2014 (12) TMI 313 - AT - Income Tax

Status of the assessee firm or AOP - error while filing return - joint venture between Gammon India Ltd., and Progressive Constructions Ltd. - Held that - The assessee has made it clear that the status in which the returns was filed was that of an AOP - when electronic filing had to be done, due to computer error the status appeared as firm on the ITR acknowledgement,whereas in the computation of total income, it was correctly mentioned as AOP - assessee has also filed computation of total income along with acknowledgements from A.Y. 2002-03 to A.Y. 2006-07 in which the status was regularly shown as AOP and even in the application form for allotment of PAN it was shown as AOP, each of the two parties has agreed to bear its own loss or retain its own profit separately - Both have agreed to execute the job together for better co-operation in their relationship with the Chennai Port Trust - If the cost incurred by the HCC or the applicant was more than their income, each party will have to bear its loss without any adjustment from the other party - the applicant and HCC cannot be treated as an AOP for the purpose of levy of income-tax - The applicant will be liable to be taxed as a separate and independent entity. Disallowance of contract receipts u/s 40(a)(ia) Held that - CIT(A) was justified in holding that 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 AO every year for these eight years including the current assessment year to enable them to claim the same - there was no Profit and Loss Account in the assessee s case and there was no claim of any expenditure - there was no question of any disallowance under the provisions of section 40(a)(ia) - disallowance u/s. 40(a)(ia) made by the AO cannot be sustained - the finding of the CIT(A) cannot be interfered who has rightly held that there is no question of disallowance made u/s. 40(a)(ia) of the Act Decided against revenue.

Issues Involved:
1. Status of the assessee as an Association of Persons (AOP) or firm.
2. Applicability of section 194C regarding Tax Deducted at Source (TDS) on subcontract payments.
3. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.
4. Consistency in the method of revenue sharing and its acceptance in previous assessment years.
5. Double taxation concerns.

Issue-wise Detailed Analysis:

1. Status of the Assessee:
The primary issue was whether the assessee should be considered as an AOP or a firm. The Assessing Officer (AO) initially treated the entity as a firm, but the assessee clarified that the returns were filed under the status of an AOP. The error in status was attributed to a computer error during electronic filing. The CIT(A) found that the status was consistently shown as AOP in manual returns and in the application for a Permanent Account Number (PAN). The CIT(A) concluded that the status as AOP was not relevant for the applicability of section 194C since TDS provisions apply to all entities except individuals and HUFs below the prescribed limit.

2. Applicability of Section 194C:
The AO contended that the assessee should have deducted TDS under section 194C on the payments made to its members, treating them as subcontractors. The assessee argued that the joint venture did not execute any contract work but was formed to obtain contracts and distribute payments among its members based on their share of work. The CIT(A) accepted the assessee's explanation that there was no contractor-subcontractor relationship, and thus, section 194C was not applicable. The revenue sharing was on a principal-to-principal basis, and the joint venture did not retain any revenue or TDS.

3. Disallowance under Section 40(a)(ia):
The AO disallowed an amount of Rs. 4,12,49,749 under section 40(a)(ia) for not deducting TDS. The CIT(A) found that the joint venture merely transferred gross revenue and corresponding TDS to its members, who accounted for the revenue in their returns. The CIT(A) held that there was no question of disallowance under section 40(a)(ia) as there was no expenditure booked or profit and loss account prepared by the joint venture. The method adopted by the AO would result in double taxation, which is against the principles laid down by the Karnataka High Court and ITAT Pune Bench.

4. Consistency in Revenue Sharing Method:
The assessee argued that the method of revenue sharing was consistently accepted by the Department in previous assessment years, including the issuance of tax apportionment certificates for TDS. The CIT(A) noted that the same method was followed for eight years without any objection from the Department. The principle of consistency, as upheld by the Bombay High Court and the Supreme Court, was applied. The CIT(A) emphasized that a fundamental aspect consistently accepted should not be changed arbitrarily in subsequent years.

5. Double Taxation Concerns:
The CIT(A) observed that the method adopted by the AO would lead to double taxation of the same contract revenue. The gross receipts distributed among the joint venture partners were included in their respective returns, and TDS credits were utilized based on apportionment certificates issued by the AO. The CIT(A) concluded that disallowance under section 40(a)(ia) would result in double taxation, which is against judicial precedents.

Conclusion:
The CIT(A) directed the AO to delete the addition, and the Tribunal upheld this decision. The appeal filed by the Revenue was dismissed, confirming that the joint venture's method of revenue sharing was valid, and there was no requirement for TDS deduction under section 194C. The Tribunal emphasized the importance of consistency and the avoidance of double taxation, aligning with judicial precedents. The judgment was pronounced on August 22, 2012.

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