Section 60 — Deduction of head office expenditure in case of non-residents. Successor to s.44C of the 1961 Act.
Section 60 is in Chapter IV — Computation of Total Income, which runs from section 13 to section 95.
Sub-section (1) allows a non-resident assessee, notwithstanding sections 26 to 54, a deduction for head office expenditure incurred by him as is attributable to his business or profession in India, in computing income under the head "Profits and gains of business or profession", subject to sub-section (2).
Sub-section (2) restricts it to an upper monetary limit of 5% of the average adjusted total income where the adjusted total income is a loss, and to an upper monetary limit of 5% of the adjusted total income in any other case.
Sub-section (3) defines the terms. "Adjusted total income" is total income computed under the Act without giving effect to this allowance, the allowance in section 33(11), the deduction in section 32(i)(A), any loss carried forward under section 111(1), 112(1), 113(2) or 115(2), or the deductions under Chapter VIII. "Average adjusted total income" is the arithmetic mean over the three immediately preceding tax years where the assessee is assessable for each, over two where he is assessable for only two, and the single year's figure where only one. "Head office expenditure" is executive and general administration expenditure incurred outside India, including rent, rates, taxes, repairs or insurance of premises outside India used for the business; salary and other employment payments to persons employed in or managing an office outside India; travelling by such persons; and such other matters connected with executive and general administration as may be prescribed.
A non-resident running a branch in India carries central costs abroad that genuinely serve the Indian operation, and the section admits them rather than confining deductions to expenditure incurred in India. But an allocation made abroad cannot easily be tested from India, so the Act puts a hard proportional ceiling on it instead of litigating the allocation. The loss-year rule exists because 5% of a loss would be meaningless.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Ceiling on the deduction in a loss year | An upper monetary limit of 5% of the average adjusted total income | Where the adjusted total income of the assessee is a loss | Sub-section (2)(a) |
| Ceiling on the deduction in any other year | An upper monetary limit of 5% of the adjusted total income | Adjusted total income computed under sub-section (3)(a), that is before this allowance, section 33(11), section 32(i)(A), carried forward losses under sections 111(1), 112(1), 113(2) and 115(2), and Chapter VIII deductions | Sub-section (2)(b) |
| Period for the average | The three tax years immediately preceding the relevant tax year | Arithmetic mean over those three if assessable for each; over two if assessable for only two; the single year's figure if only one | Sub-section (3)(b)(i) to (iii) |
The 5% is an upper monetary limit, not the deduction. What is allowed is the head office expenditure attributable to the Indian business, and 5% caps it — an assessee whose attributable cost is lower deducts the lower figure, and one who simply claims 5% has misread sub-section (1). The base is adjusted total income, built before this very allowance and before Chapter VIII deductions and the listed carried-forward losses, so it is not the total income that appears on the return. In a loss year the base switches to the three-year average, and sub-section (3)(c) confines the expenditure itself to executive and general administration expenditure incurred outside India.
A non-resident company runs an Indian branch. Its adjusted total income under sub-section (3)(a) is Rs. 10 crore and the head office expenditure attributable to the branch is Rs. 80 lakh. The ceiling under sub-section (2)(b) is Rs. 50 lakh, so Rs. 50 lakh is allowed and Rs. 30 lakh is not. Had that year's adjusted total income been a loss, the ceiling would be 5% of the arithmetic mean of the three immediately preceding years' adjusted total income.
You meet this section computing the branch profits of a non-resident for the return, and again when an Assessing Officer restricts the head office allocation in an assessment order — the dispute is usually over the adjusted total income base rather than the 5%.
in any other case, to an upper monetary limit of 5% of the adjusted total income of the assessee
"head office expenditure" means executive and general administration expenditure incurred by the assessee outside India
See the full 1961 to 2025 concordance.
See the circulars index.