Reimbursement is not the solution for avoiding Witholding tax

Van Oord ACZ Marine Contractors BV vs. ADIT (ITAT Chennai)

Fact that third party invoices are paid does not necessarily show “reimbursement”

The assessee, a Netherlands company, was awarded a dredging contract to be carried out at Port Mundra. It assigned the contract to its fully owned Indian subsidiary. It also entered into a “cost allocation agreement” under which it agreed to provide to the subsidiary all services necessary to execute the dredging contract in return for a reimbursement of the costs. It received Rs. 11.53 crores from the subsidiary towards invoices raised by third parties and claimed that as it was a “reimbursement of expenditure” incurred by the assessee it was not chargeable to tax. The AO & DRP assessed the receipts as “fees for technical services”. It was also held that the subsidiary was a “Dependent Agent Permanent Establishment”. On appeal by the assessee, HELD dismissing the appeal: