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TMI Blog2013 (5) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... .3.2006 the assessee has completed part of the work allocated; and both the constituents have raised bills on J.V. for quantity of work as certified by technical consultant appointed by the Government. The J.V. in turn raised a consolidated bill on the Irrigation Department of the Andhra Pradesh Government, without making any addition. The department makes payment to the J.V., which shares the payment in accordance with the bills raised by each constituent. The J.V. files income-tax returns separately but does not claim deduction u/s 80IA (4) thereon. 3. The assessee had also formed a consortium along with one M/s. Corporation Transtroy OJSC. Moscow with the understanding that assessee would execute 100% of the work which was awarded to the consortium by KSHIP, a body of Government of Karnataka. The assessee claimed deduction u/s 80IA(4) on the quantum of works executed for the year ending 31.3.2006 and the profits derived from there, which was disallowed by the A.O. on the ground that work was not allotted to the assessee but to a J.V. 4. The assessee preferred an appeal before the CIT(A) and pleaded that this issue was minutely examined by the Tribunal in the assessee's own ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses, the contract was awarded to the constituents of the joint venture through joint venture and the work was executed by them. Therefore, the benefit of deduction under this section is to be given only to the enterprises who carried on the classified business. The relevant portion of the order of the Tribunal is extracted hereunder for the sake of reference:- 8. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below and documents placed on record, we find that undisputedly 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 mutually agreed terms and conditions between them, it was also agreed that each party shall be responsible for the provisions of without limitation on resources required for the purpose of fulfillment of the scope and also solely responsible for the performance of its scope of work and shall bear all technical, commercial and facing r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 regarding the relationship between the members and also between the members and the Joint venture has to be decided on the basis of the terms of agreement entered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin 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 contractor, the latter being one who, exercising an independent employment, contracts to do work according to his own methods and without being subject to the control of his employer ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. (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 stated earlier, in order to participate in the global tender process, some of the foreign companies have established joint ventures with the Indian Companies. With regard to the issue of the assessability of Joint ventu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, be entitled to share the work as mutually agreed on item wise, depending on the work schedule. Sharing of the work and execution of the work can be altered at any given time with mutual consent of both the J.V. Partner's". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 their respective share of contract works in their hands. In this kind of situation, we do not find any merit in the presumption made by the AO that the Joint Venture is the "Main Contractor" and the members are the "Sub-contracto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om claiming the deduction or exemption u/s 80IA(4). For the sake of reference, we extract the provisions of section 80IA(4) as under: Section 80IA(4): This section applies to - (i) Any enterprise carrying on the business [of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely:- (a) it is owned by a company registered in India or by a consortium of such companies [or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;] (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under sub-section (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking: [Provided further that in the case of any undertaking which develops, develops and operates or maintains and operates and industrial park, the provisions of this clause shall have effect as if for the figures, letters and words "31st day of March, 2006", the figures, letters and words "31st day of March, [2011]" had been substituted;] (iv) an [undertaking] which,-- .............................. ............................... ................................ (vi) .......... 11. Turning to the facts of the case, we find that joint venture and the consortium was formed only to obtain the contract from the Government body and they in fact did not execute the work awarded to it. In a joint venture agreement or a consortium agreement, it was agreed that the awarded work had to be executed by the joint venturers or parties to the agreement in an agreed manner. The work was awarded by the Andhra Pradesh Government and the KSHIP, a body of the State G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, no TDS is required to be made but the assessing officer has not taken into consideration the said explanation. It was further contended that freights are made to single truck owners and debited to M/s. D.R. Southern Construction Pvt. Ltd. It means the payments were made by the assessee on their behalf and no payment under sub-contract is involved and hence, no TDS is required to be made. The CIT(A) re-examined the issue and being convinced with it he deleted the addition. The relevant observation of the CIT(A) is extracted hereunder: "I have considered the submissions made by the appellant, gone through the order of the AO and heard the AR in person. It is a fact borne out of the records that the appellant has made use of banking faciliti4es of M/s. D.R. Southern Constructions Pvt. Ltd., and also paid certain expenses on behalf of M/s. D.R. Southern Constructions Pvt. Ltd., in which payment of transportation charges is one. As per the explanations offered by the AR, whatever the payments that were made by the appellant on behalf of M/s. D.R. Southern Constructions Pvt. Ltd., during the year were shown as receivable from M/s. DR Southern Constructions Pvt. Ltd., and as such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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