AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (9) TMI 1239
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.... by overriding title? 2. Whether the impugned order of the Income Tax Appellate Tribunal is unreasoned, arbitrary and, non-speaking order, as such, the addition sustained of Rs. 12,09,55,137/- is not validly sustainable in law? 3. Whether on the facts and, circumstances of the case and, on true construction of the statutory provisions contained in section 40(a)(ia) of the Income Tax Act, 1961 the Income Tax Appellate Tribunal has erred in holding that payments of Rs. 12,09,55,137/- to the joint ventures represented expenditure of the assessee which was not allowable as deduction from the alleged income of the appellant in view of the provisions of Section 40(a)(ia) of Income Tax Act, 1961?" 2. Facts leading to filing of this appeal briefly stated are that two separate and independent companies incorporated under the Companies Act, 1956 namely M/s TRG Industries (P) Ltd and M/s Soma Enterprises Ltd entered in two separate joint venture agreements dated 23.07.2002 and 12.09.2002 for formation of the appellant, namely, M/s Soma TRG Joint Venture with solitary objective of submission of two tenders for construction of two tunnels of Northern Railway on the Katra-Reasi Section of Udh....
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....he two joint venture for construction of Tunnel No.10 and Tunnel Nos. 8 and 9, respectively. The appellant being an association of persons furnished a return of income on 29.11.2004 and declared nil income for the Assessment Year 2004-2005. The aforesaid income of return was accepted by the revenue under Section 143(1) of the Act. The assessee in the Assessment Year also have allocated the receipt and the assessing officer did not disallow the payment made of the same allocated/distributed receipts and thus accepted that the amount allocated could not be disallowed under Section 40(a)(ia) of the IT Act. 5. For the Assessment Year 2005-2006, the appellant furnished a return of income on 02.03.2005 declared nil income. Along with return of income, the assessee also furnished a balance sheet, receipt and payment account and not income and expenditure account as also two certificates of TDS showing that northern railways had deducted tax at source on Rs. 12,43,257 and of Rs. 11,17,192/- in respect of aggregate payments made of Rs. 2,92,02,742/- and Rs. 5,31,99,678/-, respectively. The assessing officer framed assessment under Section 143(3) of the Act by an order dated 28.12.2007 wher....
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....d that the order passed by the tribunal is non speaking order and is vitiated in law. It is further submitted that joint venture agreement was merely entered into by two joint venturers namely M/s Soma Enterprises Ltd and M/s TRG Industries (P) Ltd, are two limited companies only for the limited purpose of participating in the tender floated by northern railways and not to execute the same. It is also argued that no income accrued to the appellant as the contract was executed severally and independently and the assessee who have executed the contract have declared the income which has been duly assessed to tax. Thus, there is diversion of income at source. It is also urged that no income accrues on mere receipt of the amount and appellant was merely a conduit and as such no income could have been brought to tax in the hands of appellant as no activity, no business and no accrual of income had taken place. It is further submitted that there is no contract between the joint venture and joint venturers and since there is only a mutual agreement, therefore, the provisions of Section 194C(2) of the Act is not applicable. It is also argued that with the insertion of second proviso by Fin....
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.... two separate and independent limited companies incorporated under the provisions of Companies Act namely M/s TRG Industries (P) Ltd and M/s Soma Enterprises Ltd entered into two separate joint venturers agreement dated 23.07.2002 and 12.09.2002 for formation of the appellant namely M/s Soma TRG Joint Venture. The relevant extract of the agreement dated 23.07.2002 reads as under: 1. The parites agree to submit a joint tender for the said "Work" as SOMA -T.R.G. JOINT VENTURE. ........ 5. SOMA shall be the lead party of the joint venture, SOMA and the TRG shall jointly have and exercise the Authority to incur liabilities on behalf of this joint venture under the direction, of the APEX COORDINATING BOARD. Mr. T R Gupta, Chairman and Managing Director, TRG Industries (P) Ltd shall be authorized signatory on behalf of the joint venture to sign the tender and deal with the employers. 9. If the joint venture is awarded the work, the parties shall enter into a more detailed joint venture agreement as may be acceptable to the employer. 10. This joint venture agreement shall cease to be in force in any of the following events: (i) The joint venture is not awarded the work; (ii) ....
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....of income by overriding title, the first and foremost condition to be satisfied is the nature of assessee"s obligation, whether by the obligation, the income is diverted before it reaches the assessee, or whether the income is required to be applied to discharge an obligation after such income reaches the assessee. In the instant case, there is diversion of income at the source itself. Therefore, the instant case is diversion of income by overriding title. The receipt of amount of Rs. 12,09,55,137/- could not be treated as income of the assessee and it was the case of diversion of income by overriding title. Accordingly, the first substantial question of law is answered in favour of the appellant. 13. 2nd Substantial Question of Law: So far as the second substantial question of law is concerned, from the perusal of the order passed by the Tribunal, the same cannot be said to be unreasoned, arbitrary or non speaking. From the close scrutiny of the order passed by the Tribunal, it is evident that it has perused the relevant records and has gone through the written submissions which were filed on behalf of the assessee. Therefore, it cannot be said that order passed by the Tribunal ....