2023 (6) TMI 268 - AT - Income Tax

TDS u/s 195 - Disallowance of reimbursement of mobilization and demobilization expenses - HELD THAT - Delhi High Court 2010 (3) TMI 167 - DELHI HIGH COURT has clearly and categorically held that the assessee was not liable to deduct tax at source u/s 195(1) in respect of mobilization and demobilization costs reimbursed to the holding company, hence, cannot be treated as assessee in default. Further observations of the Delhi High Court - The assessment proceedings in VOAMC are reopened and the final view taken is that the VOAMC is assessable to tax, the assessee herein would also be treated as assessee in default , which would attract the consequence provided under section 40(a)(i). has been quashed and set aside by the Hon ble Supreme Court 2023 (5) TMI 586 - SC ORDER while deciding the SLP filed by the assessee.. Thus, as on date, in view of the observations of Hon ble Delhi High Court and Hon ble Supreme Court, there was no legal obligation u/s 195(1) on the assessee to deduct tax at source under section 195(1) of the Act on the reimbursement of mobilization and demobilization cost to the holding company (VOAMC). That being the case, the disallowance made under section 40(a)(i) being unsustainable, is hereby deleted. Decided in favour of assessee.

Summary

Issues involved:
The appeal involves the disallowance of reimbursement of mobilization and demobilization expenses of Rs. 8,65,57,909 for the assessment year 2003-04.

Factual background and assessment:
The resident corporate entity, a wholly owned subsidiary of a Netherlands-based company, engaged in dredging and marine activities, filed its return of income declaring a loss. The Assessing Officer disallowed the reimbursement amount. The assessee appealed to the Tribunal.

Tribunal's decision and High Court appeal:
The Tribunal directed the Assessing Officer to verify if tax was deducted at source. The Revenue appealed to the Delhi High Court, where it was held that the assessee was not liable to deduct tax at source for the reimbursement. The High Court's decision was challenged by the assessee in the Supreme Court.

Supreme Court decision and reassessment:
The Supreme Court set aside the High Court's observations regarding the assessee being treated as an assessee in default. Despite this, the Assessing Officer reopened the assessment and disallowed the reimbursement amount under section 40(a)(i) for failure to deduct tax at source.

Final decision and conclusion:
The Delhi High Court had earlier held that the assessee was not required to deduct tax at source for the reimbursement. The Supreme Court's decision further clarified this, leading to the deletion of the disallowance. The disallowance of Rs. 8,65,57,909 under section 40(a)(i) was deemed unsustainable, and the appeal was allowed.

Judgment delivery:
The order was pronounced in the open court on 29th May, 2023.