THE COMMISSIONER OF INCOME TAX CITY-21 MUMBAI vs. M/S. RAY BEL CONSORTIUM

ITXA639.09

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 639 OF 2009 The Commissioner of Income Tax, ] City-21, C-11, 6th floor, B.K.C., ] Bandra (East), Mumbai 400 051 ] ... Appellant Vs M/s. Ray Bel Consortium, ] Post I.I.T., Powai, Andheri (East), ] Mumbai. ] ... Respondent Mr. Abhay Ahuja with Ms. Suchitra Kamble for the Appellant. Ms. Aasifa Khan i/b Ms. Aasifa Khan, S.R. Mody and A.J. Patil for the Respondent. CORAM : S.J. VAZIFDAR, & M.S. SANKLECHA, JJ. MONDAY, 25TH JUNE, 2012 ORAL JUDGMENT : [Per S.J. Vazifdar, J.] 1. This is an appeal under section 260A of the Income Tax Act, 1961, against the order of the Income-tax Appellate Tribunal (Tribunal), dismissing the appeal against the order of the Commissioner of Income Tax (Appeals). SRP                                                                                                                                                           1/6 CNR No : HCBM020267492006 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:25

ITXA639.09 2. The appellant invites the Court to consider the following questions of law : (a) Whether on the facts and circumstances of the case and in law, the Assessee firm is a genuine firm as held by the Hon'ble Tribunal or has the status of Association of Persons u/s 2(31) of Income Tax Act, 1961? (b) Whether on the facts and circumstances of the case and in law the Hon'ble Tribunal was right in holding that the provisions of section 40A(2)(b) were wrongly invoked by the Assessing Officer without appreciating the fact that the entire profit was passed on to the partners by the firm and consequential loss shown in the hands of the firm clearly established that the payments made to the partner for the services rendered by them were excessive and unreasonable? SRP                                                                                                                                                           2/6 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:25

ITXA639.09 3. The respondent-assessee filed a return of income for the assessment year 1998-99 declaring a loss of Rs.73,732/-. The return was filed as a firm constituted on the terms and conditions contained in a deed of partnership dated 23rd July, 1997. A Consortium Agreement dated 20th January, 1997, was entered into between Ray Constructions Limited, Bhageeratha Engineering Limited and a firm trading in the name and style of Ray Constructions. The consortium adopted the name Ray-Bel Consortium. The consortium was formed for the purpose of preparing and submitting a tender invited by the Maharashtra Industrial Development Corporation (MIDC) in respect of certain construction work. The Consortium Agreement specified the duties and liabilities of each of its members for the performance of the contract if awarded by the MIDC. The division of the scope of work among the members in respect of the work if awarded by the MIDC was also defined in the agreement. Clause 9.4 provided for the termination of the agreement upon the completion of the contract if awarded to the consortium by MIDC. SRP                                                                                                                                                           3/6 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:25

ITXA639.09 4. MIDC awarded the contract to the consortium. MIDC, however, by a letter dated 5th July, 1997, expressly mentioned that the award was subject to the consortium being converted into a partnership firm as approved by MIDC's legal department. Accordingly, the respondent-firm was constituted as per the said partnership deed dated 23rd July, 1997. The respondent's partners were - the said Bhageeratha Engineering Limited, Ray Constructions Limited and the four individuals who were the partners of Ray Constructions. 5. The return was processed under section 143(1)(a) and a refund of Rs.96,13,075/- inclusive of interest was determined to be payable. The refund was, however, withheld under section 241 with the prior approval of the Commissioner of Income Tax till completion of the regular assessment under section 143(3). 6. The appellant contended that the respondent was not a genuine firm as the revenue generated by the respondent was passed on to the partners such that no profit accrued to the respondents. The appellant also contended that the payment of the entire amount realized under SRP                                                                                                                                                           4/6 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:25

ITXA639.09 the contract with MIDC to the partners was excessive and unreasonable and, therefore, liable to be disallowed under section 40A(2). 7. The Commissioner of Income Tax (Appeals) and the Tribunal held that the payments could not be deemed to be excessive or unreasonable. The respondents were paid the amount by MIDC. It was rightly not even suggested that the payments by MIDC to the respondent were either excessive or unreasonable. Accordingly, both the appellate authorities held that the amount paid by the respondent to the partners thereof pursuant to sub-contracts entered into between the respondent and the partners could not be said to be excessive or unreasonable. 8. In the facts of the present case, we are not inclined to interfere with the concurrent finding of the appellate authorities as we find that the respondent had not contrived a devise to evade or even avoid tax. The original intention itself was for the consortium members to bid for and perform the contract and to divide the profits arising therefrom SRP                                                                                                                                                           5/6 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:25

ITXA639.09 among themselves in accordance with the Consortium Agreement. The members of the consortium constituted the firm, not as a devise to evade or even avoid tax, but upon the insistence of the MIDC. Thus, in the peculiar facts of this case, the impugned order warrants no interference. No question of law, therefore, arises. 9. For the same reason, a substantial question of law does not arise in respect of the appellant's contention that the respondent is not a genuine firm. As rightly noted by the Tribunal, the respondent satisfies the requisite tests of a partnership firm constituted in accordance with law. As noted above, the firm was not constituted with any ulterior motive. It was not constituted as a devise to avoid tax. 10. In the circumstances, a substantial question of law does not arise in this appeal. The appeal is, therefore, dismissed. There shall, however, be no order as to costs. M.S. SANKLECHA, J. S.J. VAZIFDAR, J. SRP                                                                                                                                                           6/6 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:25 Powered by TCPDF (www.tcpdf.org)