Director of Income Tax (IT)-I Vs American Express Bank Ltd. (Supreme Court of India)
The Supreme Court decided a batch of appeals involving Director of Income Tax (IT)-I v. American Express Bank Ltd. and Director of Income Tax v. Oman International Bank, both concerning the interpretation of Section 44C of the Income-tax Act, 1961. The principal issue before the Court was whether Section 44C applies only to common head office (HO) expenditure attributable to Indian branches of non-resident entities or whether it also extends to expenditure incurred exclusively by the foreign head office for Indian branches.
In the case of American Express Bank, a non-resident banking company claimed deductions under Section 37(1) for expenditure incurred by its foreign head office directly in relation to its Indian branches, including expenses for soliciting deposits from Non-Resident Indians and other head office expenses. The Assessing Officer applied the ceiling prescribed under Section 44C and restricted the deduction. Although the Commissioner (Appeals) affirmed the assessment, the Income Tax Appellate Tribunal allowed the deduction by relying upon the Bombay High Court’s decision in CIT v. Emirates Commercial Bank Ltd., holding that exclusive expenditure incurred by the head office for Indian branches falls outside Section 44C. The Bombay High Court dismissed the Revenue’s appeal by following the same precedent.
