2023 (10) TMI 560 - HC - Income Tax

Expenditure incurred for the Indian business outside India - As per ITAT expenses in issue which were disallowed were attributable to the business in India - HELD THAT - The statement of the auditor attached to the certificate shows that for the period ending on 31.12.2002, out of the gross receipts the cost directly attributable to India were advisory and business support costs and IT costs, amounting to USD 228,000/- and USD 1,469,000/- respectively. The total of these costs in USD would be 1697000. 4.2 Thus, the cost attributable to India, at the exchange rate of Rs. 48.50 per USD, would amount to Rs. 51,440,312/- for the relevant period. This amount has been certified by KPMG. As noted above, the expenses incurred by the respondent/assessee were solely for the Indian business. Clearly, these expenses do not fall within the ambit of Section 44C, which relates to the deduction of head office expenses in case of non- residents. No substantial question of law.

Summary

Issues involved:
The issues involved in the judgment are the disallowance of expenditure incurred for Indian business outside India, interpretation of Section 44C of the Income Tax Act, and the relevance of the certificate issued by KPMG in determining the expenses directly concerning the Indian business.

Disallowed Expenditure for Indian Business Outside India:
The Assessing Officer disallowed the expenditure incurred by the respondent/assessee for Indian business outside India, citing it as general head office and administrative expenses falling under Section 44C of the Income Tax Act. However, the Tribunal found that the disallowed expenses were actually attributable to the business in India, specifically related to aligning Grindlays Bank's systems with Standard Chartered Banking system. The Commissioner of Income Tax (Appeals) upheld the AO's decision, which was later reversed by the Tribunal based on the direct connection of the expenses to Indian operations.

Interpretation of Section 44C:
The Tribunal's view was that the costs directly concerning the Indian business would not be subject to the provisions of Section 44C of the Act. The certificate issued by KPMG played a crucial role in this interpretation, as it highlighted the costs directly attributable to India, such as advisory and business support costs and IT costs, totaling to Rs. 51,440,312 for the relevant period. The Tribunal accepted the certificate as evidence that the expenses incurred were solely for the Indian business, thereby excluding them from the purview of Section 44C.

Relevance of KPMG Certificate:
The KPMG certificate confirmed that the expenses incurred by the respondent/assessee were solely for the Indian business, as evidenced by the costs directly attributable to India. This certification was crucial in establishing that the expenses did not fall within the scope of Section 44C, which primarily deals with head office expenses for non-residents. The certificate's details provided clarity on the nature of the expenses and supported the Tribunal's decision to allow the appeal on the grounds that the costs directly related to the Indian business were not subject to Section 44C.

Conclusion:
Based on the interpretation of the Tribunal and the evidence presented through the KPMG certificate, it was concluded that no substantial question of law arose for consideration. Consequently, the appeal was closed in favor of the respondent/assessee.