2003 (3) TMI 84 - HC - Income Tax

Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the assessee-bank was not liable to be taxed in respect of the amounts credited to Interest Suspense Account being interest on sticky loans and advances? - Whether on the facts and in the circumstances of the case the Tribunal was right in law in directing the Assessing Officer to allow head office expenses at Rs. 13, 45, 492 being average head office expenses and not the least 9 of the three amounts mentioned in section 44C of the Income-tax Act? - The above quoted question is answered in the affirmative i.e. in favour of the assessee and against the Department.

Summary

Issues involved:
1. Tax liability on interest credited to Interest Suspense Account.
2. Allowance of head office expenses under section 44C of the Income-tax Act.

Analysis:
1. Tax liability on interest credited to Interest Suspense Account:
The first issue in this case pertains to whether the assessee-bank was liable to be taxed on the amounts credited to the Interest Suspense Account, representing interest on sticky loans and advances. The Tribunal held in favor of the assessee, relying on the judgment in UCO Bank v. CIT [1999] 237 ITR 889. The court concurred with the Tribunal's decision, answering the question in the affirmative, thereby ruling in favor of the assessee and against the Department.

2. Allowance of head office expenses under section 44C:
The second issue revolves around the interpretation and application of section 44C of the Income-tax Act concerning the allowance of head office expenses for non-resident assesses. Section 44C outlines three criteria for determining the allowable deduction for head office expenditure: (a) five percent of adjusted total income, (b) average head office expenditure, and (c) actual expenditure attributable to Indian operations. In this case, the Income-tax Officer initially limited the deduction to Rs. 5 lakhs due to lack of expense breakdown. However, the Commissioner (Appeals) and subsequently the Tribunal allowed the deduction of Rs. 13,45,492 based on the average head office expenditure, as approved in previous assessment years. The court upheld the Tribunal's decision, emphasizing consistency in allowing the deduction and declined to interfere, ultimately ruling in favor of the assessee and against the Department.

In conclusion, the High Court of BOMBAY upheld the decisions of the Tribunal on both issues, ruling in favor of the assessee in terms of tax liability on interest credited to the Interest Suspense Account and the allowance of head office expenses under section 44C of the Income-tax Act. The reference was disposed of with no order as to costs.