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TMI Blog2018 (6) TMI 1846X X X X Extracts X X X X X X X X Extracts X X X X ..... . the Id. CIT(A) erred in appreciating the fact that the contract has been awarded to the joint venture from NHAI and Joint Venture is in fact assessable as an AOP under the provisions of I T. Act. 3. On the facts and in the circumstances of the case and in law, the Id CIT(A) erred in ignoring the fact that the profit arised from the contract goes jn the hands of the Joint Venture and the same is distributed to the hands of the member of the joint venture hence the profit will be assessed to AOP only 4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to appreciate the fact that the fact of the case are similar to the case of Geoconsult ZT a GMBH (2003) 304 ITR 283 (AAR). 5. On the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to appreciate the fact that the agreed object was not to produce income and that with the insertion to proviso to Section 2(31), ingredient to produce income is not required and what is required is common business purpose and common management. 6. On the facts and in the circumstances of the case and in law, the Id CIT(A) while allowing the appeal of the assessee, ignored the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isible contract are individually carrying out the specific portion of their job as mutually agreed upon for construction of road at Jharkhand. As per the Joint Venture Agreement, both the companies would independently undertake their respective project activities and each member of the consortium would realize its own profits after deducting their costs. On verification of the return of income, it was noticed that the assessee has filed the return of income under the status of AOP. The company has formed as a Joint Venture comprises of Larsen & Tubro Ltd. (L&T) and Hindustan Construction Co. Ltd. (HCC). The assessee did not deduct the tax while distributing the contract receipt to the respective individually contractor such as L&T & HCC. Therefore the notice was given and after getting the reply, an amount of Rs.13,94,22,302/- on which the TDS was not deducted u/s 40(a)(ia) of the Act was added to the income of the assessee and the total income of the assessee was assessed to the tune of Rs.13,94,22,302/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, revenue has filed the present appeal before us. 4. All the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Port Trust, the intention was not to carry out any business in common, only a part of the job will be done by VOACZ according to its technically skill and capability. The other part of the contract will be ** Executed by the HCC. The applicant's shore of work was valued at Rs.44,52,78,9201- (17 per cent of the total value). The association with HCC was not with the object of earning this Income but for co-ordination in executing the contract so that HCC could also make its own profit. HCC's work and income arising therefrom was Quite separate and independent of the applicant's work and income, if the costs incurred by the HCC or the applicant wos more than their income, each party will have to bear its loss without any adjustment from the other party. The association of the applicant-company with HCC was undoubtedly for mutual benefit but such association will not make them a single assessable unit and liable to tox as an AQP. For example, Q building contractor may associate with o plumber and an electrician to execute a building project. All these persons are driven by profit-making motive. But that by itself will not make the three persons liable to be taxed as an AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has erred in disallowing an amount of Rs.13,94,22,3Q2/- by invoking provisions of section 4G(a)(ia) on the alleged failure of non-deduction of tax under section 194C of the Income-tax Act, 1961. Ground No.4 is that the Assessing Officer has erred in invoking provisions of section 40(a)(ia) disregarding the fact that appellant has not claimed deduction of any expenditure in its return of income. 3.1 The Assessing Officer noted that, the assesses has not deducted tax while distributing the contract receipts to the respective individual co-contractors i.e, L&T & HCC. Therefore, the assessee was asked to show cause as to why payments made to the member shall not be disallowed u/s 40(a)(ia) of the I.T. Act. In response the assessee submitted that since, the payment by JV to the members by way of division of the single amount collected from NHAI is not in pursuance of any independent contract for work, TDS provisions u/s 194C are not applicable to the Joint venture. Without prejudice that since no expenses are claimed in the hands of the consortium the question of invoking provisions of section "40(a)(ia) does not arise. The Assessing Officer held that the JV partners have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the category of sub-contractor then there is no question of deduction u/s 194C of the Act and the question of disallowance u/s 40(a)(ia) of the Act nowhere arise. Under the Joint Venture each party was under obligation to execute its own work according to its technical skill and capability for specified consideration and to bear its own losses and to retain its own profit separately. Each party is liable to be assessed as separate and independent entity. The contract awarded by the NHAI was a divisible contract. The Joint Venture was having specific constitution with regard to execution of work of independent entity. At the time of argument, the Ld. Representative of the assessee has also placed reliance upon the law settled in Hyundai Rotem Co., reported in 323 ITR 277 and the decision of the Hon'ble ITAT in the case of ITO Vs. UAN Raju Constructions in ITA. No. 344/M/Vizag/2009 & ITA. No. 77/Viz/2010 dated 13.05.2010. Since the factual position of the present case is quite similar to the case decided by the Hon'ble ITAT Visakhapatnam Bench in ITA. No.344/Vizag/2009 & 77/Viz/2010, therefore, we deemed it necessary to advert the finding on record: - "6. We have heard the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The following definition of 'joint venture' occurring in American Jurisprudence [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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Joint Venture: A business undertaking by two or more persons engaged in a single 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". 9 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , since the AAR has felt that the facts of the case are similar to the facts relating to Van Oord ACZ BV, supra. Section 2(31) of the Act defines the term "Person", which interalia, includes "an association of persons or a body of individuals, whether incorporated or not. Since the term "Association of Persons" (AOP) was not defined in the Act, the Courts have interpreted to mean that it is an association established to produce income. Hence the Finance Act 2002 has inserted an "Explanation" to section 2(31), according to which, an AOP shall be deemed to be a person, whether or not such AOP was formed or established with the object of deriving income, profits or gains. However, in the instant case, there is no dispute with regard to the assessability of the "Joint Venture" per se. Both the assessee and the department have taken the stand that the "Joint Venture" is assessable in the status of "Association of Person". However, the issue is whether the AO is right in treating the Joint Venture-AOP as the main contractor and its members as the sub-contractors, thereby estimating the income which was not earned by the Joint Venture. 11 11. On the basis of the understanding of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates that the "Joint venture" should not be taken as the agent of the members also. Thus, according to the agreement, each member stands in its own right and no specific relationship is created between the Joint Venture and its members. 12. Thus, on an understanding of the concept of the "Joint Venture" and the terms of agreement between the members of the present case, we are of the view that in the instant case, the consortium of Joint Venture has been formed only to procure the contract works. By way of the agreement, the parties have only regulated the relationship inter se with respect to their joint responsibility that existed in relation to the Principal, viz., M/s Konkan Railway. In reality, both the parties have divided the contract works between themselves and they have executed their share of work on their own risks. It is pertinent to note here that the AO has not given any finding on the issues like that each member had authority to interfere with or control the work executed by the other member; that both the members have jointly executed the project and thus produced the income jointly. In our opinion, the finding on the lines stated above is crucial to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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