ITAT: AOP/JV not liable to deduct tax on payments to partners. Disallowances addressed; reassessment ordered.

The ITAT concluded that the AOP/JV was not liable to deduct tax at source from payments made to its constituent partners as the joint venture was formed solely to obtain contracts, with the actual work executed by individual constituents. Disallowances for non-deduction or late payment of TDS were addressed, with specific amounts disallowed and directions given for reassessment. The nature of certain payments was remanded for reconsideration. The appeal was partly allowed for statistical purposes, and the revenue's appeal was also allowed for statistical purposes, with directions for reassessment in line with the ITAT's findings.

---

---

Issues Involved:
1. Liability of the appellant (AOP/JV) to deduct tax at source from payments made to constituent partners.
2. Disallowance of certain amounts due to non-deduction or late payment of TDS.
3. Nature of payments amounting to Rs. 11,44,46,927/- and whether they were investments or payments for works executed.

Detailed Analysis:

1. Liability to Deduct Tax at Source:
The main issue is whether the appellant, being an AOP/JV, is liable to deduct tax at source from payments made to its constituent partners. The AO relied on the decision of the ITAT, Hyderabad, which held that the appellant was liable to deduct tax as per section 194C(2) of the IT Act. The CIT(A) also held that the appellant was required to deduct tax at source from the payments made to the JV constituents. However, the ITAT observed that the joint venture was formed only to obtain contracts from government bodies, and the actual work was executed by the individual constituents. The ITAT concluded that the profits from the portion of the projects derived by the individual constituents should be assessed in their hands, and there was no requirement for the AOP to deduct tax at source.

2. Disallowance Due to Non-Deduction or Late Payment of TDS:
The AO disallowed certain amounts on the grounds of non-deduction or late payment of TDS. Specifically, Rs. 2,71,38,750/- was disallowed for payments made to Sino Hydro Corporation, China, due to non-deduction of tax at source. The ITAT held that if the Chinese concern had not offered this income for tax in India, the amount should be assessed as income of the appellant. Additionally, the AO disallowed Rs. 86,39,27,480/- due to late payment of TDS. The ITAT referred to the Calcutta High Court's decision in CIT v. Virgin Creations, which allowed TDS paid before the due date for filing the income return as a deduction.

3. Nature of Payments Amounting to Rs. 11,44,46,927/-:
The dispute was regarding whether the payments were in the nature of investments or payments for works executed. The CIT(A) set aside the matter to the AO for redoing the issue in accordance with the law. The ITAT directed the AO to redo this issue, taking into account their decision and giving reasonable opportunity to the appellant.

Conclusion:
The ITAT concluded that the AO erred in recasting the P&L of the AOP to include works directly taken up by the constituents. The profits from the individual portions of the project should be offered by the respective constituents for tax in their returns. Consequently, there cannot be any disallowance in the hands of the consortium for amounts receivable by the constituents on the ground that the consortium has not deducted tax at source. The appeal of the assessee was partly allowed for statistical purposes, and the revenue's appeal was also allowed for statistical purposes, with directions to the AO to redo the issues in light of the ITAT's conclusions.

---