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TMI Blog2015 (1) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Revenue is whether the assessees in the present case, which are joint ventures/consortiums are required to deduct tax at source form the payments made to their constituent members on account of execution of contract work. 3. The assessees in the present case are joint ventures/consortiums formed by certain constituent members. The purpose of the formation of these joint ventures/consortium by the constituent members is to put their expertise and finances together so as to make themselves eligible to bid for bigger government contracts. Accordingly, various government contracts were secured in the names of joint ventures/consortium. On account of execution of the said contracts, payments were received by the joint ventures/consortiums during the year under consideration from the concerned government agencies after deduction of tax at source and the same were transferred to their constituent members as per their respective shares in the execution of contract without deduction of any tax at source. The consortium did not retain any commission/margin for themselves and accordingly filed 'nil' return of income for the year under consideration. The credit for tax deducted at sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/0212, restored the matter back to the file of the learned CIT(A) to decide the same afresh, with the following directions- "We have also perused the decision of the Visakhapatnam Bench of the Tribunal in the case of ITO V/s. UAN Raju Constructions (2011) 48 SOT 178) (Vsptnm) and Mumbai bench decision of the Tribunal in the case of SMC Constructions V/s ITO(2011)TIOL 597- ITAT-Mum. Relating to TDS matters in respect of works contracts transferred between the JV and its constituents/Members. The Tribunal upheld the proposition that the Consortium of JV formed only to procure contract works and that the said contract work was executed by the constituent/member, there is no merit in presuming that the JV is a contractor and its members were subcontractors for the purpose of applying TDS provisions and the provisions of S.40(a)(ia). The CIT(A) is directed to keep in mind the ratio of these decisions also, while re-examining these maters afresh. Accordingly, impugned orders of the CIT(A) are set aside and all these matters are restored to the file of the first appellate authority for fresh adjudication on all the issues involved in the appeals before him, in view of our above discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t o tax. (iii) Bharat General Re-insurance Co. Ltd. 81 ITR 303 Delhi (iv) S.R.Koshti Vs. CIT 193 CTR 518(Gujarat) wherein it is held that tax can be collected only on profit under the Act. If an assessee, under a mistake, was over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes are collected. (f) In the absence of liability to deduct TDS, interest u/s. 201(1A) is not leviable. Since the Joint Venture constituents have already taken credit for TDS, the issue to that extent may be treated as final. (g) That there is no agreement between the Joint Venture and its constituents. There is only a memorandum of understanding among Joint Venture constituents distributing and allocating the work. By no means these agreements can be held as agreement for contract between the Joint Venture and its Constituents (h) Though the Joint Venture has not retained any profit/commission when the amounts was paid to its constituents. The Joint Venture always filed a nil return of income and the profits accrued to constituents were offered in their respective income-tax returns. (i) The Joint Venture is an entity which is not governed by India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e constituents were non-existing and they had no locus standi. She held that although declarations under Rule 37BA(2) were given by the joint ventures as deductees to the deductor for giving credit of TDS to the constituents, the Joint Venture, as per the agreements with the government agencies, was under obligation to inform to the government agencies about any work to be done by the sub-contractors at the time of putting the bids, which was not done. 9. The learned CIT(A) further noted from the past assessment records that the joint venture, had always been deducting tax at source from the payments made to its constituents and even as per clause 6.5(h) of the Joint Venture agreement dated 21.2.2009, the joint venture was required to deduct tax at source from the payments made to the constituents. The learned CIT(A) also noted from the annual accounts of the joint venture that the expression 'sub-contractor' was always used by the assessee while referring to the constituents. After having recorded all the adverse findings against the assessee rejecting the various contentions raised on behalf of the assessees, the learned CIT(A) however finally held, for the following reasons giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red into between the assessee-consortiums and their constituent members for distribution of the work for execution of contracts are in the nature of works contracts, as envisaged in S.194C. He contended that such contracts, in any case, can be verbal also and the fact that the work secured by the assessee-joint ventures was ultimately entrusted to the constituent members for execution clearly shows that there was a contract between them, since it is not possible without such contract, either written or verbal, to entrust the work of execution on mutual terms and conditions. 12. The Learned Departmental Representative further contended that the government agencies, who entrusted the contract to the consortiums, never recognized the constituent members of the consortium, as they were not parties to any agreement entered into with the government agencies. He submitted that the contract for execution of work was between the principal and the joint ventures of the constituents, and since the constituent members were not parties to the agreement/contract between the principal and the joint ventures, there has to be a separate agreement/contract between the joint venture who got the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue in favour of the assessee, holding that there was no relationship of contractor and subcontractor between the assessee-joint ventures and their constituent members, so as to attract the provisions of S.194C, relying on the decisions of the Visakhapatnam Bench of the ITAT in the case of ITO V/s. UAN Raju Cosntrucito0ns (supra) as well as Mumbai Bench of the Tribal in the case of SMC Ambika JV V/s. ITO (supra). He contended that the facts involved in both these cases decided by the coordinate benches of the Tribunal are similar to the facts of the present cases and the learned CIT(A) therefore, was fully justified in following the said decisions of the Tribunal to decide the issue in favour of the assessee. Reliance was also placed by the learned counsel for the assessee on the decision of the Punjab and Haryana High Court in the case of ESS KAY Constructions (167 ITR 618) in support of the assessee's case and submitted that the decision rendered in the said case by the Hon'ble Punjab and Haryana High Court involving similar facts and circumstances, has been followed by the Mumbai Bench of the Tribunal in the case of SMC Ambika JV (supra), to decide a similar issue in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t members and not by the joint ventures. 17. We have considered the rival submissions and also perused the relevant material on record. The common issue involved in the present cases is whether in the facts and circumstances of the cases, the assessees which are joint ventures are required to deduct tax at source from the payments made to their constituent members on account of execution of their respective shares of work. It is observed that this issue earlier had come up for consideration before the coordinate bench of this Tribunal in the first round, and keeping in view the various contentions raised on behalf of the assessee, which were found to be not properly adjudicated by the learned CIT(A), this issue was remitted back by the Tribunal to the learned CIT(A) for fresh adjudication in accordance with the provisions of S.250(6). While doing so, the Tribunal in paragraph No.12 of its order dated 30th May, 2012 (supra) took note of the two decisions cited on behalf of the assessee, one of the Visakhapatnam Bench of the Tribunal in the case of UAN Raju Constructions (supra) and the other by the Mumbai Bench of the Tribunal in the case of SMC Ambika JV (supra). On a perusal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under- "Thus on an understanding of the concept of the "Joint Venture" and the terms of agreement between the members of the present case, we are of the view that in the instant case, the consortium of Joint Venture has been formed only to procure the contract works. By 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, 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 thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2004) 267 ITR 618 (P&H) . .In this case it was held that if there is no contract between the assessee and a sister-concern, the provisions of section 194C are not applicable. 11. ......" 19. As discussed and noted by the learned CIT(A), the facts involved in the case of UAN Raju Constructions (supra) were found to be identical compared to the case of the assessees herein. She also considered the concluding remarks of the Tribunal on a similar issue in the case of UAN Raju Constructions (supra) as well as in the case of SMC Ambika JV (supra), and finally held that these judicial precedents are directly in favour of the assessee. 20. At the time of hearing before us, the learned Departmental Representative has contended that the two decisions of the Tribunal in the case of UAN Raju Constructions (supra) and SMC Ambika JV (supra) cited on behalf of the assessee and relied upon by the learned CIT(A) to decide the issue in favour of the assessee in her impugned order, are distinguishable on facts in as much as the joint ventures in these cases were formed just to secure the contracts, but the work of execution was bifurcated amongst the constituent members on a definite basis, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aborate and to form a Consortium under the name and style of the MEIL-SEWMAYTAS- BHEL (CONSORTIUM), HYDERABAD and with an intention of pooling up their respective qualifications and to synergize and exploit the respective experience and expertise in the respective fields for the purpose of securing the contract and in relation thereto to assist each other and utilize their expertize, experience and knowledge, as may be necessary, for the bidding and if awarded, for successful implementation, conduct and completion of the works. The parties hereby agree to co-operate and act in good faith, fairness and equity as between themselves. 3.2 In the event, the Consortium is successful in the tender for the work, the parties herein shall enter into a detailed agreement defining the nature of their association, as the case may be, and shall reduce into writing thereunder, their respective scope of works, responsibilities, liabilities and all other aspects that have not been specifically covered hereunder." It is clearly manifest from the above clause of the original consortium agreement that the consortium/joint venture was formed with an intention of pooling up their respective qualificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provided by it shall be complete for the purposes of the Contract, so that the supplies, work and services provided by all the Parties together shall comprise the entire Work. Without prejudice to the generality of the foregoing and subject to the provisions of this clause 3 of each party's scope of work 3.7. Without prejudice to the provisions of other clauses in this Agreement, each Party shall be solely and entirely responsible in particular (but without limitation) (a) for the sufficiency of the Tender and Contract prices for its SCOPE OF WORK and responsibilities; (b) for the due performance of its SCOPE OF WORK in accordance with the terms of the Contract; and (c) for the timely execution of its SCOPE OF WORK in accordance with the Contract programme (as may be varied or extended in accordance with the Contract). (d) for investigation, design, goods services, fuel, power con sumables and works, which though not expressly stipulated in the contract may reasonably be inferred to form part of its SCOPE OF WORK or to be necessary for the performance of such SCOPE OF WORK, except to the extent: (i) Such things which are expressly provided within the SCOPE OF WORK of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant machinery, Lab and Survey equipment and financial resources required to complete its scope of the contract in time as per the accepted time schedule. 25. In the case of UAN Raju Constructions (supra), there was Clause 3(a) in the consortium joint venture agreement, which provided that the members of the joint venture would share in a prescribed percentage, the profits arising out of the joint venture. In spite of this specific clause, the Tribunal held that in reality, the members of the joint venture had shared the work only and there was no profit or loss in the joint venture. As already noted by us, the detailed consortium agreement in the present case provided for sharing of the responsibility of the project in the prescribed percentage and not the profit arising out of the joint venture, and this being so, we agree with the contention of the learned counsel for the assessee that the facts involved in the present case are little more favourable to the assessee than the facts in the case of UAN Raju Constructions (supra). 26. It is thus clear that the facts involved in the case of UAN Raju Constructions (supra) were materially similar to the facts involved in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsult ZT GmbH, In re (supra) in support of the Revenue's case on the issue under consideration. It is however, observed that the issue involved in that case before the AAR was altogether different than the issue involved in the present case. In the said case, a company incorporated in Austria formed a joint venture with two Indian companies specializing in providing project consultancy services. The Road Development Corporation of Himachal Pradesh had awarded a contract to the Austrian company to provide consultancy services for the development of seven tunnels in Simla as well as other areas of Himachal Pradesh. The three parties who formed the joint venture, had agreed to collaborate for all work associated with the consultancy services for feasibility design of the road tunnels. The contract was between the three partners of the joint venture and the Corporation and provided that any income earned by the venture would be the income of the venture and not of the individual partners. The agreement between the three parties to the joint venture provided inter alia that (i) Each member was responsible for fulfilling the obligation under the contract; (ii) each member had unrestricte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong 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 partnership firm where they are partners. As always admitted, the format of an agreement or the style of accounts by themselves do not decide the true character of relationship of parties in a business and the nature of transactions relating to the business. What is to be applied is the rule of Pith (Form) and substance. One has to see the real nature of the relationship and character of transactions, necessarily looking beyond the formalities of agreements and accounts. For that matter for calculation, it is not the format of agreements and the manner of accounting alone that decide the issue. The deciding factor is the real intention of the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 said provision relating to deduction of tax at source is not applicable for the assessee for the reasons stated above, violation uls.40(a) (ia) does not arise. If that is the case, payments made under the nomenclature of "sub- contractors" are not liable to be disallowed. 19. It is also useful to refer to Section 70 of the Contract Act which deals with the obligation of the person enjoying the benefit of non- gratuitous act. In other words, it is the case of 'Unjust Enrichment'. For the mistakes and follies committed by the assessees, it may not be justified on the part of the Revenue to insist that the assessees were making payments t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selves in agreement with the contention of the learned counsel for the assessee that the common issue involved in the present cases is squarely covered in favour of the assessee by at least three decisions of the coordinate benches of this Tribunal where in a similar issue has been decided in favour of the assessee, involving similar facts and circumstances of the case. We therefore, find no infirmity in the impugned order of the learned CIT(A), whereby she held following two of the three decisions of the Tribunal, viz. of the Visakhapatnam Bench in the case of UAN Raju Constructions (supra) and of the Mumbai Bench in the case of SMC Ambika JV (supra), that there being no relationship of contractor and subcontractor between the assessee AOP/joint venture and its constituent members, tax at source was not required to be deducted from the payments made by the assessee AOP to its members, as per the provisions of S.194C(2), and consequently, there was no question of treating the assessees as in default under S.201(1). We therefore, uphold the impugned order of the learned CIT(A) and dismiss these appeals filed by the Revenue. 31. As regards the common issue involved in the Cross obje ..... X X X X Extracts X X X X X X X X Extracts X X X X
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