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Disallowance u/s 40(a)(ia) of payments made to third party without deducting TDS u/s 194C is valid where no sub-contracting work is involved: ITAT

2019-TIOL-1414-ITAT-PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘A’ PUNE

ITA No.623/Pun/2017
Assessment Year: 2012-13

INCOME TAX OFFICER
WARD- 2(2), KOLHAPUR

Vs

M/s RDS CONSTRUCTION JV
363/11, BALAJI NIWAS
DEEP BUNGLOW CHOWK
SHIVAJI NAGAR, PUNE-411005
PAN NO: AAAAR8625B

D Karunakara Rao, AM & Vikas Awasthy, JM

Date of Hearing: June 06, 2019
Date of Decision: June 27, 2019

Appellant Rep by: Shri N Ashok Babu
Respondent Rep by: 
Shri Nikhil Pathak

Income Tax – Sections 40(a)(ia) & 194C

Keywords – Joint venture partners – Sub contract of work – Tax deducted at source

THE Revenue has filed the appeal raising the ground that there was a business transactions between the Joint Venture partners i.e. M/s RDS Construction Company and M/s Mahalakshmi Infraprojects Limited. During the course of the assessment proceedings, the AO taxed the payments made to the Joint Venture partners invoking the provisions of section 40(a)(ia) read with section 194C. Further it was submitted by the Revenue that the payments made by the assessee to members were clearly towards sub-contract, tax was deductible from such payments u/s 194C and in view of the assessee’s failure, to do so, the AO was perfectly justified in applying the provisions of sec. 40(a)(ia). However counsel for the assessee by filing a copy of the order of the Tribunal in assessee’s own case for the AY 2011-12 Counsel submitted that the contents of para 3 to 9 dealt with the facts and legal proposition and the Tribunal dismissed the appeal of the Revenue for the AY 2011-12 on the similar issue.

On appeal, the Tribunal held that,

Whether disallowance made u/s 40(a)(ia) on payment made to a third party without deducting tax at source u/s 194C is valid, if there is no sub-contracting of work of the joint venture – YES: ITAT

++ it is evident to be noted that the Tribunal while adjudicating the appeal of the Revenue in earlier year for AY 2011-12, relied on the judgement of Apex Court in the case Rajdeep & PMCC Infrastructure Ltd. wherein, the Apex Court already considered and approved the said issue in favour of the assessee and following the judgement of the Apex Court, Tribunal dismissed the appeal of the Revenue. As a result, the provisions of section 40(a)(ia) read with 194C do not apply to the payments made by the assessee. Thus, there cannot be any sub-contract between the constituents of the Joint Venture/AOP. Therefore, this Tribunal is of the opinion the order of the CIT(A) is fair and reasonable on this issue and it does not call for any interference.

Revenue’s appeal dismissed

Case followed:

CIT vs. Rajdeep & PMCC Infrastructure Ltd. – 2016-TIOL-250-SC-IT

ORDER

Per: D Karunakara Rao:

This appeal is filed by the Revenue against the order of the CIT(A)- 2, Pune dated 09.12.2016 for the assessment year 2012-13.

2. The grounds raised by the Revenue are as under :-

“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that no income attributable on contract receipts could be taxed in the status of the AOP.

2. Whether on the facts and in the circumstances of the case and in law, the CIT(A) justified in ignoring that the assessee, being a separate entity u/s 2(31) of the IT Act, 1961, and having a PAN should have prepared its own Profit & Loss account as well as the balance sheet reflecting the full transactions undertaken by it and not just showing apportionment of receipts/Payments and assets/liabilities between its members.

3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) justified in failing to appreciate that as the payments made by the assessee to members were clearly towards sub-contract, tax was deductible from such payments u/s 194C and in view of the assessee’s failure, to do so, the Assessing Officer was perfectly justified in applying the provisions of sec. 40(a)(ia) of the Income-tax Act, 1961.

4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) justified in not considering the landmark judgement of the Hon’ble Supreme Court in the case of Ch. Achaiah (1996) 218 ITR 239 = 2002-TIOL-799-SC-IT wherein it was held that if the share of profit is determined in the joint venture agreement, it cannot be anything but AOP, and where the charge is on the income of the AOP, in such status, the Assessing Officer has no choice but to tax it, irrespective of the fact as to whether such share of profit has been offered to tax or taxed in the hands of members or not.

5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) justified in not considering the recent and elaborate judgment of the Hon’ble Authority for Advance Rulings in the case of Geoconsultant ZT GMBH, in Re (2008) 304 ITR 283 = 2008-TIOL-11-ARA-IT wherein the joint venture was held to be AOP, following the decision of the Hon’ble Supreme Court decision in the case of Ch. Achaiah (1996) 218 ITR 239 = 2002-TIOL-799-SC-IT.

6. The appellant prays that the order of the CIT(A) be vacated and that of the AO’s order may be restored.

7. The appellant crave leave to add, alter, amend or modify the above grounds raised, any other grounds at the time of proceedings before the Hon. Tribunal which may please be granted.”

3. From the above, it is evident that the grounds raised in appeal of the Revenue revolve around the business transactions between the Joint Venture partners i.e. M/s RDS Construction Company and M/s Mahalakshmi Infraprojects Limited. The Assessing Officer taxed the payments made to the Joint Venture partners invoking the provisions of section 40(a)(ia) r.w.s. 194C of the Act. In this regard, ld. Counsel for the assessee submitted that the issue now stands covered in favour of the assessee and, therefore, order of the CIT(A) does not require any interference. Filing a copy of the order of the Tribunal in assessee’s own case for the assessment year 2011-12 vide ITA No.1047/PUN/2015 dated 28.07.2017, ld. Counsel submitted that the contents of para 3 to 9 dealt with the facts and legal proposition and the Tribunal dismissed the appeal of the Revenue for the said assessment year on the similar issue.

4. Ld. DR for the Revenue, on the other hand, relied heavily on the order of the Assessing Officer.

5. On hearing both the sides on this issue, we find an identical issue came up before the Tribunal in assessee’s own case vide ITA No.1047/PUN/2015 dated 28.07.2017 (supra); wherein, the Tribunal, following the judgement of the Hon’ble Supreme Court in the case of CIT vs. Rajdeep & PMCC Infrastructure Ltd. [(2016) 73 taxmann.com 256 (SC)] = 2016-TIOL-250-SC-IT, decided the issue in favour of the assessee and dismissed the appeal of the Revenue. The contents of para 3 to 9 of the said order of the Tribunal (supra) are relevant in this regard. For the sake of completeness, the said para 3 to 9 of the order of the Tribunal are extracted hereunder :-

“3. Briefly stated the relevant facts are that the assessee is a joint venture AOP consisting of two constituents, namely RDS Construction Company and Mahalaxmi Infraprojects Ltd. Assessee filed the return of income on 30-09-2011 declaring total income at Nil. AO noticed that, out of total contract receipts amounting to Rs.6,38,04,906/- awarded to the AOP, the contract work was sublet to RDS Construction Company and Mahalaxmi Infraprojects Ltd., in the ratio of 60:40. In the opinion of the AO, the said subletting of contract attracts the TDS provisions. AO invoked the provisions of section 40(a)(ia) of the Act. Accordingly, AO made addition of Rs.6,38,04,906/-.

4. During the time set for covered matters before us, Ld. Counsels for the Assessee/Revenue submitted that Ground Nos. 1 to 9 of the appeal by the Revenue revolve around the issue of correction of the finding of the CIT(A), who held that no income is attributable to the contract receipts could be taxed in the status of the AOP. Assessee is the AOP formed as Joint Venture with RDS Construction Company and Mahalaxmi Infraprojects Ltd. as the member of the AOP. On facts the AOP is engaged only in getting the contract, who is to be executed by the members of AOP in the ratio of 60:40 by the RDS Construction Company and Mahalaxmi Infraprojects Ltd. In the assessment, AO invoked the provisions of section 40(a)(ia) of the Act and treated the transaction between the AOP and the members on the sub-contracts. During the First Appellate Proceedings, (Ld.CIT(A), assessee relied on the order of the Tribunal in the case of Swapnali RDS Joint Venture in ITA No.771/PN/2011 dated 26-09-2012 = 2012-TIOL-820-ITAT-PUNE and also in the case of ITO Vs. Rajdeep & PMCC Infrastructure and other judgment. CIT(A) accepted the same as per the discussion given in Para 3.4 to 3.5 of the order of CIT(A).

5. Aggrieved with the order of CIT(A) the Revenue is in appeal before us with the grounds extracted above.

6. On hearing both the parties and on perusal of the order of the Tribunal (supra), we are of the view that it is a settled issue now at the level of the Supreme Court in the case of Rajdeep & PMCC Infrastructure (supra) in an SLP matter that the provisions of section 40(a)(ia) of the Act is not to be invoked in respect of the contract works executed in their individual capacity by the Members of the AOP-Joint Venture. For the sake of completeness of this order, we proceed to extract relevant Supreme Court’s order in the case of CIT Vs. Rajdeep & PMCC Infrastructure Ltd. reported in (2016) 73 Taxmann.com 256 (SC) = 2016-TIOL-250-SC-IT –

“where Tribunal held when no income accrued to the assessee-AOP but to respective constituents of AOP in their individual capacity, then the assessee was not liable to be taxed and High Court held that since view expressed by Tribunal was consistent with materials placed on record, there was no substantial question of law arising for consideration, SLP was to be dismissed.”

7. We also perused the Tribunals’ order in the case of ITO Vs. M/s. Shradda & Prasad Joint Venture in ITA Nos.1957 & 1958/PN/2014 dated 29-07-2016. Similar view was taken based on the above said order of the Tribunal in the case of Swapnali RDS Joint Venture (supra). Therefore, we are of the view that the decision of the CIT(A) given in Para 3.4 to 3.5 of his order is reasonable and it does not call for any interference. For the sake of completeness, the said para is extracted as under :

“3.5 In view of the above, the appellant’s case is found to be squarely covered by the decision of the Hon’ble ITAT Pune in the case of Swapnali RDS Joint Venture relied upon by the appellant, which is based on identical issues. Accordingly, the disallowance u/s.40(a)(ia) made by the A.O. of Rs.6,38,04,906/- is held to be not sustainable and grounds of appeal No. 1 to 4 raised by the appellant are allowed.

8. From the above, it is evident, the Tribunal while adjudicating the appeal in case of Swapnali RDS Joint Venture (supra) relied on the order of the tribunal in the case of Rajdeep & PMCC Infrastructure (supra). The same is approved by the Hon’ble Supreme Court as stated above. Accordingly, all the grounds of the Revenue are dismissed.

9. In the result, appeal of the Revenue is dismissed.”

6. From the above, it is evident that the Tribunal, while adjudicating the appeal of the Revenue in earlier year i.e. A.Y. 2011-12, relied on the judgement of Hon’ble Apex Court in the case Rajdeep & PMCC Infrastructure Ltd. (supra); wherein, the Hon’ble Apex Court already considered and approved the said issue in favour of the assessee and followed the said judgement of the Hon’ble Apex Court (supra) dismissed the appeal of the Revenue. As a result, the provisions of section 40(a)(ia) r.w.s. 194C of the Act do not apply to the payments made by the assessee. Thus, there cannot be any sub-contract between the constituents of the Joint Venture/AOP. Thus, we are of the opinion, the order of the CIT(A) is fair and reasonable on this issue and it does not call for any interference. Accordingly, the grounds raised by the Revenue are dismissed.

7. In the result, the appeal of the Revenue is dismissed.

(Order pronounced on 27.06.2019)

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