2019 (12) TMI 212 - HC - Income Tax

Assessment of AOP - Addition adopting net profit ratio @ 11.59% of the gross receipts - distribution of business receipts directly among its constituents members - Whether the business receipt distributed by the assessee amongst its members is application of income or diversion of income by overriding title ? - Tribunal has concurred with the findings recorded by the Commissioner (Appeals) and has found that the association of persons was formed only to secure the work and after that there was no involvement of such association of persons in the execution of the work as the entire work was executed by the members of the joint venture as agreed between them. Accordingly, the fees from the execution of the project work were shared between the members as per their understanding - HELD THAT - Both, the Commissioner (Appeals) as well as the Tribunal, have found that the members of the joint venture have duly shown the income in their returns of income and have paid the tax thereon. The joint venture and the members of the joint venture are being taxed at the maximum marginal rate, and hence, no loss has been caused to the revenue. Moreover, the Tribunal as a matter of fact has found that the requirements of CBDT circular referred to hereinabove are duly satisfied in the case of the assessee and hence, once the amount has been offered to tax by its members, the assessee could not be saddled with the liability to pay tax in respect of the same amount. Having regard to the concurrent findings recorded by the Tribunal after appreciating the material on record as referred to hereinabove, it is not possible to state that the impugned order passed by the Tribunal suffers from any legal infirmity so as to warrant interference. No question of law, much less, a substantial question of law can be said to arise out of the impugned order so as to warrant interference. The appeals, therefore, fail and are, accordingly, summarily dismissed.

Summary

Issues:
- Appeal under section 260A of the Income Tax Act, 1961
- Addition of income by Assessing Officer
- Distribution of business receipts among members
- Application of income vs. diversion of income by overriding title

Analysis:
1. The appeals under section 260A of the Income Tax Act, 1961 arose from a common order passed by the Income Tax Appellate Tribunal. Both appeals challenged the addition of income made by the Assessing Officer. The Tribunal decided to hear and decide both appeals together due to the similarity in facts and contentions.

2. The appellant contested the Tribunal's decision on three substantial questions of law. These questions revolved around the deletion of the addition of income by the Assessing Officer, the correct treatment of business receipts distribution among members, and the characterization of the distributed income as 'application of income' or 'diversion of income by overriding title.'

3. The Commissioner (Appeals) allowed the appeals of the assessee and deleted the addition made by the Assessing Officer. The Revenue appealed to the Tribunal, which upheld the decision of the Commissioner (Appeals).

4. The appellant argued that the Tribunal erred in confirming the deletion of the addition, asserting that the assessee should have maintained a profit and loss account and distributed profits among its members. The appellant contended that the Assessing Officer correctly assessed the assessee as an association of persons.

5. The Commissioner (Appeals) considered the joint venture agreement and relevant provisions of the Income Tax Act. The Commissioner found that the assessee had complied with statutory requirements, maintained proper accounts, and fulfilled tax obligations. Additionally, the Commissioner noted that the arrangement with joint venture partners was transparent and not intended to defraud revenue.

6. The Tribunal concurred with the findings of the Commissioner (Appeals), emphasizing that the joint venture was formed to secure work, and income was shared among members as per agreements. The Tribunal highlighted that the income was disclosed by members in their returns, subject to assessment, and no loss to revenue occurred. The Tribunal relied on a CBDT circular to support its decision.

7. Both the Commissioner (Appeals) and the Tribunal found that the income was properly disclosed and taxed by members, absolving the assessee of additional tax liability. Considering the facts and the CBDT circular, the Tribunal concluded that no addition should be made to the assessee's income.

8. The Tribunal's decision was upheld, as there was no legal infirmity in the order. No substantial question of law arose for interference, leading to the dismissal of the appeals.