23 October 2010
The profits of a private limited company are exempt u/s 80 I A. The company has raised substantial interest bearing loans for investing in new projects of companies under the same management. The company has given interest free loans and advances to other group companies for setting up new projects. The books profits of the company has been reduced considerably because of the interest cost of the said loan raised. Please advise : From Income Tax Point of View : a) Implication of section 14A – If there is JV or no JV b) Implications of Section 2 (22) - None of the shareholder of the lending company is shareholder of the company to whom loans are given c) Implication of Section 115JB . From Companies Act / CARO The provision of section 293 and other applicable sections of the Companies Act Prejudicial to the interest of shareholders – Though the loans are raised and invested after shareholders’ approval,
25 October 2010
1.No implication under 2(22) as no shareholder had substantial Interest 2.I THINK, not sure, It is covered by Section 14A, i.e interest exps incurred to earning exempt Income,and hence not allowed. 3. On the basis of 2nd point, It should be added to book profit u/s 115JB. 4.As per CARO, When company gives interest free loan to any person , the said fact should be required to be disclosed by Auditor. In Your case, as it is approved by Shareholder, no consequences.
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