TDS must be deducted on reimbursement to disattract Sec 40(a

Last updated: 05 February 2008

Court :
ITAT

Brief :
Assessee/appellant was a wholly owned subsidiary of Van Oord ACZ Marine Contractors BV, Netherlands [VOAMC]. It executed a dredging contract at Port Mundra for Adani Gujarat Port Ltd. in the relevant previous year and since it followed completed contract method of accounting it debited a sum of Rs.8,65,57,909/- in the P&L a/c of relevant previous year reimbursed to VOAMC on account of mobilisation and demobilisation expenses pertaining to dredging at Mundra Port. These expenses included transportation of dredger, survey equipment and other plant and machinery from countries outside India to the site in India and re-transportation of the same on completion of the contract, including fuel cost incurred on transportation. The aforesaid services were contracted by VOAMC and were provided by various non-resident parties. Assessee applied to DCIT, International Taxation, New Delhi u/s 195(2) for Nil tax witholding certificate with respect to reimbursements to VOAMC for such charges which was rejected, and instead DCIT directed assessee to deduct TDS from the reimbursements on 11% of the amount treating it as profit of VOAMC as latter had received income from assessee for services rendered in india which led to accrual of income to VOAMC thus was liable to be taxed.

Citation :
2008-TIOL-60-ITAT-DEL