As there is no contractual relationship, there is no TDS deducted on payments made by the joint venture to its members
Fact and issue of the case
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.
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.
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.
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.
Observation of the court
Considering the facts and circumstances of the case fulfilment of the attributes of not treating a JV as an AOP prescribed under CBDT Circular supra and the judicial precedents referred above, we are of the considered view 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.
Ld. AO has applied the provisions of section 194H for the compensation paid to RAMKY, out of the gross bills received from NHDICL, by treating it as commission. Definition of commission as contained in section 194H does not befit the payment of 2.25% made to RAMKY to subject it to tax deduction at source. The definition of commission contained in Explanation to section 194H is as under: “Commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities.”
From the above definition, 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.
In respect of the judicial pronouncement relied upon by Ld. CIT(A), in all those decisions, the moot point of liability to deduct tax at source under the relevant provision was missing. In all these decisions, the issue was in respect of chargeability of interest u/s. 201(1A) which has been held to be mandatory and automatic. In the present case before us, question involved is that whether in the facts and circumstances of the case, assessee which is a JV is required to deduct tax u/s. 194C from the payments made to one of its constituents i.e. ECI for execution of work and further, whether the payment made to another constituent as compensation, constitutes payment in the nature of commission to attract provisions of section 194H. We have answered this question in favour of the assessee in terms of the observation and discussion made above. Accordingly, assessee cannot be held to be the assessee in default u/s. 201(1) and liable for interest charged u/s. 201(1A) of the Act. Accordingly, grounds taken by the assessee in this respect are allowed.
In the result, both the appeals of the assessee are allowed.
Order pronounced in the open Court on 31st August, 2023.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from hereRamky-ECI-JV-Vs-ITO-ITAT-Kolkata-2