2016 (6) TMI 40 - AT - Income Tax

Assessment as AOP - whether the consortium is to be taxed as an AOP or Individual members are to be taxed separately? - Held that - We have examined the Joint venture agreement dated 17th December 2002. On reading of clause no .4 5,8,10,11,16 especially and on conjoint reading of other clauses of the agreement its is apparent that each of the members is responsible for its own part of the contract execution, will take away gross receipt and incurred expenditure for the execution of project relating to his part and earn profit or loss accordingly. The control and management of consortium rests with individual consortium members with respect to their work and for the coordination purposes one Lead party Persys SDN. BHD. Is nominated for coordination with DMRC. Therefore, it satisfies all the four conditions mentioned in para no 3 of the circular NO.7/2016. Ld. DR could not point out any clause of the agreement, which does not satisfy any of the above four conditions of the circular. Further by the circular stated above revenue has also reiterated salient features of what would constitute and AOP and held that if the above four conditions are satisfied than the consortium arrangement shall not be treated as an AOP but individual members will be taxed separately. Thus considering the terms and conditions between the parties are squarely falling within the conditions specified in para no 3 of the above circular. Therefore, we confirm the finding of the ld. CIT (A) that income arising from the DMRC contract was not assessable to tax in the hands of AOP but each member of the AOP shall be separately assessable to income tax in their own capacity.

Summary

Issues:
- Assessment of appellant as an Association of Person (AOP) or individual members for the Assessment Years 2004-05 to 2008-09.

Analysis:
1. Assessment as AOP: The primary issue revolved around whether the appellant, an unincorporated Joint Venture (JV) between two entities, should be assessed as an AOP or if the individual members should be taxed separately. The appellant contended that they were not an AOP based on the nature of their agreement and the roles of each member in executing the project. The Assessing Officer (AO) initially assessed the appellant as an AOP.

2. CIT (A) Decision: The CIT (A) analyzed the agreement and relevant case laws to determine that there was no intention to create a partnership among the JV members. Based on precedents like Van OORD ACZ BV and Hyundai Rotem Co, the CIT (A) concluded that each member was responsible for their specified work, expenses, and profits, indicating no profit-sharing arrangement. Consequently, the CIT (A) ruled in favor of assessing each member separately, not as an AOP.

3. CBDT Circular: During the appeal, the appellant cited Circular No. 7/2016 issued by the CBDT, which provided guidelines on consortium arrangements for large projects. The circular outlined conditions where a consortium should not be treated as an AOP, emphasizing individual responsibility, profit/loss based on work performance, and separate control and management by consortium members.

4. ITAT Decision: The ITAT examined the Joint Venture Agreement and found that each member was independently responsible for their part of the project, including revenue and expenses. The agreement's clauses aligned with the conditions specified in the CBDT circular, indicating no AOP status. Consequently, the ITAT upheld the CIT (A) decision to tax individual members separately, dismissing the revenue's appeal for the Assessment Years 2004-05 to 2008-09.

In conclusion, the judgment clarified the tax treatment of consortium arrangements like JVs, emphasizing individual member accountability and distinct roles in project execution. The decision aligned with the CBDT circular's guidelines, ensuring consistency and avoiding tax disputes in such cases.