2017 (8) TMI 1595 - AT - Income Tax

TDS u/s 194C - Disallowance u/s 40(a)(ia) - assessee AOP had received contracts from third party which in turn was executed by the two members of AOP - Whether 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 - HELD THAT - As decided in SHRADDHA MAHALAXMI JOINT VENTURE (DONGARGAON WORK) 2014 (12) TMI 347 - ITAT PUNE as relying on SWAPNALI RDS JOINT VENTURE 2014 (12) TMI 320 - ITAT PUNE held that 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 AO every year for these eight years including the current assessment year to enable them to claim the same - there was no Profit and Loss Account in the assessee s case and there was no claim of any expenditure - there was no question of any disallowance under the provisions of section 40(a)(ia) - disallowance u/s. 40(a)(ia) made by the AO cannot be sustained - the finding of the CIT(A) cannot be interfered who has rightly held that there is no question of disallowance made u/s. 40(a)(ia) of the Act Decided against revenue.

Summary

Issues Involved:
1. Applicability of Section 194C for TDS on payments made by the Joint Venture to its members.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS.
3. Determination of the status of the Joint Venture as an Association of Persons (AOP) versus a firm.

Detailed Analysis:

1. Applicability of Section 194C for TDS on Payments by the Joint Venture to its Members:
The Revenue contended that the Joint Venture (JV) should have deducted TDS under Section 194C on payments made to its members, arguing that reallocation of the contract among JV members amounted to sub-contracting. The Assessee argued that the JV was merely a conduit for obtaining contracts and distributing revenue among its members, not engaging in sub-contracting. The CIT(A) and the Tribunal both held that the JV's arrangement was a revenue-sharing model, not a sub-contract, thus Section 194C was not applicable. This conclusion was supported by precedents, including the Tribunal's decision in the case of Swapnali RDS Joint Venture and Shraddha & Mahalaxmi Joint Venture, where similar arrangements were deemed not subject to TDS under Section 194C.

2. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:
The AO disallowed the entire amount paid to JV members under Section 40(a)(ia) due to non-deduction of TDS. The CIT(A) overturned this disallowance, following the precedent set in Swapnali RDS Joint Venture, where it was held that revenue-sharing arrangements within a JV do not constitute sub-contracting, thus not attracting TDS provisions. The Tribunal upheld the CIT(A)'s decision, noting that the facts of the present case were identical to those in the cited precedents, and no distinguishing features were presented by the Revenue.

3. Determination of the Status of the Joint Venture as an AOP versus a Firm:
The AO initially treated the JV as a firm, but the Assessee clarified that the JV was an AOP, consistently filing returns as such. The CIT(A) and the Tribunal accepted this status, noting that the JV's role was limited to obtaining contracts and distributing revenue to its members, without retaining any profit or incurring any expenses itself. This status was crucial in determining the applicability of TDS provisions and the subsequent disallowance under Section 40(a)(ia).

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years, affirming the CIT(A)'s decision that the JV's revenue-sharing model did not constitute sub-contracting, thus not attracting TDS under Section 194C. Consequently, the disallowance under Section 40(a)(ia) was not warranted. The Tribunal's decision was based on consistent application of legal principles established in prior similar cases, with no new distinguishing facts presented by the Revenue.