TMI Blog2018 (6) TMI 1846X X X X Extracts X X X X X X X X Extracts X X X X ..... (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. As relying UAN RAJU CONSTRUCTIONS [ 2011 (5) TMI 636 - ITAT VISAKHAPATNAM] wherein held no merit in the presumption made by the AO that the Joint Venture is the Main Contractor and the members are the Sub-contractors , thus we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Decided against revenue. - SHRI R. C. SHARMA, AM AND SHRI AMARJIT SINGH, JM For the Revenue : Shri R. P. Meena (DR) For the Assessee : Shri Vijay Mehta (AR) ORDER PER AMARJIT SINGH, JM: The revenue has filed the present appeal against the order dated 15.09.2011 passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case and in law, the Id CIT(A) erred in holding that Section 194C is not applicable in the case of the assessee and deleted the addition made u/s.40(a)(ia) for failure on the part of the assessee for not deducting tax at source u/s.194C of the I T. Act while making payment on the contract receipts to the respective individual co-contractors i.e. L T and HCC. 8. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 9. The Appellant Craves leave to amend or alter any ground or add a new ground which may be necessary. 3. The brief facts of the case are that the assessee filed its return of income on 29.09.2008 declaring total income to the tune of Rs.Nil/-. The return was processed u/s 143(1) of the Act. Thereafter, the case was selected for scrutiny and notice u/s 143(2) of the I.T. Act, 1961 dated 14.08.2009 was issued and served upon the assessee. Thereafter, notice u/s 142(1) of the Act dated 08.02.2010 was also issued and served upon the assessee. The assessee was engaged in the business of construction of roads. During the year the National Highway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us the payment on which the TDS was not deducted was liable to be added to the income of the assessee and accordingly passed the order. However, the CIT(A) was of the view that the AOP was not in the capacity of sub-contractor, therefore, the Joint Venture was not under obligation to deduct the TDS while making the payment hence the provision u/s 194C of the Act is not applicable and allowed the claim of the assessee. The CIT(A) while deciding the case of the assessee placed reliance upon the decision delivered by the Authority for Advance Ruling in case of Vanoord ACZ BV (2001-248 ITR 399) . Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - 2.3 The assessment order, submissions made for the appellant and materials on record have been considered. In Vanoord ACZ BV, 'where the applicant, a foreign company, undertook a construction contract in India in joint venture with HCC, an Indian company, agreeing to bear its own loss and retain its own profit separately, the Authority for Advance Ruling has held that, The parties have specifically ruled out: constitution of any partnership between them. There is no sharing of profits or los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax. The applicant will be liable to be taxed as a separate and independent entity. In the present case, the JV agreement between the co-contractors specifies the fact that both the co-contractors would undertake respective portion of their jobs and will incur their own cost and expenses, deploy their own assets, raise their own finance for working capital required for completion of their respective scope of work. Each of the parties have agreed to execute specific part of the job according to its technical skill and capability for specified consideration. The contract awarded by NHAI is a Divisible Contract. There is no control or connection between the work done by the 2 co-contractors who are members of the JV. The parties to the JV have also specifically ruled out constitution of any partnership between them. Thus, respectfully following the decision of Authority for Advance Ruling in Vanoord ACZ BV (Supra) on similar facts, in the present case it is held that the two parties to the JV executing a construction contract in India in joint venture, each party agreeing to execute specific part of the job according to its technical skill and capability for specified con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive portion of the assignment executed by each of the co-contractor. Since the UJV will not be performing any activity on its own, there is no profit or loss statement being prepared in the hands of the UJV, The UJV will merely collect the payments from the Employer and remit it to the respective co-contractor in accordance with the work performed. The payment by the appellant to the members was by way of division of the single amount collected from NHAI and was not in pursuant of any independent contract/sub-contract and, provisions of section 194C are not applicable. The payments ed by the co-contractors from the appellant was an Appropriation of funds received from NHAI and the same is akin to withdrawal of TDS therefore, did not arise on such payments. Without prejudice that the prima facie condition to attract disallowance u/s40(a)(ia) is that assessee should have claimed the deduction of expenditure in its return of income and assessee has not deducted TDS on the same. The appellant have not claimed deduction of any expenditure in return of income, hence question of disallowance u/s 40(a)(ia) does not arise at all. 3.3 In view of the finding given in respect of groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and hence the contract allocated to the members should be treated as Sub-contracting . However, the case of the assessee is that the Joint Venture has come into existence only to procure and win the contracts and since the contracts were allocated between the members and further they were executed separately by each of the members, no income can be said to have arisen in the hands of the assessee-AOP. 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 more business enterprises are joining hands by forming a consortium of Joint Venture in order to get qualified for participating in tender process. They regulate themselves, by entering into an agreement, the methodology to be 7 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 expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship 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 carry out a single business enterprise for profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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. 10. As stated earlier, in order to participate in the global tender process, some of the foreign companies 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 thei 10 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, y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 Venture which provide for joint execution of the project and joint realization of profit. 11.2 Clause-4 deals with the relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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