YUM! RESTAURANTS (MARKETING) PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX, DELHI
LAWS(SC)-2020-4-27
SUPREME COURT OF INDIA (FROM: DELHI)
Decided on April 24,2020

Yum! Restaurants (Marketing) Private Limited Appellant
VERSUS
COMMISSIONER OF INCOME TAX, DELHI Respondents




JUDGEMENT

A.M.KHANWILKAR, J. - (1.)The moot question involved in the present appeal bears upon the applicability of the doctrine of mutuality qua the assessee company, a fully owned subsidiary of Yum! Restaurants (India) Pvt. Ltd. (for short, "YRIPL"), formerly known as Tricon Restaurants India Pvt. Ltd., incorporated for undertaking the activities relating to Advertising, Marketing and Promotion (for short, "AMP activities") for and on behalf of YRIPL and its franchisees.
(2.)This appeal assails the final judgment and order dated 1.4.2009 passed by the High Court of Delhi at New Delhi (for short, "the High Court") in I.T.A. No. 1433 of 2008 wherein the question of taxability of Rs. 44,44,002/- (Rupees forty four lakhs forty four thousand two only), being the excess of income over expenditure for the Assessment Year 2001-02, was settled in favour of the Revenue and against the assessee, thereby confirming the orders of the Income Tax Appellate Tribunal (for short, "the Tribunal"), Commissioner of Income Tax (Appeals) [for short, the "CIT(A)"] and the Assessing Officer. The preceding forums, without any exception, have returned consistent verdicts refusing to acknowledge the assessee company as a mutual concern and denying any exemption from taxability.
(3.)The appellant company Yum! Restaurants (Marketing) Private Limited (for short, "YRMPL" or "assessee company" or "assessee") was incorporated by YRIPL as its fully owned subsidiary after having obtained approval from the Secretariat for Industrial Assistance (for short "SIA") for the purpose of economisation of the cost of advertising and promotion of the franchisees as per their needs. The approval was granted subject to certain conditions as regards the functioning of assessee, whereby it was obligated to operate on a non-profit basis on the principles of mutuality. The relevant clauses of the approval granted by the SIA for the aforementioned operations read thus:
"3. It is noted that the broad framework within which such subsidiary shall be managed and operated in India is as follows:

- The franchises and Tricon India will both make contribution of a fixed percentage of their respective revenues (net of taxes) to the proposed New Company on regular basis;

- The proposed New Company would be a non-profit enterprise governed by the principles of mutuality. No part of the contributions or other income shall enure to the benefit of any individual contributor;

- The contributors will be optimally used by the proposed new Company to economise the cost of advertising and promotion cater to the specific needs of franchisees to concentrate on restaurant operations and management;

- The management of the proposed New Company shall vest with Tricon India and application of contributions will be decided by Tricon India in consultation with the franchisee;

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- The approval is subject to the condition that the step down subsidiary would be a non-profit enterprise and would not be allowed to repatriate dividends."

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