Section 44C of the Income Tax Act
Income-tax Act, 2025: s.60
Section 44C of the Income-tax Act, 1961 corresponds to section 60 (Deduction of head office expenditure in case of non- residents) of the Income-tax Act, 2025.
Read section 60 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 44C is CIT v. Hyundai Heavy Industries Co. Ltd. (291 ITR 482), cited in 166 of the 152 judgments on BharatTax that turn on this section.
Leading authorities on Section 44C
The Supreme Court held that the 'project completion method' and the 'percentage of completion method' are recognized accounting methods for ascertaining profit for contracts. The case affirms these methods in the context of contract accounts.
A Transfer Pricing Officer (TPO) must adhere to prescribed methods under Section 92C for determining Arm's Length Price (ALP); an ALP determination at Nil or an adjustment using the 'Other Method' is unsustainable without proper comparability analysis. The TPO's jurisdiction is confined to ALP determination, respecting the commercial expediency of the assessee's business strategy, such as shared advertisement expenditure.
Interest income received by a foreign bank's Head Office or Overseas Branch is not taxable in India where Article 12 of the Double Taxation Avoidance Agreement applies, clarifying the scope of taxability for such entities under DTAAs.
Section 44C of the Income Tax Act does not apply to expenses exclusively incurred by a foreign bank's branch office in India. The provision applies only to common head office expenses that require allocation across various entities.
Interest income, such as on income-tax refunds or fixed deposits, derived by a foreign entity with a Permanent Establishment (PE) in India is taxable under DTAA if the debt-claim is effectively connected or attributable to the PE. For DTAA purposes, the terms 'attributable' and 'effectively connected' are considered to have the same meaning.
The refund of guarantee commission for the unexpired period of a guarantee contract, where the contract is revoked prematurely, is a valid deduction for the assessee-bank.
The Special Bench decision in ACIT vs. Clough Engineering Ltd. interprets treaty provisions and the expression 'in connection with PE' for taxability. It is not applicable when income is offered under domestic provisions and not disputed.
Interest received by an Indian branch from its head office is not taxable as it represents profit from oneself, and expenditure incurred by the head office for the branch is not deductible from the branch's income.
Interest payments made by an Indian branch to its head office are not taxable in India when they are in the nature of intra-entity adjustments and not income arising in India.
Interest paid by an Indian branch of a bank to its overseas head office is not allowable as a deduction. This is because the payment is not considered chargeable to tax in India, and therefore, Section 195 TDS provisions are not attracted.
