TaxTMI 
TaxTMI 
2010 (3) TMI 119
X X X X Extracts X X X X
X X X X Extracts X X X X
....'MELCO') and BEML Limited, India ('BEML') entered into a Consortium Agreement (members collectively referred to as 'MRMB Consortium') on 26th April, 2007. As per the terms of the Consortium Agreement, MC was appointed as the 'consortium leader'. MRMB-Consortium thereafter submitted the bid to DMRC on 30th April, 2007. 3. For execution of the project, the Consortium Agreement provides for constitution of project board comprising of project directors from each member for the overall planning, organizing and directing the complete execution of the project in an efficient manner. Under the Agreement, each member's responsibility is that (1) Rotem would be responsible for the Mechanical works; (2) MELCO would be responsible for the Electrical works; and (3) BEML would be responsible for the Localization works. Further, MC as consortium leader would be responsible for project coordination, commercial management, contract administration, legal administration, providing bank guarantees and collecting payments from DMRC. 4. DMRC accepted the price proposal submitted by MRMB Consortium in relation to the Contract RS3 and awarded the same to the MRMB Consortium vide its Lett....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the Contract RS3 awarded by DMRC does not constitute an AOP for the purposes of the Act especially for the reason that there is no agreement to share profits and losses or to jointly incur any expenditure. The Revenue has contested the stand taken by the applicant and contended that the Consortium has all the attributes of AOP as clarified in the ruling of this Authority in GeoConsult GHBH. 8. As noted earlier, the two applicants, namely MC and Rotem together with MELCO and BEML (an Indian company) have formed a consortium and agreed to jointly participate in the global tender invited by DMRC for the aforesaid contract. A Consortium agreement was entered into on 26th April, 2007 broadly agreeing to the terms and conditions under which the parties shall pursue and execute the project. MC was appointed as the Consortium's Leader. MC looks after commercial management and project coordination work. It has the authority to negotiate, finalize and submit all the documents required to be submitted by the consortium and to act as the Official Liaison Officer for the consortium. MC as the Consortium Leader has also been authorized to "incur liabilities and receive any instructions, pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y. There is no definition of AOP in the Income-tax Act or under the general law. The fact that AOP differs from the partnership and it falls short of partnership is recognized in law; but the degree of distinction is not clear. Whether or not a combination of persons or entities for undertaking the business venture would give rise to AOP depends on the facts and circumstances relating to a given contract or transaction. There is no hard and fast rule or clear-cut definition. Various relevant factors have to be weighed to reach the conclusion. Even few differences in facts may make a difference in reaching the conclusion. 11. In the oft-quoted decision of CIT v/s Indira Balakrishna [39 ITR 546], the Supreme Court observed: In in re B.N.Elias Derbyshire, C.J., rightly pointed out that the word "associate" means, according to the Oxford Dictionary, "to join in common purpose, or to join in an action." Therefore, an association of persons must be one in which two words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. This was the view expressed by Beaumont, C.J. in Commissioner of Income-t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be legitimately reached that there was an AOP in the present case. We have to see whether the instant case falls more within the ratio of the ruling of this Authority in Van Oord or the later ruling in GeoConsult. 14. The points which go to support the plea of AOP are these: the formation of consortium and joint participation of the consortium members in the tender process; the bids having been submitted by the Consortium; the execution of a single contract; the nomination of Consortium Leader and constitution of a project Board comprising of Project Director of each member for the overall planning, organizing and controlling the execution of the project; lump sum consideration and payments made from time to time in the name of the Consortium Leader (i.e. MC); bank guarantee (performance guarantee) on behalf of MRMB Consortium; joint and several liability towards the client-DMRC, the risk and cost by reason of defect or damage cast on the contractor (consortium) and not on individual members; insurance of plant and rolling stock etc. in the joint names of employer and contractor. These are also the points broadly projected by the Revenue in addition to some other minor as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e are unable to reach the conclusion that in this case, the Consortium can be treated as AOP and be assessed accordingly. The factors which rule out the inference are more glaring and conspicuous than the factors which support the inference. 17. Let us compare the facts of the present case with those in GeoConsult. In the case of GeoConsult, clause 2.1 of the JV agreement clearly states that the members have established a joint venture being an unincorporated association under the name of GC - RITES, Secon JV for the purpose of entering into the Services Agreement with the client and performing all the services to be undertaken for the project by virtue of that Agreement. This is one of the points relied on at para 13. There is no such specific declaration in the agreement with which we are concerned. Merely coming together and acting in cooperation with each other for the purpose of executing the work while each member carries on its own scope of work independently does not reasonably lead to the conclusion that an AOP has been formed. Then, in regard to the scope of work, there was no doubt division of work between the members of JV in the case of GeoConsult. But, the n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the sums received by JV towards payment for the work done by defaulting member shall be used to compensate any loss or damage resulting from the default of that Member are other indicators of the commonness and unity of the enterprise formed for the purpose of executing the works under the Services Agreement." 18. Then, there was no provision in GeoConsult which records the fact that the intention of the parties was not to create a partnership, joint venture or any other legal entity among the consortium members. This aspect was also taken into account in GeoConsult. Further, a clause similar to clause 15 of SCA which says that each consortium member shall be operating on its account and shall not act as an agent on behalf of the other members is not to be found in GeoConsult agreement. 19. Now, we shall make a comparative analysis of the facts in Van Oord and in the present case. In the case of Van Oord, just as in the present case, the parties have specifically provided in the Agreement that each party will bear its own loss and retain its profits separately. There was also specific declaration as in the present case that it was not their intention to create a ....