2016 (3) TMI 967 - AT - Income Tax

TDS u/s 194C - Disallowance made u/s. 40(a)(ia) - assessee has not deducted tax at source on the payments made to the constituents of J.V. - AOP status - Held that - As decided in the preceding assessment year i.e. assessment year 2009-10 CIT(A) deleted the disallowance u/s. 40(a)(ia) as 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 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

Issues Involved:

1. Deletion of disallowance made under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Status and tax liability of the Assessee as an Association of Persons (AOP).
3. Applicability of Tax Deducted at Source (TDS) under Section 194C of the Income Tax Act, 1961.
4. Principle of consistency in tax treatment.

Detailed Analysis:

1. Deletion of disallowance made under Section 40(a)(ia):

The Revenue challenged the deletion of disallowance made under Section 40(a)(ia) by the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the work contract orders were in the assessee's name, and reallocating these contracts among its members amounted to subcontracting. The CIT(A) had deleted the disallowance following his own order from the preceding assessment year 2009-10. The Tribunal found that the issue was identical to the one adjudicated in the assessee's own case for the assessment year 2009-10, where the disallowance was deleted. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the disallowance under Section 40(a)(ia).

2. Status and tax liability of the Assessee as an Association of Persons (AOP):

The Revenue contended that the Assessee Joint Venture (JV) should be taxed as an AOP, citing the Supreme Court decision in Ch. Achaiah and the AAR ruling in Geo Consultant ST GMBH. The Tribunal noted that the Assessee had consistently filed returns as an AOP since the assessment year 2001-02, declaring NIL income. The Tribunal referred to the precedent set in the case of M/s. Gammon Progressive JV, where it was held that the status of the Assessee as an 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. The Tribunal found that the Assessee's status as an AOP was correctly maintained and upheld the CIT(A)'s order.

3. Applicability of TDS under Section 194C:

The Revenue argued that the Assessee JV was in full control of the contract and responsible for its completion, thus payments to its members should attract TDS under Section 194C. The Tribunal referred to the earlier decision in M/s. Gammon Progressive JV, where it was held that there was no relationship of contractor and sub-contractor between the JV and its members. The JV merely acted as a conduit for distributing payments to its members based on their work share, without retaining any profit or TDS. The Tribunal concluded that the provisions of Section 194C were not applicable to the Assessee JV, as there was no subcontracting involved, and upheld the CIT(A)'s deletion of the disallowance.

4. Principle of consistency in tax treatment:

The Assessee argued that the method of revenue distribution had been consistently accepted by the Department in the past, including the issuance of tax apportionment certificates. The Tribunal emphasized the principle of consistency, citing the Bombay High Court decision in Gopal Purohit and the Supreme Court decision in Radhasoami Satsang vs. CIT. The Tribunal noted that the Department had consistently accepted the Assessee's method of revenue sharing and TDS apportionment for several years. The Tribunal upheld the CIT(A)'s decision, finding that the consistent treatment of the Assessee's tax status and revenue distribution method should not be altered.

Conclusion:

The Tribunal dismissed the appeal of the Revenue, finding it devoid of merit. The Tribunal upheld the CIT(A)'s order deleting the disallowance under Section 40(a)(ia), maintaining the Assessee's status as an AOP, and confirming the non-applicability of Section 194C TDS provisions. The Tribunal also emphasized the importance of consistency in tax treatment, supporting the Assessee's longstanding method of revenue distribution and TDS apportionment.

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