Income Tax Appellate Tribunal - Gauhati
Ramky Eci Jv, Telangana vs Income Tax Officer, Tds-1, Guwahati on 31 August, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL GAUHATI BENCH
VIRTUAL HEARING AT KOLKATA
BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT
AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER
ITA Nos.159 & 160/GTY/2020
Assessment Years: 2018-19 & 2019-20
Ramky ECI JV, Income Tax Officer, TDS-1,
C/o, Mohd Afzal, Advocate Guwahati.
#402, Sherson's Residency,
Vs.
11-5-465, Criminal Court
Road, Red Hills, Hyderabad-
04.
(PAN: AACAR6483R)
(Appellant) (Respondent)
Present for:
Appellant by : Md. Afjal, Advocate
Respondent by : I. Gyaneshori Devi, JCIT
Date of Hearing : 18.07.2023
Date of Pronouncement : 31.08.2023
ORDER
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
Both these appeals filed by the assessee are against the separate orders of Ld. CIT(A), Guwahati-1, Guwahati dated 14.02.2020 against the order of ITO, TDS-1, Guwahati u/s. 201(1) r.w.s. 201(1A) of the Income-tax Act, 1961 (hereinafter referred to as the "Act"), dated 26.02.2019 and 27.02.2019 for AYs 2018-19 and 2019-20. Since facts are identical and grounds are common except variance in amount, we dispose of both these appeals by this consolidated order for the sake of convenience.
2. The issue involved in the present two appeals is that whether assessee who is a Joint Venture is required to deduct 2 ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 tax u/s. 194C from the payme nts made to one of its constituents for execution of work awarded to it and further, whether payme nts made to anothe r constituent as compe nsation, constitutes payment in the nature of commission to be covere d u/s. 194H of the Act. Assessee has taken six grounds of appeal on the aforesaid issues in AY 2018-19 and five grounds in AY 2019-20 wherein a demand of Rs.20,08,126/- is raised for AY 2018-19 u/s. 201(1)/201(1A) and Rs.1,48,00,974/- for AY 2019-20. The grounds are not reproduced for the sake of brevity.
3. Brief facts of the case are that assessee Joint Venture (JV) was formed by RAMKY Infrastructure Ltd. (hereinafter referred to as 'RAMKY' and ECI Engineering & Construction Ltd. (hereinafter referred to as "ECI") in the name of RAMKY-ECI (JV). National Highways & Infrastructure Development Corporation Ltd. (NHIDCL) awarded the work of execution of development of road project at Kohima, Nagaland, assessee being the successful bidder. Assessee JV entrusted the execution of the said work to ECI who had to execute and comple te the work as per the provisions of the contract agreement entered into between the assessee JV and NHIDCL.
3.1. For this purpose an internal agreement was entered into between the two JV partners i.e. RAMKY and ECI, date d 19.01.2015. This internal agreement laid down the terms and conditions for the exe cution of work and the understanding between the two JV partners for the work awarde d by NHIDCL. Clause (2) of this internal agreement dealt with nature of work and consideration. The same is extracted below:
3ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 "2. Nature of Work and Consider ation If RAMKY -ECI(JV) is successf ul bidder and a warded the Work by the Clien t, RAMKY - ECI (JV) shall en tr ust the execution of the s aid Works to ECI Eng ineer ing & Cons truc tion Co. L imite d an d ECI sh all execute and co mple te the work in acc ordan ce with the p rov is io ns of the Con tr ac t Agreemen t to be entered in to be twee n R AM KY- EC I (J V) and Clien t, and also as per ins truc tions issued by the Clien t f rom time to time in ac cordance with the s aid Contr ac t Agree men t. All the taxes lev ied on RAMKY - ECI (JV ) and commiss ion if any, and all other expenses involved or inciden tal to the Work sho uld be paid, bo rne and /or reimb ursed by ECI.
ECI shall execu te all (100% ) the items of work as de tailed in the drawings, specif ic a tio ns and other inf orma tion f urnis hed in the Contr ac t Agree me n t, inc luding extr a Ite ms, dev iations and subs titu tions of th e wor k i.e., at the same cons ider ation and ter ms and cond itions as applic able betwe en RAMKY - EC I ( JV ) and the Clien t sub jec t to th e overhead Fee (as s tated be lo w) due to RAMKY:
Par ties agree tha t subjec t to mutual agree ment be twe en par ties, RAMKY will deplo y Proje c t M anage men t Te am ( PMT) to hand le of f icial correspondence. Par ties expr essly agree tha t s ize of such te am shall be mutually decided, keeping overall In te res t of the Pro jec t. T he cost of PMT which shall be the ac tual cos t, incurred by RAMKY and the s ame shall be bor ne by the E C I till the co mp le tion and c losure of the work and RAM KY - E CI (JV) is relieved of all oblig atio ns under the contr ac t agreement by the CL IENT. Cos t of PMT is recovered f rom the b ills of EC I on mon th ly bas is or on the ear liest po ss ible occas ion.
All the Paymen t/ advan ce received through clie n t will be d epos ited in to a separ a te escr ows ac coun t wh ich is to be o pened in Hyderabad in the name of RAMKY-EC I (JV) irrevocable Escro w ins truc tions s hall be g iven to the Banker concerned su ch tha t f rom every rece ip t in to the escro w accou nt, an amou nt equivalent to 2.25% of the correspond ing g ross b ill amount received f rom the C lie nt (exclud ing all taxes) shall be paid to RAM KY's accoun t to wards its co mmiss ion and re maining p aymen t shall be transf erred to E CI account irrespec tive of prof it/ loss. In case JV is successf ul in tender process, operation modality and e scrow me chanis m shall be f inalized be twe en bo th the par ties.
Roles and re spons ibilities of each Par ty in summar iz a tion shall be as f ollo ws:
Name of the Par ty Responsib il ity
ECRAM KY 51% Equity RAM KY will be the le ad me mber or
the Conso r tiu m and prov ide
adv isory & M anage men t suppor t
4
ITA Nos.159 & 160/GTY/2020
Ramky ECI JV, AY: 2018-19 & 2019-20
including technical suppor t to the
consor tium and shall be
responsible f or s har ing its
exper ience, re lated to the Projec t
Manage men t and prov ide
reco mmendatio ns to the
Consor tiu m.
ECI 49% Equity EC I will be the me mber of the
Consor tiu m and h ave overall
responsib il ity f or imp le menting
th e projec t includ ing liais ing with
th e CLIE NT and other regulatory
bodies and sh all be respons ib le
f or the supply of equipmen t,
construc tion of road work, c iv il
works, etc whic h f ro m par t of the
Pro jec t.
3.2. According to this agreement, ECI shall e xecute 100% work as detailed in the drawing specification and other information furnished in the contract agreement. RAMKY will be compe nsated by an amount of equivalent to 2.25% of the corresponding gross bills receive d from NHIDCL.
Payments/advances received from NHIDCL will be deposited in a separate escrow account in the name of RAMKY-ECI (JV) with irrevocable escrow instruction given to the banker that from every receipt into the said bank account, an amount equivalent to 2.25% of the corresponding bill amount shall be paid to the RAMKY's account, towards compensation. Remaining payment shall be transferred to ECI's account irrespective of profit/loss. ECI agreed through this internal agreement to observe, perform and comply with the provisions of the contract agreement which shall employ the required technical and administrative personnel and labour force as well 5 ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 as all othe r adequate resources for completing the work according to the terms and conditions of the contract agreement with NHIDCL. ECI shall also provide security, performance guarantee, bank guaranty against machinery and mobilisation advance as required by NHIDCL and shall be ar the expenses to be incurred in obtaining such guarantees. All the expenses incurred in obtaining such guarantees shall be borne by the ECI.
3.3. ECI shall get necessary registration done and shall secure approvals require d by re levant authorities on behalf of RAMKY ECI (JV) and shall bear all associated costs. All statutory compliances are the re sponsibility of ECI such as submission of returns, assessme nts and any other compliances under both direct and indire ct taxes including income tax, works contract tax, value added tax, service tax, PF deduction and payments, ESI, minimum wages and workmen compensation etc. The penalties and damages if any, imposed by NHIDCL on account of violations, ECI shall borne such payments. The agreement is to expire if the JV has not be en awarded the contract and also in case, the contract is awarded, after work has been comple ted in entirety.
3.4. A survey was conducted on 09.10.2018, by the Income Tax Officer TDS-1, Guwahati. Considering the material gathered during the course of survey, the learned Assessing Officer assumed that assessee Joint Venture failed to deduct tax as per the provisions of section 194C in respect of payme nts made to ECI and u/s 194H in respect of payments made to Ramky, there fore, a show cause lette r was issued on 22.01.2019, 6 ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 proposing to treat the JV as assessee - in- default u/s 201(1) for non-deduction of tax at source.
3.5. In respect of assessment year 2018-19, assessee submitted Form No.26A (Rule 31 ACB), along with a certificate of Accountant under first proviso to sub section(l) of section 201 of the Act, by providing the details of return of income filed and payment of tax by ECI, who has executed the work. In respect of assessment year 2019-20, such certificate could not be produced as the survey was conducted on 09.10.2018, and show cause lette r was issued on 22.01.2019, before completion of financial ye ar 2018-19 and the time limit for filing of the return of income u/s 139(1) was 31.10.2019, therefore, there was no scope for filing of Form No. 26A for the assessment year 2019-20.
3.6. Ld. AO passed an order u/s 201(1A) for assessment ye ar 2018-19, de termining total amount payable at Rs.20,08,126/- which includes tax deductable u/s 194H of Rs.4,55,663/- and inte re st u/s 201(1A) at Rs.15,52,463/-. In respect of assessment year 2019-20, tax liability u/s 201(1) was determined at Rs.1,36,51,425/- and interest u/s 201(1A) at Rs.11,49,549/-, aggregating to Rs.1,48,00,974/-. Aggrieved by this order, an appe al was file d before the Ld. CIT(A)-1, Guwahati.
4. Before the Ld. CIT(A), asse ssee contented that there is no contractor and subcontractor relationship between the Joint Venture and one of its constituents and further the payment is not in the nature of payable by a person on behalf of another person for service s rendered or for any se rvices in the course of 7 ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 buying or selling of goods or any transaction re lating to any asset, valuable article or thing, not being securities. Therefore, it was pleaded not to treat the assessee as asse ssee in default in respect of provisions of section 201(1) and 201(1A) for both the assessme nt years. Ld. CIT(A) confirme d the orders of the Asse ssing Officer. Aggrieved by the order of the Ld. CIT(A), assessee is in appe al before the Tribunal.
5. Before us, Ld. Counsel for the assesse e re iterated the factual position as stated above. According to him, purpose of forming J V is to perform the work contract from NHDICL. The agreement of formation of J V will expire, if the JV is not awarded the work contract. It will also expire when the work awarded as completed as per the contract agreement. Ld. Counsel further stated that JV set up is not governed by the provisions of Indian Partnership Act, 1932. Relation between the constituents of the JV are decided as per the agreement entered into by its constituents. Such a JV cannot be treate d as Association of Persons (AOP) for the purpose of income-tax.
5.1. To buttress his conte ntion, he referred to the CBDT Circular No. 07 of 2016 dated 07.03.2016 which was issued considering the dispute in respect of consortium contracts which are formed to implement large infrastructure proje cts. Relevant portion of para 3 in this re spect from the said circular is reproduced as unde r:
"The matter h as b een examined. W ith a v ie w to avo id tax-d isp utes and to have consis tency in approach while hand ling these cases, the Board has dec ide d th at a consor tium arr ange men t f or execu ting EPC/Turnkey con tr ac ts wh ich has the f ollo wing attr ibutes may no t be tre ated as an AOP:8
ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 a. E ach me mber is independently respons ib le f or execu ting its p ar t of work ·through its o wn resources and also be ars th e r isk of its scope of work i.e. there is a cle ar demar cation in the wor k and cos ts be twee n the consor tiu m members and each me mber incurs expend iture only in its spec if ied area of work;
b. each me mber e arns prof it or incurs losses, based on perf ormance of the contr ac t f alling str ic tly with in its scope of work. Ho we ver, consor tium me mber s may share contr ac t pr ice at gross level only to f acilita te conven ien ce in bill ing;
c. the men and ma ter ials used f or any are a of work are under the r isk and control of respective consor tiu m me mbers;
d. the con tro l and manage men t of the consor tium is no t un if ied and common man age me n t is only f or the in ter -se coord in ation be twe en the conso rtium - members f or admin is tra tive co nven ience;"
5.2. Thus in reference to the above attributes laid down by the CBDT circular, Ld. Counsel submitted that under the internal agreement, entire work awarded by NHIDCL was executed by ECI, who is one of the constituents of JV, on its own risk. According to him, the said internal agreement itself states that ECI is responsible for all the statutory liability, penalty, if any and shall procure men and machinery and other resources for execution of the work. The execution of project and its risk and awards are clearly demarcated in the internal agree ment which is in the knowledge of NHIDCL from whom the work has been awarde d. Ld. Counsel thus, asserted that considering the guide lines issued by the CBDT, there is no scope to treat the assessee JV as an AOP. According to him, there is no contract and sub-contract re lationship between the assessee JV and ECI. Since there is no agreement between the asse ssee and its constituent ECI in the nature of sub-contract agreement, provisions of section 194C(2) are not applicable and, therefore, assessee JV is not liable to deduct tax at source for the payment made to ECI. According to ld. Counsel, assessee JV is 9 ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 not required to deduct tax in respect of payments made to its constituents for execution of work to ECI and for payme nt of compe nsation to ECI.
5.3. Ld. Counsel referred to several decisions of Co-ordinate Be nch of ITAT to submit that similar issues have been dealt with in favour of the assessee by holding that provisions of section 194C and or 194H do not apply in case of such JV arrangements for exe cution of the work contract awarded to the JV and executed by its constituents. He placed reliance on the decision of Co-ordinate Bench of ITAT, Hyderabad in the case of ITO Vs. KCEL-MEIL (JV) & 13 Ors. in ITA No. 323 to 336/Hyd/2014 dated 13.01.2014. He also referred to the decision of Co-ordinate Bench of ITAT Cuttack in the case of HCIL Adhikarya-ARSS (JV) in ITA No. 496/CTK/2012 dated 21.05.2015 and several other decisions as listed below:
(i) KCL AMRCL JV, Hyderabad Vs. ITO in ITA No.1409/H/2016 and 793/H/2017 dated 29.11.2017,
(ii) ITO Vs. UAN Raju Constructions (2011) 48 SOT 178.
(iii) SMC Constructions Vs. ITO (2011) 48 SOT 178,
(iv) ITO Vs. Hindustan Ratna (JV), Hyderbad in ITA No. 852/H/2015 dt. 29.11.2018 and
(v) ITO Vs. Shraddha and Prasad JV, in ITA No. 2665/Pun/2017.
6. Per contra, Ld. CIT, DR placed reliance on the order of authorities below. He referred to various judgments cited by Ld. CIT(A) in the said orde r.
7. We have heard the rival contentions and perused the material available on re cord. Admittedly, it is a fact on record that assessee is a JV, comprising of two constituents viz. RAMKY and ECI. A work contract is awarded to the assessee 10 ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 JV by NHIDCL. There exists an internal agreement between the constituent members of the JV by which responsibility of execution of the project by ECI and its risk and rewards are clearly demarcated in it. Further in the same agreement, RAMKY is to be compe nsated by a compensation of 2.25% of gross bills rece ived from NHIDCL. In the impugned assessment order, Ld. AO has no where given any finding that the other constituent members i.e. RAMKY has any authority or control over the work executed by ECI who is responsible to execute the same on its own risk and is responsible also for all the statutory liabilities, penalties and procure men and machine and other resources for the execution of work.
7.1. We have also perused the attributes which has been listed by CBDT in its circular (supra) whereby the JVs are not to be treate d as an AOP so as to avoid income tax dispute s and to have consistent approach while handling such cases. We do note that the present facts and circumstances of the case fulfils the require me nts of the attributes listed by the CBDT, not to tre at a JV as an AOP.
7.2. The status and legal position of JV under the Act has been e laborately discussed by the Co-ordinate Bench of ITAT, Cuttack in the case of HCIL Adhikarya-ARSS (JV) (supra) by considering the decision of Hon'ble Supreme Court in the case of Fazir Chand Gulati Vs. UPPAL Agencies Pvt. Ltd. (2008) 10 SCC 345. The discussion made by the Co-ordinate Bench of ITAT, Cuttack in this respect is extracted below:
"7. In our country, the implementation of infrastructure projects is taking place in a massive scale. In this connection, global tenders are invited. Hence two or more 11 ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 business enterprises are joining hands by forming a consortium of Joint Venture in order to get qualified for participating in tender process. They regulate themselves, by entering into an agreement, the methodology to be adopted for executing the contract obtained. Before going into the main issues, we feel that it is imperative to discuss about the status and legal position of "Joint Venture" vis- a-vis Income tax Act. The Joint Ventures are not be governed by the provisions of the "Indian Partnership Act, 1932. It is also a known fact that there is no statute which governs a Joint Venture. Hence the issue regarding the relationship between the members and also between the members and the Joint venture has to be decided on the basis of the terms of agreement entered between the parties. Though the "Joint Venture Agreements" generally fall in the category of "Association of Persons" (AOP) under the Income tax Act, yet their assessability in the status of "AOP" was not free from doubt and we notice that the authorities have decided this issue on the basis of facts and circumstances of each case.
8. The Hon'ble Supreme Court has made a detailed discussion on the concept of "Joint Venture" in the case of Fazir Chand Gulati Vs. Uppal Agencies Private Ltd. (2008) 10 SCC 345. The relevant observations are extracted below:-
"17. This Court had occasion to consider the nature of `joint venture' in New Horizons Ltd vs. Union of India [1995 (1) SCC 478). This Court held : "The expression "joint venture" is more frequently used in the United States. It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in profit and losses. [Black's Law Dictionary; Sixth Edition, p.839]. According to Words and Phrases, Permanent Edition, a joint venture is an association of two or more persons to carry out a single business enterprise for profit [P.117, Vol. 23]."[Emphasis supplied] The following definition of 'joint venture' occurring in American Jurisprudence [2nd Edition, Vol.46 pages 19, 22 and 23] is relevant: "A joint venture is frequently defined as an association of two or more persons formed to carry out a single business enterprise for profit. More specifically, it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, a corporation or other business entity, pursuant to an agreement that there shall be a community of interest among the parties as to the purpose of the undertaking, and that each joint venture must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise. Joint ventures are, in general, governed by the same rules as partnerships. The relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties, and liabilities are generally tested by rules which are closely analogous to and substantially the same, if not exactly the same as those which govern partnerships. Since the legal consequences of a joint venture are equivalent to those of a partnership, the courts freely apply partnership law to joint ventures when appropriate. In fact, it has been said that the 12 ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships." "A joint venture is to be distinguished from a relationship of independent contractor, the latter being one who, exercising an independent employment, contracts to do work according to his own methods and without being subject to the control of his employer except as to the result of the work, while a joint venture is a special combination of two or more persons where, in some specific venture, a profit is jointly sought without any actual partnership or corporate designation." (Emphasis supplied) To the same effect is the definition in Corpus Juris Secundum (Vol. 48A pages 314-315): "Joint venture," a term used interchangeably and synonymous with joint adventure', or coventure, has been defined as a special combination of two or more persons wherein some specific venture for profit is jointly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for profit or a special combination of persons undertaking jointly some specific adventure for profit, for which purpose they combine their property, money, effects, skill, and knowledge........ Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling in determining whether a joint venture exists, are: (1) joint ownership and control of property; (2) sharing of expenses, profits and losses, and having and exercising some voice in determining division of net earnings; (3) community of control over, and active participation in, management and direction of business enterprise; (4) intention of parties, express or implied; and (5) fixing of salaries by joint agreement." (emphasis supplied) Black's Law Dictionary (7th Edition, page
843) defines `joint venture' thus "Joint Venture: A business undertaking by two or more persons engaged in a single defined project. The necessary elements are: (1) an express or implied agreement; (2) a common purpose that the group intends to carry out; (3) shared profits and losses; and (4) each member's equal voice in controlling the project."
9. On a careful reading of the order of the Hon'ble Supreme Court, we notice the following essential ingredients for a "Joint Venture".
a) It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit. (or)
b) it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership. (or)
c) a special combination of two or more persons wherein some specific venture for profit is jointly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for profit.
d) that each joint venturer must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise.
13ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20
e) Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling in determining whether a joint venture exists, are: (1) joint ownership and control of property; (2) sharing of expenses, profits and losses, and having and exercising some voice in determining division of net earnings; (3) community of control over, and active participation in, management and direction of business enterprise; (4) intention of parties, express or implied; and (5) fixing of salaries by joint agreement."
7.3. Based on the above detailed discussion, the Co-ordinate Be nch arrived at a conclusion that consortium of JV has been forme d only to procure the contract works. By way of the agreement, the parties have regulated the relationship entered with respect to their joint responsibility that existed in relation to the member. In reality, both the parties have divided the contract work be tween themselves and have executed their share of work on the ir own risk. It was thus concluded that there is no merit in the presumption made by the AO that the JV is the main contractor and the constituents are the sub- contractors. Accordingly, it held that question of deduction of tax at source u/s. 194C(2) does not arise. It was thus concluded that assessee JV was not liable to deduct tax at source and, therefore, it cannot be held to be in default u/s. 201(1) and liable to be charged interest u/s. 201(1A) of the Act.
7.4. Further, in respect of AY 2018-19, considering Form No. 26A from the constituent ECI stating that receipts from JV have alre ady been offered for taxation, Ld. AO restricted to levy of interest u/s. 201(1A) and did not hold assessee as assessee in default for that component.
8. Considering the facts and circumstances of the case fulfilment of the attributes of not treating a JV as an AOP prescribed unde r CBDT Circular supra and the judicial 14 ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 precedents re fe rred above, we are of the conside red view that assessee JV does not fall in the category of AOP under the Act. Further, there does not exist a relationship of a contractor and sub-contractor within the meaning of se ction 194C, therefore, question of deduction of tax at source does not arise . Once there is no liability to deduct tax at source, holding assessee JV as assessee in default is also not tenable.
8.1. Ld. AO has applied the provisions of section 194H for the compe nsation paid to RAMKY, out of the gross bills received from NHDICL, by treating it as commission. De finition of commission as contained in section 194H does not befit the payment of 2.25% made to RAMKY to subject it to tax deduction at source. The definition of commission contained in Explanation to section 194H is as under:
"Co mmiss io n or brokerage" inc lude s any paymen t rece ived or rece iv able, directly or indirec tly, by a person ac ting on behalf of ano ther person f or services rendered (no t be ing prof essional serv ices ) or f or any services in the course of buy ing or selling of goods or in relation to any tr ansaction re lating to an y ass et, valuable ar tic le or thing, no t being sec ur ities . "
8.2. From the above definition, in the present case, compe nsation paid by assessee JV is not for acting on behalf of JV for any service. Further, there are no services taken by the JV in the course of buying or selling of goods nor there is any transaction relating to any asset, valuable articles or thing. Accordingly, the payment is not in the nature of commission and section 194H does not get attracted. Hence, assessee JV is not to be treated as assessee in default.
8.3. In respect of the judicial pronounce ment relied upon by Ld. CIT(A), in all those decisions, the moot point of liability to 15 ITA Nos.159 & 160/GTY/2020 Ramky ECI JV, AY: 2018-19 & 2019-20 deduct tax at source under the relevant provision was missing. In all these decisions, the issue was in respe ct of chargeability of interest u/s. 201(1A) which has been held to be mandatory and automatic. In the present case before us, que stion involve d is that whether in the facts and circumstance s of the case, assessee which is a JV is required to deduct tax u/s. 194C from the payments made to one of its constituents i.e. ECI for execution of work and further, whether the payme nt made to another constituent as compensation, constitutes payment in the nature of commission to attract provisions of section 194H. We have answered this question in favour of the assessee in terms of the observation and discussion made above. Accordingly, assessee cannot be held to be the assessee in default u/s. 201(1) and liable for interest charged u/s. 201(1A) of the Act. Accordingly, grounds taken by the assessee in this respect are allowed.
9. In the result, both the appeals of the assessee are allowed.
Order pronounce d in the open Court on 31st August, 2023.
Sd/- Sd/-
(Rajpal Yadav) (Girish Agrawal)
Vice President Accountant Member
Dated: 31st August, 2023
JD, Sr. P.S.
16
ITA Nos.159 & 160/GTY/2020
Ramky ECI JV, AY: 2018-19 & 2019-20
Copy to:
1. The Appellant:
2. The Respondent
3. CIT(A), Guwahati-1, Guwahati
4. CIT
5. DR, ITAT, Guwahati Bench, Guwahati
6. Guard file
//True Copy//
By Order
Assistant Registrar
ITAT, Kolkata Benches, Kolkata