2024 (1) TMI 268 - AT - Income Tax

Association of persons (AOP) - Consortium - Appellant No.1 is a member of AOP or not - Appeal against order passed u/s 254/153A/143(3) r.w.s. 144C - eligibility of assessee for the purpose of section 2(7) r.w.s. 253(1) having right to file appeal against this impugned final assessment order - earlier the Appellant No.1 had filed ITA on behalf of itself as alleged member of consortium and also filed another appeal in the name of consortium and claiming itself to be an alleged member of AOP - Whether the two appeals are maintainable against one assessment order? HELD THAT - As the Appellant No.1 is now under a liability under the Act for the tax payment arising out of the final assessment order thus being aggrieved by the same has a right to file appeal u/s 253(1) of the Act under its own status and capacity to challenge the assessment as a whole and its own liability as separate entity. Thus the two appeals are maintainable. Idea of Consortium as Association of Persons for being treated as assessee - Whether the appellant No.1 is a member of Association of Persons (AOP) i.e Pico Deepali Overlays Consortium and the consortium has been rightly assessed as an Association of Persons ? - We here in these appeals, at this stage, are concerned with the tax liabilities of the appellant no 1 as member of AOP and not in the individual capacity and also not concerned with any other civil consequences that flow out of the agreement dated 09.12.2008 or the addendum dated 01.06.2010. The responsibility given by appellant no. 1 to PHK and PEMI to Manage all financial matters of the JV and for maintenance of records, effecting payment of taxes, filing of returns, etc.,. must have been with intention that as for assessment and tax liability, consortium shall be a unit and assessed as a unit, which can only be by way of the consortium being treated as AOP and all the members of consortium being member of the AOP. Thus this arrangement is completely out of scope of clause 3(d) of the Circular no 7/2016 of which appellant seeks benefit. There is unified control and management of the consortium as far as the statutory tax liabilities is concerned. Now if there is any tax liability created on the appellant no. 1 over and above the tax liability it was supposed to bear on the basis of scope of work falling in the hands of appellant no.1 then that may be a dispute inter se the members of consortium as AOP for which there may be remedy under civil law but assessing officer cannot be faulted to have competed the assessment on the consortium as AOP and appellant no. 1 as its member and caters to the argument of Ld. Counsel of appellant no. 1 that 4. AO has completely ignored the material fact that revenue from Deepali s scope of work has been brought to tax in the hands of Deepali in a regular assessment and Deepali has paid the income tax on the same. There is no force in the contention of Appellant No.1 that due to absence of right to any profits of the consortium, the Appellant No.1 cannot be deemed to be a member of the AOP. Indeed, in the return filed, the share of Appellant No.1 is shown to be 0%. Indeed in the addendum, there is division of work, but, that is only a mode of completing the Project . As far as sharing of profits is concerned Deepali Designs, who is Appellant No.1 before us, had agreed by virtue of sub-clause (3) of Clause 2 of the addendum, to forego 23% of its gross revenue to PHKL. Thus there is revenue sharing also from the works which had fallen in scope of work of Deepali Designs. Not only this but by virtue of sub-clause (4) of Clause 2 of the addendum if any new contract was to be allotted in share of Deepali Designs, again the new contract equivalent to 20% in value minus 23% were to be paid to PHK. Thus this arrangement is completely out of scope of clause 3(b) of the Circular no 7/2016 of which appellant no. 1 seeks benefit. There is no force in the contention of appellant no. 1 that this payment to PHK was merely on account of the fact that Deepali Designs had walked out of the earlier agreement. The original agreement and addendum both together lay out the terms of the JV and what addendum has done is that only the stage of the sharing of profits out of the project and the mode of calculating the profit is changed. Else PHK and Deepali Designs both are getting benefits out of the proceeds of the work assigned to Deepali Designs and that amounts to sharing profits and profits of the work assigned to Deepali Designs are not left to be exclusive to Deepali Designs. Certainly Deepali Designs is not getting any share of proceeds of the work assigned to PHK, but PHK is not disputing the existence of AOP so question of PHK not getting share of profit from Deepali Designs is not material. When we apply the idea of Consortium as Association of Persons for being treated as assessee under the Act we find that consortium came into existence for accomplishing the project as a whole and the participation of the consortium members in the tender process, the submission of bids, execution of contracts, nomination of consortium leader or Project Board, payments and receipts of considerations, the extent of joint and several liability accepted by the consortium members, the risks and cost of any defect or damage on the consortium, insurance in the names of consortium all indicate that there was lot of commonality of interest and mutuality of liabilities to form AOP. Thus, we are of the considered view that consortium as AOP fails to fulfill the requirement of clause (a) of Clause 3, clause (b) and clause (d) of the Circular No.7 of 2016 and there is no error in the findings of the ld. AO in treating Appellant No.1 as member of the consortium and to assess the consortium as AOP. The issue no. 2 is decided against the appellant no. 1. In the result, it is held that appellant no. 1 Deepali Designs Exhibits (P) Ltd.), is a member of assessee AOP, Pico Deepali Overlays Consortium for the purpose of assessment of relevant AY. The respective grounds taken in appeal arising out of issue no. 2 decided against the appellant no. 1 stand disallowed. Further, as affected party the appellant no. 1 has right to file appeal on merits of additions in its own capacity and status. So let both the appeals be fixed for final hearing on merits of grounds, by Registry in due course.

Summary

Issues Involved:
1. Whether the two appeals are maintainable against one assessment order.
2. Whether the appellant No.1 is a member of the Association of Persons (AOP) i.e. Pico Deepali Overlays Consortium and whether the consortium has been rightly assessed as an Association of Persons.

Summary:

Issue 1: Maintainability of Two Appeals Against One Assessment Order

The Tribunal addressed the question of whether two appeals are maintainable against one assessment order. It was observed that both appellants, Deepali Design (Appellant No.1) and Pico Deepali Overlays Consortium (Appellant No.2), have the right to file appeals as they are aggrieved by the assessment order. The Tribunal cited various judgments supporting the rights of persons affected by an adverse order to file appeals. It was concluded that both appeals are maintainable as each appellant has a distinct grievance and liability under the Income Tax Act.

Issue 2: Membership of Deepali Designs in the AOP

The Tribunal examined whether Deepali Designs is a member of the AOP, Pico Deepali Overlays Consortium, and whether the consortium is correctly assessed as an AOP. The Tribunal considered various agreements and addendums between the consortium members, particularly focusing on the addendum dated 01.06.2010.

Key points considered include:

- Statutory Tax Obligations: The addendum stipulated that PHK and PEMI would handle all statutory tax obligations for the JV, indicating a unified approach to tax liabilities, contrary to the conditions in Circular No. 07/2016 which requires independent responsibility for tax obligations.

- Revenue Sharing: Deepali Designs agreed to forego 23% of its gross revenue to PHK, indicating revenue sharing within the consortium, which does not align with the independent profit/loss condition in Circular No. 07/2016.

- Unified Control and Management: The Tribunal found that the consortium had a unified control and management structure, particularly in financial and tax matters, which is against the criteria set out in Circular No. 07/2016 for not being treated as an AOP.

- Board Representation: Deepali Designs had a representative on the Board of the JV, which had supervisory powers over the entire project, further indicating unified control.

The Tribunal concluded that the consortium fails to meet the conditions of Circular No. 07/2016 and upheld the assessment of the consortium as an AOP with Deepali Designs as a member. The issue was decided against Deepali Designs (Appellant No.1).

Conclusion:

The Tribunal ruled that both appeals are maintainable and that Deepali Designs is a member of the AOP, Pico Deepali Overlays Consortium. Consequently, the consortium is rightly assessed as an AOP. The grounds taken in appeal ITA No.518/Del/2022 by Deepali Designs were disallowed, and both appeals were directed to be fixed for final hearing on merits of the grounds raised.