Head office expenditure under section 44C excludes licence fees and specialised management charges not linked to general administration.

Licence fees paid for use of brand, trademarks, intellectual property rights and related technical and marketing support did not constitute head office expenditure because section 44C applies only to executive or general administration expenses incurred outside India. Management charges for specialised functions such as finance, human resources, IT, audit, legal, operational management, risk management and taxation were likewise outside that character, so the partial disallowance could not be sustained. The disallowance was deleted.

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Issues: Whether licence fees and management charges paid by the Indian branch to the overseas group entities constituted head office expenditure so as to attract disallowance under section 44C of the Income-tax Act, 1961.

Analysis: Section 44C restricts deduction only in respect of expenditure in the nature of head office expenditure incurred outside India, meaning executive and general administration expenditure of the kind illustrated in the Explanation. The licence fee was paid for use of brand, trademark and other intellectual property rights, along with related technical and marketing support, and did not answer the description of executive or general administration expenditure. The management charges also represented specialised services such as corporate communications, finance, quality assurance, human resources, information technology, audit, legal, operational management, risk management and taxation, which likewise were not shown to be expenses of the character contemplated by section 44C. The earlier partial disallowance made by treating a portion of the management charges as covered by section 44C was not sustained.

Conclusion: Licence fees and management charges did not fall within the ambit of head office expenditure under section 44C, and the disallowance was deleted.

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