In a detailed ruling that settles a long-pending tax controversy, the Supreme Court has drawn a clear line on how much foreign banks can deduct for expenses incurred at their overseas head offices but linked to Indian operations. Hearing appeals filed by the Income Tax Department against American Express Bank and Oman International Bank, the Bench held that such expenses cannot escape the statutory cap merely by being labelled “exclusive” to Indian branches.
The judgment, delivered after an exhaustive hearing, is expected to have a wide impact on how non-resident companies structure and claim administrative costs in India.
Background
The dispute traces back to the late 1990s and early 2000s. American Express Bank, a non-resident banking company, had claimed full deductions for certain expenses incurred at its head office abroad, arguing that these were spent entirely for its Indian branches. The tax authorities disagreed, invoking Section 44C of the Income Tax Act, which places a ceiling on how much “head office expenditure” foreign entities can deduct in India.
A similar issue arose in the case of Oman International Bank. In both matters, appellate authorities and the Bombay High Court relied on earlier judgments to side with the banks, holding that expenses exclusively linked to India were outside the reach of Section 44C. The Revenue, unhappy with this approach, carried the matter to the Supreme Court.
Court’s Observations
The Bench, led by Justice J.B. Pardiwala, carefully examined the language and purpose of Section 44C. At the heart of the debate was whether the provision applies only to “common” global expenses or also to expenses said to be incurred exclusively for Indian branches.
The Court was blunt in its reading of the law. “The statute makes no distinction between common and exclusive expenditure,” the Bench observed, adding that what matters is where the expense is incurred and its nature. If it is executive or administrative in character and incurred outside India by a non-resident, it squarely falls within Section 44C.
The judges also rejected the argument that allowing full deductions under the general provision of Section 37 would be harmless. Section 44C, the Court noted, was introduced precisely because tax authorities found it nearly impossible to verify foreign head office expenses. Letting assessees bypass the ceiling would, in the Court’s words, “reintroduce the very mischief the law was designed to prevent.”
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Importantly, the Bench clarified that earlier High Court rulings were based on specific facts or on the unamended law and could not be stretched to create an exception that the statute itself does not recognise.
Decision
In the end, the Supreme Court allowed the Revenue’s appeals. It held that expenditure incurred by the head office of a non-resident entity outside India-even if claimed to be exclusively for Indian operations-remains “head office expenditure” under Section 44C and is subject to the statutory cap prescribed thereunder.
Case Title: Director of Income Tax (IT)-I, Mumbai vs. M/s American Express Bank Ltd.
Case No.: Civil Appeal No. 8291 of 2015 (with Civil Appeal No. 4451 of 2016)
Case Type: Civil Appeal (Income Tax matter)
Decision Date: 2025
