Director of Income Tax (IT)-I, Mumbai v. American Express Bank Ltd.; 2025 INSC 1431 -S.44C Income Tax Act - Head Office Expenditure - Interpretation Of Taxation Statutes

Income Tax Act - Section 44C -Section 44C applies to ‘head office expenditure’ regardless of whether it is common expenditure or expenditure incurred exclusively for the Indian branches (Para 88)- a) Section 44C is a special provision that exclusively governs the quantum of allowable deduction for any expenditure incurred by a non-resident assessee that qualifies as ‘head office expenditure’. b) For an expenditure to be brought within the ambit of Section 44C, two broad conditions must be satisfied: (i) The assessee claiming the deduction must be a non-resident; and (ii) The expenditure in question must strictly fall within the definition of ‘head office expenditure’ as provided in the Explanation to the Section. c) The Explanation prescribes a tripartite test to determine if an expense qualifies as ‘head office expenditure’ - (i) The expenditure was incurred outside India; (ii) The expenditure is in the nature of ‘executive and general administration’ expenses; and (iii) The said executive and general administration expenditure is of the specific kind enumerated in clauses (a), (b), or (c) respectively of the Explanation, or is of the kind prescribed under clause (d). d) Once the conditions in (b) referred to above are met, the operative part of Section 44C gets triggered. Consequently, the allowable deduction is restricted to the least of the following two amounts: (i) an amount equal to 5% of the adjusted total income; or (ii) the amount of head office expenditure specifically attributable to the business or profession of the assessee in India.

Interpretation of Statutes -Taxation Statutes - a) Taxation statutes require strict interpretation. b) Where the words are plain and unambiguous, the court is bound to give effect to their plain meaning. c) The determination of whether language is ‘plain and unambiguous’ is not a mechanical exercise, and it necessitates interpreting words within their specific context rather than in isolation. d) The legislative intent is primarily to be gathered from the specific words used by the legislature. Reference to the object and purpose becomes crucial in those situations where the language is ambiguous and capable of multiple constructions. e) Under ordinary circumstances, it is impermissible for the Court to add or read words into the statute, especially when the language is plain and unambiguous, on the notion that such words would appear to better serve the legislative object or purpose. (Para 40)