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2014 (12) TMI 347 - AT - Income TaxStatus of the assessee AOP or Firm - Joint venture - 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) - the fact that the work contract order issued were in assessee s name and so also the payments were credited to the assessee s account and as such reallocation of these contracts among the members of the assessee would amount to sub contracting not appreciated Held that - Following the decision in ITO, Ward-3(1), Pune Versus Swapnali RDS Joint Venture 2014 (12) TMI 320 - ITAT PUNE - 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. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961. 2. Applicability of TDS provisions under section 194C. 3. Status and taxability of the joint venture as an Association of Persons (AOP). Issue-Wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961: The Revenue challenged the deletion of disallowance made under section 40(a)(ia) by the CIT(A). The Assessing Officer had disallowed payments made by the assessee (a joint venture) to its members on the ground that tax was not deducted at source as required under section 194C. The CIT(A) deleted the disallowance, relying on a precedent where similar disallowance was deleted. The Tribunal upheld the CIT(A)'s decision, noting that the joint venture was merely a conduit for obtaining work and distributing payments to its members as per their agreed ratio, and not executing any contract work itself. Therefore, the provisions of section 40(a)(ia) were not applicable. 2. Applicability of TDS Provisions under Section 194C: The Assessing Officer argued that the joint venture was responsible for the contract and its execution, and thus payments to its members should be considered sub-contracts subject to TDS under section 194C. However, the Tribunal found that the joint venture did not execute any work but distributed the contract receipts to its members based on their respective shares. The Tribunal referenced the case of ITO vs. Gammon Progressive-JV, where it was established that there was no contractor-subcontractor relationship between the joint venture and its members, and thus the TDS provisions under section 194C were not applicable. 3. Status and Taxability of the Joint Venture as an Association of Persons (AOP): The Revenue contended that the joint venture should be taxed as an AOP, and the share of profit should be taxed in its hands. The Tribunal noted that the joint venture was formed solely for obtaining contracts and distributing the receipts among its members. The Tribunal referenced the decision in Van Oord ACZ BV In Re, where it was held that a joint venture formed for coordination in executing a contract, without a common purpose of producing income jointly, should not be treated as an AOP for tax purposes. The Tribunal concluded that the joint venture in question was not liable to be taxed as an AOP, and the income should be taxed in the hands of the individual members. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the disallowance under section 40(a)(ia), stating that the joint venture was not liable to deduct tax at source under section 194C as it was merely a conduit for distributing contract receipts to its members. The Tribunal also confirmed that the joint venture should not be treated as an AOP for tax purposes, aligning with the precedent set in similar cases. Consequently, all the appeals by the Revenue were dismissed.
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