TaxTMI 
TaxTMI 
2016 (9) TMI 1675
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....sway Pvt. Ltd) under the name of "grant", ignoring the fact that the said payment was to be fully applied and utilized towards the construction of the Project Highway and, hence, it was in the nature of contract money payment." 3. Briefly stated the facts are that a TDS verification was carried out on 10.02.2011. During the course of verification, it was noticed that the assessee has not made TDS as per section 194C of the Income Tax Act, 1961 (hereinafter referred to as the Act) which appeared to be applicable in each of the concessionaire, namely, M/s. Jaipur Mahua tollway Pvt. Ltd., M/s. Madhucon Agra Jaipur Expressways Ltd. and M/s. Oriental Pathways (AGRA) Pvt. Ltd. The AO after considering the terms of the Agreement concluded that the assessee was required to deduct tax, each of the conditions precedent to the application of section 194C have been met and all ingredients required for the application of section 194C are present in the instant case. Therefore, he held that assessee deductor has failed to deduct and deposit TDS on the payment of Contract Money to concessionaires i.e. M/s. GVK, M/s. Madhucon and M/s. Jaipur Mahua Tollways Pvt. Ltd. to the extent of Rs. 211 cro....
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....utions made by the NHAI of Rs. 211 crores in A.Y. 2004-05, 2005-06 & 2006-07 towards its shares in respect of the cost of the project. Such contributions have been nomenclature as 'grant' to meet out the capital cost of the project and treated the same as part of the share holders funds or equity support from the above specific intention of the appellant as declared in the BOT agreements. It is quite clear that the above contributions were not contractual payments to a contractor but amount to capital participation by a member of joint venture towards its equity support as such. Obviously, it is felt that the provisions of section 194C do not apply to such capital contribution/equity participation made by an assessee, under such circumstances. The ld. Counsel reiterated that the principal NHAI and the concessionaires were required to be contributed the costs of the project and also they are eligible to share the revenue generated out of such project and the entire inflow and outflow of revenue are being managed through a common escrow account. Thus, in view of such financial arrangement, their relationship is found more of like partners/joint owners of a project than a contractor a....
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....oncessionaires on such assets while treating them beneficial ownership in the project as such. He submitted that the AO has erred in not appreciating Escrow Accounting System, as specified in such agreements. By doing so, the AO has given a different meaning or connotation to such phrases than the obvious and literal meaning of such aspects. He submitted that the 'cardinal rule of interpretation of law suggest that when the meaning of the words/phrase used in a statute is clear and unambiguous, then such words to be given its plain and grammatical meaning and effect of the law has to be given in such context only. In simpler term, when there is no ambiguity in the language of the statute, then such provision cannot be interpreted in different manner to arrive at a particular conclusion as such. In support of this contention, the ld. Counsel placed reliance on the judgments of the Hon'ble Supreme Court reported in 306 ITR 277 (SC) and 266 ITR 521 (SC). The ld. Counsel then drew our attention to various articles of the agreement and vehemently argued that the AO was not justified in holding the assessee in default for non deduction of tax under section 201(1) and also charged interes....
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....f such value is mentioned separately in the invoice ; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed thirty thousand rupees : Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds seventy-five thousand rupees, the person responsible for paying such sums referred to in subsection (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing....
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....de- (a) advertising ; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting ; (c) carriage of goods or passengers by any mode of transport other than by railways ; (d) catering ; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer." A bare reading of above section, makes it explicit that any person responsible being the contractor for carrying out any work in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, whichever is earlier, deduct an amount equal to two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family of such sum as income-tax for A.Y. ....
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....h. Thus the provisions of Sec. 194C wouldn't attract on payment made towards such venture. ii. Nature of contribution of NHAI: As per the 'Clause XXIII' of the agreement with M/s. GVK, the total contributions made by the NHAI of Rs. 211 crores, in A.Y. 2004-05, 2005-06 & 2006- 07, towards its shares, i.r.o., the cost of the project. Such contributions have been nomenclature as 'grant' to meet out the capital cost of the project and treated the same as part of the share holder funds or equity support. From the above specific intention of the appellant, as declared in the BOT agreements itself, it is quite clear that the above contributions were not a contractual payments to a contractor but amount to capital participation by a members of joint venture towards its equity support as such. Obviously, it is felt that the provisions of Sec. 194C do not apply to such capital contribution/equity participation made by an assessee, under such circumstances. iii. Intra-Parties relationship : - To ascertain the actual nature and characteristics of the relationship in between the NHAI and concessionaires, the relevant clauses of the agreement have been found quite relevant in ....
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....so. On this ground, also the equity contribution made by the appellant is considered as contractual payment. v. Ownership of the Project :- Normally, it can be seen that in the works-contract agreement, the ownership of the project/assets lies with the principal only and the contractor is not having any sort of rights, be of real ownership or beneficial in nature, in this regard. However, it is found that as per 'Clause XXXVIII' of the concession agreement, till the specified time period therein, the BOT concessionaires would have the ownership rights of the project and its assets for all practical and legal purposes. Thus the concessionaires are not only executors of the project, but they also assumed status of the co-owners of the same. The above perception is also found support from the subsequent decision of the Hon'ble ITAT Jaipur in the concessionaire i.e. M/s. GVK case, wherein they have also upheld the claim of depreciation on such assets by the concessionaire, while treating them having beneficial ownership in the project as such. Moreover, as discussed above, as per 'Clause XXXIII' of the agreement, the ownership of such project is to be transferred to the NHAI, ....
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.... were given their literal and ordinary meaning and context, then obviously such payments could not be considered as a contractual payment and therefore, the same would not fall in the net of Sec. 194C of the Act. Accordingly, it is perceived that the AO was not justified in giving a different meaning and context to such crucial phrases/issues like 'Grants, Equity participant, Escrow Accounting System' etc., in other way then what they stand for in normal circumstances, apparently to arrive at a preconceived conclusion. vii) Misc. Aspects :- a) As per the 'Definition Clauses' of the 'concession agreements', the definition of contractor has been given "as contractor or contractors, if any, which whom the concessionaires has entered into all or any of the project agreements". This also shows that the position/status of the concessionaires in the current projects are of like co-owners, who can appoint the contractor to accomplish any part of the projects and not the status of the contractor it self, as perceived by the AO. b) From the details submissions of the ld. AR, it is also felt that he had reasonably and successfully addressed all the issues, controver....