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TMI Blog2014 (1) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... he joint venture will be established are: (a) to prepare and submit tender pre-qualification bids and tenders to the owner, and (b) to agree the contract with the owner, and (c) to execute the project works in accordance with the contract. 1.3 Roles: HINDUSTAN as the lead partner and RATNA as partner will have the Joint Roles as follows: (a) General planning and overall execution (b) Site management and plant operation (c) Other technical matters (d) Incur any liability that may be required for execution of the contract (e) Arrange for bid security (f) Coordinate with SCL in other financial activities related to the contract (g) To second employees to the joint venture 2. Participation in the Joint Venture in the ratio of HINDUSTAN 60% RATNA . 40% HINDUSTAN will be the lead partner The Joint Venture shall cause an Executive Committee to be formed consisting of four members, two nominees representing each party. The Executive committee will be responsible inter alia, for the following: (a) to direct and supervise the performance of the Contracts and the execution of the works. (b) To appoint Project Manager from employees nominated by HINDUSTAN, who along with his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rally liable for all acts, deeds and things pertaining to the contract. c) That Sri IVR Krishnam Raju shall be the Managing Partner of the Joint Venture firm and shall have the power to control and manage the affairs of the firm with the consent of other firms. d) that on behalf of the Joint Venture, Sri IVR Krishnam Raju shall have the authority to incur liabilities, receive instructions and payments end execute the contracts for and on behalf of the joint venture. e) That the participation of the two companies in the Joint Venture shall be as follows: 1) HES INFRA P LTD 60% 2) RATNA INFRASTRUCTURE PROJECTS P LTD 40% f) That the Provisions of Indian Partnership Act, 1937 shall be applicable for all the clauses otherwise than specified in this deed. g) That M/s. HES Infra P Ltd. and M/s. Ratna Infrastructure Projects P Ltd. be jointly and severally liable towards the owners for the execution of the contract commitments in accordance with the contract conditions .... 6. The appellant was awarded certain infrastructure contracts. The aggregate contract receipts were Rs. 115,79,10,993/- of which receipts of Rs. 111,09,23,018/- were transferred to HES and RIPL in the proportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant's case. The Assessing Officer therefore disallowed the sum of Rs. 111,09,23,018/- u/s. 40(a)(ia). 9. On appeal, the CIT(A) observed that the assessee credited part of the contract receipts in its books of account and debited the corresponding sub-contract expenses, liable to deduct TDS. The assessee has not offered any explanation for this artificial distinction between the two partners of the contract receipts, merely on the basis of the sub-contractor being a partner or otherwise. Accordingly, she observed that assessee is liable for deduction and failed to deduct TDS, therefore, it was liable for disallowance u/s 40(a)(ia) of the Act and confirmed the action of the Assessing Officer. 10. Aggrieved, the assessee is in appeal before us. 11. Before us, the learned counsel for the assessee referred to the Joint Venture Agreement, dated 16/08/2004, which is placed at pages 1 to 4 of the paper book to submit that the JV formed on 16/08/2004 with the following constituents, namely, 1. M/s Hindustan Engineers Syndicate 2. M/s Ratna Constructions. The object of the JV was to procure contracts from various Governments, as under: 1. to prepare and submit tender pre-qualif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 12/07/2012. 3. Sri Bhooratnam Constructions Co., ITA No. 73-74/H/2011, order dated. 12/10/2011. 4. Sri Bhoortatnam & Co., [2012] 83 CCH 220 APHC, dt. 23/11/2012. 5. UAN Raju Constructions, ITA No. 344/V/2009 and 77/V/2010, order dated 13/05/2010. 6. M/s SMC Ambika, JV, ITA No. 7698/M/2010, dt. 29/07/2011. 7. M/s MEIL-SEW -MAYTAS-BHEI (JV) and others, ITA Nos. 63-76/H/2010, dt. 30/05/2012. 8. M/s IVRCL KBL (JV) and others, ITA No. 1539-1544/H/2010, dt. 15/01/2013. 9. M/s PCL Intertech Lenhydro Consortium JV, ITA No. 940,953,1332 and 1432/H/2010, order dated 31/01/2013. 10. Ess Kay Construction Co. [2004] 267 ITR 618 (P&H), order dated 07/08/2003. 11. Ambuja Darla Kashlog Mangu Transport Co-op Society, [2009] 227 CTR (HP) 299, dt. 20/10/2009. 12. Hyundai Rotem C. [2010] 323 ITR 277, dt. 23/04/2010. 13. M/s CTR-Railone-JV, ITA nos. 1114 & 1122/H/2010, dt. 31/12/2012. 12.5 The learned counsel submitted that as per the partnership deed, which was essentially a JV agreement, the JV constituents were jointly and severally liable towards the owner for the execution of the contract commitments. In terms of the JV agreement, the contract works obtained by the JV was executed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce u/s. 40(a)(ia) could be made in view of the fact that tax had been paid by the constituent. 12.10 It was submitted that the second proviso to sec. 40(a)(ia) provides that once the recipient has paid the tax, no disallowance can be made u/s. 40(a)(ia) in the case of the payer. Though the proviso was inserted w.e.f. A.Y. 2013-14, it was clarificatory in nature and therefore should be applied retrospectively. Reliance was placed on the decision of Hon'ble Calcutta High Court in the case of CIT Vs. Virgin Creations, GA No. 3200/2011, dtd. 23-11-2011. 12.11 Further, it was submitted that Interest has been levied on the appellant u/s. 201(1) and 201(lA) for the A.Y. 2008-09 to 2010-11 and the CIT(A)-II Hyderabad in her order dtd. 10.01.2013 held that there was no sub-contract between the appellant and its constituents, as a result of which there was no liability to deduct tax on the appellant. 12.12 Finally, the learned counsel submitted that since the entire amount transferred to the constituents had already been paid to them and no amount remained payable as on 31.3.2009, sec. 40(a)(ia) did not apply in view of the decision in the case of Merilyn Shipping and Transport Vs. ACIT 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause 5(g) of the partnership deed provided that the partners, M/s. HES and RIPL, were to be jointly and severally liable towards the owners for the execution of the contract commitments in accordance with the contract conditions. Two aspects are noteworthy from this clause. Firstly, the clause expressly establishes the joint and several liability of the two partners to the owners. While the concept of joint and several liability is an essential and defining feature of any partnership, the clause serves to emphasize the fact that the two constituents were jointly liable for the entire contract and not for their respective portions of the work. 13.3 Secondly, the clause establishes that the joint and several liability was towards 'the execution of the contract'. In other words, the responsibility of the partnership firm as such for the execution of the contract and not merely for the obtaining of the contract was expressly provided for. 13.4 The learned DR submitted that the terms of the partnership deed therefore go to establish the fact that the firm had been created not for the sole purpose of obtaining the contract but also for executing it. The learned DR referred the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es may by upheld. 14. We have heard the arguments of both the parties, perused the record and have gone through the orders of the authorities below. As seen from the record, the Partnership Deed dated 31/08/2007 placed at pages 175 to 177 of paper book, the firm was formed with two partners, viz., HES Infra Pvt. Ltd. and Ratna Infrastructure Projects Pvt. Ltd. for the purpose of carrying the business of works contracts to act and submit prequalification application to submit bid if prequalified and execute the contracts. In the way of executing the contract works, Assessee got contract from various Governments and distributed the works among two partners and executed the work and the payment has been received by the partnership firm M/s Hindustan Ratna JV. Appreciation of facts shows that M/s HES Infra Pvt. Ltd. and Ratna Infrastructure Projects Pvt. Ltd. are not sub-contracts, per- se, but, they are partners of M/s Hindustan Ratna JV. These partners might have entered into agreements with the partnership firm wherein they are partners so as to execute the works. The partners might have maintained their books of account as if they are paying and receiving monies from the partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake as to a matter of fact, essentially to the agreement, the agreement is void. In the present case, the question is mainly focussed on the contractual relationship of the assessee and its partners. This principle embodies in the section 20 of the Indian Contract Act has great relevance. It turns out that the formats of the agreement entered into with the partners and the styling of accounts prepared by them are products of mistakes of fact, and therefore, the agreement is not to be relied on to hold that the assessee is acting in the status of contractors vis-a- vis sub-contractors. Therefore, it is to be seen that the question of TDS in the present case cannot be considered only on the basis of the agreements entered into between the assessee and its partners. 18. The liability u/s.194C(2) is cast on the assessees only when they are in fact and in substance acting in the relationship of contractors and sub contractors. Dehors the agreements and accounts, when it is found that they are acting jointly, for the purpose of their contract business, there cannot be a relationship of contractor and sub- contractor and there may not be an occasion to invoke Section 194C(2). When the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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