Indian Kanoon - Search engine for Indian Law

A.Yr.2009-10 not having any business activity nor deriving any income and this was also the case in many more previous years.

In sum and substance,. it: is submitted that the appellant was not having source of income prior to A.Y 2009-2010. It was looking for avenues to earn income and steps were being taken by the appellant which is the matter of resolution of the Board of the appellant company as on 20th Feb 2008 placed at page 53 of the paper book. M/s Shalini Properties & Developers p Ltd. are substantial share holders of Dunlop India Limited and the appellant came to an understanding with M/s Shalini Properties & Developers P Ltd. that the latter would help and make all efforts to obtain the 'Dunlop' brand name in favour of the appellant from Dunlop India Ltd. and the appellant would be obliged to bear the SBLC charges to be paid to M/s Shalini Properties & Developers P Ltd. who, in turn, shall pay such charges to ICICI Bank, To this effect, Board of the appellant company passed resolution dated 12th March 2008. Board resolution dated 28th March 2008 was passed by the Board of the appellant which incorporated the agreement entered into by the appellant with Dunlop India Ltd for use of 'Dunlop' Brand and Logo. The Board's resolution also incorporated and thanked M/s Shalini Properties & Developed P Ltd for their efforts in obtaining the brand name from Dunlop India Ltd. and payment of SB Le charges as soon as Mls.Shalini Properties I & Developers P Ltd. requires the sum. Subsequently, when the loan was sanctioned by the ICICI Bank where M/s Shalini Properties & Developers P Ltd. was guarantor, another Board resolution was passed dated 28th of June 2008 for reimbursement of the SBLC charges to M/s Shalini Properties Developers P Ltd. 5.1.10 The A/R further argued that during the year, on use of the 'Dunlop' brand name and logo by way of royalty and SBLC charges the appellant had income of Rs.123643645/-. Not only this, the income earning apparatus of the appellant company being the brand name and logo 'Dunlop' has resulted in much higher income in the subsequent years. Only in respect of royalty income from the use of 'Dunlop' brand name and logo the jump in the royalty income is as under.-

M/s.Ruia Sons Pvt. Ltd.

A.Yr.2009-10 that the 'Dunlop' brand name was obtained on lease for a period of ten years by the appellant. It is also a fact that from thy use of the 'Dunlop' brand name, the appellant company has earned substantial income on account of royalty, service charges in the impugned Asst. Year and increasing in subsequent years. It is also illustrated in the chart given above that purely on royalty income-from use of the 'Dunlop' brand name in comparison to reimbursement of SBLC charges in three years, the income has outshown the expenses substantially putting the appellant company in a guided seat and showing the actual picture of the understanding with M/s Shalini Properties & Developers P Ltd. Dunlop India Ltd. is doing business of manufacturing of tyres and tubes and has been constantly in the news and for steps taken for revival of the same. Prior to the acquisition of Dunlop India Ltd. By the Ruia Group the same was a sick unit and subsequently it revived and came out from being a sick unit. The transaction of payments made by the appellant company of the SBLC charges, processing fees/finance charges by whatever name it may be called are a larger picture to the revival of the group company and mainly Dunlop India Ltd. which was to be starting production, up and in running. The arrangement made between the group companies, share holder company has resulted in business in these companies and giving rise to capital generation for benefit of Dunlop India Ltd, as a whole. So, it is incorrect to say that Dunlop India Limited has not been benefited from the finances obtained by Wealthsea Pte. Ltd .. in terms of which the appellant company has paid processing fee, SBLC charges to M/s Shalini Properties & Developers P. Ltd. who in turn has paid the same to ICICI Bank Ltd. . ' 5.1.12 One of the allegations of the Assessing Officer is that it is a colourful device which .resort to eat away the profit of the appellant company or diversion of the income. On the facts of the case, it seems to be unusual that at one instance the company would be earning income from utilization of resources from its group companies and on the other hand resort to a colourful device to eat away into the income. It is unusual because it is' not the case of the appellant company that the income is being earned from third party or it is a fixed income being earned from previous year and in order to eat: into such income a method or a resort is being adopted which is colourful in nature. Here, it is from the AN 2009-10 that the source of income has been generated and Board's resolution is absolutely clear as to the gamut of affairs of the appellant company and the involvement of M/s Shalini Properties & Developers Ld. is not in doubt. Even before the agreement was made between Dunlop India Ltd. and ;the appellant company for use of the 'Dunlop' brand name and logo, M/s Shalini Properties & Developers P. Ltd. had made an understanding with the appellant for providing of SBLC charges and once this fact is undisputed by the Assessing 'Officer, then there can be no question raised as to the colourful device or a method adopted to eat into the profit. A Board's resolution is no doubt an important piece of evidence and even though it is made by the Board of Directors, it has to be considered and taken cognizance of and cannot be brushed aside. The Supreme Court in the case of Union of India Vs Azadi Bacho Andolen 263 ITR 706 (SJ~) after considering the decision of the Supreme Court in the case of MacDowell 154 ITR 148 made a distinction between tax avoidance and tax planning. it was held:-

(i) M/s Shalini Properties &. Developers Pvt. Ltd. has arranged for lease of Dunlop Brand name, logo etc. in favor of the appellant company for the period of 10 years. As stated in the Board of Director meeting proceeding dated 12.03.2008 M'/s Shalini has agreed to arrange the brand name and logo of Dunlop in favor of the appellant provided the appellant under takes to pay SBLC charges. In the said board meeting the director decided that taking of Dunlop brand name on lease would result in substantial income to the appellant company hence the payment of SBLC charges would be in the interest of the company. In-the board meeting of the appellant company held on 28.03.2008 the board of director has resolved that payment made to M/s Shalini is quid pro quo for the assignment of the Dunlop brand name etc. The board 6fdirector in their board meeting on 28.06.2008' has agreed that SBLC charges are paid to M/s Shalini for their efforts in arranging the assignment of brand name and logo of Dunlop from Dunlop India Ltd. in favor of the appellant.

(ii) The Id AR has submitted that the appellant company has paid to M/s Shalini Properties & Developers Pvt. Ltd. and Dunlop India Ltd. Rs. 26,20,42,777/- up to F.Y. 2011-12 as SBLC and for 2011-12 as SBLC and for use of brand name. Whereas the appellant has earned Rs. 45,67,53,657/-up to said period by sub leasing Dunlop brand.

This shows that the decision of board of directors of appellant company to approach M/s Shalini Properties & Developers Pvt. Ltd. for assignment of Dunlop brand name and logo was a commercially prudent decision.