THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (Set up by an Act of Parliament)

BELGAUM BRANCH OF ICAI ISSUE 4 | APRIL 2019 | PAGES 08 E-NEWS LETTER

OFFICE BEARERS

CA. Jaykumar N. Patil

Chairman

CA. Satish M. Mehta

Vice Chairman

CA Nitin R Nimbalkar

Secretary

CA. Rahul V. Adake

Treasurer

CA M S Tigadi

SICASA Chairman

Respected Members, It gives me immense pleasure to address you through this our Third E-News Let-ter. I appreciate the constant efforts of News Letter committee for bringing out the News Letter regularly with valuable additions of knowledge. The Bank Audit Seminar conducted in March month witnessed good success. For Celebration of International Women’s Day, we received overwhelming response from our members. I convey my sincere thanks to all members & students who have attended these Programs. I am very much happy to inform you that, as penned & informed earlier, the GST Certificate Course at Belgaum will be organized in the month of May & June 2019. I request members to register for this course & get benefited. As I penned in my previous address to you, the Oral Coaching Classes have commenced and the Oral Coaching Class Committee needs to be applauded for their gesture to share their knowledge among the students. In the road map of achieving higher stan-dards for our branch, Suggestions for Pre-Budget Memorandum are invited from members. I hereby request the members to give their suggestion for this Pre-budget Memorandum in both areas of Direct Taxation & Indirect taxation. It also gives me immense pleasure to in-

form you that our branch has secured

permission from SIRC for conducting Re-

gional Residential Conference at Goa on

21st, 22nd & 23rd June 2019. The details

will be shared shortly. We request all the

members to block these dates and

Our Profession... Our Pride...

participate in this conference with family. Its time for festival of democracy in India. The election Commission has announced the Holding of general Elections for 17th Lok Sabha. It is the biggest democratic election in the world. Being a partner in nation-building, we Chartered Account-ants have an important role to play in this mega exercise. The first and best way of participating in the process of na-tion-building is to go out and vote. Elec-tions remind us not only of the rights but the responsibility of citizenship in a de-mocracy. For us, regardless of who wins, election is a time for new hopes and new approaches. The roadmap of success for branch for this year needs your active support and suggestions. I request your suggestions also, if any, for achieving the goals that we have set for ourselves. The New financial year has begun & hereby I convey my best wishes to achieve grand success in the coming year. Thanking You. Sincerely Your CA Jayakumar N Patil. Chairman Belgaum Branch of SIRC of ICAI

Ya Aeshu Suptaeshu Jagruti

and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP. [Section 2(1)(o)]

• “Partner” in relation to an LLP means a person who becomes a partner in an LLP in accordance with the LLP agreement. [Section 2(1)(q)]

NATURE OF LLP LLP is a – • “body corporate” formed and incorporated under LLP Act; • legal entity separate from its partners and has perpetual succes-

sion. The LLP, unlike a partnership firm, has contractual capacity and can enter into contracts, hold property in its name and can sue and be sued in its name.[Sections 3(1) & (2)]

Two or more partners are required to form an LLP. Any individual or a body corporate can be a partner in an LLP. In case if individual is a partner, he should not be – found to be of unsound mind; or an un-discharged insolvent; or a person who has applied to be adjudi-cated as insolvent and the application is pending If the number of partners of an LLP falls below two and the LLP carries on business for more than six months, the only partner in such case shall be liable personally for the obligations of LLP in-curred during that period. [Sections 5 and 6]

DESIGNATED PARTNERS [SECTION 7] LLP shall have at least two “designated partners” [DP] who are

individuals and at least one of them shall be “resident in India”. In case one or more of the partners of an LLP are bodies corporate at least two individuals who are partners of such LLP or nominees of such bodies corporate shall act as “designated partners”.

• “Resident in India” means a person who has stayed in India for minimum 182 days during the immediately preceding 1 year.

Designated partner is responsible for compliance with the provi-

sions of LLP Act. Designated Partner is required to obtain Directors Identification

Number [DIN] from the Central Government. Application for allotment of DIN needs to be submitted online on

the LLP website along with the necessary proof duly attested and certified as prescribed.

Particulars of Individual who have consented to act as DP have to be filed with the Registrar in e-form 4 by the LLP within 30 days of his appointment. In case of incorporation, the individual consenting to act as Partner or DP shall be required to file the consent in e-form2.

An LLP may appoint a DP within 30 days of a vacancy arising for any reason and if no DP is appointed, or if at any time there is only 1 DP, each partner shall be deemed to be a DP.

INCORPORATION OF LLP [SECTIONS 11 TO 21] Procedure for incorporation of LLP is similar to the procedure for incorporation of a company under the Companies Act, 2013. Applicants are first required to file the application for reserva-tion of name with the Registrar of Companies [ROC].

Limited Liability Partnership Act, 2008 [LLP Act]

With the growth of Indian economy, the role played by its entre-preneurs as well as its technical and professional manpower has been acknowledged internationally. In this background, a need was felt for a new corporate form that would provide an alterna-tive to the traditional partnership which exposes its partners to unlimited personal liability and a statute based governance struc-ture of limited liability companies. Limited Liability Partnership [LLP] is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organising their internal structure as a partnership based on a mutually arrived agreement. LLP form is expected to enable entrepreneurs, pro-fessionals and enterprises providing services of any kind or en-gaged in scientific and technical disciplines, to form commer-cially efficient vehicles suited to their requirements. With this background, Limited Liability Partnership Act, 2008 [LLP Act] was enacted on January 7, 2009. Subsequently, Government of India [GOI] notified various pro-visions of LLP Act on 31st March, 2009. GOI has, on April 1, 2009, also notified the Limited Liability Partnership Rules, 2009 [LLP Rules] in respect of registration and operational aspects under the LLP Act. MCA has notified Limited Liability Partner-ship (Amendment) Rules, 2012 making amendments in process of incorporation and integration of LLP system with MCA with new e-forms.

KEY DEFINITIONS • “Body Corporate” is defined to mean a company as defined

under the Companies Act, 1956 and includes LLP, LLP incor-porated outside India, a foreign company but does not include a corporation sole, a registered co-operative society and any other body corporate notified by the Central Government (not being a company defined under the Companies Act, 1956 or LLP defined under LLP Act). [Section 2(1) (d)]. Circular 13/2013 dated 29-7-2013 clarifies that an HUF/ its Karta is not covered under the definition of Body Corporate and can-not be appointed as Designated Partner.

• “Business” includes every trade, profession, service and occu-pation. [Section 2(1)(e)]

• “Financial Year”, in relation to LLP, means the period from 1st April of a year to the 31st March of the following year. However, in case of LLP incorporated after 30th September, financial year may end on 31st March of the year next follow-ing that year. [Section 2(1)(l)]

• “Foreign Limited Liability Partnership” means a LLP formed, incorporated or registered outside India which establishes a place of business within India. [Section 2(1)(m)]

• “Limited Liability Partnership” means a partnership formed and registered under LLP Act. [Section 2(1)(n)]

• “Limited liability partnership agreement” means any written agreement between the partners of LLP or between the LLP

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• Cessation of a partner on grounds like resignation, death, dis-solution of LLP, declaration that a person is of unsound mind, declared/applied to be adjudged as insolvent, etc. will not be effective unless — the person has notice that the partner has ceased to be so; or notice of cessation has been delivered to ROC.

The notice of cessation may be filed by the outgoing partner if he has reasonable cause to believe that LLP has not filed the said notice. CONTRIBUTION BY PARTNER [SECTIONS 32 AND 33] A contribution of a partner to the capital of LLP may consist of any of the – • Tangible, movable or immovable property • Intangible property • Other benefit to the LLP including money, promissory notes,

contracts for services performed or to be performed. The obligation of a partner for the contribution shall be as per the LLP agreement. Creditor, which extends credit or acts in reliance on an obliga-tion described in the LLP agreement, without the notice of any compromise made between the partners, may enforce the origi-nal obligation against such partner. AUDIT/FINANCIAL DISCLOSURES [SEC 34 AND 35] LLP shall maintain the prescribed books of account relating to its affairs on cash or accrual basis and according to the double entry system of accounting. The accounts of every LLP are required to be audited, except in following situations: • Turnover does not exceed ₹ 40,00,000 in any financial year;

or • Contribution does not exceed ₹ 25,00,000 • Central Government has powers to exempt certain class of

LLP from requirement of compulsory audit. LLP are required to file following documents with the ROC • Statement of Account and Solvency (e-Form 8), within 30

days from the end of 6 months of the financial year; • Annual Return (e-Form 11) within 60 days from the end of the

financial year

COMPOUNDING OF OFFENCES [SECTION 39 AND RULE 41] Rule 41(1) of the LLP Rules, 2009 prescribes that every applica-tion for compounding of offences shall be made in Form 31, which is to be filled and submitted to the Registrar, who shall forward it to the Central Government. Rule 41(4) further pro-vides that when an offence has been compounded u/s. 39 of the LLP Act, 2008, An intimation in Form 22 shall be filed before the Registrar within 7 days from the date of such compounding.

Once the name applied is approved by the ROC, the documents for incorporation of LLP need to be filed within 3 months from the date of issue of letter for approval for reservation of name of the proposed LLP.

Name of every LLP shall end with the words “Limited Li-ability Partnership” or “LLP”. Name which is undesirable or nearly resembles to that of any other partnership firm or LLP or any body corporate or trade mark, is not allowed.

Any entity (body corporate/registered partnership firm) which has a name similar to the name of LLP which has been incorporated subsequently may seek change of name of such LLP through ROC within 24 months from date of registration of such LLP.

No person shall carry on business under any name/title which contains the words “Limited Liability Partnership” or “LLP” without duly incorporating it as LLP under the LLP Act.

PARTNERS AND THEIR RELATIONS AND EX-TENT OF LIABILITY [SECTIONS 22 TO 31] • LLP is required to file with the ROC, the LLP agreement rati-

fied by all the partners within 30 days of incorporation of LLP. • Mutual rights and duties of partners of an LLP inter se and

those of the LLP and its partners shall be governed by an agreement between the partners, or agreement between the LLP and its partners. In absence of any such agreements, the mutual rights and duties shall be governed by the LLP Act. Every partner of an LLP is, for the purpose of the business of LLP, the agent of LLP, but not of other partners.

• LLP, being a separate legal entity, shall be liable to the full extent of its assets whereas the liability of the partners of LLP shall be limited to their agreed contribution in the LLP. LLP is not bound by anything done by a partner in dealing with a per-son if –

• the partner in fact has no authority to act for the LLP in doing a particular act; and

• the person knows that he has no authority or does not know or believe him to be a partner of the LLP

• LLP is liable if the partner of an LLP is liable to any person for wrongful act/omission on his part in the course of business of LLP/with its authority.

• Obligation of LLP whether arising in contract or otherwise, shall solely be the obligation of LLP. Liabilities of LLP shall be met out of properties of LLP.

• Partner is not personally liable for the obligations of LLP solely by reason of being a partner of LLP.

• No partner is liable for the wrongful act or omission of any other partner of LLP, but the partner will be personally liable for his own wrongful act or omission.

• The liability of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP. Similarly, if the partners/ designated partner/employees of LLP who conduct the affairs of LLP in a fraudulent manner, shall be liable to compensate to any person who has suffered loss or damage by reason of such conduct .

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• there is no security interest in its assets subsisting or in force at the time of application for conversion; and

• all the shareholders of the company become partners of LLP and no one else

For conversion of firm/private limited company/unlisted pub-

lic company into LLP, the partners of the firm/share holders of company are required to file a statement and incorporation docu-ments in the prescribed form with the ROC.

On receiving the documents for conversion, ROC shall regis-ter the documents and issue certificate of registration specifying the date of registration as LLP. Upon registration by ROC, LLP shall intimate Registrar of Firm [ROF]/ROC, as the case may be, about conversion within 15 days of registration.

On and from the date specified in the certificate of registra-tion issued by ROC — all tangible (movable/immovable) & in-tangible property, liabilities, interest, obligation, etc. relating to the firm/private limited company/unlisted public company and the whole of the undertaking of the firm/private limited com-pany/unlisted public company, shall be transferred to and shall vest in the LLP without further assurance, act or deed. Firm/private limited company/unlisted public company shall be deemed to be dissolved and removed from the records of ROF/ROC, as the case may be.

Circular No. 09/2013 dated 30-4-2013 clarifies that the provi-sions of sections 55 and 58 of the LLP Act, 2008 read with Sec-ond Schedule thereto, inter alia, provide for requirements in respect of conversion of a single partnership firm into a single LLP and does not provide for conversion of two or more firms into a single LLP.

If any property/rights, etc., of the partnership firm/private limited company/unlisted public company is registered with any authority, LLP shall take steps to notify the authority of the con-version.

Upon conversion, following things/events in favour of or against the firm/private limited company/unlisted public com-pany on the date of registration may be continued, completed and enforced by or against the LLP: • all proceedings, conviction, ruling, order or judgment of any

Court, Tribunal or other authority pending in any Court or Tribunal or before any authority on the date of registration every agreement irrespective of whether or not the rights and liabilities thereunder could be assigned, deeds, contracts, schemes, bonds, agreements, applications, instruments and arrangements every contract of employment appointment in any role or capacity any approval, permit or licence issued under any other Act, etc.

• In case of a firm, every partner of a firm which is converted into an LLP shall continue to be personally liable (jointly and severally with LLP) for the liabilities and obligations of the firm incurred prior to the conversion or which arose from any contract entered into prior to the conversion. In case any such partner discharges any such liability or obligation he shall be entitled (subject to any agreement with the LLP to the con-trary) to be fully indemnified by LLP in respect of such liabil-ity or obligation.

ASSIGNMENT & TRANSFER OF PARTNER-SHIP RIGHTS [SECTION 42] The rights of a partner to a share of the profits and losses of the LLP and to receive distribution in accordance with the LLP agreement are transferable, either wholly or in part. However, such transfer of rights does not cause either dissociation of the partner or a dissolution and winding up of the LLP. Such trans-fer of right, shall not, by itself entitle, the assignee or the trans-feree to participate in the management or conduct of the activi-ties of the LLP or access information concerning the transactions of the LLP. FOREIGN LLP [SECTION 59 AND RULE 34] • On establishment of a place of business in India, foreign LLP

are required to file prescribed documents for Limited Liability Partnership Act, 2008 [LLP Act] registration with ROC within 30 days of the establishment in India.

• Any alteration in the constitution documents, overseas princi-pal office address and partner of foreign LLP are required to be filed with the ROC in the prescribed form within 60 days of the close of the financial year.

• Any alteration in the certificate of registration of foreign LLP, authorised representative in India and principal place of busi-ness in India are required to be filed with the ROC in the pre-scribed form within 30 days of alteration.

• Foreign LLP ceasing to have a place of business in India, are required to give notice to ROC in the prescribed form within 30 days of its intention to close the place of business and from the date of such notice, the obligation of Foreign LLP to file any document with the ROC shall cease, provided it has no other place of business in India and it has filed all the docu-ments due for filing as on the date of the notice.

CONVERSION OF PARTNERSHIP FIRM/PRIVATE COMPANY/ UNLISTED PUBLIC COMPANY INTO LLP [SECTIONS 55 TO 58, SECOND, THIRD AND FOURTH SCHEDULES] GOI has, on May 22, 2009, notified provisions relating to con-version of – • A partnership firm as defined under the Indian Partnership

Act, 1932 into LLP; • A private limited company into LLP; • An unlisted public company into LLP. Second, Third and Fourth Schedules to the LLP Act contain pro-visions relating to conversion of a partnership firm into LLP, a private limited company into LLP and unlisted public company into LLP, respectively. Eligibility for conversion: Firm into LLP: Firm can be converted into LLP if all the part-ners of firm become the partners of LLP and no one else. Company into LLP: Private limited company/unlisted public company can be converted if and only if -

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winding up for its applicability to winding up of LLP under the LLP Act. Subsequently, on 30th March, 2010, issued Limited Liability Partnership (Winding Up and Dissolution) Rules, 2010.

OTHER PROVISIONS LLP Agreement The LLP agreement regulates the working of an LLP as it contains the main objects, rules and regulations of the functioning the LLP similar to the Partnership Deed in case of a Partnership Firm and MOA and AOA in case of a Company, it has the flexibility to change from time to time after following due procedure laid down in the Act. In case no agreement is entered into, the provisions of the First schedule to the LLP Act will become applicable. Features of an LLP Agreement: The LLP agreement being the sole document which regulates the functioning of the LLP, should be drafted after taking into consideration all the aspects of the purpose of the formation of the LLP. It should ideally include 1. Objects 2. Registered Address 3. Contribution 4. Mode of Contribution 5. Changes in Contribution 6. Sharing of Profit and/or Loss 7. Remuneration 8. Designated Partners and their Rights and Obligations.

Rights and Obligations of Partners 9. Management of LLP 10. Admission, Retirement, Expulsion or death of Partner 11. Assignment of Financial Interest 12. Meetings and minutes 13. Loans from Partners, if any 14. Non-Compete Clause, if any 15. Banking, Accounts and Audit 16. Restrictions on Partners 17. Amendments to Agreement 18. Indemnity Clause 19. Winding up 20. Resolution of Disputes Due care to be taken to include all relevant points, in order to enable the orderly function of the LLP and to ensure transparency in the working of the LLP and to avoid ambiguities amongst the partners. First Schedule If LLP Agreement is silent on any of the matters covered in the First Schedule, then provision of the First Schedule shall apply in relation to those matters. The First Schedule shall also apply, in the absence of an agreement. • All partners entitled to share equally in the Capital and Profits/

losses • Indemnity Clause • All Partners entitled to take part in management • No partner entitled to remuneration • No new partner can be introduced without consent of all partners • All decisions with majority of partners consent • Minutes to be recorded within 30 days and all decisions recorded • Render True Accounts • Non-Compete Clause • Partners cannot be expelled by majority unless prior agreed.

• For a period of 12 months commencing on or before 14 days from the date of registration, LLP shall ensure that every official corre-spondence of LLP bears the following:

1. A statement that it was, as from the date of registration, con-verted from a firm/private limited company/unlisted public company into LLP; and

2. The name and registration number, if applicable, of the firm/a private limited company/an unlisted public company from which it was converted.

COMPROMISE, ARRANGEMENT OR RECON-STRUCTION OF LLPs [SECTIONS 60 TO 62] • Provisions have been made in the LLP Act for allowing a com-

promise and arrangement including mergers and amalgamations. • Compromise and arrangement can be between an LLP and its

creditors or between an LLP and its partners. • If majority representing 3/4th in value of creditors or partners, at

the meeting, agree to compromise or arrangement shall, if sanc-tioned by National Company Law Tribunal [NCLT] be binding on all the creditors, all the partners and LLP. NCLT to pass order subject to disclosure of all material facts/latest financial position and pendency of investigation proceedings.

• NCLT order shall be filed with the ROC within 30 days, in order to be effective.

• Limited Liability Partnership Act, 2008 [LLP Act] • In case of scheme of the amalgamation, NCLT shall pass order

only on receipt of report from the ROC that the affairs of the LLP (transferor LLP) have not been conducted in the manner prejudi-cial to the interest of the partner/public.

WINDING-UP OF LLP [SECTIONS 63 TO 65] LLPs may be wound-up either voluntarily or by National Compa-nies Law Tribunal (NCLT). Voluntary Winding Up (Part III of LLP Winding Up & Dissolution Rules, 2012) LLP may be wound up voluntarily if the resolution to wind up is approved by 3/4th of the partners and after following the procedure prescribed under Part III of the LLP Winding Up & Dissolution Rules, 2012. Winding up by NCLT LLP decides to be wound up by NCLT; • Number of partners is reduced below 2 for a period of more than

6 months; LLP is unable to pay its debts; • LLP has acted against the interests of the sovereignty and integ-

rity of India, the security of the State or public order; • LLP has defaulted in filing Statement of Account and Solvency or

annual return with the ROC for 5 consecutive financial years; or • NCLT is of the opinion that it is just and equitable that the LLP be

wound up. In January 2010, MCA had notified that certain provisions relating to winding-up of a company under the Companies Act, 1956 will also be applicable to an LLP. The notification also provides details of modification in the provisions of the Companies Act relating to

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• The shareholders of the company do not receive any considera-tion or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the LLP. The aggregate of the profit sharing ratio of the shareholders of the company in the LLP shall not be less than 50%, at any time dur-ing the period of five years from the date of conversion.

• The total sales, turnover or gross receipts in business of the com-pany, in any of the three previous years preceding the previous year in which the conversion takes place does not exceed ₹ 60 lakh. The total value of assets of the company as per the books of account, in any of the three previous years preceding the previous year in which the conversion takes place does not exceed ₹ 5 crore. No amount is paid, either directly or indirectly, to any part-ner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.

• Conversion of Company within compliance of Section 47(xiiib) of the Income tax Act,1961 shall permit the following:

Carry forward of losses and depreciation allowances. Opening WDV of resultant LLP for the purpose of deprecia-tion shall be closing WDV of firm or company as the case may be.

• Non-compliance of any of the provisions of the Section 47(xiiib) of Income tax Act, 1961 shall attract tax liability in the hand of resultant LLP and/or shareholder in the year of default [Section 47A (4) of Income-Tax Act, 1961.

MISCELLANEOUS PROVISIONS • A partner of an LLP has the same rights and obligations with

respect to any money lent or other transactions with LLP as a person who is not a partner. [Section 66]

• The Central Government has been empowered to apply any of the provisions of the Companies Act, 1956 to LLPs with suitable changes or modification. [Section 67]

• ROC may strike off the name of an LLP from the register of LLP if LLP is not carrying on business or its operation, in accordance with the provisions of LLP Act in the manner prescribed. [Section 75]

• Forms/documents required to be filed under the LLP shall be filed in electronic form online on the LLP portal duly authenticated by the partner/designated partner with a digital signature and further attested by the practising chartered accountant/company secre-tary/cost accountant whenever required. [Section68]

• Presently all the provisions of the LLP Act, other than those relat-ing to winding-up and dissolution of LLP and appellate provisions to be exercised by NCLT and National Company Law Appellate Tribunal [NCLAT], have been brought into force.

• Where an offence under LLP Act committed by an LLP is proved, then the LLP/partner shall be guilty of the offence and shall be liable to be proceeded against and punished accordingly. [Section 76]

• Till the constitution of NCLT and NCLAT under the Companies Act, 1956, the powers of NCLT and NCLAT will be exercised by the Company Law Board or High Court as is specified in the LLP Act. [Section 81] Unless specifically provided, the provisions of the Indian Partnership Act, 1932 are not applicable to LLPs. [Section 4].

Foreign Direct Investment in LLP Foreign Direct Investment in LLPs is allowed in those sectors/activities where 100% FDI is allowed, through the automatic route except the following • Sectors eligible to accept 100% FDI under automatic route but are

subject to FDI-linked performance related conditions (for exam-ple minimum capitalisation norms applicable to 'Non-

• Banking Finance Companies' or 'Development of Townships, Housing, Built-up infrastructure and Construction- development projects', etc.); or

• Sectors eligible to accept less than 100% FDI under automatic route; or

• Sectors eligible to accept FDI under Government Approval route; or

• Agricultural/plantation activity and print media; or • Sectors ineligible to accept FDI i.e., any sector which is prohib-

ited under extant FDI policy. Eligible investors for FDI in LLP: A person resident outside India or an entity incorporated outside India shall be eligible investor for the purpose of FDI in LLPs. However, the following persons shall not be eligible to invest in LLPs: • a citizen/entity of Pakistan and Bangladesh or Limited Liability

Partnership Act, 2008 [LLP Act] • a SEBI registered Foreign Institutional Investor (FII) or • a SEBI registered Foreign Venture Capital Investor (FVCI) or • a SEBI registered Qualified Foreign Investor (QFI) or • a Foreign Portfolio Investor registered in accordance with Securi-

ties Exchange Board of India (Foreign Portfolio Investors) Regu-lations, 2014 (RFPI).

Income Tax Provisions relating to LLP • LLP is included in the definition of the firm in the Income Tax

Act, 1961 and accordingly income tax of LLP shall be in line with that of a firm. Accordingly, profit will be taxed in the hands of LLP and not in the hands of partners.

• Partners Shares to be exempt u/s. 10(2A). • The Income Tax Returns and Wealth Tax Returns shall be signed

by the Designated Partner duly authorised by the LLP. • Conversion of a partnership firm established under Indian Partner-

ship Act, 1932 to LLP shall not attract any capital gain tax liabil-ity.

• Conversion of Private companies and unlisted Public companies to LLP shall not attract capital gain tax liability in the hands of LLP and shareholder subject to compliance of the provisions of Section 47(xiiib) of Income tax Act, 1961.

• No Tax on conversion of Firm to LLP if all partners continue to be partners in LLP and all rights and obligations are the same.

• Provisions of Section 47(xiiib) of the Income-tax Act,1961, to be applicable in case of Conversion of Private Limited and Unlisted Company to LLP, as under

• All the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the LLP.

• All the shareholders of the company immediately before the con-version become the partners of the LLP and their capital contribu-tion and profit sharing ratio in the LLP are in the same proportion as their shareholding in the company on the date of conversion .

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Further Circular No. 09/2013 dated 30-4-2013 clarifies that if a CA audit firm, being an auditor in a Company under the Compa-nies Act, gets converted into an LLP after complying with the relevant provisions of the LLP Act, then such an LLP, in accor-dance with the provisions of section 58(4)(b) of the LLP Act would be deemed to be the auditor of the said company. The relevant appointee company may take note of such change in status of the auditor through a resolution of the Board.

GENERAL LLP Help Desk In addition to existing MCA21 Help Desk Facilities, the users can also contact the existing LLP Help Desk at llpsupport- mca@nic.in and Phone No. 011-6633 6666. Chartered Accountant Firms forming LLP As per the Circular No. 30A/2011 on 26-5-2011 issued by the Ministry of Corporate Affairs, LLP of Chartered Accountants will not be treated as body corporate for the limited purpose of Section 226(3)(a) of the Companies Act,1956. Accordingly, LLP of Chartered Accountants can be appointed as auditors of a com-pany.

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Also, it is not taxable in the hands of legal heir as the unutilized portion represents only the estate of the deceased and does not have the character of in-come. You can withdraw the money by complying with the necessary formalities and need not have to satisfy the conditions of section 54F which your father might have complied with, if he had not died. The amount so withdrawn has no resemblance of income and, hence, no income tax implication would follow. Q. We are doctors practicing in a particular

town and have formed an association meant for

our welfare. As per the scheme envisaged by the

association, each member had to pay Rs. 1000

on the demise of any one member. The amount

so collected was handed over to the bereaved

family members. To ensure the availability of

funds, we mobilized Rs. 5000 from each member

and kept them in fixed deposit with a bank for

meeting eventuality for 5 such events Our tax

counsel says that the principle of mutuality will

not apply as the amount paid was not to the

contributor but to the bereaved family members.

Please advice.

A. From the facts stated by you, I understand that

the association was formed for the welfare of mem-

bers and was not meant for any 'charitable purpose'

as defined in section 2(15) of the Act. Further, from

the facts I understand that the association was

formed with the underlying motive of achieving mu-

tuality by having identical contributories and benefi-

ciaries.

However, one apparent fact in the arrangement is that the contributors are the same with fluctuation in membership, whereas the beneficiaries of the scheme are not the contributors but the legal heirs. The principle of mutuality could not be applied for the reason that the recipient being the surviving le-gal heir is not the contributory to the common fund. Thus, I agree with the view of your tax counsel. At least the recipient has to admit the same as income. In case the association is registered under section 12AA (with objects enumerated in section 2(15)) then the receipt will not be chargeable to tax in view of the exception prescribed in section 56(2)(x).

Q. We are a private limited company having turnover exceeding Rs. 200 lakhs. During the financial year 2018-19, we have not issued any shares to augment our capital base. Also, we made it a policy to do business transactions through banking channel. There is no payment or receipt of cash exceeding Rs. 2 lakh with any party during the year. Are we required to fur-nish Form 61A before 31-5-2019? A. Furnishing of statement of financial transaction or reportable account is governed by section 285 BA of the Act. It has to be furnished before 31st day of May of the assessment year. The failure to furnish would attract penalty of Rs. 500 per day w.e.f 1-4-2018.You may note that furnishing of statement of financial transaction is with reference to the authorities like postal department, banks gov-erned by banking Regulation Act,1949, registration authorities and the like. In the case of business, only when the turnover is above Rs. 100 lakhs and the accounts are audited under section 44AB, the state-ment of financial transaction or reportable account in Form No.61A needs to be furnished. The CBDT in press release dated 26.5.2017 has stated that the registration of reportable person is mandatory only when at least one of the transaction is reportable. Thus, when there is no reportable transaction, there is no need to furnish SFT in Form No.61A. In your query, you have stated that the ag-gregate receipt in cash from any single person has not exceeded Rs. 2 lakhs and, hence, you need not furnish SFT in Form 61A for the year ended 31.03.2019. Q. My father sold a vacant plot of land in Decem-ber 2016 which was acquired by him in the year 2001. He deposited the entire sale proceeds of Rs. 40 lakhs in capital Gain Deposit account for acquiring a residential property. In March, 2018 he died without fulfilling his ambition. I am the only legal heir eligible to succeed to his estate. Can I withdraw the money kept in capital gain account? Am I to comply with any of the condi-tions for having the amount tax-free? A. From the facts given we understand that the in-tension of deposit was to avail of deduction under section 54F subject to satisfaction of applicable con-ditions. The time limit for acquiring the property is 2 years from the date of transfer of the long term capi-tal asset, i.e., vacant plot of land, in your case. As regards succeeding to the estate of the deceased, you may note that the CBDT circular NO.743 dated 6-5-1996 says that the unutilized deposit amount under the capital Gain Account Scheme, 1988 can-not be taxed in the hands of the deceased.

ISSUE 4 | APRIL 2019

ISSUE 4 | APRIL 2019

ISSUE 4 | APRIL 2019