Branch taxation principles: expatriate salaries, head-office interest, deferred guarantee commission and MAT on a banking company.

Expatriate salaries paid in Japan were treated as wholly attributable to the Indian branch and not allocable to the head office, with section 44C not affecting the position on the facts stated. Interest paid by the Indian branch to the head office was deductible in computing branch profits and did not trigger withholding under section 195; the same reasoning applied to reciprocal interest received from Indian branches. Deferred bank guarantee commission was not taxable in the manner proposed by the Revenue. Section 115JB did not apply to the banking company on the stated facts, as its accounts were not prepared under Part II of Schedule VI and the minimum alternate tax provision was not retrospectively extended.

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Issues: (i) Whether salaries paid in Japan to expatriate employees could be allocated to the head office or were deductible only against the Indian branch; (ii) whether interest paid to the head office and interest received from Indian branches could be subjected to adjustment or withholding consequences in the assessee's hands; (iii) whether deferred bank guarantee commission was taxable in the manner contended by the Revenue; and (iv) whether section 115JB of the Income-tax Act, 1961 applied to the assessee-bank.

Issue (i): Whether salaries paid in Japan to expatriate employees could be allocated to the head office or were deductible only against the Indian branch.

Analysis: The issue had already been considered on identical facts by coordinate and High Courts. The expenses were incurred wholly and exclusively for the Indian branch, and no part of such expenditure could be attributed to another branch or the head office. The applicability of section 44C was not in dispute on these facts.

Conclusion: The issue was answered in favour of the assessee.

Issue (ii): Whether interest paid to the head office and interest received from Indian branches could be subjected to adjustment or withholding consequences in the assessee's hands.

Analysis: The issue stood covered by prior binding precedent holding that interest paid by an Indian branch to its head office was allowable as a deduction while computing branch profits, and that such payment did not attract deduction of tax at source under section 195. The same reasoning governed the reciprocal interest received from Indian branches.

Conclusion: The issue was answered in favour of the assessee.

Issue (iii): Whether deferred bank guarantee commission was taxable in the manner contended by the Revenue.

Analysis: The issue was already concluded by an earlier decision on the same point, which treated the commission as not liable to the Revenue's proposed adjustment on the facts presented.

Conclusion: The issue was answered in favour of the assessee.

Issue (iv): Whether section 115JB of the Income-tax Act, 1961 applied to the assessee-bank.

Analysis: The assessee was a banking company whose accounts were not prepared under Part II of Schedule VI of the Companies Act, 1956. The provision introducing minimum alternate tax did not retrospectively extend to such a banking company, and the treaty computation mechanism also displaced the Revenue's stand on the facts found by the Tribunal.

Conclusion: The issue was answered in favour of the assessee.

Final Conclusion: No substantial question of law arose on the issues pressed by the Revenue, and the appeals failed in entirety.

Ratio Decidendi: Where binding precedent covers the tax issue and the statutory conditions for the disputed adjustment or levy are absent, no substantial question of law arises and the Revenue cannot succeed in appeal.

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