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2015 (6) TMI 423 - AT - Income TaxPayment of 'license fees' and 'management services' - Whether are in the nature of 'head office expenses' with the ambit of section 44C? - assessee here is an Indian branch of UK based, Lloyd's Register Asia, which in turn is a subsidiary of a holding company, Lloyd's Register UK. - Held that:- From the definition/illustration of the scope of head office expenditure, it is evident that it is in the nature of executive and general administration expenditure incurred by the assessee outside India. The nature of such expenditure has been illustrated to include certain kinds of expenditure. From the nature of expenditure as enumerated in sub clause (a) to sub clause (c) of the aforesaid Explanation and if compared with the nature of expenditure incurred by the assessee branch, then it will be seen that none of the expenditure under the head "license fees" falls within this category, even remotely. The payment of 'license fee' is purely for using of brand/trademark and other business intangibles, which are in the nature of intellectual property. Nowhere such types of expenditure fall within the scope of "head office expenditure" as illustrated in clause (iv). So far as general, technical and marketing support services are concerned, they again are neither in the nature of rent, rates, taxes, repairs, insurance, salary, wages, bonus, commission, etc., or travelling by any employee. Expenditure under the "License fee" have nothing to do with these kind and nature of expenditures. Thus, the entire payment of license fees do not fall within the ambit of section 44C as illustrated in clauses (a) to (c) of the Explanation and, therefore, the learned CIT(A) has rightly held that royalty or license fees expenditure cannot be treated as head office expenditure. Now coming to the nature of head office expenditure under clause (d) of the Explanation i.e. "such other matters connected with executive and general administration as may be prescribed". Such an exercise for illustrating the said expenditure under the said sub clause has to be prescribed by the CBDT. However, no such illustration has been given or prescribed by the Board, atleast nothing has been brought before us that CBDT has issued any Circular or clarification illustrating "such other matters connected with executive and general administration". Therefore, it cannot be held that the nature of expenses under the head license fees falls even under sub clause (d). Now coming to the "management charges", it can be noticed from the nature of expenses as elaborated in Schedule 3 of management services agreement dated 16.07.2003, prima facie they are specialized services under various heads as enumerated above in para 13. None of these services are in the nature of head office expenditure as illustrated in sub clause (a) to (d). For computing the deduction of head office expenditure, it is sine-qua-non that the nature of head office expenses must fall within the illustration given in clause (iv) of Explanation. The learned CIT(A) has held that the 50% of management fees is hit by section 44C, without even analyzing the nature of expenses, as how or how much they fall within the scope and ambit of nature of head office expenditure as defined in Section 44C. Thus, in our conclusion, neither the payment of "license fees" nor the "management charges", falls within the ambit and purview of section 44C and, accordingly, the nature of adjustment to the total income for the purpose of disallowance is not required.- Decided in favour of assessee.
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