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TMI Blog2011 (7) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... t of deduction under this section is to be given only to the enterprise who carried on the classified business - Decided in favor of the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... who were carrying on the business of developing, maintaining and operating any infrastructure facility. In the instant case, the consortium or the JV did not execute any work. The work awarded to JV was executed by its constituents. In support of this contention, he has invited our attention to the joint venture agreement and the consortiums which are available at page nos.4 to 8 & 30 to 36 respectively of the compilation of the assessees. He has also invited our attention to the agreement executed between the JV and the consortiums with the Government. He has also invited our attention to the relevant clauses of the JV and the consortiums according to which it was agreed at the time of formation of JV that whatever work is awarded to it, it would be executed by its constituents and they will be solely responsible for the responsibilities and liabilities of the execution of the work. It was further contended that these provisions are beneficial provisions and were introduced to provide incentives to those enterprises who in fact execute the work. The Ld. Counsel for the assessee further invited our attention to the order of the Tribunal in the case of ITO v. UAN Raju Constructions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the assessee and the joint venture are independent assessees, the benefit eligible to the joint venture cannot be transferred to the assessees. Therefore, the revenue has rightly denied the deduction u/s 80IA to the assessees. 8. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below and documents placed on record, we find that undisputedly the joint venture or the consortium was formed only to obtain the contract from the Government bodies. At the time of execution of the joint venture or the consortium, it has been made clear that work/project awarded to the joint venture would be executed by the joint venturers or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party shall be responsible for the provisions of without limitation on resources required for the purpose of fulfilment of the scope and also solely responsible for the performance of its scope of work and shall bear all technical, commercial and facing risk involved in performing its scope of work. It was also agreed that none of the party shall assign its rights and obligations to any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted separately by each of the members, no income can be said to have arisen in the hands of the assessee-AOP. (7) In our country, the implementation of infrastructure projects is taking place in a massive scale. In this connection, global tenders are invited. Hence two or more business enterprises are joining hands by forming a consortium of Joint Venture in order to get qualified for participating in tender process. They regulate themselves, by entering into an agreement, the methodology to be adopted for executing the contract obtained. Before going into the main issues, we feel that it is imperative to discuss about the status and legal position of "Joint Venture" vis-a-vis Income tax Act. The Joint Ventures are not be governed by the provisions of the "Indian Partnership Act, 1932. It is also a known fact that there is no statute which governs a Joint Venture. Hence the issue regarding the relationship between the members and also between the members and the Joint venture has to be decided on the basis of the terms of agreement entered between the parties. Though the "Joint Venture Agreements" generally fall in the category of "Association of Persons" (AOP) under the Income ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties, and liabilities are generally tested by rules which are closely analogous to and substantially the same, if not exactly the same as those which govern partnerships. Since the legal consequences of a joint venture are equivalent to those of a partnership, the courts freely apply partnership law to joint ventures when appropriate. In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships." "A joint venture is to be distinguished from a relationship of Independent contractor, the latter being one who, exercising an independent employment, contracts to do work according to his own methods and without being subject to the control of his employer except as to the result of the work, while a joint venture is a special combination of two or more persons where, in some specific venture, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for profit. (d) that each joint venturer must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise. (e) Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling in determining whether a joint venture exists, are: (1) joint ownership and control of property; (2) sharing of expenses, profits and losses, and having and exercising some voice in determining division of net earnings; (3) community of control over, and active participation in, management and direction of business enterprise; (4) intention of parties, express or implied; and (5) fixing of salaries by joint agreement." 10. As stated earlier, in order to participate in the global tender process, some of the foreign companies have established joint ventures with the Indian Companies. With regard to the issue of the assessability of Joint ventures, the foreign companies have approached the Authority for Advance Ruling (AAR). We discuss below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2(31), according to which, an AOP shall be deemed to be a person, whether or not such AOP was formed or established with the object of deriving income, profits or gains. However, in the instant case, there is no dispute with regard to the assessability of the "Joint Venture" per se. Both the assessee and the department have taken the stand that the "Joint Venture "is assessable in the status of "Association of Person". However, the issue is whether the AO is right in treating the Joint Venture-AOP as the main contractor and its members as the sub-contractors, thereby estimating the income which was not earned by the Joint Venture. 11. On the basis of the understanding of the concept of "Joint Venture", let us consider the facts in the present case. The amended clause 3 reads as under: "(a) The joint venturers shall subject to the provisions hereinafter contained, be entitled to share the work as mutually agreed on item wise, depending on the work schedule. Sharing of the work and execution of the work can be altered at any given time with mutual consent of both the J. V. Partners". As per the original clause 3(a), the members of Joint Venture would share in a prescribed perc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of the agreement, the parties have only regulated the relationship inter se with respect to their joint responsibility that existed in relation to the Principal, viz., M/s Konkan Railway. In reality, both the parties have divided the contract works between themselves and they have executed their share of work on their own risks. It is pertinent to note here that the AO has not given any finding on the issues like that each member had authority to interfere with or control the work executed by the other member; that both the members have jointly executed the project and thus produced the income jointly. In our opinion, the finding on the lines stated above is crucial to determine the issue of availability of income in the hands of Joint Venture- AOP. On the contrary, the AO is on record that the each of the members has declared the income derived from their respective share of contract works in their hands. In this kind of situation, we do not find any merit in the presumption made by the AO that the Joint Venture is the "Main Contractor" and the members are the "Sub-contractors". Once this presumption has been found to be wrong, then the question of estimation of income by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 80IA(4) as under: Section 80IA(4): This section applies to - (i) Any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely- (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking: Provided further that in the case of any undertaking which develops, develops and operates or maintains and operates and industrial park, the provisions of this clause shall have effect as if for the figures, letters and words "31st day of March, 2006" the figures, letters and words "31st day of March, 2011" had been substituted; (iv) an undertaking which,- ** ** ** (vi) ** ** ** 11. Turning to the facts of the case, we find that joint venture and the consortium was formed only to obtain the contract from the Government body and they in fact did not execute the work awarded to it. In a joint venture agreement or a consortium agreement, it was agreed that the awarded work had to be executed by the joint venturers or parties to the agreement in an agreed manner. The work was awarded by the Andhra Pradesh Government and the KSHIP, a body of the State Government of Karnataka to the J.V. and consortium but the work was executed by the assessee and the other constituents. In case of joint venture agreement, 40% works were executed by the assessee and in case of co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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