M/s Hindustan Ratna JV, Hyderabad V. ITO, Ward 6(2), Nellore Dist.

ITA 372/HYD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69992 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 22-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Non-deduction of tax
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 372/HYD/2013 ASSESSMENT YEAR : 2009-10 M/S HINDUSTAN RATNA JV, APPELLANT HYDERABAD. PAN AAEFH0901P VS. INCOME TAX OFFICER, WARD 6(2), RESP ONDENT HYDERABAD. APPELLANT BY : SHRI A.V. RAGHURAM RESPONDENT BY : SHRI D. SUDHAKAR RAO DATE OF HEARING : 10/10/2013 DATE OF PRONOUNCEMENT : 18/12/2013 ORDER PER CHANDRA POOJARI, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRE CTED AGAINST THE ORDER PASSED BY THE CIT(A)-IV, HYDERABAD ON 27/02/2013, FOR ASSESSMENT YEARS 2009-10. 2. THE ASSESSEE HAS RAISED SEVEN GROUNDS OF AP PEAL, THE SUM AND SUBSTANCE OF WHICH IS THAT ASSESSEE IS NOT LIABLE T O DEDUCT TDS ON THE PAYMENT MADE TO ITS TWO PARTNERS SO AS TO ATTRACT T HE PROVISIONS OF SECTION 40(A)(IA) OF THE IT ACT. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT T WO PARTNERSHIP FIRMS, M/S. HINDUSTAN ENGINEERS SYNDICATE AND M/S. RATNA CONSTRUCTIONS, ENTERED INTO A JOINT VENTURE AGREEME NT ON 2 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV 16.8.2004. THE SALIENT TERMS OF THE JV AGREEMENT WE RE AS FOLLOWS: '1.0 IF SELECTED AS SUCCESSFUL BIDDER FOR THE PROJECT, THE PARTIES DESIRE TO ENTER INTO A PARTNERSHIP IN JOINT VENTURE WITH THE FOLLOWING OBJECTS, ROLES AND PURPOSES: 1.1 OBJECTS: 1.2 THE SOLE OBJECTS FOR WHICH THE JOIN T VENTURE WILL BE ESTABLISHED ARE: (A) TO PREPARE AND SUBMIT TENDER PRE-QUA LIFICATION BIDS AND TENDERS TO THE OWNER, AND (B) TO AGREE THE CONTRACT WITH THE OWNER, AND (C) TO EXECUTE THE PROJECT WORKS IN ACCORDANCE WITH THE CONTRACT. 1.3 ROLES: HINDUSTAN AS THE LEAD PARTNER AND RATNA AS PARTNER WILL HAVE THE JOINT ROLES AS FOLLOWS: (A) GENERAL PLANNING AND OVERALL EXECUT ION (B) SITE MANAGEMENT AND PLANT OPERATION (C) OTHER TECHNICAL MATTERS (D) INCUR ANY LIABILITY THAT MAY BE REQUIRED FOR EX ECUTION OF THE CONTRACT (E) ARRANGE FOR BID SECURITY (F) COORDINATE WITH SCL IN OTHER FINANCIAL ACTIVITI ES RELATED TO THE CONTRACT (G)TO SECOND EMPLOYEES TO THE JOINT VENTURE 2. PARTICIPATION IN THE JOINT VENTURE IN TH E RATIO OF HINDUSTAN 60% RATNA . 40% HINDUSTAN WILL BE THE LEAD PARTNER THE JOINT VENTURE SHALL CAUSE AN EXECUTIVE COMMITTE E TO BE FORMED CONSISTING OF FOUR MEMBERS, TWO NOMINEES REPRESENTING EACH PARTY. THE EXECUTIVE COMMITTEE WI LL BE RESPONSIBLE INTER ALIA, FOR THE FOLLOWING: (A) TO DIRECT AND SUPERVISE THE PERFORMANCE OF THE CONTRACTS AND THE EXECUTION OF THE WORKS. (B) TO APPOINT PROJECT MANAGER FROM EMPLOYE ES 3 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV NOMINATED BY HINDUSTAN, WHO ALONG WITH HIS CONTRACT MANAGEMENT STAFF, SHALL SUBJECT TO THE OVERRIDING AUTHORITY OF THE EXECUTIVE COMMITTEE, TO EXECUTE AND CARRY OUT THE CONTRACT WORKS. (C) TO PREPARE, MAINTAIN, CONTROL, SUPERVISE , BOOKS OF ACCOUNTS, PROFIT AND LOSS ACCOUNT, BALANCE SHEET OF THE JOINT VENTURE, OPEN, MAINTAIN AND OPERATE JOINT VENTURE'S BANKING ACCOUNTS; (D) PREPARE BUDGETS AND CONTROL THEREOF; D) PREPARE BUDGETS AND CONTROL THEREOF; (E) MATERIALS AND SUB-CONTRACTS WILL BE PROCU RED BY THE JOINT VENTURE. 6) THE PARTIES SHALL SECOND TO THE JOINT VENTURE EMPLOYEES AS REQUIRED BY THE PROJECT MANAGER FOR THE SATISFACTORY EXECUTION OF THE CONTRACT WORKS. 7) THE PARTIES SHALL BE JOINTLY AND SEVERALLY LIABL E TO THE EMPLOYER FOR THE PERFORMANCE OF THE CONTRACT. 8....... 9. THIS AGREEMENT WILL BECOME NULL AND VOID UPON OCCURRENCE OF ANYONE OF THE FOLLOWING EVENTS. I. THE JV BEING REJECTED FOR PRE-QUALIFICATION. II . THE JV BEING PREQUALIFIED, BUT NOT WINNING THE PROJECT. III. THE JV WINNING THE PROJECT AND THE PARTIES ENTER INTO DETAILED JV AGREEMENT / SHARE HOLDERS AGREEMENT. 4. SUBSEQUENTLY, M/S. HINDUSTAN ENGINEERS SYNDICATE WAS CONVERTED INTO A COMPANY, M/S. HES INFRA PVT LTD. (HEREINAFTER REFERRED TO AS HES) AND M/S. RATNA CONSTRUCTIONS WAS CONVERTED INTO M/S. RATNA INFRASTRUCTURE PROJECTS LTD. (HEREINAFTE R REFERRED TO AS RIPL). CONSEQUENT TO THIS CHANGE OF STATUS OF THE T WO MEMBERS, THE TWO NEW ENTITIES EXECUTED A DEED OF PARTNERSHIP DTD . 31.8.200.7 WHERE IT WAS SPECIFICALLY STATED AS FOLLOWS: 4 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV 'AS THE EARLIER PARTNERSHIP FIRMS HAVE BECOME PRIVATE LIMITED COMPANIES AND NECESSITATED TO AMEND THIS JO INT VENTURE DEED OF PARTNERSHIP ACCORDINGLY'. 5. THE SALIENT FEATURES OF THE PARTNERSHIP DEED DT D. 31.8.2007 WERE AS FOLLOWS: 'WHEREAS BOTH M/S. HES INFRA PVT LTD. AND M/S. RATN A INFRASTRUCTURE PROJECTS PVT LTD HAVE DECIDED TO FOR M A JOINT VENTURE FIRM TO ACT AND SUBMIT PREQUALIFICATION APPLICATION TO SUBMIT BID IF PREQUALIFIED AND EXECUTE THE CONTRACT S. ... 5) THAT THIS JOINT VENTURE AGREEMENT SHALL REGULATE THE RELATIONS BETWEEN THE PARTIES AND SHALL INCLUDE WIT HOUT BEING LIMITED TO THEM THE FOLLOWING CONDITIONS: A) M/S. HES INFRA PVT. L TO SHALL BE THE LEAD COMPANY, IN-CHARGE OF THE JOINT VENTURE FOR ALL INT ENTS AND PURPOSES. B) IF THE BIDS OF THE JOINT VENTURE FIRM ARE ACCEPT ED, IT SHALL ENTER INTO CONTRACT WITH THE OWNERS TO WHICH THE PA RTIES HERETO SHALL BE JOINTLY AND SEVERALLY LIABLE FOR AL L ACTS, DEEDS AND THINGS PERTAINING TO THE CONTRACT. C) THAT SRI IVR KRISHNAM RAJU SHALL BE THE MANAGING PARTNER OF THE JOINT VENTURE FIRM AND SHALL HAVE THE POWER TO CONTROL AND MANAGE THE AFFAIRS OF THE FIRM WITH THE CONSENT OF OTHER FIRMS. D) THAT ON BEHALF OF THE JOINT VENTURE, SRI IVR KRI SHNAM RAJU SHALL HAVE THE AUTHORITY TO INCUR LIABILITIES, RECE IVE INSTRUCTIONS AND PAYMENTS END EXECUTE THE CONTRACTS FOR AND ON BEHALF OF THE JOINT VENTURE. E) THAT THE PARTICIPATION OF THE TWO COMPANIES IN T HE JOINT VENTURE SHALL BE AS FOLLOWS: 1) HES INFRA P LTD 60% 2) RATNA INFRASTRUCTURE PROJECTS P LTD 40% F) THAT THE PROVISIONS OF INDIAN PARTNERSHIP ACT, 1937 SHALL BE APPLICABLE FOR ALL THE CLAUSES OTHERWISE THAN SP ECIFIED IN THIS DEED. 5 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV G) THAT M/S. HES INFRA P LTD. AND M/S. RATNA INFRAS TRUCTURE PROJECTS P LTD. BE JOINTLY AND SEVERALLY LIABLE TOW ARDS THE OWNERS FOR THE EXECUTION OF THE CONTRACT COMMITMENT S IN ACCORDANCE WITH THE CONTRACT CONDITIONS .... 6. THE APPELLANT WAS AWARDED CERTAIN INFRASTRUCTURE CONTRACTS. THE AGGREGATE CONTRACT RECEIPTS WERE RS. 115,79,10,993/ - OF WHICH RECEIPTS OF RS. 111,09,23,018/- WERE TRANSFERRED TO HES AND RIPL IN THE PROPORTION OF 60 0 /0 AND 40 0 /0 RESPECTIVELY. THE BALANCE RECEIPTS OF RS. 4,,69,87,975/- WAS CREDITED TO THE P&L ACCOUNT EXTRACTS OF WHICH ARE REPRODUCED BELOW: PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31.3.2009 PARTICULARS AMOUNT (RS) PARTICULARS AMOUNT (RS.) TO SUBCONTRACT 4,04,84,647 BY GROSS CONTRACT 4,69,87,975 RECEIPTS TO OTHER EXPENSES 68,55 088 BY OTHER INCOME 3,51,760 TO NET PROFIT 17,17,086 TRANSFERRED 47339735 4,73,39,735 7. THE ASSESSING OFFICER DIRECTED THE APPELLANT TO EXPLAIN WHY TDS HAD NOT BEEN MADE ON THE SUB-CONTRACT EXPENSES OF R S. 111,09,23,018/-. THE ASSESSEE SUBMITTED THAT THE AP PELLANT WAS A JV FORMED ON 16-08-2004 WITH THE SOLE PURPOSE TO WIN C ONTRACTS AND NOT TO MAKE PROFITS, THAT THE ENTIRE WORK ALLOTTED TO J V WAS ENTRUSTED TO JV MEMBERS FOR EXECUTION, THAT THE RELATIONSHIP BETWEE N JV AND ITS MEMBERS WAS NOT THAT OF A CONTRACTOR AND SUB CONTRA CTOR AND HENCE, THE PROVISIONS OF SEC. 40(A)(IA) WERE NOT APPLICABL E TO THE APPELLANT. THE AR RELIED UPON THE FOLLOWING DECISIONS: 1) SMC AMBIKA LV VS. ITO, ITA NO. 7698/M/2010 - (MUM) , DT. 29/07/2011. 2) ITO VS. VKPS UAN RAJU CONSTRUCTIONS, 48 SOT 178 (VISPTNM) 3) CIT VS. ESS KAY CON. 267 ITR 618(P&H) 4) CIT VS. AMBUJA DARLA 188 TAXMANN 134 (HP) 5) DATTA DIGAMBER SHANKARI SANSTHA VS. ACIT 83 6 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV ITD 148 8. THE ASSESSING OFFICER DID NOT ACCEPT THE APPEL LANT'S PLEA FOR THE FOLLOWING REASONS. A) THE APPELLANT WAS A JOINT VENTURE AND THE INCOME OF THE ASSESSEE WAS OFFERED TO TAX IN THE STATUS OF AOP, N OT IN THE STATUS OF FIRM. THE PAYMENTS IN QUESTION WERE IN TH E NATURE OF SUB-CONTRACT PAYMENTS AND NOT IN THE NATURE OF CAPI TAL RE- PAYMENT, REMUNERATION TO PARTNERS, INTEREST TO PART NERS ETC. THE APPELLANT HAD ITSELF DISCLOSED SOME OF THE CONTRACT RECEIPTS AND CORRESPONDING EXPENSES IN THE P&L ACCOUNT. B) THE APPELLANT WAS A JV WHICH HAD RECEIVED CONTRA CT WORK FROM THE CLIENT AND THE SUB-CONTRACTOR IS A COMPANY WHICH WAS EXECUTING THE WORK. THIS WAS ALSO CLEAR FROM THE MA NNER IN WHICH THE BILLS WERE RAISED ON THE CLIENT; THE RA B ILLS WERE INITIALLY SUBMITTED BY THE SUB-CONTRACTOR TO THE A PPELLANT WHICH IN-TURN SUBMITTED RA BILLS TO THE CLIENT WHICH AFTER VERIFYING THE RA BILL SUBMITTED RELEASED THE BILL AMOUNT TO T HE APPELLANT. 8.1 THE ASSESSING OFFICER OBSERVED THAT THE FACTS I N THE' CASE LAWS CITED BY THE AR WERE DIFFERENT AND THESE DECIS IONS WERE THEREFORE, NOT APPLICABLE TO THE APPELLANT'S CASE. THE ASSESSING OFFICER THEREFORE DISALLOWED THE SUM OF RS. 111,09,23,018/- U/S. 40(A)(IA). 9. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSEE CREDITED PART OF THE CONTRACT RECEIPTS IN ITS BOOKS OF ACCOUNT AN D DEBITED THE CORRESPONDING SUB-CONTRACT EXPENSES, LIABLE TO DEDU CT TDS. THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION FOR THIS A RTIFICIAL DISTINCTION BETWEEN THE TWO PARTNERS OF THE CONTRACT RECEIPTS, MERELY ON THE BASIS OF THE SUB-CONTRACTOR BEING A PARTNER OR OTHERWISE. ACCORDINGLY, SHE OBSERVED THAT ASSESSEE IS LIABLE FOR DEDUCTION AND FAILED TO DEDUCT TDS, THEREFORE, IT WAS LIABLE FOR DISALLOWANCE U/S 40(A)(IA) OF THE ACT AND CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 10. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 7 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV 11. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE JOINT VENTURE AGREEMENT, DATED 16/08/2004, WHICH IS PLACED AT PAGES 1 TO 4 OF THE PAPER BOOK TO SUBMIT THAT THE JV FORM ED ON 16/08/2004 WITH THE FOLLOWING CONSTITUENTS, NAMELY, 1. M/S HINDUSTAN ENGINEERS SYNDICATE 2. M/S RATNA CONSTRUCTIONS. THE OBJECT OF THE JV WAS TO PROCURE CONTRACTS FROM VARIOUS GOVERNMENTS, AS UNDER: 1. TO PREPARE AND SUBMIT TENDER PRE-QUALIFICATION B IDS AND TENDERS TO THE OWNER, AND 2) TO AGREE THE CONTRACT WITH THE OWNER, AND 3) TO EXECUTE THE PROJECT WORKS IN ACCORDANCE WITH THE CONTRACT AND THE RATIO OF THE PARTICIPATION IN THE JOINT VEN TURE IS AS FOLLOWS: HINDUSTAN : 60% RATNA : 40% THIS AGREEMENT WILL BECOME NULL & VOID UPON OCCURRE NCE OF ANY ONE OF THE FOLLOWING EVENTS: I. THE JV BEING REJECTED FOR PRE-QUALIFICATION. II. THE JV BEING PREQUALIFIED, BUT NOT WINNING THE PROJECT III. THE JV WINNING THE PROJECT AND THE PARTIES ENT ER INTO DETAILED JV AGREEMENT/SHAREHOLDERS AGREEMENT. 12. THE LEARNED COUNSEL SUBMITTED THAT LATER ON THE SAID JV WAS CONVERTED INTO A PARTNERSHIP FIRM VIDE DEED OF PART NERSHIP DATED 31 ST DAY OF AUGUST, 2007, WHICH SHALL COME INTO FORCE FR OM 8 TH DAY OF NOVEMBER, 2004 AND THE PARTNERS ARE I) M/S HES INFR A PVT. LTD.(FORMERLY HINDUSTAN ENGINEERS SYNDICATE) AND II ) M/S RATNA INFRASTRUCTURE PROJECTS PVT. LTD. (FORMERLY RATNA C ONSTRUCTIONS). BOTH THE PARTIES, AS PER THE DEED, ARE ENGAGED IN THE BU SINESS OF EXECUTION OF WORKS CONTRACT BY FORMING A JOINT VENT URE FIRM TO ACT AND SUBMIT PREQUALIFICATION APPLICATION TO SUBMIT BID I F PREQUALIFIED AND EXECUTE THE CONTRACTS. THE PARTICIPATION OF THE TWO COMPANIES IN THE 8 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV JV SHALL BE AS FOLLOWS: 1. HES INFRA PVT. LTD. 60% 2. RATNA INFRASTRUCTURE PROJECTS PVT. LTD. 40% 12.1 THERE IS A SPECIAL CLAUSE IN THE PARTNERSHIP D EED, NAMELY CLAUSE (F), WHICH STATES THAT THE PROVISIONS OF IND IAN PARTNERSHIP ACT, 1937 SHALL BE APPLICABLE FOR ALL THE CLAUSES OTHERW ISE THAN SPECIFIED IN THIS DEED. 12.2 CLAUSE (G) STATES THAT M/S HES INFRA PVT. LTD. AND M/S RATNA INFRASTRUCTURE PROJECTS PVT. LTD. SHALL BE JOINTLY AND SEVERALLY LIABLE TOWARDS THE OWNERS FOR THE EXECUTION OF THE CONTRAC T COMMITMENTS IN ACCORDANCE WITH THE CONTRACT CONDITIONS. 12.3 CLAUSE (H) STATES THAT THIS JV AGREEMENT SHALL NOT BE DISSOLVED TILL THE COMPLETION OF DEFECT LIABILITY PERIOD AS S TIPULATED IN THE TENDER DOCUMENT CONDITIONS AND TILL ALL THE LIABILITIES TH EREOF ARE LIQUIDATED. 12.4 THE LEARNED COUNSEL RELIED ON THE FOLLOWING JU DGMENTS TO SUBMIT THAT ASSESSEE IS A JOINT VENTURE, THEREFORE, THE QU ESTION OF DEDUCTING TDS ON THE PAYMENT OF THE MEMBER OF THE JV, DOES NO T ARISE. 1. M/S SOMA ENTERPRISES LTD., ITA NO. 1116-1117/H/2 010 AND C.O. NO. 87/HYD/2010, ORDER DATED 15/06/2011. 2. M/S IVRCL-KBL-MEIL (JV) AND 2 OTHERS, ITA NOS. 1 197- 1199/HYD/2011, ORDER DATED 12/07/2012. 3. SRI BHOORATNAM CONSTRUCTIONS CO., ITA NO. 73-74/ H/2011, ORDER DATED. 12/10/2011. 4. SRI BHOORTATNAM & CO., [2012] 83 CCH 220 APHC, DT. 23/11/2012. 5. UAN RAJU CONSTRUCTIONS, ITA NO. 344/V/2009 AND 7 7/V/2010, ORDER DATED 13/05/2010. 6. M/S SMC AMBIKA, JV, ITA NO. 7698/M/2010, DT. 29/ 07/2011. 7. M/S MEIL-SEW-MAYTAS-BHEI (JV) AND OTHERS, ITA NO S. 63- 9 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV 76/H/2010, DT. 30/05/2012. 8. M/S IVRCL KBL (JV) AND OTHERS, ITA NO. 1539-1544 /H/2010, DT. 15/01/2013. 9. M/S PCL INTERTECH LENHYDRO CONSORTIUM JV, ITA NO . 940,953,1332 AND 1432/H/2010, ORDER DATED 31/01 /2013. 10. ESS KAY CONSTRUCTION CO. [2004] 267 ITR 618 (P& H), ORDER DATED 07/08/2003. 11. AMBUJA DARLA KASHLOG MANGU TRANSPORT CO-OP SOCI ETY, [2009] 227 CTR (HP) 299, DT. 20/10/2009. 12. HYUNDAI ROTEM C. [2010] 323 ITR 277, DT. 23/04 /2010. 13. M/S CTR-RAILONE-JV, ITA NOS. 1114 & 1122/H/2010 , DT. 31/12/2012. 12.5 THE LEARNED COUNSEL SUBMITTED THAT A S PER THE PARTNERSHIP DEED, WHICH WAS ESSENTIALLY A JV AGREEMENT, THE JV CONSTI TUENTS WERE JOINTLY AND SEVERALLY LIABLE TOWARDS THE OWNER FOR THE EXECUTIO N OF THE CONTRACT COMMITMENTS. IN TERMS OF THE JV AGREEMENT, THE CONT RACT WORKS OBTAINED BY THE JV WAS EXECUTED BY ITS CONSTITUENTS IN THE GIVE N RATIO OF 60 : 40. IN RESPECT OF ONE CONTRACT THE WORK WAS GIVEN ON SUB C ONTRACT BASIS TO A THIRD PARTY, FOR A SUM OF RS. 4,04,84,647/- AND TAX DEDUC TED ON IT. THE OTHER CONTRACT RECEIPTS OF RS. 111,09,23,018/- WERE TRANS FERRED TO THE JV CONSTITUENTS IN THE AGREED RATIO AND THE WORKS RELA TING TO SUCH CONTRACT RECEIPT WERE CARRIED ON BY THE CONSTITUENTS IN THEI R OWN CAPACITY. THESE RECEIPTS AND EXPENSES ON THE EXECUTION OF THIS CONT RACT WERE DISCLOSED IN THE RETURNS OF INCOME OF THE CONSTITUENTS AND TAX P AID BY THEM ON THE PROFITS THEREON. THE JV HAD NEITHER RETAINED ANY COMMISSION NOR GAINED ANY PROFIT ON THESE CONTRACT RECEIPTS. 12.6 FURTHER, THE LEARNED COUNSEL SUBMITTED THAT TH E JV WAS FORMED FOR THE PURPOSE OF WINNING CONTRACT WHICH WAS INTENDED TO B E EXECUTED BY AN D FOR THE BENEFIT OF THE JVS CONSTITUENTS. THE JV WAS ONL Y A DE JURE CONTRACTOR AND CONSTITUENTS WERE THE DE FACTO CONTRACTORS. THE CONSTITUENT MEMBERS WERE JOINTLY AND SEVERALLY RESPONSIBLE TO THE OWNER S FOR THE TIMELY EXECUTION OF THE CONTRACT AND THEREFORE THEY COULD NOT BE TREATED AS 10 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV SUB-CONTRACTORS TO THE JV. SINCE THE RELATIONSHIP BETWEEN THE JV AND THE CONSTITUENT MEMBERS WAS NOT THAT OF A CONTRACTOR AN D SUB-CONTRACTOR, THE JV WAS NOT REQUIRED TO DEDUCT TAX FOR THE AMOUNTS TRAN SFERRED BY THE JV TO ITS CONSTITUENTS. 12.7 IT WAS SUBMITTED THAT THE JV DID NOT EXECUTE ANY CONTRACT WORK. IT TRANSFERRED NOT ONLY THE GROSS REVENUE BUT ALSO THE CORRESPONDING TDS TO ITS MEMBERS IN THE RATIO OF THE WORK DONE BY THE INDIVIDUAL MEMBERS. THIS HAD BEEN ACCEPTED BY THE ASSESSING OFFICER OF THE CONSTITUENTS. 12.8 FURTHER TO THE DECISIONS RELIED ON BY THE APPE LLANT DURING THE ASSESSMENT PROCEEDINGS, THE LEARNED COUNSEL RELIED ON THE DECISION IN THE FOLLOWING CASES: 1. DCIT VS. IVRCL KVL MEIL (JV) 2. HYUNDAI ROTAM CO. IN RE, 323 ITR 277 (AAR) 3. ACIT VS. M/S PRARDHANA CONSTRUCTION CO., ITA NO. 1046/HYD/2010, DT. 07.01.2011 4. SOMA ENTERPRISES VS. DCIT, ITA NO. 1116/HYD/201 0, DT. 15.06.11 5. ACIT VS. MADHUON SINO HYDRO JV, ITA NO. 646/HYD /2010, DT. 27.11.2012. 6. CIT VS. MOTHER INDIA REFRIGERATION INDUSTRIES P . LTD., [1995] 155 ITR 711 (SC) 7. CIT VS. BHOOTRATNAM & CO., ITTA NOS. 117 AND 22 2 OF 2012, DT. 23.11.2012 (AP HIGH COURT) 12.9 THE LEARNED COUNSEL FOLLOWING THE DECISION IN THE CASE OF HINDUSTAN COCO COLA BEVERAGE P LTD 293 ITR 226 (SC) , NO DISALLOWANCE U/S. 40(A)(IA) COULD BE MADE IN VIEW O F THE FACT THAT TAX HAD BEEN PAID BY THE CONSTITUENT. 12.10 IT WAS SUBMITTED THAT THE SECOND PROVISO TO S EC. 40(A)(IA) PROVIDES THAT ONCE THE RECIPIENT HAS PAID THE TAX, NO DISALL OWANCE CAN BE MADE U/S. 40(A)(IA) IN THE CASE OF THE PAYER. THOUGH THE PROV ISO WAS INSERTED W.E.F. A.Y. 2013-14, IT WAS CLARIFICATORY IN NATURE AND THEREFORE SHOULD BE APPLIED RETROSPECTIVELY. RELIANCE WAS PLA CED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN CREATIONS, GA 11 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV NO. 3200/2011, DTD. 23-11-2011. 12.11 FURTHER, IT WAS SUBMITTED THAT INTEREST HAS BEEN LEVIED ON THE APPELLANT U/S. 201(1) AND 201(LA) FOR THE A.Y. 2008 -09 TO 2010-11 AND THE CIT(A)-II HYDERABAD IN HER ORDER DTD. 10.01.2013 HE LD THAT THERE WAS NO SUB-CONTRACT BETWEEN THE APPELLANT AND ITS CONST ITUENTS, AS A RESULT OF WHICH THERE WAS NO LIABILITY TO DEDUCT TAX ON THE APPELLANT. 12.12 FINALLY, THE LEARNED COUNSEL SUBMITTED THAT S INCE THE ENTIRE AMOUNT TRANSFERRED TO THE CONSTITUENTS HAD ALREADY BEEN PA ID TO THEM AND NO AMOUNT REMAINED PAYABLE AS ON 31.3.2009, SEC. 40(A) (IA) DID NOT APPLY IN VIEW OF THE DECISION IN THE CASE OF MERILYN SHIPPING AND TRANSPORT VS. ACIT 146 TTJ 1 (VISAKHA SB). 12.13 THE MAIN ARGUMENTS ADVANCED BY THE LEARNED CO UNSEL FOR THE ASSESSEE THAT THE ASSESSEE AS WELL AS ITS PARTNERS ARE ASSESSED TO TAX ON A REGULAR BASIS AND THEY HAVE ALSO FILED THE IR INCOME-TAX RETURNS AND ASSESSMENTS HAVE BEEN COMPLETED IN THEI R CASES AS WELL AND THEY HAVE PAID TAXES ON THEIR INCOME WHICH INCL UDED THE INCOME AROSE TO THEM OUT OF CONTRACTS AWARDED BY ASSESSEE. THEREFORE, THE CASE OF THE LEARNED COUNSEL IS THAT EVEN THOUGH TEC HNICALLY TAXES HAVE NOT BEEN DEDUCTED BY THE ASSESSEE, TAXES HAVE ALREADY BEEN PAID BY ITS PARTNERS AND, THEREFORE, NO LIABILITY S UBSISTS IN THE HANDS OF THE ASSESSEE TO MAKE GOOD FOR THE NON-DEDUCTION OF TAX AT SOURCE AND AS A CONSEQUENCE, INVOKING OF PROVISIONS OF LAW CONTAINED IN SECTION 40(A)(IA) IS NOT JUSTIFIED. 13. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT THE ASSESSEE IS LIABLE FOR TDS AS THE PAYMENTS ARE IN THE NATURE OF SUB-CONTRACT PAYMENTS. HE SUBMITTED THAT I T IS NECESSARY AT THIS STAGE TO TAKE NOTE OF THE FACT THAT THE APPELLANT IS A PARTNERSHIP FIRM A ND NOT AN AOP AND THIS CONCLUSION IS BORN OUT OF THE DOCUMENT DTD. 31.8.20 07 WHICH IS EXPRESSLY DESCRIBED AS A PARTNERSHIP DEED. CLAUSE 5(F) OF THE PARTNERSHIP DEED IN FACT ALSO INVOKES THE PROVISIONS OF THE INDIAN PART NERSHIP ACT, 1937. IN ITS 12 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV RETURN OF INCOME THE APPELLANT ADMITTED ITS STATUS AS FIRM. THE ASSESSING OFFICER HOWEVER IN HIS ORDER HAS HELD THAT THE APPE LLANT WAS A JOINT VENTURE AND ITS INCOME HAD BEEN OFFERED TO TAX IN THE STATU S OF AOP AND NOT IN THE STATUS OF FIRM. THE LEARNED DR POINTED OUT THAT THI S OBSERVATION OF THE ASSESSING OFFICER IS FACTUALLY INCORRECT IN VIEW O F THE FACTS NARRATED ABOVE. THE DECISION OF THE ASSESSING OFFICER TO ASSESS THE APPELLANT IN THE STATUS OF AN AOP IS, THEREFORE, NOT IN ACCORDANCE WITH THE FACTS AND IS HELD TO BE INCORRECT. 13.1. FURTHER, THE LEARNED DR SUBMITTED THAT THE PA RTNERSHIP DEED DTD. 31.8.2007 PROVIDES THAT HES AND RIPL HAD DECIDED TO FORM A FIRM 'TO ACT AND SUBMIT PRE-QUALIFICATION APPLICATION, TO SUBMIT BID IF PRE-QUALIFIED AND EXECUTE THE CONTRACT'. THE TERMS OF THE PARTNERSHIP DEED THUS EXPRESSLY PROVIDE THAT THE FIRM WAS TO EXECUTE THE CONTRACT. IN OTHER WORDS, THE FIRM HAD NOT BEEN CONSTITUTED WITH THE SOLE PURPOSE OF O BTAINING THE CONTRACT. IT HAD BEEN CONSTITUTED FOR THE PURPOSE OF ACTUALLY EX ECUTING THE CONTRACT AS WELL. 13.2 FURTHER, IT IS SUBMITTED THAT CLAUSE 5(G) OF THE PARTNERSHIP DEED PROVIDED THAT THE PARTNERS, M/S. HES AND RIPL, WERE TO BE JOINTLY AND SEVERALLY LIABLE TOWARDS THE OWNERS FOR THE EXECUTI ON OF THE CONTRACT COMMITMENTS IN ACCORDANCE WITH THE CONTRACT CONDITI ONS. TWO ASPECTS ARE NOTEWORTHY FROM THIS CLAUSE. FIRSTLY, THE CLAUSE EX PRESSLY ESTABLISHES THE JOINT AND SEVERAL LIABILITY OF THE TWO PARTNERS TO THE OWNERS. WHILE THE CONCEPT OF JOINT AND SEVERAL LIABILITY IS AN ESSENT IAL AND DEFINING FEATURE OF ANY PARTNERSHIP, THE CLAUSE SERVES TO EMPHASIZE THE FACT THAT THE TWO CONSTITUENTS WERE JOINTLY LIABLE FOR THE ENTIRE CON TRACT AND NOT FOR THEIR RESPECTIVE PORTIONS OF THE WORK. 13.3 SECONDLY, THE CLAUSE ESTABLISHES THAT THE JOIN T AND SEVERAL LIABILITY WAS TOWARDS 'THE EXECUTION OF THE CONTRAC T'. IN OTHER WORDS, THE RESPONSIBILITY OF THE PARTNERSHIP FIRM AS SUCH FOR THE EXECUTION OF THE CONTRACT AND NOT MERELY FOR THE OBTAINING OF THE CO NTRACT WAS EXPRESSLY PROVIDED FOR. 13 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV 13.4 THE LEARNED DR SUBMITTED THAT THE TERMS OF TH E PARTNERSHIP DEED THEREFORE GO TO ESTABLISH THE FACT THAT THE FIRM HA D BEEN CREATED NOT FOR THE SOLE PURPOSE OF OBTAINING THE CONTRACT BUT ALSO FOR EXECUTING IT. THE LEARNED DR REFERRED THE ORDER CIT(A)-II. HVDERABAD IN HER ORDER DTD. 10.1.2003 IN THE APPELLANT'S OWN CASE FOR THE A.Y. 2009- 10 HAS HELD THAT THE JV HAD BEEN FORMED ONLY TO PROCURE CONTRACT WORKS FROM THE GOVERNMENT TO SUBMIT THAT THE CONCLUSION GIVEN IS N OT AGREEABLE. 13.5. THE LEARNED DR SUBMITTED THAT IN ASSESSEES C ASE THE WORK HAS ADMITTEDLY NOT BEEN CARRIED OUT BY THE APPELLANT DI RECTLY BUT WAS AWARDED TO THE PARTNERS. IT IS ALSO AN ADMITTED FACT THAT THE PARTNERS HAVE CREDITED THESE RECEIPTS TO THEIR P &L ACCOUNT. SUCH CREDITING OF T HE SUB-CONTRACT RECEIPTS BY THE SUB-CONTRACTORS IN THEIR P&L ETC IS THE NORMAL PRACTICE AND DOES NOT PREJUDICE THE STAND OF THE ASSESSING OFFICER. 13.6. FURTHER, IT IS SUBMITTED THAT THE MERE FACT T HAT THE CONTRACT RECEIPTS HAVE BEEN CREDITED BY THE PARTNERS IN THEIR BOOKS I S NOT A RELEVANT FACTOR IN TAKING A DECISION IN THE CASE. IN A HYPOTHETICAL CA SE OF AN ASSESSEE ACTUALLY GETTING THE CONTRACTED WORKS EXECUTED THROUGH SUB-C ONTRACTS, THE ASSESSEE WOULD CREDIT THE ENTIRE CONTRACT RECEIPTS IN ITS BO OKS WHILE DEBITING THE SUB- CONTRACT EXPENSES. THE SUB-CONTRACTOR IN TURN WOULD CREDIT THE ENTIRE SUB- CONTRACT RECEIPTS IN ITS BOOKS WHILE DEBITING ITS O WN EXPENSES. THUS, EVEN IN THIS HYPOTHETICAL SITUATION, THE CONTRACT RECEIP TS DO GET CREDITED IN THE BOOKS OF THE SUB-CONTRACTOR. 13.7 THE LEARNED DR SUBMITTED THAT THAT THE APPELLA NT HAD CREDITED ASUM OF RS. 4,69,87,975/- TO ITS P&L ACCOUNT (WHICH HAD BEE N SUBCONTRACTED TO A THIRD PARTY FOR RS. 4,04,84,647/-). THIS REINFORCES THE VIEW THAT THE ASSESSEE HAD BEEN CREATED WITH THE OBJECT OF EXECUTING THE C ONTRACT AS WELL. HAD IT BEEN THE SOLE PURPOSE OF THE APPELLANT TO MERELY OB TAIN THE CONTRACT WORKS, THE APPELLANT SHOULD NOT HAVE EXECUTED THE CONTRACT IN ITS OWN RIGHT EVEN FOR THE SUM OF RS. 4,69,87,975/- AND EVEN THIS PART OF THE CONTRACT SHOULD HAVE BEEN APPORTIONED AND TRANSFERRED TO THE TWO PARTNER S, WHO IN TURN COULD HAVE CLAIMED THE SUB-CONTRACT EXPENSES IN THEIR OWN P&L ACCOUNT. 14 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV 13.8. IN VIEW OF THE SAID SUBMISSIONS, THE LEARNED DR FINALLY SUBMITTED THAT THERE EXISTED A RELATIONSHIP OF A CONTRACTOR AND SU B-CONTRACTOR BETWEEN THE APPELLANT AND ITS PARTNERS, THAT THE APPELLANT WAS, THEREFORE, LIABLE TO DEDUCT TAX ON THE WORKS CONTRACT RECEIPTS TRANSFERRED TO THEM AND IN VIEW OF ITS FAILURE TO DO SO, IT WAS LIABLE FOR DISALLOWANCE U/S 40(A)(IA. HE NCE, T HE DISALLOWANCE MADE BY THE LOWER AUTHORITIES MAY BY UPHELD. 14. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW. AS SEEN FROM THE RECORD, THE PARTNERSHIP DEED DATED 31 /08/2007 PLACED AT PAGES 175 TO 177 OF PAPER BOOK, THE FIRM WAS FOR MED WITH TWO PARTNERS, VIZ., HES INFRA PVT. LTD. AND RATNA INFRA STRUCTURE PROJECTS PVT. LTD. FOR THE PURPOSE OF CARRYING THE BUSINESS OF WORKS CONTRACTS TO ACT AND SUBMIT PREQUALIFICATION APPLICATION TO S UBMIT BID IF PREQUALIFIED AND EXECUTE THE CONTRACTS. IN THE WAY OF EXECUTING THE CONTRACT WORKS, ASSESSEE GOT CONTRACT FROM VARIOUS GOVERNMENTS AND DISTRIBUTED THE WORKS AMONG TWO PARTNERS AND EXECUT ED THE WORK AND THE PAYMENT HAS BEEN RECEIVED BY THE PARTNERSHIP FI RM M/S HINDUSTAN RATNA JV. APPRECIATION OF FACTS SHOWS THAT M/S HES INFRA PVT. LTD. AND RATNA INFRASTRUCTURE PROJECTS PVT. LTD. ARE NOT SUB-CONTRACTS, PER- SE, BUT, THEY ARE PARTNERS OF M/S HINDUSTAN RATNA J V. THESE PARTNERS MIGHT HAVE ENTERED INTO AGREEMENTS WITH THE PARTNER SHIP FIRM WHEREIN THEY ARE PARTNERS SO AS TO EXECUTE THE WORKS. THE P ARTNERS MIGHT HAVE MAINTAINED THEIR BOOKS OF ACCOUNT AS IF THEY A RE PAYING AND RECEIVING MONIES FROM THE PARTNERSHIP FIRM WHERE TH EY ARE PARTNERS. AS ALWAYS ADMITTED, THE FORMAT OF AN AGREEMENT OR T HE STYLE OF ACCOUNTS BY THEMSELVES DO NOT DECIDE THE TRUE CHARA CTER OF RELATIONSHIP OF PARTIES IN A BUSINESS AND THE NATUR E OF TRANSACTIONS RELATING TO THE BUSINESS. WHAT IS TO BE APPLIED IS THE RULE OF PITH (FORM) AND SUBSTANCE. ONE HAS TO SEE THE REAL NATUR E OF THE RELATIONSHIP AND CHARACTER OF TRANSACTIONS, NECESSA RILY LOOKING BEYOND THE FORMALITIES OF AGREEMENTS AND ACCOUNTS. FOR THA T MATTER FOR CALCULATION, IT IS NOT THE FORMAT OF AGREEMENTS AND THE MANNER OF 15 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV ACCOUNTING ALONE THAT DECIDE THE ISSUE. THE DECIDIN G FACTOR IS THE REAL INTENTION OF THE PARTIES, THE ACTUAL CONDUCT OF THE PARTIES AND THE NATURE OF ACTIVITIES AND THE OVERALL RELATIONSHIP O F THE CONCERNED PARTIES. 15. IN THE PRESENT CASE, THE MODUS OF OBTAINING THE GOVERNMENT CONTRACTS, THE SEQUENCE AND FREQUENCY OF EXECUTION OF THE CONTRACTS CLEARLY SHOW THAT THE ASSESSEE AS A PARTNERSHIP FIR M SECURED CONTRACTS AND GIVEN TO ITS PARTNERS WITH A COLLECTI VE RESPONSIBILITIES AND LIABILITIES JOINTLY AND SEVERALLY LIABLE TOWAR DS THE OWNERS FOR THE EXECUTION OF THE CONTRACTS IN ACCORDANCE WITH THE CONTRACT OF THE BUSINESS AS PER CLAUSE (G) OF THE PARTNERSHIP DEED. THEY HAVE DEMARCATED THE NATURE OF THE CONTRACTS INTO PRINCIP AL CONTRACTS AND SUB-CONTRACTS FOR THE PURPOSE OF IDENTIFYING THE WO RK HANDLED BY THE PARTNERS AND FOR THE PURPOSE OF ACCOUNTING CONTRACT RECEIPTS AND PAYMENTS. 16. IN ORDER TO ESTABLISH A RELATIONSHIP OF CONTRAC TOR AND SUB- CONTRACTOR, IN ADDITION TO A FORMAL AGREEMENT, IT I S NECESSARY TO SHOW THAT THE PARTIES HAVE ACTED IN SUCH A MANNER CONDUC IVE TO UPHOLD A CONTRACTOR-SUB CONTRACTOR RELATIONSHIP WHEN THERE I S A STRONG CASE OF INTERLACING OF FINANCE AND FUNDS, INTERDEPENDENCE O F RESPONSIBILITIES, INTERCONNECTION OF ACTIVITIES. IT IS VERY DIFFICULT TO COME TO A CONCLUSION THAT THE ASSESSEE WERE ACTING IN THE STATUS OF CONT RACTORS VIS-A-VIS SUB-CONTRACTORS. A MORE RATIONAL FINDING WOULD BE T HAT THE PARTIES WERE EXECUTING THE CONTRACTS THROUGH JOINT EFFORT, AS A GROUP OF PARTNERS. 17. DEFACTO SPEAKING, WHEN THERE IS NO BASIS FOR CO MING TO A CONCLUSION THAT THERE EXISTED A RELATIONSHIP OF CON TRACTOR VIS-A-VIS SUB-CONTRACTOR, IT IS USEFUL TO LOOK INTO THE PRINC IPLE EMBODIES IN SECTION 20 OF THE INDIAN CONTRACT ACT OF 1872. THIS SECTION PROVIDES THAT WHERE BOTH PARTIES TO AN AGREEMENT ARE UNDER A MISTAKE AS TO A 16 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV MATTER OF FACT, ESSENTIALLY TO THE AGREEMENT, THE A GREEMENT IS VOID. IN THE PRESENT CASE, THE QUESTION IS MAINLY FOCUSSED O N THE CONTRACTUAL RELATIONSHIP OF THE ASSESSEE AND ITS PARTNERS. THIS PRINCIPLE EMBODIES IN THE SECTION 20 OF THE INDIAN CONTRACT ACT HAS GR EAT RELEVANCE. IT TURNS OUT THAT THE FORMATS OF THE AGREEMENT ENTERED INTO WITH THE PARTNERS AND THE STYLING OF ACCOUNTS PREPARED BY TH EM ARE PRODUCTS OF MISTAKES OF FACT, AND THEREFORE, THE AGREEMENT IS N OT TO BE RELIED ON TO HOLD THAT THE ASSESSEE IS ACTING IN THE STATUS O F CONTRACTORS VIS-A- VIS SUB-CONTRACTORS. THEREFORE, IT IS TO BE SEEN T HAT THE QUESTION OF TDS IN THE PRESENT CASE CANNOT BE CONSIDERED ONLY O N THE BASIS OF THE AGREEMENTS ENTERED INTO BETWEEN THE ASSESSEE AN D ITS PARTNERS. 18. THE LIABILITY U/S.194C(2) IS CAST ON THE ASSESS EES ONLY WHEN THEY ARE IN FACT AND IN SUBSTANCE ACTING IN THE RELATION SHIP OF CONTRACTORS AND SUB CONTRACTORS. DEHORS THE AGREEMENTS AND ACCO UNTS, WHEN IT IS FOUND THAT THEY ARE ACTING JOINTLY, FOR THE PURPOSE OF THEIR CONTRACT BUSINESS, THERE CANNOT BE A RELATIONSHIP OF CONTRACTOR AND SUB- CONTRACTOR AND THERE MAY NOT BE AN OCCASION TO INVOKE SECTION 194C(2). WHEN THE SAID PROVISION RELATING TO DEDUCT ION OF TAX AT SOURCE IS NOT APPLICABLE FOR THE ASSESSEE FOR THE R EASONS STATED ABOVE, VIOLATION ULS.40(A) (IA) DOES NOT ARISE. IF THAT IS THE CASE, PAYMENTS MADE UNDER THE NOMENCLATURE OF 'SUB- CONTR ACTORS' ARE NOT LIABLE TO BE DISALLOWED. 19. IT IS ALSO USEFUL TO REFER TO SECTION 70 OF TH E CONTRACT ACT WHICH DEALS WITH THE OBLIGATION OF THE PERSON ENJOYING TH E BENEFIT OF NON- GRATUITOUS ACT. IN OTHER WORDS, IT IS THE CASE OF 'UNJUST ENRICHMENT'. FOR THE MISTAKES AND FOLLIES COMMITTED BY THE ASSESSEES, IT MAY NOT BE JUSTIFIED ON THE PART OF THE REVENUE TO INSIST T HAT THE ASSESSEES WERE MAKING PAYMENTS TO SUB-CONTRACTORS AND THEY WE RE BOUND BY SECTION 194C(2) AND CONSEQUENTLY BY SECTIO N 40(A)(IA). 20. THEREFORE, IF THE PAYMENTS ARE RECORDED BY THE ASSESSEE AS 17 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV SUB-CONTRACT PAYMENTS AS A RESULT OF ACTUAL MISCON CEPTION, THAT SHOULD NOT MAKE WAY FOR UNJUST ENRICHMENT BY THE RE VENUE. 21. BEING SO, IF ANY PARTNER USE THE PROPERTY OF TH E ASSESSEE FIRM, BENEFIT DERIVED FROM THAT PROPERTY SHALL GO TO THE COMMON POOL OF THE ASSESSEE FIRM, WHICH IS FOR THE COMMON ADVANTAGE TO ALL THE PARTNERS. IF ANY PARTNER CARRIES ON ANY BUSINESS BY USING N AME AND GOODWILL OF THE FIRM, PROFIT DERIVED FROM THAT BUSINESS SHALL B E THE INCOME OF ASSESSEES FIRM. FURTHER, NO PARTNER IS ENTITLED TO CARRY ON ANY BUSINESS WHICH IS IN THE NATURE OF COMPETING WITH T HE BUSINESS OF THE ASSESSEE FIRM. THE PARTNERS ARE JOINTLY AND SEVERAL LY RESPONSIBLE FOR ANY ACTS DONE BY THEM THOUGH INDIVIDUALLY AND JOINT LY. IF THE PARTNERS CARRY ON ANY BUSINESS CONTRARY TO THE PROVISIONS OF PARTNERSHIP DEED OR PARTNERSHIP ACT, THEY ARE NOT ENTITLED TO THAT P ROFIT OR LOSS DERIVED FROM SUCH TRANSACTIONS IT DOES NOT BELONG TO INDIVI DUAL PARTNERS AND ON THE OTHER HAND IT BELONGS TO THE FIRM AS A WHOLE . 22. IN VIEW OF THE ABOVE DISCUSSION AND CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE RELATIONSHIP CREATED BY THE PARTNERSHIP DEED DATED 31 ST AUGUST, 2007 AND PARTNERS CANNOT BE CONSIDERED AS SUB-CONTRACTORS OF THE FIRM AND THEY ARE JOINTLY AND SEVERALLY LIABLE TOWARDS THE OWNERS FOR THE EXECUTION OF THE CONTRACT COMMITMENTS IN ACCORDANCE WITH THE CON TRACT CONDITIONS. BEING SO, THE PROVISIONS OF SECTION 194C CANNOT BE ATTRACTED SO AS TO TREAT THEM AS SUB-CONTRACTORS OF THE FIRM THEREBY I NVOKING THE PROVISIONS OF SECTION 40(A)(IA). IN OTHER WORDS, WE CAN SAFELY CONCLUDE THAT THERE IS NO SUB-CONTRACT BETWEEN JV AND THE CO NSTITUENTS AND SINCE THE JV HAS BEEN FORMED ONLY TO PROCURE CONTRA CT WORKS FROM THE GOVERNMENT AND THE CONTRACT IS BEING EXECUTED BY TH E CONSTITUENT PARTNERS IN THEIR SHARING RATIO 60:40 AS PER THE TE RMS OF JV, IT CANNOT BE SAID THAT THE JV IS A CONTRACTOR AND ITS CONSTIT UENTS ARE SUB- CONTRACTORS. ACCORDINGLY, WE SET ASIDE THE ORDERS O F THE REVENUE AUTHORITIES AND DELETE THE DISALLOWANCE OF RS. 111, 09,23,018/- MADE 18 ITA NO. 372/HYD/13 M/S HINDUSTAN RATNA JV BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 18/12/2013. SD/- SD/- ( SAKTIJIT DEY ) JUDICIAL MEMBER ( CHANDRA POOJARI ) ACCOUNTANT MEMBER HYDERABAD, DATED 18 TH DECEMBER, 2013 KV COPY TO:- 1) M/S HINDUSTAN RATNA JV, C/O S/SHRI K. VASANTKUMA R & AV RAGHURAM, ADVOCATES, 610, 6 TH FLOOR, BABHUKHAN ESTATE, BASHEERBAGH, HYDERABAD 500 001. 2) ITO, WARD 6(2), HYDERABAD 3) THE CIT (A)-IV, HYDERABAD 4) THE CIT-III, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.