In a major setback to the India franchise of KFC, Pizza Hut, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) has upheld an Income Tax addition of Rs. 3,91,94,260/-.
The assessee, a Yumi Pvt. Ltd. Company was performing a marketing function of the business of ‘Pizza Hut’, ‘KFC; and ‘Taco Bell’. The holding company of the assessee sells the Pizza and this company markets the Pizza. The company, for the relevant year, filed its return of income showing the surplus of income over expenditure amounting to Rs. 3,91,94,261/- and the same was adjusted against the excess spent of earlier years. Thus, the return of income was ‘NIL’. According to the assessee, this income is not chargeable to tax because of the principles of mutuality and because of diversion of income by overriding title. However, the Assessing Officer rejected this contention and made an addition against the assessee.
The Tribunal bench comprising Judicial Member Suchitra Kamble and Accountant Member Prashant Maharishi held that the assessee’s claim with respect to the income of the assessee not chargeable to tax because of principles of mutuality has already been decided by the Supreme Court in the assessee’s own case.
“The Hon’ble Supreme Court dismissed the appeal of the assessee. Thus, the income of the assessee is chargeable to tax, and the principle of mutuality does not apply,” the bench said.
“Before parting, considering the request of the ld. AR and also the agreement of the ld. DR on the same, we direct the ld. Assessing Officer that when this income of Rs. 3,91,94,260/- is held to be chargeable to tax, the assessee is principally entitled for benefit of set-off of any carry forward losses of earlier years if determined in accordance with the law. The assessee is directed to produce the relevant details before the ld. Assessing Officer, ld. AO may examine and consider the claim of the assessee, in accordance with the law,” the bench concluded.
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