Section 44C of Income Tax Act – Deduction in respect of Head Office Expenses of Non residents

1. In case of a foreign company, which operates in India, and has a branch office or other presence, which constitutes a Permanent Establishment, of the foreign company in India, the head office may  incur certain expenditures in relation to the Indian PE.

2. In order to prevent foreign companies charging higher expenditure to the Indian branch,  Section 44C restricts the claim of head office expenditure of a non-resident to the lower of following expenses : –
5% of “adjusted total income” in case of profit, or in case of loss, 5% of the average adjusted total income.
Head office expenditure incurred by the assessee , as is attributable to the business or profession of the assessee in India.

3. ADJUSTED TOTAL INCOME refers to the total income of the assessee, computed in accordance with the provisions of the Income Tax Act without giving effect to the following :
Allowance under Section 44C of Income Tax Act for Head office expenditure
Unabsorbed depreciation u/s 32(2).
Family planning Expenditure incurred by a company under first proviso to section 36(1)(ix).
Brought forward Business loss under section 72(1).
Brought forward Speculation loss under section 73(2).
Loss under the head Capital Gain under section 74(1).
Brought forward Loss from certain specified sources under Section 74A(3).
Deductions under Chapter VI-A.

4. The adjusted total income of the assessee shall be computed based on , whether the foreign company was assessable to tax for one, two or three preceding years :
When the total income of the assesse,  was assessable for each of the three preceding assessment years , one third of the “aggregate amount of the adjusted total income” in respect of previous years relevant to those three assessment years.
When the total income of the assessee was assessable for only two out of three preceding assessment years , One half of the “aggregate amount of the adjusted total income” in respect of previous years relevant to those two assessment years.
When the total income of the assessee was assessable for only one out of three preceding assessment years , “adjusted total income” in respect of the previous years relevant to that assessment years.