INDIA BUSINESS WORLD SEPTEMBER (1^st - 15^th) 2007
The Month that was ...

COCA-COLA WINS TAX CASE IN SUPREME COURT

IN a recent ruling on an appeal filed by Coca-Cola, Supreme Court has reaffirmed one of the time tested principles of Indian tax system: the same income cannot be taxed twice. The dispute was over whether tax can be levied on Coca-Cola as well as a warehousing company, on the warehouse service charges paid by Coca- Cola. The appeal was filed by Hindustan Coca-Cola Beverage Corp-a subsidiary of Coca-Cola. The Supreme Court upheld the view that since the warehousing company had paid tax on the income it received from Coca-Cola by way of warehousing charges, the Income-tax department cannot levy tax on Coca-Cola on the payment for the warehouse services. The Supreme Court said that it would amount to taxing the same income twice.

Coca-Cola had an arrangement with Pradeep Oil Corp (POC) for using the latter's premises for warehousing. Coca-Cola had paid warehousing charges to POC on which tax was deducted at the rate of 2%.

However, the Income-tax department took a different view. It held that warehousing charges were in fact 'rent' and hence tax should have been deducted at the rate of 20%.

The assessing officer also treated the company as 'an assessee in default' for not deducting tax at the rate of 20%. The AO also levied interest on the amount that has not been deducted.

The Income-tax Appellate Tribunal (ITAT), the second appellate body on tax matters, and the High Court had upheld the Income tax department's order. However, Coca-Cola filed a miscellaneous petition to point out that ITAT did not consider the fact that the warehousing company, POC, had already paid the tax on the same income. Since tax was already recovered, no further tax can be levied.

At this point ITAT recalled its own order and held that the Assessing Officer was right in holding Coca Cola as an 'assessee in default' yet there could be no recovery of tax from the company because the income under question has been already taxed in the hands of POC.

The Income-tax department agreed to this order of the ITAT and chose not to challenge ITAT's reopening of the matter.