The ITO, Ward-9(2), Ahmedabad V. JMC PPPL(JV), Ahmedabad

ITA 2503/AHD/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8566 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 07-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.2503/AHD/2012 ( / ASSESSMENT YEAR : 2009-10) THE ITO WARD-9(2) AHMEDABAD / VS. JMC PPPL (JV) A-204, SHAPATH-IV SG ROAD AHMEADBAD # ./ ./ PAN/GIR NO. : AAAAJ 4868 L ( #& / APPELLANT ) .. ( '#& / RESPONDENT ) #&( / APPELLANT BY : SHRI MUDIT NAGPAL, SR.DR '#& )( / RESPONDENT BY : SHRI M.K. PATEL, AR *+ ), / DATE OF HEARING 26/07/2017 -./0 ), / DATE OF PRONOUNCEMENT 06 / 09 /2017 / O R D E R PER PRADIP KUMAR KEDIA - AM: IN THE CAPTIONED APPEAL, THE REVENUE HAS ASSAILED THE ACTION OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XV, AHMEDABAD [CIT(A) IN SHORT] DATED 08/08/2012 FOR THE ASSESSMENT YEAR (AY) 2009-10 IN DELETING THE ADDITION OF RS.68,81,901/- BY THE ASSE SSING OFFICER (AO) IN THE HANDS OF THE ASSESSEE AOP. ITA NO.2503/AHD /2012 ITO VS. JMC PPPL(JV) ASST.YEAR 2009-10 - 2 - 2. BRIEFLY STATED, THE ASSESSEE-AOP, IS ENGAGED I N THE BUSINESS OF CONSTRUCTION OF INFRASTRUCTURAL PROJECT. THE ASSES SEE FILED RETURN OF INCOME FOR AY 2009-10 DECLARING TOTAL INCOME OF RS. NIL. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT. IN THE COURSE OF THE SCRUTINY ASSESSMENT, THE AO NOTICED THAT ASSESSEE HAS SHOWN TOTAL CONTRACT RECEIPT OF RS.5,93,77,921/- ON WHICH NIL PROFIT HAS BEEN DE CLARED. THE AO FOUND THAT JOINT-VENTURE RECEIPT RECEIVED FROM THE PRINCIPAL HAS BEEN DIVIDED BETWEEN THE MEMBERS OF AOP IN THE RATIO OF THEIR RESPECTIVE PARTICIPATION SHAREHOLDING. THE ASSESSEE-AOP HAS B EEN CONSTITUTED THROUGH A JOINT-VENTURE AGREEMENT DATED 27/04/2007 ENTERED INTO BETWEEN ITS CONSTITUENTS JMC PROJECT (INDIA) LTD. AND PERMA NENT PRESTRESS PVT.LTD. (PPPL). THE ASSESSEE JOINT-VENTURE PARTIC IPATED IN THE BIDS FOR SUPPLYING, LAYING, JOINTING, TESTING AND COMMISSION ING OF DISTRIBUTION NETWORK AWARDED BY BHOPAL MUNICIPAL CORPORATION BHO PAL (BMC- BHOPAL) FOR AN AMOUNT OF RS.9,91,93,728/- VIDE LETT ER DATED 27/11/2007. THE AO OBSERVED THAT THE JOINT-VENTURE WAS A VALID AND INDEPENDENT TAXABLE ENTITY AS AN AOP. THUS, PROFIT ARISING ON A FORESAID GROSS BUSINESS RECEIPTS OF RS.5,93,77,921/- DURING THE YEAR IN RE SPECT OF WORK CONTRACTS ALLOTTED TO IT IS SUSCEPTIBLE TO TAX IN THE HANDS O F ASSESSEES JOINT-VENTURE. THE AO OBSERVED THAT ASSESSEE-AOP BEING TAXABLE ENT ITY IN THE EYES OF LAW WAS LIABLE TO TAX ON INCOME FROM THE CONTRACT R ECEIPTS IN THE STATUS OF AOP ON THE PREMISE THAT CONTRACT WAS ENTERED BY T HE JOINT-VENTURE. IT WAS NOTED BY THE AO THAT THE JOINT VENTURE HAS RECE IVED THE CONSIDERATION ITA NO.2503/AHD /2012 ITO VS. JMC PPPL(JV) ASST.YEAR 2009-10 - 3 - AND THEN WRONGLY PARTED WITH THE SAME IN FAVOUR OF ITS CONSTITUENTS. THE AO THUS HELD THAT ASSESSMENT OF THE INCOME ARISING FROM AFORESAID CONTRACT RECEIPTS OUGHT TO HAVE BEEN DONE IN THE HA NDS OF THE AOP WHO IS THE RIGHT PERSON FOR TAXATION PURPOSES. THE AO NOT ED THAT THE CONTRACT WAS AWARDED TO THE JV (AOP) AND THE WORK WAS CARRIE D OUT BY JMC PROJECTS (INDIA) LTD. OR THE OTHER JV MEMBER ONLY O N BEHALF OF THE JV. IT IS THE JV WHICH IS LIABLE FOR THE NON-PERFORMANCE O R LACK OF PERFORMANCE QUA THE PRINCIPAL. HAVING NOTED THESE FACTS, THE AO PROCEEDED TO ESTIMATE NET PROFIT @ 11.59% ON THE TOTAL TURNOVER AND DETERMINED THE TAXABLE INCOME OF RS.68,81,901/- IN THE HANDS OF TH E ASSESSEE-AOP. 3. AGGRIEVED BY THE AFORESAID ADDITION OF ESTIMATED INCOME, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 4. THE CIT(A) RELIED UPON VARIOUS JUDICIAL PRONOUNC EMENTS AND DELETED THE AFORESAID ADDITION. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE T RIBUNAL. 6. THE LD.DR RELIED UPON THE ORDER OF THE AO. 7. THE LD.AR MR.M.K. PATEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT IN THE INSTANT CASE, THE CONSORTIUM OF JOINT-VENTURE HAS ITA NO.2503/AHD /2012 ITO VS. JMC PPPL(JV) ASST.YEAR 2009-10 - 4 - BEEN FORMED ONLY TO PROCURE THE CONTRACT WORK FROM THE MUNICIPAL CORPORATION. BY WAY OF THE JOINT VENTURE AGREEMENT , THE PARTIES HAVE ONLY REGULATED THE RELATIONSHIP QUA THE PRINCIPAL VIZ. BHOPAL MUNICIPAL CORPORATION. THE LD.AR ADVERTED OUR ATTENTION TO A NOTHER SUPPLEMENTARY AGREEMENT DATED 08/02/2008 ENTERED IN TO IN CONSEQUENCE OF THE CONTRACT AWARDED BY CORPORATION AND SUBMITTE D THAT IN REALITY IT IS THE SOLE RESPONSIBILITY OF THE ASSESSEE TO EXECUTE THE ENTIRE PROJECT. IT IS THE ASSESSEE WHICH IS OBLIGED TO BRING IN ALL RESOU RCES, FINANCES AND ALL OTHER SERVICES REQUIRED FOR THE EXECUTION OF THE WO RK. THE OTHER JOINT VENTURE MEMBER PPPL IS NOT TO BE CALLED UPON TO PRO VIDE SUCH RESOURCES, SERVICES ETC. THE LD.AR NEXT SUBMITTED THAT THE JO INT VENTURE AGREEMENT WAS SOLELY EXECUTED FOR THE PURPOSE OF OBTAINING TH E WORK CONTRACT AND DOES NOT REPRESENT ANY AOP OR PARTNERSHIP BETWEEN I TS CONSTITUENTS VIZ. JMC AND PPPL. THIS AGREEMENT IS ONLY A WORK SHARIN G ARRANGEMENT TO MEET CONTRACTUAL AGREEMENT WITH ITS CLIENT. IT IS THE SUPPLEMENTARY AGREEMENT WHICH DEFINES THE INTER SE RELATIONSHIP OF CONSTITUENTS. IT WAS SUBMITTED THAT AS PER THE SUPPLEMENTARY AGREEMENT B ETWEEN THE JOINT VENTURE MEMBERS, JMC HAS INDEMNIFIED THE OTHER MEMB ER (PPPL) FOR ANY AND ALL CONTRACTUAL OBLIGATIONS ARISING EXECUTI ON FOR THE PROJECT. IT WAS SUBMITTED THAT OTHER CLAUSES OF THE SUPPLEMENTA RY AGREEMENT CLEARLY SPELLS OUT THAT IT IS THE JMC WHICH BEARS THE RISK OF SCOPE OF ITS WORK AND THE CONTROL OVER THE PROJECT LIES WITH JMC. IN SU CH CIRCUMSTANCES, THE CIT(A) HAS RIGHTLY TREATED THE JOINT VENTURE AS NOT AN ASSESSABLE ENTITY ITA NO.2503/AHD /2012 ITO VS. JMC PPPL(JV) ASST.YEAR 2009-10 - 5 - FOR TAXATION PURPOSES. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THERE ARE LONG LINE OF JUDICIAL PRECEDENTS WHERE IN THE S IMILAR FACTS AND CIRCUMSTANCES, THE ACTION OF THE AO WAS NOT FOUND L EGALLY TENABLE. THE INCIDENCE OF TAX ON THE CONTRACT RECEIPT ARISES IN THE HANDS OF ONE OF ITS CONSTITUENT NAMELY JMC AND NOT THE ASSESSEE HEREIN. THE LD.AR REFERRED TO THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF CIT VS. RAJDEEP & PMCC INFRASTRUCTURE LTD. 73 TAXMANN.COM 2 56 (SC) WHERE THE SLP WAS DISMISSED AGAINST THE FAVOURABLE ORDER OF THE HONBLE BOMBAY HIGH COURT REPORTED IN 73 TAXMANN.COM 255 ( BOM.). THE LD.AR NEXT SUBMITTED THAT IN VIEW OF THE PECULIAR F ACTS OF THE CASE, NO INCOME CAN BE SAID TO HAVE ACCRUED IN THE HANDS OF THE ASSESSEE-AOP. THE LD.AR THEREAFTER REFERRED A RECENT CIRCULAR OF CBDT NO.07/2016 DATED 07/03/2016 IN THIS REGARD. THE LD.AR SUBMITT ED THAT THE AFORESAID CIRCULAR HAS CLARIFIED THE POSITION OF LAW AND REMO VED ALL POSSIBLE AMBIGUITIES IN THIS REGARD. HE THEREFORE SUBMITTED THAT NO INTERFERENCE WITH THE ORDER FO THE CIT(A) IS CALLED FOR. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE BASIC QUESTION FOR OUR CONSIDERATION IS WHETHER THE INCOM E CAN BE SAID TO HAVE ACCRUED IN THE HANDS OF AOP WHEN THE CONTRACT HAS B EEN AWARDED TO A CONSORTIUM/JOINT-VENTURE AND WHETHER SUCH A CONSORT IUM FORMED FOR THE PURPOSES OF OBTAINING THE CONTRACT CONSTITUTES AN A OP OR NOT. IT IS THE CASE OF THE AO THAT CONSORTIUM/JOINT-VENTURE IN THE INSTANT CASE ITA NO.2503/AHD /2012 ITO VS. JMC PPPL(JV) ASST.YEAR 2009-10 - 6 - CONSTITUTES AN AOP AND THUS A SEPARATE ENTITY FOR INCIDENCE OF TAXATION. THE ASSESSEE, ON THE OTHER HAND, CLAIMS THAT THE JO INT-VENTURE AGREEMENT HAS BEEN MERELY ENTERED FOR THE PURPOSES OF BIDDIN G FOR THE PROJECT FOR WHICH THE TENDER WAS INVITED BY THE PRINCIPAL I.E. BHOPAL MUNICIPAL CORPORATION. IT IS THE CASE OF THE ASSESSEE THAT B Y VIRTUE OF SUPPLEMENTARY AGREEMENT DATED 08/02/2008 BETWEEN JMC AND PPPL ( OTHER JOINT- VENTURE MEMBER) THEIR CORRECT RELATIONSHIP HAS BEE N DEFINED. IT WAS ALSO PLEADED THAT FROM SUPPLEMENTARY DEED BETWEEN CONSTI TUENTS, IT CAN BE CLEARLY INFERRED THAT THE MAIN JOINT-VENTURE AGREEM ENT DATED 27/04/2007 FOR BIDDING PURPOSES IS ONLY A SYMBOLIC DOCUMENT AN D DOES NOT REPRESENT AN AOP OR PARTNERSHIP BETWEEN ASSESSEE AND PPPL. T HE MAIN JOINT- VENTURE AGREEMENT IS ONLY A WORK SHARING AGREEMENT TO MEET CONTRACTUAL AGREEMENT WITH A PRINCIPAL ONLY. 9. IN THE LIGHT OF AFORESAID PLEA OF THE ASSESS EE, WE OBSERVE THAT VARIOUS CLAUSES OF THE SA (SUPPLEMENTARY AGREEMENT) ARE S UGGESTIVE OF THE FACT THAT IT IS THE CONSTITUENT-JMC INDEED WHO IS SOLELY RESPONSIBLE FOR EXECUTION OF THE ENTIRE PROJECT. IT IS THE JMC WHO IS UNDER OBLIGATION TO BRING IN ALL RESOURCES, FINANCES AND ALL OTHER SERV ICES REQUIRED FOR THE EXECUTION OF THE PROJECT IN EXCLUSION TO THE OTHER SO-CALLED PARTNER OF THE JOINT VENTURE. NOTICEABLY, IT IS ALSO SPECIFIED BY WAY OF CLAUSE-4 OF THE SA THAT JMC SHALL BE SOLELY RESPONSIBLE FOR ALL THE LOSSES AND PROFITS. THUS, AS MUTUALLY UNDERSTOOD, ONE OF THE CONSTITUEN TS ALONE HAS DOMAIN ITA NO.2503/AHD /2012 ITO VS. JMC PPPL(JV) ASST.YEAR 2009-10 - 7 - OVER THE FINANCIAL REWARDS AND RISKS ASSOCIATED TO THE JV. THE OTHER PARTNER OF JV STANDS IDENTIFIED OF ALL CONTRACTUAL OBLIGATIONS BY VIRTUE OF THIS SA. THE BANK GUARANTEE IS TO BE PROVIDED BY J MC ALONE. THE SA FURTHER PROVIDES THAT THE JOINT BANK ACCOUNT SHALL BE OPERATED BY JMC ALONE AND ALL DECISIONS PERTAINING TO THE JOINT-VEN TURE SHALL BE TAKEN BY ONE CONSTITUENT, I.E. JMC ONLY. JMC SHALL BE FURTH ER RESPONSIBLE FOR COMPLIANCE OF ALL STATUTORY REQUIREMENTS WITHOUT AN Y OVERLAPPING OF RESPONSIBILITY. UNDER THESE CIRCUMSTANCES, WE FIN D THAT IT IS ONE OF THE MEMBERS, NAMELY, JMC PROJECT (INDIA) LTD. WHICH ESS ENTIALLY BEARS THE RISK OF SCOPE OF WORK AND ENJOYS CONTROL OVER THE P ROJECT. THIS BEING SO, IN VIEW OF THE RECENT CBDT CIRCULAR NO.7/2016 DATED 07/03/2016, THE ASSESSEE HEREIN HAS RIGHTLY NOT BEEN TREATED AS AN AOP FOR TAXATION PURPOSES. WE FIND THAT THE CIT(A) HAS RIGHTLY HELD THAT INCOME FROM THE CONTRACT AWARDED BY THE PRINCIPAL CANNOT BE SAID TO HAVE BEEN ACCRUED IN THE HANDS OF THE APPELLANT AOP NOTWITHSTANDING JV D OCUMENT EXECUTED FOR BIDDING AND THUS THE APPELLANT HEREIN IS NOT LI ABLE FOR INCOME ESTIMATED ON THE CONTRACT AWARDED. WE FIND NO INF IRMITY IN THE CONCLUSION DRAWN BY THE CIT(A). 10. HOWEVER, IN THE SAME VAIN, A LIBERTY IS GRANTE D TO AO TO CALL FOR NECESSARY RECORDS FROM THE ASSESSEE-AOP HEREIN TO S ATISFY ITSELF THAT THE CONTRACT RECEIPTS IN QUESTION AND INCOME THEREON HA S SUFFERED TAXATION IN THE HANDS OF ITS CONSTITUENT NAMELY JMC PROJECTS (I NDIA) LTD., IF SO ITA NO.2503/AHD /2012 ITO VS. JMC PPPL(JV) ASST.YEAR 2009-10 - 8 - CONSIDERED EXPEDIENT, TO ENSURE THAT CONTRACT RECEI PTS HAVE BEEN ASSESSED IN THE HANDS OF ITS MEMBER. ONCE, IT IS FOUND THAT CONTRACT RECEIPTS HAVE BEEN ASSESSED IN THE HANDS OF CONSTITUENT, THE ASSE SSMENT OF SAME RECEIPTS IN THE HANDS OF AOP WILL CEASE TO EXIST. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 06 /09 /2017 SD/- SD/- ( ) ( ) ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 06/ 09 /2017 4..*,.*../ T.C. NAIR, SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '#& / THE RESPONDENT. 3. 567, 8, / CONCERNED CIT 4. 8, ( ) / THE CIT(A)-XV, AHMEDABAD 5. 9:;,*67 , 67 0 , 5 / DR, ITAT, AHMEDABAD 6. ;<+ / GUARD FILE. / BY ORDER, '9,, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD