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2015 (5) TMI 1247 - AT - Income TaxTDS u/s 194C - Joint Venture responsibility to deduct the TDS on the payments made to its constituents for the work executed by them assessee has given a sub-contract to its constituents - assessee was required to deduct TDS on the payments - AO has held the assessee to be in default u/s.201(1) - HELD THAT - As undisputed fact that the deductee has already paid the taxes on the payments received from the JV. Since the tax has been paid on the receipts by the deductee the deductor cannot be held to be assessee in default. In this regard a reference was made to the orders of the Tribunal in case of Raja Chkravarty 2015 (8) TMI 753 - ITAT LUCKNOW and Rajeev Kumar Agarwal 2014 (6) TMI 79 - ITAT AGRA in which it has been held that once the deductee has made the payment of taxes on the receipts the deductor cannot be held to be assessee in default. Therefore on both counts the assessee cannot be held to be in default u/s. 201(1) of the Act. Interest charged u/s. 201(1A) cannot be charged once it is held that there is no liability to deduct the TDS on the payments made by the assessee to its constituents. It is irrelevant that in few assessment years the assessee has deducted the TDS on payments made to its constituents. If the assessee has done something wrong it does not make him responsible to commit mistake in succeeding years Joint Venture is not responsible to deduct the TDS on the payments made to its constituents for the work executed by them in the light of the facts where the Joint Venture was formed to obtain the contract from the Government and the contract was executed by the constituents. We therefore of the view in the instant case that the assessee was not liable to deduct the TDS therefore he cannot be held to be in default and liable to be charged interest u/s. 201(1A) - Appeals of the assessee are allowed.
Issues Involved:
1. Legality and authority of the orders of the forums below. 2. Applicability of Section 194C of the Income Tax Act, 1961. 3. Relationship between the Joint Venture and its constituents. 4. Sub-contracting and TDS (Tax Deducted at Source) obligations. 5. Precedents and judicial interpretations of similar cases. 6. Protection of revenue interest and credit of TDS. Detailed Analysis: 1. Legality and Authority of the Orders: The assessee contended that the orders of the lower forums were "illegal, arbitrary, perfunctory and not sustainable in the eye of law." The assessee argued that the forums below lacked the authority and sanction of the Income Tax Act, 1961, particularly in applying Section 194C to the transactions between the appellant and its co-venturors. 2. Applicability of Section 194C: The primary controversy was regarding the liability of deduction of TDS on payments made to the constituents of the Joint Venture (JV). The Assessing Officer (AO) held that the JV was required to deduct TDS on the payments made to its constituents as per Section 194C of the Act, treating the payments as sub-contracts. The assessee argued that there was no subletting of contracts and the transactions were merely transfers of funds based on equity participation. 3. Relationship Between the Joint Venture and Its Constituents: The assessee argued that the relationship between the JV and its constituents was not that of "Contractor-Contractee" or "Main Contractor-Sub Contractor." The Tribunal examined the nature of the JV, which was formed by M/s Harish Chandra (India) Ltd. and P.T. Adhikarya Persero to obtain a contract from Rail Vikas Nigam Ltd. (RVNL). The Tribunal found that the JV was formed only to procure the contract and the actual execution was done by the constituents. 4. Sub-Contracting and TDS Obligations: The Tribunal referred to the Visakhapatnam Bench's decision in the case of UAN Raju Constructions, which held that there was no subletting of the contract by the JV to its constituents. The Tribunal concluded that since the contract was executed by the constituents and not sublet, there was no liability for the JV to deduct TDS under Section 194C. 5. Precedents and Judicial Interpretations: The Tribunal relied on several precedents, including the Hyderabad Bench's decision in M/s Hindustan Ratna JV and the Agra Bench's decision in Rajeev Kumar Agarwal vs. ADCIT. These cases supported the view that a JV formed to procure contracts, where the execution is done by the constituents, does not create a sub-contracting relationship requiring TDS deduction. 6. Protection of Revenue Interest and Credit of TDS: The Tribunal noted that the deductee had already paid taxes on the receipts, thus protecting the revenue's interest. It was held that once the deductee has paid the taxes, the deductor cannot be held to be in default under Section 201(1). Consequently, the interest charged under Section 201(1A) was also not applicable. Conclusion: The Tribunal set aside the orders of the CIT(A) and held that the assessee was not liable to deduct TDS on payments made to its constituents. The assessee was not deemed to be in default under Section 201(1) and was not liable for interest under Section 201(1A). The appeals of the assessee were allowed. Order Pronounced: The order was pronounced in the open court on 21/05/2015.
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