Our head office sent staff to work on the Indian branch and debited us the cost. Does the s.44C five per cent ceiling apply to it?
No. Section 44C imposes a ceiling on head office expenditure of a common nature — expenditure incurred for various branches, or for the head office and the branch — that has to be allocated. Expenditure incurred exclusively for the Indian branch is outside s.44C altogether, even where the head office paid it first and recovered it by debit note.
Decided by the High Court (S.H. Kapadia J and J.P. Devadhar J) on 2003-04-30, reported as Reference under s.256(1) of the Income-tax Act, 1961, High Court of Bombay; assessment years 1983-84 and 1984-85; database citation line records [2003] 262 ITR 55 (Bom). It bears on section 44C, section 32A, section 32A(2)(b)(iii), section 40A(5), section 256(1) of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
This is the distinction that decides most s.44C disputes, and the Court states it in two sentences: s.44C contemplates allocation, and where there is nothing to allocate because the expense was wholly for the Indian branch, the section has no application. The Court also records why s.44C exists — to get over the difficulty of scrutinising claims for general administrative expenditure of a foreign head office, foreign companies operating through Indian branches sometimes inflating those claims. Note what carried the day on the facts: concurrent findings by the CIT(A) and the Tribunal that the officers came from the head office to attend to the work of the Bombay branch and that the expense was incurred in connection with that work. The High Court declined to disturb findings of fact. So the battleground is evidence at the first two levels, not construction at the third.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee is a non-resident banking company with its head office at Abu Dhabi and a branch office at Bombay. For the assessment years 1983-84 and 1984-85 the Department referred four questions under s.256(1). The fourth concerned travelling expenses of Rs 4,20,706 incurred on staff members of the head office on their visits to the assessee's branch office in India, which the Tribunal had allowed. The CIT(A) and the Tribunal had both found as a fact that the officers came from the head office at Abu Dhabi to Bombay to attend to the work of the Bombay branch and that the expense was incurred in connection with that work; the expense was initially incurred by the head office and recovered from the Indian branch by raising a debit note. The Department contended the expenditure was head office expenditure subject to s.44C.
Question IV was answered in the affirmative, in favour of the assessee and against the Department, and the reference was disposed of with no order as to costs. Section 44C contemplates the allocation of expenses of a common nature — incurred for the various branches, or for the head office and the branch — and imposes a ceiling on head office expenses. Where the expenditure is exclusively incurred for the branch, s.44C has no application. On the concurrent findings of fact, which the Court declined to disturb, the expense was incurred for the branch office in India (paragraphs 5 and 7).
The Court began with the scope and purpose of s.44C: it applies only to non-residents carrying on business in India through branches, and was introduced to get over the difficulty of scrutinising claims for general administrative expenditure incurred by a foreign head office so far as related to the Indian business, foreign companies operating through Indian branches sometimes seeking to reduce Indian tax by inflating head office expense claims. Read that way, the section seeks to impose a ceiling or restriction on head office expenses and contemplates an allocation of expenses among various entities; the expenditure it covers is of a common nature, incurred for the various branches or for the head office and the branch. The case before the Court, by contrast, concerned expenditure exclusively incurred for the branch. The route by which it was paid — head office first, recovered from the Indian branch by debit note — did not change that character. Since the CIT(A) and the Tribunal had concurrently found that the officers travelled to attend to the Bombay branch's work, and those were findings of fact the Court did not wish to interfere with, s.44C had no application. The Court also recorded that no argument had been advanced by the Department on Rule 6D.
However, in this case, we are concerned with the expenditure exclusively incurred for the branch.
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Handle my notice → Ask a CA on WhatsAppNo. Section 44C imposes a ceiling on head office expenditure of a common nature — expenditure incurred for various branches, or for the head office and the branch — that has to be allocated. Expenditure incurred exclusively for the Indian branch is outside s.44C altogether, even where the head office paid it first and recovered it by debit note. This was decided by the High Court (S.H. Kapadia J and J.P. Devadhar J) and bears on section 44C, section 32A, section 32A(2)(b)(iii), section 40A(5), section 256(1) of the Income Tax Act 1961. It is reported as Reference under s.256(1) of the Income-tax Act, 1961, High Court of Bombay; assessment years 1983-84 and 1984-85; database citation line records [2003] 262 ITR 55 (Bom). This is the distinction that decides most s.44C disputes, and the Court states it in two sentences: s.44C contemplates allocation, and where there is nothing to allocate because the expense was wholly for the Indian branch, the section has no application. The Court also records why s.44C exists — to get over the difficulty of scrutinising claims for general administrative expenditure of a foreign head office, foreign companies operating through Indian branches sometimes inflating those claims. Note what carried the day on the facts: concurrent findings by the CIT(A) and the Tribunal that the officers came from the head office to attend to the work of the Bombay branch and that the expense was incurred in connection with that work. The High Court declined to disturb findings of fact. So the battleground is evidence at the first two levels, not construction at the third. If it applies to you, the first step is this: Split the head office charge into two schedules before the Assessing Officer: expenditure of a common nature requiring allocation, which goes into the s.44C computation, and expenditure incurred wholly and exclusively for the Indian branch, which does not.
The assessee is a non-resident banking company with its head office at Abu Dhabi and a branch office at Bombay. For the assessment years 1983-84 and 1984-85 the Department referred four questions under s.256(1). The fourth concerned travelling expenses of Rs 4,20,706 incurred on staff members of the head office on their visits to the assessee's branch office in India, which the Tribunal had allowed. The CIT(A) and the Tribunal had both found as a fact that the officers came from the head office at Abu Dhabi to Bombay to attend to the work of the Bombay branch and that the expense was incurred in connection with that work; the expense was initially incurred by the head office and recovered from the Indian branch by raising a debit note. The Department contended the expenditure was head office expenditure subject to s.44C. The matter was decided on 2003-04-30 by the High Court (S.H. Kapadia J and J.P. Devadhar J). On those facts the High Court held as follows. Question IV was answered in the affirmative, in favour of the assessee and against the Department, and the reference was disposed of with no order as to costs. Section 44C contemplates the allocation of expenses of a common nature — incurred for the various branches, or for the head office and the branch — and imposes a ceiling on head office expenses. Where the expenditure is exclusively incurred for the branch, s.44C has no application. On the concurrent findings of fact, which the Court declined to disturb, the expense was incurred for the branch office in India (paragraphs 5 and 7).
The Court began with the scope and purpose of s.44C: it applies only to non-residents carrying on business in India through branches, and was introduced to get over the difficulty of scrutinising claims for general administrative expenditure incurred by a foreign head office so far as related to the Indian business, foreign companies operating through Indian branches sometimes seeking to reduce Indian tax by inflating head office expense claims. Read that way, the section seeks to impose a ceiling or restriction on head office expenses and contemplates an allocation of expenses among various entities; the expenditure it covers is of a common nature, incurred for the various branches or for the head office and the branch. The case before the Court, by contrast, concerned expenditure exclusively incurred for the branch. The route by which it was paid — head office first, recovered from the Indian branch by debit note — did not change that character. Since the CIT(A) and the Tribunal had concurrently found that the officers travelled to attend to the Bombay branch's work, and those were findings of fact the Court did not wish to interfere with, s.44C had no application. The Court also recorded that no argument had been advanced by the Department on Rule 6D. In the words reproduced by the source cited on this page: "However, in this case, we are concerned with the expenditure exclusively incurred for the branch." The decision followed or applied Citibank N.A. v. CIT (Bombay High Court, decided 5 March 2003) — followed on questions I and II, which were answered against the assessee.
It was decided by the High Court on 2003-04-30 and is reported as Reference under s.256(1) of the Income-tax Act, 1961, High Court of Bombay; assessment years 1983-84 and 1984-85; database citation line records [2003] 262 ITR 55 (Bom). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 44C, section 32A, section 32A(2)(b)(iii), section 40A(5), section 256(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Question IV was answered in the affirmative, in favour of the assessee and against the Department, and the reference was disposed of with no order as to costs. Section 44C contemplates the allocation of expenses of a common nature — incurred for the various branches, or for the head office and the branch — and imposes a ceiling on head office expenses. Where the expenditure is exclusively incurred for the branch, s.44C has no application. On the concurrent findings of fact, which the Court declined to disturb, the expense was incurred for the branch office in India (paragraphs 5 and 7). It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section 44C, section 32A, section 32A(2)(b)(iii), section 40A(5), section 256(1) of the Income Tax Act 1961, and was decided by S.H. Kapadia J and J.P. Devadhar J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Build the record at the assessment and CIT(A) stage — travel authorisations, the purpose of each visit, the branch work attended to, and the debit note raised by the head office. Concurrent findings of fact are what protected this assessee on second appeal. Do not let the officer treat the fact that the payment originated outside India as decisive; the Court's test is the nature of the expenditure, not the source of the payment. Where the expense is genuinely common, accept the s.44C ceiling for that part rather than putting the whole claim at risk. Check the current s.44C computation base and percentage against the section as it now stands before quantifying; this judgment concerns assessment years 1983-84 and 1984-85 and does not set out the arithmetic.
Overruled. DO NOT RELY ON THE SECTION 44C HOLDING. In Director of Income Tax (IT)-I, Mumbai v American Express Bank Ltd (Supreme Court, 15 December 2025, 2025 INSC 1431) the Court held at para 71: 'we hold that the view expressed by the Bombay High Court in Emirates Commercial Bank (supra) regarding the applicability of Section 44C is incorrect and does not declare the position of law correctly.' Earlier in the same judgment the Court recorded that 'The reliance on the judgment in Emirates Commercial Bank (supra) is completely misplaced', and it rejected the interpretive move at the heart of this judgment - the distinction between common head office expenditure and expenditure incurred exclusively for the Indian branch - as having no textual support in s.44C. The proposition that expenditure incurred by a non-resident's head office wholly and exclusively for its Indian branch escapes the s.44C ceiling, and is deductible in full under s.37(1), is therefore gone. Tribunal decisions applying it are being unwound on the same basis: in DCIT v American Express Bank Ltd and Standard Chartered Holdings v ACIT (both Mumbai Tribunal, 17 June 2026) the Benches note that 'the facts and reasoning governing the decisions in Rupenjuli Tea and Emirates Commercial Bank are starkly different'. What is overruled is the s.44C limb, which is what this entry records. The judgment's separate rulings on s.32A(2)(b)(iii) and s.40A(5) were not touched by the Supreme Court and nothing displacing them was found, but the headline holding must be treated as bad law. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment is short: seven numbered paragraphs, with the s.44C discussion entirely in paragraph 5 and the disposal at paragraph 7. That is worth knowing before it is cited, because almost everything said about the case turns on a single paragraph. One textual defect should be carried in mind. Reproductions of paragraph 5 are in circulation which place quotation marks around three phrases that the judgment does not in fact quote from anywhere. The version used in this entry is the one without those added quotation marks. Anyone reproducing paragraph 5 in a written submission should satisfy himself which version he has, because the marks make the Court appear to be citing an authority or a statutory phrase when it is speaking in its own words. The equivalent citation [2003] 262 ITR 55 (Bom) is supplied from a citation index and does not appear in the judgment itself. The reference under s.256(1) carried four questions and this entry deals with one of them. Questions I and II were answered against the assessee, following the same Court's decision in Citibank N.A. v. CIT decided on 5 March 2003. Question III, on investment allowance for computers under s.32A and s.32A(2)(b)(iii), was answered for the assessee. Only question IV concerns s.44C, and only question IV is the subject of the holding recorded here. The Court also recorded that the Department advanced no argument on Rule 6D, so nothing in the judgment decides how Rule 6D interacts with a head office travel claim. The single most important thing about this entry is not in the judgment at all. The s.44C holding — the distinction between common head office expenditure requiring allocation and expenditure incurred exclusively for the Indian branch — has since been held incorrect by the Supreme Court, and the validity note sets out where and in what words. The entry is kept because the judgment is still cited, and a reader who meets it needs to be able to show what happened to it; it is not kept as a statement of the present law on s.44C. The rulings on s.32A(2)(b)(iii) and on s.40A(5) were not touched, but they are not what this page is about. One practical consequence: a return or a submission drafted on the strength of this judgment for a year still open should be revisited, because the Supreme Court's holding is on the construction of s.44C and is not confined to the years before it. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Question IV was answered in the affirmative, in favour of the assessee and against the Department, and the reference was disposed of with no order as to costs. Section 44C contemplates the allocation of expenses of a common nature — incurred for the various branches, or for the head office and the branch — and imposes a ceiling on head office expenses. Where the expenditure is exclusively incurred for the branch, s.44C has no application. On the concurrent findings of fact, which the Court declined to disturb, the expense was incurred for the branch office in India (paragraphs 5 and 7).
TaxSphere, “CIT v Emirates Commercial Bank Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-emirates-commercial-bank-44c-expenditure-wholly-for-indian-branch/ (validity last checked 2026-09-08)
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