2011 (7) TMI 810 - AT - Income Tax

Tribunal grants deduction to assessee in JV case, finding JV & consortium as paper entities.

Transstory (India) Ltd. Versus Income-tax Officer, Ward-2 (2), Guntur

The Tribunal allowed the appeal of the assessee, holding that the Joint Venture (JV) and consortium were formed solely for obtaining contracts, while the ... Deduction u/s 80IA - eligible assessee - joint venture and the consortium was formed only to obtain the contract from the Government body and they in fact did not execute the work awarded to it - work was executed by the party of the JV - held that:- - on an understanding of the concept of the 'Joint Venture' and the terms of agreement between the members of the present case, we are of the view that in the instant case, the consortium of Joint Venture has been formed only to procure the contract works - Held that: the benefit of exemption/deduction is to be allowed to any enterprise carrying on business of developing or operating and maintaining or developing, operating, maintaining any infrastructure facility subject to fulfilment of certain conditions - in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them - As per provisions of section 80IA(4), the benefit of deduction under this section is to be given only to the enterprise who carried on the classified business - Decided in favor of the assessee Issues Involved:1. Denial of deduction under Section 80IA(4) of the Income Tax Act.2. Identity of the entity entitled to the deduction.3. Execution of work by the joint venture (JV) and consortium.Detailed Analysis:Denial of Deduction under Section 80IA(4):The primary issue in this appeal is the denial of the deduction under Section 80IA(4) of the Income Tax Act, which the assessee claimed for the works executed for the Government of Karnataka and the Government of Andhra Pradesh. The assessee contended that the deduction should be allowed as they were engaged in the business of developing, maintaining, and operating infrastructure facilities, fulfilling the conditions laid down under Section 80IA(4).Identity of the Entity Entitled to the Deduction:The assessee formed a joint venture (JV) named 'Navayuga Transtoy (JV)' with another partner to bid for a contract awarded by the Irrigation Department of Andhra Pradesh. The JV was entitled to execute works worth Rs. 664.50 crores, with the assessee responsible for 40% of the work. Additionally, the assessee formed a consortium with M/s. Corporation Transtroy, OJSC, Moscow, for a contract awarded by KSHIP, a body of the Government of Karnataka, where the assessee was to execute 100% of the works.The JV and the consortium did not claim any deduction under Section 80IA(4) in their income tax returns. The assessee argued that the deduction should be allowed to the constituents (the assessee and the other partner) who actually executed the work, rather than the JV or consortium, which was merely a de jure contractor.Execution of Work by the Joint Venture (JV) and Consortium:The Tribunal noted that the JV and the consortium were formed solely to obtain contracts from government bodies. The work/project awarded to the JV was executed by its constituents as per mutually agreed terms. The JV raised consolidated bills on the government and shared the payments with its constituents. The Tribunal found that the JV and the consortium did not offer any profit or income earned from the project/works nor claimed any deduction under Section 80IA(4).The Tribunal referred to the case of ITO v. UAN Raju Constructions, where it was held that the JV cannot be considered the main contractor, and its members cannot be considered sub-contractors. The Tribunal emphasized that the JV was an artificial body created to bid for contracts, and the actual work was executed by its constituents.The Tribunal also referred to the judgment of the Bombay High Court in CIT v. ABG Heavy Industries Ltd., which supported the view that the benefit of deduction under Section 80IA(4) should be given to the enterprise that carried out the classified business.Conclusion:The Tribunal concluded that the JV and the consortium were formed only to obtain contracts, and the actual work was executed by the assessee and its partners. The JV and the consortium did not claim any deduction under Section 80IA(4), indicating that they were merely paper entities. The Tribunal held that the assessee, being the entity that executed the work, was entitled to the deduction under Section 80IA(4). The order of the CIT(A) was set aside, and the Assessing Officer was directed to allow the deduction to the assessee.Result:The appeal of the assessee was allowed.