American Express – Supreme Court of India confirms that a domestic Indian provision could limit the deduction permitted for offshore head office expenses of an Indian permanent establishment of an American bank

Art. 7(3) of the US-India Double Taxation Avoidance Agreement, provided:

In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment … whether incurred in the state in which the permanent establishment is situated or elsewhere, in accordance with the provisions and subject to the limitations of the taxation laws of that state.

Before concluding that s. 44C of the domestic statute limited the head office expenses of the American bank that could be deducted in computing the profits of its branch in India to 5% of the revenues of that branch, Pardiwala J confirmed that the italicized wording above permitted s. 44C to so apply to limit the head office expenditure deduction of the branch.

Neal Armstrong. Summary of Director of Income Tax v. M/S. American Express Bank Ltd. (2025 INSC 1431, Civil Appeal No. 4451 of 2016) under Treaties – Income Tax Conventions – Art. 7.