2016 (3) TMI 966 - AT - Income Tax

TDS u/s 194C - whether the assessee Joint Venture was in full control of the contract, responsible for its completion, submitting bills, receiving payments and making those payments to its members towards sub contract on which tax was deductible u/s.194C? - Held that - AOP status - Held that - As decided in the preceding assessment year in absence of any contract or sub-contract work by joint venture to its member companies, provisions of section 194C were not applicable for the purpose of TDS. The two corporate entities forming joint venture were already being assessed since A.Y. 2000-01 onwards on their respective shares and TDS apportionment certificates were also issued by the Assessing Officer every year for these eight years including the current assessment year to enable them to claim the same in their own cases. Moreover, there was no Profit and Loss Account in the assessee s case and there was no claim of any expenditure. Therefore, there was no question of any disallowance under the provisions of section 40(a)(ia) of the Act. Moreover, disallowance u/s. 40(a)(ia) made by the Assessing Officer cannot be sustained. In effect, the method adopted by the Assessing Officer will also result in double taxation of the same contract revenue which is in violation of case Commissioner Of Income-Tax Versus Manjunatha Motor Service And Canara Public Conveyances 1991 (6) TMI 23 - KARNATAKA High Court - Decided in favour of assessee

Summary

Issues Involved:
1. Applicability of Section 194C for TDS on payments made by a Joint Venture to its member companies.
2. Status of the Joint Venture as an AOP and its implications on taxability.
3. Consistency in the treatment of the Joint Venture's tax status over the years.

Issue-Wise Detailed Analysis:

1. Applicability of Section 194C for TDS:
The Revenue contended that the Commissioner of Income Tax (Appeals) erred in holding that Section 194C was not applicable for TDS purposes in the absence of any contract or subcontract work by the Joint Venture to its member companies. The Revenue argued that the work contract orders were issued in the Joint Venture's name, and payments were credited to its account, implying a subcontracting arrangement. However, the Tribunal found that the Joint Venture did not execute any contract work itself but was merely formed for obtaining contract work and distributing payments to its members based on their respective shares of work. The Tribunal cited previous decisions, including ITA No. 2121/PN/2012, where it was established that there was no contractor-subcontractor relationship between the Joint Venture and its members, and therefore, Section 194C was not applicable.

2. Status of the Joint Venture as an AOP:
The Revenue challenged the status of the Joint Venture as an Association of Persons (AOP) and argued that the Joint Venture should be taxed as an AOP, regardless of whether the share of profit was offered to tax in the hands of its members. The Tribunal noted that the Joint Venture had consistently filed returns as an AOP since the assessment year 2003-04, with income declared as NIL. The Tribunal upheld the CIT(A)'s finding that the Joint Venture's status as an AOP was not relevant for the applicability of Section 194C, as the Joint Venture did not retain any revenue and passed it entirely to its members. The Tribunal emphasized that the method adopted by the Joint Venture did not result in any profit or loss to the AOP itself, and the revenue was directly apportioned to the members.

3. Consistency in Treatment of Tax Status:
The Tribunal highlighted the principle of consistency, noting that the Department had accepted the Joint Venture's method of revenue sharing and issued tax apportionment certificates for several years. The Tribunal referenced the decision in the case of Gopal Purohit, where it was held that a consistent method adopted over the years should not be disturbed unless there were compelling reasons. The Tribunal found that the Revenue had not provided any new evidence or arguments to challenge the established practice. The Tribunal also referred to the decision in the case of Radhasoami Satsang, which emphasized that a consistent position should be maintained unless there were significant changes in circumstances.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that Section 194C was not applicable for TDS on payments made by the Joint Venture to its members. The Tribunal upheld the Joint Venture's status as an AOP and its consistent method of revenue sharing, which did not result in any profit or loss to the AOP itself. The Tribunal emphasized the importance of maintaining consistency in tax treatment over the years. The appeal filed by the Revenue was dismissed as devoid of merit.