THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. M/S. JMC ATEPL (JV)

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TAXAP/460/2018HC GujaratGJHC24020599201807 May 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA2 pages

AI SummaryDismissed

What did the High Court hold?

The High Court, in agreement with the ITAT's view, dismissed the Revenue's appeal. The Tribunal had concluded that a supplementary agreement dated February 8, 2008, between the JV members, clearly stipulated that one member, JCM, was solely responsible for all losses and profits, financial rewards and risks, bank guarantees, bank account operations, and statutory compliance. This meant JCM alone had total control over the project and bore all the risks. Consequently, the Tribunal held that only one member of the JV was essentially responsible for the risks and execution of the work. The High Court found no question of law arising from the ITAT's decision, which upheld the CIT(A)'s view that income did not accrue to the assessee AOP in light of this subsequent agreement. The operative direction was the dismissal of the Revenue's appeal.

What were the facts?

The Revenue is in appeal against the order of the Income Tax Appellate Tribunal (ITAT) dated September 26, 2017. The appeal challenges the deletion of an addition made by the Assessing Officer (AO) where net profit was estimated at Rs. 4,10,37,000, representing 11.59% of gross receipts. The core of the dispute revolves around whether income from a contract awarded to a joint venture (JV) accrued in the hands of the assessee, an AOP, despite a JV document executed for bidding. The ITAT's decision was based on a supplementary agreement dated February 8, 2008, which stipulated that one member of the JV, JCM, was solely responsible for all losses and profits, financial rewards and risks, bank guarantees, bank account operations, and compliance with statutory requirements.

What were the issues?

1. Whether the Appellate Tribunal was right in law and on facts in upholding the decision of the CIT(A) and thereby deleting the addition made by the AO by estimating the net profit at Rs. 4,10,37,000 being 11.59% of gross receipts on account of estimation of net profit? (Question of law and fact) 2. Whether the Appellate Tribunal was right in law and on facts in holding that the CIT(A) was right in holding that the income from the contract awarded by the principal cannot be said to have been accrued in the hands of the assessee AOP notwithstanding the JV document executed for bidding, and thus, the assessee was not liable for income estimated on the contract awarded? (Question of law and fact) Assessee's contentions: Not explicitly recorded, but the ITAT's decision implies that the supplementary agreement effectively allocated all profits and risks to one JV member (JCM), thus income did not accrue to the assessee AOP. Revenue's contentions: The Revenue argued that the supplementary agreement could not override the initial JV document executed at the time of bidding, and therefore, the income should be considered as accrued to the assessee AOP.

AI-generated summary — verify with the full judgment below

C/TAXAP/460/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 460 of 2018 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 Versus M/S. JMC ATEPL (JV) ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 07/05/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 26.09.2017 raising following questions for our consideration: “[A] Whether the Appellate Tribunal was right in law and on facts in upholding the decision of the CIT(A) and thereby deleting the addition made by the A.O. by estimating the net profit at Rs.4,10,37,000/ being 11.59% of gross receipts on account of estimation of net profit? [B] Whether the Appellate Tribunal was right in law and on facts in holding that CIT(A) was right in holding that 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 thus, the assessee was not liable for income estimated on the contract awarded ?” 2. The perusal of the impugned order of the Tribunal would show that similar question had come up for its consideration. Such judgment of the Tribunal Page 1 of 2

C/TAXAP/460/2018 ORDER was considered by this Court in Tax Appeal No.393 of 2018. Revenue's appeal was dismissed in following terms: “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 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.” 3. In the result, this Tax Appeal is also dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH Page 2 of 2

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