Turnkey consortium treated as association of persons, with composite contract receipts taxable in India despite separate work allocations.

A turnkey consortium that jointly bids for and performs an integrated project with common purpose and joint liability may be treated as an association of persons, even if work is internally divided and payments are separately arranged. Applying the look-at test, a composite contract for design, procurement, construction, installation and commissioning cannot be artificially split into offshore and onshore parts where the offshore elements are inextricably linked to execution of the project in India. On that basis, the contract receipts were taxable in India, and a separate permanent establishment analysis did not survive for independent consideration.

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Issues: (i) Whether the consortium of the applicant and the other member constituted an association of persons for the project; (ii) whether the amounts attributable to design and engineering, supply of equipment, and onshore services under the contract were taxable in India.

Issue (i): Whether the consortium of the applicant and the other member constituted an association of persons for the project.

Analysis: The tender was submitted and accepted by the consortium as a single bidding unit for execution of the entire turnkey project. The members came together with a common object of securing and performing the contract and were jointly and severally liable to the employer. The internal allocation of work and separate payment arrangements between the members did not alter the legal character of the arrangement vis-a -vis the employer. On the facts, the requisite coming together for a common purpose and the element of volition were present.

Conclusion: The consortium constituted an association of persons.

Issue (ii): Whether the amounts attributable to design and engineering, supply of equipment, and onshore services under the contract were taxable in India.

Analysis: The contract was a composite turnkey contract for design, procurement, construction, installation, commissioning, and handing over of the plant. Applying the look-at test, the agreement could not be dissected into independent offshore and onshore contracts merely because the work was itemised or because payments were separately earmarked. The offshore elements were inextricably linked to the execution of the overall project in India. Once the contract was treated as indivisible and the consortium as an association of persons, the receipts under the contract were chargeable in India. In that view, the question of a separate permanent establishment analysis did not survive for independent consideration.

Conclusion: The receipts from design and engineering, supply of equipment, and onshore services were taxable in India.

Final Conclusion: The ruling proceeds on the basis that the consortium was a taxable association of persons and that the turnkey contract could not be split for isolating offshore receipts from Indian taxation.

Ratio Decidendi: A turnkey consortium contract for execution of an integrated project must be examined as a whole; where the members jointly bid for and perform the composite contract with common purpose and joint liability, the consortium may be treated as an association of persons and the receipts under the indivisible contract cannot be excluded from Indian tax by artificial segregation of offshore components.

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