The tax deducted at source under Section 194C(2) of the Income Tax Act, 1961 does not get levied if there is no contractual or sub-contractual relationship between the joint venture and its constituencies, the Kolkata bench of the Income Tax Appellate Tribunal (ITAT) ruled.
The taxpayer Joint Venture (JV) was created via RAMKY Infrastructure Ltd and ECI Engineering & Construction Ltd in the name of RAMKY-ECI (JV). National Highways & Infrastructure Development Corporation Ltd. (NHIDCL) granted the work of execution of the development of a road project at Kohima, Nagaland, and the taxpayer was the successful bidder.
To fulfil this objective, RAMKY and ECI, the two Joint Venture (JV) partners, established an internal agreement. This agreement outlined the terms and conditions governing the execution of work and the mutual understanding between the JV partners concerning projects granted by NHIDCL.
Pursuant to this agreement, ECI is obligated to carry out the entire scope of work as specified in the drawings, specifications, and other contract documentation. In return, RAMKY shall receive compensation amounting to 2.25% of the total gross billings received from NHIDCL.
Important: Complete Details on Section 194C for TDS on Payment to Contractors
ECI assumes responsibility for obtaining the required registrations and approvals from relevant authorities on behalf of RAMKY ECI (JV), including bearing all associated costs. ECI is also accountable for ensuring compliance with all statutory requirements, and in the event of any penalties or damages imposed by NHIDCL due to violations, ECI shall assume responsibility for such payments. This agreement will expire if the JV does not secure the contract, or if the contract is awarded but the work is completed in its entirety.
Under Section 201(1A) of the Income Tax Act, the assessing officer issued an order or finding the total amount liable to get paid at Rs 20,08,126 which comprises tax deductible under Section 194H of the Income Tax Act of Rs.4,55,663/- and interest under Section 201(1A) of the Income Tax Act at Rs.15,52,463.
The council said that there is no contract and sub-contract relationship between the taxpayer JV and ECI. Provisions of Section 194C(2) of the Income Tax Act do not get applied as there is no agreement between the taxpayer and its constituent ECI in the nature of the sub-contract agreement, and, thus, taxpayer JV is not accountable to deduct tax at source towards the payment incurred before ECI.
A two-member panel, consisting of Rajpal Yadav (Vice-President) and Girish Agrawal (Accountant Member), reached the determination that both parties had divided the contractual responsibilities amongst themselves and executed their respective portions of the work at their individual risk.
Consequently, the panel dismissed the Assessing Officer’s presumption that the joint venture (JV) acted as the principal contractor while its constituents functioned as subcontractors. As a result, the issue of tax deduction at source under Section 194C(2) of the Income Tax Act was deemed irrelevant.
Consequently, the panel concluded that the JV in question was not obligated to withhold taxes at source, and therefore, it could not be deemed in default under Section 201(1) of the Income Tax Act or subject to interest charges under Section 201(1A) of the Income Tax Act. As a result, the appellant’s appeal was upheld.
| Case Title | Ramky ECI JV Vs. ITO |
| Citation | ITA Nos.159 & 160/GTY/2020 |
| Date | 31.08.2023 |
| Assessee by | Md. Afjal, Advocate |
| Revenue by | I. Gyaneshori Devi, JCIT |
| Kolkata ITAT | Read Order |
