Looking at’ the nature of transaction, consortium bidding & executing turnkey project taxable as AOP, contract cannot be dissected for tax purposes -AAR
AAR held that a consortium formed by the Applicant with another non-resident, to bid for a turnkey contract, is liable to be taxed as Association of Persons (AOP) according to the Income-tax Act, 1961 (the Act) and the Double Tax Avoidance Agreement (tax treaty) between India and Germany. The AAR also held that an internal division of responsibility between consortium members does not alter the formation of an AOP and indivisible nature of the contract.
AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI
20th Day of March, 2012
A.A.R. No.962 of 2010
Name & address of the applicant : Linde AG, Linde Engineering Division
Dr. Carl-von-Linde-Star Be 6-14, D-82049, Pullach, Germany
Commissioner Concerned : Director of Income-tax (International Taxation-I) New Delhi
R U L I N G
[By Justice P.K. Balasubramanyan]
On 19.4.2007, ONGC Petro Additions Ltd. (OPAL) floated a Tender Notice inviting tender inquiries for carrying on the work of all activities and services required for the design, engineering, procurement, construction, installation, commissioning and handing over of the plant on a lump sum turnkey basis for the Dual Feed Cracker and Associated Units of Dahej Petrochemical Complex. The work was to be done in accordance with the Bidding Documents. LINDE AG, Linde Engineering Division, Pulach, the applicant before us and Samsung Engineering Company Ltd. Seoul, Korea (Samsung) decided to come together to take up the work as a Consortium. With that in view, on 3.3.2008, the applicant and Samsung entered into a Memorandum of Understanding for the purpose of bidding for and taking up the work. This was followed up by an „Internal Co nsotium Agreement” dated 14.3.2008 between the applicant and Samsung. On 20.3.2008, the Consortium submitted its response to the tender notice. It also submitted its price bid on 28.7.2008. The tender submitted by the Consortium was accepted and on 23.12.2008, the work was awarded to the Consortium. The issuance of notification of Award was on 23.12.2008. 23.12.2008 was to be the effective date.
2. On 10.2.2009, OPAL and the Consortium consisting of the applicant and Samsung entered into a formal agreement. The agreement reiterated that OPAL, described as the company, was desirous of „carrying work of all activities and services required for the design, engineering, procurement, construction, installation, commissioning and handing over of the plant on a lump sum turnkey basis in accordance with the Bidding Documents‟ anthat the cont actor meaning the Consotium, had represented that it had expertise and technical know-how in respect of the said work and had submitted its offer for the work and the work had been awarded to it on 23.12.2008, treating that date as the effective date. It records that the contractor, the Consortium, has covenanted with the company (OPAL) to perform the work in conformity with the provisions of the contract which is said to constitute the entire agreement between the company and the contractor. The Consortium has taken up the project work pursuant to the contract.
3. The applicant filed an application under section 197 of the Income-tax Act taking up the position that no portion of the amount payable was liable to be withheld under section 195 of the Act, since what it performed under the contract was all off-shore and payments were received off-shore and hence not chargeable to tax in India. The Income-tax Officer did not accept the plea of the applicant and directed OPAL to withhold tax on amounts paid to the applicant in terms of the contract in question. It is in that situation that the applicant approached this Authority with its application under section 245Q of the Act.
4. The agreement dated 10.2.2009 is one between OPAL and the Consortium of LINDE AG and Samsung. Whereas OPAL has been described as the company, the Consortium consisting of the two members is described as the contractor. It is recited that the company is desirous of carrying on the work of all activities and services required for the design, engineering, procurement, construction, installation, commissioning and handing over of the plant on a lump sum turnkey basis in accordance with the bidding documents. After referring to the tender enquiries issued by the company dated 19.4.2007, it is recited that the contractor represented that it has expertise and technical know-how in respect of the work tendered and had submitted its offer and its adjustment price bid. The tender having been accepted after discussion with the contractor, the contract was being awarded to the contractor. After referring to the various documents annexed to the contract as forming part of the contract, it is also recited that the contractor had covenanted with the company to perform the work inconformity in all respects with the provisions of the contract and in consideration of the carrying out and completion of the works by the contractor, the company covenanted to pay the amounts at the times and in the manner described in the agreement. It is recited that the advance payment will be received by the Consortium and the right to suspend or terminate the contract is given to the Consortium. In this agreement, there is no individual role assigned to the members of the Consortium and the agreement is between OPAL and the Consortium and rights and obligations are conferred on OPAL and the Consortium for the tendered work as a whole. The agreement annexes the General conditions of contract as amended, Technical documents, Agreed clarifications, contract price schedule, construction schedule, Project instructions, Milestone payment formula, Notification of award, Letter of acknowledgement of notification of award from the Consortium, Integrity pact and Memorandum of Understanding concluded between the Consortium members. In case of conflict, the agreement had priority followed by the others in the order of priority as cited therein. The Memorandum of Understanding between the consortium members was annexed as the last document and the subsequent agreement between the applicant and Samsung dated 14.3.2008 is not referred to or annexed.
5. According to the applicant, this contract with OPAL, the Consortium consisting of itself and Samsung has entered into, is a divisible contract and its obligations under the contract are well defined. The respective scope of work and obligations of each are clearly identified. The consideration payable to it was also identifiable and the payment to it under the contract by OPAL was direct payment for the work done by it. The part of the contract relating to it, was itself divisible into three parts; (i) supply of design, engineering of equipment, materials, (ii) fabrication, procurement and supply of equipment and material outside India to OPAL and (iii) superivison of installation, testing and commissioning of the equipment, materials at site in India. The off-shore activities are not taxable in India. A Permanent Establishment would come into existence in India in terms of Article 5.2 (1) of Double Taxation Avoidance Convention (DTAC) between India and Germany only after the equipment reaches the site in India.
6. On considering the relevant aspects, this Authority allowed the application under section 245R(2) of the Act, for giving a ruling on the following questions:
(i) Whether in terms of the Contract dated 10.2.2009 (hereinafter referreed to as „ he contract) between ONGC Petro Additions Limited (he enafter referred to as “OPAL) and Consort um of Linde AG, Germany, and Samsung Engineering Company Ltd., Korea (hereinafter referred to as “SEC”) the applicant and SEC are taxable in the status of AOP?
(ii) Whether in terms of the Contract, the amount receivable/received in respect of design and engineering, prepared solely for manufacture, procurement of equipment outside India and being inextricably linked to such equipment to be supplied, liable to tax in India, under the provisions of the Income-tax Act, 1961 (“the Act”) or unde the Double Taxation Avoidance Agreement read with Protocol between India and Germany (“DTAA”)
(iii) If the answer to question no. 2 is in the affirmative, to what extent and at what rate of tax, are the amounts received/receivable for design and engineering liable to tax in India?
(iv) Whether in terms of the Contract, the amount receivable by the applicant for supply of equipment, material and spares, outside India are liable to tax in India, under the provisions of the Income-tax Act, 1961 or under the DTAA read with Protocol?
(v) If the answer to (iv) is in the affirmative, to what extent are the profits from supply of plant an equipment taxable in India?
(vi) Whether in terms of the Contract, consideration for onshore services comprising supervision of installation, testing, commissioning and construction, management/supervision is liable to tax on the profits of the PE, as may be deemed to exist in India, in terms of Section 44DA of the Act read with the provision of the DTAA.
(vii) If the answer to question No. (vi) is in the affirmative, whether for the purpose of determining the profits of the PE in India, the actual expenditure incurred by head office exclusively and specifically in relation to onshore activities of the PE (not being general administrative/executive expenses) and reimbursed to it, are allowable in full and not subject to limits in Section 44C of the Income-tax Act, 1961?
7. It is argued on behalf of the application that going by the decision in Ishikawajama – Harima Heavy Industries Limited v. DIT [288 ITR 408 (SC)], the contract can be and has to be spilt into separate parts and that part dealing with the obligations of the applicant has to be considered independent of the obligations of Samsung, the other Consortium member. Income from off-shore activities of the applicant cannot be taxed in India, going by the decision in Hyundai Heavy Industries Ltd [291 ITR 482 (SC)]. Under the contract, it was evident from the scope of work and situs of the work that the consideration in respect of operations outside India was distinct from on-site services to be performed in India.
8. On behalf of the Revenue, it is contended that it was a lump sum turnkey contract for erection of Dual Feed Cracker and Associated units and was an indivisible contract. What OPAL tendered for was for the Design and Erection of a Plant and what the Consortium tendered for, was for that contract. Any splitting up of the contract would be artificial and cannot be resorted to. A lump sum turnkey contract for erection of a plant was a well understood form of contract and it would be unrealistic to split it up into parts just for the purpose of taxation alone when the rights and obligations under it are that of the Consortium that tendered for work and the work bid, was for design and erection of a plant in India. The Explanation added to Section 9(2) of the Act with effect from 1.6.1976, may also have to be kept in view.
9. Before proceeding to consider these submissions, we would like to observe that generally a contract must be read as whole to understand its purport and effect. When a tender is floated for erection and commissioning of a plant, generally, the bid is for that work and the award of contract is for that work. The various terms of the contract have to be understood in that context. A contract for sale of goods simpliciter differs from a contract for designing and erecting a plant. We feel emboldened to make these observations in the light of the approach made by a three Judge bench of the Supreme Court in Vodafone International Holdings B.V. vs. UOI and another [(2012) 341 ITR 1 (SC)]. Therein, the Supreme Court has held that section 9(1)(i) of the Act is not a „look through‟provision and that the Revenue must look at the transaction to understand its import. The 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 to adopt a dissecting approach.”This indicates that a dissecting approach from the angle of taxation should not be resorted to and the approach must be to understand the nature and the object of the contract on looking at the transaction.
10. We also feel that a contract for sale of goods differs from a contract for erection and commissioning of a plant which also takes in delivering of design and machinery. To read such a contract as one for sale of goods independent of the contract as a whole and separately from the obligation undertaken thereunder to erect, commission and deliver a plant (the object of the contract), would be adopting a dissecting approach to that contract. The situs of the erection contract has to be determined on the basis of the site where the plant is to be erected. The contract in this case was also signed in India. According to the applicant, the design and machinery was to be supplied from outside the country or off-shore. In a composite contract as the one in question, that alone cannot determine the situs of the contract. That fact has to be weighed with the other relevant facts and the purpose of the contract itself. The work contracted to be done cannot be ignored.
11. We may also notice that though the Memorandum of Understanding between the members of the Consortium dated 3.3.32008 is annexed as the last of the documents to the agreement as forming its part, the Internal Consortium Agreement dated 14.3.2008 is not annexed to the agreement, the terms of which has precedence over the other annexures if there is a conflict. We, therefore, feel that it is not permissible to refer to the Internal Consortium Agreement to interpret the contract or the tender documents and the rights and obligations arising thereunder. It at best remains only an internal arrangement between the applicant and Samsung. Similarly, the MOU annexed to the agreement cannot be understood as superseding or overriding the terms of the agreement or the main object or purpose of the agreement.
12. The MOU dated 3.3.2008 refers to the contract intended to be signed by OPAL with the Consortium. It then recites that the leader of the Consortium, the applicant will perform Basic Engineering supply of selected key equipments and Related Detail Engineering, Detail Engineering and procurement of Cracking furnaces, parts of technical supervision services, Commissioning, Testing, Conducting Performance Tests and Post commissioning services of the Project, Then it provides that Samsung, the other member of the Consortium will perform Detailed Engineering of DFCU Recovery Section and AU, Supply of Equipment, Construction, Erection and Pre-commissioning of DFCU and AU and parts of Technical Supervision Services of the Project . On a reading of the obligations assigned to each, it appears that they are complementary and not disjunctive in the context of the Tender floated and the work to be undertaken. There appears the following clause:
“Whereas, pa ties intend o jointly cooperate as Conso tium (hereinafter referred to as “CONSORTIUM”) in order to prepare and submit a joint proposal as a Consortium for the PROJECT (hereinafter referred to as “BID”) and if the BID is accepted by ONGC/OPAL to perform the contract (hereinafter referred to as “CONTRACT”) for the execution of the PROJECT”
The parties agree to cooperate in the preparation and submission of the BID for the PROJECT and if the BID is accepted, for the performance of the awarded CONTRACT for the PROJECT. It is then provided:
“As far as the CONSORTIUM MEMBERS are concerned, the AGREEMENT is signed only for the purpose of bidding and if awarded, as a basis for a Consortium agreement (Consortium Agreement) in order to execute the CONTRACT.”
Thus, it is seen that the MOU was entered into only for the purpose of preparing and entering a bid. Post acceptance of bid, it at best is only executory and is only to form a basis for a Consortium agreement. The MOU provides for participation and allocation of responsibilities in case the work is allotted to the Consortium.
It provides that the Consortium shall constitute an un-incorporated arrangement established for the limited purpose of representations and dealings with ONGC/OPAL with independent and separate scope of work as setforth therein. The parties shall be liable jointly and severally vis-à-vis ONGC/OPAL for the obligations of the PROJECT in accordance with the terms and conditions of the Tender document.
13. A reading of the MOU as a whole indicates that its purpose was to bid for and secure the tender floated by OPAL and the Consortium was jointly and severally liable to OPAL to perform the obligations undertaken by the Consortium. The members also came to arrangement as to the work each one is to perform.
14. The performance guarantee annexed to the contract is given on behalf of the Consortium. The contract price schedule splits up the payment towards imported component and Indian component in terms of foreign currency and Indian Rupee and the split up payment for each item of supply and work. It also contains a summery of what would be payable to each member of the Consortium for the work to be done. The project instructions annexed does not split up the obligations of the members of the Consortium. It is for the Contractor, meaning the Consortium, to provide all functions required for. The payment formula annexed is also item-wise and not Consortium member-wise. The Notification of Award notifies that the work is awarded to the Consortium. The accepted price is notified and it is stated that the lump sum contract price is for the entire scope of works as detailed in the Bidding Documents and other documents mentioned in paragraph 1 and details the entire work to be performed under the contract. It is provided that the Consortium has to furnish Bank Guarantee for due performance.
15. On a reading of the contract documents as a whole, it is not possible to accept a contention that the contract is capable being split up either component wise or member-wise of the contractor, the Consortium. Thus, on a reading of the whole agreement and gathering the intention thereform, we are of the view that the parties intended it to be an indivisible contract containing rights and obligations of OPAL and the Consortium. The fact that payments for each item of work is earmarked or that for payment the work of the individual member of the Consortium is taken cognizance of, cannot alter the nature of the contract in the context of the tender and the work undertaken. Normally, when a tender is floated, bid and accepted, the contract can only be consistent with the tender unless specific amendments are made to the tender conditions. We cannot see any such amendment in this case.
16. The Internal Consortium Agreement, remains an internal document, a unilateral arrangement between the members of the Consortium. OPAL is not a party to it. May be, it was executed in furtherance of the MOU recognized by OPAL. But it is not part of the contract documents. That contract can only be understood as an agreement between the members of the Consortium as to the manner in which they should perform their obligations under the contract with OPAL. Its terms cannot control the effect of the terms of the tender notice and the contract in terms of it. We are satisfied that the terms of that unilateral agreement cannot alter the legal position emerging from the agreement as we have discussed above. How far an arrangement come to between the members of the Consortium can govern the contract, the Consortium has entered into with a third party, is a moot question. It remains an arrangement not binding on the person who has entered into a contract with the Consortium unless, it is permissible to acknowledge and accept its terms and they have actually been acknowledged and accepted. Suffice it to say that the terms of the Internal Consortium Agreement cannot alter the terms of the agreement with OPAL or modify its terms.
17. Applying the „look at‟ test and interpreting the terms of the contract as a whole, we are satisfied that the contract in this case is one and indivisible and it is not open to the applicant, a member of the Consortium, the contractor, to attempt to split up each component of the contract for the purpose of taxation. A dissecting approach is not warranted in this case.
18. Once we come to this conclusion, it is not open to the applicant to plead that the sale of machinery and designing of the project and equipment must be treated as off-shore transactions and taxing them is beyond the jurisdiction of the authorities under the Indian Income-tax Act. The situs of the contract is in India. The payments are made by a resident for the work done in India and the jurisdiction of the authorities to tax the income from the transaction cannot be questioned.
19. The Revenue has refuted the claim of the applicant that the title to the machinery passes off-shore. It is pointed out that clause 7.1.1. of the agreement prov des that “ownership of materials shall be transferred to the Company (OPAL) upon FOB shipment for imported supply and FOT for local supply subject to contractor takes full responsibilities for any damage/loss during the course of transportation until acceptance of works.” (emphasis supplied). It is true that in a sale of goods where the title passes off-shore or is intended to pass off-shore, the retaining of risk for safe delivery of machinery by the seller may not tilt the scale. But in a supply and erection contract, when the risk is retained not merely until delivery but until acceptance of the works by OPAL, which is after trial and commissioning of the project, the retaining of the risk by the contractor may have different implications. The undertaking of the risk cannot be explained away by saying that a seller can also undertake a risk and this would be one such case. It cannot be understood as a risk undertaken only as a bailee until delivery at the destination. Here, it continues until commissioning, testing, certification of satisfaction of OPAL and acceptance of the plant by OPAL.
20. It is also pointed out on behalf of the Revenue that the contract does not specify that title to the machinery shall pass on to OPAL on high seas or in the country of origin. It is also pointed out that the price schedule and payment also deals with the entire gamut of works to be performed under the contract. There was no mention of off-shore or on-shore supply of services.
21. Annexure E to the contract containing Project Instructions indicates that its purpose is to set down the duties and responsibilities for the project participants and the procedures, rules and regulations and other requirements of the Company (OPAL) relating to the performance of the work by the Contractor (Consortium). Clause 1.2 sets out the requirements for execution of the works. After setting out the details in clauses 2 and 3 thereof, clause 4 deals with Financing and Accounting. Clause 4.1.2 reads:
“Payment to the contractor of monthly invoice for respective members of Consortium as aforesaid shall not be deemed to affect in any manner, the contractor responsibility for carrying out the whole of the works in accordance with the requirements of the contract until certification of the completion of the whole of the works and acceptance thereof by the Company/Company‟s Representative.”
This also indicates that the obligation under the contract cannot be split up as sought for by the applicant and the decision rested on the theory that title to the goods passes off-shore.
22. The first question posed for our Ruling is whether the applicant and Samsung, are taxable in India as an Association of Persons (AOP). Section 2(31) of the Act while defining a „person‟, includes within that definition, under clause (v) “an association of persons or body of individuals whether incorporated or not”. With effect from 1.4.2002, an explanation was added to clarify that an association of persons shall be deemed to be a person whether or not such person was formed, with the object of deriving income, profits or gains. There is no definition in the Act of Association of Persons (AOP) as such.
23. The meaning of the expression, „association of individuals‟that occurred in the Income-tax Act, 1922 was explained by the Calcutta High Court in B.N. Elias & Others, In re [(1935) 3 ITR 408]. After referring to the Dictionary meaning of the word, „associate‟, the learned Chief Justice posed the question “Did these individuals join in a common purpose, or common action, thereby becoming an association of individuals?”He answered it by saying “In my view, these persons have joined themselves together and remained joined together for the purpose of buying, holding and using that property „Norton Buildings‟in order to make gain by it. In so doing, they have become and were at the time of this assessment, an „association of individuals‟within the meaning of section 3 of the Indian Income-tax Act.” Costello J. added “when we find, as we do find in this case, that there is a combination of persons formed for the promotion of a joint enterprise banded together if I may so put it, co-adventures to use an archaic expression, then I think no difficulty what ever arises in the way of saying that in this particular case, these four persons did constitute an „association of individuals‟within the meaning of both Section 3 and Section 55 of the Indian Income-tax Act, 1922.”
24. The Bombay High Court followed the above decision in CIT v. Laxmidas Devidas & others [(1937) 5 ITR 584] and applied the principle to a case where the association consisted only of two individuals. The above two decisions were again followed by that High Court in Dwarkanath Harischandra Pitale & another, In re [(1937) 5 ITR 716] in a case where the original coming together or association was not a voluntary act on the part of the assesses, but who elected to retain the property and manage it as a joint venture.
25. It does not appear to be necessary to pursue the development of the law thus, in the light of the decision of the Supreme Court in CIT v. Indira Balkrishna (39 ITR 546). Therein, their Lordships after observing that the above three decisions correctly lay down the crucial test for determining what is an association of persons within the meaning of Section 3 of the Income-tax Act, added the following w rds of caution. “There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an association of persons within the meaning of section 3, it must depend on the particular facts and circumstances of each case as to whether the conclusions can be drawn or not.”
26. In NV Shanmugham & Co. V. CIT [81 ITR 310], the Supreme Court clar fied that “The existence of specific or defined interest n the profits did not make the earning any the less, by an „assoc ation of ersons‟. Liability to tax depends upon the earning of profits by a unit and not upon the ultimate division of profits.”
27. In G. Muragesan and Brothers Vs. CIT [88 ITR 432], the Supreme Court, aftequoting from Indira Balakri hna, added“For forming an „associaton of persons‟ the members of the association must join together for the pu pose of producing an incomeAn association of personscan be formed only when two or more individuals voluntarily combine together for a certain purpose. Hence, volition on the part of the members of the association is an essential ingredient” It was thus emphasized that volition to come together was essential.
28. Three Rulings of this Authority were also brought to our notice, Van Oord AC2 BV [248 ITR 399], Hyosung Corporation In re [314 ITR 343] and Hyundai Rotem Co. and Mitsubishi Co. In re [323 ITR 277]. Since this Authority has discussed its earlier rulings in the last of the rulings, it is necessary only to refer to Hyundai Rotem Ruling. Therein, after noticing some variation in the Rulings in Geo-Consult ZT GmbH [304 ITR 283] and in Van Oord ACZ BV, this Authority observed:
“However, without deviating from the view taken in Geo-Consult that division of the profits and losses as in the case of partnership is not necessary to infer an AOP, we shall consider the question whether on taking stock of the other features and terms of the contract, the conclusion can be legitimately reached that there was an AOP in the present case”.
Thus, what emerges is that the question whether an AOP has come into existence has to be determined on the facts of the case in the light of the circumstances obtaining.
29. We may now examine the contract from this angle. The applicant emphasizes that the contract is a divisible contract which clearly identifies the scope of work and obligations of the two Consortium members and the consideration is payable by OPAL directly to each member for the work done by it. The expenses incurred by each member for the part of the work it performs is exclusively by that member. There is no sharing of costs or receipts between the two members inter se. There is also no sharing of assets employed by each of them and there is no sharing of profit or loss. There is also no common employment of capital or resources. As against this the Revenue submits that the tender was called for establishing a project and the bid was by a Consortium. The Consortium came into being by two independent entities coming together. It was with the common object of bidding for a work. It bid for the work. The work was given to the Consortium. The work was taken up by the Consortium. The responsibility for establishing the project was that of the Consortium. The members came together to undertake a contract. The motive was obviously to generate an income. The liability of the Consortium continued after installation and even after commissioning. It was a joint liability. In this situation, an AOP was formed and the assessment has to be on that basis.
30. What we have to consider is whether the facts and circumstances available, bring about an AOP in the light of the principles indicated by the Supreme Court. We find that on a tender being floated for erection and commissioning of a Petro Chemical Complex, the applicant and Samsung came together to bid for the work. They are independent entities having their respective fields of expertise. There is no case pleaded that one of them by itself would have handled the whole work. The coming together to make a bid was obviously in furtherance of their respective independent businesses. It was with a common object. The coming together was with a view to earn an income. To borrow the words from B.N. Elias (3 ITR 408), it was a case of two co-adventures coming together for promotion of a joint enterprise. Clearly, it was with a view to make a gain. The contract was awarded to the Consortium and not to the two members individually. It was for the whole work and a composite contract. No two contracts were entered into with the Consortium members. Payment was to be made to the Consortium for the work.
31. The fact that the two Consortium members entered into an MOU first and then into an agreement between them separating their area of operations, cannot alter the picture. Nor can the fact that payments were agreed to be made to them separately for the work they had divided between them affect the status they acquired when they came together to bid for the work and their bid was accepted in terms of the tender for the whole work. According to us, this is a case of the applicant and Samsung forming an AOP in respect of the work undertaken by the Consortium
32. Having tendered for the entire work of the project and accepted the tender, OPAL itself could not have under normal circumstances, split up the contract. That has also not happened here. The internal division of responsibility by the Consortium members and the recognition thereof by OPAL or the making of separate payments by OPAL to the two members, cannot dislodge the legal position of formation of an AOP by the applicant and Samsung. We are, therefore, of the view that an AOP has been formed in this case.
33. Question no. 2 is posed based on the assumption that the contract must receive a dissecting approach and split into various components. We have already found that the contract is an indivisible whole in this case. Even if a part of the design and engineering work prepared solely for manufacture, procurement of equipment outside India, is done outside the country, even if it constitutes a significant part, the same cannot be viewed in isolation and apart from the contract as a whole. To borrow the expression from the question itself, that work is inextricably linked with the erection and commissioning of the project, a work the Consortium has undertaken. Thus, in the face of an indivisible contract and the existence of an Association of Persons, the claim that the amount payable in respect of design and engineering cannot be taxed in India, cannot be accepted. They are liable to be taxed in India.
34. In view of our answers to questions 1 and 2, the answer to question no. 3 is that the Consortium has to be assessed as an Association of Persons subject to the relevant provisions of the Act.
35. Similarly question no. 4 relates to the amount receivable for supply of equipment, material and spares allegedly outside India and its chargeability to tax under the Act. In view of our conclusion that the contract is indivisible and the Consortium is to be taxed as an Association of Persons, the question can only be answered by holding that the amount is taxable in India.
36. The answer to question no. 5 is also along the same lines as the answer to question no. 4.
37. Since the assessment is to be as an Association of Persons and taxable in India under the Act, the question of existence or non-existence of a PE does not arise.
38. The answer to question no. 7 is along the same lines as answer to question no.6.
39. Accordingly, the ruling is pronounced on this, the 20th day of March, 2012.