TMI Blog2015 (3) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of the assessee. - ITA No. 444/2014, ITA NO.445/2014 - - - Dated:- 10-2-2015 - S. Ravindra Bhat And R. K. Gauba,JJ. For the Petitioner : Sh. Rohit Madan, Sr. Standing Counsel, for Revenue in both appeals. For the Respondent : Sh. Rajat Navet, Advocate ORDER Mr. Justice S. Ravindra Bhat (Open Court) 1. The question of law which the revenue seeks to urge in these two appeals, being ITA Nos. 444-445/2014, which involve common questions of fact arising from a common order of the Income Tax Appellate Tribunal (ITAT) in ITA Nos. 2691-92/Del/2012 dated 07-02- 2014 is as follows: Whether a proportion of the project receipts, commensurate with the risks/performance obligations, should be attributed to the assessee JV to whom tender had been awarded for the project and undertook significant risks and responsibilities for the completion of the project and whether it is allowable for the assessee to divert the entire receipts to its JV partners by designing a sub-contract to that effect? 2. The assessee in ITA No. 444/2014 is a joint venture (JV) between M/s Oriental Structural Engineers P. Ltd, New Delhi and M/s KMC Construction Ltd. Hyderabad, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a separate taxable entity as far as Income Tax Act, 1961, is concerned and have deliberately included such income/profits in their books in order that the exact profits are not distinguishable easily in the complexities involved in their books, given the wide range of their respective business activities and operations. The AO considered it reasonable and appropriate to assessee (sic) the income in the hands of the assessee JV at 5% of the gross contractual receipts. 5. The AO's decisions were challenged before the Commissioner (Appeals) - i.e. CIT (A). The latter, by his order, reversed the findings of the AO and held inter alia, after analyzing the contents of the MOU of the assessee, as follows: The constituent of this JV are separate legal entities distinct from the JV. It is a fact that the JV constituents are already taxed at maximum marginal rate. Taxing the AOP would tantamount to double taxation. The assessing officer has applied ad hoc estimated rate of profit to the gross receipts without rejecting the books of accounts of the appellant. 6. The ITAT dismissed the appeals of the revenue for AY 2009-10 by relying upon its own order in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was entered between Joint Venture and its partner as a sub-contractor, wherein it is clearly stated:- Para - 2 SCOPE OF WORKS TO BE PERFORMED BY THE PARTIES OF THE SECOND (M/s KMC Constructions Ltd.) AND THIRD PARTS (M/s Oriental Structural Engineers Pvt. Ltd.) Para 2.1 That party of the second part shall execute all items of work contained in bill of quantities as per Annexure A . Para 2.2 That party of the third part shall execute all items of work contained in Bill of Quantities as per Annexure B . Para 2.3 That work is divided among the parties of the second and third parts on the promise assumption or understanding that each of the parties are executing 50% of the project and shall receive 50% of the contract amount. Para 4 PAYMENT/DISTRIBUTION Para 4.1 All payment for the executed item in the bills of quantities parties of the second and third parts and those received by the JV from the Employer in connection with the Main contract shall be passed on to the parties of the second and third parts within one day after receipt of the payment by the JV from the Employer. 3. OPERATION OF THE CONTRACT WORK AWARDED TO JV Based on these conditions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a decision of a Division Bench, which made references to several other judgments, including those of the Supreme Court when a person is said to exist as an association of persons. In that decision, i.e. Linde AG, Linde Engineering Division and Anr. v. Deputy Director of Income Tax W.P. (C) No. 3914/2012 CM No. 8187/2012, reported in [2014] 365 ITR 1 (Delhi), first, the Court considered the definition of Association of Persons (Section 2 (31)) and then analyzed it in the following terms: (31) person includes- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses; Explanation.- For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains; 27. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 3. 35. It is obvious that unless the facts lead to a conclusion that there is sufficient joint participation for a common enterprise, it would not be appropriate to treat two or more persons as an Association of Persons for the purposes of assessing them as a separate taxable entity. A mere cooperation of one person with another in serving one s business objective would not be sufficient to constitute an Association of Persons merely because the business interests are common. A common enterprise, which is managed through some degree of joint participation, is an essential condition for constituting an Association of Persons. 36. It follows from the above discussions that before an association can be considered as a separate taxable entity (i.e. an Association of Persons), the same must exhibit the following essential features: (i) must be constituted by two or more persons. (ii) the constituent members must have come together for a common purpose. (iii) the association must move by common action and there must be some scheme of common management. (iv) the cooperation and association amongst the constituent members must not be perfunctory and/or merely in form. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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