INCOME TAX ACT, 1961

Deduction under section 44C- Head office expenditure-Attributed to Indian PE of non-resident law applicable

Assessee computed the figure of profit after certain additions and reductions from the amount of net profit as per profit and loss account in the original computation of income. A sum towards NRI desk/other expenses incurred at the head office was reduced for determining the amount of loss. Further, deduction was claimed for Head office Administration Expenses Admissible. Subsequently, the return was revised. In the computation filed along with the revised return of income some deductions were claimed or loss was added with certain figures to find out the amount of loss. From impugned figure, deduction of head office administration expenses, restricted to 5 per cent was made. AO noticed that the expenditure was in the nature of general administration expenses, while finalizing the assessment and he restricted it within the limits prescribed under section 44C. However, no addition was made on this account in the computation of total income since the same was already adjusted on consideration of arms length price. He computed the total income by adopting the Income as per computation of income before giving deductions under section 36(1)(viia), under section 44C. Then he added a sum towards Adjustment made by the Transfer Pricing Officer (TPO). Thereafter, he allowed deduction under section 44C. CIT(A) was held that the claim of expenses was made by the assessee, which was allowable under section 44C as per the books of account. He observed that the Transfer Pricing Officer (TPO) computed such expenses attributable to the operation of the Indian Branch. He was held that the reduction of the head office expenses by the TPO was of no relevance. Therefore, the claim of deduction for the head office expenses was held to be deductible under section 44C. It was further noticed that the assessee had claimed NRI Desk expenses. CIT(A) was held that those expenses were not to be restricted under section 44C. He found that the TPO had doubted the principles of allocation adopted by the auditor under various heads of the NRI Desk. Therefore, he was held that the TPO was not justified in restricting the NRI Desk expenses against a sum claimed by the assessee as deductible in full. Held:As per the provision of section 44C it was found that allowing deduction of head office expenditure in the case of non-residents, opened with a non obstante clause. It then proceeds by providing that the head office expenditure, as per Explanation (iv), could be allowed as deduction only to the extent provided herein. It had two points:first being an amount equal to five per cent of the adjusted total income and the second being 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. Lower of these two amounts was deductible under section 44C. It might be possible that the head office may have different branches, spread over different countries. In present case the head office had its branches in 30 countries, including one in India. It became difficult for AO to ascertain with exactitude the proportion really attributable to the Indian Branch. Section 44C was inserted so that AO might not have to undertake this exercise. [Para 12]