TMI Blog2014 (2) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... 011 (11) TMI 348 - CALCUTTA HIGH COURT] - TDS paid before the due date for filing of the Income Return is an allowable deduction and cannot be disallowed u/s 40(a)(ia) - disallowance u/s 40(a)(i) is only to the extent of the amount outstanding as on the last day of the previous year and amounts which have been paid during the previous year cannot be disallowed for non-deduction of TDS. Disallowance made u/s 40a(i) of the Act - Non-deduction of tax on payments made – Held that:- Earlier the profits of the individual constituents are to be assessed in their individual hands and there is no question of the Assessee deducting tax at source while passing on the payments to the constituents towards their share of work carried out by them, the disallowance being the share of receipts of the Chinese concern towards their share of work carried out in the hands of the Assessee is deleted - it has to be verified whether the Chinese concern has offered this income for tax in India - If the Chinese concern has not filed income Tax return and offered this amount as part of their income in computing their taxable income, the same shall be assessed as income of the assessee, as the person respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected in the hands of MPL- one of the constitutents (ii) Rs. 24,96,00,027/- being the contract amounts for whicuh TDS was not deducted and (iii) Rs. 2,71,38,750/- being amount due to the Chinese constituent of the consortium on the ground TDS was paid in the subsequent year and (iv) Rs. 86,39,27,480/- on the ground that TDS was paid belatedly. The AO determined the taxable income of the Assessee at rs. 116,77,27,038/- 3. The mains issue is whether the appellant being an AOP/JV is liable to deduct tax at source from the payments made to the constituent partners. The AO has relied on the decision of Hon ble ITAT, Hyderabad in the case of KCT-PES, JV Vs. ITO Ward 14(2), Hyderabad in ITA No.779 and 780/Hyd/2003. The issues raised by the appellant before the ITAT were as under: a. KCT-PES JV is not a person as per the IT Act and hence there is no liability to deduct tax at source. b. That the individual constituent of the JV are not sub contractors of the KCT-PES JV. 4. As regards the first issue, the Hon ble ITAT observed that the status of the appellant is AOP only. As regards the second issue, the ITAT observed that the appellant s contention that there is no sub co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion of the payment made by it to its constituents JV M/s. Madhucon Projects Ltd. Hence the CIT(A) has held that the Assessee is liable to deduct tax at source in respect of contract works carried out by the constituents. Consequently the CIT(A) has confirmed the disallowance of certain payments to constituents on the ground that Tax has not been deducted at source by the AOP. 7. Aggrieved the Assessee is in appeal. The Assessee AOP was formed by the two constituents only for the purpose of obtaining the contracts from the government. But once the contract was obtained, the work to be carried out by each of the constituent is clearly demarcated. The respective constituent carries out the work earmarked to them and are paid the contracted amount for the same. The respective constituent have offered the income from carrying out the project apportioned between themselves. 8. The joint venture or the consortium was formed only to obtain the contract from the Government bodies. At the time of execution of the joint venture or the consortium, it has been made clear that work/project awarded to the joint venture would be executed by the joint venturers or the constituents. As per m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 7.01.2011 (for the AY 2006-07) and in the case of M/s Soma Enterprises v DCIT in ITA No 1116/Hyd/2010 dated 15.06.2011 have held that if the constituent has offered income from the JV, then credit must be given to the TDS made by the client, even though the TDS certificates may be in the name of the AOP. This clearly shows that the profits from the JV are to be offered by the respective constituents and the constituents shall be entitled to the TDS credit deducted by the client, even if such TDS certificates are in the name of the AOP. In the circumstances there is no question of AOP granting works contract to the constituents, requiring deduction of tax at source. 9. In the circumstances we hold that the Assessing officer erred in recasting the P L of the AOP to bring in the works directly taken up by the constituents. Further the constituents have offered the income from their portion of the project as their income and offered the same for tax. This has been accepted by the Department. From the ratio of the decisions cited above, in the case of a JV/ Consortium formed specifically for the sole purpose of obtaining the contracts and specific portions of the projects are carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore disallowed the amount as per section 40a(i) of the Act. This was confirmed on appeal by the CIT(A) 12. In view of our conclusion earlier that the profits of the individual constituents are to be assessed in their individual hands and there is no question of the Assessee deducting tax at source while passing on the payments to the constituents towards their share of work carried out by them, the disallowance of Rs. 2,71,38,750/- being the share of receipts of the chines concern towards their share of work carried out in the hands of the Assessee is deleted. However, it has to be verified whether the Chinese concern has offered this income for tax in India. If the Chinese concern has not filed income Tax return and offered this amount as part of their income in computing their taxable income, the same shall be assessed as income of the assessee, as the person responsible for making the payment to the Non Resident. If the Chinese constituent has not offered this amount as part of their taxable income in india, the AO may take suitable action for bringing the amount to tax in accordance with provisions of the Act. 13. The next issue in Assessee s appeal is against the add ..... X X X X Extracts X X X X X X X X Extracts X X X X
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