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Part C : Tribunal &
AAR International Tax Decisions
7 Hyundai Rotem Co.
(2009) TIOL 798 ARA-IT
Dated : 23-3-2010
Consortium of members formed for the purpose of joint bid
does not constitute AOP if each of the members has specified responsibility
independent of the other member and consideration flowing to each of the member
is separate. Certain common covenants including agreeing to joint and several
liability for the comfort of the customer does not alter the situation.
Facts :
Five companies (one Korean, two Japanese and two Indian)
entered into a consortium named MRMB to bid for tender floated by Delhi Metro
Rail Corporation (DMRC). The bid was for designing, manufacturing, supplying,
commissioning, training and transfer of technology of 192 numbers of EMUs. The
contract was for a fixed consideration and was apportioned amongst various cost
centres and was linked to various milestones.
Responsibility of each of the member was clearly identified.
For example, Korean company was responsible for mechanical work, the Indian
company 1 was responsible for electric work, etc. Consideration of each one of
the members was clearly identified. Japco 1 was appointed as a consortium
leader. The amount collected from the customer was disbursed by the consortium
leader to the various members as per the pre-agreed ratio.
The tax authorities were of the view that the consortium
constituted an AOP on account of the following features :
(a) Joint participation of the consortium members in the
tender process.
(b) Bid having been submitted by the consortium.
(c) Execution of single contract.
(d) Appointment of common project director for planning,
organising and controlling execution of the project.
(e) Nomination of a consortium leader and its appointment
as a contact point between the customer and the members.
(f) Constitution of the project Board with nominee of each
member for overall planning, organising or controlling the execution of the
project.
(g) Furnishing of joint bank guarantee.
(h) Joint and several liability for the undertaking of the
contract. The overall responsibility of the consortium was to design,
manufacture, supply, etc. of 192 EMUs for which considerations was also
prefixed.
(i) All in all, there were collaborative efforts on the
part of the parties to undertake the contract which in view of the Tax
Department resulted in formation of the AOP.
AAR held :
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AAR noted that
there is no definition of AOP in the IT Act or under the general law. It
observed that AOP differs from the partnership and it falls short of a
partnership, but the degree of distinction between the AOP or the firm is not
clear.
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The constitution
of AOP is fact-based and there are no hard and fast rules.
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In the context of
IT Act, the association must be one the objects of which is to produce income,
profits or gains by deploying assets in a joint enterprise with a view to make
profit.
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The facts of the
present case were akin to the facts before the AAR in case of Van Oord Acz BV
(248 ITR 399). In view of the AAR, the present consortium did not constitiute
an AOP on account of the following features :
(a) Nature of work undertaken and capable of being executed
by each member was materially different. Skill-set of each member was
different. Work of one member could not have been relocated to another.
(b) Bid evaluation by the costomer was done keeping in mind
competency of each member. There was no interchangeability or reassignment of
work or overseeing the work of each other.
(c) There was deduction in the original bid amount and the
discount agreed by each member was different. This was indicator of the fact
that economics of each of the members were detemined independently.
(d) In addition to the joint performance guarantee, each
member provided separate guarantee and undertaking.
(e) The agreement specifically clarified that there was no
intent between the parties to create any partnership or a joint venture.
(f) The covenant of joint and several liability was a
safeguard for the client to have better control over the consortium members.
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The facts of the case before AAR in GeoConsult ZT GMBH (304
ITR 283) where the arrangement was regarded as giving rise to AOP were
distinguishable. In GeoConsult’s case, there was intention to create a joint
venture; the members had the same skill-set and scope of their work was
overlapping. Also, the members had assisted each other in performance of the
work and the members had unrestricted access to the work carried out by the
other members, etc. The features in the present arrangement were different.
