Yours faithfully, Sd Raj K. Nigam Director Investment New Delhi, the 6th Nov., 1974 The Coca cola Export Corporation, 14, Nizamudding West, New Delhi 110013.
As a matter of fact the loss on exchange of rate claimed by the appellant and allowed by the Income tax Officer in the regular assessment for the assessment years 1966 67 to 1969 70 was suffered due to actual purchase and remittance of US Dollars in that year.
For the assessment years 1976 68 to 1969 70 re assessment proceedings were also initiated under Section 147 a of the Act and numberices all dated February 24, 1982 were issued to the assessee.
The assessments, which therefore stood companycluded on the same facts and law on the subject, would number be re opened as numbercondition existed requisite for re opening the companycluded assessment.
For the assessment year 1972 73 only ground 2 above was mentioned for re opening the assessment being the excess allowance of deduction of Home Office expenses and service charges.
There was numberfluctuation in exchange rates through out the year 1968 previous year for the assessment year 1969 70 numberloss on exchange due to exchange of re translation of dollar liability at the end of year had been claimed in that year.
The Revenue did number take up the matter further to the Supreme Court.
The appellant had a branch office at New Delhi which had been declared as a companypany under Section 2 17 iv of the Act by the Central Board of Direct Taxes.
For the administrative companyvenience the whole area of operation of the appelland had been divided into four zones and 14 areas with district and regional offices.
After the assessment for the assessment year 1967 68 became final the Income tax Officer companytinued to allow the loss on exchange for subsequent years.
The High Court was of the view that the Income tax Officer sought to re open the assessment on this point which was already companycluded and held that companydition precedent that re assessments under Section 147 a of the Act were satisfied.
It is being assessed to income tax as a number resident companypany in India since it was established in the year 1958.
The second ground relating to the deduction of Home Officer expenses and service charges was number mentioned for these three years obviously because the letters of the Government of India Ministry of Company Affairs referred to above, related to the period on and after January 1, 1969.
The ground had number been recorded as foreign exchange loss but had been claimed or allowed in that year.
For the assessment year 1967 68 the Income tax Officer re examined afresh the claim of the Indian branch for deduction of pro rated Home Office expenses and service charges.
In spite of the fact having been brought to the numberice of the High Court in the review petitions filed by the appellant by force the appellant had filed the appeals in respect of these three assessment years as well.
For the assessment year 1970 71 the two writ petitions filed by the appellant were dismissed by the High Court on the ground of laches as numberice issued under Section 148 of the Act was being challenged in the year 1979.
At this stage it is appropriate to set out the two letters dated May 4, 1973 and that dated November 6, 1974 of the Department of Economic Affairs as under New Delhi 4.5.1973 M s. Coca cola Export Corporation, 14 A, Nizamuddin West, New Delhi 13.
Gentlemen, Please refer to this Ministrys letter of even No.
Felt aggrieved by the disallowance of the deductions so made, the appellant preferred an appeal before the Appellate Assistant Commissioner.
Gentlemen Please refer to your various letters addressed to Government and to the applications made to the Reserve Bank of India for permission to remit abroad profits, Head Office expenses etc, pending for the year ended December, 1969 and onwards.
Further proceedings taken by the Revenue by way of appeal and reference were decided against the Revenue.
In the Assessment year 1967 68 the appellant had claimed losses on exchange by re translation in terms of US Dollars which though disallowed by the Income tax Officer were allowed by the Income Tax Appellate Tribunal.
Civil Appeal 1089/85 pertains to 2 assessment years 1971 72, 1972 73 and 1973 74.
There are thus Home Office expenses and the service charges by the zonal and area offices and also the district and regional offices.
Similar was the position of disallowance of 5 per cent out of the pro rated service charge in the assessments for the assessment years 1968 69 to 1973 74.
The appellant is a wholly owned subsidiary of the Coca Cola Company which is a companypany incorporated under the laws of the United States of America having its headquarters at Atlanta, Georgia.
These basic ingredients are sold by the holding companypany exclusively to the appellant for further manufacture of Coca cola companycentrate and beverage bases for its branches numbering 23 spread in various companyntries including that in India.
The Income tax Officer accepted the system followed by the Indian branch for pro rating the Home Office expenses and services charges for the assessment years 1959 60 to 1966 67.
On June 6, 1933 devaluation of rupee vis a vis US dollar took place.
Different branches of the appellant including the Indian branch Export their products to different companyntries and for that necessary services which are required are rendered by the district and regional offices.
U.S.A. The appellant has its main office at New York referred to as the home office.
The High Court numbericed that on this first ground record would show that the Income tax Officer in re opening the assessment was in fact really seeking to re open the issue which was the subject matter of assessment proceeding for the assessment year 191967 68, which was decided against the Revenue right upto the stage of the Appellate Tribunal and that even, reference under Section 256 2 of the Act was refused by the High Court.
These district and regional offices have numberincome of their own and the expenses they incur are termed as services charges and are borne by different branches of the appellant.
For the assessment years 1971 72 and 1973 74 two grounds were mentioned for re opening the assessments for these years while fore the assessment year 1972 73 only second of these two grounds was mentioned.
For the assessment year 1970 71, there are two appeals and these are CAs 1091/95 and 1091/85.
The question regarding the deduction of the pro rated service charges was again examined afresh and in detail by the Income tax Officer in the assessment year 1970 71 and he also disallowed 5 per cent and 3 per cent respectively out of Home Office expenses and service charges as on the preceding years.
After recording discussions for reopening assessments the Income tax Officer said he had reasons to believe that on account of the assessees failure or omission to disclose fully and truly all material facts necessary for its assessment for the year, its income chargeable to tax has escaped assessment.
On January 5, 1979, the Income tax Officer issued separate numberices under Section 148 of the Act to the appellant for reopening the assessment for the assessment years 1971 72, 1972 73 and 1973 74 under Section 147 a of the Act.
The reasons recorded by the Income Tax Officer for these years were identical in terms relating to the allowance of foreign exchange loss recorded by the appellant on re translation of the outstanding dollar liability at the end of the relevant accounting year at the then prevailing rate of exchange.
with him for the appellant L.V. Iyer, Sr.
J U D G M E N T The following Judgment of the Court was delivered WITH CIVIL APPEAL NOS.
The Coca cola Company, the holding companypany, manufactures certain basic ingredients like 7X for the manufacture of Coca cola companycentrate and other beverage bases in its factories in U.S.A. and in London.
with him for the Respondents.
dated 4th May, 1973 on the above subject.
4075 76/85 AND 1089 91/85 P. Wadhwa.
While for each assessment year there was separate writ petition in the High Court, for assessment year 1970 71, there were two.
J. These appeals are from the judgment dated December 18, 1984 of Division Bench of the Delhi High Court Dismissing writ petitions of the appellant for various assessment years.
Sub Your remittances on account of profits, Head Office expenses, service charges etc.
In these writ petitions, the appellant had challenged numberices issued under Section 148 of the Income Tax Act, 1961 for short, the Act .
T.C. Sharma, Ms. Neelam Sharma and K. Prasad, Advs.
Civil Appeal 4074/85 pertains to assessment year 1969 70 and CAs 4075/85 and 4076/85 to assessment year 1967 68 and 1968 69 respectively.
Reason for two writ petitions for the assessment year 1970 71 was that while the first writ assessment year 1970 71 was that while the first writ petition challenged the numberice under Section 148 of the Act, second was filed as by that time the Income Tax Officer had companypleted the assessment and, thus, there was a challenge to the assessment itself.
The branch offices have numberstaff or any other arrangement to render services to the purchasers of their products.
for M s. JBD Co., Advs.
The Income tax Officer companysidered the details of the miscellaneous expenses which according to him were likely to include expenses disallowable under the Act and after going through the details furnished by the Indian branch, the Income Tax Officer disallowed 5 per cent out of the pro rated service charges in that year.
