2009 (10) TMI 995 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of mobilization and demobilization expenses u/s 40(a)(i) due to non-deduction of tax at source u/s 195.
2. Whether the matter should be referred to the Special Bench for reconsideration.

Summary:

1. Disallowance of Mobilization and Demobilization Expenses:
The assessee appealed against the CIT(A)'s order confirming the disallowance of Rs. 10,404,298/- reimbursed to Van Oord ACZ Marine Contractors BV, Netherlands (VOAMC) for mobilization and demobilization expenses, invoking Section 40(a)(i) of the IT Act due to non-deduction of tax at source u/s 195. The assessee executed a dredging contract at Port Dahej and claimed these expenses as deductions. The AO disallowed the claim, referencing a similar disallowance in the previous AY 2003-04, which was upheld by the CIT(A) and the Tribunal.

2. Tribunal's Previous Decision:
The Tribunal, in its order dated 30.11.2007 for AY 2003-04, held that the assessee's failure to deduct tax at source u/s 195 necessitated the disallowance of payments to the non-resident recipient under Section 40(a)(i). The Tribunal emphasized that it is not for the payer to decide the taxability of payments made to non-residents, and in the absence of a certificate u/s 195(2), the payer must deduct tax at source.

3. Assessee's Arguments:
The assessee's AR argued that the Tribunal's previous decision did not consider various judicial precedents and requested a referral to the Special Bench. The AR cited multiple cases, including the Supreme Court's decision in Transmission Corporation of AP Ltd. v. CIT, which clarified that the obligation to deduct tax at source arises only when the payment is chargeable to tax in India in the hands of the non-resident. The AR also referenced decisions from various High Courts and Tribunals supporting the view that reimbursement of expenses without an income element does not attract TDS provisions.

4. Tribunal's Consideration:
The Tribunal acknowledged the AR's arguments but noted that the matter was already before the High Court, which had accepted the substantial question of law. Therefore, referring the matter to the Special Bench was deemed unnecessary.

5. Conclusion:
Respecting the Tribunal's previous decision in the assessee's own case for the preceding assessment year, the appeal was dismissed. The Tribunal upheld the disallowance of mobilization and demobilization expenses due to non-deduction of tax at source u/s 195, as per Section 40(a)(i).

Decision:
The appeal of the assessee is dismissed. Decision pronounced in the open Court on 30th October, 2009.