TMI Blog2023 (9) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of sec 194H for the compensation paid to RAMKY, out of the gross bills received from NHDICL, by treating it as commission. Definition of commission as contained in section 194H does not befit the payment of 2.25% made to RAMKY to subject it to tax deduction at source. From the definition of commission contained in Explanation to section 194H in the present case, compensation paid by assessee JV is not for acting on behalf of JV for any service. Further, there are no services taken by the JV in the course of buying or selling of goods nor there is any transaction relating to any asset, valuable articles or thing. Accordingly, the payment is not in the nature of commission and section 194H does not get attracted. Hence, assessee JV is not to be treated as assessee in default. Assessee cannot be held to be the assessee in default u/s. 201(1) and liable for interest charged u/s. 201(1A) - Decided in favour of assessee. - Shri Rajpal Yadav, Vice President And Shri Girish Agrawal, Accountant Member For the Appellant : Md. Afjal, Advocate For the Respondent : I. Gyaneshori Devi, JCIT ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: Both these appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Co. Limited and ECI shall execute and complete the work in accordance with the provisions of the Contract Agreement to be entered into between RAMKY- ECI (JV) and Client, and also as per instructions issued by the Client from time to time in accordance with the said Contract Agreement. All the taxes levied on RAMKY ECI (JV) and commission if any, and all other expenses involved or incidental to the Work should be paid, borne and/or reimbursed by ECI. ECI shall execute all (100%) the items of work as detailed in the drawings, specifications and other information furnished in the Contract Agreement, including extra Items, deviations and substitutions of the work i.e., at the same consideration and terms and conditions as applicable between RAMKY - ECI (JV) and the Client subject to the overhead Fee (as stated below) due to RAMKY: Parties agree that subject to mutual agreement between parties, RAMKY will deploy Project Management Team (PMT) to handle official correspondence. Parties expressly agree that size of such team shall be mutually decided, keeping overall Interest of the Project. The cost of PMT which shall be the actual cost, incurred by RAMKY and the same shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account, towards compensation. Remaining payment shall be transferred to ECI s account irrespective of profit/loss. ECI agreed through this internal agreement to observe, perform and comply with the provisions of the contract agreement which shall employ the required technical and administrative personnel and labour force as well as all other adequate resources for completing the work according to the terms and conditions of the contract agreement with NHIDCL. ECI shall also provide security, performance guarantee, bank guaranty against machinery and mobilisation advance as required by NHIDCL and shall bear the expenses to be incurred in obtaining such guarantees. All the expenses incurred in obtaining such guarantees shall be borne by the ECI. 3.3. ECI shall get necessary registration done and shall secure approvals required by relevant authorities on behalf of RAMKY ECI (JV) and shall bear all associated costs. All statutory compliances are the responsibility of ECI such as submission of returns, assessments and any other compliances under both direct and indirect taxes including income tax, works contract tax, value added tax, service tax, PF deduction and payments, ESI, min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r thing, not being securities. Therefore, it was pleaded not to treat the assessee as assessee in default in respect of provisions of section 201(1) and 201(1A) for both the assessment years. Ld. CIT(A) confirmed the orders of the Assessing Officer. Aggrieved by the order of the Ld. CIT(A), assessee is in appeal before the Tribunal. 5. Before us, Ld. Counsel for the assessee reiterated the factual position as stated above. According to him, purpose of forming J V is to perform the work contract from NHDICL. The agreement of formation of J V will expire, if the JV is not awarded the work contract. It will also expire when the work awarded as completed as per the contract agreement. Ld. Counsel further stated that JV set up is not governed by the provisions of Indian Partnership Act, 1932. Relation between the constituents of the JV are decided as per the agreement entered into by its constituents. Such a JV cannot be treated as Association of Persons (AOP) for the purpose of income-tax. 5.1. To buttress his contention, he referred to the CBDT Circular No. 07 of 2016 dated 07.03.2016 which was issued considering the dispute in respect of consortium contracts which are formed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to ECI. According to ld. Counsel, assessee JV is not required to deduct tax in respect of payments made to its constituents for execution of work to ECI and for payment of compensation to ECI. 5.3. Ld. Counsel referred to several decisions of Co-ordinate Bench of ITAT to submit that similar issues have been dealt with in favour of the assessee by holding that provisions of section 194C and or 194H do not apply in case of such JV arrangements for execution of the work contract awarded to the JV and executed by its constituents. He placed reliance on the decision of Co-ordinate Bench of ITAT, Hyderabad in the case of ITO Vs. KCEL-MEIL (JV) 13 Ors. in ITA No. 323 to 336/Hyd/2014 dated 13.01.2014. He also referred to the decision of Co-ordinate Bench of ITAT Cuttack in the case of HCIL Adhikarya-ARSS (JV) in ITA No. 496/CTK/2012 dated 21.05.2015 and several other decisions as listed below: (i) KCL AMRCL JV, Hyderabad Vs. ITO in ITA No.1409/H/2016 and 793/H/2017 dated 29.11.2017, (ii) ITO Vs. UAN Raju Constructions (2011) 48 SOT 178. (iii) SMC Constructions Vs. ITO (2011) 48 SOT 178, (iv) ITO Vs. Hindustan Ratna (JV), Hyderbad in ITA No. 852/H/2015 dt. 29.11.2018 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained. Before going into the main issues, we feel that it is imperative to discuss about the status and legal position of Joint Venture visa-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 between the parties. 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 `joint venture' in New Horizons Ltd vs. Union of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrol 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. 7.3. Based on the above detailed discussion, the Co-ordinate Bench arrived at a conclusion that consortium of JV has been formed only to procure the contract works. By way of the agreement, the parties have regulated the relationship entered with respect to their joint responsibility that existed in relation to the member. In reality, both the parties have divided the contract work between themselves and have executed their share of work on their own risk. It was thus concluded that there is no merit in the presumption made by the AO that the JV is the main contractor and the constituents are the subcontractors. Accordingly, it held that question of deduction of tax at source u/s. 194C(2) does not arise. It was thus concluded that assessee JV was not liable to deduct tax at source and, therefore, it cannot be held to be in default u/s. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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