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Issues Involved:
1. Disallowance of Rs. 26,09,29,745 under Section 40(a)(i) due to non-deduction of tax at source under Section 195. 2. Disallowance of Rs. 35,72,02,369 for acquiring management rights of the drillship "Belford Dolphin". Issue 1: Disallowance of Rs. 26,09,29,745 under Section 40(a)(i) due to non-deduction of tax at source under Section 195 Detailed Analysis: The assessee contested the disallowance of Rs. 26,09,29,745 by the AO, arguing that the payment to Alfa Crew was a reimbursement of crew salaries, which should be subject to TDS under Section 192, not Section 195. The AO disallowed the expense under Section 40(a)(i) for non-deduction of tax under Section 195, asserting that Alfa Crew was the actual employer, and the payments were for technical services. The CIT(A) upheld the disallowance, agreeing with the AO's interpretation that the crew were not employees of the assessee and that the assessee was obligated to deduct tax under Section 195. The Tribunal examined the facts, including the contract between the assessee and Alfa Crew, which stipulated reimbursement of crew salaries and a handling fee. The Tribunal found that the crew members were effectively employees of the assessee, as evidenced by appointment letters and the control exercised by the assessee over the crew. The Tribunal referenced the decision in HCL Infosystems Ltd. vs. Dy. CIT, where similar facts led to the conclusion that payments were subject to TDS under Section 192. The Tribunal concluded that the payments to Alfa Crew were reimbursements of salaries, not fees for technical services, and thus, TDS under Section 192 was appropriate. Consequently, the disallowance under Section 40(a)(i) was not justified. Issue 2: Disallowance of Rs. 35,72,02,369 for acquiring management rights of the drillship "Belford Dolphin" Detailed Analysis: The assessee claimed the entire amount of Rs. 35,72,02,369 paid to Dolphin A.S. for acquiring management rights of the drillship as a revenue expenditure. The AO disallowed the claim, treating it as a capital expenditure and further disallowing it under Section 40(a)(i) for non-deduction of tax at source. The CIT(A) upheld the disallowance, questioning the genuineness of the agreement and suggesting that the claim was an afterthought to reduce tax liability. The Tribunal reviewed the agreement and the historical context of management rights, noting that such rights were often separated from ownership in the industry. The Tribunal found that the delay in formalizing the agreement did not undermine its genuineness. However, the Tribunal remitted the issue back to the AO for a detailed examination of the historical agreements and verification of the transaction's genuineness. The Tribunal also directed the AO to consider whether the expenditure was capital or revenue in nature and to allow depreciation if it was deemed a capital expenditure. The Tribunal instructed the AO to provide the assessee with an opportunity to present further evidence and arguments during the reassessment. Conclusion: The Tribunal allowed the appeal in part, overturning the disallowance under Section 40(a)(i) related to Alfa Crew payments and remitting the issue of management rights expenditure back to the AO for further verification and reassessment.
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