2012 (10) TMI 1081 - AT - Income Tax

Summary

Issues Involved:

1. Status of the Assessee
2. Taxability of Income in the Status of AOP
3. Preparation of Profit & Loss Account and Balance Sheet
4. Re-allocation of Contracts and Sub-contracting
5. Applicability of TDS Provisions u/s 194C
6. Control and Responsibility of the Contract
7. Landmark Judgement of Ch. Achaiah
8. Judgement of Authority for Advance Rulings in Geoconsultant ZT GMBH
9. TDS Apportionment Certificates
10. Sub-contracting and Legal Entity Status

Summary:

1. Status of the Assessee:
The Tribunal noted that the status of the assessee was consistently shown as an AOP in the returns filed manually until A.Y. 2006-07. The error in status appearing as 'firm' in electronic filings from A.Y. 2007-08 was attributed to a computer error. The CIT(A) found that the status was correctly shown as AOP and deemed it not relevant for the applicability of section 194C.

2. Taxability of Income in the Status of AOP:
The Tribunal observed that the joint venture did not execute any contract work but was formed for obtaining contract work and receiving payments, which were immediately distributed among members. The CIT(A) held that there was no income attributable to the AOP, and thus, no taxability arose in its hands.

3. Preparation of Profit & Loss Account and Balance Sheet:
The Tribunal noted that the joint venture did not prepare a Profit & Loss account as there was no profit or loss to the assessee per se. The contract account and Balance Sheet only reflected the apportionment of contract receipts, assets, and liabilities between the members.

4. Re-allocation of Contracts and Sub-contracting:
The Tribunal found that there was no relationship of contractor and sub-contractor between the joint venture and its members. The entire gross revenue along with TDS was passed to the members, negating the applicability of TDS provisions u/s 194C.

5. Applicability of TDS Provisions u/s 194C:
The Tribunal upheld the CIT(A)'s finding that the provisions of section 194C were not applicable as there was no contract or sub-contract work by the joint venture to its member companies. The revenue sharing was on a principal-to-principal basis, not a principal-agent basis.

6. Control and Responsibility of the Contract:
The Tribunal noted that the joint venture acted merely as a conduit for distributing receipts among its members and did not retain any share of the revenue. The CIT(A) found that the joint venture was not in full control of the contract, and thus, the provisions of section 40(a)(ia) were not applicable.

7. Landmark Judgement of Ch. Achaiah:
The Tribunal considered the Supreme Court's decision in Ch. Achaiah, which held that if the share of profit is determined in the joint venture agreement, it cannot be anything but an AOP. However, the Tribunal found that this case did not apply as there was no profit or loss in the hands of the AOP.

8. Judgement of Authority for Advance Rulings in Geoconsultant ZT GMBH:
The Tribunal referred to the AAR's decision in Geoconsultant ZT GMBH, which followed the Supreme Court's decision in Ch. Achaiah. The Tribunal found that the facts of the present case were similar, and thus, the CIT(A)'s decision was upheld.

9. TDS Apportionment Certificates:
The Tribunal noted that the Assessing Officer had issued TDS apportionment certificates every year, enabling the members to claim TDS credits in their respective cases. This indicated that the Assessing Officer had accepted the revenue-sharing arrangement.

10. Sub-contracting and Legal Entity Status:
The Tribunal upheld the CIT(A)'s finding that the joint venture was a separate legal entity and that there was no sub-contracting involved. The revenue was taxed in the hands of the members, and there was no disallowance u/s 40(a)(ia).

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, upholding the CIT(A)'s decision that there was no question of disallowance made u/s 40(a)(ia) of the Act in all these cases. The appeals filed by the Revenue were dismissed.