THE DY DIT (I.T) 1(1), MUMBAI vs. M/S. BANK OF AMERICA N.A., MUMBAI

In this appeal, the Revenue has raised the following grounds: – “1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of R.14,63,82,201/- on account of expenditure incurred in earning income claimed exempt u/s.10(15) and 10(23G) of I.T. Act.

On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in directing to allow the sum of Rs.1,15,79,017/- towards expenses incurred for Indian Branches u/s.37(1) of the Income Tax Act, 1961, holding it outside the scope of section 44C of the I.T Act.

Whether on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in directing the A.O. to compute deduction u/s.36(1)(viia) of the IT Act, 1961 before the deduction u/s.44C of the Act."

Ground No. 1, raised in Revenue’s appeal, pertains to the deletion of the disallowance of expenditure incurred on earning the income exempt under section 10(15) and section 10(23G) of the Act.

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is a commercial bank having its Head Office in Charlotte, USA. The assessee has five branches in India at Mumbai, New Delhi, Calcutta, Bangalore and ITA No.4090 & 4154/Mum/2004 (A.Y. 2000-01) 3

The Assessing Officer (“AO”), vide order dated 28/03/2003 passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that the harmonious reading of section 10 of the Act would leave no doubt that what is meant to be exempt is the income earned, and the term “income” in no sense of the word can be said to be synonymous with gross receipts. The AO also placed reliance upon the CBDT’s Circular No. 780, dated 04/10/1999, in support of its conclusion that the assessee is entitled to a deduction under section 10 of the Act in respect of net income arising to it, and not in respect of the gross income. The AO further held that if the assessee is allowed an exemption on the gross interest received by it, it would

The learned CIT(A), vide impugned order, upheld the findings of the AO insofar as it pertained to the exemption of only net income under section 10 of the Act. However, the learned CIT(A), after taking into consideration the ITA No.4090 & 4154/Mum/2004 (A.Y. 2000-01) 5

5 Thus, in view of the aforesaid factual and legal position when it is found that there is no nexus proved between funds for lending to infrastructure projects/ investment in tax free bonds and interest bearing funds and on the other hand there are sufficient funds to finance such lending/investment, the action of the A.O. in disallowing exemption u/s. 10(15)(iv)(h) and 10(23G) of part of interest cannot be sustained. The A.O. is directed to delete the disallowance made in this regard.”

Having considered the submissions of both sides and perused the material available on record, in the present case, it is evident that there is no dispute that the interest expenditure was disallowed by the AO while granting exemption under section 10(15) and section 10(23G) of the Act. During the hearing, the learned Senior Counsel, appearing for the assessee, reiterated the contention that the assessee had sufficient interest-free funds for making investments for earning tax-free income. From the details of own funds available with the assessee as of 31st March for the period from 1998 to 2000 and the statement of lending to infrastructure projects and investment in tax- free bonds, as noted in the foregoing paragraphs, it is sufficiently evident that the assessee's own funds were more than the investments for earning exempt

Ground No. 2, raised in Revenue’s appeal, pertains to the deletion of the disallowance made under section 44C of the Act.

The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee claimed expenditure amounting to Rs. 1,15,79,071 on account of expenses incurred overseas. Since these expenses were not paid by the assessee, the same were not debited to the profit and loss account. The claim of the deduction by the assessee was based on the allocation made by the Head Office and overseas branches of the assessee bank. As per the assessee, since these expenses

The AO, vide order under section 143(3) of the Act, disagreed with the submissions of the assessee and held that there is no dispute that the deduction for Head Office expenditure should be allowed to the Permanent Establishment. It was further held that Article 7 of the DTAA ensures that legitimate business expenditure is allowed to be deducted from the profits of the Permanent Establishment in a uniform manner by all member countries. The AO further held that the Act allows a deduction for all legitimate business expenses to arrive at a total taxable income. However, certain limits have been prescribed with respect to certain types of expenditure, in consonance with the country's economic and social objectives, as well as to promote sound and healthy business practices. It was held that to say that under Article 7 of the DTAA no limit should be applied in respect of any legitimate business expenditure is to stretch the interpretation of this Article beyond its actual intention. The AO held that, in fact, every country prescribes some artificial

The learned CIT(A), vide impugned order, following the decision of the Hon’ble Bombay High Court in CIT v/s Abu Dhabi Commercial Bank, Income Tax Reference No. 17 of 1996 dated 30/04/2003 and in the case of American Express Bank v/s DCIT, Income Tax Reference No. 3 of 2002, dated 17/07/2003, held that the expenses incurred by the assessee’s overseas branches for its India operations cannot be disallowed under section 44C of the Act. Being aggrieved, the Revenue is in appeal before us.

During the hearing, the learned Departmental Representative (“learned DR”) submitted that this issue is squarely covered by the recent decision of ITA No.4090 & 4154/Mum/2004 (A.Y. 2000-01) 11

In view of the above, the Revenue strongly relies on the stand taken by the AO which was finally upheld, in principle, by the Hon'ble Apex Court in the case of American Express bank Ltd. and therefore the Revenue prays that grounds of appeal on this count may be allowed.”

On the other hand, the learned Senior Counsel submitted that the Hon’ble Supreme Court in American Express Bank Ltd (supra) has merely held that the provisions of section 44C of the Act apply equally to both common and exclusive Head Office expenditure. However, the Revenue has not established how the expenses, in the present case, are in the nature of “exclusive and general administration” expenses, as per the provisions of section 44C of the Act. By referring to paragraph 75 as well as paragraph 85 of the decision of the Hon’ble Supreme Court, the learned Senior Counsel submitted that for an expenditure to qualify as Head Office expenditure, within the meaning of the Explanation to section 44C of the Act, all three ingredients as noted by the Hon’ble Supreme Court need to be satisfied. The learned Senior Counsel submitted that, in the present case, the expenditure incurred

The learned AO, in the assessment order, has considered the aforesaid expenses to be in the nature of executive and administrative expenditure and hence to be treated as head office expenses under section 44C of the Act.

At the outset, it would be relevant to highlight that the learned AO has not provided any basis on which the said expense are in the nature of "executive and administrative" expenses.

Further, on perusal of the written submissions dated 14 January 2026 filed by the learned DR, reliance has been placed on the decision of the Hon'ble Supreme Court in the case of DCIT (IT) v. M/s American Express Bank Ltd. [2025) 181 taxmann.com 433 (SC), wherein it held that section 44C of the Act applies equally to both common and exclusive HO expenditure. However, the learned DR has not established as to how the aforesaid expenses are in the nature of "executive and general administration" expenses.

The Respondent draws reference to paragraph 75 as well as the concluding paragraph 85 of the Hon'ble Supreme Court in the case of American Express Bank Ltd. (supra) where it is stated that for an expenditure to qualify as 'head office expenditure' within the meaning of the Explanation to section 44C, the Assessing Officer has to establish the following three ingredients:

Accordingly, not all expenditure incurred by the overseas branches would be covered within the within the meaning of the Explanation to section 44C.

The Respondent submits that the aforesaid expenditure is incurred for generation of business of the India branches which is evident from the deposits raised by the NRIs. The said expenses are in the nature of marketing expenses incurred for the purpose of the Respondent's India business and not executive and general administration in nature.

The Respondent wishes to place reliance on the decision of the Hon'ble Special Bench of Calcutta Tribunal in the decision of Inspecting Assistant Commissioner v. Goodricke Group Ltd. (1985) 12 ITD 1 (Cal) (SB) wherein it is concluded that expenses incurred by the non resident assessee in relation to sales activity in London cannot be regarded as "executive and general administrative" expenses and hence should not get covered under section the definition of "head office expenditure" under section 44C of the Act.

In light of the above, the Respondent submits that the nature of NRI desk expenditure incurred by the Respondent are not in the nature executive and general administration expenses and hence, should not get covered by section 44C of the Act.”

We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee has its Head Office in Charlotte, USA, with branches all over the world. In India, the assessee has five branches at Mumbai, New Delhi, Calcutta, Bangalore and Chennai. During the year under consideration, an amount of Rs. 1,15,79,071 was incurred by the assessee’s London and Singapore branches towards NRI Desks charges. As these expenses were incurred for operations in India, the same were claimed as deductions while computing the assessee's income from India operations. As per the assessee, NRI Desks are located in cities which have a high concentration of Indian nationals, and therefore, these desks help the assessee to survey the market, identify potential customers and render a more efficient service to them. It is the plea of the assessee that it has set up infrastructure at its branches for the express purpose of soliciting

As per the assessee, the expenditure incurred at these overseas centres has been duly audited by the local accounting firms at these locations. In this regard, the assessee has also placed on record the sample local accountants' certificates in respect of the NRI Desks, which form part of the paper book from pages 127-130. 16. From the perusal of the submissions of the assessee before the lower authorities, it is also evident that the assessee claimed that the NRI Desks' expenses were incurred by overseas branches directly and solely for the purpose of the assessee’s India operations. Accordingly, the assessee claimed that these exclusive expenses do not fall within the scope of section 44C of the Act, as they cannot be construed as Head Office expenses. From the perusal of the impugned order, we find that the learned CIT(A) agreed with ITA No.4090 & 4154/Mum/2004 (A.Y. 2000-01) 17

In American Express Bank Ltd (supra), the Hon’ble Supreme Court also laid down the tests to determine whether an expenditure will qualify as “Head Office Expenditure” within the meaning of the Explanation to section 44C of the Act. In this regard, it is relevant to note the following observations of the Hon’ble Supreme Court in the aforesaid decision: - “75. In other words, for an expenditure to qualify as 'head office expenditure' within the meaning of the Explanation to Section 44C, the assessing officer has to be satisfied of the following three ingredients:

After laying down the aforesaid legal principles, the Hon’ble Supreme Court restored the matter to the file of the Tribunal to verify whether the disputed expenditures satisfy the tripartite test necessary to qualify as “Head Office Expenditure” under the Explanation to section 44C of the Act.

In the light of aforementioned facts and circumstances in the present case, it is the plea of the assessee that even though the Hon’ble Supreme Court in American Express Bank Limited (supra) has held that the provisions of section 44C of the Act are equally applicable to both common and exclusive Head Office expenditure, however, the Revenue has not established as to how the expenses incurred on the NRI Desk are in the nature of “exclusive and general administration” expenses. Thus, as per the assessee, not all expenditure incurred by the overseas branches for the Indian branch would be covered within the meaning of “exclusive and general administration” expenses. On the basis that the expenditure incurred on the NRI Desk has resulted in the generation of business for the Indian branches, as per the assessee, the said expenses are in the nature of marketing expenses and do not fall within the ambit of “exclusive and general administration” expenses.

Before proceeding further, it is important to note that the financial year under consideration is 1999–2000. Over 25 years ago, banks heavily relied on traditional channels, focusing on their extensive branch networks and mass media to attract customers. It is worth noting that this was an era before digital tools dominated banking, with online banking just emerging and being minimal. During that time, banks emphasised building personal relationships between branches and their customers. Banking has long been a customer- focused industry, prioritising trust, accessibility, and tailored financial solutions to build lasting relationships. Consequently, banks offered a variety of products for different segments of society, such as salaried employees, high-net-worth individuals, senior citizens, students, and others, to meet

Therefore, we are of the considered view that it is important to distinguish the marketing expenses on television commercials, print advertising, radio and billboard/signage from the general banking business

Thus, we are of the considered view that in the present case, the fact that the assessee’s overseas branches had set up infrastructure at its branches for NRI Desks with separate staff and office space, which leads to the receipt of NRI deposits by the Indian branch, cannot lead to the conclusion that the expenses as enumerated in the foregoing paragraphs are in the nature of marketing expenses. These expenses, such as salaries of staff, office rental, courier and postage charges, telephone, telex and fax charges, electricity and water expenditure, equipment rentals, depreciation expenses, etc., are nothing but pertain to general banking business conducted at a branch, and thus are in the nature of “executive and general administration” expenses of the bank. Further, we find that these expenses also fall within the specific species enumerated in clauses (a) to (d) of Explanation to section 44C of the Act, which is reproduced as follows for ready reference: – “(a) rent, rates, taxes, repairs or insurance of any premises outside India used for the purposes of the business or profession;

Insofar as the decision of the Special Bench of the Tribunal in Inspecting Assistant Commissioner v/s Goodricke Group Ltd., reported in [1985] 12 ITD 1 (Cal.) (SB), relied upon by the assessee in its written submission, we find

Since in the present case, it is undisputed that these expenditures were incurred outside India, accordingly, we are of the considered view that the tripartite test laid down by the Hon’ble Supreme Court in American Express Bank Ltd (supra) is satisfied in the present case, and the expenditure incurred by the assessee’s London and Singapore branches towards NRI Desks charges qualify as “Head Office Expenditure” under the Explanation to section 44C of the Act. Therefore, the provisions of section 44C of the Act are applicable in the present case. As a result, the impugned order on this issue is set aside, and the order passed by the AO restricting the deduction under section 44C of the Act is reinstated. Hence, Ground No. 2 raised in Revenue’s appeal is allowed.

Ground No. 3, raised in Revenue’s appeal, pertains to the computation of deduction under section 36(1)(viia) of the Act.

We have considered the submissions of both sides and perused the material available on record. The AO, vide assessment order passed under section 143(3) of the Act, computed the deduction under section 36(1)(viia) of the Act after allowing deduction under section 44C of the Act. As per the assessee, the deduction under section 36(1)(viia) of the Act should be computed before computing the deduction under section 44C of the Act. The learned CIT(A), vide impugned order, agreed with the contention of the assessee and allowed the deduction under section 36(1)(viia) before computation of deduction under section 44C of the Act. Being aggrieved, the Revenue is in appeal before us.

From the plain reading of the provisions of section 44C of the Act, it is evident that while computing the income chargeable under the head “profits and gains of business or profession”, the deduction of Head Office Expenditure is restricted either to an amount equal to 5% of the adjusted total income or the amount of Head Office Expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India, whichever is less. The term “adjusted total income” has been defined in the Explanation to section 44C as follows: -

From the plain reading of the above Explanation, it is evident that “adjusted total income” would mean total income without giving effect to the specified deductions as mentioned in the Explanation. We find that deduction under section 36(1)(viia) has not been expressly excluded for computation of “adjusted total income” as per the Explanation to section 44C of the Act. Thus, we are of the considered view that the effect of the deduction under section 36(1)(viia) has to be given prior to computation of deduction under section 44C of the Act. Accordingly, we do not find any infirmity in the findings of the learned CIT(A) on this issue, and the same are upheld. Accordingly, Ground No. 3 raised in Revenue’s appeal is dismissed.

In the result, the appeal by the Revenue is partly allowed.

Ground No. 1, raised in the assessee’s appeal, pertains to the disallowance of expenditure claimed by the assessee for the computation of the profit of its Indian branch pertaining to Croydon Data Processing Centre.

The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee incurred an expenditure amounting to U 133,249 on Croydon Data Processing Centre. The assessee used this facility for its business purposes. Since the cost incurred at this centre was allocated to various branches of the assessee globally on a proportionate basis, the cost apportioned to the Indian branch was claimed as a deduction while computing its profits. The AO, vide order passed under section 143(3) of the Act, treated the expenditure to be in the nature of Royalty for the usage of Croydon Data Processing Centre by the Indian branch. Since the assessee did not deduct TDS, the AO held that the assessee cannot be granted any deduction for this expenditure under section 40(a)(i) of the Act.

The learned CIT(A), vide impugned order, upheld the disallowance made by the AO by treating the expenditure as Royalty taxable in the hands of the overseas branch, placing reliance upon the decision of the Coordinate Bench of the Tribunal in M/s Asia Satellite Telecommunications Co. Ltd. vs. DCIT in ITA No. 166/Del/2001. The learned CIT(A) held that section 195 of the Act requires deduction of tax at source not only at the payment stage but also at the incurrence of liability. The relevant findings of the learned CIT(A), on this issue, are reproduced as follows: - “5.5 Therefore, firstly it will have to be seen whether the payment of Rs. 5,81,06,542/- to Croydon data center is liable to tax as "royalty" or not. The A.O. has drawn a parallel between the case of the appellant and the ruling in P. No. 30 of 1999(238 ITR 296) decided by the Hon'ble Authority for Advance Ruling. The facts of that case were that the applicant assessee "Y" was a company formed and incorporated in USA and belonged to the ABC Group of companies operating all over the world and was engaged in the credit card and travel business. To keep track of expenses incurred on such cards, cheques etc. it had a global CPU in USA. It had installed several IBM main frames and ITA No.4090 & 4154/Mum/2004 (A.Y. 2000-01) 25

7 Having held that the impugned amount of Rs. 5,81,06,542/- to Croydon data center is liable to tax as "royalty", the effect of the same is that tax was required to be deducted at source on such amount. Since the appellant has admittedly not deducted any tax at source on such amount, the effect is that the amount becomes non deductible for reason of provisions of section 40(a)(i) of the I.T. Act. The learned A.R. submitted that the said charges were merely allocated by the H.O. towards Indian Branch and were not actually paid off and therefore there was no question of any TDS. However, I do not agree with the appellant in this regard. Section 195 of the I.T. Act requires deduction of tax at source not only at payment stage but also at incurrance of liability. Needless to say when the said expenditure is being claimed as deduction under one particular provision of the Act, the appellant can not turn around and make an excuse for not complying with another provision of the same statute in relation to the same subject matter. Thus, it emerges that the sum of Rs. 5,81,06,542/- (equivalent to US $ 1,334,249) is otherwise not allowable under ITA No.4090 & 4154/Mum/2004 (A.Y. 2000-01) 26

We have considered the submissions of both sides and perused the material available on record. The assessee in its London branch has set up a global banking system data centre, known as Croydon Data Processing Centre, which supports, inter alia, the entire wholesale banking and capital market business of the assessee in India. As per the assessee, the cost incurred at this centre was allocated to various branches of the assessee globally on a proportionate basis by applying appropriate allocation keys. Accordingly, while computing the profits of the Indian branch, the proportionate cost was claimed as a deduction, even though the said cost was neither accounted for in the Indian financial statements nor paid to the overseas branch. As per the assessee, it is a well-settled principle that transactions between one branch and another branch, or between a branch and the Head Office, do not give rise to income or the incurring of expenditure. Accordingly, as per the assessee, even though the cost apportioned to the Indian branch towards Croydon Data Processing Centre is claimed as a deduction while computing the profits of the Indian branch, the same is not taxable in the hands of the assessee.

It is evident from the record that the lower authorities disagreed with the submissions of the assessee and, by treating the expenditure as Royalty, taxable in the hands of the assessee, disallowed the deduction under section 40(a)(i) of the Act since the tax was not deducted at source.

We find that the Coordinate Bench of the Tribunal in Shinhan Bank vs. Dy.DIT (IT), reported in [2022] 139 taxmann.com 563 (Mumbai), held that the fiction of hypothetical independence has a limited purpose of profits attributable to the Permanent Establishment, and the same cannot be used for the computation of profits of the General Enterprise. It was held that the fiction of hypothetical independence comes into play for the limited purpose of computing profits attributable to the Permanent Establishment only and is set out under the specified provisions, dealing with the computation of such profits in the tax treaties and there is nothing, therefore, to warrant or justify the application of the same principle in the computation of profits of the General Enterprise. Thus, it was held that the fiction of hypothetical independence is for the limited purpose of profit attribution to the Permanent Establishment. Therefore, respectfully following the aforesaid decision rendered by the Coordinate Bench of the Tribunal, we do not find any merit in the findings of the learned CIT(A) that once an expenditure has been claimed as a deduction, the assessee cannot turn around and deny the taxability of the income in its hands. In the present case, it is further pertinent to note that the deduction of the expenditure claimed by the assessee was denied as the assessee failed to deduct tax under section 195 of the Act. From the plain reading of the provisions of section 195 of the Act, we find that the liability to deduct tax on payment to a non-resident arises at the time of credit of such income to the account of the payee or at the time of payment thereof by the modes prescribed, whichever is earlier. However, in the present case, it is an undisputed fact that the amount was neither credited nor paid by the ITA No.4090 & 4154/Mum/2004 (A.Y. 2000-01) 28

Ground No. 2, raised in assessee’s appeal, pertains to the applicability of the provisions of section 50B of the Act in respect of the sale of Retail Banking Business by the assessee to M/s ABN Amro Bank N.V.

The brief facts of the case, pertaining to this issue, as emanating from the record are: During the assessment proceedings, from the perusal of the return filed by the assessee, it was observed that the assessee, during the year under consideration, sold off a certain part of its business to M/s ABN Amro Bank N.V. and received the following payments: (i) Sum of Rs. 384,864,770/- being the excess of the book value of assets over the book value of liabilities. (ii) Sum of Rs. 541,312,500/-, i.e., US $ 12.5 million, by way of purchase premium. (iii) Sum of Rs. 324,787,500/-, i.e., US $ 7.5 million, on account of non-compete agreement.

The assessee offered the consideration received on account of the non- compete agreement for taxation @ 48%. Further, the purchase premium amounting to Rs. 54,13,12,500/- was offered to tax by way of long-term

The AO, vide assessment order passed under section 143(3) of the Act, disagreed with the submissions of the assessee that the provisions of section ITA No.4090 & 4154/Mum/2004 (A.Y. 2000-01) 30

4 It is further seen from the perusal of Article 3 titled 'Consideration", that sec.3.1 lays down that the aggregate consideration for the purchase of the business and sale of the assets, pursuant therewith, shall be a purchase price equal to the sum of the following :

5 Section 3.3 defines the meaning of the term 'Book Value' for the purpose of this agreement. It is seen from the perusal of the same, that "Book Value' has been defined to the value of that particular asset, as per the seller's local statutory general ledger as on the closing date. From this, it is clear that the first component of the purchase consideration is the actual difference, as per the books of the assessee, between the value of the assets and the liabilities of the assessee in respect of its Retail Banking Business.

6 The assessee's claim that the provisions of sec.50B of the I.T. Act, 1961, are not applicable to the sale transaction, because the assessee has worked out the capital gains arising to it on the basis of itemised assets, and not on the basis of transfer of the business as a whole, is not acceptable. It is quite clear that the sale transaction is in the nature of a "Slump Sale". Before proceeding further, it is necessary to peruse the definition of Slump Sale as given in Sec. 2(42C) of the I.T. Act, 1961. This sub-section was inserted by the Finance Act, 1999, w.e.f. 01-04-2000 and accordingly, it is applicable to AY 2000-01. This sub-section defines the term "Slump Sale" to mean the transfer of one or more undertakings, as a result of a sale, for a lumpsum consideration, without values being assigned to the individual assets and liabilities in such a sale transaction. In the present case, the assessee has received the sales consideration i.e. the purchase price mentioned in Article 3.1 which consists of two portions as highlighted above. The first portion is the Book Value of the sale assets over the Book Value of the assumed liabilities. Sale assets comprise of various assets as mentioned above. The term Assumed Liabilities has been defined in sec.2.3 of the agreement to mean all the liabilities and obligations in respect of the sale assets, as mentioned above in para 6.3, as also the Deposit Liabilities of the seller i.e. assessee. In this context, it is noteworthy that Deposit Liabilities are not, and cannot be, listed in the definition of Sale Assets as given in sec.2.1 of the agreement dated 19- 05-1999. Accordingly, it is quite clear that the assessee's claim that it has worked out its capital gains arising to it item-wise is incorrect. In this context, it is further noteworthy that the second portion of the Purchase Price has been defined to be a lump sum Purchase Premium' amounting to US $ 12.5 million. This also strikes down the assessee 's claim that the sale of its retail banking business is not in the nature of the Slump Sale and that on the contrary it is a sale of individual items. Because had the assessee's argument been correct, then there would not have been any lump sum quantification of the Purchase Premium. In fact, the Purchase Premium paid by the purchaser over the excess of Book Value of the assets over the Book Value of Assumed Liabilities represents the profit arising to the seller i.e. assessee in this sale transaction. Since this profit has been determined on a lump sum basis, it is quite clear that the sale of the retail banking business by the assessee under the agreement dated 19-05-1999, is in the nature of a Slump Sale. Keeping in view the above facts, the assessee's argument that the present sale transaction is not in the nature of a Slump Sale' is hereby rejected and it is held that the sale of a retail banking business by the assessee to M/s. ABM Amro Bank under the agreement dated 19-05-1999 is a Slump Sale' and accordingly the provisions of Section S0B of the IT. Act, 1961, are attracted to the same.”

The learned CIT(A), vide impugned order, upheld the action of the AO in treating the transaction of sale of Retail Banking Business as a Slump Sale and applying the provisions of section 50B of the Act. Being aggrieved, the assessee is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. In the present case, vide the agreement dated 19/05/1999 entered into between the assessee and ABN Amro Bank N.V., the assessee bank agreed to sell, assign, and transfer its Retail Banking Business to ABN Amro Bank N.V. As per the assessee, the Retail Banking Business comprised the activity of granting automobile, equity and real estate loans, etc., including providing ATM services. As per the assessee, under this agreement, it received the consideration based on the item-wise value of its several assets and liabilities and, accordingly, the capital gains were computed with respect to each asset on the basis of the nature of the asset and the period for which it was held. The AO as well as the learned CIT(A) disagreed with the submissions of the assessee and held that the sale transaction is in the nature of a Slump Sale, and thus the capital gains are to be computed as per the provisions of section 50B of the Act. The lower authorities also rejected the contention of the assessee regarding the item-wise sale of assets.

Before proceeding further, it is pertinent to note the provisions of the Act which are relevant for deciding this issue. Section 2(42C) of the Act defines the term “slump sale” as follows: - “(42C ) "slump sale" means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

Thus, “slump sale” means transfer of one or more undertakings for a lump sum consideration without values being assigned to the individual assets and the liabilities.

The term “undertaking” has been defined in Explanation-1 to section 2(19AA) of the Act as follows: - “Explanation 1.—For the purposes of this clause, "undertaking" shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity.”

Therefore, from the combined reading of the aforesaid provisions, it is evident that even the transfer of any part of the undertaking for a lump sum consideration without value being assigned to the individual assets and liabilities is considered as a Slump Sale under the Act. At this stage, it is pertinent to note that the term “undertaking” does not include individual assets or liabilities or any combination thereof not constituting a business activity.

From the perusal of the Purchase and Assumption Agreement dated 19/05/1999 entered into between the assessee and ABN AMRO Bank N.V., whereby the assessee transferred the Retail Banking Business to ABN AMRO Bank N.V., forming part of the paper book from pages 1–124, we find that the assessee agreed to sell, assign and transfer free from all encumbrances its ITA No.4090 & 4154/Mum/2004 (A.Y. 2000-01) 34

The term “business” of the assessee, as per Schedule 1, includes the following: - “BUSINESS The retail banking business carried on by Seller at or through the Banking Centers and Retail Office in India, principally comprising.

Thus, the Retail Banking Business carried out by the assessee at or through the banking centres and retail offices in India was transferred to ABN AMRO Bank N.V. We find that section 3.1 of the agreement contains the consideration for the transaction as follows: - “i) Excess of Book Value of the Sale Assets over the Book Value of the Assumed liabilities, and ii) A Purchase Premium of U 12.5 million”

Thus, the difference between the book value of the assets and liabilities as per the assessee’s local statutory general ledger was the first component

During the hearing, the learned Senior Counsel submitted that the agreement explicitly lists out the individual assets to be transferred under section 2.1 of the agreement, which includes loans, accounts receivable and other specified items. It was further submitted that section 2.3 of the agreement sets out the individual liabilities the purchaser will assume. By referring to section 2.2 and Schedule 11 of the agreement, it was submitted that certain assets have been excluded from being transferred or sold. As regards the break-up value assigned to individual assets and liabilities, our attention was drawn to Exhibit A of the agreement, which reads as follows: - Cash due Purchaser for: US$ Rupees Deposit Liabilities (including accrued but unpaid or uncredited interest) NIL 7,819,448,689.83 Liabilities in respect of Non- discretionary Trust Accounts : NIL NIL BAMS Payables : NIL NIL Other Assumed Liabilities NIL 18,065,374.94 Putback Items: NIL NIL Pro rata taxes and expenses, under Section 2.7 (if any) NIL NIL Other payments due under this Agreement ( if any) NIL NIL TOTAL CASH DUE PURCHASER NIL 7,837,514,064.77

Thus, it was submitted that what was transferred were certain specified assets of the undertaking, and the consideration was received for the individual items of assets and liabilities. Therefore, it was submitted that the sale of Retail Banking Business is not in the nature of a Slump Sale falling within the purview of section 2(42C) and, accordingly, the provisions of section 50B of the Act are not applicable.

During the hearing, a specific query was raised about whether the business was transferred as a going concern. In response thereto, it was submitted that the transfer of the business as a going concern would not impact the characterisation of the concern as an itemised sale or a Slump Sale, as the same is dependent on the manner in which the constituent of the assets transferred is determined.

Having considered the submissions of both sides and perused the material available on record, at the outset, from the break-up value assigned to assets and liabilities, as per Exhibit A of the agreement, noted in the foregoing paragraphs, we find that separate consideration is not placed for each and every item comprising the assets and liabilities and the value has been assigned to category of assets and liabilities. Therefore, we do not find any merit in the submissions of the assessee that values were assigned to the ITA No.4090 & 4154/Mum/2004 (A.Y. 2000-01) 37

At this stage, it is relevant to reiterate that the term “undertaking” does not include individual assets or liabilities or any combination thereof not constituting a business activity. In other words, if individual assets or liabilities or any combination thereof constitute a business activity, the same can be considered as an “undertaking” for the purpose of Explanation-1 to section 2(19AA) of the Act. In the present case, as per the assessee’s own admission, the Retail Banking Business was transferred to ABN AMRO Bank on an “as-is- where-is” basis. This aspect is relevant as the assessee claimed that not all assets and liabilities were transferred, and some of them were excluded from being transferred. Thus, the fact that the Retail Banking Business of the assessee was transferred to ABN AMRO Bank N.V. supports the contention of the Revenue that an “undertaking” was transferred, and the term also includes “any part of the undertaking”. Accordingly, in the present case, in the absence of an itemised sale of individual assets and liabilities, we affirm the findings of the lower authorities that the sale transaction was in the nature of a Slump Sale as per the provisions of section 2(42C) of the Act. Accordingly, the capital gains of the assessee are to be computed as per section 50B of the Act after

In the result, the appeal by the assessee is partly allowed.

To sum up, the appeal by the Revenue and the cross appeal by the assessee are partly allowed. Order pronounced in the open Court on 18/03/2026 OM PRAKASH KANT ACCOUNTANT MEMBER