High Court Rules Against Coca-Cola in Transfer Pricing Case
MUMBAI: The Punjab & Haryana High Court has ruled against Coca-Cola
India's contention that the proof of profit transfer outside India
is a precondition for applying transfer pricing rules.
Coca-Cola had approached the high court after it was served a notice
on transfer pricing. The soft drink company had an agreement to offer
advisory services to Britco at the rate of cost plus 5%. Coca-Cola's
main contention was that transfer pricing rules cannot be applied
in the absence of prima facie evidence of profit transfer outside
The high court said that India's transfer pricing rules can be applied
to any cross-border transaction between associated enterprises, irrespective
of profit transfer outside India. The court said the only requirement
is income generation in a cross-border transaction and income has
been computed at arms length.
Coca-Cola told the court that transfer pricing rules were meant to
check profit erosion outside India and therefore could not be applied
in cases where there is no prima facie evidence of profit transfer
outside the country.
The high court did not accept this view. It held that existence of
a cross-border transaction and computation of the resultant income
at arm's length price are sufficient grounds for applying transfer
According to Coca-Cola, the transfer pricing provisions have been
incorporated in the Income-tax Act by the Finance Act 2001 and the
applicability of these provisions has been limited to situations involving
profit diversion outside India.
There is no material evidence to show that profits have been diverted
outside India, the company said. The court said that it is the prerogative
of the income-tax department to issue such a notice and expressed
its inability to intervene in the matter.
Coca-Cola was assessed under I-T Act in 2004 for the year 1998-99.
The dispute arose after the income-tax department concluded that the
income had escaped assessment under the Income-Tax Act.
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