Appeal details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 6994 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 2 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
01-07-2016
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
E
Next Hearing Date
21-06-2016
Assessment Year
2010-2011
Appeal Filed On
04-04-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.2026/DEL/2014 A.Y. : 2010-11 ITO, WARD 38(3), ROOM NO. 2209, 22 ND FLOOR, BLOCK-E2, PRATYAKSHKAR BHAWAN, CIVIC CENTRE, NEHRU MARG, NEW DELHI - 2 VS. M/S ORIENTAL STRUCTURAL ENGINEERS PVT. LTD, KMC CONSTRUCTION LTD., JOINT VENTURE JV 21/48, COMMERCIAL COMPLEX, MALCHA MARG, NEW DELHI (PAN:AAAAO0576A) (APPELLANT) (RESPONDENT) AND ITA NO.2027/DEL/2014 A.Y. : 2010-11 ITO, WARD 38(3), ROOM NO. 2209, 22 ND FLOOR, BLOCK-E2, PRATYAKSHKAR BHAWAN, CIVIC CENTRE, NEHRU MARG, NEW DELHI - 2 VS. M/S ORIENTAL STRUCTURAL ENGINEERS PVT. LTD, GAMMON INDIA LTD. JOINT VENTURE JV 21/48, COMMERCIAL COMPLEX, MALCHA MARG, NEW DELHI (PAN:AAAF06550D) (APPELLANT) (RESPONDENT) ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 2 DEPARTMENT BY : SH. P. DAM KANUNJNJA, SR. DR ASSESSEE BY : SH. KVSR KRISHNA, CA DATE OF HEARING : 21-06-2016 DATE OF ORDER : 01-07-2016 ORDER PER H.S. SIDHU : JM THE REVENUE HAS FILED THESE APPEALS AGAINST THE IMPUGNED ORDER DATED 24/1/2014 & 22.1.2014 RESPECTI VELY PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS- XXVIII), NEW DELHI RELEVANT FOR THE ASSESSMENT YEAR 2010-11. SINCE THE ISSUES INVOLVED IN BOTH THE APPEALS ARE C OMMON AND IDENTICAL, HENCE, WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE, BY DEALING WITH ITA NO. 2026/DEL/2014 (AY 2010-11). 2. THE GROUNDS RAISED IN ITA NO. 2026/DEL/2014 READ AS UNDER:- 1. THE LD. CIT(A) ERRED IN NOT CONSIDERING THE QUESTION OF WHETHER A PROPORTION OF THE PROJECT RECEIPTS, COMMENSURATE WITH THE RISK/PERFORMANCE OBLIGATIONS, SHOULD BE ATTRIBUTED TO THE ASSESSEE J V WHICH HAD BEEN AWARDED THE TENDER FOR THE PROJECT ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 3 AND UNDERTOOK SIGNIFICANT RISKS AND RESPONSIBILITIE S FOR THE COMPLETION OF THE PROJECT AND WHETHER IT IS ALLOWABLE FOR THE ASSESSEE JV TO DIVERT THE ENTIRE RECEIPTS TO ITS JV PARTNER'S BY DESIGNING A SUB CONTRACT TO THAT EFFECT? 2. THE LD. CITCA) ERRED IN RELYING UPON THE ORDER OF THE HON'BLE ITAT DELHI IN THE CASE OF THE ASSESS EE, ORIENTAL STRUCTURAL ENGINEERS' PRIVATE LIMITED - GAMMON INDIA PVT. LTD. JV FOR A.Y. 2004-05 AND 2005-06 WITHOUT APPRECIATING THAT THE ISSUE INVOLVE D IN THOSE ASSESSMENT YEARS' RELATED TO DISALLOWANCE U/S 40A(2)(B) OF IT ACT WHILE THE QUESTION UNDER CONSIDERATION IN A.Y. 2010-11 WAS ATTRIBUTION OF INCOME IN THE HANDS OF ASSESSEE JV IN LIEU OF RISKS AND RESPONSIBILITIES UNDER TAKEN BY IT IS RESPECT O F THE PROJECT. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR MODI FY ANY/ALL THE GROUND OF APPEAL BEFORE OR DURING THE COURSE OF THE APPEAL. 3. THE GROUNDS RAISED IN ITA NO. 2027/DEL/2014 READ AS UNDER:- ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 4 1. THE LD. CIT(A) ERRED IN NOT CONSIDERING THE QUESTION OF WHETHER A PROPORTION OF THE PROJECT RECEIPTS, COMMENSURATE WITH THE RISK/PERFORMANCE OBLIGATIONS, SHOULD BE ATTRIBUTED TO THE ASSESSEE J V WHICH HAD BEEN AWARDED THE TENDER FOR THE PROJECT AND UNDERTOOK SIGNIFICANT RISKS AND RESPONSIBILITIE S FOR THE COMPLETION OF THE PROJECT AND WHETHER IT IS ALLOWABLE FOR THE ASSESSEE JV TO DIVERT THE ENTIRE RECEIPTS TO ITS JV PARTNER'S BY DESIGNING A SUB CONTRACT TO THAT EFFECT? 2. THE LD. CITCA) ERRED IN RELYING UPON THE ORDER OF THE HON'BLE ITAT DELHI IN THE CASE OF THE ASSESS EE, ORIENTAL STRUCTURAL ENGINEERS' PRIVATE LIMITED - GAMMON INDIA PVT. LTD. JV FOR A.Y. 2004-05 AND 2005-06 WITHOUT APPRECIATING THAT THE ISSUE INVOLVE D IN THOSE ASSESSMENT YEARS' RELATED TO DISALLOWANCE U/S 40A(2)(B) OF IT ACT WHILE THE QUESTION UNDER CONSIDERATION IN A.Y. 2010-11 WAS ATTRIBUTION OF INCOME IN THE HANDS OF ASSESSEE JV IN LIEU OF RISKS AND RESPONSIBILITIES UNDER TAKEN BY IT IS RESPECT O F THE PROJECT. ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 5 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR MODI FY ANY/ALL THE GROUND OF APPEAL BEFORE OR DURING THE COURSE OF THE APPEAL. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMP ANY FILED ITS RETURN DECLARING NIL INCOME ON 15.10.2012, CLAIMING A REFUND OF RS. 38.91 LAKHS ON ACCOUNT OF TDS DEDUCTED. TH E CASE WAS PROCESSED U/S. 143(1) AND LATER ON SELECTED FOR SCR UTINY UNDER CASS. ACCORDINGLY, STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE AND SERVED UPON THE ASSESSEE. IN RESPONSE TO NOTICES, ASSESSEES A.R. ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FILED THE NECESSARY DETAILS. THEREAFTE R, BY FOLLOWING THE ORDER OF PREDECESSOR OF THE AO IN TH E VERY CASE FOR AY 2007-08 TO 2009-10, AO REJECTED THE BOOKS RESULTS OF THE ASSESSEE U/S. 145 OF THE I.T. ACT AND ESTIMATE THE PROFIT OF THE ASSESSEE AT 5% OF THE TOTAL CONTRACTUAL RECEIPT S OF RS. 77,80,36,999/- DECLARED BY THE ASSESSEE AMOUNTING TO RS. 3,89,01,850/- AND ASSESSED THE INCOME AT RS. 3,89,0 1,850/- BY COMPLETING THE ASSESSMENT U/S. 143(3) OF THE INC OME TAX ACT, 1961 (HEREINAFTER REFERRED THE ACT) VIDE ORDER DATED 30.11.2012. AGGRIEVED WITH THE AFORESAID ACTION, A SSESSEE FILED THE APPEAL BEFORE THE LD. FIRST APPELLATE AUT HORITY WHO ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 6 VIDE IMPUGNED ORDER DATED 24.1.2014 HAS DELETED THE ADDITION IN DISPUTE BY ALLOWING THE APPEAL FILED BY THE A SSESSEE. 5. NOW THE REVENUE IS AGGRIEVED AGAINST THE IMPUGNE D ORDER AND FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING LD. DR RELIED UPON THE OR DER OF THE AO AND REITERATED THE CONTENTIONS RAISED BY THE REV ENUE IN THE GROUNDS OF APPEAL. 7. ON THE CONTRARY, LD. A.R. OF THE ASSESSEE RELIED UPON THE ORDER OF THE LD. CIT(A) AND STATED THAT THE LD. CI T(A) HAS PASSED A WELL REASONED ORDER WHICH MAY BE UPHELD. HE FURTHER DRAW OUR ATTENTION BY FILING A COPY OF THE HONBLE HIGH COURT OF DELHI DECISION IN ASSESSEES OWN CASE FOR THE ASSES SMENT YEAR 2009-10 TITLE AS CIT VS. (1) ORIENTAL STRUCTURAL EN GINEERS P LTD. AND KMC CONSTRUCTION P. LTD. JV & (2) ORIENTAL ST RUCTURAL ENGINEERS P. LTD. AND COMMON INDIA LTD. JV (2015) 374 ITR 35 (DELHI) WHEREIN, THE SIMILAR ISSUE HAS BEEN DEC IDED BY THE HONBLE HIGH COURT OF DELHI IN FAVOUR OF THE ASSES SEE AND AGAINST THE REVENUE. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED AND CONSIDERED THE RELEVANT RECORDS AVAILABLE WITH US E SPECIALLY THE ORDERS PASSED BY THE REVENUE AUTHORITIES AND THE O RDER OF THE ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 7 HONBLE HIGH COURT OF DELHI IN ASSESSEES OWN CASE, AS REFERRED ABOVE. WE FIND THAT THE LD. CIT(A) HAS ELABORATELY DISCUSSED THE ISSUE IN DISPUTE AND ADJUDICATED THE SAME IN F AVOUR OF THE ASSESSEE. FOR THE SAKE OF CONVENIENCE, WE ARE REPR ODUCING THE RELEVANT PARAS OF THE IMPUGNED ORDER AS UNDER:- 5.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND SUBMISSIONS THEREOF. THE FACTS OF THE CAS E AS PER ASSESSMENT ORDER ARE THAT THE ASSESSEE IS A JOINT VENTURE BETWEEN M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD AND M/S. KMC CONSTRUCTION LTD WHICH WAS FORMED TO UNDERTAKE PROJECT AWARDED BY NHAI. THE ASSESSEE HAS SHOWN GROSS RECEIPT OF RS.77,80,36,999/- AND HAS DEBITED AN AMOUNT OF RS.76,24,67,709/- TOWARDS PAYMENT. APART FROM THIS THE JV HAS PAID WORKS TAX OF RS.1,55,69,289/- AND OTHER SMALL EXPENSES LIKE AUDIT FEE, BANK CHARGES ETC. THE PROFIT HAS BEEN DECLARED AT NIL. THE ASSESSING OFFICER ISSUED A SHOW CAUSE TO THE ASSESSEE AS TO WHY A REASONABLE PROPORTION OF THE GROSS RECEIPT SHOULD NOT BE HELD AS ATTRIBUTABLE TO THE RISK AND RESPONSIBILITY INCURRED BY IT. THE ASSESSEE REPLIED AS UNDER:-. ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 8 THE JV WAS FORMED BY THE PARTNERS AS A SPECIAL PURPOSE VEHICLE FOR OBTAINING CONTRACTS FROM NHAL THE WORK CARRIED OUT BY EACH OF THE PARTNER IS CLEARLY DIVIDED AS PER THEIR FIELD OF EXPERTISE. ALL RESOURCES AND MANPOWER FOR EXECUTION OF THE PROJECT IS UNDER TAKEN BY THE PARTNERS. BOTH THE PARTNERS ARE TAXPAYING ENTITIES AND PROFITABLE CONCERNS AND THEREFORE ASSESSMENT OF INCOME IN THEIR HANDS CAUSES NO LOSS TO THE REVENUE . THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN ASSESSEE'S OWN CASE FOR A.Y. 2004-05 AND 2005-06 WHICH WAS UPHELD BY THE APEX COURT. THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF T HE ASSESSEE AS ~ THE CONTRACT WAS ENTERED INTO BY THE NHAI WITH TH E JV ~ THE OBLIGATION OF PERFORMANCE OF THE CONTRACT AND OF ANY LITIGATION WAS WITH THE JV ~ THE TENDER HAS BEEN AWARDED TO THE JV AND THE TDS HAS BEEN CLAIMED BY THE JV ~ AS PER CLAUSE B OF THE SUB-CONTRACT AGREEMENT THE JV HAS COMPLETE CONTROL OVER THE MANAGERIAL AND TECHNI CAL SUPERVISION IN THE MATTER OF EXECUTION OF THE PROJE CT. ~ THE FINANCIAL PERFORMANCE GUARANTEE AND THE CREDI T RISK FOR EXECUTION OF THE CONTRACT IS THE RESPONSIBILITY OF THE JV. ~ THE PAYMENT BY THE GOVERNMENT IS MADE TO THE JV. ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 9 ~ ALL THE OBLIGATIONS AND RESPONSIBILITY OF THE JV ARE MENTIONED IN THE CLAUSES OF THE BID DOCUMENT. (PARA 11 OF THE ASSESSMENT ORDER ). THE ASSESSING OFFICER CONCLUDED THAT THE RISK AND REWARD ARE INTER CONNECTED, THE ENTIRE RISK IS OF T HE JV, AND THE JV IS A SEPARATE ENTITY BROUGHT INTO EXISTE NCE BY THE RESPECTIVE PARTNERS, HAVING ITS OWN PAN, BANK ACCOUNT, AND SEPARATE TAXABLE ENTITY THEREFORE, THE JV MUST HAVE EARNED INCOME. THE ASSESSING OFFICER ON T HE BASIS OF VARIOUS JUDICIAL PRONOUNCEMENTS CITED IN T HE ORDER COMPUTED THE PROFIT OF THE ASSESSEE AT 5% OF THE TO TAL CONTRACTUAL RECEIPTS. DURING APPELLATE PROCEEDINGS THE APPELLANT REITERAT ED ITS SUBMISSIONS THAT THE JOINT VENTURE WAS INCORPORATED NOT TO EARN PROFIT BUT TO CO-ORDINATE FOR COMPLETION OF THE CONTRACT. BOTH THE COMPANIES ENTERING INTO THE JOIN T VENTURE WERE INDEPENDENT AND WERE SEPARATELY PAYING TAXES ON THEIR INDIVIDUAL PROFITS. 5.3 JOINT VENTURES ARE GENERALLY FORMED AS MAJOR RESOURCES PROJECTS GENERALLY REQUIRE PARTICULAR SKI LLS SETS, LARGE SCALE COORDINATION AND - IDEALLY - EXPERIENCE IN ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 10 SIMILAR PROJECTS. OFTEN, PARTIES INTERESTED IN A PA RTICULAR PROJECT WILL COME TOGETHER TO FORM A JOINT VENTURE. JOINT VENTURES ENABLE PARTICIPANTS TO CONFIGURE A SPECIAL IST PROJECT TEAM WITH THE REQUISITE SKILLS AND TECHNICA L EXPERTISE, AND SHARE COSTS, RISKS AND FINANCIAL CAP ABILITIES, WHICH THEY MAY NOT OTHERWISE BE ABLE TO OFFER SEPAR ATELY. A JOINT VENTURE (JV} CAN STRUCTURED IN TWO WAYS - AS AN UNINCORPORATED JOINT VENTURE (UJV) OR - AN INCORPORATED JOINT VENTURE (IJV). THE FUNDAMENTAL DIFFERENCE BETWEEN THE TWO IS THAT AN IJV CREATES A SEPARATE LEGAL ENTITY AND THE UJV DOES NO T. AS AN UJV DOES NOT CREATE A SEPARATE LEGAL ENTITY, THE PARTICIPANTS TRY AND GOVERN THEIR RELATIONSHIP USIN G THE TERMS OF AN UNINCORPORATED JOINT VENTURE AGREEMENT. JOINT VENTURES ALSO TRY TO DISTINGUISH THEIR RELATIONSHIP FROM PARTNERSHIPS SO AS TO AVOID THE APPLICATION OF THE PARTNERSHIP ACTS. THE MAIN ADVANTAGE OF A JV OVER A PARTNERSHIP IS THAT EACH PARTNER IS JOINTLY AND SEV ERALLY LIABLE FOR THE DEBTS OF THE PARTNERSHIP AND FOR THE ACTS OF OTHER PARTNERS DONE IN THE COURSE OF THE PARTNERSHI P, WHEREAS JOINT VENTURE PARTICIPANTS WILL STIPULATE I N THEIR ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 11 AGREEMENT THAT THEIR LIABILITY FOR THE DEBTS OF TH E JOINT VENTURE IS SEVERAL. JOINT VENTURE PARTICIPANTS MAY HOWEVER BE SUBJECT TO JOINT LIABILITY IN SOME CIRCUMSTANCES , INCLUDING TORTIOUS LIABILITY TO THE PUBLIC FOR ACTS OR OMISSIONS BY THE MANAGER OF JOINT VENTURE OPERATION S. THE VARIOUS PARTNERSHIP ACTS DEFINE PARTNERSHIP AS 'THE RELATIONSHIP WHICH EXISTS BETWEEN PERSONS CARRYING ON A BUSINESS IN COMMON WITH A VIEW OF PROFIT'. PARTICIP ANTS SEEK TO ESTABLISH THAT THEIR ARRANGEMENTS DO NOT FA LL WITHIN THIS DEFINITION (OR WITHIN THE DEFINITION OF PARTNE RSHIP FOR THE PURPOSES OF THE INCOME TAX ACT (A) NOT SELLING PRODUCT OR RECEIVING INCOME JOINTLY, SO THAT THERE IS NO JO INT PROFIT AND (B) OTHERWISE CARRYING ON BUSINESS SEVERALLY RA THER THAN JOINTLY, SUCH AS ENGAGING IN SEPARATE TAX AND ACCOUNTING TREATMENT OF THEIR INTEREST IN THE JOINT VENTURE; STIPULATING THAT THEIR LIABILITY TO THIRD PARTIES I S SEVERAL RATHER THAN JOINT; AND SEVERALLY APPOINTING THE MAN AGER OF THE JOINT VENTURE OPERATIONS AS AGENT. THE PARTICIP ANTS WILL ALSO NOT HAVE RIGHTS TO BIND EACH OTHER, AS IS THE CASE WITH PARTNERS. ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 12 IN THE LIGHT OF THE ABOVE DISCUSSION IT IS SEEN THA T IN THE CASE OF THE APPELLANT THE FOLLOWING ARE THE MAJOR P OINTS FOR CONSIDERATION. THE JOINT VENTURE HAS COMPLETE CONTROL OVER MANAGEMENT AND TECHNICAL SUPERVISION THE RESPONSIBILITY OF THE JOINT VENTURE IS CLEARL Y DEFINED THE APPELLANT HAS CLAIMED THAT THE RESPONSIBILITY OF THE JOINT VENTURE IS ONLY ON PAPER, HOWEVER IT CANN OT BE DISPUTED THAT AS PER THE AGREEMENT THE JOINT VENTUR E HAS RIGHT TO CARRY OUT PERIODICAL REVIEW. THE BANK GUARANTEE IS FURNISHED BY EACH JOINT VENTURE PARTNER FOR HIS SHARE ON BEHALF OF THE JOIN T VENTURE. THE JOINT VENTURE DOES NOT HAVE ANY STAFF, PLANT & MACHINERY, FINANCIAL RESOURCES OR ANY OTHER SET UP TO EXECUTE THE WORK BUT IS PAYING WORKS TAX AND SERVIC E TAX. THE JOINT VENTURE HAS THE RIGHT TO TERMINATE THE CONTRACT ONLY THE JOINT VENTURE CAN COMMUNICATE WITH THE NHAI ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 13 THE BANK ACCOUNT IS OPERATED BY THE JOINT VEN TURE . AS PER THE SUB CONTRACT AGREEMENT THE FINANCIAL RESPONSIBILITIES AND PARTICIPATION OF THE TWO PARTI ES IN THE PROJECT IS TO THE EXTENT OF 50% THE SUB CONTRACTOR IS RESPONSIBLE FOR ONLY THE EXECUTION AND TIMELY COMPLETION OF THE PROJECT. THE INSURANCE COVER IS IN THE NAME OF THE JV, BUT THE INSURANCE PREMIUM IS THE LIABILITY OF THE SUB CONTR ACTOR. THE JV IS THUS A SEPARATE TAX ENTITY WHICH IS RESPO NSIBLE FOR ALL RISK AND RESPONSIBILITIES FOR EXECUTION OF THE CONTRACT. IT HAS SUB CONTRACTED THE WORK TO THE TWO PARTNERS WHO ARE RESPONSIBLE FOR THE EXECUTION OF T HE CONTRACT. IN THIS PROCESS THE ASSESSING OFFICER HAS HELD THAT AS A RESULT OF ITS CONTRACTUAL AND LEGAL LIABI LITIES IT HAS TO EARN A RECIPROCAL AMOUNT OF INCOME FROM THE PROJ ECT. IN THE CASE OF THE APPELLANT IT IS TO BE SEEN AS TO WHETHER IT IS A UJV, AN UNINCORPORATED JOINT VENTURE I.E. A TYPE OF BUSINESS ARRANGEMENT IN WHICH MULTIPLE ENTITIES COM E TOGETHER USING A CONTRACT AS THE BASIS FOR GOVERNIN G THE COLLECTIVE RELATIONSHIP, BUT WITHOUT CREATING SOME SORT OF CORPORATION ARRANGEMENT IN ORDER TO PURSUE. THE JOI NT ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 14 VENTURE. OR ITS RELATIONSHIP IS MORE AKIN TO PARTNE RSHIP OR IS IT AN AOP WHEREIN THE JOINT ASSETS HAVE BEEN DEP LOYED TO EARN PROFIT. THE ISSUE UNDER CONSIDERATION IS WH ETHER THE APPELLANT IS TO BE ASSESSED AS AN AOP I.E. IS A SEPARATE TAXABLE ENTITY UNDER SECTION 2(31)(V) OF T HE INCOME TAX ACT. AOP IS NOT DEFINED UNDER THE INCOME TAX ACT AND WHETHER OR NOT A COMBINATION OF PERSONS OR JOINT VENTURE WOULD GIVE RISE TO AOP IS TO BE DETERMINED BY THE FACTS OF THE CASE. IN C.I.T. VS. INDRA BALAKRISHNA (39) I.T.R. 546 (SUPREME COURT) IT WAS HELD THAT THE WOR D ASSOCIATES MEANS TO COME TOGETHER FOR COMMON PURPOS E OR COMMON ACTION. ASSOCIATION IS ONE WHERE THERE IS AN OBJECT TO PRODUCE INCOME OR GAINS. WHEN PARTIES DEP LOYED THEIR ASSETS IN JOINT ENTERPRISE WITH A VIEW TO MAK E PROFIT IT CONSTITUTES AN AOP. THIS RULING LAYS DOWN THE FI VE REQUISITES FOR AN AOP, WHICH ARE (A) THERE MUST BE TWO OR MORE PERSONS, (B) THEY MUST VOLUNTARILY COME TOGETH ER, (C) THERE MUST BE A PURPOSE OF PRODUCING OR EARNING INCOME, (D) COMBINATION IN JOINT VENTURE; AND (E) S OME KIND OF ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 15 SCHEME FOR COMMON MANAGEMENT. HOWEVER, EXPLANATION TO SECTION 2(31) NEGATES THE OBJECT OF DERIVING IN COME, PROFITS OR GAINS AS A REQUISITES FOR BEING AN AOP, THE EXPLANATION TO SECTION 2(31) IS BEING REPRODUCED BE LOW - EXPLANATION.-FOR THE PURPOSES OF THIS CLAUSE, AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A LOCAL AUTHORITY OR AN ARTIFICIAL JURIDICAL PERSON SHALL B E DEEMED TO BE A PERSON, WHETHER OR NOT SUCH PERSON OR BODY OR AUTHORITY OR JURIDICAL PERSON WAS FORMED OR ESTABL ISHED OR INCORPORATED WITH THE OBJECT OF DERIVING INCOME, PR OFITS OR GAINS. THUS TWO ENTITIES WOULD BE DEEMED TO BE AOP EVEN IF THEY DO NOT HAVE A PROFIT MOTIVE IF OTHER CONDIT IONS ARE SATISFIED THAT IS THEY COME TOGETHER FOR A COMMON P URPOSE OR FOR A COMMON ACTION. FURTHER REFERENCES IS DRAWN TO OTHER SIMILAR CASES OF VAN OORD ACZ. BV (2001 248 1TR 399 AAR), GEOCONSULT ZT GMBH (2008 304 1TR 283 AAR), INDIRA BALKRISHNA (SUP RA) WHEREIN, WHILE IN THE CASE OF GEOCONSULT, THE DECIS ION WENT IN FAVOUR OF THE REVENUE IN HOLDING THAT THERE WAS AN AOP, IN THE OTHER TWO CASES, THE DECISIONS WERE IN FAVOUR OF THE APPLICANTS. ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 16 WHILE IN VAN OORD CASE THOUGH INCOME WAS RECEIVED JOINTLY, THERE WAS NO INTENTION TO CARRY OUT COMMON BUSINESS AND THE JOB WAS TO BE CARRIED OUT BY THE P ARTIES ON THE BASIS OF INDIVIDUAL SKILLS AND CAPABILITY. T HE PARTIES AGREED TO EXECUTE THE JOB TOGETHER FOR BETTER CO-OP ERATION IN THEIR RELATIONSHIP WITH THE PRINCIPAL. THOUGH TH ERE WAS AN ELEMENT OF MUTUAL BENEFIT BUT THE AGREEMENT CLEA RLY LAID THE INTENT OF THE PARTIES WAS NOT TO BE ASSOCI ATED FOR COMMON BUSINESS AND THEY AGREED TO BEAR PROFITS AND LOSSES ARISING FROM THE PERFORMANCE OF THEIR REQUIS ITE CONTRACTS, THUS THE PARTIES WERE NOT HELD TO BE SIN GLE ASSESSABLE UNIT AND LIABLE TO BE TAXED AS AN AOP. H OWEVER IN CASE OF GEOCONSULT THE PARTIES WERE JOINTLY AND SEVERALLY LIABLE FOR THE WORK UNDERTAKEN AND IT BEC AME A SINGLE ASSESSABLE UNIT BECAUSE OF THE STRUCTURE OF THE AGREEMENT AND THE INTENT CONVEYED. IN A SIMILAR CAS E OF HYOSUNG CORPORATION (2009 314 ITR 343 AAR) THOUGH BECAUSE OF THE OVERALL RESPONSIBILITY ASSUMED BY HY OSUNG THERE WAS NO INVOLVEMENT IN THE INDIAN PARTIES CONT RACT BUT THERE WAS LACK OF COMMONALITY OF PURPOSE, HENCE IT WAS NOT HELD TO BE AN AOP. ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 17 IN THE PRESENT CASE THE PARTIES ARE SHARING GROSS RECEIPTS. THE INTENT OF THE PARTIES IS CLEARLY TO G AIN MUTUAL BENEFIT OUT OF THE ASSOCIATION. THERE IS A COMMONAL ITY OF PURPOSE BUT IT WAS RING FENCED BY EACH ONES OBLIGAT IONS AND RIGHTS IN THE CONTRACT AS A WHOLE. THE INTENT A ND THE OBJECT OF JOINT VENTURE CONVEYS COMMINGLING OF INTE REST IN AS FAR AS COMPLETION OF THE PROJECT AND EARNING MAX IMUM PROFIT OUT OF IT IS CONCERNED. THE SUB CONTRACT AGR EEMENT SHOWS THAT IF THERE IS ANY REDUCTION/INCREASE IN WO RK VALUE OF THE SUB CONTRACTOR THEN THAT WOULD BE PAYABLE BY THE JOINT VENTURE AT 7.5% MARGIN ON REDUCED OR INCREASE VALUE OF WORK. ( CLAUSE 2.3) AS PER CLAUSE 3.1 THE SHORTFALL/SURPLUS IF ANY BETWEEN THE MARKET PRICE AND THE PRICE FIXED BY THE JV WOULD BE DEBITED/CREDITED TO THE JV ACCOUNT BASED ON THE QUA NTITY IN INTERIM PAYMENT CERTIFICATE. THIS FACT IS ALSO A PPARENT FROM THE PERUSAL OF THE BANK ACCOUNT WHICH SHOWS TH AT THE ENTIRE AMOUNT RECEIVED FROM THE NHAI HAS NOT BE EN DISTRIBUTED TO THE TWO PARTNERS AND PART OF THE AMO UNT HAS BEEN RETAINED IN THE BANK ACCOUNT OF THE JOINT VENT URE. ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 18 FROM THIS IT IS APPARENT THAT THE INTENT F THE JOIN T VENTURE IS TO EARN PROFIT. HOWEVER, THE HON'BLE' ITAT IN 2004-05 VIDE ITS ORDE R DATED 06.03.2009 UPHELD THE DECISION OF COMMISSIONE R OF INCOME TAX(A) DELETING THE DECISION OF THE ASSESSIN G OFFICER ON THE BASIS THAT THE JV WAS NEVER MEANT TO UNDERTAKE WORKS OF ITS OWN. IT WAS ONLY A PASS THRO UGH VEHICLE TO BID FOR THE PROJECT CONSIDERING THE HIGH LY TECHNICAL AND SPECIALIZED NATURE OF WORK INVOLVED. THE NATURE OF WORK INVOLVES THE EXECUTION OF THE CONTRA CT BY THE MEMBERS OF JV DIRECTLY WHICH FACT IS ALSO KNOWN TO NHAI IN THE BIDDING PROCESS ITSELF, WE FIND THAT TH E ASSESSEE JV IS ONLY AN ENTITY FOR NAME SAKE I.E. TO BID FOR THE PROJECT BUT ULTIMATELY IT IS TO BE EXECUTED BY THE MEMBER OF THE JV DUE TO THEIR OWN EXPERTISE IN THE FIELD RELATING TO THE PR OJECT. IN THE CIRCUMSTANCES IT CAN BE HELD THAT SINCE THE ASS ESSEE WAS NOT TO UNDERTAKE ANY WORK BUT THE WORK WAS TO B E EXECUTED BY THE JV PARTNERS, THE AMOUNT FOR WORK EXECUTED WAS REASONABLE HAVING ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 19 REGARD TO THE FAIR: MARKET VALUE. THE APPEAL OF THE REVENUE AGAINST THE DECISION OF THE HON'BLE ITAT HA S BEEN DISMISSED BY THE HON'BLE HIGH COURT VIDE THEIR JUDG MENT DATED 11.02.2010 AND THE SLP HAS ALSO BEEN REJECTED BY THE SUPREME COURT. THE APPELLANT HAS CLAIMED THAT THE ORDER FOR ASSESS MENT YEAR 2009-10 ESTIMATING THE PROFIT AT 5% OF THE TOT AL RECEIPTS HAS ALSO BEEN DISMISSED BY ITAT-E BENCH ON 17.12.2013 FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL AND FINDINGS OF THE LD. CIT(A) STAN D UPHELD. RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT IN THE APPELLANT OWN CASE, THE ADDITION MADE BY THE AO IS DELETED. 9. AFTER PERUSING THE FINDINGS OF THE LD. CIT(A), I N OUR CONSIDERED OPINION, LD. CIT(A) HAS RIGHTLY RESPECTF ULLY FOLLOWED THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE AND HAS RIGHTLY DELETED THE ADDITION IN DISPUTE. WE FURTHER FIND T HAT THE HONBLE HIGH COURT OF DELHI IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 TITLE CIT VS. (1) ORIENTAL STRUCTURAL ENGINEERS P LTD. AND KMC CONSTRUCTION P. LTD. JV & (2) ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 20 ORIENTAL STRUCTURAL ENGINEERS P. LTD. AND COMMON IN DIA LTD. JV (2015) 374 ITR 35 (DELHI) HAS HELD AS UNDER:- 11. IN THE PRESENT CASE TOO, THE COURT IS OF THE OPINION THAT THE CONSISTENT AND CONCURRING OPINIONS OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE INCOME TAX APPELLATE TRIBUNAL WERE THAT THE JOI NT VENTURE WAS FORMED ONLY TO SECURE THE CONTRACT, IN TERMS OF WHICH THE SCOPE OF EACH JOINT VENTURE PARTNERS TASK WAS DISTINCTLY OUTLINED. FURTHER THE ENTIRE WORK WAS SPLIT BETWEEN THE TWO JOINT VENTUR E PARTNERS; THEY COMPLETED THE TASK, THROUGH SUB- CONTRACTS AND WERE RESPONSIBLE FOR THE SATISFACTION OF THE NHAI. THEREFORE, APPLYING THE PRINCIPLES OF T HE LAW DECLARED IN LINDE AG, LINDE ENGINEERING DIVISION, IT IS HELD THAT THE INCOME TAX APPELLATE TRIBUNAL DID NOT FALL INTO ERROR OF LAW, IN HOLDING THAT THE JOINT VENTURE AN ASSOCIATION OF PERSONS AND LIA BLE TO BE TAXED ON THAT BASIS. THE QUESTION OF LAW FARM ED IS ACCORDINGLY ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9.1 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND RESPECTFULLY FOLLOWING THE PRECEDENTS, AS AFORESAID , WE ARE OF THE CONSIDERED OPINION THAT LD. CIT(A) HAS PASSED A W ELL REASONED ORDER WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, HENCE, WE UPHOLD THE SAME. ACCORDINGLY, THE GROUNDS RAISED BY THE ITA NOS. 2026-2027/DEL/2014 A.Y. 2010-11 21 REVENUE ARE DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10. WITH REGARD TO ITA NO. 2027/DEL/2014 (AY 2010-1 1) IS CONCERNED, RESPECTFULLY FOLLOWING THE CONSISTENT VI EW, AS AFORESAID TAKEN IN ITA NO. 2026/DEL/2014 (AY2010-11), THE RE VENUES APPEAL BEING ITA NO. 2027/DEL/2014 (AY 2010-11) ALS O STAND DISMISSED. 11. IN THE RESULT, BOTH THE APPEALS OF THE REVENU E STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/07/2016. SD/- SD/- [PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 01/07/2016 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES
