THE COCA-COLA EXPORT CORPORATION versus INCOME TAX OFFICER AND ANR.

Citation: [1998] 2 S.C.R. 528 · Decided: 30-03-1998 · Supreme Court of India · Bench: SUJATA V. MANOHAR · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
THE COCA-COLA EXPORT CORPORATION 
v. 
INCOME TAX OFFICER AND ANR. 
MARCH 30, 1998 
B 
[SUJATA V. MANOHAR AND D.P. WADHWA, JJ.] 
Income Tax Act, 1961--Section 147-Reopening of-Income escaping 
assessment-Assessee a non-resident company-Remitting pro-rated home 
office expenses and service charges in U.S. Dollars-Letters issued by 
C Government of India placing ceiling on such remittance under FERA-
Remittances qf the counts such as imports, profits, Head Office Expenses, 
Service Charges to overseas branches-Allowed to the extent of 80% of total 
export earnings--Such letters issued made basis of issuance of notice under 
Section 147 of the Act--Held, such letters cannot constitute information for 
D initiating re-assessment of proceedings. 
Re-assessment-- Notice under Section 148 of Income Tax Act need not 
specifY whether action is contemplated under clause (a) or (b) of Section-
147. 
E 
Re-assessment proceedings-Jurisdiction of High Court-Exercise of-
F 
Held, High Court not justified in leaving the matter with ITO to decide the 
question of effect of the two letters iss(1ed by Central Government of India 
placing ceiling on remittance under FERA. 
Foreign Exchange Regulation Act, 1973-Jurisdiction of Income Tax 
Officer-Inherent lack of--Bar Imposed under FERA-ITO has no jurisdiction 
to start re-assessment proceedings on the basis of bar imposed under FERA. 
The appellant is a wholly owned subsidiary of Coca Cola company 
having its main office at New York referred to as 'Home Office' with branch 
G office at New Delhi. Its whole area of operation is divided into 4 Zones and 
14 areas with regional offices and expenses incurred by them are termed as 
service charges which are borne by branch offices. There are thus Home 
office expenses and service charges which are to be distributed on pro-rata 
basis on different branches on the basis of their exports and are met in US 
DoUars. For the assessment years 1967-68, 1968-69 to 1973-74 Income-Tax 
H Officer re-examined the claim and disallowed 5% of Head Office expenses 
528 
COCA-COLA EXPORT CORPN. v. l.T.O. 
529 
and 3% of service charges. Thereafter, on 05.01.1979, ITO issued notice A 
under Section 148 for re-opening assessment based on two grounds. First 
ground was that in regular assessment, notional loss on exchange resulted 
from re-translation of outstanding dollar liability into Indian Rupees at the 
end of the year at then prevailing rate of exchange has been wrongly allowed. 
On this ground the appellants's claim on losses on exchange by re-translation B 
which though disallowed by ITO was allowed by Income Tax Appellate Tribunal. 
Further proceeding taken by Revenue by way of appeal and reference was 
decided against the Revenue. The assessment, therefore, stood concluded on 
same facts and law on the subject. It would not be reopened as no condition 
existed requisite for reopening the concluded assessment. 
The second ground was based on letters issued by the Government 
laying down ceiling on allowance remittance facilities to the extent of 80% 
of the total export earning which was governed under provisions of FERA. 
Moreover, it is pertinent to mention that assessment was already completed 
for those years for which notices were issued under Section 148 of the Act 
c 
on the basis of the said two letters. 
D 
The High Court quashed the notices under Section 148 of the Act 
against which the Revenue filed Special Leave Petition which was dismissed 
by this Court. 
However, the appellants approached the High Court to quash and pre- E 
empt the enquiry being made by the ITO on the basis of the two letters. The 
High Court while dismissing the writ petitions left it to the ITO to make 
enquiry as to whether the deductions which had been allowed were in excess 
of the limit fixed by the said two letters were legal or not. 
In this appeal, it was contended that the High Court erred in leaving F 
the decision to ITO and there was failure on the part of the High Court to 
exercise its jurisdiction which it manifestly did possess. 
Allowing this appeal, this Court 
HELD : 1. The embargo so placed by the two letters issued by the G 
Central Government on the ground of foreign remittance to be made abroad 
by appellant has nothing to do with the amount of allowance under the 
Income-Tax Act. If there is any contravention of these letters, it will be for 
Reserve Bank or Central Government to take action or to grant permission 
as provided under FERA. Tha

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