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TMI Blog2015 (5) TMI 1247X X X X Extracts X X X X X X X X Extracts X X X X ..... nt forming part and parcel of contract agreement between the appellant and the principal binding the venturors with joint and several liability and obligation for performance of the contract including statutory compliance to the extent of their share of participation. 3. For that, the orders of the forum below equally is without any authority and sanction of Income Tax Act 1961, as the condition precedent for applicability of section 194 (C) of the Act in the form of "contract" or "sub-contract" agreement binding the appellant with the co-venturors with "contractor -contractee" "Principal -Contractor" or "main-contractor- Sub-contractor" relations do not exist between the appellant and the co-venturors, nor the same was made out by the forums below. 4. For that for the reasons stated in the ground no 2 and 3 above the actions of the forums below in applying the rigors of Section 194 (C) & 201 of the IT is purely as surmises and conjecture which makes their order illegal and arbitrary. 5 For that the Forums below have violated the settled position of law, where it has been enunciated in Associated Cement Company case reported in (1993) 201 ITR 435(SC) their Lord ship analyzing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip of "Contractor- Contractee" "Contractor- Sub-Contractor" and held that any transaction between them would not attract the rigors of Section 194C and consequential provision of section 201 of the Act. As such the order violates the basic cannons of law of honouring the precedence. 8. For that the principal having deducted tax from the appellant and venturor having admitted Income and paid tax thereon, covering tax effect of the project, the interest of revenue is well protected. The learned CIT (A) failed to appreciate this fact and held that as the event of tax being admitted by the venturor, the interest U/s. 201 (IA) would be charged till the date of filling the return by venturor, treating the transaction between appellant and the venturor being covered Uis.1 94C. 9. For that, any other grounds incidental to the grounds of this case may kindly be permitted to urge at the time of hearing of the case." 2. Though various grounds are raised in these appeals, but the controversy involved therein is with regard to liability of deduction of TDS on payments made to the constituents of the Joint Venture. The facts in brief borne out from the record are that a Joint Venture Agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 4. Aggrieved thereby, appeals were preferred before the CIT(A) but the assessee did not find favour with him. Now, the assessee is in further appeals before the Tribunal and reiterated its submissions. In support of his contention, ld. AR of the assessee has placed reliance upon the orders of the Visakhapatnam bench of the Tribunal in case of ITO Vs. UAN Raju Constructions, ITA Nos.344/Vizag/2009 & ITA No.77/Vizag/2010, dated 13-5-2010, in which the Tribunal has taken a view that there was no subletting of contract once the contract was executed by the constituent of JV. It was further contended that this order of the Tribunal was followed by the Hyderabad Bench in case of M/s Hindustan Ratna JV Vs. ITO, reported in (2014) 49 ITD 443 (Hyd). 5. Ld. Counsel for the assessee further invited our attention that the deductee has already paid the taxes on the receipts, therefore, the assessee cannot be held to be in default u/s.201(1) of the Act. In support of this contention, he also placed reliance on the order of the Agra bench of the Tribunal in the case of Rajeev Kumar Agarwal Vs. ADCIT, reported in (2014) 34 ITR(Trib) 479 and the order of the Lucknow bench of the Tribunal in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons and hence the contract allocated to the members should be treated as "Sub-contracting". However, the case of the assessee is that the Joint Venture has come into existence only to procure and win the contracts and since the contracts were allocated between the members and further they were executed separately by each of the members, no income can be said to have arisen in the hands of the assessee-AOP. 7. In our country, the implementation of infrastructure projects is taking place in a massive scale. In this connection, global tenders are invited. Hence two or more business enterprises are joining hands by forming a consortium of Joint Venture in order to get qualified for participating in tender process. They regulate themselves, by entering into an agreement, the methodology to be adopted for executing the contract obtained. Before going into the main issues, we feel that it is imperative to discuss about the status and legal position of "Joint Venture" vis-a-vis Income tax Act. The Joint Ventures are not be governed by the provisions of the "Indian Partnership Act, 1932. It is also a known fact that there is no statute which governs a Joint Venture. Hence the issue regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong the parties as to the purpose of the undertaking, and that each joint venture must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise. Joint ventures are, in general, governed by the same rules as partnerships. The relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties, and liabilities are generally tested by rules which are closely analogous to and substantially the same, if not exactly the same as those which govern partnerships. Since the legal consequences of a joint venture are equivalent to those of a partnership, the courts freely apply partnership law to joint ventures when appropriate. In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships." "A joint venture is to be distinguished from a relationship of independent contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (or) c) a special combination of two or more persons wherein some specific venture for profit is jointly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for profit. d) that each joint venturer must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise. e) Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling 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." 10. As sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes "an association of persons or a body of individuals, whether incorporated or not. Since the term "Association of Persons" (AOP) was not defined in the Act, the Courts have interpreted to mean that it is an association established to produce income. Hence the Finance Act 2002 has inserted an "Explanation" to section 2(31), according to which, an AOP shall be deemed to be a person, whether or not such AOP was formed or established with the object of deriving income, profits or gains. However, in the instant case, there is no dispute with regard to the assessability of the "Joint Venture" per se. Both the assessee and the department have taken the stand that the "Joint Venture" is assessable in the status of "Association of Person". However, the issue is whether the AO is right in treating the Joint Venture-AOP as the main contractor and its members as the sub-contractors, thereby estimating the income which was not earned by the Joint Venture. 11. On the basis of the understanding of the concept of "Joint Venture", let us consider the facts in the present case. The amended clause 3 reads as under: "a) The joint venturers shall subject to the provisions hereinafter contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nship is created between the Joint Venture and its members. 12. 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, both 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctor cannot be held to be assessee in default. In this regard a reference was made to the orders of the Tribunal in case of Raja Chkravarty (supra) and Rajeev Kumar Agarwal (supra), in which it has been held that once the deductee has made the payment of taxes on the receipts the deductor cannot be held to be assessee in default. Therefore, on both counts, the assessee cannot be held to be in default u/s. 201(1) of the Act. 10. So far as the interest charged u/s. 201(1A) of the Act is concerned, the same cannot be charged once it is held that there is no liability to deduct the TDS on the payments made by the assessee to its constituents. It is irrelevant that in few assessment years, the assessee has deducted the TDS on payments made to its constituents. If the assessee has done something wrong, it does not make him responsible to commit mistake in succeeding years. Following the view taken by the Tribunal in different cases, we are of the considered view that the Joint Venture is not responsible to deduct the TDS on the payments made to its constituents for the work executed by them in the light of the facts, where the Joint Venture was formed to obtain the contract from the Go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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