TMI Blog2003 (7) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the head 'Interest on securities' under section 20 of the Act should be reduced from computation of disallowance under section 40A(5) - - - - - Dated:- 24-7-2003 - Judge(s) : S. H. KAPADIA., J. P. DEVADHAR. JUDGMENT The judgment of the court was delivered by S.H. Kapadia J.- At the instance of the Department, the following question has been referred to us for our opinion under section 256(1) of the Income-tax Act, 1961 concerning assessment year 1984-85 involving interpretation of section 44C as it stood at the relevant time: "1. Whether the Tribunal was right in holding that the entire head office expenditure of Rs. 21.07 lakhs was allowable under section 37(1), as section 44C of the Income-tax Act was not applicable in the case of the assessee?" Facts: The assessee is a foreign bank. On July 23, 1984, the assessee filed its return of income for Rs. 1.61 crores. This return was revised on October 27, 1986 and the income was reduced to Rs. 1.47 crores. The reason for revising the return was the claim of the assessee for deduction of the full amount of head office expenses debited to the profit and loss account to the extent of Rs. 21.07 lakhs on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that the object of section 44C which was inserted by the Finance Act of 1976 with effect from June 1, 1976 has been explained by Circular No. 202 dated July 5, 1976. That, as per the said circular, a ceiling has been put on head office expenses incurred by the foreign head offices in order to curtail inflated claims by the assessees in respect of head office expenses. He contended that clause (b) of section 44C, as it stood at the relevant time, was not applicable as the case of the assessee did not fall within the definition of average head office expenditure as defined in Explanation (iii) to section 44C. That, in the circumstances, he contended that clause (b) should be ignored and the allowance should be restricted to the least of the remaining two expenditures falling under clauses (a) and (c). That, if one out of the three parameters was not applicable, the Department was entitled to ignore that parameter and calculate the allowance on the basis of the least of the remaining two parameters. Mr. Desai, learned counsel for the Department next contended that assuming for the sake of argument that with the failure of one out of the three parameters the entire section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the total income of the assessee is assessable only for two of the aforesaid three assessment years, one-half of the aggregate amount of the adjusted total income in respect of the previous years relevant to the aforesaid two assessment years; (c) in a case where the total income of the assessee is assessable only for one of the aforesaid three assessment years, the amount of the adjusted total income in respect of the previous year relevant to that assessment year; (iii) 'average head office expenditure' means,- (a) in a case where any expenditure in the nature of head office expenditure has been allowed as a deduction in computing the income of the assessee chargeable under the head 'Profits and gains of business or profession' in respect of each of the three previous years relevant to the assessment years commencing on the 1st day of April, 1974, the 1st day of April, 1975, and the 1st day of April, 1976, one-third of the aggregate amount of the expenditure so allowed; (b) in a case where such expenditure has been so allowed only in respect of two of the aforesaid three previous years, one-half of the aggregate amount of the expenditure so allowed; (c) in a case wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, the assessee commenced its business operations only in October 1980. Therefore, clause (b) of section 44C was not attracted. This position is not disputed by the Department. The only argument advanced on behalf of the Department was that since clause (b) was not attracted, it may be ignored and the least of the deductions under clauses (a) and (c) of section 44C be granted. We do not find any merit in the arguments advanced on behalf of the Department. As stated above, section 44C begins with a non obstante clause. It restricts deduction to the least of the three parameters mentioned in clauses (a), (b) and (c) of section 44C. Section 44C begins by a non obstante clause which states that notwithstanding anything to the contrary contained in sections 28 to 43A, deduction in respect of head office expenditure shall be restricted to the least of the three deductions mentioned in clauses (a), (b) and (c). Therefore, section 44C overrides the provisions of sections 29 to 37 of the Income-tax Act. Section 44C is not conferring deductions on the assessee. It is restricting the deduction under section 37(1) of the Act by virtue of the overriding provisions contemplated by sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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