Income Tax Appellate Tribunal - Ahmedabad
The Ito, Ward-9(2),, Ahmedabad vs Jmc Pppl(Jv), Ahmedabad on 6 September, 2017
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'बी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL " B " BENCH, AHMEDABAD सव ी द प कुमार के डया, लेखा सद य एवं महावीर साद, या यक सद य के सम । BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No.2503/Ahd/2012 ( नधा रण वष / Assessment Year : 2009-10) The ITO बनाम/ JMC PPPL (JV) Vs. Ward-9(2) A-204, Shapath-IV Ahmedabad SG Road Ahmeadbad थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAAAJ 4868 L (अपीलाथ& /Appellant) .. ( 'यथ& / Respondent) अपीलाथ& ओर से /Appellant by : Shri Mudit Nagpal, Sr.DR 'यथ& क) ओर से/Respondent by : Shri M.K. Patel, AR ु वाई क) तार ख / सन Date of Hearing 26/07/2017 घोषणा क) तार ख /Date of Pronounce ment 06 / 09 /2017 आदे श / 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 Assessing 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 in the business of construction of infrastructural project. The assessee 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 declared. 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 been constituted through a joint-venture agreement dated 27/04/2007 entered into between its constituents JMC Project (India) Ltd. and Permanent Prestress Pvt.Ltd. (PPPL). The assessee joint-venture participated in the bids for supplying, Laying, Jointing, Testing and Commissioning of Distribution Network awarded by Bhopal Municipal Corporation Bhopal (BMC- Bhopal) for an amount of Rs.9,91,93,728/- vide letter 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 aforesaid gross business receipts of Rs.5,93,77,921/- during the year in respect of work contracts allotted to it is susceptible to tax in the hands of assessee's joint-venture. The AO observed that assessee-AOP being taxable entity in the eyes of law was liable to tax on income from the contract receipts in the status of AOP on the premise that contract was entered by the joint-venture. It was noted by the AO that the joint venture has received 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 hands of the AOP who is the right person for taxation purposes. The AO noted that the contract was awarded to the JV (AOP) and the work was carried out by JMC Projects (India) Ltd. or the other JV member only on behalf of the JV. It is the JV which is liable for the non-performance or 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 the 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 pronouncements and deleted the aforesaid addition.
5. Aggrieved, the Revenue is in appeal before the Tribunal.
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 another supplementary agreement dated 08/02/2008 entered into in consequence of the contract awarded by Corporation and submitted 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 resources, finances and all other services required for the execution of the work. The other joint venture Member PPPL is not to be called upon to provide such resources, services etc. The Ld.AR next submitted that the joint venture agreement was solely executed for the purpose of obtaining the work contract and does not represent any AOP or partnership between its constituents viz. JMC and PPPL. This agreement is only a work sharing 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 between the joint venture members, JMC has indemnified the other member (PPPL) for any and all contractual obligations arising execution for the project. It was submitted that other clauses of the supplementary 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 such 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 similar facts and circumstances, the action of the AO was not found legally 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 Hon'ble Supreme Court in the case of CIT vs. Rajdeep & PMCC Infrastructure Ltd. 73 Taxmann.com 256 (SC) where the SLP was dismissed against the favourable order of the Hon'ble Bombay High Court reported in 73 Taxmann.com 255 (Bom.). The Ld.AR next submitted that in view of the peculiar facts 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 submitted that the aforesaid Circular has clarified the position of law and removed 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 submissions. The basic question for our consideration is whether the income can be said to have accrued in the hands of AOP when the contract has been awarded to a consortium/joint-venture and whether such a consortium formed for the purposes of obtaining the contract constitutes an AOP 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 joint-venture agreement has been merely entered for the purposes of bidding 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 by virtue of supplementary agreement dated 08/02/2008 between JMC and PPPL (other joint- venture member) their correct relationship has been defined. It was also pleaded that from supplementary deed between constituents, it can be clearly inferred that the main joint-venture agreement dated 27/04/2007 for bidding purposes is only a symbolic document and does not represent an AOP or partnership between assessee and PPPL. The 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 assessee, we observe that various clauses of the SA (supplementary agreement) are suggestive 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 services 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 constituents 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 JMC alone. The SA further provides that the joint bank account shall be operated by JMC alone and all decisions pertaining to the joint-venture shall be taken by one constituent, i.e. JMC only. JMC shall be further responsible for compliance of all statutory requirements without any overlapping of responsibility. Under these circumstances, we find that it is one of the members, namely, JMC Project (India) Ltd. which essentially bears the risk of scope of work and enjoys control over the project. 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 document executed for bidding and thus the appellant herein is not liable for income estimated on the contract awarded. We find no infirmity in the conclusion drawn by the CIT(A).
10. However, in the same vain, a liberty is granted to AO to call for necessary records from the Assessee-AOP herein to satisfy itself that the contract receipts in question and income thereon has suffered taxation in the hands of its constituent namely JMC Projects (India) Ltd., if so ITA No.2503/Ahd/2012 ITO vs. JMC PPPL(JV) Asst.Year - 2009-10 -8- considered expedient, to ensure that contract receipts 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 assessment of same receipts in the hands of AOP will cease to exist.
11. In the result, appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 06 /09 /2017
Sd/- Sd/-
(महावीर साद) ( द प कुमार के डया)
या यक सद य ले खा सद य
( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 06/ 09 /2017
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to :
1. अपीलाथ& / The Appellant
2. 'यथ& / The Respondent.
3. संबं6धत आयकर आयु8त / Concerned CIT
4. आयकर आयु8त(अपील) / The CIT(A)-XV, Ahmedabad
5. 9वभागीय त न6ध, आयकर अपील य अ6धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स'या9पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad