Genuine joint venture profit share not subject to tax deduction at source; disallowance under section 40(a)(ia) fails.

Profit shared with a joint venture partner under a written agreement for procurement and sale of land was treated as a genuine commercial arrangement, not a sham or colourable device. The amount was held to be a distribution of profit under the joint venture ratio, rather than expenditure for services. On that basis, no tax deduction at source was required on the profit share, and disallowance under section 40(a)(ia) was unsustainable. The addition was deleted because the record disclosed no defect in the agreement and the disallowance rested only on conjecture.

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Issues: Whether the amount paid to the joint venture partner was a sham transaction or an expenditure attracting disallowance under section 40(a)(ia) for failure to deduct tax at source.

Analysis: The payment was made under a written agreement governing a joint venture for procurement and sale of land, with profit to be shared between the parties in the agreed ratio. No defect in the agreement was shown, and the transaction was treated as genuine commercial arrangement rather than a colourable device. Since the amount represented sharing of profit under the joint venture arrangement and not an expenditure for services, no tax was required to be deducted at source on such profit share. The disallowance was based on surmises and conjectures.

Conclusion: The disallowance under section 40(a)(ia) was unsustainable and the addition was rightly deleted in favour of the assessee.

Ratio Decidendi: Profit shared under a genuine joint venture agreement is not an expenditure liable to disallowance under section 40(a)(ia), and no tax deduction at source is required on such profit distribution.

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