TaxTMI 
TaxTMI 
2011 (1) TMI 923
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....impugned order on this issue. This ground is not allowed. 4. Ground no. 2 of the Departmental appeal is against the deletion of disallowance on account of broken period interest. Here also, both the sides are in agreement that the Special Bench of the Tribunal in the aforenoted case has decided this issue in assessee's favour. Respectfully following the same, we approve the impugned order on this issue. This ground is not allowed. 5. Ground no. 3 of the Revenue's appeal is against the deletion of addition u/s.14A, being the expenditure incurred in earning the income claimed to be exempt u/s. 10(33). The ld. counsel submitted that the Special Bench of the Tribunal in assessee's own case restored the matter to the file of AO for taking a decision in accordance with the Special Bench order in the case of Daga Capital Management (117 ITD 169). It was, however, submitted that the Hon'ble jurisdictional High Court, by a subsequent judgment, in the case of Godrej & Boyce Mfg. Ltd. v. DCIT (2010) 328 ITR 81 (Bom.), has decided the question of disallowance u/s.14A of the Act. 6. After considering the rival submissions and perusing the relevant material on record, we find that the i....
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....ength price. He computed the total income by adopting the "Income as per computation of income [before giving deduction u/s. 36(1)(viia), u/s. 44C of the Act) at (-) Rs. 1,50,46,963/-. Then he added back, inter alia, a sum of Rs.2,66,55,813/- towards "Adjustment made by the Transfer Pricing Officer". Thereafter, he allowed deduction u/s.44C at Rs. 24,64,413/-. 9. Aggrieved thereby, the assessee went in first appeal. The ld. CIT (A) came to hold that the claim of expenses of Rs.24,64,413/- was made by the assessee, which was allowable u/s.44C as per the books of account. On the other hand, the assessee had allocated expenses of Rs.47,17,311/- to the Indian Branch. He observed in para 8.6 of the impugned order that the Transfer Pricing Officer (TPO) computed such expenses attributable to the operation of Indian Branch at Rs.44,46,522/-. In view of the fact that the maximum amount allowable was only Rs.24,64,413/- u/s.44C, he held that the reduction of the Head Office expenses by the TPO to the tune of Rs.44.46 lakhs was of no relevance. Accordingly, the claim of deduction for Head Office expenses was held to be deductible u/s.44C as per law. It was further noted that the assessee ....
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.... under : "44C. Notwithstanding anything to the contrary contained in sections 28 to 43A, in the case of an assessee, being a non-resident, no allowance shall be made, in computing the income chargeable under the head "Profits and gains of business or profession", in respect of so much of the expenditure in the nature of head office expenditure as is in excess of the amount computed as hereunder, namely :- (a) an amount equal to five per cent of the adjusted total income; or (b) (c) The amount of so much of the expenditure in the nature of head office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India, whichever is the least : Provided ........... Explanation,- ........... (i) ........ (ii)........ (iii)........ (iv) "head office expenditure" means executive and general administration expenditure incurred by the assessee outside India, including expenditure incurred in respect of- (a) rent, rates, taxes, repairs or insurance of any premises outside India used for the purposes of the business or profession; (b) salary, wages, annuity, pension, fees, bonus, commission, gratuity, perquisi....
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....go by and secondly, a ceiling has been imposed on the quantum of deduction of such Head Office expenditure in the assessment of non-resident Indian Branch. For example, if out of US$100 the Head Office had allocated US$10 to the Indian Branch, but as per the provisions of sec. 44C the limit of the amount deductible comes to US$6, the figure of US$6 will be allowed as deduction to the Indian Branch, notwithstanding the assessee's claim for US$10 expenditure. 13. At this juncture, it would be relevant to note that broadly there may be two types of head office expenses, viz., those incurred by the head office in common to be shared by the benefitting branches and those incurred exclusively for the Indian branch. The spirit of section 44C, as discussed above, is to do away with the exercise of finding the correct proportion of the common head office expenses claimed by the assessee. Resultantly, the cap provided u/s.44C becomes operative only qua the share in common expenditure incurred by the Head Office. The second category of expenses incurred by the head office exclusively for the Indian branch are outside the purview of sec. 44C as there is no question of finding any share of t....
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....he Indian Branch for having borne allocated Head Office expenses, (ii) such claim as supported by relevant evidence. (iii) Limiting the deduction of allocable expenditure as per section 44C. The result of steps (i) & (ii) is the determination of the allocable Head Office expenditure in the hands of the assessee. Once we reach step (ii), the amount actually deductible from the income of the assessee is found out under step (iii). 15. If, however, some exclusive expenditure has been incurred by the Head Office for the Indian Branch, it would be allowed as per the regular provisions of the Act without clubbing it with common head office expenses, provided there is a valid claim for such expenditure, which is substantiated by the relevant evidence. 16. Adverting to the facts of the instant case, it is seen that basically there is claim by the assessee in respect of three categories of head office expenses, viz., Direct and exclusive NRI Desk expenses (hereinafter called 'A'); Allocated staff costs incurred by OBD and various other Head Office Support Centres to NRI Desk (hereinafter called 'B'); and other common head office expenses other t....
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....is for serving the non-resident Indian customers. Only the Indian branch is beneficiary of such NRI desk. When the fact of incurring such direct and exclusive expenses by the head office for the Indian Branch and its quantum stands proved, the assessee becomes entitled to deduction in full without covering them within the purview of sec. 44C. We, therefore, hold that expenses covered under category A above representing Direct staff costs and Travel & communication expenses at BD 81,192 and BD 17,866 respectively are to be allowed in full. The impugned order is upheld to this extent. 19. Next are the Allocated staff costs incurred by OBD and various other Head Office Support Centres given at Serial No.3(a to f) of the table at BD 35,610 and Allocated general and administration costs given at serial no. 4(a to d) of the table at BD 34,517 which have been referred to above as the expenses covered in the category B. Here the controversy is two-fold. First is the dispute about the basis of allocation of such expenses (covered under steps i and ii above) and second is the inclusion or otherwise of such expenses u/s 44C (covered under step iii above). The ld. A.R. vehemently argued tha....
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....Desk outside India, shall be separately deducted under the general provisions of the Act and in the like manner, the shared or allocated expenses incurred by the head office for the Indian branch, within or outside India, shall be considered for deductibility under sec. 44C of the Act. In that view of the matter, we overturn the impugned order on this score and hold that the items of head office expenses mentioned in above table under (3) a to f and (4) a to d, can be considered only under sec. 44C and there is no scope for granting separate deduction under the general provisions of the Act. It is further subject to the condition that these expenses are, in fact, incurred for the business of Indian branch and there is evidence in support of such expenses. It is here that the above referred step ii comes into play. 21. Now let us examine whether the items of head office expenses mentioned in above table under (3) a to f and (4) a to d have been really incurred for the Indian branch. It is in this context that the report of the TPO is relevant, which has elaborated on the correctness of the allocation of these expenses. The TPO was verifying whether the allocated costs claimed by ....
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....he Office of Head of OBD between the NRI department and the other departments was based on the ratio of the average number of staff of the NRI department to the average number of staff at Head Office during the year. The ld. A.R., however, could not invite our attention towards any invoice or debit note issued by the Head Office for which the assessee had claimed deduction of BD 13,307. He accentuated on para 8.2 of the impugned order, through which it was mentioned by the assessee before the ld. CIT(A) that even though no invoice or debit note was raised by the Head Office and the Head Office expenses were not remitted during the year, but in the subsequent year, the assessee remitted the available surplus fund plus Head Office expenses to the Head Office. He also referred to the stand taken by the assessee before the ld. first appellate authority that a certificate determining the remittable surplus allowable under FEMA was prepared and certified by the Branch auditors, a copy of which was filed before him, to show that the Head Office expenses and NRI desk expenses were taken into account while remitting the surplus of US $5,97,598 to the Head Office. There can't be any doubt on....