TaxTMI 
TaxTMI 
2003 (7) TMI 6
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....as allowable under section 37(1), as section 44C of the Income-tax Act was not applicable in the case of the assessee?" Facts: The assessee is a foreign bank. On July 23, 1984, the assessee filed its return of income for Rs. 1.61 crores. This return was revised on October 27, 1986 and the income was reduced to Rs. 1.47 crores. The reason for revising the return was the claim of the assessee for deduction of the full amount of head office expenses debited to the profit and loss account to the extent of Rs. 21.07 lakhs on the ground that section 44C was not applicable as one of the three parameters mentioned in clauses (a), (b) and (c) of section 44C was not attracted. According to the assessee, when one of the three parameters failed, ....
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.... In this case, according to the Department, the parameter in clause (b) is not fulfilled and, therefore, the Department has taken into account deduction under clauses (a) and (c) of section 44C and has restricted the deduction to the least of the deductions under clauses (a) and (c). Secondly, if this court comes to the conclusion that in the event of the failure of one out of the three parameters, the entire section 44C becomes non-applicable, whether the Tribunal was justified in granting deduction for the entire head office expenses to the tune of Rs. 21.07 lakhs under section 37(1) of the Act? Arguments: Mr. R.V. Desai learned senior counsel appearing on behalf of the Department, contended that the object of section 44C which was ....
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...., reads as under: "44C. Deduction of head office expenditure in the case of nonresidents.- 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) an amount equal to the average head office expenditure; or (c) the amount of so much of the expenditure in the nature of head office expenditure incurred by the assessee as is att....
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....us years relevant to the aforesaid two assessment years; (c) in a case where the total income of the assessee is assessable only for one of the aforesaid three assessment years, the amount of the adjusted total income in respect of the previous year relevant to that assessment year; (iii) 'average head office expenditure' means,- (a) in a case where any expenditure in the nature of head office expenditure has been allowed as a deduction in computing the income of the assessee chargeable under the head 'Profits and gains of business or profession' in respect of each of the three previous years relevant to the assessment years commencing on the 1st day of April, 1974, the 1st day of April, 1975, and the 1st day of April, 1976, one-th....
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....enditure. This section 44C deals with head office expenditures in the case of non residents, it begins with the non obtstante clause. It states, inter alia, that notwithstanding anything to the contrary contained in sections 28 to 43A deduction in respect of head office expenditure is restricted to the least of the following: (a) an amount equal to 5 per cent, of the adjusted total income or in the case of a loss, an amount equal to 5 per cent, of the average adjusted total income as defined under Explanation (ii); or (b) an amount equal to average head office expenditure as defined in Explanation (iii); or (c) actual head office expenditure incurred by the assessee as is attributable to the business of the assessee in India. No....
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.... It is restricting the deduction under section 37(1) of the Act by virtue of the overriding provisions contemplated by section 44C. Therefore, when the working of section 44C fails, the entire section 44C becomes non-workable and consequently, the assessee would become entitled to the full deduction under section 37(1) of the Act. Section 44C restricts the head office expenditure. Section 44C provides for three parameters in the matter of computing deduction for head office expenditure incurred by a non-resident. Section 44C specifically states that deduction for the head office expenditure should be restricted to the least of the three parameters. The expression used in section 44C is "whichever is the least". This expression shows that th....