Ramky ECI JV Vs ITO (ITAT Kolkata)
ITAT Kolkata held that Joint Venture is not required to deduct TDS u/s. 194C from the payments made to one of its constituents for execution of work awarded to it as no contractual relation exists. Further, Joint Venture is also not required to deduct TDS u/s. 194H from payments made to another constituent as compensation.
Facts- The issue involved in the present two appeals is that whether assessee who is a Joint Venture is required to deduct tax u/s. 194C from the payments made to one of its constituents for execution of work awarded to it and further, whether payments made to another constituent as compensation, constitutes payment in the nature of commission to be covered 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.
Conclusion- Held 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 section 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.
Held that in the present case, compensation 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.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
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. 20 1(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 tax u/s. 194C from the payments made to one of its constituents for execution of work awarded to it and further, whether payments made to another constituent as compensation, constitutes payment in the nature of commission to be covered 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 complete 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, dated 19.01.2015. This internal agreement laid down the terms and conditions for the execution of work and the understanding between the two JV partners for the work awarded by NHIDCL. Clause (2) of this internal agreement dealt with nature of work and consideration. The same is extracted below:
“2. Nature of Work and Consideration
If RAMKY-ECI(JV) is successful bidder and awarded the Work by the Client, RAMKY – ECI (JV) shall entrust the execution of the said Works to ECI Engineering & Construction Co. Limited and ECI shall execute and complete the work in accordance with the provisions of the Contract Agreement to be entered into between RAMKY- ECI (JV) and Client, and also as per instructions issued by the Client from time to time in accordance with the said Contract Agreement. All the taxes levied on RAMKY – ECI (JV) and commission if any, and all other expenses involved or incidental to the Work should be paid, borne and/or reimbursed by ECI.
ECI shall execute all (100%) the items of work as detailed in the drawings, specifications and other information furnished in the Contract Agreement, including extra Items, deviations and substitutions of the work i.e., at the same consideration and terms and conditions as applicable between RAMKY – ECI (JV) and the Client subject to the overhead Fee (as stated below) due to RAMKY:
Parties agree that subject to mutual agreement between parties, RAMKY will deploy Project Management Team (PMT) to handle official correspondence. Parties expressly agree that size of such team shall be mutually decided, keeping overall Interest of the Project. The cost of PMT which shall be the actual cost, incurred by RAMKY and the same shall be borne by the ECI till the completion and closure of the work and RAMKY – ECI (JV) is relieved of all obligations under the contract agreement by the CLIENT. Cost of PMT is recovered from the bills of ECI on monthly basis or on the earliest possible occasion.
All the Payment/advance received through client will be deposited in to a separate escrows account which is to be opened in Hyderabad in the name of RAMKY-ECI (JV) irrevocable Escrow instructions shall be given to the Banker concerned such that from every receipt into the escrow account, an amount equivalent to 2.25% of the corresponding gross bill amount received from the Client (excluding all taxes) shall be paid to RAMKY’s account towards its commission and remaining payment shall be transferred to ECI account irrespective of profit/loss. In case JV is successful in tender process, operation modality and escrow mechanism shall be finalized between both the parties.
Roles and responsibilities of each Party in summarization shall be as follows:
