2014 (2) TMI 510 - AT - Income Tax

Liability to deduct TDS u/s 194C of the Act - Disallowance under section 40(a)(ia) of the Act - Can a distinction between joint ventures formed for the purpose of obtaining a contract and other Joint Ventures be made Liability for tax and interest u/s 201(1) and 201(1A) of the Act - Held that - If the Joint Venture has not executed the work and the entire work has been executed by the constituents on a back to back basis and the contract amount received by the Joint Venture was entirely transferred to the constituents of the Joint Venture without retaining any amount towards profit, then there may not be any liability on the assessee to deduct tax at source. Where Joint Venture is formed only for the purpose of obtaining contracts and specific portions of the contract are to be completed by individual constituents independently, then it cannot be a case of the Joint Venture giving works contract to the constituents - the profit of the project in such a case should be assessed in the hands of the individual constituents and not in the hands of the consortium AOP - The entire work was executed by the constituents and the Joint Venture has paid the entire contract receipts received by it from the contractee to the constituents without retaining any portion of the profit by whatever name it may be called - the matter remitted back to the AO for fresh adjudication Decided in favour of Revenue.

Summary

Issues involved:
1. Interpretation of provisions under section 194C of the Income Tax Act regarding tax deduction at source for Joint Ventures.
2. Determination of liability to deduct TDS for Joint Ventures formed for obtaining contracts.

Analysis:
1. The appeals were filed by the department against separate orders of the CIT(A)-II, Hyderabad for assessment years 2005-06 to 2007-2008 and 2009-2010, involving common issues. The department questioned the correctness of the CIT(A) in distinguishing between Joint Ventures formed for obtaining a contract and other Joint Ventures, and in concluding that Joint Ventures formed for obtaining a contract have no liability to deduct TDS. The facts in the case pertained to a Joint Venture engaged in civil contract work, where the Assessing Officer found TDS not deducted on advances paid to constituents. The CIT(A) allowed the appeal based on a previous decision by the ITAT, holding no liability to deduct TDS for payments made to constituents.

2. The Tribunal analyzed the facts and previous decisions to determine liability for TDS deduction. It was established that the Joint Venture was formed solely to obtain contracts, with constituents executing the work independently. The Tribunal emphasized that if constituents execute the work without the Joint Venture retaining any profit, there may be no TDS liability. Citing previous decisions, the Tribunal reiterated that in such cases, the profit should be assessed in the hands of individual constituents, not the Joint Venture. However, the Tribunal noted the need for the assessee to prove that the Joint Venture did not execute the work and did not retain any profit. As conclusive evidence was lacking, the Assessing Officer was directed to verify bank accounts to ascertain if the entire contract amount was passed on to constituents without retaining profit.

3. The Tribunal allowed the Revenue's appeal for statistical purposes, directing verification of bank accounts to determine TDS liability. The decision in one appeal was applied to others with identical facts, remitting the matter to the Assessing Officer for further examination. The Tribunal emphasized the importance of verifying if the Joint Venture passed on the entire contract amount to constituents to decide on TDS liability. The appeals of the Revenue were allowed for statistical purposes, maintaining consistency with the decision in the initial appeal.

This detailed analysis of the judgment highlights the interpretation of provisions under section 194C and the determination of TDS liability for Joint Ventures formed for obtaining contracts, providing a comprehensive understanding of the legal issues involved.