TMI Blog2014 (12) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as an AOP for the purpose of levy of income-tax - The applicant will be liable to be taxed as a separate and independent entity. Disallowance of contract receipts u/s 40(a)(ia) – 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. - ITA. No. 65/PN/2011 - - - Dated:- 22-8-2012 - Shri Shailendra Kumar Yadav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... status, the Assessing Officer has no choice but to tax it, irrespective of the fact as to whether such share of profit has been offered to tax or taxed in the hands of members or not. 8. The learned Commissioner of Income-tax (Appeals) erred in not considering the recent and elaborate judgement of the Hon'ble Authority for Advance Rulings in the case of Geoconsultant ZT GMBH, in Re(2008) 304 ITR 283 wherein the joint venture was held to be AOP, following the decision of the Hon'ble Supreme Court decision in the case of Ch.Achaiah. 9. For these and such other grounds as may be urged at the time of hearing, the order of the learned CIT (Appeals) may be vacated and that of the Assessing Officer be restored. 2. The assessee is a joint venture between Gammon India Ltd., and Progressive Constructions Ltd., and returns have been filed in the status of AOP since A.Y. 2001-02 at Nil income every year. This was because the contract revenue was directly apportioned between the two corporate entities, i.e., the members of the joint venture, and there was no receipt/expenditure and no Profit and Loss in the case of the appellant. The main issue is of treating revenue sharing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OP. CIT(A) erred in ignoring that assessee being a separate entity u/s.2(31) of the Act, and having Permanent Account Number should have prepared its own Profit Loss Account as well as the Balance Sheet reflecting the full transactions undertaken by it and not just showing apportionment of receipts/payments and assets/liabilities between its members. CIT(A) erred in failing to appreciate that work contract orders issued to the assessee by the contratee were in its name and so also the payments were credited to the assessee s account. As such, reallocation of these contracts among the members of the assessee amounts to sub-contracting. Accordingly, the Assessing Officer was justified in applying the provisions of section 40(a)(ia). Same should be upheld. On the other hand, Ld. Authorised Representative submitted that the Assessing Officer has erred in treating revenue sharing between the assessee and its members and sub-contracting and thereby disallowing the amount of ₹ 4,12,49,749/- u/s. 40(a)(ia) of the Act for 8 years. The assessee, therefore, submitted that Assessing Officer was not justified in making disallowance of ₹ 4,12,49,749/- u/s. 40(a)(ia) of the Act. Bes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss revenue but also the corresponding TDS to its members in the ratio of their work done by individual members for which the appointment certificate was duly issued every year by the Assessing Officer. In this background it was submitted that there was no relationship of contractor and sub-contractor between the joint venture and its two members. Therefore, there was no question of applicability of TDS provisions u/s.194C of the Act. The assessee also explained why a returns were filed by the joint venture as AOP. It was explained that it was done to pass on the credit of TDS to the members on the basis of tax apportionment certificates who have accounted for the corresponding contract revenue in their respective returns. It was also submitted that Nil income arising in the hands of the AOP is confirmed by the action of the Assessing Officer in not assessing any profit/income arising from the contract apart from this disallowance u/s. 40(a)(ia) of the Act. The assessee vide its submissions dated 26.03.2010 and 06.09.2010, explained the difference between revenue sharing arrangement entered into by the joint venture vis-a-vis subcontract. It was explained on behalf of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the joint venture AOP was for the distribution of receipts amongst its constituents in proportion of their work sharing. Therefore, there was no applicability of provisions of TDS u/s.40(a)(ia) of the Act. 8. Further, the assessee, vide its submission dated 06.09.2010, made comparison of the tax rates applicable to domestic companies, being joint venture partner in their individual capacity and the tax rates applicable to the AOP. However, in submission dated 21.10.2010, it was explained that tax rates in the case of domestic company and the AOP would be the same in this case. This was due to applicability of section 167B of the Act. The assessee also filed details of the returns of income of the two corporate entities being joint venture members, alongwith acknowledgements of their I.T. returns, which revealed that both of them had huge positive returned incomes every year. For this payment the stand of the assessee was that the method of apportionment of revenue to the members was not to take any undue benefit of losses incurred by them. Therefore, it was stated that there was no loss to the revenue as a result of this method adopted by the assessee of sharing the gross r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear to enable them to claim the same in their own cases. Moreover, there was no Profit and Loss Account in the assessee s case and there was no claim of any expenditure. Therefore, there was no question of any disallowance under the provisions of section 40(a)(ia) of the Act. Moreover, disallowance u/s. 40(a)(ia) made by the Assessing Officer cannot be sustained. In effect, the method adopted by the Assessing Officer will also result in double taxation of the same contract revenue which is in violation of the Karnataka High Court decision reported in 197 ITR 321 (Kar.). This view is fortified by the decision of the ITAT Pune Bench in ITO vs. Rajdeep PMCC Infrastructure, wherein the Tribunal has observed as under: 6. We have noted that it is an admitted position that no work is carried out by the AOP, it has acted as a conduit between the MSRDC and the two persons constituting this AOP so far as their separate, and neatly identified, work areas are concerned. A mere existence of an AOP cannot lead to taxability in the hands of the AOP unless the AOP receives monies in its own right. We have noted that Hon'ble Authority of Advance Rulings was in seisin of a materially ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... associate with a plumber and an electrician to execute a building project. All these persons are driven by profit-making motive. But that by itself will not make the three persons liable to be taxed as an AOP if each one has a designed and independent role to play in the building project. In the instant case, the applicant has stated that the applicant has made its own arrangement for execution of work independent from that of HCC. There is no control or connection between the work done by the applicant and HCC. 8. On the facts hereinabove, the applicant and HCC cannot be treated as an AOOP for the purpose of levy of income-tax. The applicant will be liable to be taxed as a separate and independent entity. The question No.1 is answered accordingly. 7. We are in considered agreement with the views so expressed by the Hon'ble Authority for Advance Ruling. We adopt the reasoning of the Hon'ble AAR and, respectfully following the same, approve the conclusion arrived at by the CIT(A) and decline to interfere in the matter. In view of the above discussion, we are not inclined to interfere in the finding of the CIT(A) who has directed the Assessing Officer to delete th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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