Section 44C of the Income Tax Act –Deduction of head office expenditure in the case of non-residents

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Section 44C of the Income Tax Act, 1961 provides for deduction of head office expenditure in the case of non-residents. According to the section, no allowance shall be made in the case of a non-resident assessee with respect to so much of the expenditure in the nature of head office expenditure as is in excess of the amount computed as follows when determining the income chargeable under the head "Profits and gains of business or profession":

1. amount equivalent to 5% of the adjusted total income

2. amount of head office expenditure by the assessee that can be linked to their business or profession in India.

Whichever amount is the least is taken into consideration. The amount equivalent to 5% of the adjusted total income must be calculated at a rate of 5% of the assessee's average adjusted total income in cases where the adjusted total income is a loss.

No provision of any section from 28 to 43A which is contradictory is applicable as far as section 44C is concerned.

For better understanding the following terms are explained in Section 44C:

• "Adjusted Total Income"

The term "adjusted total income" refers to the total income calculated in accordance with the provisions of this Act, excluding the effects of any allowance mentioned in this section, section 32 (2), deduction mentioned in sections 32A, 33, 33A, first proviso to clause (ix) of section 36 (1), any loss carried forward under section 72 (1), 73 (2), 74 (1), 74(3) or 74A(3) or deductions under Chapter VIA.

• "Average Adjusted Total Income"

1. If the assessee's total income is assessable for each of the three assessment years that come just before the applicable assessment year, one-third of the aggregate amount of the adjusted total income for those previous years that pertain to those three assessment years.

2. In the event that the assessee's total income is only assessable for two of the aforementioned three assessment years, one-half of of the aggregate amount of the adjusted total income for the previous years applicable to the aforementioned two assessment years should be applied.

3. If only one of the aforementioned three assessment years is applicable to the assessee's total income, that assessment year's applicable portion of the previous year's adjusted total income.

• "Head Office Expenditure"

It refers to executive and general administrative expenses that the assessee incurs outside of India, including expenditure related to the following-

• the rent, rates, taxes, repairs, or insurance of any premises utilised for a business or profession outside of India.

• the salary, wages, annuities, pensions, fees, bonuses, commissions, gratuities, perquisites, or profits in place of or in addition to salary, paid or allowed to any employee or other person employed in, or in charge of managing the affairs of, any office outside of India.

• any employee's or any person's travel while employed at or managing any office outside of India

• any further executive and general administrative matters that may be prescribed.