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TMI Blog2016 (9) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable for the purpose of TDS without appreciating the fact that the work contract order issued to the assessee were in assessee's name and so also the payments were credited to the assessee's account and as such reallocation of these contracts among the members of the assessee would amount to sub contracting. 2) The learned Commissioner of Income-tax (Appeals) erred in not appreciating that the assessee Joint Venture was in full control of the contract, responsible for its completion, submitting bills, receiving payments and making those payments to its members towards sub contract on which tax was deductible u/s.194C. 3) The learned Commissioner of Income-tax (Appeals) erred in not considering that if the share of profit is determined in the Joint Venture Agreement, then it cannot be anything but AOP and where the charge is on the income of the AOP, in such status, the Assessing Officer has no choice but to tax it irrespective of the fact as to whether such share of profit has been offered to tax or taxed in the hands of members or not. Reliance is placed on decision of Hon.Supreme Court in the case of Ch.Achaiah (1996) 218 ITR 239 and on the ruling of AAR in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e joint venture does not execute any contract but was a conduit for obtaining work, receiving payments against work done by the individual constituents and distribution of amounts in their individual shares as per the agreed ratio. The Assessing Officer opined that while assessee AOP did not execute any contract, the entire contract was passed over to its members. Therefore, such arrangement partakes the character of sub-contract given by the AOP. He further stated that the assessee during the course of assessment proceedings submitted that the contract work had been given to its member without deduction of tax at source in terms of provisions of section 194C. Detailed submissions were made by the assessee which were not accepted by the Assessing Officer for the reason that the assessee was an AOP which was awarded the contract of executing the work and the said work has been carried out by a different entity. The Assessing Officer held that the execution of contract work was primarily the responsibility of AOP which had received the contract. When the work had been executed by a different entity, it was nothing but a sub-contract and just because it was given to one of the members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2 He, thereafter, adverted our attention to the decision of the Hon'ble Delhi High Court in the case of Linde AG, Linde Engineering Division and Anr. vs. DCIT reported in 361 ITR 1 (Delhi) to further support of its case. 8.3 The Ld. AR next relied upon the recent CBDT Circular No.07/2016 dated 07th March, 2016 which has clarified that consortium arrangement of similar type shall not be treated as an AOP. He submitted that in view of the express Circular, the claim of the assessee that taxability of income generated from the contract requires to be taxed in the hands of the respective members. 9. As an alternate contention, the Ld. AR contended that as per second proviso to section 40(a)(ia) of the Act, the disallowance under section 40(a)(ia) cannot be made if the assessee is not deemed to be assessee in default under the first proviso to section 201(1) of the Act. He relied upon the decision of the Co-ordinate Bench of the Tribunal in the case of ITO vs. Shri Chandrakant J. Mandale in ITA No.1708/PN/2012, order dated 10.04.2015 and the decision of the Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P.) Ltd. reported in (2015) 377 ITR 635 (Delhi) for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce :- "10. We have heard the rival and perused the records. In the facts of the present case, the issue arising before us is in relation to the application of provisions of section 40a(ia) of the Act. The assessee AOP had received contracts from third party which, in turn, was executed by the two members of AOP. The plea of the assessee AOP was that it was constituted for obtaining work and receiving payments against the said work done by the constituents of the AOP and the said payment was to be distributed in the agreed ratio between the two members of the AOP for carrying out the work. Such assignments of the work to the members as per the Memorandum of Understanding agreed upon is not equivalent to sub-contract and as such the assessee AOP was not liable to deduct tax at source out of the amount distributed amongst the members of the AOP in the agreed ratio of share. The Assessing Officer, while deciding the issue in the hands of the assessee, had given an office note to the effect that in the case of M/s. Swapnali RDS Joint Venture (supra), similar addition under section 40(a)(ia) of the Act has been made for the assessment year 2008-09 which has been deleted by the CIT(A)-II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r receiving the payment, which was immediately distributed in the ratio of the share of the work done. The actual share in the joint venture of the total work allocated was 60% for M/s.Gammon India Ltd. and 40% for M/s.Progressive Contraction Ltd. In this background it was explained that the contract account and the Balance Sheet of the joint venture reveals nothing but apportionment of contract receipts, assets and liabilities between the members. There was no expenditure booked in the contract account nor any Profit and Loss Account prepared for the purpose since there did not arise any profit or loss to the assessee per se. The Joint venture transferred not only the gross revenue but also the corresponding TDS to its members in the ratio of their work done by individual members for which the appointment certificate was duly issued every year by the Assessing Officer. In this background it was submitted that there was no relationship of contractor and sub-contractor between the joint venture and its two members. Therefore, there was no question of applicability of TDS provisions u/s.194C of the Act. The assessee also explained why a returns were filed by the joint venture as AOP. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained the difference between cases of contract/subcontract, in the background of clauses of the agreement, the assessee relied on the decision of Hon'ble Himachal Pradesh High Court in the case of CIT vs. Ambuja Darla Kashlog Mangu Transport Cooperative Society (2009) 227 CTR 299 (HP). 7. In the background of the tax apportionment certificates issued by the Assessing Officer, it was stated on behalf of the assessee that the Assessing Officer has marked copy of this certificate to the members of the joint venture as well as to their respective Assessing Officers, which shows that the Assessing Officer has applied his mind and consciously accepted the fact that the joint venture AOP was for the distribution of receipts amongst its constituents in proportion of their work sharing. Therefore, there was no applicability of provisions of TDS u/s.40(a)(ia) of the Act. 8. Further, the assessee, vide its submission dated 06.09.2010, made comparison of the tax rates applicable to domestic companies, being joint venture partner in their individual capacity and the tax rates applicable to the AOP. However, in submission dated 21.10.2010, it was explained that tax rates in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in their respective cases and the joint venture partners had also utilised the TDS credits on the basis of apportionment certificate issued by the Assessing Officer. In view of the above discussion, CIT(A) was justified in holding that in absence of any contract or sub-contract work by joint venture to its member companies, provisions of section 194C were not applicable for the purpose of TDS. The two corporate entities forming joint venture were already being assessed since A.Y. 2000-01 onwards on their respective shares and TDS apportionment certificates were also issued by the Assessing Officer every year for these eight years including the current assessment year to enable them to claim the same in their own cases. Moreover, there was no Profit and Loss Account in the assessee's case and there was no claim of any expenditure. Therefore, there was no question of any disallowance under the provisions of section 40(a)(ia) of the Act. Moreover, disallowance u/s. 40(a)(ia) made by the Assessing Officer cannot be sustained. In effect, the method adopted by the Assessing Officer will also result in double taxation of the same contract revenue which is in violation of the Karnataka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The association with the HCC was not with the object of earning this income but for co ordination in executing the contract so that HCC could also make its own profit. HHC's work and income arising therefrom was quite separate and independent of the applicant's work and income. If the cost incurred by the HCC or the applicant was more than their income, each party will have to bear its loss without any adjustment from the other party. The association of the petitioner company with HCC was undoubtedly for mutual benefit but such association will not make them a single assessable unit and liable to tax as an AOP. For example, a building contractor may associate with a plumber and an electrician to execute a building project. All these persons are driven by profit-making motive. But that by itself will not make the three persons liable to be taxed as an AOP if each one has a designed and independent role to play in the building project. In the instant case, the applicant has stated that the applicant has made its own arrangement for execution of work independent from that of HCC. There is no control or connection between the work done by the applicant and HCC." 8. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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