The Supreme Court of Pakistan has ruled in favor of Coca-Cola Pakistan Limited, rejecting the Federal Board of Revenue’s (FBR) position in a longstanding tax dispute dating back to the 2003 tax year. The apex court’s written judgment emphasized that there is no single mandatory formula for allocating expenses across different sources of income. Instead, expenses can be apportioned on “any reasonable basis” as permitted under the law.
The judgment was authored by Justice Muneeb Akhtar, with Justices Muhammad Shafi Siddiqui and Mian Gul Hassan Aurangzeb on the bench. The case arose when the FBR challenged Coca-Cola Pakistan’s method of allocating expenses, claiming it did not comply with Income Tax Rule 13. The Supreme Court clarified that as long as a taxpayer’s allocation is reasonable and justifiable, it cannot be deemed incorrect merely because it differs from the FBR’s preferred formula.
Justice Akhtar highlighted that Section 67(1) of the Income Tax Ordinance, 2001, allows taxpayers to use “any reasonable basis” for expense allocation, and the FBR’s rules are not binding or exclusive. The court noted that the existence of FBR’s prescribed rules does not make them the only acceptable standard. Coca-Cola had allocated expenses using the Gross Profit Ratio (GPR), which the court found reasonable. Consequently, the FBR’s amended assessment was declared legally unsustainable.
The Supreme Court overturned the Lahore High Court’s judgment and allowed Coca-Cola Pakistan Limited’s appeal, reinforcing that taxpayers have flexibility in how they apportion expenses, provided the method is rational and justified under the law. This landmark decision clarifies the interpretation of expense allocation rules and limits the FBR’s authority to impose rigid formulas.
