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2011 (7) TMI 1165 - AT - Income TaxDeduction of TDS as per Section 194C(2) - Two member companies of an AOP entered into a JV, for a project - Only duty entrusted to the AOP was filing of tender regarding such project - After getting the contract these two member companies executed the contract, accordingly, the amount received was shared by them - CIT(A) invoked Sec 194C(2) regarding such amount. HELD THAT - While considering the case laws mentioned by Assessee, we observe that, in the case of COMMISSIONER OF INCOME TAX VERSUS. M/S. AMBUJA DARLA KASHLOG MANGU TRANSPORT CO. OP. SOCIETY OTHERS 2009 (10) TMI 558 - HIMACHAL PRADESH HIGH COURT , the Hon'ble Himachal Pradesh High Court has held that the society is nothing but collective name for the members. The contract entered by the society is for the benefit of the constituent members and there is no contract between its members and society, hence, sec. 194C(2) has no application. In the present case, the assessee is a AOP of its partners (members) and the role of the AOP is only to secure the contract for the benefit of the members. There was no contract or sub-contract in between them. Also, the other case referred by Assessee, DATTA DIGAMBAR SAHAKARI KAMGAR SANSTHA LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX 2000 (9) TMI 250 - ITAT PUNE is taken into consideration. In view of our specific finding that there is no contract or subcontract has existed in between the assessee and its JV partners and following the above judicial precedents, the learned CIT(A) was not justified in invoking section 194C(2) to the assessee's case. We, therefore, set aside the order passed by the CIT(A) and appeal filed by the assessee is allowed.
Issues Involved:
1. Whether the assessee AOP (Association of Persons) was required to deduct TDS under section 194C(2) of the Income Tax Act, 1961, on payments made to its joint venture partners. 2. Whether there was a contract or sub-contract relationship between the assessee AOP and its joint venture partners. Issue-wise Detailed Analysis: 1. Requirement to Deduct TDS under Section 194C(2): The Assessing Officer (AO) observed that the assessee, an AOP formed by M/s SMC Infrastructure Pvt Ltd. and M/s Ambika Enterprises, received contract receipts from the Thane Municipal Corporation (TMC) amounting to Rs. 20,097,075/-. The AO noted that the AOP credited these receipts to its profit and loss account and subsequently transferred the amounts to the JV partners without deducting TDS, as required under section 194C(2). Consequently, the AO disallowed the expenses under section 40(a)(ia) of the Income Tax Act, 1961. The CIT(A) upheld the AO's decision, stating that the AOP subcontracted the work to its JV partners and was therefore obligated to deduct TDS on payments made to them. 2. Existence of Contract or Sub-contract Relationship: The assessee argued that the AOP was merely a collective entity formed to secure the contract from TMC for the benefit of its members, and there was no contract or sub-contract between the AOP and its JV partners. The assessee cited several judicial precedents, including CIT vs. ESS Kay Construction Co. and CIT vs. Ambuja Darla Kashlog Mangu Transport Co-op. Society, to support its claim that no TDS was required as there was no subcontracting involved. The Tribunal examined the facts and noted that the AOP did not retain any commission or profit from the contract receipts. The AOP's role was limited to filing the tender and securing the contract, while the actual work was executed by the JV partners. The Tribunal found no contractual relationship between the AOP and its JV partners that would necessitate TDS deduction under section 194C(2). Judicial Precedents: The Tribunal relied on the case of CIT vs. ESS Kay Construction Co., where the Punjab and Haryana High Court held that section 194C(2) was not applicable in the absence of a contract between the assessee and its sister concerns. Similarly, in CIT vs. Ambuja Darla Kashlog Mangu Transport Co-op. Society, the Himachal Pradesh High Court ruled that a society formed by transporters to secure contracts for its members did not constitute a subcontracting arrangement requiring TDS deduction under section 194C(2). The Tribunal also referred to the ITAT Pune Bench's decision in Datta Digamber Sahakari Kamgar Sanstha Ltd., which held that no TDS was required under section 194C(2) as there was no subcontract between the assessee society and its members. Conclusion: The Tribunal concluded that there was no contract or subcontract relationship between the assessee AOP and its JV partners. Therefore, section 194C(2) was not applicable, and the assessee was not required to deduct TDS on payments made to its JV partners. The Tribunal set aside the order of the CIT(A) and allowed the appeal filed by the assessee. Order Pronouncement: The appeal of the assessee was allowed, and the order was pronounced in the open court on 29.7.2011.
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