2018 (6) TMI 1846 - AT - Income Tax

TDS u/s 194C - assessee AOP worked as sub-contractor - AO was of the view that the capacity of the AOP was a sub-contractor therefore the Joint Venture was under obligation to deduct the TDS - CIT(A) held that provision u/s 194C of the Act is not applicable and allowed the claim of the assessee - HELD THAT - Joint Venture has received the contract work by way of agreement. The parties have only the relationship inter-see in respect of Joint responsibility that existed in relation to the principal i.e. National Highway Authority of India. In fact both the parties have decided to execute the contract on their own part. There is nothing on record to which it can be assumed that each member was interfering with the work of another. The Joint Venture is the main contractor and the members are not sub-contractor when the members are nowhere falls within the category of sub-contractor then there is no question of deduction u/s 194C of the Act and the question of disallowance u/s 40(a)(ia) of the Act nowhere arise. Under the Joint Venture each party was under obligation to execute its own work according to its technical skill and capability for specified consideration and to bear its own losses and to retain its own profit separately. Each party is liable to be assessed as separate and independent entity. The contract awarded by the NHAI was a divisible contract. The Joint Venture was having specific constitution with regard to execution of work of independent entity. As relying UAN RAJU CONSTRUCTIONS 2011 (5) TMI 636 - ITAT VISAKHAPATNAM wherein held no merit in the presumption made by the AO that the Joint Venture is the Main Contractor and the members are the Sub-contractors thus we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Decided against revenue.

Summary

Issues Involved:
1. Whether the income of the assessee is liable to be assessed as a separate independent entity or as an Association of Persons (AOP).
2. Applicability of Section 194C regarding Tax Deducted at Source (TDS) on payments made by the Joint Venture to its members.
3. Disallowance under Section 40(a)(ia) for non-deduction of TDS.
4. Comparison with similar cases, specifically Geoconsult ZT GMBH and ITO vs. Atchaih.
5. Whether the CIT(A) erred in deleting the addition made under Section 40(a)(ia).

Comprehensive, Issue-wise Detailed Analysis:

1. Assessment as Separate Entity or AOP:
The revenue argued that the assessee, being a joint venture, should be assessed as an AOP in consonance with Section 2(31)(v)(iv) read with the explanation to Section 2 of the Income Tax Act. The CIT(A) held that the income of the assessee is liable to be assessed as a separate independent entity and cannot be assessed as an AOP. The CIT(A) relied on the decision of the Authority for Advance Ruling in the case of Vanoord ACZ BV, where it was held that parties executing a construction contract in joint venture, each agreeing to bear its own loss and retain its own profit separately, cannot be treated as an AOP.

2. Applicability of Section 194C:
The Assessing Officer (AO) contended that the joint venture was under obligation to deduct TDS under Section 194C, treating the members of the joint venture as sub-contractors. The CIT(A) disagreed, stating that the AOP was not in the capacity of a sub-contractor and hence, the joint venture was not obliged to deduct TDS. The CIT(A) concluded that Section 194C was not applicable as the payments made by the joint venture to its members were not in pursuance of any independent contract for work but were merely an appropriation of funds received from NHAI.

3. Disallowance under Section 40(a)(ia):
The AO disallowed an amount of Rs. 13,94,22,302/- under Section 40(a)(ia) due to non-deduction of TDS on payments made to the members of the joint venture. The CIT(A) held that since the joint venture was not required to deduct TDS under Section 194C, the disallowance under Section 40(a)(ia) was not applicable. The CIT(A) further noted that the joint venture did not claim any deduction of expenditure in its return of income, and hence, the question of disallowance under Section 40(a)(ia) did not arise.

4. Comparison with Similar Cases:
The revenue cited the case of Geoconsult ZT GMBH, where it was held that the joint venture was assessable as an AOP. The CIT(A) distinguished the present case from Geoconsult ZT GMBH by emphasizing that in the present case, each party to the joint venture was liable to be assessed as a separate and independent entity. The CIT(A) also referred to the decision in Hyundai Rotem Co., where it was held that the consortium formed by the members was not assessable as an AOP.

5. Deletion of Addition under Section 40(a)(ia):
The AO's addition under Section 40(a)(ia) was based on the assumption that the joint venture was the main contractor and its members were sub-contractors. The CIT(A), however, found that the joint venture merely collected payments from NHAI and remitted them to the respective co-contractors without any independent contract or sub-contract. Therefore, the CIT(A) deleted the addition made under Section 40(a)(ia).

Conclusion:
The ITAT upheld the CIT(A)'s decision, agreeing that the joint venture was not liable to be assessed as an AOP and that the provisions of Section 194C and Section 40(a)(ia) were not applicable. The ITAT emphasized that each member of the joint venture was responsible for its own work and profits, and there was no joint execution of the project that would necessitate TDS deduction. The appeal filed by the revenue was dismissed.