CA. Pramod Jain FCA, FCS, FCMA, LL.B, MIMA, DISA 19 th December 2014 - - PowerPoint PPT Presentation

• CA. Pramod Jain

FCA, FCS, FCMA, LL.B, MIMA, DISA

LUNAWAT & CO.

19th December 2014

Effective in parts – major since 1st April 2014

Huge Penalties & Prosecution Class Suit Actions Penalties even for late filings Even Board Resolutions to be filed Bringing in monies made tough Depreciation changes Internal Financial Controls Annual Returns and Directors Reports –

detailed

Importance of AS & SA Cash Flows and Consolidation

LUNAWAT & CO.

LUNAWAT & CO.

An Intro.

LUNAWAT & CO.

What is Limited Liability Partnership?

A body corporate formed & incorporated under

this Act

Is a legal entity separate from its partners. It shall have perpetual succession. It is liable to the full extent of its assets. However the liability of its partners would be

limited to their agreed contribution in the LLP.

No partner would be liable on a/c of independent

• r unauthorized actions of other partners, thus

allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

LUNAWAT & CO.

Name for incorporation LLP Agreement – First Schedule

• New Partner
• Vote
• Similar business
• Working - Remuneration

Conversion Partners

• Individual
• Body Corporate

Designated Partners – Min 2

LUNAWAT & CO.

Tangible

Moveable Immovable

Intangible Other benefit including:

Money Promissory notes Other agreements to contribute cash or property Contracts for services performed or to be performed

Contribution to be valued by practicing

CA / CWA / approved valuer from panel maintained by CG

LUNAWAT & CO.

LUNAWAT & CO.

The Process

LUNAWAT & CO.

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There is no security interest in its

assets subsisting or in force at the time of application; and

The partners of the limited liability

partnership to which it converts comprise all the shareholders of the company and no one else.

LUNAWAT & CO.

All shareholders to give consent Upto date filing of documents, B/S

and Annual Returns with ROC.

Upto date filing of Income Tax

• returns. Latest ITR copy to be filed

No prosecution initiated against or

show cause notice for alleged

• ffences under Companies Act

LUNAWAT & CO.

Confirmation of all unsecured

creditors

Statement of Assets and Liabilities

• f the company duly certified as

true and correct by the auditor.

Approval from any other

body/authority, if required

LUNAWAT & CO.

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• Property
• Pending proceedings
• Continuation of conviction,

ruling, order, etc.

• Existing agreement,

contracts

• Continuance of employment

LUNAWAT & CO.

• Notice of conversion to be made for

12 months from date of conversion in all official correspondence

• It has been converted from company to

LLP

• Name and CIN of erstwhile Co.
• Notify authority wherever its property

is registered of the conversion as soon as practicable

• Notify others

LUNAWAT & CO.

An Intro.

LUNAWAT & CO.

The Finance (No. 2) Act 2009 provided for taxation of LLP on same lines as that of Partnership firms

Partner Firm Partnership Firm "partner" shall include,— a partner of a LLP as defined in the LLP Act, 2008; "firm" shall include a Limited Liability Partnership as defined in the LLP Act, 2008 “partnership" shall include a Limited Liability Partnership as defined in the LLP Act, 2008 [Sec 2(23)) LUNAWAT & CO.

• Firm is a separate person under Income

Tax Laws

• Firm is not a legal person distinct from its

partners

• Malabar Fishers co vs. CIT (1979) 120 ITR 49 (SC)
• LLP is a legal person distinct from its

partners (LLP Act, 2008)

LUNAWAT & CO.

LLP assessable as Firm (184) Residential Status of LLP (6) Tax Rates of LLP Dividend Distribution Tax (DDT) Presumptive Taxation under section

44AD

Presumptive Taxation under section

44AE

Verification of return by designated

partner (in absence of designated partner by any partner) (140)

LUNAWAT & CO.

Where the regular income-tax payable is

less than the AMT payable, the adjusted total income shall be deemed to be the total income for such previous year and it shall be liable to pay income-tax on such total income at the rate of 18.5%.

ATI = TI + deduction U/C VIA – C (other

than 80P) + deduction u/s 10AA + 35AD

AMT credit for 10 years. Form 29C – to be certified by CA

LUNAWAT & CO.

LUNAWAT & CO.

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It should not be disallowed u/s 37(1) It should not be disallowed u/s 36(1)(iii) It should not be disallowed u/s 40(a)(i) It should not be disallowed u/s 40(b) i.e.:

• Such interest is authorised by and is in

accordance with LLP Agreement

• It is related to period falling on or after the date
• f such LLP Agreement
• It should be within limits specified in s. 40b(iv)

which is currently 12% p.a. simple interest.

LLP should comply with conditions u/s

184

LUNAWAT & CO.

ABC & Co. has one property from which it

receives rent, which is taxable u/h House property.

Partner's Capital is used to acquire the property. Interest as mentioned in P/D @ 12% was paid to

partners.

Is the interest allowed u/s 40b? Is it allowed u/s 24(b)?

Mata Vaishno Estates vs. ITO [2011-TIOL-647-ITAT-DEL]

Interest on revalution of assets credited to

Partner's A/c

ACIT vs. Sant Shoe Store (2004) 88 ITD 524 (Chd)

LUNAWAT & CO.

XYZ & Co. has tax free incomes. It pays interest to its partners Rs. 2

Lacs.

• S. 40(b) complied with.

AO makes disallowance of interest

u/s 14A of interest Rs. 1 Lacs

How much interest would be taxable

in hands of the partners?

Shankar Chemicals Works vs. DCIT (2011) 47 SOT 121 (Ahd)

LUNAWAT & CO.

Book Profit – how to be determined?

• Md. Serajuddin & Brothers vs. CIT [2012-ITRV-HC-KOL-171]
• Unabsorbed dep. – Vikas Oil Mill vs. ITO (2005) 95 TTJ (JP) 1126

Deposits Taxability of amounts received by partners of

LLP

Applicability of s. 14A on share of profit

received

• Vishnu Anant Mahanjan vs. ACIT [2012-ITRV-ITAT-AHD-115]
• Hoshang D. Nanavati [2011-ITRV-ITAT-MUM-082]

Liability of partners for tax dues of LLP (167C) Applicability of Accounting Standards Carry forward and set off of losses Wealth Tax

LUNAWAT & CO.

An Intro.

LUNAWAT & CO.

Sec 47(xiiib) – Conversion of a Private

Ltd company or a unlisted Public Ltd Company into a LLP exempt from capital gains if:

a) All A & L of Co become the A & L of LLP; b) The shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company; c) No consideration other than share in profit and capital contribution in the LLP arises to partners;

LUNAWAT & CO.

d) Erstwhile shareholders of company continue to be entitled to receive at least 50% of profits

• f the LLP for 5 years from date of

conversion; e) Turnover do not exceed Rs. 60 Lacs in any of 3 preceding yrs; f) No amount is paid, either directly or indirectly, to any partner out of the accumulated profits

• f the company for a period of 3 years from

the date of conversion.

LUNAWAT & CO.

Fifth Proviso to Sec 32(1)

Aggregate depreciation allowable to the predecessor company and successor LLP shall not exceed, the depreciation allowable as if the conversion had not taken place.

Explanation 13 to Sec 43 (1)

The actual cost of the block of assets in the case of the successor LLP shall be the NIL in case the predecessor company has been allowed deduction for capital asset u/s 35AD

LUNAWAT & CO.

Explanation 2C to Sec 43 (6)

The actual cost of the block of assets in the case of the successor LLP shall be the WDV of the block of assets as in the case of the predecessor company on the date of conversion.

Sec 47A(4)

If the conditions in section 47(xiiib) are not complied with, benefit availed by the company shall be deemed to be the profit

• f the successor LLP in the previous year

in which the requirements not complied.

LUNAWAT & CO.

Sec 49 (1)(iii)(e)

• The cost of acquisition of the capital asset for

the successor LLP shall be deemed to be the cost for which the predecessor company acquired it.

Sec 35DDA

• In case of conversion, amortization of expense
• n VRS shall continue in the hands of the

converted LLP as if there was no conversion.

Sec 72A(6A)

• Carry forward and set-off of business

loss/unabsorbed depreciation allowed to the successor LLP which fulfills the conditions u/s 47(xiiib) – fresh 8 yrs

Sec 115JAA

• The tax credit u/s 115JAA shall not be allowed

to the successor LLP.

LUNAWAT & CO.

LUNAWAT & CO.

A & B are partners in AB LLP A & B earns share of profit from AB LLP

• f Rs 2 Lacs each

B assigns his rights to share profits in the LLP to C Facts

Total A C Accounting profit:

• Rs. 4 Lacs

2 Lacs 2 Lacs

What is the taxability of Rs. 2 Lacs in the hands of B ? What is the taxability of Rs. 2 Lacs in the hands of C ? What rights does C have in AB LLP?

A B

AB LLP

50% 50%

C

assignment

LUNAWAT & CO.

A & B are partners in AB LLP C joins and contributes capital in the form of Plant & Machinery and Land

Facts Particulars Cost

• f C

Value LLP FMV Plant & Machinery 50 L 100 L 300 L Land 10 L 50 L 400 L

What is the taxability for C on transfer of Plant & Machinery? What is the taxability for C on transfer of land? What is relevance of valuation report prescribed under LLP Rules? What happens when later C exits and takes his land back?

A B

AB LLP

50% 50%

C

Contribution in form of assets

LUNAWAT & CO.

A & B are partners in the LLP in equal profit sharing ratio C & D are introduced as partners Revaluation of assets is carried out on reconstitution which is credited to capital accounts of A & B Partners A & B retire after a year from the LLP Their capital account is credited with their share in the LLP Facts of the case

What is the taxability of A & B on receiving their share in the LLP?

A B

AB LLP

Retirement of partner A & B C & D

LUNAWAT & CO.

ABC P. Ltd is converted into ABC LLP in AY 2013-14 The Co. apart from others had Shares and R&S

• f Rs. 3 Crs.

ABC LLP gave interest free loan of Rs. 50 Crs to partners in same proportion as shareholding in

• Co. on date of conversion in AY 2013-14 itself

ABC LLP sold shares as treated as LCTG AO treated the transfer taxable being voilative of proviso (c) & (f) to s. 47(xiiib) and applicability

• f section 47A(4)

LUNAWAT & CO.

Is transaction violating proviso (c) to s. 47(xiiib) – shareholders receiving something else than share in profits???

• No

Is transaction violating proviso (f) to s. 47(xiiib) – transfer of accumulated profits directly/indirectly?

• Yes

Is section 47A(4) applicable?

• No

Is transfer of assets from Co. to LLP taxable?

• Yes

What would be consideration on trf of shares?

• Book value
• Aravali Polymers LLP vs. JCIT 2014-ITRV-ITAT-KOL-088

LUNAWAT & CO.

LUNAWAT & CO.

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