2024 (10) TMI 185 - HC - Income Tax

Allowability of expenses incurred for garnering FCNR deposits which were to be maintained at its Indian branches - Tribunal held funds mobilized abroad were brought to India in foreign currency account and kept in India for the Indian business of the assessee bank. The benefits reaped by the India branch or Permanent Establishment in India have been accounted for as Indian income and why the deduction of expenditure should not be allowed as expenses incurred for procurement of business cannot be understood as Head Office expenses - HELD THAT - The expenses were incurred for the purposes of inviting NRIs to open deposits in the Indian branches of the respondent assessee. The aforesaid initiative was predicated upon the circular of the RBI itself which is dated 16 October 1991. Since this was expenditure which was incurred solely for the purpose of the business of the respondent assessee in India, we find no merits in the challenge which stands mounted to the order of the Tribunal in this respect. Credit card commission paid in relation to cards which had been issued by the foreign branches of the respondent and used in India - Undisputedly the credit cards had been issued by the foreign branches of the respondent. It was in the aforesaid backdrop that the Tribunal noted that the charges are received by the foreign branch for providing and extending a credit line to the account holder outside India. It has further been noted that the amount payable by those card holders would clearly be a debt incurred outside India. It is in the aforesaid conspectus of facts that it ultimately came to hold that the fee in respect of such transactions would not be taxable in India. We find no justification to take a contrary view.

Summary

Issues:
1. Allowability of expenses incurred for garnering FCNR deposits.
2. Allowability of credit card commission paid on cards issued by foreign branches.

Analysis:

Issue 1: Allowability of expenses incurred for garnering FCNR deposits
The appeals challenged the orders of the Income Tax Appellate Tribunal regarding the allowability of expenses incurred by the respondent for obtaining FCNR deposits to be maintained at its Indian branches. The Tribunal held that the expenses were legitimately allowable as they were incurred solely for the Indian business of the assessee. The expenses were related to marketing Resurgent Bonds after a nuclear explosion in India to obtain foreign exchange. The funds mobilized abroad were brought to India for the Indian business, and the benefits reaped were accounted for as Indian income. The Tribunal directed the Assessing Officer to allow the deduction of actual expenditure and not treat it as head office expenses under Section 44C of the Income Tax Act. The High Court upheld the Tribunal's decision, emphasizing that the expenses were incurred exclusively for the Indian business, making them fully deductible.

Issue 2: Allowability of credit card commission paid on cards issued by foreign branches
The appeals also raised a question regarding the commission paid on credit cards issued by foreign branches. The Tribunal observed that when credit card transactions took place in India, the debt arose outside India as the credit was given to customers outside India. The charges received by the foreign branch for providing credit to cardholders outside India were not taxable in India. The High Court agreed with the Tribunal's findings, stating that the fees for such transactions were not taxable in India as the debt was incurred outside the country. Therefore, the appeals challenging the taxability of credit card commission were dismissed.

Additional Issues in ITA 496/2018 & ITA 388/2019
Two appeals raised questions regarding deductions for payments made to an approved pension fund. These issues were separate from the common questions in the batch of appeals related to NRI expenses and credit card commission. The High Court decided to de-tag these appeals for further consideration on a later date.

In conclusion, the High Court upheld the Tribunal's decisions regarding the allowability of expenses for FCNR deposits and the non-taxability of credit card commission paid on cards issued by foreign branches. The court emphasized that expenses directly related to the Indian business were deductible and that debts incurred outside India were not taxable in India. The additional issues related to deductions for payments to an approved pension fund were de-tagged for future consideration.