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2012 (11) TMI 1149 - AT - Income TaxAppellant being an AOP/JV liability to deduct tax at source from the payments made to the constituent partners - Held that - Disallowance u/s 40(a)(i) is only to the extent of the amount outstanding as on the last day of the previous year and amounts which have been paid during the previous year cannot be disallowed for non deduction of TDS. Non- deduction of tax and consequent disallowance for the payments made to M/s. Sino Hydro Corporation, China - Held that - It has to be verified whether the Chinese concern has offered this income for tax in India. If the Chinese concern has not filed income Tax return and offered this amount as part of their income in computing their taxable income, the same shall be assessed as income of the assessee, as the person responsible for making the payment to the Non Resident. If the Chinese constituent has not offered this amount as part of their taxable income in india, the AO may take suitable action for bringing the amount to tax in accordance with provisions of the Act.
Issues Involved:
1. Liability of the appellant (AOP/JV) to deduct tax at source from payments made to constituent partners. 2. Recasting of the Profit & Loss account by the Assessing Officer (AO). 3. Disallowance of payments due to non-deduction of TDS. 4. Nature of payments: whether they are investments or payments for works executed. Issue-wise Detailed Analysis: 1. Liability to Deduct Tax at Source: The main issue was whether the appellant, an AOP/JV, was liable to deduct tax at source from payments made to its constituent partners. The AO relied on the decision of the ITAT Hyderabad in the case of KCT-PES JV Vs. ITO, which held that the appellant was liable to deduct tax as per section 194C(2) of the IT Act. Despite a different view taken by the ITAT Mumbai in another case, the CIT(A) followed the jurisdictional Tribunal's decision against the assessee, confirming the appellant's liability to deduct tax at source. However, the ITAT noted that the joint venture was formed only to obtain contracts, and the work was executed by the constituents. The ITAT concluded that in such cases, the AOP does not give works contracts to the constituents, and thus, there is no requirement for the AOP to deduct tax at source. 2. Recasting of Profit & Loss Account: The AO recast the P&L account by including the total contract value and deducting the amounts allocated to the constituents. The ITAT held that the AO erred in recasting the P&L of the AOP to include works directly taken up by the constituents. The ITAT emphasized that the constituents had offered the income from their portion of the project for tax, which was accepted by the Department. Therefore, the entirety of the receipts could not be taxed in the hands of the Consortium. 3. Disallowance of Payments Due to Non-Deduction of TDS: The AO disallowed certain payments on the grounds of non-deduction of TDS. The ITAT referred to the decision of the Calcutta High Court in CIT v Virgin Creations, which allowed TDS paid before the due date for filing the Income Return. Additionally, the ITAT cited the Special Bench of ITAT Vishakapatnam in Merilyn Shipping & Transports, which held that disallowance under section 40(a)(i) applies only to amounts outstanding at the end of the previous year. Consequently, the ITAT deleted the disallowance of Rs. 2,71,38,750/- for payments made to Sino Hydro Corporation, China, subject to verification that the Chinese concern had offered this income for tax in India. 4. Nature of Payments: The CIT(A) had set aside the issue regarding the nature of payments (whether they were investments or payments for works executed) to the AO for re-examination. The ITAT directed the AO to redo this issue in accordance with the law and after giving the assessee a reasonable opportunity to explain their case. Conclusion: The ITAT partly allowed the assessee's appeal for statistical purposes and restored the revenue's appeal to the AO for re-examination in light of the ITAT's conclusions. The ITAT emphasized that the profits from the JV should be offered by the respective constituents and that the AO cannot tax the entirety of the receipts in the hands of the Consortium. The ITAT also highlighted that there should be no disallowance for non-deduction of TDS if the income has been offered for tax by the constituents.
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