Two foreign companies bid jointly for a turnkey contract and signed one contract with the customer. The department says they are an AOP. Are they?
Not merely because they presented a common face to the customer. An association of persons requires a common enterprise managed through some degree of joint participation; mere co-operation in serving one's own business objective is not enough, even where the business interests are common. Where the members' scopes of work are separate, each manages its own deliverables, and neither costs nor risks are shared, there is no AOP.
Decided by the High Court (Badar Durrez Ahmed J and Vibhu Bakhru J) on 2014-04-23, reported as W.P. (C) No. 3914/2012 and CM No. 8187/2012 (High Court of Delhi). It bears on section 2(31), section 245Q, section 197 of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
This is the leading Indian authority against the reflex AOP assessment of turnkey consortia, and it matters because the consequences of an AOP finding are severe: s.167B(2) charges the whole of the AOP's income at the maximum marginal rate where any member's own total income exceeds the basic exemption, and s.40(ba) disallows any interest, salary, bonus, commission or remuneration, by whatever name called, that the AOP pays a member. The judgment fixes the test on substance — joint participation in a common enterprise — and holds that how a third party deals with the consortium is relevant but not conclusive. Its limit is that the Court did not decide the offshore-supply question; it set aside the Authority's ruling and remanded, so the case is authority on the AOP test and nothing further.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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On 19 April 2007 ONGC Petro Additions Limited floated a tender inviting bids for the design, engineering, procurement, construction, installation, commissioning and handing over of the plant for the Dual Feed Cracker and Associated Units of the Dahej Petrochemical Complex, the project to be executed on a turnkey basis. Linde AG, Linde Engineering Division (Germany) and Samsung Engineering Company Ltd. (Korea) entered into a memorandum of understanding to form a consortium and submit a joint bid. The proposal was accepted and OPAL issued a Notification of Award on 23 December 2008, which was also fixed as the effective date, and OPAL and the consortium executed a definitive agreement on 10 February 2009. Linde applied under s.197 claiming that no tax need be withheld on amounts for offshore supplies and services performed outside India; the Assessing Officer rejected the application. Linde then applied to the Authority for Advance Rulings under s.245Q on whether Linde and Samsung constituted an association of persons and on the taxability of its receipts. By a ruling dated 20 March 2012 the Authority held that the consortium constituted an association of persons and that the amounts received or receivable by Linde for offshore supply of goods and services were taxable in India. Linde challenged that ruling under Articles 226 and 227. The agreement between the members provided that, except for presenting a common face and complying with the conditions imposed by OPAL, the members would conduct their business independently with no interference from the other; neither costs nor risks were shared and each managed its own deliverables.
The impugned ruling was set aside and the matter was remanded to the Authority for decision afresh in accordance with the views expressed in the judgment (para 103). Linde and Samsung did not constitute an association of persons: the facts did not indicate a sufficient degree of joint action between them either in execution or in management of the project, and the Authority erred in concluding that they had formed an AOP.
Unless the facts lead to a conclusion that there is sufficient joint participation for a common enterprise, it is not appropriate to treat two or more persons as an association of persons for the purpose of assessing them as a separate taxable entity; a common enterprise managed through some degree of joint participation is an essential condition, and mere co-operation of one person with another in serving one's own business objective is not enough merely because the business interests are common (para 35). How a third party deals with the members of a consortium is relevant but not conclusive, and here the agreement inter se showed that beyond presenting a common face and meeting the customer's conditions the members were to conduct their business independently (para 52). The members shared neither costs nor risks and each managed its own deliverables, so the degree of joint action in execution or management was insufficient (para 56). Where foreign companies form a consortium for coordinated execution of a turnkey project, their limited collaboration for coordination of inter-related tasks is not sufficient to constitute an association of persons under the Act (para 58).
A mere cooperation of one person with another in serving one's business objective would not be sufficient to constitute an Association of Persons merely because the business interests are common.
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Handle my notice → Ask a CA on WhatsAppNot merely because they presented a common face to the customer. An association of persons requires a common enterprise managed through some degree of joint participation; mere co-operation in serving one's own business objective is not enough, even where the business interests are common. Where the members' scopes of work are separate, each manages its own deliverables, and neither costs nor risks are shared, there is no AOP. This was decided by the High Court (Badar Durrez Ahmed J and Vibhu Bakhru J) and bears on section 2(31), section 245Q, section 197 of the Income Tax Act 1961. It is reported as W.P. (C) No. 3914/2012 and CM No. 8187/2012 (High Court of Delhi). This is the leading Indian authority against the reflex AOP assessment of turnkey consortia, and it matters because the consequences of an AOP finding are severe: s.167B(2) charges the whole of the AOP's income at the maximum marginal rate where any member's own total income exceeds the basic exemption, and s.40(ba) disallows any interest, salary, bonus, commission or remuneration, by whatever name called, that the AOP pays a member. The judgment fixes the test on substance — joint participation in a common enterprise — and holds that how a third party deals with the consortium is relevant but not conclusive. Its limit is that the Court did not decide the offshore-supply question; it set aside the Authority's ruling and remanded, so the case is authority on the AOP test and nothing further. If it applies to you, the first step is this: Build the file around the inter se agreement, not the contract with the customer. What carried this case was that the members had agreed to conduct their business independently except for presenting a common face and complying with the customer's conditions.
On 19 April 2007 ONGC Petro Additions Limited floated a tender inviting bids for the design, engineering, procurement, construction, installation, commissioning and handing over of the plant for the Dual Feed Cracker and Associated Units of the Dahej Petrochemical Complex, the project to be executed on a turnkey basis. Linde AG, Linde Engineering Division (Germany) and Samsung Engineering Company Ltd. (Korea) entered into a memorandum of understanding to form a consortium and submit a joint bid. The proposal was accepted and OPAL issued a Notification of Award on 23 December 2008, which was also fixed as the effective date, and OPAL and the consortium executed a definitive agreement on 10 February 2009. Linde applied under s.197 claiming that no tax need be withheld on amounts for offshore supplies and services performed outside India; the Assessing Officer rejected the application. Linde then applied to the Authority for Advance Rulings under s.245Q on whether Linde and Samsung constituted an association of persons and on the taxability of its receipts. By a ruling dated 20 March 2012 the Authority held that the consortium constituted an association of persons and that the amounts received or receivable by Linde for offshore supply of goods and services were taxable in India. Linde challenged that ruling under Articles 226 and 227. The agreement between the members provided that, except for presenting a common face and complying with the conditions imposed by OPAL, the members would conduct their business independently with no interference from the other; neither costs nor risks were shared and each managed its own deliverables. The matter was decided on 2014-04-23 by the High Court (Badar Durrez Ahmed J and Vibhu Bakhru J). On those facts the High Court held as follows. The impugned ruling was set aside and the matter was remanded to the Authority for decision afresh in accordance with the views expressed in the judgment (para 103). Linde and Samsung did not constitute an association of persons: the facts did not indicate a sufficient degree of joint action between them either in execution or in management of the project, and the Authority erred in concluding that they had formed an AOP.
Unless the facts lead to a conclusion that there is sufficient joint participation for a common enterprise, it is not appropriate to treat two or more persons as an association of persons for the purpose of assessing them as a separate taxable entity; a common enterprise managed through some degree of joint participation is an essential condition, and mere co-operation of one person with another in serving one's own business objective is not enough merely because the business interests are common (para 35). How a third party deals with the members of a consortium is relevant but not conclusive, and here the agreement inter se showed that beyond presenting a common face and meeting the customer's conditions the members were to conduct their business independently (para 52). The members shared neither costs nor risks and each managed its own deliverables, so the degree of joint action in execution or management was insufficient (para 56). Where foreign companies form a consortium for coordinated execution of a turnkey project, their limited collaboration for coordination of inter-related tasks is not sufficient to constitute an association of persons under the Act (para 58). In the words reproduced by the source cited on this page: "A mere cooperation of one person with another in serving one's business objective would not be sufficient to constitute an Association of Persons merely because the business interests are common."
It was decided by the High Court on 2014-04-23 and is reported as W.P. (C) No. 3914/2012 and CM No. 8187/2012 (High Court of Delhi). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 2(31), section 245Q, section 197, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The impugned ruling was set aside and the matter was remanded to the Authority for decision afresh in accordance with the views expressed in the judgment (para 103). Linde and Samsung did not constitute an association of persons: the facts did not indicate a sufficient degree of joint action between them either in execution or in management of the project, and the Authority erred in concluding that they had formed an AOP. It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 2(31), section 245Q, section 197 of the Income Tax Act 1961, and was decided by Badar Durrez Ahmed J and Vibhu Bakhru J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Demonstrate the absence of the three things the Court looked for: shared costs, shared risks and joint management of deliverables. Do not concede the point merely because the customer insisted on joint and several liability or a single contract; that is relevant but not conclusive. Where the project is a coordinated turnkey execution by several foreign companies, cite para 58 — limited collaboration for coordination of inter-related tasks is not enough to constitute an AOP — but note that the departmental instruction underlying para 58 (CBDT Instruction No. 1829 of 21 September 1989) was withdrawn by Instruction No. 5 of 20 July 2009 and the Court refused to apply it as such; para 58 adopts its reasoning, not its authority. Keep the AOP question separate from the taxability of offshore supply; the second was remanded here and is decided on its own footing.
Still good law. A citedby search returns 9 later decisions, four of them from High Courts. The Delhi High Court applied it in CIT-XIII v Oriental Structural Engineers Pvt Ltd (10 February 2015): at para 10 the Bench held the Revenue's argument 'stands covered by a decision of a Division Bench ... i.e. Linde AG, Linde Engineering Division', set out its analysis of what an association of persons requires - common purpose, common action, common management - and at para 11 decided on that basis: 'applying the principles of the law declared in Linde AG, Linde Engineering division and Anr, it is held that the ITAT did not fall into error of law, in holding that the JV was not an association of persons', dismissing the Revenue's appeal, the joint venture having been formed only to secure the contract with the work split between the partners. The same Court had already treated it as displacing an Authority for Advance Rulings ruling in CTCI Overseas Corporation Ltd v DIT-I (20 May 2014) - 'The above conclusion of the Authority for Advance Rulings cannot now stand in view of our decision in the case of Linde AG' - and the Karnataka High Court drew on it on consortium status in Macawber Beekay Pvt Ltd v BHEL (27 July 2023). Nothing overruling, doubting or confining it was found and no contrary High Court view was found. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Only parts of this judgment have been read verbatim. Paragraphs 1 to 6 are not reproduced here; the facts stated below rest on paragraphs 4.1, 4.3 and 4.4 together with the cause title. Paragraphs 35, 56 and 58, and the disposal at paragraph 103, are given in the Court's own words. A passage from paragraph 52 was discarded because it could not be set out without an ellipsis, and nothing is attributed to it. The instruction referred to at paragraph 58 is identified at paragraph 57 as CBDT Instruction No. 1829 dated 21 September 1989, on power projects executed by a consortium of companies on a turnkey basis. The Court recorded that it had been withdrawn by Instruction No. 5 dated 20 July 2009 and rejected the contention that it still governed because the contract pre-dated the withdrawal, holding that a circular applies by reference to the assessment years in which it was in force. Paragraph 58 then says that although the instruction does not strictly apply, it does indicate the correct understanding in law. That is a careful formulation and should be quoted as it stands: the Court did not hold the instruction binding, and an argument resting on the instruction alone rests on something the Court treated as withdrawn. Two points on the reach of the decision. It arose out of an advance ruling and a petition against it: the ruling was set aside and the matter remanded to the Authority under s.245Q for fresh decision, so the case decides the association-of-persons question and settles nothing else between the parties. The offshore supply question was left to the Authority, and this entry says nothing about it. And the test applied is a test on facts. What the Court holds is that there must be a sufficient degree of joint action in execution or in management before two persons become an association of persons within s.2(31), and that presenting a common face to the customer is relevant but not conclusive. Whether a particular consortium crosses that line depends on the scope-of-work split, the management of deliverables and the sharing of costs and risks, each of which has to be shown from the documents. An application under s.197 made on the strength of this judgment will be decided on those documents and not on the citation, and a bare reliance on the case name is the commonest way of losing the point. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The impugned ruling was set aside and the matter was remanded to the Authority for decision afresh in accordance with the views expressed in the judgment (para 103). Linde and Samsung did not constitute an association of persons: the facts did not indicate a sufficient degree of joint action between them either in execution or in management of the project, and the Authority erred in concluding that they had formed an AOP.
TaxSphere, “Linde AG, Linde Engineering Division v DDIT”, https://taxnotice.vittsphere.com/caselaw/case/linde-ag-v-ddit-consortium-not-an-aop/ (validity last checked 2026-09-08)
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