The Indian Supreme Court, on December 15, returned a finding on the interpretation of section 44C of the Income Tax Act, on whether it merely covers “common expenditure” incurred by the head office attributable to a taxpayer’s business in India, or would also include “exclusive expenditure” incurred by the head office for the Indian branches.
The court ruled that section 44C is a special provision that exclusively governs the quantum of allowable deduction for any expenditure incurred by a non-resident assessee that qualifies as head office expenditure.
According to the court, for an expenditure to be brought within the ambit of section 44C, two broad conditions must be satisfied: the taxpayer claiming the deduction must be a non-resident; and the expenditure in question must strictly fall within the definition of “head office expenditure” as provided in the Explanation to the section.
Once the conditions are met, the operative part of section 44C gets triggered, the court found.
The court clarified that the statutory definition is broad and inclusive, containing no indication that “exclusive expenditure” is to be excluded from its ambit. Furthermore, the term “attributable” in clause (c) does not create a statutory distinction between “common” and “exclusive” expenditure.
The decision came in the case of Director of Income Tax vs. American Express Bank Ltd. The Revenue was represented by Advocate Raghavendra P Shankar, and the taxpayer was represented by Percy Pardiwala.