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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR & SHRI SANDEEP SINGH KARHAIL
PER SANDEEP SINGH KARHAIL, J.M.
The present appeal by the Revenue and cross objection by the assessee are against the order dated 17/11/2021, passed under section 250 of the Income Tax Act, 1961 (‘the Act’) by the learned Commissioner of Income Tax Appeals–55, Mumbai, [‘learned CIT(A)’], for the assessment year 2012–13.
The sole ground raised by the Revenue in its appeal is as under:
“1. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in segregating the HO/NRI/other expenses incurred at HO to a) Direct Staff expenses (Rs. 4,39,02,328/-) and treating it as fully allowable expenses and b) allocable staff expenses incurred by HO support centers and allocable general administration costs (Rs.1,77,55,059/-) and bringing only this part of the expenses under the purview of section 440 of the Income Tax Act, 1961.”
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a commercial bank having its Head Office in Bahrain. The assessee has two branches in India at Mumbai and Hyderabad. It is involved in personal banking, corporate banking and NRI service activities including financing of foreign trade and foreign exchange transaction, Treasury products etc. For the year under consideration, assessee filed its return of income on 30/11/2012, declaring total income at Rs. 29,73,47,280. During the course of assessment proceedings, from the details submitted by the assessee and the computation of income, it
Bank of Bahrain And Kuwait BSC ITA no.209/Mum./2022 C.O. no.70/Mum./2022 was observed that assessee has reduced an amount of Rs. 6,16,57,387, on account of NRI desk expenses. It was further observed that this amount has not been debited in profit and loss account. Accordingly, the assessee was asked to show cause as to why said amount should not be disallowed under section 37 of the Act. The assessee was also requested to recast its books of account of permanent establishment in India and explain as to why these expenses should not be considered in Head Office expenses as per section 44C of the Act. In reply, assessee submitted that NRI desk expenses have been certified by independent firm of Chartered Accountants as having been incurred by the Head Office for and on behalf of the assessee Bank’s Indian branches. The assessee provided the breakup of NRI desk expenses in terms of the aforesaid certificate, as under:
Sr. BD (Bahrain Dinar) Nature of Expenses no. 3,25,341 Direct Staff Cost 1. Staff expenses incurred by head office 63,036 2. support centres 68,539 General expenses incurred by head office 3. 4,56,916 Total in BD Converted into INR @ 134.94 = Rs6,16,57,387/–
Accordingly, assessee submitted that the said expenses incurred are directly attributable to and connected with the business of the assessee and are wholly and exclusively incurred for the assessee Bank and hence allowable in terms of provisions of section 37(1) of the Act. In support of its submission, the assessee also placed reliance upon the decision of
Bank of Bahrain And Kuwait BSC ITA no.209/Mum./2022 C.O. no.70/Mum./2022 coordinate bench of the Tribunal in assessee’s own case for assessment year 2000–01. The Assessing Officer vide order dated 20/05/2016, passed under section 143(3) read with section 144C(3) of the Act did not agree with the submissions of the assessee and treated the entire expenditure of Rs. 6,16,57,387, on account of NRI expenses in the nature of Head Office expenses, and accordingly disallowed the same subject to limitation of deduction allowable under section 44C of the Act.
In appeal, learned CIT(A) vide impugned order dated 17/11/2021, following the decision of coordinate bench of the Tribunal in assessee’s own case for assessment year 2002–03, observed as under:
“4.2 I have considered the submission of the appellant. This is a recurring issue. It was first decided by the Hon'ble Tribunal for AY 2002- 03 in ITA no.6731/Mum/2006 and ITA No 6605/Mum/2006 dated 28.01.2011. The Hon'ble Tribunal decided allowability of following expenses: A) 1. direct staff costs, 2. travel and communication; B) allocated staff costs incurred by OBD and various other head office support centres (O/o the head of the OBD, Financial Control, Information Technology. Human Resources, Operations, Internal Audit) C) allocated general and administration costs (like rent and maintenance, depreciation, advertising, other). The findings of the Hon'ble Tribunal are summed up in para 24 of the order which is reproduced below: “24. To sum up, the Direct and exclusive NRI Desk expenses (A), being the items 1 and 2 of Table extracted above, incurred by the head office are not hit by section 44C and hence to be allowed in full as per general provisions of the Act Allocated/shared/apportioned staff costs incurred by OBD and various other Head Office Support Centers to NRI Desk (B), being the items 3 and 4 of above Table subject to verification item. 3a) in terms of direction given in para 22 above and other common head office expenses other than those A and B above (C), are to be considered within the purview of section 44C only The impugned order is set aside and the matter is restored to the file of the AO for allowing deduction accordingly. It is made clear that the AO will work out the amount deductible u/s 44C afresh as per law by
Bank of Bahrain And Kuwait BSC ITA no.209/Mum./2022 C.O. no.70/Mum./2022 considering sum total of items (B) and (C) and shall not restrict himself only to the claim originally made by the assessee in the return. Such de novo determination of the amount deductible u/s 44C by the AO will also address to the assessee's grievance in this appeal" The Hon'ble Tribunal has allowed category A (para 18 of the said order) expenses in full while it is held that category B & C expenses be considered for the purposes of section 44C (para 19 to 23 of the order). This decision has been followed by the Hon'ble Tribunal in its decision for later assessment years as also pointed by the appellant in its submission. Respectfully, following the decision of the Hon'ble Tribunal, I hold that direct staff costs and other costs (Rs 439,02,338/-) are fully allowable expenses whereas allocable staff expenses incurred by head office support centres and allocable general and administration costs totaling to Rs. 1,77,55,059/– are to be considered within the purview of section 44C only. The AO is accordingly directed to rework the deduction u/s 44C. The ground is partly allowed.”
Being aggrieved, the Revenue is in appeal before us.
During the course of hearing, learned Departmental Representative vehemently relied upon the order passed by the Assessing Officer. While, on the other hand, the learned Authorised Representative submitted that similar issue has been decided by the coordinate bench of the Tribunal rendered in assessee’s own case.
We have considered the rival submissions and perused the material available on record. We find that coordinate bench of the Tribunal in assessee’s own case in ADIT v/s Bank of Bahrain and Kuwait, in ITA Nos. 6731 and 6605/Mum./2006, vide order dated 28/01/2011, for the assessment year 2002–03, while restricting the applicability of section 44C of the Act only in respect of allocable expenses and at the same time fully allowing direct staff cost, observed as under:
Bank of Bahrain And Kuwait BSC ITA no.209/Mum./2022 C.O. no.70/Mum./2022 “18. Now we come to the Direct and exclusive expenses of NRI Desk covered under category A, referred to as items 1 and 2 in Table extracted above. It is noticed that there is no disagreement on the amount allocated by the assessee and as determined by TPO, being the figures in Col. III and IV of the above table. The core of controversy is whether these are covered u/s 44C or are independent and hence deductible in full as per the general provisions of the Act. We have considered the case of Emirates Commercial Bank Ltd. (supra), in which it has been categorically held that the exclusive expenses incurred by the head office in relation to Indian branch are to be allowed as deduction in full, without covering them u/s 44C. The Non-Resident Indians (NRI) desk, in this case, has been maintained, by the head office outside India, which is for serving the non-resident Indian customers. Only the Indian branch is beneficiary of such NRI desk. When the fact of incurring such direct and exclusive expenses by the head office for the Indian Branch and Its quantum stands proved, the assessee becomes entitled to deduction in full without covering them within the purview of sec. 44C. We, therefore, hold that expenses covered under category A above representing Direct staff costs and Travel & communication expenses at BD 81,192 and BD 17,866 respectively are to be allowed in full. The impugned order is upheld to this extent. 19. ............ 20. We are unable to countenance the view canvassed by the Id. AR that the allocated expenses of the NRI Desk should also assume the character of exclusive head office expenses and be dealt with accordingly. It is important to appreciate that the sole criteria for considering the inclusion of head office expenses within the scope of sec. 44C or the general provisions is their exclusive or non-exclusive nature. If these are shared/allocated/apportioned/non-exclusive head office expenses, then they will find their residence in the overall limit u/s 44C. On the other hand, the exclusive expenses incurred by the head office for the Indian branch shall be distinctively considered under the general provisions of the Act. It is totally immaterial to consider the place, whether in or out of India, where such expenses were incurred by the head office. If the head office incurs exclusive expenses for, say Mumbai branch of the assessee, these shall be deductible as per the general provisions of the Act, but if common expenses are incurred for the NRI Desk outside India, those shall fall within the domain of section 44C. It is axiomatic and basic that any expenditure, to fall in consideration zone of deductibility under the Act, whether u/s 44C or general provisions, must have been incurred for the purpose of business of Indian branch. If that is not the case, then it shall, at the very outset, cease to be considered for deduction under the Act. The natural corollary, which thus follows, is that the exclusive head office expenses incurred, whether for the office in India or NRI Desk outside India, shall be separately deducted under the general provisions of the Act and in the like manner, the shared or allocated expenses incurred by the head office for the Indian branch, within or outside India, shall be considered for deductibility under sec. 44C of the Act. In that view of the
Bank of Bahrain And Kuwait BSC ITA no.209/Mum./2022 C.O. no.70/Mum./2022 matter, we overturn the impugned order on this score and hold that the items of head office expenses mentioned in above table under 3) a to f and 4) a to d, can be only under sec. 44C and there is no scope for granting separate deduction under the general provisions of the Act. It is further subject to the condition that these expenses are, in fact, incurred for the business of Indian branch and there is evidence in support of such expenses. It is here that the above referred step ii comes into play. 21. ............ 22. ............ 23. ............ 24. To sum up, the Direct and exclusive NRI Desk expenses ('A'), being the items 1 and 2 of Table extracted above, incurred by the head office are not hit by section 44C and hence to be allowed in full as per general provisions of the Act; Allocated/shared/apportioned staff costs incurred by OBD and various other Head Office Support Centers to NRI Desk ('B'), being the items 3 and 4 of above Table, subject to verification item 3a) in terms of direction given in para 22 above and other common head office expenses other than those A and B above ('C'), are to be considered within the purview of section 44C only. The impugned order is set aside and the matter is restored to the file of the AO for allowing deduction accordingly. It is made clear that the AO will work out the amount deductible u/s 44C afresh as per law by considering sum total of items (B) and (C) and shall not restrict himself only to the claim originally made by the assessee in the return. Such de novo determination of the amount deductible u/s 44C by the AO will also address to the assessee's grievance in this appeal.”
The learned Departmental Representative could not show us any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the order passed by coordinate bench of the Tribunal in assessee’s own case cited (supra), we find no infirmity in the impugned order passed by the learned CIT(A). Accordingly, the sole ground raised in Revenue’s appeal is dismissed.
Bank of Bahrain And Kuwait BSC ITA no.209/Mum./2022 C.O. no.70/Mum./2022
In the result, appeal by the Revenue is dismissed.
As we have dismissed the appeal filed by the Revenue, the cross objection filed by the assessee becomes infructuous and is accordingly dismissed.
To sum up, appeal by the Revenue and cross objection by the assessee are dismissed.
Order pronounced in the open court on 10/08/2022 Sd/- Sd/- PRAMOD KUMAR SANDEEP SINGH KARHAIL VICE PRESIDENT JUDICIAL MEMBER
MUMBAI, DATED: 10/08/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai