2015 (1) TMI 744 - AT - Income Tax

Liability to deduct TDS - assessees in the present case are joint ventures/consortiums - payments made to their constituent members on account of execution of contract work - AO treated assessee as the assessees in default under S.201(1) - Held that - There being no relationship of contractor and subcontractor between the assessee AOP/joint venture and its constituent members, tax at source was not required to be deducted from the payments made by the assessee AOP to its members, as per the provisions of S.194C(2), and consequently, there was no question of treating the assessees as in default under S.201(1). We therefore, uphold the impugned order of the learned CIT(A) and dismiss these appeals filed by the Revenue. - Decided in favour of assessee.

Summary

Issues Involved:
- Whether the assessees, which are joint ventures/consortiums, are required to deduct tax at source from the payments made to their constituent members on account of execution of contract work.

Issue-Wise Detailed Analysis:

1. Formation and Purpose of Joint Ventures/Consortiums:
The assessees in this case are joint ventures/consortiums formed by constituent members to pool their expertise and finances to bid for larger government contracts. The contracts were secured in the names of the joint ventures/consortiums, and the payments received from government agencies were transferred to the constituent members without deduction of tax at source. The joint ventures filed 'nil' returns of income, and the constituent members claimed credit for the tax deducted at source by the government agencies as per Rule 37BA(2) of the Income-tax Rules.

2. Survey and Findings by Assessing Officer:
A survey under S.133A was conducted, and the Assessing Officer concluded that payments made by the joint ventures to their constituent members were akin to payments made to sub-contractors. Consequently, the joint ventures were deemed liable to deduct tax at source under S.194C and were treated as assessees in default under S.201(1), with interest levied under S.201(1A).

3. Appeals and Tribunal Directions:
The assessees appealed against the Assessing Officer's orders, and the Tribunal initially upheld the orders but later remitted the matter back to the CIT(A) for fresh adjudication, directing consideration of decisions from the Visakhapatnam and Mumbai Benches of the Tribunal, which had ruled that joint ventures formed solely to procure contracts did not necessitate treating the JV as a contractor and its members as sub-contractors for TDS purposes.

4. Submissions by Assessees:
The assessees argued that the joint ventures were formed for executing government contracts requiring technical expertise and finances. The payments received were distributed among the constituents without any commission retained by the joint ventures, and there was no contract between the joint ventures and their constituents. They cited various case laws to support their claim that no TDS was deductible and that any TDS made was under protest due to the Assessing Officer's direction.

5. CIT(A) Findings:
The CIT(A) observed that government agencies dealt with the joint ventures as single entities. The joint ventures had previously deducted TDS from payments to constituents, and the annual accounts referred to constituents as 'sub-contractors.' However, the CIT(A) concluded that the joint ventures could not be treated as in default under S.201(1) as there was no contract between the joint ventures and their constituents, and the purpose of forming the joint ventures was to qualify for government contracts.

6. Revenue's Appeal and Assessee's Cross Objections:
The Revenue argued that agreements between the consortiums and their constituent members constituted works contracts under S.194C, necessitating TDS deduction. The assessees countered that the Tribunal had already directed the CIT(A) to consider similar cases where no contractor-subcontractor relationship was found, and the CIT(A)'s decision was consistent with these precedents.

7. Tribunal's Analysis and Decision:
The Tribunal analyzed the facts, agreements, and judicial precedents, including decisions in UAN Raju Constructions and SMC Ambika JV cases. It concluded that the joint ventures were formed to procure contracts, and the work was executed by the constituent members independently. The Tribunal upheld the CIT(A)'s finding that there was no contractor-subcontractor relationship, and thus, no TDS was required under S.194C. Consequently, the assessees were not in default under S.201(1), and no interest under S.201(1A) was chargeable.

Conclusion:
The appeals by the Revenue were dismissed, and the cross objections by the assessees were allowed, affirming that the assessees were not liable to deduct tax at source from payments made to their constituent members under S.194C, and no interest under S.201(1A) was applicable.