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TMI Blog2013 (5) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... ot want to execute the work, there was no need to form a consortium. Therefore, mere formation of consortium for obtaining a contract should not debar the enterprises who in fact carried on the aforesaid classified business from claiming the deduction or exemption u/s 80IA(4). - ITA Nos.325 & 326/V/2011 - - - Dated:- 13-4-2012 - Shri Sunil Kumar Yadav And Shri BR Baskaran,JJ. For the Appellant : Shri T. Lucas Peter, CIT(DR) For the Respondent : Shri G. V. N. Hari, CA ORDER Per Shri S.K. Yadav, Judicial Member:- These appeals are preferred by the revenue against the order of the CIT(A) on common grounds. We therefore, heard these appeals together and are being disposed of through this consolidated order. 2. The main grounds raised in these appeals is with regard to the claim of deduction raised u/s 80IA(4) of the Income-tax Act. The facts in brief borne out from the record are that the assessee is a company and it formed joint venture named "Navayuga Transtroy" (JV)' (here after referred to as JV), which bid for contract. The Irrigation Department of Andhra Pradesh awarded contract to J.V. which became entitled to execute works. As per terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the AO since as per the explanation to section 80IA, the deduction claimed by the assessee u/s 80IA(4) is not applicable to a business which is in the nature of a work contract awarded by any person (including the Central State Govt.) and executed by the undertakings or enterprise. 3. The Ld. CIT(A) ought to have upheld the disallowance made by the Assessing Officer keeping in view of the fact that the assessee was unable to even furnish anything to show that an agreement existed with the alleged joint venture or consortium said to be entered by the assessee for execution of projects. 5. During the course of hearing of the appeal, the Ld. Counsel for the assessee has invited our attention to the fact that in this year, the contract was not changed. It was the same contract which was executed in the impugned assessment year also. Therefore, there is no change in the facts and circumstances. 6. The Ld. D.R. however placed a reliance upon the order of the assessing officer. 7. We have carefully examined the order of the CIT(A) and the order of the Tribunal in the assessee's own case for the assessment year 2006-07. On careful perusal of this order of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndependent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction u/s 80IA(4) of the Act. These facts clearly indicates that the joint venture was only a de-jure contractor but in fact the assessee was a de-facto contractor. 9. The scope of joint venture and its relation with its constituents were examined by this bench of the Tribunal in the case of ITO Vs. UAN Raju Constructions (supra) and the Tribunal has given the finding that there cannot be any relation of contractor and sub-contractor between the joint venture and its constituents after making a detailed analysis of this relationship. The relevant observation of the Tribunal are extracted hereunder: "6. We have heard the parties and carefully perused the record. We have also gone through the "Joint venture partners Agreement" entered by the parties on 20-10-2003 and also the codicil entered between them. The main dispute is with regard to the assessability of income, if any, in the hands of the assessee-AOP. The case of the AO is that the "Joint Venture" and its members shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in profit and losses. [Black's Law Dictionary; Sixth Edition, p.839]. According to Words and Phrases, Permanent Edition, a joint venture is an association of two or more persons to carry out a single business enterprise for profit [P.117, Vol. 23]."[Emphasis supplied] The following definition of 'joint venture' occurring in American Jurisprudence [2nd Edition, Vol.46 pages 19, 22 and 23] is relevant: "A joint venture is frequently defined as an association of two or more persons formed to carry out a single business enterprise for profit. More specifically, it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, a corporation or other business entity, pursuant to an agreement that there shall be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olling 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." (emphasis supplied) Black's Law Dictionary (7th Edition, page 843) defines `joint venture' thus "Joint Venture: A business undertaking by two or more persons engaged in a single defined project. The necessary elements are: (1) an express or implied agreement; (2) a common purpose that the group intends to carry out; (3) shared profits and losses; and (4) each member's equal voice in controlling the project." 9. On a careful reading of the order of the Hon'ble Supreme Court, we notice the following essential ingredients for a "Joint Venture". a) It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit. (or) b) it is in association of persons with intent, by way of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsertion of the Explanation to section 2(31). b) Geo Consult ZT GMBH (304 ITR 283): In this case, though the work was allotted to each of the members and each member has to bear its own costs and expenses, yet it was noticed that the agreement stated that the members will collaborate for all the work associated with the project which is to be managed on a joint basis by all the members. Further the agreement provided that the members are jointly and severally responsible for execution of project. The AAR has expressed opinion, by placing reliance on the decision of Hon'ble Supreme Court in the case of N.V.Shanmugam and Co. V CIT (1971) 81 ITR 301, that the ultimate division of profits amongst members of the joint enterprise is not a relevant criterion. Finally it was held that the Joint venture is assessable as "AOP". c) M/s Hyundau Rotem Co., Korea and M/s Mitsubishi Co., Japan (AAR Nos. 798-799 of 2008 dt. 23-03-2010. In this case, the AAR has held that the Consortium formed by four members is not assessable as AOP, since the AAR has felt that the facts of the case are similar to the facts relating to Van Oord ACZ BV, supra. Section 2(31) of the Act defines the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd machinery shall not become asset of the joint venture. Thus there is no clear provision in the Joint Venture which provide for joint execution of the project and joint realization of profit. 11.2. Clause-4 deals with the relationship between the members of the joint ventures. Sub-clauses (c) and (d) are relevant. "c. This Agreement shall not be construed by either Joint Venturer hereto as constituting each of them the agent of the other nor the Joint Venture as the agent for either of them. "e. The Joint Venturers agree that this Agreement shall not constitute a partnership and any liabilities of any sort whatsoever which one Joint Venturer may incur towards or on behalf of the other Joint Venturers shall be in accordance with this Agreement and be thereto limited" As per the concept of the Joint Venture, each joint venturer shall stand in the relation of a principal as well as an agent of the other. However clause 4(c) of the agreement specifically states that the members do not constitute the agent of each other. The said clause also states that the "Joint venture" should not be taken as the agent of the members also. Thus, according to the agreement, each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in conditions. One of the condition is that the enterprise should be owned by a company registered in India or by a consortium of such companies or any other body established or constituted under any centre or any state Act. The other condition is that it has entered into an agreement with the Central Government or a State Government or local authorities or any other statutory body for developing, operating and maintaining or developing, operating maintaining a new infrastructure facility. There is no dispute with regard to the fulfillment of other requisite conditions. The dispute was only raised that the contract was awarded only to the joint venture and not to the assessee and therefore assessee is not entitled for deduction. If we read these provisions of sub-section 4 of 80IA, we would find that this benefit of deductions is to be given to an enterprise who carry on the aforesaid classified business. The legislature have also used the word consortium of such companies, meaning thereby the legislature was aware about the object of formation of consortium and joint ventures. Generally the joint ventures or consortiums are formed to obtain a contract from the Government body fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway [inland port or navigational channel in the sea];] [(ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, [2005].] Explanation.--For the purposes of this clause, "domestic satellite" means a satellite owned and operated by an Indian company for providing telecommunication service; (iii) any undertaking which develops, develops and operates or maintains and operates an industrial park [or special economic zone] notified by the Central Government in accordance with the scheme framed and notified by that Government for the period beginning on the 1st day of April, 1997 and ending on the 31st day of March, [2006]: [Provided that in a case where an undertaking develops an industrial p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of section 80IA(4), the benefit of deduction under this section is to be given only to the enterprise who carried on the classified business. Therefore, in the light of this legal proposition, we are of the view that the assessee is entitled for the deductions u/s 80IA(4) on the profit earned from the execution of the work awarded to JV and consortium. We accordingly set aside the order of the CIT(A) and direct the A.O. to allow the deductions. 8. This order of the Tribunal has not been reversed so far, therefore, it holds the field and the lower authorities are supposed to follow the same in its letter and spirit. The CIT(A) has adjudicated the issue following the order of the Tribunal. We therefore, find no infirmity in the order. We accordingly confirm the same. 9. In appeal no.326 of 2011 the revenue has also raised one more issue with regard to the disallowance of freight payment by invoking provisions of section 40a(ia) on non-deduction of TDS. The facts borne out from the record are that the A.O. made a disallowance u/s 40a(ia) in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invited our attention to the fact that once it has been held that assessee is eligible for deduction u/s 80IA(4) of the Act, it would not make any difference even if the payment is disallowed. He however contended that in fact assessee has not assigned any sub-contract to anybody for transporting the goods. The payment was made only on behalf of the M/s. D.R. Southern Constructions Pvt. Ltd. Therefore, there is no question of deduction of any TDS for which payment can be disallowed by invoking provisions of section 40a(ia) of the Act. 11. Having carefully examined the order of the lower authorities in the light of rival submissions we find that following the order of the Tribunal, the CIT(A) has directed the A.O. to allow deduction u/s 80IA(4) of the Act. Once the assessee is eligible for deduction u/s 80IA(4), it would not make any effect even if this payment is disallowed. In any case, we have also examined this claim of assessee on merit and we find that the assessee has placed sufficient evidence on record to prove that the payments were made on behalf of the M/s. D.R. Southern Construction Pvt. Ltd. Therefore, there is no question of assignment of any sub-contract to any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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