In Brief
Yum! Restaurants (Marketing) Private Limited, a wholly owned subsidiary incorporated to conduct advertising, marketing, and promotion for KFC and Pizza Hut franchisees, claimed tax exemption as a mutual concern under the doctrine of mutuality. The assessee argued that contributions from franchisees should not be taxable income because the fund was meant for mutual benefit. The Supreme Court held that the assessee failed to meet the three essential tests for mutuality: (1) Pepsi Foods Ltd., which was not a franchisee member, contributed but could not share in surplus, breaking the identity requirement; (2) YRIPL (parent company) had sole discretion to refuse contributions, violating the reciprocal obligation principle; and (3) franchisees had no enforceable right to surplus refunds, enabling YRIPL to derive indirect profits. The Court upheld the tax assessment of Rs. 44,44,002 as income taxable under the Income Tax Act, 1961.
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