Whether, when two partners of JV execute works awarded by State Govt, assessee is even then not entitled to avail benefits of Sec 80IA(4) as contract was awarded to JV, an independent legal entity - NO, assessee is eligible: ITAT
THE question before the Bench is - Whether when, for all practical purposes, the two partners of a JV execute the infrastructural work awarded by the State Government, even then the assessee, one of the partners, is not entitled to avail the benefits of Sec 80IA(4) as the contract was awarded to the JV, an independent legal entity. And the verdict goes in favour of assessee.
Facts of the case
Assessee, a company, formed a joint venture named "Navayuga Transtoy (JV)" which bid for the contract. The Irrigation Department of Andhra Pradesh awarded the contract to the JV. As per the terms of the JV, the assessee was to execute 40% of the work in Navayuga, the other constituent partner was to execute 60% of the works. Assessee was to execute work worth Rs. 265.80 crores, out of which works valued at Rs.18.12 crores were executed during the A.Y. 2006-07. Both the partners raised bills on JV for quantity of work as certified by technical consultant appointed by the State Government. In turn, the JV raised a consolidated bill on the Irrigation Department without making any additions. Payments were made to the JV, which shared the payment in accordance with the bills raised by each partner. JV filed its return without claiming any deduction u/s 80IA(4).
Assessee also formed a consortium along with one M/s `CT' Moscow, with an understanding that the assessee would execute 100% of the works which were awarded to the consortium. Assessee executed works valued worth Rs.31.09 crores and claimed deduction u/s 80IA(4) on the profits derived out of the aforesaid works. AO disallowed the claim stating that the work was not awarded to the assessee.
In appeal before CIT (A), the assessee contended that the JV or the consortium was formed only with an object to obtain a contract from the Government but in fact the work was executed by the constituents of the JV i.e. the assessee and the other constituent. Deduction was to be allowed to those enterprises, which were engaged in the business of developing, maintaining and operating any infrastructure facility. Therefore, the assessee was entitled for deductions on profit earned from the aforesaid activities. However, CIT (A) confirmed the dis-allowance made by the AO.
Before ITAT, the assessee contended that the JV or the consortium had not offered any income/profit out of the work contract awarded to it and also did not claim any deduction u/s 80IA of the Act. Deduction u/s 80IA was to be allowed to those enterprises which were carrying on the business of developing, maintaining and operating any infrastructure facility. It was agreed at the time of formation of JV that whatever work was awarded to it, it would be executed by its constituents and they would be solely responsible for the responsibilities and liabilities of the execution of the work.
Revenue contended that the work contract was awarded to the joint venture and not to the assessees. The Bills were raised by the joint venture and payments were also made to the joint venture by the Government bodies. Therefore, in all respects, the work contract was executed by the joint venture and not by the assessees. Joint venture was an independent identity and was assessable to tax. It was totally irrelevant whether joint venture claimed any deduction u/s 80IA or not. Non-claim of deduction u/s 80IA by the joint venture would not make the assessee entitled to claim deduction u/s 80IA for the work executed by him.
After hearing both the parties, the ITAT held that,
++ undisputedly the joint venture or the consortium was formed only to obtain the contract from the Government bodies. At the time of execution of the joint venture or the consortium, it has been made clear that work/project awarded to the joint venture would be executed by the joint venturers or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party shall be responsible for the provisions of without limitation on resources required for the purpose of fulfillment of the scope and also solely responsible for the performance of its scope of work and shall bear all technical, commercial and facing risk involved in performing its scope of work. It was also agreed that none of the party shall assign its rights and obligations to any other party without written consent of other party. It is evidently clear that the joint venture and the consortium was formed only with an object to bid contract. Once the project or contract is awarded to the joint venture or the consortium, it is to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. The assessee was entitled to execute the 40% of total work awarded to the joint venture and in case of a consortium it was agreed that the entire work is to be executed by the assessee itself. Therefore for all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture is an independent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction u/s 80IA(4) of the Act. These facts clearly indicates that the joint venture was only a de-jure contractor but in fact the assessee was a de-facto contractor;
++ the benefit of exemption/deduction is to be allowed to any enterprise carrying on business of developing or operating and maintaining or developing, operating, maintaining any infrastructure facility subject to fulfillment of certain conditions. One of the condition is that the enterprise should be owned by a company registered in India or by a consortium of such companies or any other body established or constituted under any center or any state Act. The other condition is that it has entered into an agreement with the Central Government or a State Government or local authorities or any other statutory body for developing, operating and maintaining or developing, operating & maintaining a new infrastructure facility;
++ there is no dispute with regard to the fulfillment of other requisite conditions. The dispute was only raised that the contract was awarded only to the joint venture and not to the assessee and therefore assessee is not entitled for deduction. The benefit of deductions is to be given to an enterprise which carry on the aforesaid classified business. The legislature have also used the word consortium of such companies, meaning thereby the legislature was aware about the object of formation of consortium and joint ventures. Generally the joint ventures or consortiums are formed to obtain a contract from the Government body for its execution by its constituents. If the constituents do not want to execute the work, there was no need to form a consortium. Therefore, mere formation of consortium for obtaining a contract should not debar the enterprises who in fact carried on the aforesaid classified business from claiming the deduction or exemption u/s 80IA(4). The joint venture or the consortium was only a paper entity and has not executed any contract by itself. They have also not offered any income out of the work executed by its constituents, nor did they claim any deductions u/s 80IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of section 80IA(4), the benefit of deduction under this section is to be given only to the enterprise which carried on the classified business. Therefore, in the light of this legal proposition, the assessee is entitled for the deductions u/s 80IA(4) on the profit earned from the execution of the work awarded to JV and consortium.
THE question before the Bench is - Whether when, for all practical purposes, the two partners of a JV execute the infrastructural work awarded by the State Government, even then the assessee, one of the partners, is not entitled to avail the benefits of Sec 80IA(4) as the contract was awarded to the JV, an independent legal entity. And the verdict goes in favour of assessee.
Facts of the case
Assessee, a company, formed a joint venture named "Navayuga Transtoy (JV)" which bid for the contract. The Irrigation Department of Andhra Pradesh awarded the contract to the JV. As per the terms of the JV, the assessee was to execute 40% of the work in Navayuga, the other constituent partner was to execute 60% of the works. Assessee was to execute work worth Rs. 265.80 crores, out of which works valued at Rs.18.12 crores were executed during the A.Y. 2006-07. Both the partners raised bills on JV for quantity of work as certified by technical consultant appointed by the State Government. In turn, the JV raised a consolidated bill on the Irrigation Department without making any additions. Payments were made to the JV, which shared the payment in accordance with the bills raised by each partner. JV filed its return without claiming any deduction u/s 80IA(4).
Assessee also formed a consortium along with one M/s `CT' Moscow, with an understanding that the assessee would execute 100% of the works which were awarded to the consortium. Assessee executed works valued worth Rs.31.09 crores and claimed deduction u/s 80IA(4) on the profits derived out of the aforesaid works. AO disallowed the claim stating that the work was not awarded to the assessee.
In appeal before CIT (A), the assessee contended that the JV or the consortium was formed only with an object to obtain a contract from the Government but in fact the work was executed by the constituents of the JV i.e. the assessee and the other constituent. Deduction was to be allowed to those enterprises, which were engaged in the business of developing, maintaining and operating any infrastructure facility. Therefore, the assessee was entitled for deductions on profit earned from the aforesaid activities. However, CIT (A) confirmed the dis-allowance made by the AO.
Before ITAT, the assessee contended that the JV or the consortium had not offered any income/profit out of the work contract awarded to it and also did not claim any deduction u/s 80IA of the Act. Deduction u/s 80IA was to be allowed to those enterprises which were carrying on the business of developing, maintaining and operating any infrastructure facility. It was agreed at the time of formation of JV that whatever work was awarded to it, it would be executed by its constituents and they would be solely responsible for the responsibilities and liabilities of the execution of the work.
Revenue contended that the work contract was awarded to the joint venture and not to the assessees. The Bills were raised by the joint venture and payments were also made to the joint venture by the Government bodies. Therefore, in all respects, the work contract was executed by the joint venture and not by the assessees. Joint venture was an independent identity and was assessable to tax. It was totally irrelevant whether joint venture claimed any deduction u/s 80IA or not. Non-claim of deduction u/s 80IA by the joint venture would not make the assessee entitled to claim deduction u/s 80IA for the work executed by him.
After hearing both the parties, the ITAT held that,
++ undisputedly the joint venture or the consortium was formed only to obtain the contract from the Government bodies. At the time of execution of the joint venture or the consortium, it has been made clear that work/project awarded to the joint venture would be executed by the joint venturers or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party shall be responsible for the provisions of without limitation on resources required for the purpose of fulfillment of the scope and also solely responsible for the performance of its scope of work and shall bear all technical, commercial and facing risk involved in performing its scope of work. It was also agreed that none of the party shall assign its rights and obligations to any other party without written consent of other party. It is evidently clear that the joint venture and the consortium was formed only with an object to bid contract. Once the project or contract is awarded to the joint venture or the consortium, it is to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. The assessee was entitled to execute the 40% of total work awarded to the joint venture and in case of a consortium it was agreed that the entire work is to be executed by the assessee itself. Therefore for all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture is an independent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction u/s 80IA(4) of the Act. These facts clearly indicates that the joint venture was only a de-jure contractor but in fact the assessee was a de-facto contractor;
++ the benefit of exemption/deduction is to be allowed to any enterprise carrying on business of developing or operating and maintaining or developing, operating, maintaining any infrastructure facility subject to fulfillment of certain conditions. One of the condition is that the enterprise should be owned by a company registered in India or by a consortium of such companies or any other body established or constituted under any center or any state Act. The other condition is that it has entered into an agreement with the Central Government or a State Government or local authorities or any other statutory body for developing, operating and maintaining or developing, operating & maintaining a new infrastructure facility;
++ there is no dispute with regard to the fulfillment of other requisite conditions. The dispute was only raised that the contract was awarded only to the joint venture and not to the assessee and therefore assessee is not entitled for deduction. The benefit of deductions is to be given to an enterprise which carry on the aforesaid classified business. The legislature have also used the word consortium of such companies, meaning thereby the legislature was aware about the object of formation of consortium and joint ventures. Generally the joint ventures or consortiums are formed to obtain a contract from the Government body for its execution by its constituents. If the constituents do not want to execute the work, there was no need to form a consortium. Therefore, mere formation of consortium for obtaining a contract should not debar the enterprises who in fact carried on the aforesaid classified business from claiming the deduction or exemption u/s 80IA(4). The joint venture or the consortium was only a paper entity and has not executed any contract by itself. They have also not offered any income out of the work executed by its constituents, nor did they claim any deductions u/s 80IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of section 80IA(4), the benefit of deduction under this section is to be given only to the enterprise which carried on the classified business. Therefore, in the light of this legal proposition, the assessee is entitled for the deductions u/s 80IA(4) on the profit earned from the execution of the work awarded to JV and consortium.
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