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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 ..... 014 & CO 36/Hyd/2014 331/Hyd/2014 & CO 37/H - - - Dated:- 13-1-2014 - Shri P. M. Jagtap And Shri Saktijit Dey,JJ. For the Appellant : Shri Ramakrishna Bandi For the Respondents : Shri K. C. Devadas ORDER Per Bench:- These fourteen appeals filed by the Revenue in the case of fourteen assessees are directed against a common order passed by the learned Commissioner of Income-tax(Appeals) II, Hyderabad dated 6.12.2013 and the same have been heard together and are being disposed alongwith corresponding cross-objections filed by the assessee companies, being CO Nos.29 to 42/Hyd/2014, by a single consolidated order for the sake of convenience. 2. The solitary common issue involved in the appeals of 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 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and there is unified management, Joint Venture has to be treated as Association of Persons and the payments made to constituents are equivalent to payments made to sub-contractors therefore, liable to TDS u/s. 201(1) and u/s. 201(1A). 5. Against the orders passed by the Assessing Officer under S.201(1) and S.201(1A) of the Act, appeals were preferred by the assessees before the learned CIT(A), who initially upheld the orders passed by the Assessing Officer under S.201(1)/S.201(1A), treating the assessees as in default for their failure to deduct tax at source from the payments made to their constituent members. On further appeals filed by the assessees, the Tribunal vide its order dated 30.5.2012 passed in ITA Nos. 63 to 76/Hyd/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 transferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer and the same was taken as credit by constituents. This was done as a measure of prudence to avoid any future dispute and penal action/ The concession under incorrect assumption of law cannot be treated as words of statute. It is well recognized principle that there is no estoppel against law, the appellant places reliance on the following case laws; (i) CIT V/s. VMRP Firm 56 ITR 67 1974 if a particular income is not exigible to tax under the statute, the ITO has no power to impose tax on the same. (ii) In the case of A.Venkat Ramaiah 57 ITR 185V, the Hon ble Supreme Court held that . Even in cases where the assessee himself had offered the income to tax, if it is not taxable as per the statute, the amount cannot be brought 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstituents subsequent to award of contract by the government. Sample copy of MEIL, IVRCL-HCC was submitted and the appellant informed that in all the existing cases the terms of agreements are more or less similar. 8. After considering the submissions made by the assessees as well as the relevant documentary evidence placed on record before her, the learned CIT(A) observed that the Government agency as per the relevant agreements were clearly dealing with only one entity termed as contractor , which was joint venture. She noted that in the agreement running into more than 500 pages, no reference was made either to joint venture or its constituents, and the reference all through was by the expression contractor as a single entity and as such, in the eyes of these government agencies, the 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-contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the money belonging to the government and the same was not paid within the prescribed time limits, it was logical that the Joint Venture should pay interest under S.201(1A) of the Act for using the government money. Aggrieved by the order of the learned CIT(A) giving relief to the assessee in terms of S.201(1), the Revenue has preferred the present appeals before the Tribunal, whereas the assessees have filed the cross objections challenging the order of the learned CIT(A) confirming the levy of interest under S.201(1A). 11. The Learned Departmental Representative submitted that there were two agreements entered into between the consortium and their constituent members, one before securing the tender and the other after securing the tender. He contended that these agreements specifically entered 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 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax at source was required to be deducted by the assessee-JVs from the payments made to their constituent members as per the provisions of S.194C. 14. The learned counsel for the assessee, on the other hand, invited our attention to the relevant portion of the order passed by the Tribunal in the first round and pointed out that a specific direction was given by the Tribunal to the learned CIT(A) to decide the issue involved in these cases afresh in the light of the decision of the Visakhapatnam Bench of ITAT in the case of ITO V/s. UAN Raju Constructions (supra) and Mumbai Bench of the Tribunal in the case of SMC Ambica (supra). He also invited our attention to paragraph 11 of the impugned order of the learned CIT(A) to point out that the learned CIT(A) as per the directions of the Tribunal decided the 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the entire contract receipts received by the joint venture were passed on to the constituent members by the assessee in these cases, without keeping any profit, as in the case of Hindustan Ratna JV. (supra). 16. In the rejoinder, the Departmental Representative submitted that the case-laws cited by the learned counsel for the assessee are distinguishable on facts in as much as the joint ventures in these cases were formed to secure the contracts only, and the execution was done separately by the constituent members. He submitted that the basis of such bifurcation of work was very clear and the same was very much known to the principal, who entrusted the contract. He also submitted that the contract receipts in those cases did not belong to the JVs and the same were recognized by the constituent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relationship between Joint Venture and its Members has to be decided on the terms of agreement. Though the Joint Venture agreement generally fall in category of Association of Persons under Income Tax Act, 1961. Yet their assessability in the status of AOP is not free from doubt. (ii) A joint venture is to be distinguished from a relationship of an 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 profit is jointly sought without any actual partnership or corporate designation. (iii) In concluding remarks, the Hon ble Tribunal held 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers. Therefore, provisions of section 194C(2) are not attracted. d) In the following cases the Hon'ble Supreme Court held that there is substantial question of law involved in determining whether the AOP was liable to deduct tax on its members and the matter was remanded to respective High Courts: a. CIT vs. Sirmour Truck Operators Union (2009) 313 ITR 27 (Se). a. CIT vs. Bilaspur District Truck Operators Transport Cooperative Society (2009) 225 CTR (SC) 260. e) Gourangalal Chatterjee and Others vs. ITO Others (2001) 247 ITR 737 (Cal). In this case two partnership firms were formed as a Joint Venture. The Department assessed the income in the hands of two partnership firms. It was held that the Department cannot proceed against the Joint Venture treating the same as Body of Individuals. f) CIT vs. Eskay Construction Co. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor. He therefore, held inter alia that the assessee was required to deduct tax at source from the payments made to the members, and since no such tax was deducted by the assessee AOP from the contract amount of ₹ 31,54,425, he made disallowance of that amount by invoking the provisions of S.40(a)(ia). 22. The facts of the case of UAN Raju Constructions (supra), as narrated above, show that the same are similar to the facts of the present case and in our opinion, there is no material distinction in the facts of the present case as compared to the facts in the case of UAN Raju Constructions (supra). In the present case, the purpose of forming the consortium was stated in the original consortium agreement, sample of which is placed in paper-book, in clause 3 as under- 3. PURPOSE OF THE CONSORTIUM : 3.1. The parties hereby have agreed to collaborate 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 relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installation. 3.3 The Contract envisages an operation Maintenance period of 15 years. The parties shall be responsible for the Operation and maintenance of the scope of work executed by them. 3.4 The site establishment for the project viz. Offices, camp for employees/labour, laboratory facilities, workshops etc., pertaining to the scope of Civil works shall be provided by SEW. Similarly, the site establishment for the hydro mechanical and electrical work shall be provided by MEIL. 3.5 It is agreed that common cost, including but not limited to cost for the financial and legal advice for common interest of the parties shall be borne by the parties in proportion to the contract price corresponding to its scope of work, provided that items and amounts of common cost shall be mutually agreed by the parties before incurring the costs. 3.6. Each Party undertakes that the supplies, work and services to be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Account, leaving no profit or income to the joint venture. 24. In the case of UAN Raju Constructions (supra), clause 9 of the consortium agreement dealt with the resources and had specifically stated that each member of the joint venture shall provide plant and equipment required for execution of their portion of the contract and such plant and machinery shall not become the asset of the joint venture. After taking note of this clause in paragraph No.11.1 of its order, the Tribunal held that there was thus no clear provision in the joint venture agreement providing any joint execution of the project and the joint realization of profits. In the present case, clause 14 of the detailed consortium agreement dealt with joint and several liability of the members, which specifically provided that each party shall be responsible to mobilise its part of resources required for the project, for example, engineers, technicians, man-power, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 49%. For the relevant year, the AOP credited the entire contract receipts from Thane Municipal Corporation to its Profit Loss Account and after debiting the payments made to the members towards their share of work, the profit was declared at Rs.NIL. The AOP did not carry any work by itself and the entire work was carried out by the members of the AOP. The entire project thus was executed by the AOP partners and the AOP was formed only for bidding the tender and getting the contract for the AOP partners for execution. Keeping in view these facts of that case, which are similar to the facts of the present case, the Tribunal held that there was no contractor or subcontractor relationship existed between the AOP and its joint venture partners and S.194C(2) had no application. 28. At the time of hearing before us, the Learned Departmental Representative has relied on the decision of the Authority for Advance Ruling in the case of Geoconsult 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustan Ratna JV (supra) in the context of disallowance made under S.40a(ia) involving similar facts and circumstances as involved in the present case and the same was decided by Tribunal in favour of the assessee after considering all the relevant aspects of the matter in detail in paragraphs 14 to 22, which read as under- 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o speaking, when there is no basis for coming to a conclusion that there existed a relationship of contractor vis-a-vis sub-contractor, it is useful to look into the principle embodies in section 20 of the Indian Contract Act of 1872. This section provides that where both parties to an agreement are under a mistake 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 subcontractors. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm and they are jointly and severally liable towards the owners for the execution of the contract commitments in accordance with the contract conditions. Being so, the provisions of section 194C cannot be attracted so as to treat them as sub-contractors of the firm thereby invoking the provisions of section 40(a)(ia). In other words, we can safely conclude that there is no sub-contract between JV and the constituents and since the JV has been formed only to procure contract works from the Government and the contract is being executed by the constituent partners in their sharing ratio 60:40 as per the terms of JV, it cannot be said that the JV is a contractor and its constituents are sub- contractors. Accordingly, we set aside the orders of the revenue authorities and delete the disallowance of ₹ 111,09,23,018/- made by the Assessing Officer by invoking the provisions of section 40(a)(ia) of the Act. 30. Keeping in view the above discussion, we find ourselves 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 coordinat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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