9911796707
TMI Blog1998 (3) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... were two. The reason for two writ petitions for the assessment year 1970-71 was that while the first writ petition challenged the notice under section 148 of the Act, the second was filed as by that time the Income-tax Officer had completed the assessment and, thus, there was a challenge to the assessment itself. The appellant is a wholly owned subsidiary of the Coca-Cola Company, which is a company incorporated under the laws of the United States of America having its headquarters at Atlanta, Georgia, U. S. A. The appellant has its main office at New York referred to as the "home office". The appellant had a branch office at New Delhi which had been declared as a company under section 2(17)(iv) of the Act by the Central Board of Direct Taxes. It is being assessed to income-tax as a non-resident company in India since it was established in the year 1958. The Coca-Cola Company, the holding company, manufactures certain basic ingredients like "7X" for the manufacture of Coca-Cola concentrate and other beverage bases in its factories in the U. S. A. and in London. These basic ingredients are sold by the holding company exclusively to the appellant for further manufacture of Coca-Col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e charges in that year. Feeling aggrieved by the disallowance of the deductions so made, the appellant preferred an appeal before the Appellate Assistant Commissioner. The appeal was, however, dismissed. Similar was the position of disallowance of five per cent. out of the pro-rated home office expenses and three per cent. out of the pro-rated service charge in the assessment for the assessment years 1968-69 to 1973-74. The question regarding the deduction of the pro-rated home office expenses and 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 five per cent and three per cent., respectively, out of home office expenses and service charges as in the preceding years. On January 5, 1979, the Income-tax Officer issued separate notices 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. After recording discussions for reopening assessments the Income-tax Officer said he had "reasons to believe that on account of the assessee's failure or omission to disclose fully and truly all ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant accounting year at the then prevailing rate of exchange. The second ground relating to the deduction of home office expenses and service charges was not 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. 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. There was no fluctuation in exchange rates throughout the year 1968 (previous year for the assessment year 1969-70) no loss on exchange due to exchange of re-translation of dollar liability at the end of year had been claimed in that year. On June 6, 1966, devaluation of the rupee vis-a-vis the US dollar took place. Because of the adjustment earlier having been made in terms of the then foreign exchange rates the appellant re-translated the liability in terms of the foreign exchange subsequent to 1966 onwards. This was done because the closing of the year of account of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening the concluded assessment. After the assessment for the assessment year 1967-68 became final, the Income-tax Officer continued to allow the loss on exchange for subsequent years. The High Court said that it was obvious that the Income-tax Officer was fully aware of the particular system of accounting being followed by the appellant. It is not necessary to refer to the other reasons given by the High Court in questioning the notices issued under section 148 on the first ground as we find that against this part of the judgment of the High Court, the Revenue had come up to this court in special leave petition, which was dismissed. What, however, is surprising that in spite of the fact that the first ground was the only ground given by the Income-tax Officer for reopening the assessment for the assessment years 1967-68 to 1969-70 and the High Court had quashed the notices under section 148 of the Act, yet the writ petitions pertaining to these three years were dismissed. In spite of the fact having been brought to the notice 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittances on account of profits, head office expenses, service charges, etc. Gentlemen, Please refer to this Ministry's letter of even No. dated 4th May, 1973, on the above subject. In para 3 of that letter it was mentioned that the remittance of service charges by you to your other overseas branches in relation to your export of concentrates to their territories will be subject to an independent ceiling. I am directed to inform you that this matter has since been considered by the Government and it has been decided that the remittance of these service charges will be allowed on the following terms and conditions : (i) With effect from January 1, 1969, the remittance of service charges by the Indian branch of the Coca-Cola Export Corporation to the other overseas branches of the corporation will be subject to an independent ceiling of 10 per cent. of the export earnings from exports of concentrates to the territories of the said other overseas branches of the corporation. These remittances will be within the overall ceiling of 80 per cent. of export earnings applicable to the remittances of the Indian branch on all counts (as referred to in this Ministry's letter dated May 4, 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to its export of concentrates to their territories shall be subject to an independent ceiling which would be communicated to the appellant separately. By the letter dated November 6, 1974, para 3 of the earlier letter dated May 4, 1973, is explained and Government decision as to how remittances of the service charges would be allowed was communicated to the appellant. It may be noticed that assessments for the assessment years 1971-72, 1972-73 and 1973-74 were respectively completed on January 23, 1973, March 12, 1973, and September 8, 1973, while the notices under section 148 of the Act were issued on January 5, 1979. It is difficult to appreciate how a Government decision of a later date originating from a different Department exercising powers under separate law could be used to reopen already completed assessments on the ground that it is "in consequence of information in his (Income-tax Officer) possession". A bar is imposed by the two letters on the amount of remittances to be made above. This bar in any case is under the provisions of the Foreign Exchange Regulation Act, 1947 (since repealed and re-enacted as the Foreign Exchange Regulation Act, 1973, with effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that had already been allowed. The court observed (page 451) : "But then, in that case, the decision would not be on the merits of allowance of the expenses in general, but on a totally different aspect and only on the sole ground of a legal bar having been placed in terms of the letters". The High Court sounded a caution in the matter and imposed a limitation saying that permitting reopening to be done in terms of the two letters was not to broaden in unlimited manner the enquiry so as to embrace it on the merits on other grounds. The High Court did not want to record its final decision about the failure to disclose fully and truly all material facts bearing on the assessments and consequent escapement of income from assessment and tax. It said that a perfectly good alternative remedy was thus available under the statute where all the questions raised by the appellant could be examined in detail. The High Court also said that the matter as to the exact scope and ambit of these two letters were awaiting decision at the appellate stage before the income-tax authorities and in that view of the matter it did not think fit to give expression to any opinion as to the scope of these two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etters provide material for him to initiate the reassessment proceedings and did these constitute information to give him a reason to believe that income chargeable to tax had escaped assessment. We have seen above that these two letters have been issued under the provisions of the Foreign Exchange Regulation Act and deal with remittance of foreign exchange outside India. Any contravention of these letters would entail prosecution under section 56 of the 1973 Act and under section 23 of the 1947 Act. The Foreign Exchange Regulation, Act contains stringent provisions for conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interests of the economic development of the country and for that purpose regulation of certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange, etc. Reference in this connection be made to the preamble of the 1973 Act or even to the 1947 Act. The embargo so placed by these two letters on the ground of foreign remittance to be made abroad by the appellant has nothing to do with the amount of disallowances under the Income-tax Act. As already seen above the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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