TMI Blog2011 (7) TMI 1340X X X X Extracts X X X X X X X X Extracts X X X X ..... V, the assessee was to execute 40% of the work in Navayuga, the other constituent partner was to execute 60% of the works awarded. The assessee was therefore to execute work worth ₹ 265.80 crores, out of which works valued at ₹ 18.12 crores were executed during the A.Y. 2006-07. Both the constituent partners of the JV raised bills on the JV for quantity of work as certified by technical consultant appointed by the State Government. The JV in turn raised a consolidated bill on the Irrigation Department of Andhra Pradesh Government without making any additions. The Department makes the payments to the JV, which shares the payment in accordance with the bills raised by each. The JV files its Income Tax returns separately but does not claim any deduction u/s 80IA(4) therein. 3. The assessee had also formed a consortium along with one M/s. Corporation Transtroy, OJSC, Moscow, with the understanding that the assessee would execute 100% of the works which were awarded to the consortium by KSHIP, a body of the Government of Karnataka. During the year assessee executed works valued worth ₹ 31.09 crores. The assessee claimed deduction u/s 80IA(4) on the profits derived o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited our attention to the order of the Tribunal in the case of ITO Vs. UAN Raju Constructions ITA No.344/Vizag/2009 of this bench with the submissions that the concept of joint venture was examined by the Tribunal in this case and the Tribunal has given a specific finding that joint venture cannot be held to be the main contractors and the members of the same are the sub-contractors. Reasons for holding so were given that as per the concept of a joint venture each joint venturer shall stand in relation to a principal as well as an agent of others. Once it is held that joint venturer or the constituent of the ventures cannot be called to be a sub-contractor of the joint venture, the constituents of joint venturer are eligible for all benefits or deductions or exemptions which are available to the joint venture for the reasons that the work awarded was executed by the constituents of the joint venture and not by the joint venture itself. In fact joint venture is an artificial body in whose name the contract was awarded. A reliance was also placed upon the judgement of the Bombay High Court in the case of CIT Vs. ABG Heavy Industries Ltd. Ors. 322 ITR 323. During the course of heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts scope of work. It was also agreed that none of the party shall assign its rights and obligations to any other party without written consent of other party. From a careful perusal of this joint venture agreement and the consortium agreement, it is evidently clear that the joint venture and the consortium was formed only with an object to bid contract. Once the project or contract is awarded to the joint venture or the consortium, it is to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. In the instant case in case of a joint venture agreement, the assessee was entitled to execute the 40% of total work awarded by the Andhra Pradesh Government to the joint venture and in case of a consortium it was agreed that the entire work is to be executed by the assessee itself. Therefore for all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture is an independent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Though the Joint Venture Agreements generally fall in the category of Association of Persons (AOP) under the Income tax Act, yet their assessability in the status of AOP was not free from doubt and we notice that the authorities have decided this issue on the basis of facts and circumstances of each case. 8. The Hon ble Supreme Court has made a detailed discussion on the concept of Joint Venture in the case of Fazir Chand Gulati Vs. Uppal Agencies Private Ltd. (2008) 10 SCC 345. The relevant observations are extracted below:- 17. This Court had occasion to consider the nature of `jointventure' in New Horizons Ltd vs. Union of India [1995 (1) SCC 478). This Court held : The expression joint venture is more frequently used in the United States. It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control of his employer except as to the result of the work, while a joint venture is a special combination of two or more persons where, in some specific venture, a profit is jointly sought without any actual partnership or corporate designation. (Emphasis supplied) To the same effect is the definition in Corpus Juris Secundum (Vol. 48A pages 314-315): Joint venture, a term used interchangeably and synonymous with joint adventure', or coventure, has been defined as 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 or a special combination of persons undertaking jointly some specific adventure for profit, for which purpose they combine their property, money, effects, skill, and knowledge........ 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 exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies have established joint ventures with the Indian Companies. With regard to the issue of the assessability of Joint ventures, the foreign companies have approached the Authority for Advance Ruling (AAR). We discuss below the decision rendered by AAR in brief. a) Van Oord ACZ BV (248 ITR 399): In this case the parties therein had specifically provided in the agreement that each party will bear its own loss and retain the profits separately. There was also specific declaration that it was not the intention to create a joint venture to carry on business in common. The parties therein had undertaken separate scope of works according to their respective technical skills. There was no control and connection between the work done by each of the parties. Thus it was noticed that there was no intention to carry out any business in common. Under these factual circumstances, the AAR held that the consortium cannot be treated as Association of Persons under the Income Tax Act. It is pertinent to note that this decision was rendered prior to 1.4.2002, i.e. prior to the insertion of the Explanation to section 2(31). b) Geo Consult ZT GMBH (304 ITR 283): In this case, though the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 . As per the original clause 3(a), the members of Joint Venture would share in a prescribed percentage in all profits arising out of joint venture. However, the said clause was in contradiction to the preamble of the agreement; wherein it had been stated that the members are desirous of sharing the contract amount. In view of the above, it appears that the Clause 3(a) was amended in accordance with the original intention of the members. However in clause 12 dealing with Final Accounts, we find a mention about sharing of profit or loss, but there is no mention about the proportion. However, in reality, the members have shared the work only and hence there was no profit or loss for the Joint Venture. 11.1 Further, clause 9 of the agreement which deals with the Resources specifically states that each joint venturer shall provide plant and equipment required for the execution of their portion of contract and such plant and machinery shall not become asset of the joint venture. Thus there is no clear provision in the Joint Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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-contractors . Once this presumption has been found to be wrong, then the question of estimation of income by way of Sub-contract commission does not arise. So also the question of deduction of tax u/s 194C(2) of the Act and the disallowance u/s 40(a)(ia) does not arise. In view of the fore going discussions, we do not find any infirmity in the decision reached by the Ld CIT(A). 10. There is no dispute with regard to the nature of business or the activities undertaken by the assessees. The dispute is only with regard to the identity of a person to whom this benefit of deduction u/s 80IA(4) can be allowed. We have carefully perused the provisions of section 80IA(4) and we find that the benefit of exemption/deduction is to be allowed to any enterprise carrying on business of developing or operating and maintaining or developing, operating, maintaining any infrastructure facility subject to fulfillment of certain conditions. One of the condition is that the enterprise should be owned by a company registered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay 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 this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. [Explanation.-For the purposes of this clause, infrastructure facility means- (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Government of Karnataka to the J.V. and consortium but the work was executed by the assessee and the other constituents. In case of joint venture agreement, 40% works were executed by the assessee and in case of consortium, the 100% work was executed by the assessee. Whatever bills were raised by the assessee for the work executed on J.V. and consortium, the joint venture and consortium in turn raised the further bill of the same amount to the Government. Whatever payment was received by the joint venture, it was accordingly transferred to their constituents. Therefore, the joint venture or the consortium was only a paper entity and has not executed in contract itself. They have also not offered any income out of the work executed by its constituents, nor did they claim any deductions u/s 80IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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