V. Durga Rao, J.M:— This appeal by the assessee is directed against the order dated 30-07-2010 of CIT(A)-I, Thane for the assessment year 2007-2008.
2. The assessee is an AOP (Association of Persons). The AOP has two partners, namely, SMC Infrastructure Pvt. Ltd., a company incorporated under the Companies Act, 1956 and Ambika Enterprises, a proprietary firm. The partners of the AOP for the purpose of contract from the Thane Municipal Corporation entered an agreement dated 16 November, 2004. According to that agreement the purpose of the Joint Venture (JV) shown jointly prepared and submit the tender documents in the name of assessee (AOP) which shall be in such a firm and shall contain such items and conditions as the employer required. After its preparation and submission as aforesaid the joint venture shall be jointly and severely bound by the provisions of the tender or tenders known to the party of the joint venture can vary or seek to vary the same without previous written consent of the other.
3. Any bond, guarantees or indemnities required by or arising out of the terms and conditions of the tender or contract shall be procured by the parties of the second party namely Ambika Enterprises.
4. Each member of the joint venture agrees in place at the disposal of the joint venture, at the beneficial of all its experience, technical knowledge and skill and shall in respect bare its share of responsibility and burden of completing the contract. The parties shall be responsible for physical and financial distribution of work i.e, SMC Infrastructure Pvt. Ltd., undertaken the responsibility of 51% of the entire work, Ambika Enterprises 49% to the proportionate works. Both the partners i.e, SMC Infrastructure Pvt. Ltd. and Ambika Enterprises filed tenders in the name of AOP and completed the work according to tenders and received payments. During the course of the assessment proceedings the Assessing Officer had observed that on going through the profit and loss account it is seen that the AOP had credited the contract receipt received from Thane Municipal Corporation (TMC) to the tune of Rs. 20,097,075/- towards the subcontract to JV partners declared net profit at Rs. NIL. Since the subcontract was given to the JV partners i.e, SMC Infrastructure Pvt. Ltd. and Ambika Enterprises no TDS was deducted and called for the explanation from the assessee. In response to the above show cause, the assessee had made his submissions dated 25 November, 2009 and submitted that the assessee status was a AOP (Association of Persons) and is in the business of civil construction. As per the terms of the joint venture agreement, the joint venture partners have to execute the work in proportion to the agreed ratio i.e, SMT Infrastructure Pvt. Ltd., 51% and Ambika Enterprises 49%. The joint venture partners have executed the work as per the agreed proportion and it was submitted that there is no contract or subcontract between the assessee and its joint venture partiners and sec. 194C has no application to the assessee and AOP is not liable to deduct TDS on payment to the joint venture partners.
5. However, the Assessing Office had not agreed with the submissions of the assessee and observed that the AOP was a contractor and sub-contracted the work to the joint venture partners made payment to them. As per section 194(c)(2), the assessee has to deduct TDS and no such TDS has been deducted, accordingly by invoking sec. 40(a)(iv) of Income Tax Act, 1961, the AO disallowed the expenses to the extent of Rs. 2,00,097,075/.
6. On being aggrieved, the assessee carried matter in appeal before the Ld. CIT(A) and it was submitted before the Ld. CIT(A) that the JV partners namely SMC Infrastructure Pvt. Ltd. and Ambika Enterprises entered into a joint venture for the purpose of work from TMC, both the parties came together and created a AOP i.e, SMC - Ambika JV, the assessee, submit tenders on behalf of AOP and work was allotted in the name of the AOP and finally the payments were received in the name of the AOP. The AOP was created for the purpose of getting the contract and it was submitted further that there is no contract or subcontract relationship as existed in between the assessee Ambika JV and SMC Infrastructure Pvt. Ltd., therefore sec. 194C has no application. The Ld. CIT(A) after considering the submissions of the assessee had observed that the assessee has taken a contract work from Thane Municipal Corporation and subcontracted the work to the JV partners. As per section 194C, the person making any payment to the specified persons 1st including AOP after April, 2008 is required to deduct the TDS whereas the case of the assessee is that the contract work taken from TMC has been subcontracted to members of AOP and therefore the case of the assessee was squarely covered by sub-section 2 of sec. 194C and the assessee failed to deduct the tax on subcontract payment to the members at 1% and committed default within the meaning of 40(a)(ia) and, therefore, rejected the ground of appeal raised by the assessee. On being aggrieved assessee carried matter in appeal before the Tribunal.
7. The learned counsel for the assessee has submitted that the assessee AOP was only collective name for its members and the contract entered into by the AOP was only for the benefit of its members. There was no contract whatsoever between the AOP and its JV partners. It is further submitted that the members of the AOP i.e, SMC Infrastructure Pvt. Ltd. and Ambika Enterprises joined together as a AOP for the purpose of procuring the contract. The assessee AOP neither retained any commission nor gained any profit, therefore sec. 194C has no application to the assessee's case. The learned counsel for the assessee has submitted that the case under consideration is squarely covered by the decision of Hon'ble in the case of Commissioner Of Income-Tax v. Ess Kay Construction Co. (267 ITR 618) and he also relied on the decision of Hon'ble High Court of Himachal Pradesh in the case of CIT v. Ambuja Darla Kashlog Mangu Transport Co-op. Society, [2010] 188 Taxman 134 (HP). He further relied on the decision of ITAT Pune Bench in the case of Datta Digamber Sahakari Kamgar Sanstha Ltd. v. ACIT (83 ITD 148).
8. On the other hand, the learned DR submitted that the assessee AOP and its JV partners namely SMT Infrastructure and Ambika Enterprises are two different entities, therefore, the assessee has subcontracted the work to the two JV partners and sec. 194C(2) squarely applies to the assessee's case. The cases relied on by the learned counsel for the assessee is distinguishable on the facts.
9. We have heard both the sides, perused the record and gone through the orders of the authorities below. The assessee is a AOP (Association of Persons), SMC Infrastructure Pvt. Ltd. and Ambuja Enterprises are members of the AOP. As per the agreement between the members of the AOP, the AOP will bid for rates for Thane Municipal Corporation. The members will share the expenses as well as the receipts on execution of the project at 51% and 49% respectively. The year under consideration the assessee filed NIL return of income. In the profit and loss account the assessee has filed the contract receipt from Thane Municipal Corporation for Rs. 2,00,097,075/- and debited the same towards expenses of JV partners declaring the profit at Rs. NIL. The AOP did not carry any work itself. The work carried by the AOP JV partners, SMC Infrastructure Pvt. Ltd. and Ambika Enterprises. After completing the work the AOP received the receipts from TMC and handed over the receipts to its members enable to execute the contract. The AOP has neither kept any commission for its own nor any profit. It is a fact that the AOP consisting two partners namely SMC Infrastructure Pvt. Ltd. and Ambika Enterprises joined together for the purpose of the executing the project. In fact the project was executed by the AOP partners SMC Infrastructure Pvt. Ltd. and Ambika Enterprises and the only duty was entrusted to the AOP was filing of tender and after getting the contract the AOP partners executed the contract, accordingly, the amount received was shared by them. Therefore, in our humble opinion, there is no contract or subcontract relationship existed in between the assessee and its JV partners namely SMC Infrastructure Creations & Ambika Enterprises, therefore, section 194C(2) has no application in the facts of the assessee's case.
10. In so far as case laws relied on by the learned counsel for the assessee is concerned in the case of ESS KAY Construction Co. (supra) the Hon'ble Punjab and Haryana High Court's catch note is extracted as under:
“The assessee was a firm and had entered into a contract with MES construction of certain buildings. It allotted wholly/partly the construction work to three concerns, which were stated to have completed construction and received payments in lieu thereof. The assessee being the contractor received the contract amount from MES, from which the tax was deducted by the former. The assessee did not deduct any tax from the payments made to the three concerns as is required by the provisions of section 194C(2) of the Income Tax Act, 1961. The Income Tax Officer held the assessee to be a defaulter under section 201(A) of the Act and levied penalty under section 221. The Tribunal found that none of the units had any contract with the assessee, i.e, the main firm. It was only by way of mutual arrangements that these concerns executed some works and received payment in lieu thereof. A further finding of the fact had been recorded that the assessee did not charge any commission from its alleged subcontractors and whatever tax was payable had since been paid the main concern, i.e, the assessee, under section 194C(1). The Tribunal deleted the penalty. On an application to direct reference: Held, dismissing the application, that once a finding had been recorded that there was no contract between the assessee ad its sister concerns, there would be no applicability of section 194C(2).”
11. We find that the facts of the present case are similar to the above case and in the above case, the Hon'ble P&H Court held that there is no contract between the assessee and its sister concern and sec. 194C(2) has no application. The case in the hand also no contract or subcontract relationship as existed between the assessee its JV partners, therefore, section 194C(2) has no application.
12. In the case of Ambuja Darla Kashlog Mangu Transport Co-op. Society (supra) the relevant portion from the order of the Hon'ble Himachal Pradesh High Court is extracted hereunder:
“The main contention of the Revenue is that the since the assessee has a separate juristic identity and each of the truck operators who are members of the assessee have separate juristic identity they are covered within the sum to the meaning of sec. 194C(2). It is urged on behalf of the Revenue that since the assessee being a person is paying a sum to the member truck operator who is a resident within the meaning of the Act, TDS is required to be deducted. This argument does not take into consideration the heading of the section noted hereinabove and the entire language of sec. 194C(2) which clearly indicates that the payment should be made to the resident who is a subcontractor. The concept of subcontract is intrinsically linked with sec. 194C(2). If there is no subcontract then the person is not liable to deduct tax at source even if payment is being made to a resident.
To understand the nature of the contract, it would be relevant to mention that in the present cases the assessee societies were created by [the transporters themselves. The transporters formed the societies or unions with a view to enter into a contract with the companies. The companies enter into contract for transportation of goods and material fifth the society. However, the society is nothing more than a conglomeration of the truck operators themselves. The assessee societies have been created only with a view to make it easy to enter into a contract with the companies as also to ensure that the work to the individual truck operators is given strictly in turn so that every truck operator has an equal opportunity to carry the goods and earn income, the society itself does not do the work of transportation. The members of the society are virtually the owners of the society. It may be true that they both have separate juristic entities but that fact remains that the reason for creation of the society was only to ensure that work of provided to all the truck operators on equitable basis. A finding of the fact; has been rendered by the authorities that the societies were formed with a view to obtain the work of carnage from the company since the companies were not ready to enter into a contract with the individual truck operators but had asked them to form a society.
Admittedly, the society does not retain any profits. It only retain nominal amount as “parchi charges” which is used for meeting the administrative expenses of the society. There is no dispute with the submission that the society has an independent legal status and is am contractor within the meaning of sec. 194C. It is also not disputed that the members has a separate status but there is no subcontract between the society and the members. In fact if the entire working of the society seen it is apparent that the societies have entered into A.Y 2007-2008 a contract behalf of the members. The society is nothing but a collective name for the members and the contract entered by the society is for the benefit the constituent members and there is no contract between the society and the members.
For the foregoing reasons we are of the considered view that sec. 194C(2) of the Act is not attracted and the assessee society(s) is not liable to deduct tax at source on account of payments made to the truck owners who are also members of the society.”
13. In the above case, the Hon'ble Himachal Pradesh High Court has held that the society is nothing but collective name for the members. The contract entered by the society is for the benefit of the constituent members and there is no contract between its members and society, hence, sec. 194C(2) has no application. In the present case, the assessee is a AOP of its partners SMC Infrastructure Pvt. Ltd. and Ambika Enterprises and the role of the AOP is only to secure the contract for the benefit of the members. There was no contract or subcontract in between them.
14. In the case of Datta Digamber Sahakari Kamgar Sanstha Ltd. (supra) the assessee society was a transport contractor and it entered its activities in transporting various milk schemes to carry out transport work and it used to hire vehicles of its members. Assessing Officer held that assessee was a contractor and tanker owners were subcontractors since it was not deducted tax at source from the payment made to tank owners as per sec. 194C(2), it was liable to be penal interest u/s. 201(1A). The Hon'ble Pune Bench has held that there was no subcontract between assesseesociety and its members (tanker owners) and, in fact, it was thus a collective entity of its members that had taken a contract and there was no question of giving any further subcontract to these constituent members. Therefore, provisions of sec. 194C(2) were not applicable and assessee was not required to deduct any TDS u/s. 194C(2) of the Act.
15. In view of our specific finding that there is no contract or subcontract has existed in between the assessee and its JV partners and following the above judicial precedents, the learned CIT(A) was not justified in invoking section 194C(2) to the assessee's case. We, therefore, set aside the order passed by the CIT(A) and appeal filed by the assessee is allowed.
16. In the result appeal of the assessee is allowed.