INCOME TAX ACT, 1961

--Income --Mutuality principle Interest received from Head Office--Assessee was a non-resident carrying on banking business in India. It placed certain funds with its Head Office and earned amount of interest which was claimed as exempt. Assessing officer did not allow any exemption with respect to interest income and accordingly taxed the same. Held: Was not justified as the transactions between the Head Office and Branch resulting into interest income or interest expenditure were to be viewed as transaction with self. More so, on the basis of mutuality, there could be neither any income in respect of interest earned from its overseas branches, nor there could be deduction for interest expenditure paid by the Indian Branch to Head Office on the other overseas branches. Held: The ratio of special bench decision in so far it concerns the examination under the provisions of the Act and not the DTAA. It is different matter that the decision of the special bench rendered in this case in the context of the DTAA has been reconsidered by a larger bench, with which we are not presently concerned. Respectfully following the ratio of this decision in the context of the Income Tax Act, 1961, it was held that the interest income has resulted only from the assessee's dealings with its Head office cannot be charged to tax on the principle of mutuality. Accordingly no tax can be levied on the interest earned by the assessee from its Head office or overseas branches. At the same time became it clear that the principle of mutuality will extend equally in respect of interest paid by the assessee to its head office or other overseas branches. [Para 3]

Income Tax Act, 1961 Section 4

INCOME TAX ACT, 1961

--Deduction under section 44C--Head Office expenditure Higher deduction was claimed in revised return as compared to original return--Assessee had claimed higher deduction of specific expenses incurred by Head Office on behalf of Indian Branch as per revised return instead of original return. Assessing officer disallowed the same and allowed deduction according to original return. Held: Was not justified as it was the duty of assessing officer to consider the higher claim under section 44C and not to restrict himself to the claim made in the original return.

Income Tax Act, 1961 Section 44C