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CTCI OVERSEAS CORPORATION LTD Vs. DIRECTOR OF INCOME TAX-I, INTERNATIONAL TAXATION
June, 02nd 2014
       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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