Supreme Court: In the appeals raising a common question concerning the interpretation of Section 44-C of the Income-tax Act, 1961 (the Act), a Divison Bench of J.B. Pardiwala* and K.V. Viswanathan, JJ., held that expenditure incurred by the head office of a non-resident assessee outside India, even if incurred exclusively for its Indian branches, constitutes “head office expenditure” within the meaning of Section 44-C of the Act, and the deduction in respect thereof is subject to the statutory ceiling provided under the said provision.
In the instant matter, the Respondent-assessee, M/s American Express Bank Ltd., a non-resident banking company, filed its return for Assessment Year 1997-98 declaring an income of ₹79,45,07,110/-. The assessee claimed deductions under Section 37(1) in respect of (i) expenses incurred for solicitation of deposits from Non-Resident Indians, and (ii) expenses incurred at the head office directly in relation to Indian branches.
The Assessing Officer restricted the deduction to 5% of the gross total income by invoking Section 44-C, and held that the Section 44-C is a non-obstante clause overriding Sections 28 to 43-A and that the definition of “head office expenditure” covers all executive and administrative expenses incurred outside India.
The Commissioner (Appeals) affirmed the assessment. However, the Income Tax Appellate Tribunal (ITAT) allowed the assessee’s appeal and held that exclusive head office expenses incurred solely for Indian branches fall outside the ambit of Section 44-C and are allowable in full under Section 37(1). The Bombay High Court dismissed the Revenue’s appeal. Aggrieved by the High Court’s order, the Revenue approached the Supreme Court.
The Court noted that the controversy lies in a narrow compass, namely, the true scope and ambit of Section 44-C of the Act, and whether the said provision admits of a distinction between “common” and “exclusive” head office expenditure.
The Court observed that Section 44-C is a special provision, introduced with a clear legislative purpose, and begins with a non obstante clause overriding Sections 28 to 43-A. Once the statutory conditions are fulfilled, the provision operates with full force and restricts the quantum of deduction otherwise allowable under the general provisions, including Section 37(1).
The Court analysed the principles governing interpretation of taxing statutes and reiterated that taxation laws must be strictly construed, and that legislative intent must primarily be gathered from the language employed by Parliament, and where the words are plain and unambiguous, courts are bound to give effect to them regardless of perceived hardship.
“…there is no room for any intendment; there is no equity about a tax; nothing is to be read in and nothing is to be implied.”
On a close reading of Section 44-C, the Court held that the provision contains two decisive triggers —
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the assessee must be a non-resident, and
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the expenditure must qualify as “head office expenditure” as defined in the Explanation.
The Court emphasised that the Explanation to Section 44-C is clear, exhaustive, and unambiguous, defining head office expenditure as “executive and general administration expenditure incurred by the assessee outside India,” including travelling, salaries, rent, and other administrative expenses. The provision does not draw any distinction between ‘common’ and ‘exclusive’ expenditure. The Court held that the Explanation “focuses solely on: where the expense was incurred and the nature of that expense.”
Rejecting the assessees’ attempt to read such a distinction into the statute, the Court observed that accepting such an interpretation would require adding words to the statute, which is impermissible when the language is plain.
The Court held that once expenditure is incurred outside India by a non-resident and falls within the nature described in the Explanation, Section 44-C comes into operation, regardless of whether the expenditure is incurred exclusively for Indian branches or otherwise.
With respect to Rupenjuli Tea Co. Ltd. v. CIT, 1989 SCC OnLine Cal 410, the Court clarified that the decision turned on peculiar facts, where the assessee had no business operations outside India, rendering clause (c) of Section 44C inapplicable. The ratio could not be extended to cases involving global banking entities carrying on business across multiple jurisdictions.
The Court also noted that CIT v. Emirates Commercial Bank Ltd., 2003 SCC OnLine Bom 1280, observed that the decision has been misunderstood and overextended. The Court noted that the statute itself does not recognise any artificial bifurcation between exclusive and common expenditure and accepting such a distinction would defeat the very object behind the insertion of Section 44-C, namely, to curb inflated claims of foreign head office expenses which are difficult for the Indian tax authorities to verify.
The Court asserted that Section 44-C does not confer a deduction; it restricts it. The Court stated that even if an expenditure otherwise satisfies the requirements of Section 37(1), the non obstante nature of Section 44-C mandates that the deduction cannot exceed the statutory ceiling prescribed therein.
The Court answered the issue in favour of the Revenue and held that —
“Expenditure incurred by the head office of a non-resident assessee outside India, even if incurred exclusively for the Indian branches, squarely falls within the meaning of “head office expenditure” under Section 44C of the Income-tax Act, 1961 and is subject to the ceiling prescribed therein.”
The Court held that the High Courts erred in excluding exclusive head office expenditure from the operation of Section 44-C, and that such an interpretation would amount to rewriting the statute. Accordingly, the Court allowed both the appeals, set aside the impugned judgments of the Bombay High Court, and restored the view taken by the Revenue authorities.
[Director of Income Tax v. American Express Bank Ltd., 2025 SCC OnLine SC 2806, Decided on 15-12-2025]
*Judgment by Justice J.B. Pardiwala
Advocates who appeared in this case:
Mr Raghavendra P Shankar, Additional Solicitor General, Counsel for the Appellant
Mr. Percy Pardiwala and Mr. Aniruddha A. Joshi, Senior counsel, Counsel for the Respondents