Law:

Section:

Section 4, read with section 2(31), of the Income-tax Act, 1961 - Association of persons - Assessable as - Applicant, a foreign company of Austria, has formed a joint venture with two Indian companies for providing project consultancy services - HPRIDC has awarded a contract to said joint venture led by applicant to provide consultancy services for development of certain tunnels in Himachal Pradesh - Under contract, joint venture partners are jointly and severally liable to client for obligations and total payments are also to be made to joint venture - Whether since all partners of joint venture have joined for a common purpose on their own volition to produce income which is to be shared in certain ratio, joint venture constitutes an AOP in consonance with section 2(31) and is liable to be taxed as such - Held, yes FACTS The applicant, a foreign company of Austria, has formed a joint venture (J.V.) with two Indian companies. The joint venture is specialized in providing project consultancy services. HPRIDC has awarded a contract to the joint venture led by the applicant to provide consultancy services for the development of seven tunnels in Shimla as well as in other areas of Himachal Pradesh to carry out the implemention of the aforesaid work. The applicant, as per its averment, renders almost all services from Austria and it has no fixed place of business in India. On these facts, the applicant has sought advance ruling on question : whether joint venture can be treated as an association of persons in consonance with section 2(31), liable to be assessed as such under the Act. HELD PER RAO RANVIJAY SINGH, MEMBER The essentials of an association of persons (AOP) are the following : (i) Two or more persons; (ii) Voluntary combinations; (iii) A common purpose or common action with object to produce profits or gains. However, the object to produce profits or gains is no longer a sine qua non with the insertion of the Explanation in clause 31 to section 2; (iv) Combination in joint enterprise; (v) Some kind of scheme for common management. [Para 26] A close look into the various clauses of contract agreement as well as J.V. agreement reveals that all the…

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