IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM ITA Nos. 236, 237 & 238/JP/2012 Assessment Years : 2004-05, 05-06 & 06-07. Deputy Commissioner of cuke National Highway Authority of India Income-tax (TDS), Vs. Ltd., (PIU), Girnar Colony, Gandhi Jaipur. Path, Vaishali Nagar, Jaipur. PAN No. JPRN00336 Appellant Respondent Revenue by: Shri O.P. Bhateja (Addl. CIT) Assessee by : Shri Vikas Rajvanshi (CA) Date of Hearing : 16.09.2016. Date of Pronouncement : 23/09/2016. ORDER PER BENCH : These are three appeals by revenue directed against separate orders of ld. CIT (A)-III, Jaipur dated 02.12.2011 pertaining to assessment years 2004-05, 05-06 and 06-07. All these appeals are taken up together and are being disposed off by way of consolidated order, for sake of convenience. 2. common solitary ground, except change in name, raised by revenue reads as under :- ld. CIT (A) has erred in law and on facts in holding that assessee, M/s. National Highway Authority of India (NHAI), was not liable to deduct tax at source, in terms of provisions of section 194C of I.T. Act, in respect of contract money paid by NHAI to concessionaire (M/s. GVK Jaipur Kishangarh Expressway Pvt. Ltd) under name of grant , ignoring fact that said payment was to be fully applied and utilized towards construction of Project Highway and, hence, it was in nature of contract money payment. 2 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. 3. Briefly stated facts are that TDS verification was carried out on 10.02.2011. During course of verification, it was noticed that assessee has not made TDS as per section 194C of Income Tax Act, 1961 (hereinafter referred to as Act) which appeared to be applicable in each of concessionaire, namely, M/s. Jaipur Mahua tollway Pvt. Ltd., M/s. Madhucon Agra Jaipur Expressways Ltd. and M/s. Oriental Pathways (AGRA) Pvt. Ltd. AO after considering terms of Agreement concluded that assessee was required to deduct tax, each of conditions precedent to application of section 194C have been met and all ingredients required for application of section 194C are present in instant case. Therefore, he held that assessee deductor has failed to deduct and deposit TDS on payment of Contract Money to concessionaires i.e. M/s. GVK, M/s. Madhucon and M/s. Jaipur Mahua Tollways Pvt. Ltd. to extent of Rs. 211 crores, Rs. 96.00 crores and Rs. 99 crores respectively and accordingly held that assessee deductor is deemed to be Assessee in Default in respect of TDS which ought to have been deducted on such payment and he further charged interest thereon under section 201(1A) of Act. assessee aggrieved by this order, preferred appeal before ld. CIT (A), who after considering submissions partly allowed appeal. While partly allowing appeal, ld. CIT (A) concluded that BOT projects are in nature of joint venture of public and private participations, wherein NHAI and concessionaires enjoy position of co- owners, as such. Moreover, contributions made by NHAI, on behalf of Govt. of India, are actually equity participation towards cost of project and rightly termed as grant in relevant agreements. Accordingly, he held that such 3 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. contributions have no essence or colour of any contractual payment, as defined u/s 194C, as erroneously perceived by AO. It was further held that since for NHAI is, time being, not owner of assets, till BOT agreement exists, and concessionaires enjoy legal and practical ownership of principal and contract in between them as of now. Accordingly, he held that under such situations, provisions of section 194C cannot be applied on any payment released by NHAI to concessionaires, termed as equity contribution in BOT agreement. He directed AO to delete demand of tax of Rs. 2,11,00,000/- u/s 201(1) and interest thereon of Rs. 1,96,23,000/- under section 201(1A). 4. Aggrieved by this order, revenue is in appeal before Tribunal. 4.1 ld.CIT D/R vehemently argued that ld. CIT (A) was not justified in deleting addition. He submitted that assessee has given colour of contractual payment as grant . He submitted that payment made to concessionaires is nothing but contractual payment. Therefore, assessee was required to deduct tax thereon as per section 194C of Act. assessee has grossly failed to do so, therefore, AO was justified in treating assessee in default. 4.2. On contrary, ld. Counsel for assessee reiterated submissions as made in written submission. ld. Counsel for assessee submitted that as per clause XXIII of agreement with M/s. GVK, total contributions made by NHAI of Rs. 211 crores in A.Y. 2004-05, 2005-06 & 2006-07 towards its shares in respect of cost of project. Such contributions have been nomenclature as grant to meet out capital cost of project and treated same as part of share holders funds or equity support from above specific intention of appellant as declared in BOT agreements. It is quite clear that above 4 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. contributions were not contractual payments to contractor but amount to capital participation by member of joint venture towards its equity support as such. Obviously, it is felt that provisions of section 194C do not apply to such capital contribution/equity participation made by assessee, under such circumstances. ld. Counsel reiterated that principal NHAI and concessionaires were required to be contributed costs of project and also they are eligible to share revenue generated out of such project and entire inflow and outflow of revenue are being managed through common escrow account. Thus, in view of such financial arrangement, their relationship is found more of like partners/joint owners of project than contractor and contractoree. Moreover, another unique arrangement i.e. ownership of assets/project is rested with concessionaires for initial phase only and subsequently requires to be passed on to NHAI also suggests that such unusual phase-wise ownership arrangement is not at all possible. In normal contractual agreement, having such unique characteristics and dimensions cannot be subject matter of Section 194C of Act, which deal with simple contractual matters. In other words, phase-wise ownership arrangements entered between BOT concessionaires and NHAI is found absolutely different from relationship, normally NHAI is having with other contractors who are engaged for road construction in routine manner. Since NHAI and BOT concessionaires are found investing in project are like carrying out its own business and same are not found similar to relationship of principal and contractor as such accordingly, any contribution made by NHAI is out of purview of section 194C. He further submitted that normally in works contract agreement, principal pays to contractor against works 5 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. completed under contractual obligation on agreed upon quantum thereof. However, in present case contribution towards cost of project i.e. concessionaires also. Like co-owner of project, they are also entitled to share revenue/income received as toll collection, through method of escrow accounting system. These peculiar features also differentiate present agreements from normal works contract agreement. Accordingly, AO s findings given in this regard are irrelevant and incorrect. He further submitted that in works contract agreement, ownership of project/assets lies with principal only and contractor is not having any sort of rights, be of real ownership or beneficial in nature, in this regard. However, it can be noticed that as per clause XXXVIII of concession agreement, till specified time period therein, BOT concessionaires would have ownership rights of project and its assets for all practical and legal purposes. Thus concessionaires are not only executors of project, but they also assumed status of co-owners of same. ld. Counsel submitted that in case of M/s. GVK, Coordinate Bench of Tribunal allowed depreciation to concessionaires on such assets while treating them beneficial ownership in project as such. He submitted that AO has erred in not appreciating Escrow Accounting System, as specified in such agreements. By doing so, AO has given different meaning or connotation to such phrases than obvious and literal meaning of such aspects. He submitted that cardinal rule of interpretation of law suggest that when meaning of words/phrase used in statute is clear and unambiguous, then such words to be given its plain and grammatical meaning and effect of law has to be given in such context only. In simpler term, when there is no ambiguity in language of 6 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. statute, then such provision cannot be interpreted in different manner to arrive at particular conclusion as such. In support of this contention, ld. Counsel placed reliance on judgments of Hon ble Supreme Court reported in 306 ITR 277 (SC) and 266 ITR 521 (SC). ld. Counsel then drew our attention to various articles of agreement and vehemently argued that AO was not justified in holding assessee in default for non deduction of tax under section 201(1) and also charged interest under section 201(1A) of Act. On facts and circumstances of case, ld. Counsel further submitted that all BOT concessionaires have already discharged duty and duly filed their returns of income for all assessment years after paying due taxes, hence there is no liability on deductor for deduction of tax under section 194C. ld. Counsel placed reliance on judgment of Hon ble Supreme Court rendered in case of Hindustan Coca Cola Beverage Pvt. Ltd. vs. CIT (2007) 293 ITR 226 (SC). Therefore, he submitted that even otherwise also demands so raised deserve to be deleted. 4.3. We have heard rival contentions, perused material available on record and gone through orders of authorities below. only issue to be adjudicated under facts of case whether provisions of section 194C of Act is applicable or not. For sake of clarity, section 194C is reproduced as under :- Section 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of contract between contractor and specified person shall, at time of credit of such sum to account of contractor or at time of payment thereof in cash or by issue of 7 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. cheque or draft or by any other mode, whichever is earlier, deduct amount equal to (i) one per cent. where payment is being made or credit is being given to individual or Hindu undivided family ; (ii) two per cent. where payment is being made or credit is being given to person other than individual or Hindu undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called Suspense account or by any other name, in books of account of person liable to pay such income, such crediting shall be deemed to be credit of such income to account of payee and provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of Explanation, tax shall be deducted at source (i) on invoice value excluding value of material, if such value is mentioned separately in invoice ; or (ii) on whole of invoice value, if value of material is not mentioned separately in invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on sum credited or paid to account of contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from amount of any sum credited or paid or likely to be credited or paid to account of, or to, contractor, if such sum does not exceed thirty thousand rupees : Provided that where aggregate of amounts of such sums credited or paid or likely to be credited or paid during financial year exceeds seventy-five thousand rupees, person responsible for paying such sums referred to in sub- section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during previous year to account of contractor during course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less goods carriages at any time during previous year and furnishes declaration to that effect along with his Permanent Account Number, to person paying or crediting such sum. (7) person responsible for paying or crediting any sum to person referred to in sub-section (6) shall furnish, to prescribed income-tax authority or person authorised by it, such particulars, in such form and within such time as may be prescribed. Explanation - For purposes of this section, (i) specified person shall mean, 8 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. (a) Central Government or any State Government ; or (b) any local authority ; or (c) any corporation established by or under Central, State or Provincial Act ; or (d) any company ; or (e) any co-operative society ; or (f) any authority, constituted in India by or under any law, engaged either for purpose of dealing with and satisfying need for housing accommodation or for purpose of planning, development or improvement of cities, towns and villages, or for both ; or (g) any society registered under Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India ; or (h) any trust ; or (i) any university established or incorporated by or under Central, State or Provincial Act and institution declared to be university under section 3 of University Grants Commission Act, 1956 (3 of 1956) ; or (j) any Government of foreign State or foreign enterprise or any association or body established outside India ; or (k) any firm ; or (l) any person, being individual or Hindu undivided family or association of persons or body of individuals, if such person, (A) does not fall under any of preceding sub-clauses ; and 9 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. (B) is liable to audit of accounts under clause (a) or clause (b) of section 44AB during financial year immediately preceding financial year in which such sum is credited or paid to account of contractor ; (ii) goods carriage shall have meaning assigned to it in Explanation to sub-section (7) of section 44AE ; (iii) contract shall include sub-contract ; (iv) work shall include (a) advertising ; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting ; (c) carriage of goods or passengers by any mode of transport other than by railways ; (d) catering ; (e) manufacturing or supplying product according to requirement or specification of customer by using material purchased from such customer, but does not include manufacturing or supplying product according to requirement or specification of customer by using material purchased from person, other than such customer. bare reading of above section, makes it explicit that any person responsible being contractor for carrying out any work in pursuance of contract between contractor and specified person shall, at time of credit of such sum to account of contractor or at time of payment thereof in cash or by issue of 10 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. cheque or draft or any other mode, whichever is earlier, deduct amount equal to two per cent where payment is being made or credit is being given to person other than individual or Hindu undivided family of such sum as income-tax for A.Y. 2011-12 of such sum as income comprised therein. Therefore, specified person deductor herein i.e. NHAI is required to deduct tax in event payment is made to contractor in pursuance of contract. In case in hand, we need to examine whether payments made by NHAI under head Grant to M/s. GVK Kishangarh Expressway Pvt. Ltd. was liable to deduction of tax or not. Undisputed facts remain that NHAI has made payment to M/s. GVK Kishangarh Expressway Pvt. Ltd. under head Grant . AO treated such payments as payment made under contract. AO examined various terms of agreement between NHAI and M/s. GVK Kishangarh Expressway Pvt. Ltd. and has also reproduced certain terms of agreement. AO, therefore, treated assessee in default. However, ld. CIT (A) after examining terms of agreement came to conclusion that such payments are not in nature of payment made to contractor. By doing so, he observed in para 3.3.1 of his order as under :- 3.3.1. In light of above detailed deliberations and submissions, I have reached to following findings cum observations and also implication thereof, towards issue under consideration :- i. Nature of Agreement : As discussed above, NHAI has entered in five BOT projects with different concessionaires to build and maintain roads on different National Highways. Due to peculiarity of such BOT agreements, nature and complexion of such projects are found rather different than normal works-contract, carried out by contractor, on behest of principal. From essence of different clauses of 11 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. Concession/BOT agreements, it is evident that principal (NHAI) and concessionaires were required to participate in project cost of highways and they are also entitled to share revenue of such project, received in form of toll collection etc. From above unique features of concession agreements , it is found more like joint venture in between interested parties to accomplish specific project and making equity participations, by all such parties also. normal contract agreement does not have such features, therefore, I am agreed with contention of ld. AR, that projects under consideration are not of nature of works-contract, as perceived by AO, but kind of join venture, as such. Thus provisions of Sec. 194C wouldn t attract on payment made towards such venture. ii. Nature of contribution of NHAI: As per Clause XXIII of agreement with M/s. GVK, total contributions made by NHAI of Rs. 211 crores, in A.Y. 2004-05, 2005-06 & 2006- 07, towards its shares, i.r.o., cost of project. Such contributions have been nomenclature as grant to meet out capital cost of project and treated same as part of share holder funds or equity support. From above specific intention of appellant, as declared in BOT agreements itself, it is quite clear that above contributions were not contractual payments to contractor but amount to capital participation by members of joint venture towards its equity support as such. Obviously, it is felt that provisions of Sec. 194C do not apply to such capital contribution/equity participation made by assessee, under such circumstances. iii. Intra-Parties relationship : - To ascertain actual nature and characteristics of relationship in between NHAI and concessionaires, relevant clauses of agreement have been found quite relevant in this regard. As stated above principal (NHAI) and concessionaires were required to be contributed costs of project and also they are eligible to share revenue generated out of such project and entire inflow & outflow of revenue are being managed through common Escrow Account. Thus, in view of such financial arrangement, their relationship is found more of like partners/joint owners of project than contractor and contractoree as such. Moreover, another unique arrangement i.e. ownership of assets/project is rested with concessionaires for initial phase only and subsequently requires to be passed on to NHAI also suggests that such unusual phase-wise ownership arrangement is not at all possible in normal contractual agreement. Thus, such BOT agreements, 12 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. having such unique characterstics and dimensions can t be subject matter of Sec. 194C of Act, which deal with simple contractual matters. In other words, phase wise ownership- arrangements entered between BOT concessionaires and NHAI is found absolutely different from relationship, normally NHAI is having with other contractors who are engaged for road construction in routine manner. Since NHAI and BOT concessionaires are found investing in project, as co- owners of joint venture, thus, their all acts in this regard are like carrying out its own business and same are not found similar to relationship of principal and contractor as such. Accordingly, in my considered opinion, any contribution made by NHAI as co-owner of such project is out of preview of Sec. 194C as such. iv. Revenue Sharing Model : - It is matter of fact that normally in works-contract agreement; principle pays to contractor against worked completed under contractual obligation on agreed upon quantum thereof. However, in present case contribution towards cost of project was not only borne by principal (NHAI) but also executors of project i.e. concessionaires also. Like co-owners of project, they are also entitled to share revenue/income, received as toll collection, through method of Escrow Accounting System. These peculiar features also differentiate present agreements from normal works-contract agreement. Accordingly AO s findings given this regard are found irrelevant and incorrect also. On this ground, also equity contribution made by appellant is considered as contractual payment. v. Ownership of Project :- Normally, it can be seen that in works-contract agreement, ownership of project/assets lies with principal only and contractor is not having any sort of rights, be of real ownership or beneficial in nature, in this regard. However, it is found that as per Clause XXXVIII of concession agreement, till specified time period therein, BOT concessionaires would have ownership rights of project and its assets for all practical and legal purposes. Thus concessionaires are not only executors of project, but they also assumed status of co-owners of same. above perception is also found support from subsequent decision of Hon ble ITAT Jaipur in concessionaire i.e. M/s. GVK case, wherein they have also upheld claim of depreciation on such assets by concessionaire, while treating them having beneficial ownership in project as such. Moreover, as discussed above, as per Clause XXXIII of 13 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. agreement, ownership of such project is to be transferred to NHAI, by way of sale agreement of such properties, after cessation of concession agreements . This particular unusual type of ownership aspect is never possible in ordinary works-contract and it could be result of only of joint venture or co-ownership project. Accordingly any contribution made to such jointly owned project by appellant can not be contractual payment covered u/s 194C, under given circumstances. vi. AO s Approach/Findings: - From impugned order, it is felt that AO has dealt with relevant important issues of concession agreements in rather superficial and unusual manners and at times he brushed aside apparent important aspects like nature of grants, equity participation by appellant, Escrow Accounting System, as specified in such agreements and found relevant to decide matter under consideration. While doing so, even AO has given different meaning or connotation to such phrases then obvious and literal meaning of such aspects. Moreover, in view of divergent understanding of relevant clauses of agreements on part of AO and ld. AR, and to perceive exact scope and ambit of above phrases/provisions, help of of principal of interpretation of law was considered helpful and essential, under given circumstances. cardinal rule of interpretation of law suggests that when meaning of words/phrase used in statute is clear and unambiguous, then such words to be given its plain and grammatical meaning and effect of law has to be given in such context only. In simpler term, when there is no ambiguity in language of statute, then such provision can not be interpreted in different manner to arrive at particular conclusion as such. In this regard reliance is placed on following decisions :- - Dharmendra Textile Ltd. 306 ITR 277 (SC) - IPCA Laboratory Ltd. 266 ITR 521 (SC) Though above decisions were given in context of interpretation of statute like Income Tax Act, however, in my considered opinion, same analogy can be applied even in understanding meaning and essence of any phrase used in commercial agreement also. Accordingly it is felt that if terms like Grant, Equity Participation etc., used in BOT agreements, for contribution made by appellant to 14 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. concessionaires, were given their literal and ordinary meaning and context, then obviously such payments could not be considered as contractual payment and therefore, same would not fall in net of Sec. 194C of Act. Accordingly, it is perceived that AO was not justified in giving different meaning and context to such crucial phrases/issues like Grants, Equity participant, Escrow Accounting System etc., in other way then what they stand for in normal circumstances, apparently to arrive at preconceived conclusion. vii) Misc. Aspects :- a) As per Definition Clauses of concession agreements , definition of contractor has been given as contractor or contractors, if any, which whom concessionaires has entered into all or any of project agreements . This also shows that position/status of concessionaires in current projects are of like co-owners, who can appoint contractor to accomplish any part of projects and not status of contractor it self, as perceived by AO. b) From details submissions of ld. AR, it is also felt that he had reasonably and successfully addressed all issues, controversies and rebuttal made by AO in impugned order and in remand report submitted by him. Thus, it is felt ld. AR has clearly established his point of views, in satisfactory manner and thus left no gray areas, in this regard, to prove provisions of Sec. 194C can t be applied in present case. In light of above factual and legal deliberation and also from in-depth analysis of rival stands of AO and ld. AR, I am agreed with ld. AR that BOT projects are in nature of joint venture of public and private participations, wherein HAHI and concessionaires enjoy position of co-owners, as such. Moreover, contributions made by NHAI, on behalf of Govt. of India, are actually equity participation towards cost of project and rightly termed 15 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. as grant in relevant agreements. For reasons discussed in earlier paras, it is also held tht such contributions have no essence or colour of any contractual payment, as defined u/s 194C, as erroneously perceived by AO. It is also held that since for NHAI is, time being, not owner of assets, till BOT agreement exists, and concessionaires enjoy legal and practical ownership of such project assets, therefore, there can not be case of any relationship of principal and contract in between them as of now. Accordingly, under such situations, provisions of Sec. 194C can not applied on any payment released by NHAI to concessionaires, termed as equity contribution in BOT agreement. In view of above detailed discussion, I am also agreed with contention of ld. AR that contributions made by NHAI in form of grant equity participation, are of capital contribution in nature towards joint venture with concessionaires, thus Sec 194C does not apply on such payments. Accordingly, demand of Rs. 2,11,00,000/- raised u/s 201(1) and of Rs. 1,96,23,000/- u/s 201(1A) are found uncalled for and un- sustainable under given legal and factual circumstances same are hereby deleted. Consequently, this ground of appeal is upheld. contention of assessee in substance is that from terms of agreement it can be inferred that payments made to concessionaires in form of Grant would not attract provisions of section 194C. Essentially these payments are in nature of contribution in joint venture. We have gone through terms of agreement. inference drawn by AO is that Grant is nothing but payment to contractor is mis-placed. As per section 194C, payment is required to be made to contractor but in given case payment is not made to contractor. agreement cannot be stated to be purely contract agreement 16 ITA Nos. 236, 237 & 238/JP/2012 M/s. National Highway Authority of India Ltd.(PIU) Jaipur. but it is contract agreement of joint venture. Hence, we do not see any infirmity in order of ld. CIT (A), therefore, same is hereby upheld. 5. In result, appeals of revenue are dismissed. Order pronounced in open court on 23/09/2016. Sd/- Sd/- ( BHAGCHAND) ( KUL BHARAT ) Accountant Member Judicial Member Jaipur Dated:- 23/09/2016. Das Copy of order forwarded to: s 1. Appellant- DCIT (TDS) Jaipur. 2. Respondent National Highway Authority of India, Jaipur. 3. CIT(A). 4. CIT, 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 236(3)/JP/2012) By order, Assistant. Registrar Deputy Commissioner of Income-tax (TDS), Jaipur v. National Highway Authority of India Ltd