PRINCIPAL COMMISSIONER OF INCOME TAX - 3 vs. JMC PPPL (JV.)

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TAXAP/393/2018HC GujaratGJHC24011225201830 April 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA2 pages

AI SummaryDismissed

What did the High Court hold?

The High Court agreed with the Tribunal's view. The Tribunal had confirmed the CIT(A)'s finding that despite the initial JV agreement for bidding, a subsequent supplementary agreement dated February 8, 2008, effectively made one member, JCM, solely responsible for all profits, losses, financial risks, bank guarantees, bank account operations, and statutory compliance. This meant JCM had total control over the project and bore all its risks. Therefore, the income accrued to JCM alone, and the assessee AOP was not liable for estimated income on the contract. The Court found no substantial question of law arising from the Tribunal's order.

What were the facts?

The Revenue is in appeal against an order of the Income Tax Appellate Tribunal (Tribunal) dated September 6, 2017. The assessee is JMC PPPL (JV), a joint venture constituted for project execution. A supplementary agreement dated February 8, 2008, was executed between the joint venture members. This agreement stipulated that one member, JCM, would be solely responsible for all profits and losses, bear all financial risks, provide bank guarantees, operate the bank account, and handle statutory compliance. The Tribunal, upholding the Commissioner of Income Tax (Appeals) view, concluded that JCM was essentially responsible for the project's risks and execution, with total control.

What were the issues?

1. Whether the Appellate Tribunal was right in law and on facts in holding that the CIT (Appeals) rightly concluded that income from the contract awarded by the principal could not be said to have accrued in the hands of the assessee AOP, notwithstanding the JV document executed for bidding, and consequently, the assessee is not liable for income estimated on the contract awarded? Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The Revenue contended that a subsequent supplementary agreement could not override the initial JV agreement executed at the time of bidding. They argued that the income should have accrued to the AOP (Assessee).

AI-generated summary — verify with the full judgment below

C/TAXAP/393/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 393 of 2018 ================================================================ PRINCIPAL COMMISSIONER OF INCOME TAX - 3 Versus JMC PPPL (JV.) ================================================================ Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 30/04/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 6.9.2017 raising following questions of law for our consideration. “Whether the Appellate Tribunal was right in law and on facts in holding that CIT (A) has rightly held the income from the contract awarded by the principal cannot be said to have been accrued in the hands of the assessee AOP notwithstanding JV document executed for bidding and subsequently, the assessee is not liable for income estimated on the contract awarded?” 2. Materials on record would suggest that the consortium of joint venture of two entities was constituted for execution of a project. A supplementary agreement dated 8.2.2008 between the two joint venture members was executed in which JCM, one of the members of the joint venture, was responsible for all the Page 1 of 2

C/TAXAP/393/2018 ORDER loss and profits. It was this JCM alone who had taken over the financial rewards and risks. The bank guarantee would be provided by JCM alone. The bank account would also be operated by JCM alone. JCM would be responsible for compliance of all statutory requirements. It was under these circumstances that the Tribunal came to the conclusion that only one member of the joint venture was essentially responsible for the risks and for execution of the work with total control over the project. The Tribunal, therefore, confirmed the view of CIT (Appeals) and rejected the revenue's contention that such further agreement could not have overridden the initial agreement document executed at the time of bidding for the contract. We are broadly in agreement with the view of the Tribunal. No question of law arises. Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) R.S. MALEK Page 2 of 2

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