TMI Blog2009 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... s the "Tribunal") in ITA No. 3235/Del/2005 pertaining to assessment year 2001-02. 2. The only issue which arose in this case is with respect to the taxability of Rs 44,44,002/- being excess amount of income over expenditure. The said surplus had arisen on account of advertisement contributions received from the holding company of the assessee-company which remained unexpended. 2.1 The broad facts 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Effective Date, franchisee will pay the advertising contribution of 5% of Revenue for a particular month into the bank account of the brand fund established by TRIM by the 10th day of the following month. Details of the bank account of each brand fund set up by TRIM will be notified to franchisee by TRIM from time to time. Notwithstanding the aforesaid the executive committee of any Brand (constituted 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 fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves of the assessee-company; whereupon it was revealed that the assessee-company had an excess income over expenditure amounting to Rs 44,44,002/-. However, the gross total income had been declared as „nil". The income and expenditure account as recorded in the order of the Assessing Officer read as follows:- "INCOME Advertising contribution from franchises, Holding company and key associates 26469546 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 sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting advertising payable to YRIPL/assessee-company. For them it is single entity. They have not maintained any separate account of assessee-company. A few instances are discussed below....... ....The assessee-company was also informed about non submission of details by Pepsi Foods Ltd. vide order sheet entry 05.03.2004. It is pertinent to mention here that as per details of contributions filed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed judgment dismissed the appeal of the assessee-company after noting the facts of the case as well as the principle of mutuality invoked by the assessee-company to sustain its stand that the said excess of income over expenditure was not taxable. The Tribunal noted that in the present case the principle of mutuality was not applicable on account of the fact that apart from contributions received from 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 Ba ..... 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