Computation of Income and disallowance of expenses relating to H.O cannot be made by invoking section 44C of IT Act

Last updated: 03 September 2012

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
Briefly stated facts of the case are that the assessee is a commercial bank having its Head Office in U.A.E. The assessee has two branches in India i.e. Mumbai and Bangalore. It is involved in normal banking activities including financing of foreign trade and foreign exchange transactions. During the course of assessment proceeding it was inter alia observed by the A.O. that the assessee has claimed Head Office expenses of Rs. 1,98,01,876/- based on the actual expenses incurred by the Head Office which are attributable to Indian branch. He further observed that the entire expenditure has been claimed by way of deduction on the ground that no restriction should be made in view of Article 7(3) of the treaty. However, the A.O. did not agree with the claim of the assessee and held that all the said expenditure, which are not debited to the books of accounts of the assessee and are executive and administrative in nature have to be treated as Head Office expenses in respect of which deduction is allowable only as per provisions of section 44-C of the Income Tax Act, 1961 (the Act). Accordingly he disallowed the same. On appeal the ld. CIT(A) following the appellate order for the assessment years 1997-98, 1998-99, 1999- 2000, 2000-01 and 2002-03 held that the full claim of Head Office administration and supervision expenses attributable to Indian branch cannot be allowed and this expenditure is to be allowed to the extent of limit prescribed by section 44-C and accordingly upheld the disallowance made by the A.O.

Citation :
Abu-Dhabi Commercial Bank Ltd., 75B Rehmat Manzil, Veer Nariman Road, Mumbai – 400 020. (Appellant) Vs. The Deputy Director of Income Tax (International Taxation)- 1(1), Scindia House, Narottam Morarjee Marg, Ballard Estate, Mumbai – 400 038. PAN: AAACA 4216B (Respondent)