1985 (2) TMI 81 - AT - Income Tax

Summary

Issues Involved:
1. Power of the Tribunal to review its order.
2. Applicability of Section 44C of the Income-tax Act, 1961 to the assessee's case.
3. Definition and scope of "head office expenditure" under Section 44C.

Issue-wise Detailed Analysis:

1. Power of the Tribunal to Review its Order:
The department raised a preliminary objection, arguing that the Tribunal does not have the power to review its order. The original appellate order dated 18-9-1981 was recalled by the Tribunal on 29-3-1982, which the department contended amounted to an illegal review. The Tribunal clarified that it did not review the order but exercised its power of rectification under Section 254(2) of the Income-tax Act, 1961, to amend its order to rectify any mistake apparent from the record. It was emphasized that the Tribunal is empowered to recall its order in appropriate cases within the meaning of Section 254(2). The preliminary objection was thus rejected, stating that challenging the validity of such an order by raising a preliminary objection in subsequent proceedings is not permissible.

2. Applicability of Section 44C of the Income-tax Act, 1961:
The core issue was whether Section 44C, introduced with effect from 1-6-1976, applied to the assessee, a non-resident company whose entire business activities were confined to India. The assessee argued that Section 44C was not applicable as its business was solely in India, and the head office expenses were incurred exclusively for the Indian business. The Tribunal examined the provisions of Section 44C, which limits the allowance of head office expenditure for non-resident assessees. It was determined that the section visualizes three computations, and the expenditure to be disallowed is the difference between the head office expenditure and the least of those three computations. The Tribunal concluded that if any one or more of the computations under clauses (a), (b), or (c) is not conceivable, the non obstante provision for disallowance will not apply. Since the entire expenditure was for the business in India, clause (c) was deemed inapplicable, leading to the conclusion that Section 44C does not apply to the assessee.

3. Definition and Scope of "Head Office Expenditure" under Section 44C:
The Tribunal further analyzed the definition of "head office expenditure" as given in Explanation (iv) to Section 44C. It was defined as "executive and general administration expenditure" incurred outside India. The Tribunal noted that a significant portion of the so-called "head office expenditure" was related to sales supervision, which does not fall under "executive and general administration expenditure." It was reasoned that the expression "head office expenditure" includes only those expenditures that are of an executive and general administration nature. Consequently, expenses on sales supervision were excluded from the definition of "head office expenditure." The Tribunal allocated the commission paid to the secretaries and managing agents, WDG, between sales supervision and executive and administration activities, concluding that nothing would remain to be disallowed under Section 44C.

Conclusion:
The Tribunal confirmed the order of the Commissioner (Appeals), holding that Section 44C does not apply to the assessee's case and that the "head office expenditure" definition does not include sales supervision expenses. The departmental appeal was dismissed.