IN THE ITAT HYDERABAD BENCH ‘A’
MEIL-SEW-MAYTAS-BHEL(JV) vs. ITO
IT APPEAL NOS. 63 TO 76 (HYD.) OF 2012
[ASSESSMENT YEAR 2010-11]
MAY 30, 2012
D. Karunakara Rao, Accountant Member
There are fourteen appeals in all in this bunch. They are all filed by the assessees against separate orders of the Commissioner of Income-tax (Appeals)-I, Hyderabad, in most of the cases dated 23.11.2011 and in others dated 24,11.2011 and 14.11.2011 confirming the orders passed by the assessing officer under S.201(1) and S.201(1A) of the Act, for failure on the part of the assessees to comply with the provisions of S.194C of the Act. Since common issues are involved, these appeals are being disposed off with this common order for the sake of convenience.
2. Brief facts of the case as taken from the appeal ITA No.63/Hyd/2012 concerning M/s. MEIL-SEW-MAYTAS-BHEL(JV), are that the assessee is a CONSORTIUM having its partners namely, Mega Engineering and Infrastructures Limited, SEW Infrastructure Ltd., MAYTAS Infra Ltd & BHEL. The Government of Andhra Pradesh had awarded contract : PRANAHITA -CHEVELLA LIFT IRRIGATION Scheme-Link II-PACKAGE 8 -Detailed investigations, design and execution of Lift Irrigation Schemes for drawl and lifting of 136.24 TMC of water from Ragampet (V), Karimnagar (D) to Motevagu reservoir. During the course of survey conducted in this case on 13.11.2009, it was found that the assessee CONSORTIUM had received an amount of Rs.45.65 crores from the government of Andhra Pradesh for the period from 1.4.2009 to13.11.2009. However, while remitting the said amount to the respective partners, no tax was deducted at source. Therefore, a show cause notice was issued to the above CONSORTIUM on 1.12.2009 to show cause why the assessee should not be treated as assessee in default and the assessee was asked to file reply on or before 9.12.2009. Since the assessee did not file any reply, the assessing officer treated the assessee as in default and levied tax under S.201(1) of the Act of Rs.84,43,957 and charged interest under S.201(1A) of the Act of Rs.6,26,412, vide order of the assessing officer dated 29.1.2010 passed under S.201(1) read with S.201(1A) of the Act.
3. On appeal before the CIT(A), assessee raised issues of non-applicability of TDS provisions in the instant case, and consequently contested the charging of interest under S.201(1A) of the Act. However, the learned Authorised Representative submitted that the assessee had paid all the taxes levied under S.201(1) and has started deducting taxes from the payments made to JV partners and the JV partners have been claiming credit for the TDS made ever since the survey under S.133A took place at its premises. It was therefore pleaded that the interest under S.201(1A) be deleted. The CIT(A) did not find merit in the contentions of the assessee. He observed that the fact that the assessee has been deducting the taxes regularly and the JV partners have been claiming credit for the TDS made, shows that the assessee has admitted its liability to deduct tax and once there is liability to deduct tax, failure to do so would attract under S.201(1A) of the Act. Further observing that charging of interest under S.201(1A) of the Act is mandatory, relying on the circular of the CBDT being Circular No.8 of 2009 dated 24th Novemebr,2009 (2009)319 ITR(St) 0022), which according to him is in line with the decision of the Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages (P.) Ltd. v. CIT  293 ITR 226/163 Taxman 355, confirmed the interest charged by the assessing officer under S.201(1A) of the Act.
4. Aggrieved by the order of the CIT(A), assessee preferred the present appeal before us.
5. In all the remaining thirteen cases in thus bunch, though the assessees are different and represent different consortium, but for the amounts involved and the works executed for the Government, except in one case in which work was executed for ONGC, facts are similar and the issue involved is the same, viz. orders passed under S.201(1) and S.201(1A) of the Act, in relation to the payments made to the assessees, to their consortium partners, from out of the amounts received by them from the Government in consideration of contract works executed by them for the Government, and it is for this reason that common arguments have been advanced by the learned representatives for the parties in respect of all these parties. As such it is not necessary for us to burden this order with detailed facts in relation to each of these appeals.
6. Effective grounds of the assessees in all these appeals are identical except of the amount involved, and the same, as taken from ITA No.63/Hyd/2011, read as follows-
“1. The learned CIT(A) erred in appreciating the grounds raised by the appellant where it has challenged its liability to deduct tax at source under section 194C and consequent levy of interest under section 201 and 201(1A).
2. The learned CIT(A) ought to have appreciated the legal position that the levy of interest under section 201(1A) is linked with levy of basic liability under section 201 which is the first issue to be adjudicated before sustaining addition under section 201(1A). Therefore, non-adjudication of the basic issues makes her order infirm and legally not unsustainable.
3. The learned CIT(A) ought to have appreciated the submissions of the appellant in the correct perspective which basically questioned the liability under section 194C read with section 201 basing on judicial precedents and denied the liability in toto by challenging the order of AO. The learned CIT(A) misconstrued the submissions of the appellant.
4. The learned CIT(A) ought not have limited the order merely to levy of interest under section 201(1A), without deciding the liability under section 201 and therefore the entire order is liable to be vacated and additions sustained to the extent of Rs.6,26,412 under section 201(1A) is liable to be deleted. “
7. During the proceedings before us, the learned counsel for the assessee, explained the facts of the case and taking us through the joint venture agreement in one of cases placed at pages 26 to 32 of the relevant paper-book, learned counsel explained that the JV consortium was meant for getting the contracts and accordingly contract itself was received and the same was transferred to one of the constituents, who executed the contract work in full and paid taxes on the income earned by that assessee. Absence of written agreement to support such transfer of contract shall not be a decisive and relevant factor. Learned Authorised Representative for the assessees reasoned that the assessees shall not be made to effect TDS on the sum, which is not an income to the assessees. There is no liability to make TDS on the said sum. Further, on the issue of existence of liability to make TDS under S.201(1) of the Act, learned counsel argued stating that the assessee is not liable to make any TDS, since, after procuring the contract, the impugned contract and the amounts received were transferred entirely and undisputedly to its constituent for performance. The said constituent, i.e. MEIL paid relevant taxes on the relatable income earned out of such contracts. Therefore, constituent is not a sub-contractor and the assessee is not a contractor. The consortium was created only for the purpose of procuring the contract. Learned counsel mentioned that the assessees were under duress to make and deposit the TDS with Government, although the same was not legally necessary as the assessee is meant for procuring the contract and not for execution and earning of income. In such a circumstance, there is no liability to make TDS. In this regard, learned counsel relied on various decisions. Further, referring to the fact of effecting TDS under compelling circumstances, subsequent to TDS-survey, learned counsel mentioned that such payments are absolutely unnecessary and the payments thus made under compelling circumstances should not attract further interest levies under S.201(1A) of the Act. In this regard, learned counsel placed reliance on the judgment of the Apex Court in the case of CIT v. V. MR. P. Firm, MUAR  56 ITR 67.
8. Further, on the existence of TDS liability on the assessee, learned counsel argued stating that the revenue does not fix any tax liability on the assessee in respect of the contract sum so received and for this proposition, learned counsel filed a copy of the relevant assessment order which showed the assessed income of the assessee for the relevant assessment year at ‘NIL’. Thus, he denied any TDS liability on the impugned contracts, procured and transferred to MEIL (Megha Engineering and Infrastructure Ltd.) in this case. Referring to para 4 of the J.V. agreement dated 2.4.2008, learned counsel underlined the requirement of satisfactorily completing the projects undertaken by the constituents. Further, he underlined the responsibility of each J.V. partner in completing project of its share. In times of difficulties, when any of the partner is not in a position to do its duty/responsibilities, the J.V. does not bar other constituents take up the duties and responsibilities of the said constituent in the interest of the impugned contract so procured by the Consortium. Referring to the CIT(A)’s reliance on the judgment of the Apex Court in the case of Hindustan Coca-cola Beverages (P.) Ltd. (supra) learned counsel mentioned that the said judgment is inapplicable to the facts of this case. Further, learned counsel relied on the judgments reported in CIT v. Bharat General Re-Insurance Co. Ltd.  81 ITR 303 (Delhi) and the decision of the Guajarat High Court in the case of S.R. Koshti v. CIT  146 Taxman 335.
9. Referring to the conclusion of the CIT(A) that when the TDS is regularly made as required under S.194C, then the levy of interest under S.201(1A) is mandatory, learned counsel vehemently argued stating that there is estoppel against law. If a particular income is not chargeable to tax in the hands of the assessee, there is no need to make TDS on the said income by the assessee. In this regard, learned counsel relied on the decision of Apex Court in the case of V. MR. P. firm, MUAR (supra). Placing reliance on the decision of the Hon’ble Supreme Court in the case of Alapati Venkataramiah v. CIT  57 ITR 185, he submitted that an assessee cannot be tied down to a wrong concession made in the return of in course of assessment. Finally, learned counsel summed up by stating that there is no liability cast on the assessee to make TDS on the impugned contract sum and therefore, the sustaining of the interest levied under S.201(1)(1A) is unwarranted.
10. On the other hand, learned Departmental Representative for the Revenue, being critical of the decisions cited by the learned counsel for the assessee, submitted that they are all distinguishable on facts. He submitted that there are no written agreements between the assessee and its constituent i.e. MEIL and the terms and conditions are not clear and therefore, these matters deserve to be referred back to the lower authorities for fresh findings and adjudication. In this regard, the Learned Departmental Representative relied on the judgment in the case of CIT v. Eastern Medikit Ltd.  202 Taxman 572/12 taxmann.com 427 (Delhi) and mentioned that the ITAT is not a Court of first instance and it shall not decide the factual aspect on which the assessing officer/CIT(A) has not given any findings. Further, he is also critical of the order of the CIT(A) and stated that the CIT(A) did not adjudicate the issue of actual liability on the assessee in matters of effecting TDS on the assessee or not and mentioned that the CIT(A) restricted the decision to the levy of interest under S.201(1A) of the Act only. Shri Srinivas, learned CIT-DR read out the grounds raised before the CIT(A) to demonstrate that the same were not adjudicated by passing a speaking order.
11. We heard both the sides and perused the orders of the lower authorities and other material available on records. We have also gone through the relevant provisions of the Act relating to the TDS in general and the provisions of S.194C in particular. Provisions of section 201(1) of the Act uses the expression ‘any person, who is required to deduct any sum in accordance with the provisions of the Act…..’ Learned counsel’s stand is that there is no such requirement in this case. As per the provisions of S.194C, an amount has to be deducted out of the sum in pursuance to a contract, at the time of payment/credit towards income-tax on the income comprised therein in terms of S.194C of the Act. When a particular sum is not income at all for an assessee, the requirement of making TDS is non-existent. When certain payments are routed through the JVs, which are merely credited for obtaining the contract, it has to be examined, if such contract amount constitutes income at all and chargeable to tax or not in the hands of the said J.V. is the issue for adjudication. This is also fact of the present cases where the contract amounts are received by the assessee-JVs, which were transferred to one of the respective constituents, who actually executed the contract and the income of the JV was treated as NIL. The facts are discussed in the preceding paragraph. Therefore, questions relating to the liability of the assessee to make TDS on the said contract amount is relevant issue. Perusal of the order of the CIT(A) revealed that the Commissioner(Appeals) opined the assessee as the one regularly making TDS on the said contract amount and in fact, fact of the matter in these cases is that the assessees made TDS under protest, which is completely ignored. Although the issue was raised by the assessee before the CIT(A), on the issue of the liability to make TDS, the Commissioner (Appeals) has not gone into the facts and circumstances under which the assessee-JV had to make TDS under protest subsequent to survey. The case of the Authorised Representative before us, is that during the survey operations, the assessees were under duress to effect TDS on the said amount against their will, and it was done only in order to cooperate with the Department’s demand for making TDS and depositing with Government. Otherwise, it is not required and the assessee is not in default. Therefore, as per the assessee, such making TDS is uncalled for. Further it is the argument of the learned counsel that there is no estoppel against law. The principles of waiver and acquiescence cannot operate against the statute. It is also the argument of the learned counsel that the assessee cannot be tied down to a wrong concession made during the survey operation. He relied on the judgments of the Apex Court in this behalf in the cases of V. MR. P. Firm (supra) and Alapati Venkataramiah (supra). The TDS payments having been made subsequent to the survey on the advice of some people being experts in income-tax subject or belonging to the Department, on those amounts which are themselves unnecessary, assessee cannot be asked to pay further interest thereon. The reasoning of the learned counsel that in such circumstances, where there is absence of liability to make TDS, no interest under S.201(1A) is leviable. These aspects of the arguments of the learned counsel were never adjudicated by the first appellate authority.
12. We have also considered the learned counsel’s reliance on para 3 and 4 of the impugned order of the CIT(A) for the proposition that the CIT(A) in fact dealt with the issue of liability to make TDS and therefore, the Learned Departmental Representative’s contention that the CIT(A) failed to adjudicate the grounds raised, must be dismissed. On perusal of the said paragraphs, we find that the CIT(A) merely dismissed the assessee’s grounds relying on the assessee’s compliance in effecting TDS. But CIT(A) did not discuss the fact that made assessee to effect TDS, i.e. events that occurred during the survey operations. In the process, the factors leading to such compliance, why assessee effected TDS and circumstances thereof were ignored. CIT(A) should have given attention to the grounds raised before him and gone to the root of the matter as to why the assessee is aggrieved on the issue of the requirement to deduct TDS and the liability on the assessee etc. It is a fact that the contract sums were taxed subsequently in the hands of one of the constituents of the assessee-Consortiums and to avoid double tax, the said amounts were never taxed in the hands of the assessee-consortium. This is a relevant fact that the CIT(A) should have considered, while deciding as to why one must make TDS, when the JV-assessees are created to procure a contract and never to execute the same by themselves with the intention to earn income. Although authorized representative attempted to demonstrate that the CIT(A) has in fact touched upon the issue relating to his liability to make TDS, he could not reconcile the same with the issues raised in the grounds wherein it is contended that the CIT(A) failed to adjudicate upon the ground relating to the issue of assessee’s liability to make TDS. We cannot appreciate this diabolical approach as they are against the spirit of the issues raised in the grounds before us. We go by the issues raised before us and considering the paucity of elaborate discussion made out, the arguments of the learned counsel/grounds raised before the CIT(A), we are of the opinion that the objection raised by the Learned Departmental Representative about the requirement of fresh adjudication on the said issue relating to liability to make TDS under S.201(1) of the Act is required to be approved. It is not the case of the assessees that the assessees never protested making the TDS on the contract amount. The CIT(A) should have examined the relevant facts and circumstances under which, after the survey action, the assessees had to make TDS on the impugned sum and should the same at all be subject to TDS in the hands of the assessee. Considering the issues raised in the grounds, which were not adjudicated properly by the first appellate authority, we are of the opinion that all the grounds should be remanded back to the files of the CIT(A) for fresh adjudication in accordance with the provisions of S.250(6) of the Act, whereby the Commissioner (Appeals) shall state the points for determination and then the decisions thereon, giving reasons for the same. We have also perused the decision of the Visakhapatnam Bench of the Tribunal in the case of ITO v. UAN Raju Constructions  48 SOT 178/14 taxmann.com 184 and Mumbai Bench decision of the Tribunal in the case of SMC Ambika JV v. ITO [IT Appeal No. 7698 (Mum.) of 2010, dated 29-7-2011] relating to TDS matters in respect of works contracts transferred between the JV and its constituents/Members. The Tribunal upheld the proposition that the Consortium of JV formed only to procure contract works and that the said contract work was executed by the constituent/member, there is no merit in presuming that the JV is a contractor and its members were sub-contractors for the purpose of applying TDS provisions and the provisions of S.40(a)(ia). The CIT(A) is directed to keep in mind the ratio of these decisions also, while re-examining these matters afresh. Accordingly, impugned orders of the CIT(A) are set aside and all these matters are restored to the file of the first appellate authority for fresh adjudication on all the issues involved in the appeals before him, in view of our above discussion and in accordance with law and after giving reasonable opportunity of hearing to the assessees.
13. In the result, all the 14 appeals of the assessees are allowed for statistical purposes.