JUDGMENT
S.H. Kapadia, J.
1. In respect of asst. yr. 1981-82, following two questions of law have been referred to us for opinion under Section 256(1) of the IT Act 1961 :
Question No. 1
“Whether, on facts and circumstances of the case, the Tribunal was right in holding that the assessee-bank was not liable to be taxed in respect of amounts credited to interest suspense account being interest on sticky loans and advances ?”
Answer to question No. 1
2. In view of the judgment of the Supreme Court in the case of UCO Bank v. CIT , 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 AO to allow HO expenses at Rs. 13,45,492 being average HO expenses and not the least of the three amounts mentioned in Section 44C of the IT Act ?”
Answer to question No. 2
3. 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 assesses, 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 expenditure1 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 least.”
If one reads the above quoted Section 44C, it refers to deduction of HO 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 Sub-clauses (a), (b) and (c). These three sub-clauses refer to three items of expenditure. Section 44C provides that the non-resident is given an allowance for HO 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 Sub-clauses (a), (b) and (c). Sub-clause (a) refers to 5 per cent of the net income whereas Sub-clauses (b) refers to average expenditure and Sub-clause (c) refers to actual HO expenditure in Indian operations.
4. In this case, the ITO came to the conclusion that the assessee was entitled to deduction to the extent of Rs. 5 lakhs only as, according to the ITO, the assessee had failed to give break-up of expenses. Consequently, the ITO estimated the actual HO expenditure at Rs. 5 lakhs under Sub-clause (c). In this case, we do not have the details of expenditure in the ITO’s order under Sub-clause (a). Be that as it may, the CIT(A), however, took the view that in this case, Sub-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 Sub-clause (b) of Section 44C, which refers to average HO expenditure. It was found by the CIT(A) 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 Sub-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 HO expenditure allowed by the Department for three earlier asst. yrs. 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.
5. Accordingly, the above quoted question is answered in the affirmative i.e., in favour of the assessee and against the Department.
6. Accordingly, reference is disposed of. No order as to costs.