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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ]
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : KOLKATA [Before Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ] I.T.A Nos. 2355,2356,2357/Kol/2013 Assessment Years : 2006-07,2007-08&2008-09 BBJ Gammon Joint Venture -vs- ITO, Ward-34(1), Kolkata [PAN: AAAAB 4903 C] (Appellant) (Respondent)
I.T.A Nos. 1959,1960 & 1961/Kol/2013 Assessment Years : 2006-07,2007-08&2008-09 ITO, Ward-34(1), Kolkata -vs- BBJ Gammon Joint Venture [PAN: AAAAB 4903 C] (Appellant) (Respondent)
I.T.A No. 739/Kol/2014 Assessment Years : 2009-10 ITO, Ward-34(1), Kolkata -vs- BBJ Gammon Joint Venture [PAN: AAAAB 4903 C] (Appellant) (Respondent)
For the Assessee : Shri J.P. Khaitan, Sr. Advocate Shri Pratyush Jhunjhunwala, Advocate For the Department : Shri Md. Usman, CIT DR Shri S. Dasgupta, Addl. CIT (DR)
Date of Hearing : 27.06.2018 Date of Pronouncement : 29.06.2018
2 ITA Nos.1961,2355,1959,2357,2356&1960/Kol/2013 I.T.A. No.739/Kol/2014 M/s BBJ Gammon (JV) A.Yrs. 2006-07 to 2009-10
ORDER Per Bench:
These cross appeals of the assessee as well as Revenue for the Asst Years 2006-07, 2007-08 & 2008-09 respectively are directed against the common orders of the Learned Commissioner of Income Tax (Appeals) – XX, Kolkata [in short the ld CITA] in Appeal No. 90/CIT(A)-XX/Wd-34(1)/2008-09/Kol, 195/CIT(A)-XX/Wd-34(1)/2009- 10/Kol and 238/CIT(A)-XX/Wd-34(1)/2010-11/Kol respectively dated 18.03.2013 against the separate orders of the Learned Income Tax Officer, Ward-34(1), Kolkata [ in short the ld AO] passed under section [in short u/s] 144 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) dated 10.09.2008, 09.12.2009,28.12.2010 respectively.
The appeal of the revenue in ITA No. 739/Kol/2014 is directed against the order of the Learned Commissioner of Income Tax(Appeals)-XX, Kolkata [in short the Ld. CIT(A)] in Appeal No. 351/CIT(A)-XX/Wd-34(1)/2011-12/Kol dated 02.01.2014 against the order of the learned ITO, Ward-34(1), Kolkata [in short the ld. AO] passed u/s 143(3) of the Income Tax Act, 1961 [in short the Act] dated 27.12.2011 for the assessment year 2009-10.
As the issues involved in all these appeals are identical, the same are taken up together and disposed off by this common order for the sake of convenience.
The facts of assessment year 2006-07 are taken up for adjudication and the decision rendered thereon would apply with equal force for other assessment years involved in these appeals except with variance in figures.
3 ITA Nos.1961,2355,1959,2357,2356&1960/Kol/2013 I.T.A. No.739/Kol/2014 M/s BBJ Gammon (JV) A.Yrs. 2006-07 to 2009-10
The brief facts of these appeals are that the assessee is an unincorporated joint venture between M/s Braithwaite Burn & Jessop Construction Company Ltd, Govt. of India Undertaking (hereinafter referred to as ‘BBJ’) and M/s Gammon India Ltd. (herein after referred to as ‘GIL’) and is a public limited listed company. BBJ and GIL entered into a joint venture agreement dated 29.11.2004. Rail Vikash Nigam Limited (hereinafter referred to as “RVNL” or “the Employer”) is a special purpose vehicle created by the Ministry of Railways, Government of India. RVNL invited sealed bids from pre-qualified eligible global bidders for ‘construction of Second Bridge over river Mahanadi, Orissa in connection with Doubling of Talcher- Cuttack-Paradeep Section in Orissa, India (ADB Loan No. 1981 IND, Contract No. ADB/RAIL/IMP. PROJ/01) (hereinafter referred to as the Project).The said project was funded by a loan from Asian Development Bank. The tender floated by RVNL for the said Project laid down such eligibility criteria, relating to financial capability, technical expertise and past experience of having executed such large projects, for pre-qualification and thereafter bidding for the Project, which neither BBJ nor GIL fulfilled individually. However, as per the conditions in the said tender documents, BBJ and GIL together did fulfill the required pre-qualification eligibility criteria. Accordingly, BBJ and GIL formed a project-specific Joint Venture, by entering into a Joint Venture Agreement dated 29th November, 2004, for submitting pre-qualification bid for the said project. The assessee JV was pre-qualified by RVNL for submission of the financial bid, vide RVNL’s letter dated 15th July, 2004 addressed to the assessee. The joint Financial Bid of Rs. 121,29,05,652/- for the project submitted by the assessee JV was accepted by RVNL vide their Letter of Acceptance dated 15th March, 2005 and thereupon the Project stood awarded to the assessee JV. The assessee JV then entered into a detailed contract agreement with RVNL on 14th June, 2005 (hereinafter referred to as the contract) for execution of the said Project. The relationship between RVNL and the assessee JV is
4 ITA Nos.1961,2355,1959,2357,2356&1960/Kol/2013 I.T.A. No.739/Kol/2014 M/s BBJ Gammon (JV) A.Yrs. 2006-07 to 2009-10 that of Employer and Contractor. The JV is limited to the performance of the Contract for the purpose of achieving the execution of the contract received from RVNL.
The assessee furnished its Return of Income for the assessment year 2006-07 on 31.10.2006 declaring a Total income of Rs. NIL and claiming a refund of TDS of Rs. 67,30,202/-. The Return of Income furnished by the assessee was accompanied by Audited Financial Statements of the JV comprising of the Auditor’s report, balance sheet as at 31.03.2006, Income and Expenditure account for the year ended on 31.03.2006, Tax Audit Report in prescribed Form No. 3CA along with Statement of Particulars in the prescribed Form No. 3CD for the assessment year 2006-07, TDS certificate in original in support of its claim for credit of TDS and copy of the said Joint Venture Agreement dated 29.11.2004 (hereinafter referred to as the JVA).
The JV is limited to the performance of contract in accordance with the terms of the JV in this spirit of mutual co-operation for achieving the execution of the contract received from RVNL. The JV received contract for the construction of second bridge over river Mahanadi in Orissa for aggregate value of Rs. 121.29 crores. The contract is executed by each of the members for his share of work which is detailed in the JV agreement between the two parties. The combined bill for work done by each of the members is submitted by the JV to RVNL. RVNL remits payment in favour of the JV net off taxes which in turn is then remitted to each of the members for their share of the work executed by them. For the year ended 31.03.2006, a total combined bill of Rs. 14.50 crores was raised on the client on the basis of work done by each of the members of AOP i.e. assessee JV. RVNL remitted mobilization advances of Rs. 12.02 crores and accounted for running bills aggregating to Rs. 14.50 crores. Accordingly, they deducted TDS of Rs. 67.30 lacs. The assessee JV filed its return of income to claim refund of TDS amount of Rs. 67.30 lacs. The assessee pleaded that the income is assessed in the hands of the members of the AOP and therefore there is no income in the hands of AOP 4
5 ITA Nos.1961,2355,1959,2357,2356&1960/Kol/2013 I.T.A. No.739/Kol/2014 M/s BBJ Gammon (JV) A.Yrs. 2006-07 to 2009-10 i.e. assessee JV. The ld. AO observed that the assessee had not prepared any books of accounts at all and as a result, ascertaining the income from the income and expenditure account is impossible. He observed that even total credit reflected in the TDS certificate issued by RVNL in the name of assessee JV was not reflected as income directly or indirectly. He observed that although substantial amount is paid to the JV for contract work by RVNL, no expenditure was shown in the expenditure side of the income and expenditure account. Accordingly he rejected the books of accounts u/s 145(3) and resorted to estimate the gross profit and net profit of the assessee. The ld. AO ascertained the gross receipts of the assessee JV as per the cash system of accounting followed by it at Rs. 29,99,19,779/-. He observed that the assessee had not deducted tax at source on the payments made to different sub-contractors or to the members of the JV. Accordingly, the payments made to the members of the JV are liable for disallowance made u/s 40(a)(ia) of the Act. The ld. AO considering all the aforesaid facts resorted to estimate the net profit of the assessee JV at 10% of the gross receipts and accordingly determined the net profit at Rs. 2,99,91,978/- and assessed the assessee in the capacity of AOP.
The Ld. CIT(A) observed that the action of the ld. AO in ascertaining the gross receipts of the assessee at Rs. 29.99 crores was incorrect in view of the fact that the said figure included the advance portion also which would be taken as income in the subsequent year. He observed that in order to avoid double taxation of the same receipt, it would be just and fair to consider the gross receipts of the assessee at Rs. 14.50 crores only. After going through the various submissions of the assessee, the Ld. CIT(A) determined the net profit of the assessee at 4% of the gross receipts as against 10% made by the ld.AO. Aggrieved, both the assessee as well as by the revenue are in appeal before us.
6 ITA Nos.1961,2355,1959,2357,2356&1960/Kol/2013 I.T.A. No.739/Kol/2014 M/s BBJ Gammon (JV) A.Yrs. 2006-07 to 2009-10
The assessee has also filed additional grounds on the aspect that it should not be assessed in the capacity of AOP in respect of project executed by the members of the assessee JV. In other words, the effective issue involved in the additional ground is that the entire profit or loss arising out of execution of the subject mentioned project should be considered only in the hands of the partners/members of the JV and not in the hands of assessee JV.
We have heard the rival submissions and perused the materials available on record. We find that the additional grounds raised by the assessee goes into the root of the matter and deserves to be admitted. We also find that the said additional ground does not involve fresh investigation of the facts. Accordingly, by placing reliance on the decision of Hon’ble Supreme Court in the case of NTPC Ltd. reported in 229 ITR 383, we are inclined to admit the additional ground raised by the assessee and adjudicate the same, as it involves preliminary issue of assessment being made in the hands of assessee JV in the status of AOP. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that BBF and GIL (members of JV) had formed a consortium to obtain subject mentioned project of construction of bridge in the location stated hereinabove. We find that the consortium was found only for the inter se co-ordination between the members for administrative convenience in the form of fulfilling the eligibility conditions for participation in their tender, based on collective strengths of each of the members of the consortium. We find that each member of the consortium is independently responsible for executing its respective part of the work with its own men, materials, resources, infrastructure, at its own risk. Accordingly, the profit or loss arising from execution of such work would flow individually to the members of the assessee JV. We find that this aspect is being clarified by the Central Board of Direct Taxes vide Circular No. 7/2016 dated 07.03.2016 which is reproduced hereunder for the sake of convenience. 6
7 ITA Nos.1961,2355,1959,2357,2356&1960/Kol/2013 I.T.A. No.739/Kol/2014 M/s BBJ Gammon (JV) A.Yrs. 2006-07 to 2009-10
Circular No.7/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes
North Block, New Delhi, the th of March, 2016
Subject: Clarification regarding taxability of consortium members- reg.-
A consortium. of contractors is often formed to implement large infrastructure projects, particularly in Engineering, Procurement and Construction ('EPC') contracts and Turnkey Projects. The tax authorities, in many cases have taken a position that such a consortium constitutes an Association of Persons ('AOP') Le. a separate entity for charging tax. The claim of taxpayers, on the other hand, is contrary to this view. This has led to tax disputes particularly in those cases where each member of the consortium, although jointly and severally liable to the contractee, has a clear distinction and role in scope of work, responsibilities and liabilities of the consortium members. 2. The term AOP has not been specifically defined in the Income-tax Act, 1961 (Act'). The issue as to what would constitute an AOP was considered by the Apex Court in some cases. Although certain guidelines were prescribed in this regard, the Court opined that there is no formula of universal application so as to conclusively decide the existence of an AOP and it would rather depend upon the particular facts and circumstances of a case. In the specific context of the EPC contracts/Turnkey projects, there are several contrary ruling of various Courts on what constitutes an AOP. 3. The matter has been examined. With a view to avoid tax-disputes and to have consistency in approach while handling these cases, the Board has decided that a consortium arrangement for executing EPC/Turnkey contracts which has the following attributes may not be treated as an AOP: a. each member is independently responsible for executing its part of work through its own resources and also bears the risk of its scope of work i.e. there is a clear demarcation in the work and costs between the consortium members and each member incurs expenditure only in its specified area of work;
8 ITA Nos.1961,2355,1959,2357,2356&1960/Kol/2013 I.T.A. No.739/Kol/2014 M/s BBJ Gammon (JV) A.Yrs. 2006-07 to 2009-10 b. each member earns profit or incurs losses, based on performance of the contract falling strictly within its scope of work. However, consortium members may share contract price at gross level only to facilitate convenience in billing; c. the men and materials used for any area of work are under the risk and control of respective consortium members; d. the control and management of the consortium is not unified and common management is only for the inter-se coordination between the consortium members for administrative convenience; 4. There may be other additional factors also which may justify that consortium is not an AOP and the same shall depend upon the specific facts and circumstances of a particular case, which need to be taken into consideration while taking a view in the matter. 5. It is further clarified that this Circular shall not be applicable in cases where all or some of the members of the consortium are Associated Enterprises within the meaning of section 92A of the Act. In such cases, the Assessing Officer will decide whether an AOP is formed or not keeping in view the relevant provisions of the Act and judicial jurisprudence on this issue. 6. The above may be brought to the notice of all for necessary compliance. 7. Hindi version to follow. (F.No.225/2/2016I1TA.II)
In view of the aforesaid facts and our findings given thereon and by respectfully following the CBDT circular supra, we deem it fit and appropriate to set aside all these appeals to the file of the ld. AO for determination of income of the assessee JV in the light of the aforesaid circular dated 07.03.2016. We make it clear that all the connected factual and legal issues are left open and the assessee is at liberty to adduce fresh evidences, if any, before the ld. AO in support of its contentions. Accordingly, grounds raised by the assessee and revenue are allowed for statistical purposes.
9 ITA Nos.1961,2355,1959,2357,2356&1960/Kol/2013 I.T.A. No.739/Kol/2014 M/s BBJ Gammon (JV) A.Yrs. 2006-07 to 2009-10 8. In the result, the appeals of the assessee as well as revenue are allowed for statistical purposes subject to directions contained hereinabove.
Order pronounced in the Court on 29.06.2018
Sd/- Sd/- [S.S. Godara] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 29.06.2018 SB, Sr. PS Copy of the order forwarded to: 1. I.T.O, Ward-34(1), Kolkata, Aayakar Bhawan Purba, 7th Floor, 110, Shantipally, Kolkata-700107. 2. M/s BBJ Gammon (JV), 27, R.N. Mukherjee Road, Kolkata-700001. 3..C.I.T.- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.