TaxTMI 
TaxTMI 
2011 (7) TMI 810
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....of the JV, the assessee was to execute 40% of the work in Navayuga, the other constituent partner was to execute 60% of the works awarded. The assessee was therefore to execute work worth Rs. 265.80 crores, out of which works valued at Rs. 18.12 crores were executed during the A.Y. 2006-07. Both the constituent partners of the JV raised bills on the JV for quantity of work as certified by technical consultant appointed by the State Government. The JV in turn raised a consolidated bill on the Irrigation Department of Andhra Pradesh Government without making any additions. The Department makes the payments to the JV, which shares the payment in accordance with the bills raised by each. The JV files its Income Tax returns separately but does not claim any deduction u/s 80IA(4) therein. 3. The assessee had also formed a consortium along with one M/s. Corporation Transtroy, OJSC, Moscow, with the understanding that the assessee would execute 100% of the works which were awarded to the consortium by KSHIP, a body of the Government of Karnataka. During the year assessee executed works valued worth Rs. 31.09 crores. The assessee claimed deduction u/s 80IA(4) on the profits derived out of ....
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....tention to the order of the Tribunal in the case of ITO v. UAN Raju Constructions (Visakhapatnam) of this bench with the submissions that the concept of joint venture was examined by the Tribunal in this case and the Tribunal has given a specific finding that joint venture cannot be held to be the main contractors and the members of the same are the sub-contractors. Reasons for holding so were given that as per the concept of a joint venture each joint venturer shall stand in relation to a principal as well as an agent of others. Once it is held that joint venturer or the constituent of the ventures cannot be called to be a sub-contractor of the joint venture, the constituents of joint venturer are eligible for all benefits or deductions or exemptions which are available to the joint venture for the reasons that the work awarded was executed by the constituents of the joint venture and not by the joint venture itself. In fact joint venture is an artificial body in whose name the contract was awarded. A reliance was also placed upon the judgment of the Bombay High Court in the case of CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323. During the course of hearing, the Ld. Counsel ....
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....also agreed that none of the party shall assign its rights and obligations to any other party without written consent of other party. From a careful perusal of this joint venture agreement and the consortium agreement, it is evidently clear that the joint venture and the consortium was formed only with an object to bid contract. Once the project or contract is awarded to the joint venture or the consortium, it is to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. In the instant case in case of a joint venture agreement, the assessee was entitled to execute the 40% of total work awarded by the Andhra Pradesh Government to the joint venture and in case of a consortium it was agreed that the entire work is to be executed by the assessee itself. Therefore for all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture is an independent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction u/s 80IA(4) of the Act. T....
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....nerally fall in the category of "Association of Persons" (AOP) under the Income tax Act, yet their assessability in the status of "AOP" was not free from doubt and we notice that the authorities have decided this issue on the basis of facts and circumstances of each case. (8) The Hon'ble Supreme Court has made a detailed discussion on the concept of "Joint Venture" in the case of Fazir Chand Gulati v. Uppal Agencies Private Ltd. (2008) 10 SCC 345. The relevant observations are extracted below:- "17. This Court had occasion to consider the nature of 'joint-venture' in New Horizons Ltd. v. Union of India [1995 (1) SCC 478]. This Court held: "The expression "joint venture" is more frequently used in the United States. It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share bo....
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....s a special combination of two or more persons where, in some specific venture, a profit is jointly sought without any actual partnership or corporate designation." [Emphasis supplied] To the same effect is the definition in Corpus Juris Secundum (Vol. 48A pages 314-315): "Joint venture," a term used interchangeably and synonymous with joint adventure', or coventure, has been defined as a special combination 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 or a special combination of persons undertaking jointly some specific adventure for profit, for which purpose they combine their property, money, effects, skill, and knowledge............. 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, an....
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....ached the Authority for Advance Ruling (AAR). We discuss below the decision rendered by AAR in brief. (a) Van Oord ACZ BV (248 ITR 399): In this case the parties therein had specifically provided in the agreement that each party will bear its own loss and retain the profits separately. There was also specific declaration that it was not the intention to create a joint venture to carry on business in common. The parties therein had undertaken separate scope of works according to their respective technical skills. There was no control and connection between the work done by each of the parties. Thus it was noticed that there was no intention to carry out any business in common. Under these factual circumstances, the AAR held that the consortium cannot be treated as Association of Persons under the Income Tax Act. It is pertinent to note that this decision was rendered prior to 1.4.2002, i.e. prior to the insertion of the Explanation to section 2(31). (b) Geo Consult ZT GMBH (304 ITR 283): In this case, though the work was allotted to each of the members and each member has to bear its own costs and expenses, yet it was noticed that the agreement stated that the members will collabo....
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.... 3(a), the members of Joint Venture would share in a prescribed percentage in all profits arising out of joint venture. However, the said clause was in contradiction to the preamble of the agreement; wherein it had been stated that the members are desirous of sharing the contract amount. In view of the above, it appears that the Clause 3(a) was amended in accordance with the original intention of the members. However in clause 12 dealing with Final Accounts, we find a mention about sharing of profit or loss, but there is no mention about the proportion. However, in reality, the members have shared the work only and hence there was no profit or loss for the Joint Venture. 11.1 Further, clause 9 of the agreement which deals with the "Resources" specifically states that each joint venturer shall provide plant and equipment required for the execution of their portion of contract and such plant and machinery shall not become asset of the joint venture. Thus there is no clear provision in the Joint Venture which provide for joint execution of the project and joint realization of profit. 11.2 Clause-4 deals with the relationship between the members of the joint ventures. Sub-clauses (c)....
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....n found to be wrong, then the question of estimation of income by way of Sub-contract commission does not arise. So also the question of deduction of tax u/s 194C(2) of the Act and the disallowance u/s 40(a)(ia) does not arise. In view of the foregoing discussions, we do not find any infirmity in the decision reached by the Ld CIT(A)." 10. There is no dispute with regard to the nature of business or the activities undertaken by the assessees. The dispute is only with regard to the identity of a person to whom this benefit of deduction u/s 80IA(4) can be allowed. We have carefully perused the provisions of section 80IA(4) and we find 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. One of the condition is that the enterprise should be owned by a company registered in India or by a consortium of such companies or any other body established or constituted under any centre or any state Act. The other condition is that it has entered into an agreement with the Central Government or a Stat....
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....nterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. Explanation.-For the purposes of this clause, "infrastructure facility" means- (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway inland port or navigational channel in the sea; (ii) any undertaking which has started or starts providing ....