2022 (4) TMI 1073 - AT - Income Tax

Tax Tribunal Orders Deletion of Service Charge Disallowance, Upholds Consistency for 1998-99 and 1999-2000 Assessments.

Coca Cola India Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, Circle 1 (1), Pune And The Dy. Commissioner of Income Tax, Circle 1 (1), Pune Versus Coca Cola India Pvt. Ltd.

Coca Cola India Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, Circle 1 (1), Pune And The Dy. Commissioner of Income Tax, Circle 1 (1), Pune Versus ... Issues Involved:1. Deductibility of `Service charges` paid by the assessee to CCI Inc.2. Applicability of section 37(1) of the Income-tax Act, 1961.3. Consistency of Tribunal's previous decisions.4. Impact of new service agreements on the deductibility of expenses.Detailed Analysis:1. Deductibility of `Service charges` Paid by the Assessee to CCI Inc.The primary issue revolves around the deductibility of `Service charges` paid by the assessee to CCI Inc. amounting to Rs. 70.40 crore. The Assessing Officer (AO) initially disallowed 10% of the expenditure, considering it as `Royalty` paid indirectly to TCCC for the use of its trademark and technical know-how. However, the CIT(A) enhanced the disallowance to 25%, attributing it to services rendered to unrelated bottlers, which were not for the assessee’s business.2. Applicability of Section 37(1) of the Income-tax Act, 1961The assessee argued that the disallowed service charges were of revenue nature and incurred `wholly and exclusively` for the purpose of its business, as per section 37(1) of the Act. The assessee emphasized that the quality audit of bottlers' plants by CCI Inc. was crucial for increasing the volumes of the assessee’s business. The Revenue, however, contended that the services rendered by CCI Inc. were primarily for the benefit of the bottlers, not the assessee, and thus, did not qualify for deduction under section 37(1).3. Consistency of Tribunal's Previous DecisionsThe Tribunal had previously allowed similar service charges for the assessment year 1997-98. The assessee argued that the issue was covered in its favor by the Tribunal’s earlier decision. The Revenue, however, highlighted that a new service agreement effective from 01.04.1997 brought additional services exclusively for the assessee, which were not present in the earlier agreement. Despite these changes, the Tribunal decided to maintain consistency with its previous decision, allowing the deduction for service charges in full.4. Impact of New Service Agreements on the Deductibility of ExpensesThe Tribunal examined the new service agreement dated 01.04.1997, which included additional services exclusively for the assessee. The Tribunal noted that while the scope of services rendered to the assessee increased, the nature of services provided to the bottlers remained unchanged. Therefore, the Tribunal concluded that the facts for the year under consideration were similar to the preceding year, and the disallowance of service charges was unwarranted.Conclusion:The Tribunal directed the deletion of the disallowance of service charges paid by the assessee to CCI Inc. for the assessment years 1998-99 and 1999-2000, maintaining consistency with its previous decision. The Tribunal emphasized that the deduction was allowed to maintain consistency as the matter was sub judice before the Hon’ble High Court. The appeals of the assessee for the assessment years 1998-99 and 1999-2000 were allowed, and the appeal of the Revenue for the A.Y. 1999-2000 was dismissed.