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Permanent establishment deductions upheld for expatriate salaries, direct costs and trading losses, while head-office costs require fresh classification.
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Expatriate salaries reimbursed by an Indian permanent establishment to its head office were treated as deductible Indian business costs where employees worked exclusively in India and their full salaries were taxed there; the statutory head-office expenditure restriction did not apply. Interest paid by a foreign bank branch to its head office or overseas branches was characterised as payment to self, creating no taxable income or withholding obligation. Directly allocated technology, managerial and tax costs were allowable where allocation keys and business benefits were established, without royalty, fees-for-technical-services or nil arm's-length-price treatment. Leasehold-premises refurbishment was revenue expenditure, and year-end forward-contract revaluation loss was an allowable accrued trading loss under consistently applied accounting methods. Head-office expenditure was remanded for item-wise examination under domestic law and the India-UK treaty, while transfer-pricing provisions remained applicable to associated-enterprise/PE transactions.
Expatriate salaries reimbursed by an Indian permanent establishment to its head office were treated as deductible Indian business costs where employees worked exclusively in India and their full salaries were taxed there; the statutory head-office expenditure restriction did not apply. Interest paid by a foreign bank branch to its head office or overseas branches was characterised as payment to self, creating no taxable income or withholding obligation. Directly allocated technology, managerial and tax costs were allowable where allocation keys and business benefits were established, without royalty, fees-for-technical-services or nil arm's-length-price treatment. Leasehold-premises refurbishment was revenue expenditure, and year-end forward-contract revaluation loss was an allowable accrued trading loss under consistently applied accounting methods. Head-office expenditure was remanded for item-wise examination under domestic law and the India-UK treaty, while transfer-pricing provisions remained applicable to associated-enterprise/PE transactions.
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