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M/s. IVRCL-KBL-MEIL (JV) & Ors.

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2. Facts as in the case of IVRCL-KBL-MEIL(JV) are that the assessee is a Joint Venture (JV) formed by (i) IVRCL Infrastructure and Projects Ltd., Hyderabad; (ii) Kirloskar Brothers Limited (KBL), Pune; and (iii) Megha Engg. & Infrastructures Ltd. (MEIL), Hyderabad (Principal Contractor) with sharing participation of 65%, 20% and 15% respectively in the project value of the work. This JV came into existence by virtue of a Joint Venture Agreement (JVA) dated 02-06-2007 for the purpose of participating in tenders called by Irrigation & CAD Department, Government of Andhra Pradesh (Principal Employer) for the purpose of bidding contract works of "Investigation, Design, Manufacture, Supply of Pumps, Motors-and Pressure main at site of work including erection, commissioning and testing of 8 Nos. at each pumping station of Hydro- Mechanical, Electro-Mechanical and other accessories etc, complete equipment required and maintenance of 12 pumps and the system for 15 years at Km. (-) 2.050, Km 9.217, Km 56.917, Km 66.132, Km 78.785, Km. 88.690, Km. 95:735 and 173.837 of Phase I under H.N.S.S Division No. 11, Ananthapur, State of Andhra Pradesh. IVRCL Infrastructures and Projects Ltd., was the Lead Contractor amongst the constituents of the JV who was delegated all the powers to represent the JV before the Principal Employer and monitor the project work on behalf of the JV vide a Power of Attorney, dated 2.6.2007.

M/s. IVRCL-KBL-MEIL (JV) & Ors.

=========================== Government of Andhra Pradesh, Irrigation & CAD Department (Principal Employer) IVRCL-KBL-MEIL Joint Venture, Hyderabad (Principal Contractor) 65%: 15%: 20% sharing ratio of the total project value of Rs.

6. Keeping in view of the aforesaid reasoning, the Assessing Officer was of the view that since the assessee had passed on its gross receipts to its constituents, i.e., M/s IVRCL, M/s. KBL and M/s MEIL and also that it did not book any expenditure or M/s. IVRCL-KBL-MEIL (JV) & Ors.

=========================== claimed depreciation on any assets, the ratio of the decision of the Hon'ble Supreme Court in ITO v. Ch. Atchaiah (218 ITR 239) and the decision of Hon'ble Delhi Bench of ITAT in the case of Pradeep Agencies (JV) (18 SOT 12)(Delhi) (SB) is applicable where according to him it was held that the income of the assessee must be taxed in its hands and not in the hands of the constituents. In both the cases, the facts were such that income had accrued in the form of capital gains and business income respectively in the hands of both the assessees who were constituted an Association of Persons in law. In both the cases, members of the association offered their respective share to income tax and contended that once the income is charged to tax in the hands of a member of an association of person, assessing officer will have an option not to tax the association of persons by relying upon (i) decision of Supreme Court in Muralidhar Jhawar & Purna Ginning & Pressing Factory [1966) 60 ITR 95 and (ii) CBDT Circular No. 75/19/191 of 1962-ITJ, Dated 24-8-1966. The Supreme Court in Ch, Atchaiah (supra) held that the earlier decision of the Supreme Court in Muralidhar Jhawar & Purna Ginning & Pressinq Factory (supra) was decided under the provisions of Indian Income Tax Act, 1922 where the charging Section 3 was differently worded giving an option to an assessing officer to make assessment either in the hands of an AOP or the members of such AOP, whereas the charging Section 4 of Income Tax Act, 1961 did not provide for such an option to the assessing officer as there was a marked difference in the language of charging Section 4. It was further held that the CBDT circular cannot override the provisions of Income Tax Act, 1961 even if the Board advised its officers to follow the said Supreme Court decision by choosing an option to assess either an AOP or its members. The Delhi Special Bench of ITAT in Pradeep Agencies v. ITO (supra) while dealing with the appeal of an AOP who did an agency business for commission held M/s. IVRCL-KBL-MEIL (JV) & Ors.

M/s. IVRCL-KBL-MEIL (JV) & Ors.

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28. Proceeding further, the learned AR objected to the action of the Assessing Officer arguing that the same is blatantly incorrect and illegal on the face of the provisions of Section 5 of the Income Tax Act, 1961. Elaborating his case, he submitted that the assessee had by Agreement dated 27-11-2006 sub-contracted the entire work of Rs. 557.80 Crores to the Lead Contractor which is nothing but divesting its income producing asset. Execution of such work for earning income is coupled with discharging and fulfillment of various conditions / obligations / responsibilities for which the parties have adequately provided for and safeguarded the interests of the Principal Employer and the Principal Contractor. When such income producing asset which is otherwise known as turnover or gross receipts for execution of the project work is divested by an Agreement and the same was executed and profits thereon were declared by the constituent in its return of income, the Assessing Officer cannot say that income had accrued in the hands of the appellant or to say that there was no double taxation by any stretch of imagination. The Assessing Officer grossly ignored the fundamental principles of income tax law that when there is transfer of an income producing asset from which income arises, no income shall be chargeable to tax as chargeable income in the hands of the transferor. The appellant being the Principal Contractor having secured the contract from the Principal Employer, transferred the entire project work or income producing asset on back to back basis and in which case income accrued or had arisen only in the hands of the Lead Contractor which fact is reflected and is borne out of assessment records of the Lead Contractor/sub-contractor. The learned AR emphasized his case by pointing out that by any stretch of comparison or analysis, the rate of profit suffered to income tax at cumulative figure of 40.34% in both the hands of the JV and the Lead Contractor is far more higher than the normal profit declared M/s. IVRCL-KBL-MEIL (JV) & Ors.