2014 (5) TMI 858 - HC - Income Tax

Existence of Association of Person AAR decided that petitioner herein and CINDA constituted an AOP and 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 - Held that - Following Linde AG, Linde Engineering Division And Another Versus Deputy Director of Income Tax 2014 (4) TMI 975 - DELHI HIGH COURT the AOP 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 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. The matter was not examined in the 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 Authority to return a finding based upon the above legal principles - matter remanded back Decided in favour of Assessee.

Summary

Issues:
- Quashing the conclusion of the Authority for Advance Rulings regarding the existence of an Association of Persons (AOP) between the petitioner and another entity.
- Jurisdiction of the Authority for Advance Rulings to adjudicate on the existence of an AOP.
- Examination of whether the petitioner and the other entity constituted an AOP based on legal principles.

Analysis:
1. The petitioner sought to quash the conclusion of the Authority for Advance Rulings regarding the existence of an AOP between them and another entity based on a consortium agreement. The Authority concluded that the consortium formed an AOP due to the business connection in India and offshore supplies provided. However, the petitioner challenged this conclusion.

2. The petitioner raised an alternative prayer questioning the jurisdiction of the Authority for Advance Rulings to decide on the AOP existence. The petitioner did not press this issue during the proceedings.

3. The Authority for Advance Rulings based its decision on the consortium agreement, determining that the consortium formed an AOP under the Income Tax Act. The Authority emphasized the business connection in India and the provision of offshore supplies as factors attributing to the AOP status. However, the High Court highlighted a different legal perspective in a separate judgment involving Linde AG, emphasizing the necessity of common purpose, joint action, and joint management for constituting an AOP.

4. The High Court referred to the judgment in Linde AG, which clarified the essential features required for an entity to be considered an AOP. The Court emphasized the need for common purpose, joint action, and substantial cooperation among members to establish an AOP. The Court concluded that the Authority for Advance Rulings' decision could not stand in light of the principles outlined in the Linde case.

5. The High Court ordered a remittance of the matter to the Authority for Advance Rulings for a fresh examination based on the legal principles highlighted in the Linde case. The Court directed the Authority to determine, on facts, whether the petitioner and the other entity constituted an AOP according to the principles set forth in the Linde judgment.

6. The High Court clarified that the only issue raised before them was the existence of an AOP as a taxable entity, and no other matters were contested. Therefore, the Court disposed of the writ petition, setting aside the Authority for Advance Rulings' decision and remitting the matter for further consideration based on the Linde case principles. No costs were awarded in this judgment.