TMI Blog2004 (3) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the appellant and M/s. BPL Limited was a sham transaction entered into for the purpose of claiming deductions wrongly." 2.1 The assessee is a part of BPL Group of Companies. During the year the assessee paid Rs. 600 lacs towards use of trade mark "BPL" to M/s. BPL Limited. The Assessing Officer held that 1/14th of such expenses is allowable in view of section 35A. Thus the Assessing Officer treated the expenses as capital in nature. Learned CIT(A) held that the transaction between the assessee and the BPL Limited is a sham transaction. Since the companies name itself is M/s. BPL Refrigerators Limited the assessee is entitled to use the word "BPL" in all its products, letter heads etc. The arrangement is designed to serve the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights and not to trademarks, and that further, for the provisions of section 35A to apply the amount spent must be capital in nature, i.e., an outright acquisition. The payment was neither a capital sum, nor was spent for the acquiring same is an admissible revenue expenditure, for permission to use the trademark for a limited period of ten years. 2.3 Learned D.R. Mr. Amitabh Kumar submitted that even without this arrangement the assessee was using the logo "BPL" in it correspondence etc. The name itself suggests that the word "BPL" is available to assessee even without entering into any agreement for use of such trademark. Thus the entire transaction is a sham transaction and accordingly the order of learned CIT(A) needs to be upheld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, this would have been a violation of section 29 of the 'Trades and Merchandise Marks Act. If the revenue were to consider that a disallowance is called for because the transactions are between closely connected parties, such a disallowance could have been made only of the excess paid over the fair market value payable in an arm's length transaction by invoking provision of section 40A(2). Revenue has not made out any case that in an arm's length transaction, the fair market value of the right to use the trademark for a period of ten years could be determined as Nil. Only a determination of the value at NIL could justify disallowance of the entire payment. As it has not been demonstrated that the fair market value of the trademark was any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a transaction of non-payment would in fact have been a sham transaction designed to avoid tax, as the transaction of payment of licence fee was beneficial to revenue. The CIT(A) therefore erred in coming to the conclusion that the transaction is an artificial device or a sham for the avoidance of tax, whereas the transaction in fact results in a higher tax liability for the group as a whole; this itself would go to prove that the transaction cannot be a sham. 3.3 It may be useful to refer the Hon'ble Madhya Pradesh High Court was in CIT v. M.B.Umbrella Industries [1984] 145 ITR 292. In the said case the assessee paid a sum of Rs. 25,001 per year for use of trademark without acquiring the same. The agreement was for a limited period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation though the assessee has not been selling the covers as such to anybody. In the present case also though some parts are used in manufacture of washing machine, vacuum cleaners, etc. yet these parts arc manufactured by assessee itself. These parts are admittedly rubber and plastic goods. Thus the moulds used in manufacture of such rubber and plastic goods are to be held as used in rubber and plastic goods factories. There need not be a separate and distinguishable factory for production of such items and the moulds need not be used in such separate factory. Once the moulds are used for manufacture of rubber and plastic goods parts though in a composite factory manufacturing washing machine, vacuum cleaners, etc., the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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