1. A. (P.) Ltd. and B. (P.) Ltd. are two companies incorporated in Australia. They formed an association known as A&B for pursuing and carrying out various kinds of projects in India. The venture started functioning in India having secured a project in environment management and pollution control for four integrated steel plants and seventeen captive mines with an Indian company S Ltd. Apparently, this attempt was successful and the companies decided to continue the joint venture the broad terms of which were covered by an ‘umbrella’ agreement dated 1-9-1990 and the specific terms of which, in relation to each project, were to be governed by a project specific joint venture agreement (or ‘project specific JVA’).

2. Some of the terms of the ‘umbrella agreement’ are relevant and may first be referred to. Article 1 recorded the acknowledgement by the two companies that as and from 1-9-1988, they had constituted themselves together as a joint venture ‘for the purpose of bidding for and carrying out engineering projects in India’ in various fields enumerated in the preamble and provided that ‘neither party shall carry on its own separate business for its sole benefit in India without the prior written consent of the other’. Article 2 defined the percentage of participation and interest of each party in the assets, liabilities, costs, projects and losses of the joint venture to be equal subject to any modification by any project specific JVA. Article 3 outlined the conditions and manner of functioning of the projects. Article 4 provided for their execution under the supervision of a Joint Management Committee. Article 5, headed ‘Establishment and operations in India’ reads thus :

5.1 The joint venturers agree to establish a representative office in India to represent the interest of the joint venture.

5.2 The Management Committee of the joint venture shall prepare a business plan to investigate the viability for establishing an Indian company to pursue local currency work.

5.3 The joint venturers agree that after success in securing each specific project work in India, the Management Committee shall cause to be prepared a project specific JVA between joint venturers for the project. The project agreement shall include requirements of funding, apportionment and functions of project manager, project accounting, costs and expenses, apportionment of risks, responsibilities, profits and losses and such other details as may be considered necessary and appropriate between joint venturers. If in the negotiation of a project specific JVA, the parties cannot agree on apportionment of profits, then profits and losses shall be shared in the following proportions :

(a)A. (P.) Ltd.:50 per cent

(b)B. (P.) Ltd.:50 per cent

A representative office was set up in New Delhi under the terms of the agreement with the permission of the RBI under section 29(1)(a) of the Foreign Exchange Regulation Act, 1973 (FERA).

3. On 30-4-1994, the association as the applicant, along with three Indian Associates - Development Consultants Ltd., Calcutta, STUP Consultants Ltd., Calcutta, and A-B India (P.) Ltd., - entered into an agreement with the Port Trust of India under which the consortium is ‘to provide consultancy services’ necessary for the effective implementation of a project, drawn up by the Port Trust with the financial assistance from the Asian Deve-lopment Bank (ADB), for the creation of mechanised coal handling facilities at the Indian Port for handling thermal coal. The applicant, considering it prudent to obtain certain clarifications regarding its liabi-lities to tax and to tax deduction at source in respect of the payments made to it under the contract, has filed this application under section 245Q of the Income-tax Act, 1961 (‘the Act’). The application, filed originally on 8-10-1994, was defective in certain respects. The defect was rectified and a proper application filed on 3-1-1995. The questions, on which the ruling of the authority was sought, we