JUDGMENT
S.H. Kapadia , J.
1. In respect of the assessment year 1981-82, the following two questions of law have been referred to us for opinion under Section 256(1) of the Income-tax Act, 1961.
Question No. 1 :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-bank was not liable to be taxed in respect of the amounts credited to Interest Suspense Account being interest on sticky loans and advances ?”
Answer to question No. 1 :
In view of the judgment of the Supreme Court in the case of UCO Bank v. CIT [1999] 237 ITR 889, this question is answered in the affirmative, i.e., in favour of the assessee and against the Department.
Question No. 2 :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law, in directing the Assessing Officer to allow head office expenses at Rs. 13,45,492 being average head office expenses and not the least of the three amounts mentioned in Section 44C of the Income-tax Act ?”
Answer to question No. 2 :
For the purposes of clarity and convenience, Section 44C, as it stood at the relevant time, is quoted hereinbelow :
“44C. Notwithstanding anything to the contrary contained in Sections 28 to 43A, in the case of an assessee, being a non-resident, no allowance shall be made, in computing the income chargeable under the head ‘Profits and gains of business or profession’, in respect of so much of the expenditure in the nature of head office expenditure as is in excess of the amount computed as hereunder, namely : —
(a) an amount equal to five per cent, of the adjusted total income ; or
(b) an amount equal to the average head office expenditure ; or
(c) the amount of so much of the expenditure in the nature of head office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India ;
whichever is the least :”
2. If one reads the above quoted Section 44C, it refers to deduction of head office expenditure in case of non-residents. The scheme of Section 44C suggests that the non-resident assessee is entitled to deduction, proportionate to the expenditure allocable to Indian operations, out of the total expenditure of the non-resident bank. Section 44C gives three Clauses (a), (b) and (c). These three clauses refer to three items of expenditure. Section 44C provides that the non-resident is given an allowance for head office expenses, which will not exceed the prescribed limit and that prescribed limit is provided for by the least of the three items of expenditure mentioned in Clauses (a), (b) and (c). Clause (a) refers to five per cent, of the net income whereas Clause (b) refers to average expenditure and Clause (c) refers to actual head office expenditure in Indian operations.
3. In this case, the Income-tax Officer came to the conclusion that the assessee was entitled to deduction to the extent of Rs. 5 lakhs only as, according to the Income-tax Officer, the assessee had failed to give break-up of expenses. Consequently, the Income-tax Officer estimated the actual head office expenditure at Rs. 5 lakhs under Clause (c). In this case, we do not have the details of expenditure in the Income-tax Officer’s order under Clause (a). Be that as it may, the Commissioner (Appeals), however, took the view that in this case, Clause (b) of Section 44C was applicable as even in the earlier years, the same point had arisen and the appellate authority had allowed the assessee’s appeal by allowing deduction under Clause (b) of Section 44C, which refers to average head office expenditure. It was found by the Commissioner (Appeals) that in the earlier years, the assessee was allowed deduction of Rs. 13,45,492 being the least of the three items of expenditure under Clauses (a), (b) and (c) of Section 44C. This view has been confirmed by the Tribunal. We do not see any reason to interfere with the order of the Tribunal. The average head office expenditure allowed by the Department for three earlier assessment years 1974-75, 1975-76 and 1976-77 was Rs. 13,45,492. In the circumstances, there is no reason for this court to interfere with the order of the Tribunal.
4. Accordingly, the above quoted question is answered in the affirmative, i.e., in favour of the assessee and against the Department.
5. Accordingly, the reference is disposed of. No order as to costs.