NDLI: Yum! Restaurants (marketing) Private Limited Vs. Commissioner of Income Tax, Delhi

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Doctrines / Principles – Doctrine of mutuality – Applicability of qua assessee-appellant company
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Case(s) Referred	Referred Case 0 Referred Case 1 Referred Case 2 Referred Case 3 Referred Case 4
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Disposed Off
Headnote	Doctrines / Principles – Doctrine of mutuality – Applicabilityof, qua assessee-appellant company (YRMPL), a fully ownedsubsidiary of YRIPL, incorporated for undertaking activities relatingto Advertising, Marketing and Promotion (AMP activities) for andon behalf of YRIPL and its franchisees – Assessee was incorporatedby YRIPL as its fully owned subsidiary after approval from theSecretariat for Industrial Assistance (SIA) – Such approval wasgranted subject to conditions, inter alia, to operate on non-profitbasis on principles of mutuality – After SIA approval, assesseeentered into a Tripartite Operating Agreement with YRIPL and itsfranchisees, wherein assessee received fixed contributions to theextent of 5% of gross sales for proper conduct of advertising,marketing and promotional activities for mutual benefit of the parentcompany and the franchisees – For the Assessment Year underconsideration, assessee filed its returns stating the income to be“Nil” on ground of mutual character of the company – Whetherassessee-company qualified as a mutual concern in the eyes of law,thereby exempting subject transactions from tax liability – Held:There are three conditions/tests to prove the existence of mutuality– First test involves the test of common entity, and coterminous withit, the requirement of commonality of identity – The moment atransaction opens itself to non-members, either in the contributionor the surplus, the uniformity of identity is impaired and thetransaction assumes the taint of a commercial transaction – On facts,the purported mutual concern undertook a commercial venturewherein contributions were accepted both from the members as wellas non-members – With the interference of an alien entity, the ideaof conducting business with oneself was defeated and any profitsor gains accruing therefrom became subject to tax liability – Thus,doctrine of mutuality stood debunked with the failure of the firsttest – Nonetheless, the second test of obedience to mandate and thethird test of impossibility of profits were also contravened in thefactual scenario – The mandate of the assessee company was laiddown in the SIA approval wherein the twin conditions of mutualityand non-profiteering were envisioned as the sine qua non forfunctioning of assessee company – Contributions made by PepsiFoods Ltd. tainted the operations of assessee company withcommerciality and concomitantly contravened pre-requisites ofmutuality and non-profiteering – Third test of mutuality, whichrequires the purported mutual operations to be marked byimpossibility of profits, also not fulfilled in the present case – Onemember was vested with a myriad set of powers to control thefunctioning and interests of other members (franchisees), even totheir detriment – The only entity that could derive any benefit fromthe surplus funds was YRIPL, i.e. the parent company – This isantithetical to the third test of mutuality – Appellant accordinglyfailed to fulfil the stipulations and to prove the existence of mutuality– It did not operate as a mutual concern – Taxation – Exemption.Doctrines – Doctrine of mutuality – Doctrine of mutualitytraces its origin from the basic principle that a man cannot engageinto a business with himself.Words and Phrases – Word “mutual” – Meaning of – Held:The word “mutual” points towards reciprocity.Taxation – “Mutual concern” – Quintessence for the existenceof a mutual concern – Discussed – Words and Phrases.Interpretation of Statutes – Exemptions – Strict construction– Exemptions are to be put to strict interpretation.
Judge	Hon'ble Mr. Justice A.M. Khanwilkar
Neutral Citation	2020 INSC 353
Petitioner	Yum! Restaurants (marketing) Private Limited
Respondent	Commissioner Of Income Tax, Delhi
SCR	[2020] 11 S.C.R. 136
Judgement Date	2020-04-24
Case Number	2847

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