2025 (2) TMI 1593 - AT - Income Tax

TDS Credit Allocation: constituents who offer JV income may claim TDS credit despite certificates being in the JV's name.

Where a joint venture is formed solely to secure contracts and constituent members independently perform portions and declare corresponding income, ... Treatment of payments by a joint venture to its constituents as sub contracts for TDS purposes - allocation of tax deducted at source credit to constituents where income is assessed in their hands Treatment of payments by a joint venture to its constituents as sub contracts for TDS purposes - Whether payments made by the JV to its constituent members amounted to sub contracts attracting withholding under section 194C and disallowance under section 40(a)(ia), or whether those receipts were wholly passed to constituents so as not to attract TDS liability in the hands of the JV. - HELD THAT: - The Tribunal followed its earlier coordinate-bench decisions in the assessee's own cases. It held that where a JV is formed solely for obtaining a contract and specific portions of the work are executed independently by constituent members, the profits from those portions are to be assessed in the hands of the constituents and the JV does not, in substance, give sub contracts to its constituents. The Tribunal nevertheless emphasised that this factual conclusion depends upon verification of records: if the entire contract receipts received by the JV were passed on to the constituents without retention of any profit by the JV, the payments would not be in the nature of sub contracts attracting section 194C and no disallowance under section 40(a)(ia) could be sustained. The Tribunal therefore directed the Assessing Officer to verify bank records and related material to ascertain whether any profit was retained by the JV; the deletion of the addition is contingent upon that verification establishing that entire receipts were passed on to constituents. [Paras 7, 8] If verification shows the JV passed the entire contract receipts to its constituents without retaining any profit, the payments are not sub contracts for TDS purposes and the disallowance under section 40(a)(ia) shall be deleted; AO to verify and act accordingly. Allocation of tax deducted at source credit to constituents where income is assessed in their hands - Whether credit for TDS, though evidenced by certificates issued in the name of the JV, must be given to the individual constituents who have offered and been assessed on the income corresponding to the work they executed. - HELD THAT: - Relying on earlier decisions of the Tribunal in the assessee's own cases, the Bench held that when constituents have offered income from their respective portions and such income has been accepted/assessed in their hands, the benefit of TDS should be available to those constituents even if the tax deduction certificates were issued in the name of the JV. The CIT(A)'s direction to the AO to withdraw TDS credit allowed to the JV and to grant credit to the constituents was held to be correct and was affirmed. [Paras 15] TDS credit shall be given to the respective constituents who have offered and been assessed on the income, notwithstanding that the TDS certificate is in the name of the JV; AO to give effect to this direction. Final Conclusion: The Tribunal dismissed the revenue's appeals and, on cross appeals, dismissed the assessee's challenge to the CIT(A)'s direction on TDS credit. The Tribunal held (i) the nature of payments by the JV to constituents requires factual verification; if entire receipts were passed on without retention of profit, such payments are not subject to section 194C and the corresponding disallowance under section 40(a)(ia) must be deleted (AO to verify), and (ii) TDS credit must be allowed to the constituents who have offered and been assessed on the relevant income even though certificates were in the JV's name. Issues: (i) Whether payments made by a joint venture to its constituent members are in the nature of sub-contracts attracting withholding under Section 194C of the Income-tax Act, 1961; (ii) Whether tax deducted at source (TDS) on contract receipts for a joint venture, where constituents have offered their respective shares of income, should be credited to the constituent members rather than to the joint venture (Section 199 of the Income-tax Act, 1961).Issue (i): Whether payments made by the JV to its constituents constitute sub-contracts attracting Section 194C of the Income-tax Act, 1961.Analysis: The Tribunal examined prior decisions of the same bench concerning the assessee's earlier assessment years and the factual matrix that a JV was formed solely for obtaining the contract while the constituent members executed specific portions independently. The Bench noted that the legal consequence depends on whether the JV retained any portion of profit or whether the entire contract receipts were passed on to the constituents; factual verification (including bank records) is necessary to determine whether payments are in substance subcontract payments attracting s.194C or simply pass-through receipts.Conclusion: If on verification the Assessing Officer finds that the entire contract receipts were passed on to the constituents without retaining any profit, the payments will not be treated as sub-contracts under Section 194C and no disallowance under Section 40(a)(ia) shall be made in the hands of the JV. The revenue's contention is rejected subject to factual verification by the AO.Issue (ii): Whether TDS credit for amounts deducted on contract receipts should be allowed to the constituent members when the constituents have offered their respective shares of income, despite TDS certificates being in the name of the JV.Analysis: The Tribunal relied on its earlier decisions holding that where a JV/consortium is formed solely to obtain contracts and constituents execute specific portions and offer the income in their hands, TDS made by the contractee should be allowed as credit to the constituents who have offered the income. The CIT(A) had directed the AO to withdraw TDS credit from the JV and allow credit to the constituents; the Tribunal found this direction to be consistent with prior rulings and applicable to the facts.Conclusion: The direction that TDS credit be given to the constituent members (who have offered the income) notwithstanding that the TDS certificate is in the name of the JV is upheld. The assessee's challenge to that direction is dismissed.Final Conclusion: The appeals of the revenue challenging the non-application of Section 194C and the consequent additions are dismissed subject to the Assessing Officer's factual verification of whether the JV retained any profit; the assessee's appeals challenging the direction to allocate TDS credit to the constituents are dismissed, resulting in no change to the CIT(A)'s direction on TDS allocation.Ratio Decidendi: Where a joint venture is formed solely for obtaining contracts and the constituent members independently execute specific portions and offer corresponding income in their hands, receipts passed entirely to constituents without retention of profit do not constitute subcontract payments under Section 194C, and TDS credit for amounts deducted on such receipts is to be allowed to the constituents who have offered the income even if the TDS certificate is in the name of the JV.