Income-tax Act, 1961 — Ss. 37(1), 44C — Non-resident assessee — Head office expenditure — Scope — “Exclusive” vs “common” expenditure — Ceiling on deduction — Statutory interpretation — Non-resident banks claiming deduction of expenditure incurred by overseas head office exclusively for Indian branches — Assessees contending that such exclusive expenditure falls outside S.44C and is fully deductible under S.37(1) — Revenue contending that all head office expenditure incurred outside India is governed by S.44C irrespective of exclusivity — Supreme Court holding that S.44C applies once expenditure satisfies statutory definition of “head office expenditure” — No distinction between common and exclusive expenditure found in statute — Plain language unambiguous — Courts cannot add words to statute — Decisions in Emirates Commercial Bank and Rupenjuli Tea explained and distinguished — Deduction subject to ceiling under S.44C — Appeals allowed — High Court judgments set aside.

Income-tax Act, 1961 — Ss. 37(1), 44C — Non-resident assessee — Head office expenditure — Scope — “Exclusive” vs “common” expenditure — Ceiling on deduction — Statutory interpretation — Non-resident banks claiming deduction of expenditure incurred by overseas head office exclusively for Indian branches — Assessees contending that such exclusive expenditure falls outside S.44C and is fully deductible under S.37(1) — Revenue contending that all head office expenditure incurred outside India is governed by S.44C irrespective of exclusivity — Supreme Court holding that S.44C applies once expenditure satisfies statutory definition of “head office expenditure” — No distinction between common and exclusive expenditure found in statute — Plain language unambiguous — Courts cannot add words to statute — Decisions in Emirates Commercial Bank and Rupenjuli Tea explained and distinguished — Deduction subject to ceiling under S.44C — Appeals allowed — High Court judgments set aside.

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B. ANALYSIS OF FACTS

1. The respondent-assessees are non-resident banking companies carrying on business in India through branches.

2. For the relevant assessment years, the assessees claimed deduction of expenses incurred by their head offices situated outside India, asserting that:

   • such expenses were incurred exclusively for Indian branches, and

   • therefore, were allowable in full under Section 37(1) without being subjected to the ceiling prescribed under Section 44C.

3. The Assessing Officers rejected the claim and restricted the deduction by applying Section 44C, holding that:

   • the expenses constituted “head office expenditure”, and

   • the deduction could not exceed the statutory ceiling.

4. The Commissioner (Appeals) and the Income Tax Appellate Tribunal ruled in favour of the assessees, relying principally on:

   • CIT v. Emirates Commercial Bank Ltd. (Bom HC), and

   • Rupenjuli Tea Co. Ltd. v. CIT (Cal HC).

5. The Bombay High Court dismissed the Revenue’s appeals, holding that the issue stood concluded in favour of the assessees.

6. Aggrieved, the Revenue approached the Supreme Court, raising the core question regarding the true scope and interpretation of Section 44C.

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C. ANALYSIS OF LAW

1. Nature and Scheme of Section 44C

The Court held that:

• Section 44C is a special provision applicable to non-resident assessees.

• It begins with a non-obstante clause, giving it overriding effect over Sections 28 to 43A, including Section 37.

• It does not grant a deduction, but restricts the quantum of deduction otherwise allowable.

For Section 44C to apply, two conditions alone are required:

1. The assessee must be a non-resident, and

2. The expenditure must qualify as “head office expenditure” as defined in the Explanation.

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2. Meaning of “Head Office Expenditure”

The Court examined the Explanation to Section 44C and held that it is clear and unambiguous, covering:

• Executive and general administrative expenditure,

• Incurred outside India,

• Including categories expressly listed in clauses (a) to (d).

The Court categorically held that:

• The statute does not draw any distinction between:

  • “common” expenditure, and

  • expenditure incurred exclusively for Indian branches.

• Introducing such a distinction would amount to adding words to the statute, which is impermissible in taxing legislation.

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3. Rejection of “Exclusive Expenditure” Theory

The Court rejected the assessees’ contention that:

• exclusive expenditure falls outside Section 44C, and

• only common expenditure is subject to the ceiling.

It held that:

• Once expenditure falls within the statutory definition, Section 44C is automatically attracted, irrespective of exclusivity.

• Clause (c) of Section 44C does not exclude exclusive expenditure; it only provides one of the computational parameters.

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4. Interpretation of Precedents

(a) Rupenjuli Tea Co. Ltd.

• The Court held that Rupenjuli Tea was decided on peculiar facts, where:

  • the assessee had no business outside India, and

  • the computation mechanism under Section 44C itself failed.

• It does not lay down a general principle excluding exclusive expenditure from Section 44C.

(b) Emirates Commercial Bank Ltd.

• The Court noted that the decision proceeded on:

  • factual findings of recovery of expenditure from Indian branch, and

  • an assumption that Section 44C applies only to common expenditure.

• To the extent it suggests a statutory distinction between common and exclusive expenditure, it does not reflect the correct interpretation of Section 44C.

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5. Principles of Statutory Interpretation Applied

The Court reaffirmed that:

• Taxing statutes must be strictly construed.

• Where language is plain and unambiguous, courts must give effect to it.

• Legislative intent must be gathered from the words used, not from perceived hardship or policy preferences.

• The mischief rule cannot be invoked to rewrite a clear provision.

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D. DECISION / OPERATIVE PART

1. The Supreme Court held that:

   • Section 44C applies to all head office expenditure incurred outside India, whether common or exclusive.

   • Such expenditure is necessarily subject to the statutory ceiling prescribed under Section 44C.

2. It was held that the High Court and Tribunal erred in law in excluding exclusive head office expenditure from the ambit of Section 44C.

3. The judgments of the Bombay High Court, ITAT, and Commissioner (Appeals) were set aside.

4. The appeals filed by the Revenue were allowed.