Association of persons: transparency at last

An unincorporated joint venture, commonly referred to as a consortium, is a creation of contract and has no separate legal existence. Parties to a consortium typically create rights and obligations through a consortium agreement that defines the roles of the members of the consortium.

Infrastructure ventures

For infrastructure projects, entities come together to form consortiums to bring different skill sets together or in order to meet the eligibility criteria set out by tender documents such as net worth, technical capabilities, experience of similar projects, O&M experience, etc.

A problem with consortiums has been that they are often held to be ‘association of persons’ (AoP), a term which is used in the Income Tax Act, 1961, but has not been defined. What constitutes an AoP has been surrounded in uncertainty, but a recent ruling of the Authority of Advanced Rulings (AAR) in M/s Hyundai Rotem Company, Korea and Another v DIT has substantially clarified this grey area in the Income Tax Act.

Akshay Jaitly is a partner and Amar Narula is an associate at the Delhi office of Trilegal. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad. The firm has over 120 lawyers, some of whom have experience with law firms in the US, the UK and Japan.