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TMI Blog2023 (9) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... er constituent as compensation, constitutes payment in the nature of commission to be covered u/s. 194H of the Act. Assessee has taken six grounds of appeal on the aforesaid issues in AY 2018-19 and five grounds in AY 2019-20 wherein a demand of Rs. 20,08,126/- is raised for AY 2018-19 u/s. 201(1)/201(1A) and Rs. 1,48,00,974/- for AY 2019-20. The grounds are not reproduced for the sake of brevity. 3. Brief facts of the case are that assessee Joint Venture (JV) was formed by RAMKY Infrastructure Ltd. (hereinafter referred to as 'RAMKY' and ECI Engineering & Construction Ltd. (hereinafter referred to as "ECI") in the name of RAMKY-ECI (JV). National Highways & Infrastructure Development Corporation Ltd. (NHIDCL) awarded the work of execution of development of road project at Kohima, Nagaland, assessee being the successful bidder. Assessee JV entrusted the execution of the said work to ECI who had to execute and complete the work as per the provisions of the contract agreement entered into between the assessee JV and NHIDCL. 3.1. For this purpose an internal agreement was entered into between the two JV partners i.e. RAMKY and ECI, dated 19.01.2015. This internal agreement laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be transferred to ECI account irrespective of profit/loss. In case JV is successful in tender process, operation modality and escrow mechanism shall be finalized between both the parties. Roles and responsibilities of each Party in summarization shall be as follows: Name of the Party Responsibility ECRAMKY 51% Equity RAMKY will be the lead member or the Consortium and provide advisory & Management support including technical support to the consortium and shall be responsible for sharing its experience, related to the Project Management and provide recommendations to the Consortium. ECI 49% Equity ECI will be the member of the Consortium and have overall responsibility for implementing the project including liaising with the CLIENT and other regulatory bodies and shall be responsible for the supply of equipment, construction of road work, civil works, etc which from part of the Project. 3.2. According to this agreement, ECI shall execute 100% work as detailed in the drawing specification and other information furnished in the contract agreement. RAMKY will be compensated by an amount of equivalent to 2.25% of the corresponding gross bills received from NHIDCL. Paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.26A (Rule 31 ACB), along with a certificate of Accountant under first proviso to sub section(l) of section 201 of the Act, by providing the details of return of income filed and payment of tax by ECI, who has executed the work. In respect of assessment year 2019-20, such certificate could not be produced as the survey was conducted on 09.10.2018, and show cause letter was issued on 22.01.2019, before completion of financial year 2018-19 and the time limit for filing of the return of income u/s 139(1) was 31.10.2019, therefore, there was no scope for filing of Form No. 26A for the assessment year 2019-20. 3.6. Ld. AO passed an order u/s 201(1A) for assessment year 2018-19, determining total amount payable at Rs. 20,08,126/- which includes tax deductable u/s 194H of Rs. 4,55,663/- and interest u/s 201(1A) at Rs. 15,52,463/-. In respect of assessment year 2019-20, tax liability u/s 201(1) was determined at Rs. 1,36,51,425/- and interest u/s 201(1A) at Rs. 11,49,549/-, aggregating to Rs. 1,48,00,974/-. Aggrieved by this order, an appeal was filed before the Ld. CIT(A)-1, Guwahati. 4. Before the Ld. CIT(A), assessee contented that there is no contractor and subcontractor relationsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t gross level only to facilitate convenience in billing; c. the men and materials used for any area of work are under the risk and control of respective consortium members; d. the control and management of the consortium is not unified and common management is only for the inter-se coordination between the consortium -members for administrative convenience;" 5.2. Thus in reference to the above attributes laid down by the CBDT circular, Ld. Counsel submitted that under the internal agreement, entire work awarded by NHIDCL was executed by ECI, who is one of the constituents of JV, on its own risk. According to him, the said internal agreement itself states that ECI is responsible for all the statutory liability, penalty, if any and shall procure men and machinery and other resources for execution of the work. The execution of project and its risk and awards are clearly demarcated in the internal agreement which is in the knowledge of NHIDCL from whom the work has been awarded. Ld. Counsel thus, asserted that considering the guidelines issued by the CBDT, there is no scope to treat the assessee JV as an AOP. According to him, there is no contract and sub-contract relationship bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the work executed by ECI who is responsible to execute the same on its own risk and is responsible also for all the statutory liabilities, penalties and procure men and machine and other resources for the execution of work. 7.1. We have also perused the attributes which has been listed by CBDT in its circular (supra) whereby the JVs are not to be treated as an AOP so as to avoid income tax disputes and to have consistent approach while handling such cases. We do note that the present facts and circumstances of the case fulfils the requirements of the attributes listed by the CBDT, not to treat a JV as an AOP. 7.2. The status and legal position of JV under the Act has been elaborately discussed by the Co-ordinate Bench of ITAT, Cuttack in the case of HCIL Adhikarya-ARSS (JV) (supra) by considering the decision of Hon'ble Supreme Court in the case of Fazir Chand Gulati Vs. UPPAL Agencies Pvt. Ltd. (2008) 10 SCC 345. The discussion made by the Co-ordinate Bench of ITAT, Cuttack in this respect is extracted below: "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 mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sprudence [2nd Edition, Vol.46 pages 19, 22 and 23] is relevant: "A joint venture is frequently defined as an association of two or more persons formed to carry out a single business enterprise for profit. More specifically, it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, a corporation or other business entity, pursuant to an agreement that there shall be a community of interest among the parties as to the purpose of the undertaking, and that each joint venture 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. 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 sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le defined project. The necessary elements are: (1) an express or implied agreement; (2) a common purpose that the group intends to carry out; (3) shared profits and losses; and (4) each member's equal voice in controlling the project." 9. On a careful reading of the order of the Hon'ble Supreme Court, we notice the following essential ingredients for a "Joint Venture". a) It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit. (or) b) it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership. (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 cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 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. The definition of commission contained in Explanation to section 194H is as under: "Commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities." 8.2. From the above definition, 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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