VAN OORD ACZ INDIA (P) LTD.,MUMBAI vs. DCIT, CIRCLE-17(1), NEW DELHI

We have heard Sh. Neeraj Jain, learned counsel appearing for the assessee and Sh. Virendra Singh, learned Senior Departmental Representative. We have also perused the materials on record.

The dispute in the present appeal relates to disallowance of reimbursement of mobilization and demobilization expenses of Rs.8,65,57,909/-.

Before we proceed to deal with the aforesaid substantive issue, it is necessary to provide a brief factual backdrop. 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) (in short ‘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 under section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) vide order dated 16.03.2006, the Assessing Officer disallowed the amount of Rs.8,65,57,909/- representing reimbursement of mobilization and demobilization 2 | P a g e cost paid to the holding company. Against the disallowance so made, the assessee preferred an appeal before the first appellate authority and, being unsuccessful, went before the Tribunal.

While deciding the appeal, the Tribunal restored the matter to the Assessing Officer with a direction to verify whether the assessee has deducted tax at source from payment made towards mobilization and demobilization charges in terms of order passed under section 195(2) of the Act and, in case, it was found that the assessee had deducted tax at source, the deduction claimed should be allowed. Against the aforesaid decision of the Tribunal, the Revenue went in appeal before the Hon’ble Delhi High Court.

As it appears, challenging certain observations of the Hon’ble Delhi High Court, the assessee filed a Special Leave Petition (SLP) before the Hon’ble Supreme Court. While deciding the SLP filed by the assessee, the Hon’ble Supreme Court, in order dated 23rd March, 2023, quashed and set aside the observations of Hon’ble Delhi High Court, insofar as, it related to treat the assessee as an assessee in default, in the event, the holding company is held to be assessable to tax in India.

As could be seen from the aforesaid narration of facts, while deciding Revenue’s appeal arising out of earlier order of the Tribunal, the Hon’ble Delhi High Court in of 2008 has clearly and categorically held that the assessee was not liable to deduct tax at source under section 195(1) of the Act in respect of mobilization and demobilization costs reimbursed to the holding company, hence, cannot be treated as assessee in default.

In the result, the appeal is allowed, as indicated above.