PUNE. CA. Pramod Jain LUNAWAT & CO. FCA, FCS, FCMA, LL.B, MIMA, DISA. 6 th December 2014

Transcription

1 PUNE CA. Pramod Jain FCA, FCS, FCMA, LL.B, MIMA, DISA 6 th December 2014 LUNAWAT & CO.

2 Close Merge Options Run Convert

3 An Intro. LUNAWAT & CO.

4 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 or 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.

5 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.

6 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

7 The Process LUNAWAT & CO.

8 Private Unlisted Pub. S. 56 S. 57 R. 39 R. 40 Sch. III Sch. IV

9 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.

10 All shareholders to give consent All shareholders to become partners and no one else Upto date filing of Income Tax returns and Annual Returns with ROC. Latest ITR copy to be filed No prosecution initiated against or show cause notice for alleged offences under Companies Act Confirmation of all unsecured creditors

11 Obtain DIN for DPs Name approval Form 1 Form 18 for conversion Form 2 along with statement of A&L Form 14 for conversion with ROC Co converted into LLP Form 3 for agreement

12 Property Pending proceedings Continuation of conviction, ruling, order, etc. Existing agreement, contracts Continuance of employment 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.

13 An Intro. LUNAWAT & CO.

14 The Finance (No. 2) Act 2009 provided for taxation of LLP on same lines as that of Partnership firms Firm "firm" shall include a Limited Liability Partnership as defined in the LLP Act, 2008 Partner "partner" shall include, a partner of a LLP as defined in the LLP Act, 2008; Partnership Firm partnership" shall include a Limited Liability Partnership as defined in the LLP Act, 2008 [Sec 2(23))

15 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)

16 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)

17 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

18 Relating to Applicability Based On Income Exempt u/s 10 MAT Companies Book Profit Excluded except 10(38) AMT Other than Cos Adjusted Total Income Excluded LTCG on invest. u/s 54EC MAT payable AMT not payable Indexation Benefit not available Benefit avilable Depreciation effect Applicable Not Applicable B/f or unabsorbed depreciation Allowed whichever is less Both allowed

19 It should not be disallowed u/s 37(1) It should not be disallowed u/s 40(a)(i) Should be paid to a working partner It is related to period falling on or after the date of such LLP Agreement LLP should comply with conditions u/s 184 It should be within the limits of s. 40(b)(v) Applicability of section 40 A (2) Deduction of remuneration even if not claimed

20 Such remuneration is authorised by and is in accordance with LLP Agreement Circular no. 739 dt Sood Brij & Associates vs. CIT [2011-ITRV ITRV-HC HC-DEL DEL-247] Durga Das Devki Nandan vs. ITO [2011-ITRV ITRV-HC HC-HP HP-067] CIT vs. Asian Marketing [2012-ITRV ITRV-HC HC-RAJ RAJ-131] Sood Bhandari & Co vs. CBDT (2012) 204 Taxman (P&H) What if HUF is partner through its individual representative? P Gautam & co. vs. JCIT (2011) 14 Taxman.com 79 (Ahd Ahd) ITAT

21 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 of 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

22 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 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)

23 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)

24 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

25 An Intro. LUNAWAT & CO.

26 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;

27 d) Erstwhile shareholders of company continue to be entitled to receive at least 50% of profits of 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 of the company for a period of 3 years from the date of conversion.

28 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

29 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 of the successor LLP in the previous year in which the requirements not complied.

30 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 on 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.

31

32 Facts A B C A & B are partners in AB LLP A & B earns share of profit from AB LLP of Rs 2 Lacs each 50% 50% assignment B assigns his rights to share profits in the LLP to C Total A C AB LLP 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?

33 A B 50% 50% AB LLP C Contribution in form of assets Facts A & B are partners in AB LLP C joins and contributes capital in the form of Plant & Machinery and Land Particulars Plant & Machinery Cost of C Value LLP FMV 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? LUNAWAT & CO.

34 A B C & D Facts of the case 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 AB LLP Retirement of partner Partners A & B retire after a year from the LLP Their capital account is credited with their share in the LLP A & B What is the taxability of A & B on receiving their share in the LLP?

35 ABC P. Ltd is converted into ABC LLP in AY The Co. apart from others had Shares and R&S of 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 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 of section 47A(4)

36 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? Is section 47A(4) applicable? Is transfer of assets from Co. to LLP taxable? What would be consideration on trf of shares? Yes No Yes Book value Aravali Polymers LLP vs. JCIT 2014-ITRV-ITAT-KOL-088

37

38 Legal Entity Perpetual succession No. of members Instrument Requirements Company Separate Yes OPC -1 Pvt-Mn2 Mx Pub-Mn3 Max NA MA to be reg. at ROC, Fees for filing all doc. LLP Separate Yes Min2 Max NA LLPA to be reg. at ROC, Fees for filing all doc. Filing fee Less than company.

39 Capital Requirement Directors Identity Names Flexibility of business Compliance & Penalties Company 1 Lac for Pvt. & 5 Lacs for Public Ltd. Cos. All directors to obtain DIN Regulated Regulated by MA & AA Very heavy in CA 2013 LLP Contribution as per LLPA Only DP to obtain DIN Regulated - other partnership names cannot be kept Regulated by LLPA Less as compared to Companies

40 Deposits Company Regulated by section LLP No regulation yet Listing Possible Audit Mandatory Shareholders No consent required for normal business operations Meetings Regulated by Companies Act Not possible Only if turnover >40 L or contribution 25 L Partners consent required as specified in LLPA Not mandatory - As per LLPA

41 Suffix Common Seal Authority in conduct of business Financials Company 'Limited' or 'Private Limited' Compulsory Individual director or member do not have any authority B/s, P/L to be filed with ROC LLP 'Limited Liability Partnership' or 'LLP' Optional Every partner has authority, unless the LLPA provides otherwise Statement of A/cs and Solvency to be filed

42 Company Rate of Tax 30% + 3% cesses. Surcharge 5% if income 1 10 Cr. 10% > 10 Cr. MAT / AMT MAT Applicable DDT 15% is payable u/s 115 O Method of Accrual only Accounting Remuneration No Limits (Except & Interest for Rem. - Pub Cos) NGOs Section 8 Companies LLP 30% plus 3% cesses. Surcharge 10% if income >1 Cr. AMT Applicable Not applicable Cash or Accrual Limits u/s 40b Not allowed

43 Financial Statements CSR Website compliances Independent Directors One Person Formations Type of Entities Company Prescribed formats Applicable, if required Nearly 17 Required in specified cases OPC Various - Small. Dormant, Producer Holding, Subsidiary LLP Not prescribed Not Applicable No compliance Not required Not Possible Only One - LLP

44 Company LLP Loan to Directors Not Possible No Restriction / Partners ROC Filings Heavy delay heavy penalties Only 2 mandatory Bringing in Money Heavy formalities No Restrictions PP, Right, etc 23, 42, 62 Making Compliances 186 No Restriction Investments Related Party Transaction Regulated 188 No regulation - 40A(2)(b) Auditor Only can audit 20 companies, penalties No restrictions

45 CA. Pramod Jain CA. Pramod Jain, Lunawat & Co