of the transaction involved, I conclude that the applicant along with the other members of the Consortium formed an Association of Persons liable to be taxed in India as such. 20. In the light of the above discussion, it has to be ruled on question no. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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