AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (5) TMI 636
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....ssee herein is a "Joint venture" formed by a company and a proprietary concern. M/s UAN Raju Constructions Ltd. (herein after "UANRCL) is the company registered under the Companies Act and M/s Vijay Nirman Company (herein after "VNC") is the proprietary concern. The name of the proprietor was not are available on record. M/s UANRCL is in the business of design, engineering and construction with specialization in Highways and Bridges. Similarly M/s VNC is in the business of Engineering and Contracting with specialization in Road and Highway Construction. The joint venture was formed in order to combine their respective individual resources of experience, know how, labour, finance, plant and equipment, since it would enable to participate in the tender process which would ultimately help in getting major contract works. The name of the Joint Venture has been coined as "U.A.N. Raju Construction - Vijay Nirman (JV)". The agreement was entered into on 20-10-2003 with the title "Joint Venture Partners Agreement". The members of the Joint venture were called as "Joint Venturers". The Joint venture obtained following contract work from M/s Konkan Railway Corporation and the same is also me....
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....OP has not disclosed such sub-contract commission rather it distributed the entire contract receipts". During the assessment proceedings relating to the A.Y 2005-06, the AO also referred the matter to the Addl. CIT, Range-1, Visakhapatnam seeking his directions u/s 144A of the Act. The Addl. CIT agreed with the view of the AO that there existed Main contractor - sub Contractor relationship between the joint venture-AOP and its members. He further observed that the sub-contract commission is normally at 2% of the contract receipts. The Addl. CIT noticed that the partners of the joint venture had shown a profit in the range of 13.3% to 18.71% in their respective hands. Before the Addl. CIT the assessee expressed its consent to adopt a rate of 0.5% towards sub contract commission. Hence, on a totality of facts, the Addl. CIT directed the AO to assess income in the hands of the AOP at 1% of the contract receipts. Accordingly, the AO computed the income of the AOP by treating 1% of the gross receipts as the income of the assessee-AOP by way of sub contract commission in both the years under consideration. The assessee-AOP had deducted TDS @ 1% u/s 194C(2) of the Act on major portion of....
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....assessment as an AoP or BoI is not possible especially where the individual partners had offered their share income of such joint venture in their individual hands and paid tax thereon. It observed that a joint venture is not unusual form of business or a distinct identity, so as to assessable as AoP/BoI in every case of joint venture. In the instant case, the ratio of the above decision clearly applies as the constituent members had offered the income on the entire contractual receipts in their individual hands. No contractual receipts have gone untaxed. The Hon'ble Madras High Court in the case of Commissioner of Income Tax v. Nayan Engineering Works reported in 248 ITR, 596 observed that it was not necessary to disturb the assessments in the hands of the members. This was a case where the Department attempted to tax the AoP disregarding the fact that share of profits had already been offered to tax by the members and the same have already been assessed long time ago". 5. The Ld CIT(A) also deleted the addition made under Sec.40(a)(ia) of the Act in the A.Y. 2005-06 with the following observations. "Coming to the second ground of appeal, it may be noted that already a finding h....
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....he Joint Venture has come into existence only to procure and win the contracts and since the contracts were allocated between the members and further they were executed separately by each of the members, no income can be said to have arisen in the hands of the assessee-AOP. 7. In our country, the implementation of infrastructure projects is taking place on a massive scale. In this connection, global tenders are invited. Hence two or more business enterprises are joining hands by forming a consortium of Joint Venture in order to get qualified for participating in tender process. They regulate themselves, by entering into an agreement, the methodology to be adopted for executing the contract obtained. Before going into the main issues, we feel that it is imperative to discuss about the status and legal position of "Joint Venture" vis-a-vis Income tax Act. The Joint Ventures are not be governed by the provisions of the "Indian Partnership Act, 1932. It is also a known fact that there is no statute which governs a Joint Venture. Hence the issue regarding the relationship between the members and also between the members and the Joint venture has to be decided on the basis of the terms ....
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....n the general scope of the enterprise. Joint ventures are, in general, governed by the same rules as partnerships. The relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties, and liabilities are generally tested by rules which are closely analogous to and substantially the same, if not exactly the same as those which govern partnerships. Since the legal consequences of a joint venture are equivalent to those of a partnership, the courts freely apply partnership law to joint ventures when appropriate. In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships." "A joint venture is to be distinguished from a relationship of independent contractor, the latter being one who, exercising an independent employment, contracts to do work according to his own methods and without being subject to the control of his employer exce....
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....ination of two or more persons wherein some specific venture for profit is jointly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for profit. (d) that each joint venturer must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise. (e) Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling in determining whether a joint venture exists, are: (1) joint ownership and control of property; (2) sharing of expenses, profits and losses, and having and exercising some voice in determining division of net earnings; (3) community of control over, and active participation in, management and direction of business enterprise; (4) intention of parties, express or implied; and (5) fixing of salaries by joint agreement." 10. As stated earlier, in order to participate in the global tender process, some of the foreign companies have established joint ventures with the Indian Companies. With regard to the issue of the assessab....
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....ot. Since the term "Association of Persons" (AOP) was not defined in the Act, the Courts have interpreted to mean that it is an association established to produce income. Hence the Finance Act 2002 has inserted an "Explanation" to section 2(31), according to which, an AOP shall be deemed to be a person, whether or not such AOP was formed or established with the object of deriving income, profits or gains. However, in the instant case, there is no dispute with regard to the assessability of the "Joint Venture" per se. Both the assessee and the department have taken the stand that the "Joint Venture" is assessable in the status of "Association of Person". However, the issue is whether the AO is right in treating the Joint Venture-AOP as the main contractor and its members as the sub-contractors, thereby estimating the income which was not earned by the Joint Venture. 11. On the basis of the understanding of the concept of "Joint Venture", let us consider the facts in the present case. The amended clause 3 reads as under: "(a) The joint venturers shall subject to the provisions hereinafter contained, be entitled to share the work as mutually agreed on item wise, depending on the wor....