{"id":62728,"date":"2008-09-23T00:00:00","date_gmt":"2008-09-22T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/john-wyeth-and-brother-ltd-vs-commissioner-of-income-tax-on-23-september-2008"},"modified":"2016-04-22T15:08:07","modified_gmt":"2016-04-22T09:38:07","slug":"john-wyeth-and-brother-ltd-vs-commissioner-of-income-tax-on-23-september-2008","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/john-wyeth-and-brother-ltd-vs-commissioner-of-income-tax-on-23-september-2008","title":{"rendered":"John Wyeth And Brother Ltd vs Commissioner Of Income Tax on 23 September, 2008"},"content":{"rendered":"
Bombay High Court<\/div>\n
John Wyeth And Brother Ltd vs Commissioner Of Income Tax on 23 September, 2008<\/div>\n
Bench: S. Radhakrishnan, S. J. Kathawalla<\/div>\n
                                  -1-\n\n\n\n\n              IN THE HIGH COURT OF JUDICATURE AT BOMBAY\n                               O.O.C.J.\n\n\n\n\n                                                                       \n                    Income Tax Reference No.6 of 1992\n\n\n\n\n                                               \n    John Wyeth and Brother Ltd.\n    Bombay                                    ..Applicant\n\n    vs.\n\n\n\n\n                                              \n    Commissioner of Income Tax\n    Bombay City II, Bombay                    ..Respondent<\/pre>\n
    Mr.Poras Kaka with Mr.N.Doshi with Mr.Sameer Chitnis i\/b
\n    M\/s Crawford Bayley and Co. for applicant.\n<\/p>\n
    Mr.Parag Vyas i\/b Mr.P.S.Sahadevan for respondent.\n<\/p>\n
                        ig  Judgment Reserved on: 26.8.2008
\n                           Judgment Delivered on: 23.9.2008<\/p>\n
                             CORAM: Dr.S.RADHAKRISHNAN &<\/p>\n
                                    S.J.KATHAWALLA JJ.\n<\/p>\n
                                    23rd September,2008<\/p>\n
    J U D G M E N T: (Per S.J.KATHAWALLA J.)<\/p>\n
    1.     The Appellate Tribunal, Bombay Bench “B” has, at                   the<\/p>\n
    instance    of the applicant (assessee) by its statement                    of<\/p>\n
    case    dated   18th April, 1991 referred to this             Court       the<\/p>\n
    following    questions   arising    out   of the       order       of     the<\/p>\n
    Tribunal dated 26th October, 1989 pertaining to Assessment<\/p>\n
    Years 1977-78 and 1978-79.\n<\/p>\n
             “1.   Whether on the facts and in the circumstances
\n             of the case, the Tribunal was right in holding that
\n             the matter requires consideration as to whether the
\n             laboratory expenses claimed include any of the
\n             expenditure mentioned in clauses (a) to (d) of<\/p>\n
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\n                                      -2-<\/span><\/p>\n
             Explanation (iv) to Section 44C of the Income Tax
\n             Act, 1961 even though in its general meaning “Head
\n             Office Expenditure” might not as such include the<\/p>\n
             laboratory expenses?\n<\/p><\/blockquote>\n
             2.   Whether on the facts and in the circumstances<\/p>\n
             of the case, the Tribunal ought to have held that
\n             laboratory   expenses   of    Rs.12,72,330\/-  were
\n             allowable as a deduction in the computation of the
\n             assessee’s income?\n<\/p><\/blockquote>\n
    2.     The    facts relevant for the purpose of          deciding         the<\/p>\n
    present reference are as under:\n<\/p>\n
    a) The assessee is a branch of a foreign company which has<\/p>\n
    its    Head<\/p>\n
                   Office in United Kingdom.    The business of               the<\/p>\n
    assessee is that of manufacturing pharmaceutical products.\n<\/p>\n
    The    assessee has a separate and independent establishment<\/p>\n
    in    its    branch in India including a Research           Laboratory.\n<\/p>\n
    The    Head    Office   of   the assessee also     has      a    Research<\/p>\n
    Laboratory      at U.K.   The issue involved herein pertains to<\/p>\n
    the    Laboratory expenditure incurred by the Head Office at<\/p>\n
    U.K.\n<\/p>\n
    b) Section 44C was inserted in the Income Tax Act, 1961 by<\/p>\n
    Finance      Act No.66 of 1976 with effect from 1st June 1976.\n<\/p>\n
    By    introduction of section 44C a ceiling has been put                    on<\/p>\n
    the    head    office expenses in the case of        non      residents.\n<\/p>\n
    This    has    been   explained by Income Tax      Circular          No.202<\/p>\n
    dated 5th July, 1976 in the following terms.\n<\/p>\n
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\n                          -3-<\/span><\/p>\n
     “25.1:    Non residents carrying on any business or
\n     profession in India through their branches are
\n     entitled to a deduction, in computing the taxable<\/p>\n
     profits, in respect of general        administrative
\n     expenses incurred by the foreign head offices in so
\n     far as such expenses can be related to their
\n     business or profession in India. It is extremely
\n     difficult to scrutinise and       verify claims in<\/p>\n
     respect of such expenses, particularly in the
\n     absence of account books of the head office which
\n     are    kept   outside   India.   Foreign   companies
\n     operating through branches in India sometimes try
\n     to reduce the incidence of        tax in India by<\/p>\n
     inflating their claims in respect of head office
\n     expenses.    With a view to getting over these
\n     difficulties, the Finance Act has inserted a new<\/p>\n
     section 44C in the Income Tax Act laying down
\n     certain ceiling limits for the deduction of head
\n     office expenses in computing the taxable profits in
\n     the case of non resident tax-payers. Under this<\/p>\n
     provision, the deduction in respect of head office
\n     expenses will be limited to –\n<\/p>\n
     (i) an amount equal to 5 percent of the             adjusted
\n     total income of the tax payer for the               relevant
\n     year; or<\/p>\n
     (ii)   the annual average of the head        office<\/p>\n
     expenditure allowed during a base period of three
\n     previous years, namely, the previous years relevant
\n     to the assessment years 1974-75 to 1976-77; or<\/p>\n
     (iii) the actual amount of head office expenditure<\/p>\n
     attributable to the business in India;\n<\/p>\n
     whichever is the least.\n<\/p>\n
     In cases where the adjusted total income of the
\n     resident for the current year is a loss, the rate<\/p>\n
     of 5 percent referred to at (i) above will be
\n     applied with reference to the average adjusted
\n     total income of the non resident “or the three
\n     previous years immediately preceding the relevant
\n     assessment year.\n<\/p>\n
     25.2:   The term “head office expenditure”, as
\n     defined for the purposes of this provision, means<\/p>\n
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\n                                    -4-<\/span><\/p>\n
             executive and general administration expenditure
\n             incurred by the non resident tax payer outside
\n             India, including expenditure in respect of —\n<\/p>\n
             (a) rent, rates, taxes, repairs or insurance of any
\n             premises outside India used for the purposes of the<\/p>\n
             business or profession;\n<\/p>\n
             (b) salary, wages, annuity, pension, fees, bonus,
\n             commission, gratuity, perquisites or profits in
\n             lieu of or in addition to salary, which are paid to<\/p>\n
             any employee or other person employed in, or
\n             managing the affairs of, any office outside India;\n<\/p>\n
             (c) travelling by any such employee or other person
\n             outside India;\n<\/p>\n
             (d) such other matters connected with executive and
\n             general administration as may be prescribed by the
\n             Board.\n<\/p>\n
             The expression “adjusted total income”, “average
\n             adjusted total income” and “average head office<\/p>\n
             expenditure” have been defined in the Explanation
\n             to the new section.\n<\/p>\n
             25.3:   The aforesaid amendments have come into
\n             force with effect from 1st June, 1976 and will
\n             apply in relation to the assessment year 1977-78<\/p>\n
             and subsequent years. (Section 10(Part) of the
\n             Finance Act).”\n<\/p>\n
    c)   According    to the assessee, prior to Assessment               Years<\/p>\n
    1977-78    the assessee was claiming the laboratory expenses<\/p>\n
    incurred    in   respect of the laboratory maintained at                the<\/p>\n
    head    office   in   United Kingdom in proportion          of     Indian<\/p>\n
    sales    to world sales and was accepted and allowed by                 the<\/p>\n
    Tax Authorities.\n<\/p>\n
    d)   Section 44C which came into effect from 1st June, 1976<\/p>\n
    became    applicable    for the period 1st July, 1976 to              30th<\/p>\n
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\n                                       -5-<\/span><\/p>\n
    September, 1976 in respect of the Assessment Year 1977-78.\n<\/p>\n
    However,      the    assessee   has in the said       assessment           year<\/p>\n
    1977-78      as well as in the subsequent assessment year i.e.<\/p>\n
    1978-79      after already claiming head office expenses at 5%<\/p>\n
    of    the    total    income being expenses      referred          to     under<\/p>\n
    section      44C, have further claimed sums of            Rs.12,72,330\/-\n<\/p>\n
    and     Rs.27,95,207\/-      respectively    being           proportionate<\/p>\n
    expenses      incurred towards laboratory expenses at U.K.                     on<\/p>\n
    the    ground that these expenses are not covered by section<\/p>\n
    44C of the Act and the assessee is entitled to a deduction<\/p>\n
    in<\/p>\n
          respect of the entire amount claimed under section                       37<\/p>\n
    of    the    Income    Tax Act.   The Assessing Officer             did      not<\/p>\n
    accept      the contention of the assessee viz.             that the head<\/p>\n
    office      expenses    as per section 44C means          executive          and<\/p>\n
    general administration expenditure and that the laboratory<\/p>\n
    expenses      are not covered by section 44C of the Income Tax<\/p>\n
    Act,    1961.    The view of the Assessing Officer as set                    out<\/p>\n
    in    his order dated 30th December, 1980 for the Assessment<\/p>\n
    Year 1978-79 is reproduced hereunder.\n<\/p>\n
             “6……….The   assessee    may    have  incurred
\n             laboratory expenses and this would form part of the
\n             executive and general      administration  expenses<\/p>\n
             incurred by the assessee outside India and it
\n             cannot be said that the laboratory expenses are not
\n             covered by Section 44C. There is no dispute that
\n             the expenditure had been incurred outside India.
\n             The assessee has in fact clubbed this expenditure
\n             under the head H.O. expenditure in the computation
\n             of income filed with the return. The purpose of
\n             sec.44C was to put a limit on the expenditure which<\/p>\n
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\n                                        -6-<\/span><\/p>\n
             could not be otherwise verified in the course of
\n             assessment in India as explained in para 25.1 of
\n             C.B.D.T’s Circular No.202 dated 5th July, 1976.\n<\/p><\/blockquote>\n
             The expenditure is of the nature which falls under
\n             sec.44C of the Act and, therefore, restricted to
\n             the limits prescribed therein.”\n<\/p><\/blockquote>\n
    e)    Being    aggrieved by the stand taken by               the      Assessing<\/p>\n
    Officer,      the    assessee   preferred     Appeals           before          the<\/p>\n
    Commissioner of Income Tax (Appeals).               The assessee argued<\/p>\n
    before    the      CIT(A) that section 44C very clearly                  defines<\/p>\n
    “head     office       expenses”    as   executive             and       general<\/p>\n
    administration<\/p>\n
    India    and<\/p>\n
                          expenses incurred by the assessee<\/p>\n
                    includes what is set out in            sub-clauses
\n                                                                             outside<\/p>\n
                                                                                  (a),<\/p>\n
    (b),    (c) and (d) of the said section.              It was argued that<\/p>\n
    the    assessee had given the most conservative claim                        which<\/p>\n
    are in proportion of Indian sales to world sales and which<\/p>\n
    percentage      comes to only at 17.7% of the world sales.                        It<\/p>\n
    was    argued      that even allocation of expenditure has                    been<\/p>\n
    much less in India in the matter of laboratory expenditure<\/p>\n
    and,    therefore,      the claim of the assessee ought to                    have<\/p>\n
    been    allowed      without being challenged in respect of                     the<\/p>\n
    arithmetical        methods   thereon.   It was emphasised by                   the<\/p>\n
    assessee      that    in principle the laboratory              expenses         are<\/p>\n
    allowable      even    if the Board’s circular dated                5th      July,<\/p>\n
    1976    is    taken    into   account as    it      nowhere         says      that<\/p>\n
    executive’s        salaries referred to therein referred to                     the<\/p>\n
    salaries      of    scientists employed in the laboratory.                      The<\/p>\n
                                                     ::: Downloaded on – 09\/06\/2013 13:53:34 :::<\/span>
\n                                          -7-<\/span><\/p>\n
    assessee,      therefore,        submitted      before CIT(A)              that      the<\/p>\n
    laboratory expenses are entirely allowable.\n<\/p>\n
    f)    The CIT(A) by his order dated 13th July, 1982                           decided<\/p>\n
    in    favour of the assessee.            The CIT(A) took the view that<\/p>\n
    there    is    nothing to indicate in the Income Tax                        Circular<\/p>\n
    dated    5th    July, 1976 that the laboratory expenses                           which<\/p>\n
    are    spent on research and development are covered by                              the<\/p>\n
    provisions      of    section      44C.    CIT(A) also held                that      the<\/p>\n
    expenditure      covered      by    sec.44C      is      obviously          of       the<\/p>\n
    administrative<\/p>\n
                          nature      and    refers to         the      rent,       taxes,<\/p>\n
    salaries,      wages      etc.     which     are       in     connection           with<\/p>\n
    executive and general administration.                    CIT(A) has recorded<\/p>\n
    that the assessee has categorically stated before him that<\/p>\n
    the    research and development expenditure claimed does not<\/p>\n
    include    the expenditure of the nature as discussed above.\n<\/p>\n
    CIT(A),    therefore,        took    a    view    that        the      expenditure<\/p>\n
    connected      to    laboratory expenses was not connected                         with<\/p>\n
    the    general      and    administrative expenditure                  covered         by<\/p>\n
    clauses    (a),      (b),    (c)    and (d) of         explanation (iv) of<\/p>\n
    section    44C.       CIT(A), therefore, directed the                      Assessing<\/p>\n
    Officer    to    allow      the    claim of the          assessee          and     also<\/p>\n
    clarified that the expenditure towards laboratory expenses<\/p>\n
    would    be    in addition to 5% of the allowable expenses                             as<\/p>\n
    per    provisions      of    section      44C     in       respect         of     other<\/p>\n
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\n                                          -8-<\/span><\/p>\n
    expenditure incurred.\n<\/p>\n
    g) In the appeal filed by the Revenue before the Appellate<\/p>\n
    Tribunal,      the    Tribunal by its order dated 26th                   October,<\/p>\n
    1989, after considering the orders passed by the Assessing<\/p>\n
    Officer       as    well    as    CIT(A)     and    after        hearing          the<\/p>\n
    submissions        of the revenue as well as assessee found some<\/p>\n
    force    in    the    contention of the revenue              that       when      the<\/p>\n
    assessee      is maintaining the laboratory outside India,                          it<\/p>\n
    must    be    having    an    establishment         of     its      own      and\/or<\/p>\n
    supporting         staff
\n                            ig   therefor      and     that      the      claim         of<\/p>\n
    expenditure        must be on salary and other items                  enumerated<\/p>\n
    in    clauses (a) to (d) of explanation (iv) to section                           44C<\/p>\n
    included      in the definition of “head office                  expenditure”.\n<\/p>\n
    The    Tribunal has also noted the fact that the                      assessee’s<\/p>\n
    statement      that    the laboratory expenses will not                    include<\/p>\n
    any     expenditure        stated    in     the    sub-clauses           of       the<\/p>\n
    explanation        appeared to have been accepted by the CIT (A)<\/p>\n
    without      verification        and calling for the details of                   the<\/p>\n
    laboratory expenses.          The Tribunal, therefore, took a view<\/p>\n
    that    the matter required consideration as to whether                           the<\/p>\n
    laboratory      expenses      include      any     of    the        expenditure<\/p>\n
    mentioned      in clauses (a), (b), (c) and (d) though in                         its<\/p>\n
    general      meaning    “Head      Office     Expenditure”            might       not<\/p>\n
    include the laboratory expenses.\n<\/p>\n
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\n                                         -9-<\/span><\/p>\n
    h)   The Tribunal in its original order dated 26th October,<\/p>\n
    1989 made the following observations\/directions.\n<\/p>\n
            “In    the    fresh disposal of the appeal, the                     CIT(A)<\/p>\n
            may look into this aspect as to whether the payment<\/p>\n
            was    made with any specific purpose and decide                         the<\/p>\n
            matter      accordingly      as    to whether         such      specific<\/p>\n
            payment      would also be covered by the provisions of<\/p>\n
            Sec.44C      of   the Act.     If on verification he                  finds<\/p>\n
            that<\/p>\n
                     the payment was not for a specific purpose of<\/p>\n
            the    assessee’s       business     in India, then,              in     our<\/p>\n
            opinion,       the    order    of       the    IAC       (Assessment)<\/p>\n
            considering       the    same as part of the             Head       Office<\/p>\n
            expenditure is unassailable.”\n<\/p><\/blockquote>\n
    Pursuant    to   the      assessee’s       Miscellaneous           Application<\/p>\n
    No.70\/Bom\/1990       the Appellate Tribunal by its order                      dated<\/p>\n
    14th       November,         1990           expunged            the           above<\/p>\n
    observations\/directions.          The Tribunal has, therefore, not<\/p>\n
    reached    any conclusion as to whether section 44C                       applies<\/p>\n
    to   laboratory expenses or not, but has come to a                        finding<\/p>\n
    that          the            expenses                 claimed                 needs<\/p>\n
    consideration\/verification.               The    Tribunal            has       also<\/p>\n
    categorically       rejected     the argument of Revenue that                    the<\/p>\n
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\n                                          -10-<\/span><\/p>\n
    laboratory      expenditure,        if   not    part     of     head       office<\/p>\n
    expenditure        covered    by section 44C is not            allowable          at<\/p>\n
    all.\n<\/p>\n
    i)    Since    the assessee was aggrieved by the order of                       the<\/p>\n
    Appellate      Tribunal,      at the instance of the assessee                   the<\/p>\n
    Appellate      Tribunal      referred     the questions         set      out      in<\/p>\n
    paragraph      1    above    for the opinion of this            Court        under<\/p>\n
    section 256(1) of the Income Tax Act, 1961.\n<\/p>\n
    3.<\/p>\n
           We have heard the arguments advanced by the Advocates<\/p>\n
    for    the    assessee as well as the revenue at some                    length.\n<\/p>\n
    The    Advocate      for    the assessee has      reiterated           what       is<\/p>\n
    argued      by the assessee before the CIT(A) and the Tribunal<\/p>\n
    and    has    strongly      relied on the reasoning given                by     the<\/p>\n
    CIT(A) in favour of the assessee.\n<\/p>\n
    4.     The learned Advocate for the assessee has in                      support<\/p>\n
    of    his    contention      that    section    44C    applies         only       to<\/p>\n
    executive      and general administration expenditure and that<\/p>\n
    laboratory      expenses would not fall under the category                        of<\/p>\n
    executive      and    general administration expenses,                 cited        a<\/p>\n
    decision      in    the case of Commissioner of Income                 Tax      Vs.<\/p>\n
    Emirates      Commercial Bank Ltd.          reported on 2003(262)               ITR<\/p>\n
    55    (Bom).       That    was a case where      the     expenditure            was<\/p>\n
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\n                                       -11-<\/span><\/p>\n
    exclusively      incurred   for    the branch    office        in     India.\n<\/p>\n
    There    was    a concurrent finding of fact recorded               by     the<\/p>\n
    Commissioner      (Appeals)    as well as the Tribunal that                the<\/p>\n
    officer    came from the head office at Abu-dhabi to                  Mumbai<\/p>\n
    to    attend to the work of Mumbai branch and in               connection<\/p>\n
    with    that work the expense was incurred and that                 expense<\/p>\n
    was    initially    incurred    by   the   head     office        and      was<\/p>\n
    recovered      by the head office from the branch in India                   by<\/p>\n
    raising    a    debit note.    It was, therefore, held that                the<\/p>\n
    expense    was incurred for the branch office in India                   and,<\/p>\n
    therefore, section 44C had no application.              In view of the<\/p>\n
    aforesaid facts, we are of the view that the said decision<\/p>\n
    does    not    lend any assistance to the present case of                  the<\/p>\n
    assessee.\n<\/p>\n
    5.    The Advocate for the assessee has also cited before us<\/p>\n
    a decision of ITAT, Bombay Bench (A) in American Bureau of<\/p>\n
    Shipping Vs.      Income Tax Officer reported in (1986) 19 ITD<\/p>\n
    793 and has laid strong emphasis on a portion of paragraph<\/p>\n
    11 of the said order which is reproduced hereunder.\n<\/p>\n
             “11…………As    regards       plan    approval,<\/p>\n
             engineering expenses of Rs.3,10,112\/- we have gone
\n             through the details filed. These expenses were
\n             incurred for specific technical services of the
\n             nature of approval of the plan for ships being
\n             constructed in India, reviewing survey reports,
\n             covering   ships   being    constructed at    Indian
\n             shipyards,    approval   of      designs,    tonnage
\n             admeasurements and issuance of tonnage certificate<\/p>\n
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\n                                      -12-<\/span><\/p>\n
            certificates, reviewing test reports etc.    These
\n            expenses were incurred not only at head office in
\n            New York but also in other offices like London,<\/p>\n
            Geneva, Hamburg. We, therefore, confirm the order
\n            of the Commissioner (Appeals) holding that these
\n            expenses were not head office expenses for the<\/p>\n
            purpose of section 44C.”\n<\/p><\/blockquote>\n
    In   our view the aforesaid quoted portion, makes it                      amply<\/p>\n
    clear   that the assessee had filed the details of expenses<\/p>\n
    which   the Tribunal had gone through and thereupon came to<\/p>\n
    the conclusion that the said expenses were not head office<\/p>\n
    expenses for the purpose of section 44C.              This decision in<\/p>\n
    fact supports the decision of the Appellate Tribunal which<\/p>\n
    forms the subject matter of the above reference.\n<\/p>\n
    6.    The    Advocate    for   the revenue     has      reiterated           the<\/p>\n
    arguments     advanced before the Appellate Tribunal and have<\/p>\n
    supported     the    reasoning   given   in    the      orders        of     the<\/p>\n
    Assessing     Officer as well as the Appellate Tribunal.                     The<\/p>\n
    Advocate     for the revenue has also contended, in our                    view<\/p>\n
    wrongly,     that    the expenses set out in clauses (a),                  (b),<\/p>\n
    (c) and (d) in Explanation (iv) to section 44C need not be<\/p>\n
    in   the    nature    of executive and    general         administration<\/p>\n
    expenditure.\n<\/p>\n
    7.    The definition of “head office expenditure” given                        in<\/p>\n
    explanation     (iv) to section 44C is once again                reproduced<\/p>\n
    hereunder.\n<\/p>\n
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\n                                       -13-<\/span><\/p>\n
           “(iv) “head office expenditure” means executive and<\/p>\n
           general      administration expenditure incurred by the<\/p>\n
           assessee      outside   India,     including          expenditure<\/p>\n
           incurred in respect of –\n<\/p><\/blockquote>\n
           (a) rent, rates, taxes, repairs or insurance of any<\/p>\n
           premises outside India used for the purposes of the<\/p>\n
           business or profession.\n<\/p><\/blockquote>\n
           (b)<\/p>\n
                  salary, wages, annuity, pension, fees,                  bonus,<\/p>\n
           commission,       gratuity,    perquisites or         profits         in<\/p>\n
           lieu    of    or in addition to salary whether paid                   or<\/p>\n
           allowed      to   any employee or other person             employed<\/p>\n
           in,    or managing the affairs of, any office outside<\/p>\n
           India.\n<\/p><\/blockquote>\n
           (c)    travelling     by    any employee or        other       person<\/p>\n
           employed in, or managing the affairs of, any office<\/p>\n
           outside India;       and<\/p>\n<\/blockquote>\n
           (d) such other matters connected with executive and<\/p>\n
           general administration as may be prescribed.”\n<\/p><\/blockquote>\n
    8.   From    the above definition it is clear that the                   Head<\/p>\n
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\n                                          -14-<\/span><\/p>\n
    Office       Expenditure       means        “executive           and       general<\/p>\n
    administration        expenditure”.         The     definition           of     Head<\/p>\n
    Office       expenditure       also    states       that         it      includes<\/p>\n
    expenditure        incurred in respect of sub-clauses (a),                      (b),<\/p>\n
    (c) and (d) under explanation (iv).                It, therefore, cannot<\/p>\n
    be    doubted that the expenditure on sub-clauses (a),                          (b),<\/p>\n
    (c)    and    (d)    has    necessarily to be          of    the      nature        of<\/p>\n
    executive      and    general administration            expenditure.              The<\/p>\n
    contention of the Advocate for the Revenue to the contrary<\/p>\n
    is, therefore, rejected.\n<\/p>\n
    9.     The    Income Tax Circular No.202 dated 5th July,                        1976<\/p>\n
    makes    it extremely clear that section 44C was                      introduced<\/p>\n
    in    the    Act    because it was becoming            very      difficult          to<\/p>\n
    scrutinise      and    verify claims in respect of                general         and<\/p>\n
    administrative        expenses    incurred        by    the      foreign        head<\/p>\n
    offices      in so far as such expenses were related to                        their<\/p>\n
    business      or    profession    in India,        particularly            in     the<\/p>\n
    absence of account books of the head office which are kept<\/p>\n
    outside       India.       Foreign     companies        operating          through<\/p>\n
    branches in India some times tried to reduce the incidence<\/p>\n
    of    tax    in India by inflating their claims in respect                          of<\/p>\n
    the head office expenses.\n<\/p>\n
    10.    We have noted the fact that the Assessing Officer has<\/p>\n
                                                       ::: Downloaded on – 09\/06\/2013 13:53:34 :::<\/span>
\n                                          -15-<\/span><\/p>\n
    without      calling    for    any    documents        pertaining           to     the<\/p>\n
    laboratory      expenses      come    to    the   conclusion             that      the<\/p>\n
    laboratory      expenses      would    fall under         the      category          of<\/p>\n
    “executive      and    general       administration           expenses”          and,<\/p>\n
    therefore, ceiling prescribed under sec.44C would apply to<\/p>\n
    such    expenses.      On the other hand, the CIT(A) without any<\/p>\n
    verification by merely relying on the assessee’s statement<\/p>\n
    that the research and development expenditure claimed does<\/p>\n
    not include the expenditure in the nature of rents, rates,<\/p>\n
    taxes,      salaries    etc.     reached the conclusion                  that      the<\/p>\n
    laboratory<\/p>\n
                    expenditure was not connected with the general<\/p>\n
    and    administrative      expenditure covered by                 clauses        (a),<\/p>\n
    (b),    (c) and (d) of explanation (iv) of section 44C.                              We<\/p>\n
    are    of    the view that the Tribunal in the absence of                          any<\/p>\n
    evidence      has   not   reached      a    final      conclusion           whether<\/p>\n
    laboratory      expenses are covered under section 44C or                          not<\/p>\n
    and    has taken a very reasonable and rational view                          namely<\/p>\n
    that    the matter requires consideration as to whether                            the<\/p>\n
    laboratory      expenses      include      any    of      the        expenditure<\/p>\n
    mentioned      in clauses (a), (b), (c) and (d) of explanation<\/p>\n
    (iv) to section 44C of Income Tax Act, 1961.                       We see merit<\/p>\n
    in     the     suggestion       of         the    Tribunal             that        the<\/p>\n
    establishment\/supporting          staff      may exist          in     connection<\/p>\n
    with    maintaining of the laboratory and that could be                            the<\/p>\n
    expenditure in the nature of that indicated in clauses (a)<\/p>\n
                                                        ::: Downloaded on – 09\/06\/2013 13:53:34 :::<\/span>
\n                                          -16-<\/span><\/p>\n
    to    (d) for such establishment\/supporting staff.                       This       is<\/p>\n
    all the more required because as recorded by the Assessing<\/p>\n
    Officer    the assessee had in fact clubbed this expenditure<\/p>\n
    with    the   head office expenditure in the                 computation            of<\/p>\n
    income     filed     with     the    return.        We     agree        that        an<\/p>\n
    examination      as to whether the expenses claimed did or did<\/p>\n
    not    include    any    executive      and      general       administration<\/p>\n
    expenditure      as indicated in clauses (a) to (d) of section<\/p>\n
    44C    is required instead of accepting the assessee’s                          bare<\/p>\n
    statement      without        an    iota    of    evidence          that        such<\/p>\n
    expenditure      did<\/p>\n
                            not    include      the expenses          set      out      in<\/p>\n
    clauses    (a)    to    (d) without any verification.                    If     mere<\/p>\n
    statement      of    the    assessee       is    accepted        without          any<\/p>\n
    verification as is done in the instant case by CIT(A), the<\/p>\n
    object of introducing section 44C would get frustrated.\n<\/p>\n
    11.     We are, therefore, of the view that the Tribunal                            is<\/p>\n
    right    in remanding the matter back to the file of                         CIT(A)<\/p>\n
    for    disposal afresh.        We make it clear that the                 assessee<\/p>\n
    would    be   free     to   show the       expenses      incurred          towards<\/p>\n
    laboratory     expenditure         and satisfy the CIT(A) that                  they<\/p>\n
    did    not include any Executive and General                   Administration<\/p>\n
    expenditure      indicated      in    clauses      (a)     to     (d)      of     the<\/p>\n
    explanation      (iv)    to section 44C of the Income                   Tax     Act,<\/p>\n
    1961.     Needless      to add that if the assessee succeeds                        in<\/p>\n
                                                       ::: Downloaded on – 09\/06\/2013 13:53:34 :::<\/span>
\n                                       -17-<\/span><\/p>\n
    satisfying    the    CIT(A) to the effect set out             above,        the<\/p>\n
    expenditure claimed by it would be allowable.<\/p>\n
\n\n\n\n\n                                                                         \n                                                 \n    12.    In   view    of the above, we answer question               no.1       in\n\n    affirmative.       As   regards    answer   to    question         no.2       is\n\n    concerned,    if    the   assessee succeeds in         satisfying           the\n\n\n\n\n                                                \n    CIT(A)   as set out above, the assessee would certainly                       be\n\n    entitled    to   the said deduction.\n\n\n\n\n                                      \n<\/pre>\n
    13.   The above reference is accordingly disposed of.\n<\/p>\n
    (S.J.KATHAWALLA J.)                   (Dr.S.RADHAKRISHNAN J.)<\/p>\n
                                                 ::: Downloaded on – 09\/06\/2013 13:53:34 :::<\/span>
\n                                -18-<\/span><\/p>\n
    4.   The learned Advocate for the assessee has in            support<\/p>\n
                                         ::: Downloaded on – 09\/06\/2013 13:53:34 :::<\/span>
\n                                         -19-<\/span><\/p>\n
    of    his   contention      that    section    44C    applies         only       to<\/p>\n
    executive       and general administration expenditure and that<\/p>\n
    laboratory       expenses would not fall under the category                      of<\/p>\n
    executive       and   general administration expenses,                cited        a<\/p>\n
    decision      in    the case of Commissioner of Income                Tax      Vs.<\/p>\n
    Emirates      Commercial Bank Ltd.         reported on 2003(262)               ITR<\/p>\n
    55    (Bom).       That   was a case where      the     expenditure            was<\/p>\n
    exclusively        incurred   for    the branch      office        in     India.\n<\/p>\n
    There    was     a concurrent finding of fact recorded                  by     the<\/p>\n
    Commissioner        (Appeals)    as well as the Tribunal that                  the<\/p>\n
    officer<\/p>\n
                came from the head office at Abu-dhabi to                     Mumbai<\/p>\n
    to    attend to the work of Mumbai branch and in                   connection<\/p>\n
    with    that work the expense was incurred and that                     expense<\/p>\n
    was    initially      incurred     by   the    head     office        and      was<\/p>\n
    recovered       by the head office from the branch in India                      by<\/p>\n
    raising     a    debit note.     It was, therefore, held that                  the<\/p>\n
    expense     was incurred for the branch office in India                      and,<\/p>\n
    therefore, section 44C had no application.                  In view of the<\/p>\n
    aforesaid facts, we are of the view that the said decision<\/p>\n
    does    not     lend any assistance to the present case of                     the<\/p>\n
    assessee.\n<\/p>\n
    5.    The Advocate for the assessee has also cited before us<\/p>\n
    a decision of ITAT, Bombay Bench (A) in American Bureau of<\/p>\n
    Shipping Vs.        Income Tax Officer reported in (1986) 19 ITD<\/p>\n
                                                    ::: Downloaded on – 09\/06\/2013 13:53:34 :::<\/span>
\n                                      -20-<\/span><\/p>\n
    793 and has laid strong emphasis on a portion of paragraph<\/p>\n
    11 of the said order which is reproduced hereunder.\n<\/p>\n
             “11…………As    regards       plan    approval,
\n             engineering expenses of Rs.3,10,112\/- we have gone
\n             through the details filed. These expenses were
\n             incurred for specific technical services of the<\/p>\n
             nature of approval of the plan for ships being
\n             constructed in India, reviewing survey reports,
\n             covering   ships   being    constructed at    Indian
\n             shipyards,    approval   of      designs,    tonnage
\n             admeasurements and issuance of tonnage certificate<\/p>\n
             certificates, reviewing test reports etc.      These
\n             expenses were incurred not only at head office in
\n             New York but also in other offices like London,<\/p>\n
             Geneva, Hamburg. We, therefore, confirm the order
\n             of the Commissioner (Appeals) holding that these
\n             expenses were not head office expenses for the
\n             purpose of section 44C.”\n<\/p><\/blockquote>\n
    .   In    our     view the aforesaid quoted portion,            makes       it<\/p>\n
    amply    clear     that the assessee had filed the          details         of<\/p>\n
    expenses which the Tribunal had gone through and thereupon<\/p>\n
    came    to   the conclusion that the said expenses              were      not<\/p>\n
    head office expenses for the purpose of section 44C.                    This<\/p>\n
    decision     in    fact supports the decision of the            Appellate<\/p>\n
    Tribunal     which    forms   the subject matter       of     the      above<\/p>\n
    reference.\n<\/p>\n
                                               ::: Downloaded on – 09\/06\/2013 13:53:34 :::<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Bombay High Court John Wyeth And Brother Ltd vs Commissioner Of Income Tax on 23 September, 2008 Bench: S. Radhakrishnan, S. J. Kathawalla -1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. Income Tax Reference No.6 of 1992 John Wyeth and Brother Ltd. Bombay ..Applicant vs. Commissioner of Income Tax Bombay City II, Bombay […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[11,8],"tags":[],"class_list":["post-62728","post","type-post","status-publish","format-standard","hentry","category-bombay-high-court","category-high-court"],"yoast_head":"\nJohn Wyeth And Brother Ltd vs Commissioner Of Income Tax on 23 September, 2008 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/john-wyeth-and-brother-ltd-vs-commissioner-of-income-tax-on-23-september-2008\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"John Wyeth And Brother Ltd vs Commissioner Of Income Tax on 23 September, 2008 - 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