2013 (12) TMI 1576 - AT - Income Tax

Income attributable on contract receipts - There is no question of disallowance made under sec. 40(a)(ia) of IT Act in this case.

Summary

Issues Involved:
1. Status of the assessee as an AOP or firm.
2. Preparation of Profit & Loss account and Balance Sheet by the assessee.
3. Allocation of contract work and payments among members.
4. Applicability of TDS provisions under section 194C.
5. Re-allocation of contracts and its classification as sub-contracting.
6. Control and responsibility of the assessee over the contract.
7. Applicability of the Supreme Court judgment in the case of Ch. Achaiah.
8. Differentiation from the case of Geoconsultant ZT GMBH.

Issue-wise Detailed Analysis:

1. Status of the Assessee:
The Assessing Officer (AO) initially mentioned the status of the assessee as a firm, but the assessee clarified that the status was an Association of Persons (AOP) as reflected in the returns filed manually till A.Y. 2006-07. The error in electronic filing from A.Y. 2007-08 was due to a computer glitch. The CIT(A) confirmed the status as AOP, noting that the status was consistently shown as AOP in the computation of total income and PAN application forms.

2. Preparation of Profit & Loss Account and Balance Sheet:
The assessee argued that the joint venture did not execute any contract work itself but was formed to obtain contract work and distribute payments among members based on their share of work done. The contract account and Balance Sheet of the joint venture showed only the apportionment of contract receipts, assets, and liabilities between members, without booking any expenditure or preparing a Profit & Loss Account. The CIT(A) accepted this explanation, noting that no profit or loss arose to the assessee per se.

3. Allocation of Contract Work and Payments:
The joint venture allocated the contract work and corresponding payments to its members in the ratio of the work done. The CIT(A) observed that the joint venture transferred the gross revenue and corresponding TDS to its members, who accounted for the revenue in their respective returns. The CIT(A) found no relationship of contractor and subcontractor between the joint venture and its members, negating the applicability of TDS provisions under section 194C.

4. Applicability of TDS Provisions under Section 194C:
The CIT(A) held that there was no applicability of TDS provisions under section 194C as the joint venture did not retain any share in the revenue and passed the entire gross revenue along with TDS to its members. The CIT(A) noted that the Department had issued tax apportionment certificates every year to enable the members to claim TDS credits in their respective cases.

5. Re-allocation of Contracts and Classification as Sub-contracting:
The CIT(A) rejected the AO's view that the re-allocation of contracts among members amounted to sub-contracting. The CIT(A) distinguished between revenue sharing and sub-contracting, noting that in revenue sharing, there was no principal-agent relationship, and the joint venture did not retain any share in the revenue.

6. Control and Responsibility of the Assessee over the Contract:
The CIT(A) found that the joint venture acted as a conduit between the contractee and its members, with no control over the execution of the contract work. The CIT(A) noted that the joint venture's role was limited to receiving payments and distributing them among members based on their work share.

7. Applicability of the Supreme Court Judgment in the Case of Ch. Achaiah:
The CIT(A) distinguished the present case from the Supreme Court judgment in Ch. Achaiah, noting that the joint venture did not execute any contract work itself and did not retain any share in the revenue. The CIT(A) held that the AO's reliance on the Ch. Achaiah judgment was misplaced.

8. Differentiation from the Case of Geoconsultant ZT GMBH:
The CIT(A) accepted the assessee's stand that the facts of the present case were distinguishable from the case of Geoconsultant ZT GMBH, where the joint venture was held to be an AOP. The CIT(A) noted that in the present case, the joint venture did not execute any contract work and acted only as a conduit for distributing payments among members.

Conclusion:
The appeal filed by the revenue was dismissed, with the CIT(A)'s findings upheld. The CIT(A) rightly held that there was no question of disallowance under section 40(a)(ia) of the Income-tax Act, 1961, in this case. The Tribunal found no reason to interfere with the CIT(A)'s order, following the reasoning in the assessee's own case for A.Y. 2008-09 and similar cases decided by the ITAT Pune Bench.