Disallowance u/s 40(a)(ia) unsustainable as TDS not deductible on reimbursement of mobilization and demobilization cost

Van Oord ACZ India Pvt Ltd Vs DCIT (ITAT Delhi)

ITAT Delhi held that TDS not deductible u/s 195(1) on the reimbursement of mobilization and demobilization cost to the holding company. Accordingly, disallowance u/s 40(a)(ia) unsustainable.

Facts- The assessee, a resident corporate entity, is a wholly owned subsidiary of M/s. Van Oord ACZ BV, Netherlands (now M/s Van Oord ACZ Marine Contractors BV) (‘VOAMC’). As stated, the assessee is engaged in the business of dredging, contracting reclamation and marine activities. For the assessment year under dispute, the assessee filed its return of income on 24.11.2003 declaring loss of Rs. 1,94,87,912/-, after claiming deduction, inter alia, of Rs.8,42,62,240/- in respect of reimbursement of mobilization and demobilization cost of dredgers incurred by holding company on behalf of the assessee. While framing the original assessment u/s. 143(3), the Assessing Officer disallowed the amount of Rs.8,65,57,909/- representing reimbursement of mobilization and demobilization cost paid to the holding company.

Conclusion- Held that there was no legal obligation under section 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) of the Act amounting to Rs.8,65,57,909/-, being unsustainable, is hereby deleted.

FULL TEXT OF THE ORDER OF ITAT DELHI

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