In Vodafone International Holdings BV Netherlands vs. Union of India and another (345 ITR 1 (SC). a three judge bench of the Supreme Court has laid down that what is needed is to consider the transaction in its entirety and to look at the transaction as a whole. The Supreme Court has advocated that a transaction must be looked at and not looked through.
The learned Chief Justice has held “it is the task of the Revenue / Court to ascertain the legal nature of the transaction and while doing so, it has to look at the transaction as a whole and not adopt a dissecting approach”. This injunction has been followed by this Authority in its recent Ruling in AAR 962 of 2010.
In Ishikawajima-Harima, a two judge bench of the Supreme Court had adopted a dissecting approach by dissecting a composite contract into two parts and holding one of the parts not amenable to taxation in India. The decision in Vodafone having been rendered by a three judge bench, it is not proper or open to this authority, to follow the approach made in the decision in Ishikawajima¬Harima and to adopt a dissecting approach to the contract in question. What is called for is an understanding of the nature of the contract on an advertence to its terms.
A contract has to be read as a whole. The purpose for which the contract is entered into by the parties is to be ascertained from the terms of the contract. In the case on hand, ONGC clearly called for a contract for “services for supply, installation and commissioning of 36 manometer gauges”. The purpose of the contract is the installation of the gauges at site to enable ONGC to carry out its operations. I have quoted earlier the relevant portion of the contract. On a reading of the same, there cannot be any doubt that the contract in question was for erection and commissioning of 36 manometer gauges for the use of ONGC. The contract is clearly not one for sale of equipment. Nor is it one for mere erection of the equipment. It is a composite contract for supply and erection at sites within the territory of India. What is paid for by ONGC is for the supply and erection done in India. The payment is received by the applicant for the performance of the contract as a whole in India. It is therefore clear that the income to the applicant accrued in India.
AUTHORITY FOR ADVANCE RULINGS (INCOME TAX)
NEW DELHI
7th Day of May, 2012
A.A.R. No.977 of 2010
PRESENT
Justice Mr. P. K. Balasubramanyan (Chairman)
