TaxTMI 
TaxTMI 
2026 (8) TMI 134
X X X X Extracts X X X X
X X X X Extracts X X X X
....enue in ITA No.9162/Mum/2004 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing to allow the sum of Rs. 9,48,70,897/-towards expenses incurred for Indian Branches u/s. 37(1) of the Income Tax Act, 1961 holding it outside the scope of section 44C of the IT Act. 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 6,06,94,815/- on account of expenditure incurred in earning income claimed exempt u/s. 10(15) & 10(23G) of the IT Act. 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to compute deduction under section 36(1)(viia) of the IT Act 1961 before the deduction u/s. 44C of the Act." Grounds raised by Assessee in ITA No.8681/Mum/2004 "1.1 The Commissioner of Income-tax (Appeals)-XXXI, Mumbai erred in disallowing the tax deducted at source of Rs. 54,231,957 on the gross interest payable to your Appellant's overseas branches. 1.2 The Appellant is one entity and can file only one return of income under the Act. The Singapore branch of the Bank constitutes pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... covered by the provisions of section 44C of the Act. After relying on the decisions, the Ld. AO rejected the contention of the assessee and held that the expenses relating to NRI deposits (NRI Desk) are general and administrative expenses within the meaning of section 44C of the Act. Ld. AO, raised the second issue regarding payment of interest, invoked the provisions of section 44C of the Act and after deliberations had disallowed an amount of Rs. 43,94,246/- out of interest paid by the bank. 4. The third issue pertains to payments to clubs. Ld. AO observed that in the earlier year 1998-99, club payments were disallowed holding that there is no evidence that this resulted in any extra benefit to the assessee from the business angle. Therefore, under identical facts and circumstances, payments made to clubs amounting to Rs. 11,57,565/- are added back to the income of the assessee. 5. Another issue was relating to TDS claimed on interest paid to overseas branches. On this aspect, the assessee's claim for interest paid to overseas branches was denied by the Ld. AO, observing that the claim of assessee cannot be allowed at the outset, the interest paid is an income to the overs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved as under: (i) Regarding disallowance claim of expenses of Rs. 9,48,70,897/- incurred by the assessee's overseas branches for soliciting NRI deposits by NRI desks, by applying provisions of section 44C of the Act. Ld. CIT(A) followed the decision of CIT vs. Abu Dhabi Commercial Bank (ITR 17 of 1996) and in the case of American Express Bank vs. DCIT (ITR 3 of 2002). In both the aforesaid cases, the Hon'ble Jurisdictional High Court of Bombay has held that such expenses are allowable u/s. 37(1) and are outside the scope of section 44C of the Act, therefore the AO is directed to allow the same. On this aspect, the Revenue is in appeal before us. (ii) Ld. CIT(A) has decided the second ground regarding disallowance of expenditure of Rs. 11,57,565/- on Membership Fees and Subscription paid to clubs. This issue is also decided in favour of the assessee by directing the AO to allow the claim of assessee by observing that the Hon'ble Jurisdictional High Court in the case of Otis Elevator CO (India) Limited vs. CIT has held that the payments of club fees were made with a view to enable the assessee to improve its business relations and prospects and therefore must be all....
X X X X Extracts X X X X
X X X X Extracts X X X X
....44C should be computed on gross total income after giving deduction u/s. 36(1)(viia) of the Act. The ground of assessee was allowed. On this issue, the Revenue is in appeal before us. (vi) One more additional ground is raised by the assessee before the Ld. CIT(A) regarding disallowing the loss on revaluation of securities at the end of year. This issue has been discussed by the Ld. CIT(A), following the decision of Jurisdictional High Court as well as Hon'ble Apex Court in various cases relied upon by the assessee, had directed the AO to allow the assessee's claim for deduction of Rs. 3,00,237/- on this account. 8. In view of aforesaid observations, Ld. CIT(A) had partly allowed the appeal of assessee, there being various reliefs granted by the Ld. CIT(A) and also certain disallowances/additions made by the AO are confirmed. Therefore, being aggrieved with the aforesaid order of Ld. CIT(A), both Assessee as well as Revenue is in appeal before us in the present matters. 9. First, we shall be taking the issues raised by the Department in their appeal in ITA No.9162/Mum/2004 - 9.1 Ground No.1 of the Revenue's appeal pertains to allowing the disallowance of expenditur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n) and its geographic location (incurred outside India). It is entirely irrelevant whether such expenditure is common or exclusive. c) Thirdly, clause (c) mandates computation on an actual basis, and the phrase "attributable to" as present in clause (c) is wide enough to encompass both the shared expenses allocated to India branches and exclusive expenses incurred for India branches." 9.4 They further crystallized their observations by observing as under: "75. In other words, for an expenditure to qualify as 'head office expenditure' within the meaning of the Explanation to Section 44C, the assessing officer has to be satisfied of the following three ingredients: a) First, the expenditure must be incurred outside India. b) Secondly, the expenditure must be in the nature of executive and general administration, i.e., a broad genus. c) Thirdly, the said executive and general administration expenditure must fall within the specific species enumerated in clauses (a), (b), and (c), or expressly prescribed under clause (d)." 9.5 Hon'ble Apex Court while according the final remarks, had concluded their decision in following terms: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usal of the records of the authority below reveals that the authorities have not satisfactorily dealt with the question whether the impugned expenditure actually constitutes head office expenditure' as defined in the statute. It also appears that the authorities below conceived the meaning of head office expenditure' in a broad and inclusive sense, which we have held is not a correct reading of the exhaustive definition provided in the Explanation. In other words, there is no factual finding on whether the expenses fulfil the three specific criteria we have elucidated in this judgment. 90. As an appellate court, we should not embark upon such a fact-finding exercise. Consequently, we remand the matters to the Income Tax Appellate Tribunal, Mumbai, for the limited purpose of verifying whether the disputed expenditures satisfy the tripartite test necessary to qualify as head office expenditure' under the Explanation to Section 44C of the Act, 1961." 9.6 We further note that the Co-ordinate Bench of ITAT Mumbai in a recent decision, in the case of DDIT(IT)-1 vs. M/s. American Express Bank Ltd. in ITA No. 3487/Mum/2004 for AY 1999-2000, order dated 17.04.2026 ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ource. In our view, the issue requires fresh examination at the end of the A.O., after analyzing in detail the nature of expenditure. 23. In view of the aforesaid, we are inclined to restore the issue to the A.O. for de novo adjudication, keeping in view the ratio laid down by the Hon'ble Supreme Court in the decision referred to above. Needless to mention, before deciding the issue, the assessee must be provided reasonable opportunity of being heard. This ground is allowed for statistical purpose." 9.7 We thus, in terms of aforesaid findings of ITAT Mumbai in the case of American Express Bank Ltd. (supra), which follows the ratio of law and observations by the Hon'ble Apex Court in the case of American Express Bank Ltd (supra), thus, having parity of facts in the present case, the issue regarding expenditure incurred by assessee on "Data processing cost- Croydon" for Rs. 7,02,64,865/- deserves to be restored to the file of Ld. AOto identify for determining whether they qualify as 'head office expenditure' in terms of clause (iv) of Explanation to section 44C of the Act., whereas the NRI desk expenses claimed by the assessee, which are disallowed by Ld. AO a....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the learned Senior Counsel, appearing for the assessee, reiterated the contention that the assessee had sufficient interest-free funds for making investments for earning tax-free income. From the details of own funds available with the assessee as of 31st March for the period from 1998 to 2000 and the statement of lending to infrastructure projects and investment in tax-free bonds, as noted in the foregoing paragraphs, it is sufficiently evident that the assessee's own funds were more than the investments for earning exemptincome. We find that the Hon'ble Jurisdictional High Court in CIT v/s HDFC Bank Ltd., reported in [2014] 366 ITR 505 (Bom.), held that where assessee's own funds and other non-interest bearing funds were more than the investment in tax-free securities, no disallowance under section 14A of the Act can be made. We further find that the Hon'ble Supreme Court in South Indian Bank Ltd. v/s CIT, reported in [2021] 438 ITR 001 (SC) held that disallowance under section 14A of the Act would not be warranted where interest-free own funds exceed the investment in tax-free securities and in such a case the investment would be presumed to be made out of asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Office Expenditure is restricted either to an amount equal to 5% of the adjusted total income or the amount of Head Office Expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India, whichever is less. The term "adjusted total income" has been defined in the Explanation to section 44C as follows: - "(i) "adjusted total income" means the total income computed in accordance with the provisions of this Act, without giving effect to the allowance 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) 55 [or sub-section (3)] of section 74 or sub-section (3) of section 74A or the deductions under Chapter VI-A;" 28. From the plain reading of the above Explanation, it is evident that "adjusted total income" would mean total income without giving effect to the specified deductions as mentioned in the Explanation. We find that deduction under section 36(1) (vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) was not right in invoking revisionary provisions of section 263, as the Ld. AO has followed the findings of his predecessors, wherein no income has been added in the hands of assessee for interest payment by domestic branches to the head office/overseas branches. Since the assessment records of the earlier years were available with the Assessing Officer, allowing the assessee's claim that subjected interest was not taxable in the hands of PE in India. In view of judicial precedents, the assessment order passed by the Ld. AO cannot be treated as erroneous. 13.1 Per contra, Ld. DR submitted that for claiming of refund, there are separate proceedings available in the Act u/s. 19(2)(b) of the Act and TDS deducted on payments cannot be claimed back by the assessee, who had deducted the TDS itself. In rebuttal, Ld. Senior Counsel submitted that it is not mandatory that income should be assessed or offered for refund of TDS where the deductor has erroneously deducted the TDS. 13.2 We have considered the rival submissions, perused the material available on record and the decisions relied upon by the parties. Admittedly, following the decision of Hon'ble Special bench in the case of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....1 Your Appellants submit that the deduction under section 36(1)(viia) should be computed before calculating the deduction under section 44C of the Act. Ground No. 2 2.1 Your Appellants submit that the deduction u/s. 44C of the Act should be computed on gross total income after giving deduction u/s. 36(1)(viia) of the Act. Ground No. 3 3.1 Your Appellants submit that The Assistant Commissioner of Income-tax-Circle 1(1), Mumbai hereinafter referred to as "the AO] erred in disallowing the loss of Rs. 300,237 on revaluation of securities. 3.2 The AO erred in holding that securities held by your Appellants were investments in permanent securities and not stock in trade." 14.1 The Additional Ground No.1, 2 and 3 are covered by the issues raised by the Revenue in the aforesaid appeal in ITA No.9162/Mum/2004, our decision therein shall apply mutatis mutandisto the aforesaid additional grounds of assessee. Accordingly, additional Ground Nos.1, 2 and 3 are allowed in favour of the assessee. 15. In result, the appeal of assessee in ITA No.8681/Mum/2004 is partly allowed, in above terms. ITA No.2283/Mum/2005 (Revenue) and 2284/Mum/2005 (As....