The officer has treated expatriate salaries paid by our London head office as head office expenditure and capped them under s.44C. Is that correct, and does the treaty's non-discrimination article get me out of s.44C altogether?
On the first question, no. Section 44C restricts only executive and general administrative expenditure incurred outside India in connection with the management of the non-resident's affairs; salary of expatriate employees deputed to and working exclusively for the India branch is not head office expenditure merely because the head office paid it first. On the second, the Tribunal declined to hold that Article 26(2) of the India-UK treaty knocks out s.44C in every case — that has to be decided on the nature of the expenditure and the facts, read with Article 7(4).
Decided by the ITAT (Beena Pillai, Judicial Member and Arun Khodpia, Accountant Member) on 2026-07-16, reported as ITA Nos. 4247, 4275, 4264 and 4265/MUM/2025 (Income Tax Appellate Tribunal, Mumbai, Bench I); assessment years 2004-05 and 2005-06; cross-appeals from orders of CIT(A)-58, Mumbai dated 11 April 2025. The treaty in issue is the India-UK Double Taxation Avoidance Agreement.. It bears on section 44C, section 37(1), section 28(iv), section 90(2), section 92CA, section 143(2), section DTAA art 7, section DTAA art 7(4), section DTAA art 26, section DTAA art 26(2) of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
This is the fullest recent treatment of the s.44C boundary and it does two things at once. It confirms, in a current order, the distinction that decides most s.44C disputes — nature and character of the expenditure, not the place from which payment was made — and it narrows the non-discrimination escape route that Metchem Canada and Rolls Royce had been read as opening. The Tribunal's reason for narrowing it is worth having: Article 7(4) of the India-UK treaty expressly preserves the customary domestic method of attributing profits to a permanent establishment, and the concluding part of Article 26(2) provides that the non-discrimination clause is not to be construed as being in conflict with Article 7(4); neither Metchem Canada nor Rolls Royce examined those provisions. So a treaty-based challenge to s.44C is not foreclosed, but it must be pleaded on the facts and on the specific expenditure, and it must confront Article 7(4). The order was passed for assessment years 2004-05 and 2005-06 and marked fit for publication.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee is a bank incorporated by Royal Charter under the law of England and Wales, registered in India under the Companies Act 1956 and carrying on banking and financial services business in India under the Banking Regulation Act 1949. For assessment years 2004-05 and 2005-06 the assessment involved a transfer pricing reference under s.92CA and a draft assessment proposing several additions, including disallowance of expatriate salaries and of head office expenditure. The Assessing Officer proceeded on the basis that salaries paid by the head office to expatriate employees constituted head office expenditure liable to the s.44C restriction, and alternatively that the expenditure was not incurred for the purposes of the Indian business and so was not allowable under s.37(1). The expatriate employees had been deputed to India and were engaged in carrying out the business activities of the India branch. Before the Tribunal the assessee also contended that s.44C is discriminatory because no similar restriction applies to a resident enterprise, and that under Article 26 of the India-UK treaty read with s.90(2) the treaty must prevail, relying on Metchem Canada Inc. v. DCIT, decided under the comparably worded Article 24(2) of the India-Canada treaty, and on Rolls Royce Plc. v. DCIT.
On the s.44C question the Tribunal held for the assessee. Section 44C restricts deduction only in respect of executive and general administrative expenditure incurred outside India in connection with the management of the assessee's affairs, and its applicability depends on the nature and character of the expenditure and not merely on the fact that payment was made from outside India. The expatriate salary was neither incurred for managing an office outside India nor in the nature of common executive and administrative overheads of the head office requiring allocation between Indian and overseas operations; it pertained exclusively to the Indian business and therefore could not be regarded as head office expenditure within the meaning of s.44C merely because the salary component was initially paid by the head office (paragraphs 7.1 to 7.3). The s.37(1) objection failed for the connected reason that allowability turns on whether the expenditure was incurred for the purposes of the business, not on the entity from which payment originated (paragraphs 7.4 and 7.5). On the treaty question the Tribunal declined the broad proposition that s.44C is inherently discriminatory, holding that Article 26(2) cannot be examined in the abstract but depends on the nature of the expenditure and the factual matrix, read harmoniously with Article 7 (paragraphs 16.5, 16.7.1 and 16.8). The cross-appeals for both years were partly allowed.
On s.44C the Tribunal began from the words of the section — executive and general administrative expenditure incurred outside India in connection with the management of the assessee's affairs — and held that the legislative focus is not on where the benefit of the expenditure is ultimately derived but on the nature of the expenditure and the fact that it represents executive and general administrative expenditure incurred outside India by the head office of a non-resident enterprise (paragraph 16.4.2). Applying that, expenditure exclusively referable to the Indian business is outside the section. On non-discrimination, the Tribunal reasoned that the category of expenditure s.44C regulates — executive and general administrative expenditure of a foreign head office, either commonly allocated among permanent establishments or incurred abroad for a particular permanent establishment — is peculiar to enterprises with a head office outside India and does not ordinarily arise for a resident Indian enterprise, so the legislative classification rests on the peculiar nature of the expenditure and the attribution exercise contemplated by Article 7, not merely on residential status (paragraph 16.5). Article 7(4) recognises the continued application of domestic attribution mechanisms while Article 26(2) ensures they are not applied so as to produce prohibited discrimination, and the concluding part of Article 26(2) provides that the non-discrimination clause is not to be construed as in conflict with Article 7(4); the treaty does not contemplate that every distinction in attributing or computing the profits of a permanent establishment is discrimination (paragraph 16.7.1). Metchem Canada and Rolls Royce were held not to lay down an inflexible proposition that s.44C is inapplicable to every permanent establishment, neither having examined Article 7(4) or the concluding words of Article 26(2), and the issue was said to require reappraisal in the light of the Supreme Court's decision in American Express Bank Ltd., which recognises s.44C as a special computation provision governing the deduction of head office expenditure (paragraph 16.8).
Therefore, the same cannot be regarded as "head office expenditure" within the meaning of section 44C merely because the salary component was initially paid by the Head Office.
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Handle my notice → Ask a CA on WhatsAppOn the first question, no. Section 44C restricts only executive and general administrative expenditure incurred outside India in connection with the management of the non-resident's affairs; salary of expatriate employees deputed to and working exclusively for the India branch is not head office expenditure merely because the head office paid it first. On the second, the Tribunal declined to hold that Article 26(2) of the India-UK treaty knocks out s.44C in every case — that has to be decided on the nature of the expenditure and the facts, read with Article 7(4). This was decided by the ITAT (Beena Pillai, Judicial Member and Arun Khodpia, Accountant Member) and bears on section 44C, section 37(1), section 28(iv), section 90(2), section 92CA, section 143(2), section DTAA art 7, section DTAA art 7(4), section DTAA art 26, section DTAA art 26(2) of the Income Tax Act 1961. It is reported as ITA Nos. 4247, 4275, 4264 and 4265/MUM/2025 (Income Tax Appellate Tribunal, Mumbai, Bench I); assessment years 2004-05 and 2005-06; cross-appeals from orders of CIT(A)-58, Mumbai dated 11 April 2025. The treaty in issue is the India-UK Double Taxation Avoidance Agreement.. This is the fullest recent treatment of the s.44C boundary and it does two things at once. It confirms, in a current order, the distinction that decides most s.44C disputes — nature and character of the expenditure, not the place from which payment was made — and it narrows the non-discrimination escape route that Metchem Canada and Rolls Royce had been read as opening. The Tribunal's reason for narrowing it is worth having: Article 7(4) of the India-UK treaty expressly preserves the customary domestic method of attributing profits to a permanent establishment, and the concluding part of Article 26(2) provides that the non-discrimination clause is not to be construed as being in conflict with Article 7(4); neither Metchem Canada nor Rolls Royce examined those provisions. So a treaty-based challenge to s.44C is not foreclosed, but it must be pleaded on the facts and on the specific expenditure, and it must confront Article 7(4). The order was passed for assessment years 2004-05 and 2005-06 and marked fit for publication. If it applies to you, the first step is this: Characterise each item of head office charge before quantifying anything: is it executive and general administrative expenditure incurred outside India in connection with the management of the enterprise's affairs, or is it expenditure pertaining exclusively to the Indian business?
The assessee is a bank incorporated by Royal Charter under the law of England and Wales, registered in India under the Companies Act 1956 and carrying on banking and financial services business in India under the Banking Regulation Act 1949. For assessment years 2004-05 and 2005-06 the assessment involved a transfer pricing reference under s.92CA and a draft assessment proposing several additions, including disallowance of expatriate salaries and of head office expenditure. The Assessing Officer proceeded on the basis that salaries paid by the head office to expatriate employees constituted head office expenditure liable to the s.44C restriction, and alternatively that the expenditure was not incurred for the purposes of the Indian business and so was not allowable under s.37(1). The expatriate employees had been deputed to India and were engaged in carrying out the business activities of the India branch. Before the Tribunal the assessee also contended that s.44C is discriminatory because no similar restriction applies to a resident enterprise, and that under Article 26 of the India-UK treaty read with s.90(2) the treaty must prevail, relying on Metchem Canada Inc. v. DCIT, decided under the comparably worded Article 24(2) of the India-Canada treaty, and on Rolls Royce Plc. v. DCIT. The matter was decided on 2026-07-16 by the ITAT (Beena Pillai, Judicial Member and Arun Khodpia, Accountant Member). On those facts the ITAT held as follows. On the s.44C question the Tribunal held for the assessee. Section 44C restricts deduction only in respect of executive and general administrative expenditure incurred outside India in connection with the management of the assessee's affairs, and its applicability depends on the nature and character of the expenditure and not merely on the fact that payment was made from outside India. The expatriate salary was neither incurred for managing an office outside India nor in the nature of common executive and administrative overheads of the head office requiring allocation between Indian and overseas operations; it pertained exclusively to the Indian business and therefore could not be regarded as head office expenditure within the meaning of s.44C merely because the salary component was initially paid by the head office (paragraphs 7.1 to 7.3). The s.37(1) objection failed for the connected reason that allowability turns on whether the expenditure was incurred for the purposes of the business, not on the entity from which payment originated (paragraphs 7.4 and 7.5). On the treaty question the Tribunal declined the broad proposition that s.44C is inherently discriminatory, holding that Article 26(2) cannot be examined in the abstract but depends on the nature of the expenditure and the factual matrix, read harmoniously with Article 7 (paragraphs 16.5, 16.7.1 and 16.8). The cross-appeals for both years were partly allowed.
On s.44C the Tribunal began from the words of the section — executive and general administrative expenditure incurred outside India in connection with the management of the assessee's affairs — and held that the legislative focus is not on where the benefit of the expenditure is ultimately derived but on the nature of the expenditure and the fact that it represents executive and general administrative expenditure incurred outside India by the head office of a non-resident enterprise (paragraph 16.4.2). Applying that, expenditure exclusively referable to the Indian business is outside the section. On non-discrimination, the Tribunal reasoned that the category of expenditure s.44C regulates — executive and general administrative expenditure of a foreign head office, either commonly allocated among permanent establishments or incurred abroad for a particular permanent establishment — is peculiar to enterprises with a head office outside India and does not ordinarily arise for a resident Indian enterprise, so the legislative classification rests on the peculiar nature of the expenditure and the attribution exercise contemplated by Article 7, not merely on residential status (paragraph 16.5). Article 7(4) recognises the continued application of domestic attribution mechanisms while Article 26(2) ensures they are not applied so as to produce prohibited discrimination, and the concluding part of Article 26(2) provides that the non-discrimination clause is not to be construed as in conflict with Article 7(4); the treaty does not contemplate that every distinction in attributing or computing the profits of a permanent establishment is discrimination (paragraph 16.7.1). Metchem Canada and Rolls Royce were held not to lay down an inflexible proposition that s.44C is inapplicable to every permanent establishment, neither having examined Article 7(4) or the concluding words of Article 26(2), and the issue was said to require reappraisal in the light of the Supreme Court's decision in American Express Bank Ltd., which recognises s.44C as a special computation provision governing the deduction of head office expenditure (paragraph 16.8). In the words reproduced by the source cited on this page: "Therefore, the same cannot be regarded as "head office expenditure" within the meaning of section 44C merely because the salary component was initially paid by the Head Office." The decision followed or applied DIT v. American Express Bank Ltd. (Supreme Court) — relied on as recognising s.44C as a special computation provision; Metchem Canada Inc. v. DCIT and Rolls Royce Plc. v. DCIT — distinguished as not having examined Article 7(4) or the concluding part of Article 26(2); Shinhan Bank v. DCIT, 144 taxmann.com 182 — cited in argument on s.28(iv) in relation to non-reimbursed head office salary costs.
It was decided by the ITAT on 2026-07-16 and is reported as ITA Nos. 4247, 4275, 4264 and 4265/MUM/2025 (Income Tax Appellate Tribunal, Mumbai, Bench I); assessment years 2004-05 and 2005-06; cross-appeals from orders of CIT(A)-58, Mumbai dated 11 April 2025. The treaty in issue is the India-UK Double Taxation Avoidance Agreement.. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 44C, section 37(1), section 28(iv), section 90(2), section 92CA, section 143(2), section DTAA art 7, section DTAA art 7(4), section DTAA art 26, section DTAA art 26(2), 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. On the s.44C question the Tribunal held for the assessee. Section 44C restricts deduction only in respect of executive and general administrative expenditure incurred outside India in connection with the management of the assessee's affairs, and its applicability depends on the nature and character of the expenditure and not merely on the fact that payment was made from outside India. The expatriate salary was neither incurred for managing an office outside India nor in the nature of common executive and administrative overheads of the head office requiring allocation between Indian and overseas operations; it pertained exclusively to the Indian business and therefore could not be regarded as head office expenditure within the meaning of s.44C merely because the salary component was initially paid by the head office (paragraphs 7.1 to 7.3). The s.37(1) objection failed for the connected reason that allowability turns on whether the expenditure was incurred for the purposes of the business, not on the entity from which payment originated (paragraphs 7.4 and 7.5). On the treaty question the Tribunal declined the broad proposition that s.44C is inherently discriminatory, holding that Article 26(2) cannot be examined in the abstract but depends on the nature of the expenditure and the factual matrix, read harmoniously with Article 7 (paragraphs 16.5, 16.7.1 and 16.8). The cross-appeals for both years were partly allowed. It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section 44C, section 37(1), section 28(iv), section 90(2), section 92CA, section 143(2), section DTAA art 7, section DTAA art 7(4), section DTAA art 26, section DTAA art 26(2) of the Income Tax Act 1961, and was decided by Beena Pillai, Judicial Member and Arun Khodpia, Accountant Member. 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. For expatriate salary, evidence the deputation and the exclusivity — that the employees were deputed to India, were engaged exclusively in the India branch's business, and rendered services in India — and show the direct nexus with the Indian operations. Answer the s.37(1) objection separately from the s.44C objection: the Tribunal held allowability under s.37(1) turns on whether the expenditure was incurred for the purposes of the business, not on the entity from which the payment originated. If you intend to run the treaty non-discrimination argument, do not plead it in the abstract. Identify the expenditure, show the actual less favourable taxation compared with a resident enterprise, and deal expressly with Article 7(4) and the concluding words of Article 26(2). Read the Supreme Court's decision in DIT v American Express Bank Ltd. before advising on s.44C — the Tribunal treated it as recognising s.44C as a special computation provision governing the deduction of head office expenditure.
Searched for later treatment; none was found. That is not the same as a source affirming it. No later decision citing this order has been found, and none taking the opposite view. No appeal under section 260A to the Bombay High Court has been traced. The only related records are the four companion orders of 16 July 2026. This is a July 2026 order of the Mumbai Bench, so the silence reflects its age rather than any doubt about it. It may be cited as the only direct authority found on the point, but it should not be presented as settled. Two things limit what it decides. The s.44C holding is a holding on characterisation, and characterisation is a question of fact: the Tribunal found that the expatriate salary was neither incurred for managing an office outside India nor in the nature of common executive and administrative overheads requiring allocation, and that it pertained exclusively to the Indian business. A head office charge that does answer those descriptions is untouched by the order. And the treaty holding is a refusal to decide in the abstract, not a decision that Article 26(2) can never displace s.44C: the Tribunal held the question depends on the nature of the expenditure and the factual matrix, read harmoniously with Article 7. That refusal narrows what Metchem Canada and Rolls Royce had been read as opening, and the reason is worth carrying. Article 7(4) of the India-UK agreement expressly preserves the customary domestic method of attributing profits to a permanent establishment, and the concluding part of Article 26(2) provides that the non-discrimination clause is not to be construed as being in conflict with Article 7(4); neither of those earlier decisions examined those provisions. A treaty-based challenge to s.44C is therefore not foreclosed, but it must be pleaded on the facts and must confront Article 7(4). 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.
WHAT THIS ENTRY COVERS AND WHAT IT DOES NOT. The order is long and only parts of it have been read: paragraphs 7.1 to 7.5, which carry the expatriate salary and s.44C finding, and paragraphs 16.4.2, 16.5, 16.7.1 and 16.8, which carry the non-discrimination discussion. Paragraphs 7.2 and 7.3 have been independently re-confirmed. The intervening portions have not been read, so how the other grounds were decided is not stated here, and this entry is confined to the s.44C findings. WHOSE WORDS ARE WHOSE. Paragraphs numbered 6.x and 15.x in the same order are the parties' submissions and not findings. None of them has been used as a holding on this page, and a citation to a 6.x or 15.x paragraph of this order is a citation to an argument. ON THE DISPOSAL. 'In the result the appeals filed by the assessee and revenue for assessment years 2004-05 and 2005-06 stands partly allowed', pronounced 16 July 2026. The order carries the endorsement 'FIT FOR PUBLICATION'. A WARNING ABOUT THE CAUSE TITLE. The Revenue party as printed is the DCIT(IT)-4(2)(2); the cause title reads 'STANDARD CHARTERED BANK vs. DCIT(IT)-4(2)(2)'. The designation 'Assistant Commissioner of Income Tax' used in the title and in 'full_name' on this page has not been confirmed, and neither the heading of this page nor its short form should be relied on as part of the cause title. Cite the appeal numbers and the date. ON THE TWO FINDINGS, kept apart because they are often run together. The s.44C finding is that the section restricts deduction only in respect of executive and general administrative expenditure incurred outside India in connection with the management of the assessee's affairs, and that its applicability depends on the nature and character of the expenditure and not merely on the fact that payment was made from outside India. The s.37(1) finding is separate and is the connected point: allowability under s.37(1) turns on whether the expenditure was incurred for the purposes of the business, not on the entity from which the payment originated. Answer a s.44C objection and a s.37(1) objection separately. ON THE YEARS. Assessment years 2004-05 and 2005-06. The order is recent but the years are old, and s.44C has not changed in the interval; the treaty discussion is on the India-UK agreement and does not carry to a treaty whose Article 7 and Article 26 are worded differently. Read Article 7(4) and the concluding words of Article 26(2) of the treaty in issue before the non-discrimination argument is run. 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.
On the s.44C question the Tribunal held for the assessee. Section 44C restricts deduction only in respect of executive and general administrative expenditure incurred outside India in connection with the management of the assessee's affairs, and its applicability depends on the nature and character of the expenditure and not merely on the fact that payment was made from outside India. The expatriate salary was neither incurred for managing an office outside India nor in the nature of common executive and administrative overheads of the head office requiring allocation between Indian and overseas operations; it pertained exclusively to the Indian business and therefore could not be regarded as head office expenditure within the meaning of s.44C merely because the salary component was initially paid by the head office (paragraphs 7.1 to 7.3). The s.37(1) objection failed for the connected reason that allowability turns on whether the expenditure was incurred for the purposes of the business, not on the entity from which payment originated (paragraphs 7.4 and 7.5). On the treaty question the Tribunal declined the broad proposition that s.44C is inherently discriminatory, holding that Article 26(2) cannot be examined in the abstract but depends on the nature of the expenditure and the factual matrix, read harmoniously with Article 7 (paragraphs 16.5, 16.7.1 and 16.8). The cross-appeals for both years were partly allowed.
TaxSphere, “Standard Chartered Bank v ACIT (Mumbai Tribunal, 2026)”, https://taxnotice.vittsphere.com/caselaw/case/standard-chartered-bank-v-acit-44c-expatriate-salary-and-article-26/ (validity last checked 2026-09-08)
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