RUPENJULI TEA CO LTD Vs. COMMISSIONER INCOME TAX

JUDGEMENT

(1.) In this reference made under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for the opinion of this court for the assessment year 1977-78 :

(2.) The facts leading to this reference are that the assessee, a sterling company, having its head office in the United Kingdom, owns a tea garden in India. The entire business operations of the assessee-company are carried out in India and only the statutory functions are attended to from the head office in the United Kingdom. During the relevant previous year, the assessee-company incurred an expenditure of Rs. 4,70,074 at its London head office on account of secretarial remuneration, warehouse charges, brokerage, directors' fees and emoluments. The whole of this amount was claimed by the assessee-company as business expenditure in computing its total income chargeable to tax in India under the Income-tax Act, 1961. The Income-tax Officer held that the allowance of head office expenditure was subject to the limits laid down in Section 44C of the Income-tax Act, 1961. By applying the formula laid down in Section 44C of the said Act, the Income-tax Officer disallowed a sum of Rs. 21,441 out of the aggregate London head office expenditure of Rs. 4,70,074. The contention of the assessee-company was that Section 44C had no application in this case inasmuch as although the assessee-company was a non-resident company, its entire business operations were confined to this country. The entire expenditure in the London head office was incurred by the assessee-company in connection with its Indian business. It was also contended by the assessee-company that Section 44C applied only to those non-resident companies, which had only a branch office in this country and which carried out various business operations overseas. This submission of the assessee-company was accepted by the Commissioner of Income-tax (Appeals). But, on further appeal by the Revenue, the Tribunal upheld the stand of the Revenue. Hence this reference.

(3.) At the hearing before us, Dr. Pal, learned counsel appearing for the assessee, invited our attention to the legislative objects behind the insertion of Section 44 C and contended that the said section had no application to the facts and circumstances of this case, since the entire business operations of the assessee-company were carried out in India and the expenses incurred at the London head office were wholly attributable to the business carried on by it in this country. Dr. Pal also drew our attention to the admitted position that the assessee-company had no business operations outside India and its London head office was only attending to the statutory functions. Since the London office expenses were incurred by the assessee-company wholly in connection with its business operations in India, it was submitted that Section 44 C could not be invoked in this case.