2012 (8) TMI 88 - AAR - Income Tax

Formation of Association of persons (AOP) - held that - The fact that the two consortium members entered into an memorandum of understanding first and then into an agreement between them separating their area of operations, cannot alter the picture. Nor can the fact that payments were agreed to be made to them separately for the work they had divided between them affect the status they acquired when they came together to bid for the work and their bid was accepted in terms of the tender for the whole work. - The internal division of responsibility by the consortium members and the recognition thereof by X or the making of separate payments by X to the two members, cannot dislodge the legal position of formation of an association of persons by the applicant and E . - Formation of AOP is there. In the face of an indivisible contract and the existence of an association of persons, the claim that the amount payable in respect of design and engineering cannot be taxed in India, cannot be accepted. They are liable to be taxed in India.

2018 (1) TMI 946 - AAR

Issues Involved:
1. Taxability status of the consortium as an association of persons (AOP).
2. Taxability of amounts received for design and engineering work performed offshore.
3. Extent and rate of tax on amounts received for design and engineering.
4. Taxability of amounts received for the supply of equipment, material, and spares outside India.
5. Extent of profits from the supply of plant and equipment taxable in India.
6. Taxability of consideration for onshore services under section 44DA of the Income-tax Act.
7. Allowability of actual expenditure incurred by head office for onshore activities of the permanent establishment.

Detailed Analysis:

1. Taxability Status of the Consortium as an Association of Persons (AOP):
The applicant argued that the contract with X is divisible, with clearly defined obligations and payments for each consortium member. The Revenue contended that the contract is a lump sum turnkey contract for the erection of a plant, making it indivisible. The Authority concluded that the contract is indivisible and that the consortium members formed an AOP for the purpose of the contract. The contract was awarded to the consortium as a whole, and the division of responsibilities and payments among consortium members does not alter the status of the consortium as an AOP.

2. Taxability of Amounts Received for Design and Engineering Work Performed Offshore:
The applicant claimed that the design and engineering work performed offshore should not be taxed in India. The Authority, however, determined that the contract is indivisible and that the offshore activities are inextricably linked to the overall project. Therefore, the amounts received for design and engineering work are taxable in India.

3. Extent and Rate of Tax on Amounts Received for Design and Engineering:
Given the indivisible nature of the contract and the consortium's status as an AOP, the amounts received for design and engineering work are taxable in India. The consortium will be assessed as an AOP, subject to the relevant provisions of the Income-tax Act.

4. Taxability of Amounts Received for the Supply of Equipment, Material, and Spares Outside India:
The applicant argued that these amounts should not be taxable in India. However, the Authority concluded that since the contract is indivisible and the consortium is taxed as an AOP, the amounts received for the supply of equipment, material, and spares are taxable in India.

5. Extent of Profits from the Supply of Plant and Equipment Taxable in India:
Similar to the previous issue, the Authority held that the profits from the supply of plant and equipment are taxable in India due to the indivisible nature of the contract and the consortium's status as an AOP.

6. Taxability of Consideration for Onshore Services Under Section 44DA of the Income-tax Act:
The Authority noted that since the consortium is assessed as an AOP and taxable in India, the question of a permanent establishment does not arise. Therefore, the consideration for onshore services is taxable in India.

7. Allowability of Actual Expenditure Incurred by Head Office for Onshore Activities of the Permanent Establishment:
Given the conclusion that the consortium is taxable as an AOP in India, the question of the allowability of actual expenditure incurred by the head office for onshore activities does not arise in this context.

Conclusion:
The ruling pronounced on March 20, 2012, concluded that the consortium formed an AOP and the contract is indivisible. Consequently, all amounts received under the contract, including those for offshore design and engineering work, supply of equipment, and onshore services, are taxable in India.

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