M/S MCML ECI JOINT VENTURE V. INCOME TAX OFFICER

WP/11722/2022

AI Insights

The case involves a writ petition filed by M/s MCML ECI Joint Venture and its constituent companies against the Income Tax authorities, challenging a tax demand for the assessment year 2013-14. The joint venture, formed by petitioner Nos. 2 and 3, had received a contract from Indian Railways, the income from which was taxed at the joint venture level. The petitioners argued that the joint venture was not an association of persons and that the income had been distributed to the constituent companies, which were the actual taxpayers. The Income Tax Appellate Tribunal had earlier remanded the matter back to the Commissioner of Income Tax (Appeals), but the demand for tax recovery was issued during this pending appeal, leading to the writ petition.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 754042 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 13-07-2022
• Assessment Year: misc
• Laws Referred To: Articles 226 and 227 of the Constitution of India, Companies Act 1956, Income-tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: ARAVIND CHAVAN
• Keywords: Assessment Year 2013-14; Commissioner of Income Tax (Appeals); Income Tax; Income tax appellate tribunal; Joint venture; Tax liability
• Section: 143(3)

Judgement Text

" - 1 - IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF JULY 2022 BEFORE THE HON’BLE MR. JUSTICE M.I.ARUN WRIT PETITION No.11722 OF 2022 (T-IT) BETWEEN: 1. M/S MCML ECI JOINT VENTURE C-9, INDUSTRIAL ESTATE YELHANKA, BENGALURU – 560 064 NOW KNOWN AS CEIBA ECI JV REP. BY ITS MEMBER SRI. GOTTIPATI LAKSHMANA KUMAR (JOINT VENTURE) 2. M/S ECI ENGINEERING & CONSTRUCTIONS CO. LTD. NO.1-10-44/2/1 BEGUMPET POST, HYDERABAD REP. BY ITS DIRECTOR SRI.K.AJAY, (REGISTERED PVT. LTD. COMPANY) REGISTERED BY INCORPORATED COMPANIES ACT 1956 3. M/S MCML SYSTEMS PVT. LTD. NO.C9, KSIIDC INDUSTRIAL ESTATE YELAHANKA NEW TOWN BANGALORE – 560 064 NOW MERGED WITH CEIBA ECC PVT. LTD. REP. BY ITS DIRECTOR, SRI. GOTTIPATI LAKSHMANA KUMAR (REGISTERED PVT. LTD.COMPANY) REGISTERED BY INCORPORATED COMPANIES ACT 1956 ... PETITIONERS (BY SRI.ARAVIND V. CHAVAN, ADV.) - 2 - AND: 1. INCOME TAX OFFICER WARD-6(3)(4), 4TH FLOOR BMTC BUILDING, 80 FEET ROAD KORAMANGALA 6TH BLOCK BANGALORE – 560 095 2. PRL. COMMISSIONER OF INCOME TAX-6 4TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA 6TH BLOCK, BANGALORE – 560 095 3. COMMISSIONER OF INCOME TAX (APPEALS)-6 ROOM NO.753, BMTC BUILDING, 7TH FLOOR KORAMANGALA 6TH BLOCK, BANGALORE – 560 095 4. TAX RECOVERY OFFICER-1 BMTC BUILDING, 80 FEET ROAD KORAMANGALA 6TH BLOCK BANGALORE – 560 095 5. COMMISSIONER OF INCOME TAX (APPEALS) NATIONAL FACELESS APPEAL CENTRE ROOM NO.245-A, NORTH BLOCK NEW DELHI – 110 001 ... RESPONDENTS (BY SRI. E. I. SANMATHI, ADV.) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DIRECT THE APPELLATE COMMISSIONER R-3 TO DECIDE THE APPEAL FILED BY THE P1 CHALLENGING THE ASSESSMENT ORDER IN RESPECT OF THE ASSESSMENT YEAR 2013-14 WHICH HAS BEEN REMANDED BACK BY THE TRIBUNAL FOR FRESH ADJUDICATION. THIS WRIT PETITION COMING ON FOR ORDERS, THIS DAY, THE COURT MADE THE FOLLOWING: - 3 - O R D E R The case of the petitioners is that petitioner Nos.2 and 3 are companies registered under the Companies Act, 1956 and together formed a joint venture in the name and style of M/s. MCML ECI Joint Venture, which is petitioner No.1 and the said joint venture was able to procure a contract from Indian Railways. The consideration received from the said contract has been sought to be taxed at the hands of petitioner No.1. Aggrieved by the same and contending that petitioner No.1 does not constitute an association of person and cannot be taxed and that the consideration received by petitioner No.1 has been completely distributed between petitioner Nos.2 and 3 as per the joint venture agreement and that it is petitioner Nos.2 and 3 who are liable to be taxed, the petitioners raised a dispute and it culminated in proceedings before the jurisdictional Income Tax Appellate Tribunal bearing No.ITA No.2280/BANG/2018. The dispute pertains to the income liable to be taxed for the assessment year 2013-2014. The Income Tax Appellate Tribunal after considering the case of the petitioners was pleased to remand the matter back to the jurisdictional - 4 - Commissioner of Income Tax (Appeals)-6 by its order dated 03.04.2019. Since then, the matter is pending before the Commissioner of Income Tax (Appeals)-6. Thereafter, on 04.03.2022, the respondent No.4 has raised a demand vide Annexure – J to the writ petition which reads as under:- “Sir/Madam/M/s, Subject: Proceedings under Second Schedule of Income-tax Act – Letter Sub: Recovery of Income-Tax arrears in the case of your own for the A.Y’s.2012- 13, 2013-14, 2014-15 and 2016-17- PAN-AABAM1277H Request for payment of 20% of the demand. Ref: This office letter dated: 20.01.2022 and your reply dated 18.02.2022. ************ Please refer to be above. You are hereby requested to pay at least 20% of the outstanding demand of Rs.11,75,60,171/- on or before 14.03.2022, to avoid further coercive action to recover the same, since you have preferred an appeal against the order passed u/s 143(3) by the AO.” Aggrieved by the same, the instant writ petition is filed. - 5 - 2. It is contended by the petitioners that petitioner No.1 is not an association of person and is not subject to tax as per law. The consideration received from Indian Railways has been distributed between petitioner Nos.2 and 3 and they are liable to tax and it is erroneous to tax petitioner No.1 for the Assessment Year 2013-2014 and that when the matter was pending before Commissioner of Income Tax (Appeals)-6, respondent No.4 ought not to have issued the impugned demand. On the said grounds it is prayed that the impugned demand letter dated 04.03.2022 bearing DIN & Letter No.ITBA/COM/F/17/2021- 22/1040372402(1) vide Annexure – J to the writ petition issued by the respondent No.4 be set aside. 3. Per contra, learned counsel appearing for the respondents submits that though the matter is pending before the Commissioner of Income Tax (Appeals)-6, what is demanded is only 20% of the amount which is reasonable and that the interest of the revenue needs to be protected otherwise the State Machinery cannot function and if the petitioners were to ultimately succeed, the amount to be paid by them as per the demand would be adjusted for - 6 - future transactions or refunded as the case may be. On the said grounds, it is prayed that the writ petition may be dismissed. 4. The Income Tax Appellate Tribunal has remanded the matter back to the Commissioner of Income Tax (Appeals)-6, respondent No.3 herein, on 03.04.2019 itself. For reasons best known to him, he is yet to decide the said matter. It is only upon examining the case of the petitioners by respondent No.3, it can be concluded whether petitioner No.1 is an association of person, who is liable to tax or not. Under the circumstances, it is not appropriate for respondent No.4 to demand 20% of the alleged dues as late as in the year 2022 and the same is liable to be set aside. Hence, the following:- ORDER (i) The demand of respondent No.4 as against petitioner No.1 bearing DIN & Letter No.ITBA/COM/F/17/2021-22/1040372402(1) dated 04.03.2022 vide Annexure – J to the writ petition is hereby set aside. - 7 - (ii) Respondent No.3 – Commissioner of Income Tax (Appeals)-6 is hereby directed to dispose of the case of the petitioners as expeditiously as possible. (iii) It is hereby made clear that no opinion has been expressed on merits of the case and it is for respondent No.3 to take a decision in accordance with law without being influenced by any of the observations made herein above. (iv) It is also made clear that petitioners will have to pay such tax as determined by respondent No.3 subject to further challenges if any and the petitioners shall not be entitled to claim the benefit of limitation in this regard. (v) The writ petition is disposed of accordingly. Sd/- JUDGE MH/- "