Relief to MUFG Bank: ITAT holds Salary paid by Head Office to expatriate Employees working in Indian branches, allowable as Deduction [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), New Delhi Bench held that salary paid by head office to expatriate employees working in Indian branches, allowable as deduction, thereby granting relief to M/s. MUFG Bank Ltd.

The assessee, M/s. MUFG Bank Ltd earlier known as the Bank of Tokyo Mitsubishi UFJ Ltd, is a non-resident banking company incorporated in Japan and is a tax resident of Japan. In the year under consideration, the assessee had paid an amount of Rupees forty-five crores towards salaries to the expatriate employees and taxes paid thereon. The aforesaid amount was claimed as deduction, being expenditure incurred by the head office for the business operations of Indian Branches.

In course of assessment proceeding, the Assessing Officer called upon the assessee to justify, how the deduction claimed can be allowed under section 37 of the Income Tax Act. Though, the assessee justified its claim by submitting that only part of salary paid in Indian rupees for expatriate employees working in India is claimed as deduction, as, such expenditure was incurred for the operation of Indian branches, however, the Assessing Officer (AO) was not convinced.

The AO was of the view that the expatriate employees cannot be considered to be working wholly and exclusively for the purpose of branches in India and observed that looking at the composite nature of employment, there is no demarcation to show that the expenditure was incurred wholly and exclusively for the purpose of business of Permanent Establishment (PE).

The AO accordingly, disallowed assessee’s claim of deduction. The DRP relying upon the direction in assessee’s own case in assessment year 2013-14, endorsed the view expressed by the Assessing Officer.

A Bench consisting of G S Pannu, President and Saktijit Dey, Judicial Member observed that “Salary paid by the head office to expatriate employees working in Indian branches is allowable as deduction.”

To Read the full text of the Order CLICK HERE

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