The Supreme Court adjudicated a batch of appeals concerning the interpretation and scope of Section 44C of the Income-tax Act, 1961, in the context of deductions claimed by non-resident banking entities in respect of expenditure incurred by their head offices outside India.

The central issue before the Court was whether expenditure incurred by a foreign head office exclusively for Indian branches falls outside the purview of Section 44C and can be fully allowed under Section 37(1), or whether such expenditure is mandatorily subject to the statutory ceiling prescribed under Section 44C.

The respondents contended that Section 44C applies only to common or shared head office expenditure attributable partly to Indian operations and partly to overseas operations. According to them, where expenditure is incurred solely and exclusively for Indian branches, Section 44C has no application, and full deduction must be granted under Section 37(1). Reliance was placed on decisions such as Rupenjuli Tea Co. Ltd., Emirates Commercial Bank Ltd., Deutsche Bank A.G., and Ravva Oil (Singapore) Pvt. Ltd.

The Revenue, on the other hand, argued that Section 44C is a special overriding provision introduced to curb inflated and unverifiable claims of foreign head office expenses. It was contended that once expenditure satisfies the statutory definition of “head office expenditure” under the Explanation to Section 44C—namely, executive or general administrative expenditure incurred outside India—the statutory ceiling applies irrespective of whether the expenditure is common or exclusive.

After an exhaustive analysis of statutory language, legislative history, CBDT circulars, and settled principles of interpretation of fiscal statutes, the Supreme Court held that:

• Section 44C is a non-obstante provision overriding Sections 28 to 43A, including Section 37.
• The applicability of Section 44C depends solely on two conditions:
(i) the assessee is a non-resident; and
(ii) the expenditure qualifies as “head office expenditure” under the Explanation.
• The statute makes no distinction between common expenditure and exclusive expenditure.
• The definition of “head office expenditure” is clear, exhaustive, and unambiguous, focusing only on the place where the expenditure is incurred and the nature of the expenditure.
• Courts cannot read into the statute words such as “common”, “shared”, or “excluding exclusive expenditure”, as doing so would amount to impermissible judicial legislation.

The Court further clarified that earlier decisions such as Rupenjuli Tea and Deutsche Bank were rendered in peculiar factual contexts where the computation mechanism under Section 44C itself failed due to the absence of overseas business operations. Those decisions could not be expanded to create a general exclusion for exclusive expenditure.

Accordingly, the Supreme Court conclusively held that all head office expenditure incurred outside India by a non-resident assessee—whether common or exclusively for Indian branches—is governed by Section 44C and subject to its statutory ceiling. Any deduction otherwise allowable under Section 37 must yield to the limitations imposed by Section 44C.

The appeals filed by the Revenue were allowed, and the law on Section 44C was settled authoritatively to prevent erosion of the statutory cap through artificial distinctions between common and exclusive expenditure. 

LINK TO DOWNLOAD THE ORDER
https://mytaxexpert.co.in/uploads/1767420544_DITv.AmericanExpressBankLtd.pdf