Business-procurement expenditure and foreign-branch credit card commission were held outside section 44C and Indian tax nexus.

Expenditure incurred abroad to mobilise FCNR deposits for Indian branches was treated as business-procurement cost directed to the Indian establishment, not executive or general administration expenditure under section 44C, so it was allowable on actual basis. Commission earned on credit cards issued by foreign branches and used in India was held not to arise or accrue in India because the facility was extended abroad, the debt arose outside India, and the foreign branch received the commission overseas. On both substantive questions, the view favourable to the assessee was sustained, and the appeals on merits failed.

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Issues: (i) Whether expenditure incurred abroad for mobilising FCNR deposits for Indian branches was disallowable as head office expenses under section 44C of the Income-tax Act, 1961; (ii) Whether commission received in respect of credit cards issued by foreign branches but used in India was taxable in India.

Issue (i): Whether expenditure incurred abroad for mobilising FCNR deposits for Indian branches was disallowable as head office expenses under section 44C of the Income-tax Act, 1961.

Analysis: The expenditure was incurred for soliciting non-resident deposits for the Indian banking business and the funds were brought into India for deployment in the Indian branches. The activity was directed to the Indian business and the benefit accrued to the permanent establishment in India. Such outlay was treated as expenditure for procurement of business, not as executive or general administration expenditure of the kind covered by section 44C.

Conclusion: The expenditure was not hit by section 44C and was allowable on actual expenditure basis. The finding was in favour of the assessee.

Issue (ii): Whether commission received in respect of credit cards issued by foreign branches but used in India was taxable in India.

Analysis: The credit cards had been issued by foreign branches and the credit facility was extended outside India. The debt arose outside India and the commission was received by the foreign branch for that overseas credit facility. On that footing, the income from such transactions was held not to arise or accrue in India.

Conclusion: The credit card commission was not taxable in India. The finding was in favour of the assessee.

Final Conclusion: The appeals decided on merits failed and the Tribunal's view was sustained on both substantive questions concerning FCNR-related expenditure and foreign-branch credit card commission.

Ratio Decidendi: Expenditure incurred exclusively for procuring business for the Indian establishment is not head office expenditure under section 44C, and commission on credit facilities extended by foreign branches is not taxable in India where the debt and receipt arise outside India.

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