Head Office Expenditure - Definition / Legal Terminology - Income Tax

Explanation (iv) .-For the purposes of section 44C of the Income tax Act 1961,,- Head Office Expenditure means executive and general administration expenditure incurred by the assessee outside India, including expenditure incurred in respect of- ( a ) rent, rates, taxes, repairs or insurance of any premises outside India used for the purposes of the business or profession; ( b ) salary, wages, annuity, pension, fees, bonus, commission, gratuity, perquisites or profits in lieu of or in addition to salary, whether paid or allowed to any employee or other person employed in, or managing the affairs of, any office outside India; ( c ) travelling by any employee or other person employed in, or managing the affairs of, any office outside India; and ( d ) such other matters connected with executive and general administration as may be prescribed. Hon'ble Bombay High Court in the case of Emirates Commercial Bank Ltd.- 2003 (4) TMI 2 - BOMBAY HIGH COURT Allowance of Travelling expenses incurred on staff members visiting the branch office- herein the scope of the sec 44C provisions was explained as under: Section 44C is applicable only in the cases of those non-residents, who carry on business in India through their branches. The said section was introduced to get over difficulties in scrutinising claims in respect of general administrative expenses incurred by the foreign head office in so far as such expenses stand related to their business or profession in India having regard to the fact that foreign companies operating through branches in India sometimes try to reduce incidence of tax in India by inflating their claims in respect of the head office expenses. In other words, section 44C seeks to impose a ceiling/restriction on head office expenses. However, section 44C contemplates allocation of expenses amongst various entities. That, the expenditure which is covered by section 44C is of a common nature, which is incurred for the various branches or which is incurred for the head office and the branch. Deputy Director of Income tax (INTERNATIONAL TAXATION) Vs Stock Engineer and contractors BV.- [ 2008 (12) TMI 234 - ITAT BOMBAY-L] Whether expenses incurred in relation to technical job done by the engineers can be described as head office expenses - Head office expenses are restricted to executive and general administration expenses . Held that- (i) Sec. 44C contemplates allocation of expenses amongst various entities; (ii) The expenditure covered by this section is of a common nature which is incurred both for head office and the branch; and (iii) the expenditure exclusively incurred for branch in India would not be covered by this section. In the present case, undisputedly, the payment was made to those employees who worked in the head office . It is also not the case of the assessee that such employees exclusively worked for the branch in India. The material placed on record also shows that the allocation of expenses is based on the man hours engaged towards the work of the Indian project. This fact itself shows that such employees worked for head office as well as for Indian project.