Sec. 4 of Income-tax Act, 1961— Income—Assessee company was formed to manage business on behalf of the holding company and it was not contemplated as a non-business concern because operations integral to the functioning of a business were entrusted to it.

Facts: 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) (P) Ltd. , formerly known as Tricon Restaurants India (P) Ltd., incorporated for undertaking the activities relating to Advertising, Marketing and Promotion for and on behalf of YRIPL and its franchisees.

Held, that three conditions/tests to prove the existence of mutuality are that (i) Identity of the contributors to the fund and the recipients from the fund; (ii) Treatment of the company, though incorporated as a mere entity for the convenience of the members and policy holders, in other words, as an instrument obedient to their mandate, and; (iii) Impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves. The exclusive contract between the franchisees and Pepsi Foods Ltd. stands on an independent footing and YRIPL as well as the assessee company are not responsible for implementation of this contract. Resultantly, the first limb of the three-pronged test stands severed. The doCtrine of mutuality, in principle, entails that there should not be any profit earning motive, either directly or indirectly. The third test of mutuality requires that the purported mutual operations must be marked by an impossibility of profits and this crucial test is also not fulfilled in the present case. In the absence of any ambiguity, the terms of a contract are to be understood in their ordinary and natural sense, thus revealing the true intent of the contracting parties. The afore-quoted clause clearly points towards the fact that the assessee company was formed to manage business on behalf of the holding company. In its true form, it was not contemplated as a non-business concern because operations integral to the functioning of a business were entrusted to it. - YUM! RESTAURANTS (MARKETING) PRIVATE LTD V/s CIT - [2020] 315 CTR 037 (SC)