9911796707
TMI Blog846/CBDT.X X X X Extracts X X X X X X X X Extracts X X X X ..... at the scrutiny of the composition of such expenses done by the Income-tax Officers has been superficial and at times perfunctory. Gentificate, no enquiries are made at the time of assessment or a certificate from an auditor in the home country is accepted in support of the claim without making adequate scrutiny. Where disallowances are made in a few cases, they are not upheld in appeal because these disallowances are not well based. Similarly adequate attention is not paid at times to the selection of the appropriate method for the allocation of the head-office expenses to the Indian branch. The Board would, therefore, like to impress upon the Income-tax Officers the need for a proper and careful scrutiny of such claims made by foreign concerns. Some of the points which the Income-tax Officers should keep in mind in this regard are set out in the following paragraphs. 2. It should be clearly understood that the assessee in such cases is the foreign concern and not the Indian branch. The head office alongwith its branches constitute one single entity which cannot make a profit (or loss) out of itself. Hence, any payment made by the Indian branch to the head-office or any of its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gories:- (i) Expenses incurred by the head-office which are directly identifiable with the activities of the Indian branch, e.g., travelling expenses of employees in the Indian branch going on official work to the head-office where such expenses are met by the head-office. (ii) Expenses incurred by the head-office not specifically for the Indian branch alone but conjointly for the Indian branch and some other foreign branches. (iii) Expenses incurred by the head-office which are not directly identifiable with any one or more branches, but which are incurred for the over-all management and administration of the head-office. Expenses falling in the first category will be deductible in full provided the usual conditions under the Income-tax Act are satisfied. In respect of the expenses falling in the second and third categories, only a suitable proportion of the otherwise admissible expenses will be allowable as a deduction in the computation of income taxable in India. 5. It is true that the verification of these expenses presents some difficulties in actual practice but this only underlines the importance of devoting adequate attention to this matter. There is no reason, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular case will depend upon the nature of the business/activities/sources of income in India. This should be done carefully after taking into account all the relevant facts and the Income-tax Officer should seek guidance from his Inspecting Asst. Commissioner in this behalf. However, once a particular criterion of apportionment is selected, it should be followed from year to year provided there is no change in the criterion adopted for apportionment is considered necessary owing to a change in the relevant factors or circumstances or because such a change is claimed by the assessee, the Income-tax Officer should seek guidance from the Inspecting Asst. Commissioner. Further, a uniform criterion should be adopted, as far as possible in cases having the same or similar mature of business/activities/sources of income in India. 7.3. Wide variations in the claims for head-office expenses in the cases of assessees in the same line of business have already come to notice and this aspect needs to be carefully looked into by the Inspecting Asst. Commissioners. 7.4. After the criterion has been selected, the amount actually admissible as a deduction from the profits of the Indian branch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may be styled variously as home office expenses, area office expenses, regional office expenses or service charge, etc. Whatever the nomenclature, the approach to be adopted will be the same as indicated above as regards the admissible composition of the expenses as well as the basis of apportionment. 10. In some cases, the Profit Loss Account of the Indian branch may include some expenditure which is connected not merely with the Indian branch but the benefit of which goes also to the business carried on by the head-office or the other foreign branches. In such cases, it will be necessary to disallow that part of the expenditure which is attributable to the services rendered or benefits accruing to either the head-office or the other branches.. 11. Where the percentage of head-office expenses to (a) the expenditure incurred in India by the branch, or (b) the Indian profits, or (c) the Indian receipts, is unduly high, or where there are large variations in the amount of head-office expenses claimed from year to year, there will be all the more reason for greater care being exercised by the Income-tax Officers in the scrutiny of these claims. 12. The Board desire that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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