By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
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Section 80 IA – Assessee was acting through joint venture and consortium for executing eligible contracts, whether eligible to claim deduction u/s 80 IA. Joint venture was only a de jure contractor but the assessee was a de facto contractor – Joint venture or the consortium was only a paper entity and has not executed any contract itself – Assessee is entitled for the deductions u/s. 80-IA(4) on the profit earned from the execution of the work awarded to JV and consortium.
Facts: The assessee is a company and it formed joint venture named “Navayuga Transtoy (JV)” which bid for the contract. The Irrigation Department of Andhra Pradesh awarded the contract to JV, which became entitled to execute works worth Rs. 664.50 crore. As per the terms of the JV, the assessee was to execute 40 per cent of the work in the JV, the other constituent partner was to execute 60 per cent of the works awarded. Both the constituent partners of the JV raised bills on the JV for quantity of work as certified by technical consultant appointed by the State Government. The JV in turn raised a consolidated bill on the Irrigation Department of Andhra Pradesh Government without making any additions. The Irrigation Department makes the payments to the JV, which shares the payment in accordance with the bills raised by each. The JV files its IT returns separately but does not claim any deduction u/s. 80-IA(4).
The assessee had also formed a consortium along with one M/s Corporation Transtroy, OJSC, Moscow, with the understanding that the assessee would execute 100 per cent of the works which were awarded to the consortium by the Government of Karnataka. During the year assessee executed works valued worth Rs. 31.09 crore. The assessee claimed deduction u/s. 80- IA(4) on the profits derived out of the aforesaid works. But it was disallowed by the AO on the ground that the work was not awarded to the assessee.
Held:
The joint venture and consortium was formed to obtain contract from Government Bodies. As per the joint venture, the project awarded to the joint venture was to be executed by the joint venturers or the constituents. Once the project was awarded to the joint venture or consortium it was to be executed by venturers or constituents in the ratio agreed upon by them. It was the assessee who executed the work contract or project given to the joint venture. Whatever bills were raised by the assessee for the work executed on JV and consortium, the joint venture and consortium in turn raised the further bill of the same amount to the Government. Whatever payment was received by the joint venture, it was accordingly transferred to their constituents. The joint venture is an independent identity and has filed the return of income and was also assessed to tax but neither offered any profit/ income earned nor claimed any exemption/deduction u/s. 80 IA. The joint venture was contractor only as per law, in factual terms the assessee was the contractor. All other conditions u/s. 80IA have been fulfilled. The dispute arose only with the fact of the contract being awarded only to the joint venture and not the assessee and therefore the assessee was not allowed the deduction. U/s. 80-IA the legislature has also used the word consortium of such companies meaning thereby the legislature was aware about the object of formation of consortium and joint venture. Therefore, the mere formation of the consortium or joint venture for obtaining a contract cannot debar the venture from claiming exemption.
