TaxTMI 
TaxTMI 
2009 (4) TMI 3
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....cts with respect to the above case have been delineated in the connected appeal entitled Yum! Restaurant (India) Pvt Ltd vs CIT; being ITA No. 192/2009, which was heard alongwith the present appeal. Judgment was reserved in both the appeals. 3. Briefly, the parent company, that is, Yum! Restaurant (India) Pvt. Ltd (in short "YRIPL") formerly known as Tricon Restaurants India Pvt Ltd was incorporated on 17.03.1994. The YRIPL had a licence arrangement with Kentucky Fried Chicken International Holdings, Inc. (in short "KFC") and Pizza Hut International LLC (in short "PHILLC"). The YRIPL sought permission from the Government of India, Ministry of Industry, Department of Industrial Policy and Promotion, Secretariat for Industrial Assistance (SIA), Foreign Collaboration, for setting up a wholly owned step-down subsidiary to manage retail restaurant business, for advertising and promotion at local store level, regional level and national level. By a letter dated 05.10.1998, SIA granted approval to YRIPL to set up a step-down wholly owned subsidiary on the basis of a broad framework indicated by YRIPL. The broad framework being that the proposed new subsidiary company would be a non-pro....
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....ted under Article 7 of this Agreement) may, by a three fourth majority, which shall be binding on all franchisees of Tricon including the franchisee, require the franchisee to pay the advertising contribution in advance. For the avoidance of doubt it is clarified and agreed that while recommending advance payment of advertising contribution the chairman will not have a casting vote. Franchise will spend an additional 1% of Revenues, in the manner directed by Tricon and/or TRIM in writing from time to time, on such local store marketing, advertising, promotional and research expenditure proposed by franchisee and approved in advance by Tricon and/or TRIM during the relevant accounting period, in accordance with the requirements and guidelines set out in the manuals, provided that if franchisee fails to spend the full amount as directed by Tricon and/or TRIM franchisee will pay the unspent amount to TRIM within the period specified in a written demand from TRIM. Upon receipt of the unspent amount TRIM will spend the amount on regional and/or national advertising, promotions or research expenditure conducted by TRIM in its discretion......." 4.1 Tricon may at the request of TRIM, b....
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....6 EXPENDITURE Advertising, Marketing and Promotional 21256032 Expenditure Preliminary expenses 454992 Administrative and other expenses 190272 21901296 Excess of expenditure carried forward from the (124248) Previous year Excess of income/ (Expenditure) over 4444002 (expenditure)/income carried forwarded to the Balance sheet (included under current Liabilities)" 3.4 With the return the assessee-company had appended the notes broadly indicating that it was operating on principles of mutuality and on „no-profit" basis. The note further read that there was a complete identity between the contributors and the receipts of the fund, that is, the assessee-company. The assessee-company rendered services exclusively to the franchisees and that the franchisees had exclusive right over the surplus. The outlet of the franchisee did not derive any profit from the funds. The funds of the assessee-company could only be used for meeting expenses on their behalf or be returned to them. 4. The Assessing Officer examined the case laws and the details submitted by the assessee-company. The Assessing Officer after examining the contents of the SIA approval granted vide letter dated 05.10.....
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....by the assessee company M/s Pepsi Food Ltd's Marketing Contributions of Rs 32.70 lacs was received by YRIPL. All the above findings make it clear that the assessee company was not operating in terms with the SIA approval." "It was seen from the details of accrued marketing filed by the assessee company during the course of assessment proceedings u/s 143(2) of the Income Tax Act, 1961 in the case of M/s Yum! Restaurants India Pvt. Ltd pending before this office that not all the franchises are paying 5% of their revenues: e.g. M/s Devyani International Private Limited and Specialty Restaurants were paying contribution @ 4% instead of 5% as prescribed in the Tripartite agreement. All the participants to the so called brand fund or so called 'mutual concern' should have been contributing equally or an equal proportion. It is further seen that as for clause 3 of SIA letter as reproduced in para VI.1 of this order the franchisees and YRIPL were required to make contribution of affix (a fixed percentage) of their respective revenue. However, as per clause 4.1 of Tripartite operating agreement as reproduced in para VI.2 of this order YRIPL is under no obligations to payable any contributio....
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.... various franchisees contributions to the extent of 32.70 lacs had also been received from Pepsi Foods Ltd as also from YRIPL, who were neither franchisees nor beneficiaries. As per the tripartite agreement it noted that contributions were received from YRIPL, that is, the parent company which was not under any obligation to pay. Therefore the essential requirements of a mutual concern were missing. This was especially so that since Pepsi Food Ltd and YRIPL who was a contributor to the fund did not benefit from the APM activities. Thus the Tribunal held that the principles of mutuality being not applicable to the excess of income over expenditure was required to be taxed. 8. Having heard the learned counsel Mr C.S. Aggarwal, Sr. Advocate for the assessee-company and Ms Prem Lata Bansal for the Revenue we are of the view that the judgment deserves to be sustained. The principle of mutuality as enunciated by the Courts in various cases is applicable to a situation where the income of the mutual concern is the contributions received from its contributors. The expenses incurred by the mutual concerns are incurred from such contributions and hence on the principle that no man can do ....