TaxTMI 
TaxTMI 
2003 (7) TMI 68
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....es ship repairs. The accounting year, relevant to the assessment year in question, was the calendar year 1976. In the assessment proceedings, the assessee challenged the treatment of the head office expenses effected by the Assessing Officer and also the applicability of section 44C after June 1, 1976. Section 44C came into force with effect from June 1, 1976. The head office expenditure in the case of a non-resident is allowable in accordance with section 44C This section contains a non obstante clause. Therefore, it is a code by itself. It deals with deduction in respect of head office expenditure which is restricted to the least of the following: (a) An amount equal to five per cent. of the adjusted total income or in the case of a loss, an amount equal to five per cent. of the average adjusted total income as defined under Explanation (ii); or (b) An amount equal to the average head office expenditure as defined in Explanation (iii); or (c) Actual head office expenditure incurred by the assessee as is attributable to business of the assessee in India. Now, in the present case as held by the Assessing OffiCer, on account of losses during the assessment year in questi....
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....l income". He further pointed out that on the facts of this case, in view of the adjusted total income in respect of the earlier three years also having a negative figure, Explanation (ii) was also not applicable. He, therefore, contended that this was a peculiar case where for the aforesaid reasons, clause (a) of section 44C had to be ignored and that the applicability of section 44C should be restricted to clauses (b) and (c) and the least of the two would provide allowance under section 44C to the assessee. That, on that basis if section 44C is restricted to clauses (b) and (c) ignoring clause (a) then, the assessee was entitled to deduction of Rs. 8.47 lakhs under section 44C(b) read with Explanation (iii). He contended that the Legislature intended to grant benefit of allowance for head office expenses when incurred. He contended that if the interpretation of the Department was to be accepted then, the assessee would be denying the allowance under section 44C in entirety. He contended that the emphasis of section 44C is on expenditure and it is not on the positive or negative figure of the adjusted total income. He contended that in this case the assessee had no assessable inc....
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....ce referred to in this section or in sub-section (2) of section 32 or the deduction referred to in section 32A or section 33 or section 33A or the first proviso to clause (ix) of sub-section (1) of section 36 or any loss carried forward under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) of section 74 or sub-section (3) of section 74A or the deductions under Chapter VIA; (ii) 'average adjusted total income' means,-- (a) in a case where the total income of the assessee is assessable for each of the three assessment years immediately preceding the relevant assessment year, one-third of the aggregate amount of the adjusted total income in respect of the previous years relevant to the aforesaid three assessment years; (b) in a case where the total income of the assessee is assessable only for two of the aforesaid three assessment years, one-half of the aggregate amount of the adjusted total income in respect of the previous 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 ....
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....operating through branches in India used to reduce the incidence of tax in India by inflating their head office expenses. With a view to get over this difficulty, section 44C was inserted laying down certain ceiling limits for the deduction of the head office expenses in computing the taxable profits in the case of non-resident taxpayers. Therefore, the object and scope of the section was to restrict the inflated claims of the assessee in respect of the head office expenses. This object is required to be kept in mind for deciding the matter. Issue: It is the case of the assessee that if one out of the three parameters mentioned in clauses (a), (b) and (c) of section 44C is not attracted then, that particular parameter should be ignored and, in that event, the least of the remaining two parameters should be taken into account. That, in this case, according to the assessee, clause (a) should be ignored and the least of the deductions under clauses (b) and (c) should be taken into account as the base for computing the allowance under section 44C For the reasons given hereinafter, we are not required to answer this issue in this matter as, on the facts, we have found that all the....
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....ce, clause (a) represents one of the three items of expenses which is a stipulated percentage of the adjusted total income/average adjusted total income. The expression "adjusted total income" has been defined to mean the total income computed in accordance with the provisions of the Act without giving effect to the stipulated allowance/deduction. Now in the present case, the adjusted total income is nil on account of the loss suffered by the assessee during the current year. Therefore, the proviso to section 44C comes into force. Under that proviso, deduction will be restricted to five per cent. of the average adjusted total income as defined under Explanation (ii) which states that the average adjusted total income shall mean, inter alia, one-third of the aggregate amount of the adjusted total income in respect of the previous year relevant to the three preceding years prior to the assessment year in question. Now whether one looks at Explanation (i) or Explanation (ii), it is clear that both these Explanations refer to the concept of total income. The expression "total income" has been defined under section 2(45) to mean the total amount of income referred to in section 5 and co....