TMI Blog2015 (5) TMI 1247X X X X Extracts X X X X X X X X Extracts X X X X ..... oth counts, the assessee cannot be held to be in default u/s. 201(1) of the Act. Interest charged u/s. 201(1A) cannot be charged once it is held that there is no liability to deduct the TDS on the payments made by the assessee to its constituents. It is irrelevant that in few assessment years, the assessee has deducted the TDS on payments made to its constituents. If the assessee has done something wrong, it does not make him responsible to commit mistake in succeeding years Joint Venture is not responsible to deduct the TDS on the payments made to its constituents for the work executed by them in the light of the facts, where the Joint Venture was formed to obtain the contract from the Government and the contract was executed by the constituents. We, therefore, of the view in the instant case that, the assessee was not liable to deduct the TDS, therefore, he cannot be held to be in default and liable to be charged interest u/s. 201(1A) - Appeals of the assessee are allowed. - SHRI SUNIL KUMAR YADAV, JM AND SHRI B.P. JAIN, AM For the Assessee : Shri Sunil Mishra For the Revenue : Shri Shovan Krishna Sahu ORDER PER BENCH: These appeals are pref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other manner. (4) But, when the person referred to in Formulation-3 either credits the sum referred to therein to the account of or pays it to the contractor, he shall deduct out of that sum an amount equal to two per cent as income-tax on income comprised therein. From the above formulations provided by the Honble Apex Court it is abundantly clear that, there must be a contract and the payment should be made in pursuant to a contract. Therefore, when the both the appellant as well as the member constitutent of the appellant denies to have a contract and stated the transaction in between them are only transfer of fund based upon equity participation as per the terms of the joint venture agreement, the forums below ought not have been inferred regarding existence of a contract in absence of any document substantiating to such presumption. Hence the impugned order is the outcome of pure surmises and conjectures and are liable to be quashed. 6. For that the order passed by the Forums below with the finding that the relation between the appellant Joint Venture and its member constituent as Contractor and Sub Contractor without any concrete evidence is illegal when as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilway lines between Haridashpur-Paradeep, East Coast Railway in the State of Orissa. According to the AO the entity of Joint Venture is a taxable entity which is covered u/s.2(31) of the Income Tax Act (hereinafter called as the Act ) as an Association of Persons (AOP). The Joint Venture has filed its return with the status of AOP since the assessment year 2008-09 and the tax auditor in Form No.3CD has also certified the status of the JV as Association of Persons. 3. It came to the notice of the ITO(TDS) that the HCIL, one of the constituents of JV, has claimed credit to the TDS in its return filed for different assessment years but the tax credit statement in Form No.26AS of HCIL did not show any amount to have been credited to its account. In order to remove such mismatch in TDS, the JV was asked to file revised e-TDS return. On verification it was surfaced that the contract given to JV by the assessee was executed by the constituents on behalf of JV and accordingly the amount received on execution of work was also apportioned amongst the constituents. The AO has taken a view that since the assessee has given a sub-contract to its constituents, assessee was required to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rival submissions, we find that undisputedly the assessee was a Joint Venture, formed by HCIL and P.T.Adhikarya Persero in the ratio of 60% and 40% respectively, in order to obtain the contract from RVNL, New Delhi for construction of Road Bed, facilities and general electrification for doubling of railway lines, construction of major bridge in connection with New BG railway lines between Hariashpur-Paradeep, East Coast Railway in the State of Orissa. It is also undisputed fact that after obtaining the contract from the RVNL it was assigned to its constituents for its execution. On the execution of the contract by the constituents the payments were made to the assessee, the Joint Venture, by the RVNL on deduction of TDS. The payments received by the assessee were accordingly given to its constituents as per the ratio determined in the Joint Venture Agreement. It is also an undisputed fact that the constituents of the assessee JV have claimed the credit of TDS deducted against the payment made to JV. Therefore, now the issue arises as to whether the assessee JV was required to deduct the TDS on payments made to its constituents. The identical issue was examined by the Visakhapat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces 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 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 therewith, and duty, which may be altered by agreement, to share both in profit and losses. [Black's Law Dictionary; Sixth Edition, p.839]. According to Words and Phrases, Permanent Edition, a joint venture is an association of two or more persons to carry out a single business enterprise for profit [P.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. (emphasis supplied) Black's Law Dictionary (7th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 work was allotted to each of the members and each member has to bear its own costs and expenses, yet it was noticed that the agreement stated that the members will collaborate for all the work associated with the project which is to be managed on a joint basis by all the members. Further the agreement provided that the members are jointly and severally responsib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement; 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 Venture which provide for joint execution of the project and joint realization of profit. 11.2 Clause-4 deals with the relationship between the members of the joint ventures. Sub-clauses (c) and (d) are relevant. c. This Agreement shall not be construed by either Joint Venturer hereto as constituting each of them the agent of the other nor the Joint Venture as the agent fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). 8. Following this order of the Tribunal, the Hyderabad Bench of the Tribunal has taken similar view in case of M/s Hindustan Ratna JV (supra) by holding that there could not be any sub-contract between JV and its constituents as the JV has been formed only to procure contract works from Government. The relevant observations of the Tribunal are extracted hereunder for the sake of reference :- 22. In view of the above discussion and considering the facts and circumstances of the case, we are of the view that the relationship created by the Partnership Deed dated 31st August, 2007 and partners cannot be considered as sub-contractors of the firm and they are jointly and severally liable towards the owners for the execution of the contract commitments in accordance with the contract conditions. Being so, the provisions of section 194C cannot be attracted so as to treat them as subcontractors of the firm thereby invoking the provisions of section 40(a)(ia). In other words, we can safely conclude that there is no sub-contract ..... X X X X Extracts X X X X X X X X Extracts X X X X
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