Dy.CIT, Circle-14(2), Hyderabad V. M/s Madhucon Sino Hydro, Hyderabad

ITA 713/HYD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69729 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 10-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAKHIR HUSSAIN SHAIK
• Assessee Lawyers: P MURALI MOHAN RAO; M V JOSHI
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.713 TO 716/HYD/2013 ASSESSMENT YEARS 2005-06 TO 2007-08 & 2009-2010 DCIT, CIRCLE 14(2)(TDS) HYDERABAD. VS. M/S. MADHUCON SINO HYDRO HYDERABAD PAN AANFM1451G (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI SAKHIR HUSSAIN SHAIK (DR) FOR RESPONDENT : SHRI M.V.JOSHI & P.MURALIMOHAN R AO (AR) DATE OF HEARING : 14.08.2013 DATE OF PRONOUNCEMENT : 14.08.2013 ORDER PER SAKTIJIT DEY, J.M. THESE APPEALS ARE FILED BY THE DEPARTMENT AGAINST SEPARATE ORDERS OF THE CIT(A)-II, HYDERABAD DATED 11.02.2013 FOR THE A SSESSMENT YEARS 2005- 06 TO 2007-2008 AND 2009-2010. SINCE, COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER AND ARE BEING DISPOSED OF BY THE SINGLE CONSOLIDATED ORDER. THE DEPARTMENT HAS RAISED THE FOLLOWING COMMON EFFECTIVE GROUNDS IN ALL THESE APPEALS. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) WAS CORRECT IN MAKING A DISTINCTION BETWE EN JOINT VENTURES FORMED FOR THE PURPOSE OF OBTAINING A CONT RACT AND OTHER JOINT VENTURES ? 3. WHETHER THE CIT(A) WAS CORRECT IN CONCLUDING THAT JOINT VENTURES FORMED FOR THE PURPOSE OF OBTAINING A CONT RACT HAVE NO LIABILITY TO DEDUCT TDS, ALTHOUGH THE CIT(A) ALLO WS NO SUCH EXEMPTION ? 2. FACTS IN ALL THE APPEALS BEING IDENTICAL, WE DEA L WITH THE FACTS INVOLVED IN ITA.NO.713/HYD/2013 FOR THE ASSESSMENT YE AR 2005- 2006. BRIEFLY, THE FACTS ARE THAT THE ASSESSEE IS A JOINT VENTURE ENGAGED IN THE BUSINESS OF EXECUTING CIVIL CONTRACT WORK OF CONSTRUCTION OF ROADS AND OTHER PROJECTS. THE ASSESS EE JOINT VENTURE 2 WAS FORMED BY CONSORTIUM OF TWO COMPANIES VIZ., M/S. SINO HYDRO CORPORATION AND MADHUCON PROJECTS PVT. LTD. THE ASSE SSING OFFICER ON EXAMINING THE RECORDS OF THE ASSESSEE NOTICED THA T THE ASSESSEE IS NOT DEDUCTING TAX AT SOURCE ON THE ADVANCES PAID TO ITS CONSTITUENTS SINO HYDRO CORPORATION AND MADHUCON PROJECTS PVT. LTD . AND TDS IS DEDUCTED WHEN THE BILLS ARE SUBMITTED BY MADHUCON PR OJECTS PVT. LTD. HOWEVER, IN THE CASE OF SINO HYDRO CORPORATION WHICH IS A FOREIGN COMPANY NO TDS IS DEDUCTED ON THE PAYMENTS MA DE TO IT. THE ASSESSING OFFICER FELT THAT AS PER THE PROVISIO NS CONTAINED UNDER SECTION 194C OF THE ACT, THE ASSESSEE SHALL DEDUCT TAX AT SOURCE AT THE TIME OF PAYMENT IN CASH OR BY ISSUE OF CHEQUE. T HE ASSESSEE HAVING NOT DEDUCTED TAX AT SOURCE AS PER THE PROVISO NS OF SECTION 194C, THE ASSESSING OFFICER, THEREFORE, PASSED AN O RDER UNDER SECTION 201(1) AND UNDER SECTION 201(1A) OF THE I.T. ACT, 1 961, DEMANDING TAX AND INTEREST. THE ASSESSEE BEING AGGRIEVED OF TH E ORDER SO PASSED BY THE ASSESSING OFFICER, PREFERRED AN APPEAL BEFORE THE CIT(A). 3. IN THE COURSE OF HEARING OF THE APPEAL BEFORE TH E CIT(A), IT WAS SUBMITTED BY THE ASSESSEE THAT THE JOINT VENTURE OR THE CONSORTIUM WAS ONLY FORMED TO OBTAIN CONTRACT FROM THE GOVERNME NT BODIES. AT THE TIME OF FORMATION OF THE JOINT VENTURE IT HAS B EEN SPECIFICALLY MADE CLEAR THAT WORK/PROJECT ORDER TO THE JOINT VENT URE WOULD BE EXECUTED ONLY BY THE CONSTITUENTS. IT WAS SUBMITTED TH AT ONCE THE PROJECT OR CONTRACT IS AWARDED TO THE JOINT VENTURE/ CONSORTIUM, IT IS TO BE EXECUTED IN A RATIO AGREED UPON BY THE CONSTIT UENTS OF THE JOINT VENTURE. THE ASSESSEE FURTHER SUBMITTED THAT THE JO INT VENTURE IS ENTITLED TO EXECUTE THE MAJOR AGREED PORTION OF THE T OTAL WORK AWARDED TO THE JOINT VENTURE AND IN A CASE OF CONSO RTIUM IT WAS AGREED THAT THE ENTIRE WORK IS TO BE EXECUTED BY THE ASSESSEE ITSELF. IT WAS SUBMITTED THAT THE JOINT VENTURE WAS ONLY A DEJUR E CONTRACTOR BUT IN FACT, THE CONSTITUENTS WERE THE DEFACTO CONT RACTORS IN RESPECT OF THE RESPECTIVE PORTION OF THE WORK. IT WAS THUS SUBMITTED THAT THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE TO TH E ASSESSEE. IN 3 SUPPORT OF SUCH CONTENTION, THE ASSESSEE RELIED UPO N THE ORDER PASSED IN ITS OWN CASE BY THE ITAT, HYDERABAD BENCH I N ITA.NO.646/HYD/2010 DATED 27.11.2012 RELATING TO ASS ESSMENT YEAR 2006-2007. THE CIT(A) FOLLOWING THE AFORECITED DECI SION OF THE ITAT, HYDERABAD BENCH HAD ALLOWED THE APPEAL OF THE ASSESS EE BY HOLDING AS UNDER : 5.1. RESPECTFULLY FOLLOWING THE DECISION OF THE HO NBLE JURISDICTIONAL TRIBUNAL IN THE APPELLANTS OWN CASE FOR THE A.Y. 2006-07, (THOUGH THE ORDER WAS DELIVERED IN RESPECT OF THE DISALLOWANCE MADE U/S. 40(A)(IA), THE DECISION IS APPLICABLE TO THE PROVISIO NS OF SECTION 201(1) R.W.S. 194C OF THE ACT), IT IS HELD THAT THERE IS NO LIABILITY ON THE JV TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE TO THE CONSTITUENT MEMBERS. THEREFORE, THE DEMAND RAISED U/S. 201(1) OF RS.38,99,142/- AND INTEREST CHARGED U/S. 201(1A) OF RS.28,46,373/- IS ORDERED TO BE DELETED. HOWEVER , THE A.O. IS DIRECTED TO FORWARD THE OBSERVATIONS/DECISION OF THE HONBLE ITAT IN RESPEC T OF M/S. SINO HYDRO CORPORATION TO THE DCIT (INTERNATIONAL TAXATION) FOR THE FOLLOW-UP ACTION AT HIS END. 4. BEING AGGRIEVED WITH THE AFORECITED ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND PER USED THE MATERIALS ON RECORD. IT IS TRITE LAW THAT IF THE JO INT VENTURE HAS NOT EXECUTED THE WORK AND THE ENTIRE WORK HAS BEEN EXECUT ED BY THE CONSTITUENTS ON A BACK TO BACK BASIS AND THE CONTRA CT AMOUNT RECEIVED BY THE JOINT VENTURE WAS ENTIRELY TRANSFERRE D TO THE CONSTITUENTS OF THE JOINT VENTURE WITHOUT RETAINING ANY AMOUNT TOWARDS PROFIT, THEN THERE MAY NOT BE ANY LIABILITY ON THE ASSESSEE TO 4 DEDUCT TAX AT SOURCE. WE FIND THAT SOME WHAT SIMILA R ISSUE RELATING TO DISALLOWANCE UNDER SECTION 40(A)(IA) FOR NON-DED UCTION OF TAX AT SOURCE UNDER SECTION 194C ON THE PAYMENTS MADE TO C ONSTITUENTS AROSE IN CASE OF THE ASSESSEE IN THE ASSESSMENT YEAR 2006-2007. THE ITAT, HYDERABAD BENCH WHILE DECIDING THE APPEAL OF T HE ASSESSEE AS WELL AS THE DEPARTMENT IN ITA.NO.646/HYD/2010 AND 70 1/HYD/2010 DATED 27.11.2012 HELD AS UNDER : 8. THE JOINT VENTURE OR THE CONSORTIUM WAS FORMED ONLY TO OBTAIN THE CONTRACT FROM THE GOVERNMENT BODIES. AT THE TIME OF EXECUTION OF THE JOINT VENTURE OR THE CONSORTIUM, IT HAS BEEN MADE CLEAR THAT WORK/PROJECT AWARDED TO THE JOINT VENTURE WOULD BE EXECUTED BY THE JOINT VENTURERS OR THE CONSTITUENTS. AS PER MUTUALLY AGREED TERMS AND CONDITIONS BETWEEN THEM, IT WAS ALSO AGREED THAT EACH PARTY SHALL BE SOLELY RESPONSIBLE FOR THE PERFORMANCE OF ITS SCOPE OF WORK AND SHALL BEAR ALL TECHNICAL, COMMERCIAL AND FACING RISK INVOLVED IN PERFORMING ITS SCOPE OF WORK. IT WAS ALSO AGREED THAT NONE OF THE PARTY SHALL ASSIGN ITS RIGHTS AND OBLIGATIONS TO ANY OTHER PARTY WITHOUT WRITTEN CONSENT OF OTHER PARTY. IT IS EVIDENTLY CLEAR THAT THE JOINT VENTURE AND THE CONSORTIUM WAS FORMED ONLY WITH AN OBJECT TO BID CONTRACT. ONCE THE PROJECT OR CONTRACT IS AWARDED TO THE JOINT VENTURE OR THE CONSORTIUM, IT IS TO BE EXECUTED BY ITS CONSTITUENTS OR THE JOINT VENTURES IN A RATIO AGREED UPON BY THE PARTIES. THE ASSESSEE WAS ENTITLED TO EXECUTE THE MAJOR AGREED PORTION OF TOTAL WORK AWARDED TO THE JOINT VENTURE AND IN CASE OF A CONSORTIUM IT WAS AGREED THAT THE ENTIRE WORK IS TO BE EXECUTED BY THE ASSESSEE ITSELF. THEREFORE FOR ALL PRACTICAL PURPOSES, IT WA S THE ASSESSEE WHO EXECUTED THE WORK CONTRACT OR THE PROJECT AWARDED TO THE JOINT VENTURE. NO DOUBT THE JOINT VENTURE IS AN INDEPENDENT IDENTITY AND HAS FILED ITS RETURN OF INCOME AND WAS ALSO ASSESSED TO TAX BUT IT DID NOT OFFER ANY PROFIT OR INCOME EARNED ON THIS PROJECT/WORKS AWARDED TO IT. THESE FACTS CLEARLY INDICATES THAT THE JOINT VENTURE WAS ONLY A DE-JURE CONTRACTOR BUT IN FACT THE CONSTITUENTS WERE THE DE-FACTO CONTRACTORS IN RESPECT OF THE RESPECTIVE PORTIONS OF WORK. IN SUCH A CASE THE QUESTION OF THE AOP GIVING THE CONSTITUENTS WORKS CONTRACT WOULD NOT ARISE. IN OUR OPINION, IN CASES WHERE THE AOP IS 5 FORMED ONLY FOR THE PURPOSE OF OBTAINING CONTRACTS AND SPECIFIC PORTIONS OF THE CONTRACT ARE TO BE COMPLETED BY THE INDIVIDUAL CONSTITUENTS INDEPENDENTLY, THEN IT CANNOT BE CASE OF THE AOP GIVING WORKS CONTRACT TO THE CONSTITUENTS. THIS VIEW IS SUPPORTED BY THE DECISION OF THE ITAT VISHAKHAPATNAM IN THE CASE OF M/S TTRANSSTORY (INDIA) LTD GUNTUR 2011-TIOL-499-ITAT-VIZAG. THE AAR IN THE CASE OF IN RE MITSUBUSHI CORPN 323 ITR 277 HAS HELD THAT UNDER SIMILAR CIRCUMSTANCES WHEN AN AOP WAS FORMED ONLY FOR THE PURPOSE OF GETTING ORDERS AND THE MEMBERS CARRIED OUT SPECIFIC PORTIONS OF THE PROJECT, THE PROFIT OF THE PROJECT SHOULD BE ASSESSED IN THE HANDS OF THE INDIVIDUAL CONSTITUENTS AND NOT IN THE HANDS OF CONSORTIUM AOP. THE HYDERABAD TRIBUNAL HAS HELD IN THE CASE OF ACIT V M/S PARDHANA CONSTRUCTION CO IN ITA NO 1046/HYD/2010 DATED 7.01.2011 (FOR THE AY 2006-07) AND IN THE CASE OF M/S SOMA ENTERPRISES V DCIT IN ITA NO 1116/HYD/2010 DATED 15.06.2011 HAVE HELD THAT IF THE CONSTITUENT HAS OFFERED INCOME FROM THE JV, THEN CREDIT MUST BE GIVEN TO THE TDS MADE BY THE CLIENT, EVEN THOUGH THE TDS CERTIFICATES MAY BE IN THE NAME OF THE AOP. THIS CLEARLY SHOWS THAT THE PROFITS FROM THE JV ARE TO BE OFFERED BY THE RESPECTIVE CONSTITUENTS AND THE CONSTITUENTS SHALL BE ENTITLED TO THE TDS CREDIT DEDUCTED BY THE CLIENT, EVEN IF SUCH TDS CERTIFICATES ARE IN THE NAME OF THE AOP. IN THE CIRCUMSTANCES THERE IS NO QUESTION OF AOP GRANTING WORKS CONTRACT TO THE CONSTITUENTS, REQUIRING DEDUCTION OF TAX AT SOURCE. 9. IN THE CIRCUMSTANCES WE HOLD THAT THE ASSESSING OFFICER ERRED IN RECASTING THE P&L OF THE AOP TO BRING IN THE WORKS DIRECTLY TAKEN UP BY THE CONSTITUENTS. FURTHER THE CONSTITUENTS HAVE OFFERED THE INCOME FROM THEIR PORTION OF THE PROJECT AS THEIR INCOME AND OFFERED THE SAME FOR TAX. THIS HAS BEEN ACCEPTED BY THE DEPARTMENT. FROM THE RATIO OF THE DECISIONS CITED ABOVE, IN THE CASE OF A JV/ CONSORTIUM FORMED SPECIFICALLY FOR THE SOLE PURPOSE OF OBTAINING THE CONTRACTS AND SPECIFIC PORTIONS OF THE PROJECTS ARE CARRIED OUT BY MUTUAL AGREEMENT BY SPECIFIC CONSTITUENTS, THE PROFITS FROM THE PORTION OF THE PROJECTS DERIVED FROM THE INDIVIDUAL CONSTITUENT CAN BE OFFERED BY THEM FOR TAX IN THEIR RETURN. ONCE SUCH INCOME IS ASSESSED IN THEIR INDIVIDUAL HANDS THE ASSESSING OFFICER CANNOT AGAIN BRING TO TAX THE ENTIRETY OF THE RECEIPTS IN THE HANDS OF 6 THE CONSORTIUM. CONSEQUENTLY THERE CANNOT BE ANY DISALLOWANCE IN THE HANDS OF THE CONSORTIUM ANY AMOUNTS RECEIVABLE BY THE CONSTITUENTS TOWARDS THEIR SHARE OF WORK ON THE GROUND THAT CONSORTIUM HAS NOT DEDUCTED TAX AT SOURCE FROM SUCH PAYMENT. THE CREDIT FOR THE TDS MADE BY THE CLIENT WILL BE AVAILABLE TO THE RESPECTIVE CONSTITUENTS WHO HAS OFFERED INCOME ON WHICH SUCH TDS HAS BEEN MADE, EVEN THOUGH THE CERTIFICATE ISSUED BY THE CLIENT IS IN THE NAME OF THE CONSORTIUM. 6. FROM THE AFORECITED EXTRACTED PORTION, IT IS VERY MUCH CLEAR THAT THE TRIBUNAL HAS HELD THAT WHERE JOINT VENTURE IS FORMED ONLY FOR THE PURPOSE OF OBTAINING CONTRACTS AND SPECIFIC PORTIONS OF THE CONTRACT ARE TO BE COMPLETED BY INDIVIDUAL CONSTITUE NTS INDEPENDENTLY, THEN IT CANNOT BE A CASE OF THE JOINT VENTURE GIVING WORKS CONTRACT TO THE CONSTITUENTS. THE TRIBUNAL HA S FURTHER HELD THE PROFIT OF THE PROJECT IN SUCH A CASE SHOULD BE ASSES SED IN THE HANDS OF THE INDIVIDUAL CONSTITUENTS AND NOT IN THE HANDS OF THE CONSORTIUM AOP. THERE CANNOT BE TWO OPINION ABOUT THE AFORECIT ED RATIO LAID DOWN BY THE COORDINATE BENCH IN ASSESSEES OWN CASE A ND WE RESPECTFULLY AGREE WITH THE SAME. HOWEVER, THE ASSES SEE HAS ALSO TO PROVE THAT THE JOINT VENTURE HAS NOT EXECUTED THE WO RK AND ALSO NOT RETAINED ANY PROFIT. THE ENTIRE WORK WAS EXECUTED BY THE CONSTITUENTS AND THE JOINT VENTURE HAS PAID THE ENTIRE CONTRACT RECEIPTS RECEIVED BY IT FROM THE CONTRACTEE TO THE CONSTITUENTS WITHOU T RETAINING ANY PORTION OF THE PROFIT BY WHATEVER NAME IT MAY BE CALL ED. SINCE THE ASSESSEE HAS NOT SUBMITTED BEFORE US RELEVANT BANK ACCOUNTS TO SHOW THE DETAILS OF PAYMENT RECEIVED FROM THE CONTRA CTEE AND THE PAYMENTS MADE BY THE ASSESSEE JOINT VENTURE TO ITS CO NSTITUENTS, WE ARE NOT IN A POSITION TO GIVE ANY CONCLUSIVE FINDING . IT APPEARS FROM THE ORDER OF THE CIT(A) THAT SHE HAS ALSO NOT EXAMIN ED THE BANK ACCOUNTS TO FIND-OUT AS TO WHETHER THE ASSESSEE HAS MADE OVER THE ENTIRE CONTRACT AMOUNT RECEIVED FROM THE CONTRACTEE TO THE CONSTITUENTS OF THE JOINT VENTURE WHO HAVE EXECUTED THE WORK. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO VERIFY TH E ENTIRE CASE AS 7 OBSERVED ABOVE AND IF IT IS ESTABLISHED ON VERIFICA TION OF THE BANK ACCOUNT THAT THE ENTIRE CONTRACT RECEIPT RECEIVED B Y THE ASSESSEE JOINT VENTURE WAS PASSED-ON TO THE CONSTITUENTS OF THE JOINT VENTURE WITHOUT RETAINING ANY PORTION OF PROFIT OUT OF THE C ONTRACT RECEIPT, THEN THE ASSESSEE CANNOT BE TREATED TO BE A ASSESSE E IN DEFAULT FOR NOT DEDUCTING TAX AT SOURCE AND THEREFORE, THE PROVI SIONS OF SECTION 201(1) AND 201(1A) WILL NOT BE MADE APPLICABLE TO T HE ASSESSEE. ACCORDINGLY, THE APPEAL OF THE REVENUE IS ALLOWED FO R STATISTICAL PURPOSES. 7. SINCE THE FACTS ARE IDENTICAL IN OTHER APPEALS I .E., ITA.NO.714 TO 716/HYD/2013, FOLLOWING OUR FINDINGS IN ITA.NO.713/H YD/2013, WE REMIT THE MATTER TO THE FILE OF ASSESSING OFFICER I N THESE APPEALS ALSO TO EXAMINE THE ISSUE IN THE LIGHT OF OUR DIRECTIONS GIVEN IN PRECEDING PARA, AFTER AFFORDING A REASONABLE OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. 8. IN THE RESULT, APPEALS OF THE REVENUE I.E., ITA. NO. 714 TO 716/HYD/2013 ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14.08.2013. SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMB ER HYDERABAD, DATE 14 TH AUGUST, 2013. VBP/- COPY TO 1. DCIT, CIRCLE 14(2) (TDS), RANGE-14, HYDERABAD. 2. M/S. MADHUCON SINO HYDRO, 8-2-293/82A, 1129/A, ROAD NO.36, HITECH CITY ROAD, JUBILEE HILLS, HYDERABAD PAN AANFM 1451G 3. CIT(A)-II, HYDERABAD. 4. CIT, (TDS), HYDERABAD. 5. D.R. B BENCH, ITAT, HYDERABAD.