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Can Indian Pvt Co receive GIFT from Director

yuvak (Practising CA) (144 Points)

11 March 2011

Can an Indian Pvt Company receive GIFT from its Director?

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10 Replies

CS Mayur Buha (Company Secretary) (238 Points)
Replied 17 March 2011

Yes, no restriction under the companies act, 1956.

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yuvak (Practising CA) (144 Points)
Replied 17 March 2011

Thanks Mayur...How will the reporting happen..both under accounting and other disclosures??

CS Mayur Buha (Company Secretary) (238 Points)
Replied 18 March 2011

Can you eleborate which type of GIFT u r talking about?

yuvak (Practising CA) (144 Points)
Replied 18 March 2011

Money...fact is that the company needs funds but the shareholders do not intend to have 'equity dilution' (therefore no further issue of shares - equity or preference). Also, the company does not have likely source of future funds to return this money (therefore raising it as 'Debt/ Advance/ Depsoit' not sensible).

If you provide ur direct contact, we can discuss in greater details..

Yuvak

Alok D. Mishra (Company Secretary Manager -Legal) (93 Points)
Replied 29 March 2011

Mr. Yuvak is it a gift or Loan pls clarify?

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yuvak (Practising CA) (144 Points)
Replied 29 March 2011

Please see my comments earlier...the company does not want further ownership dilution (therefore no equity or preference issue) and future cash flow unlikely to substantiate repayment of this funds receivable (therefore DEBT/ ADVANCE/ LOAN) not sensible..

Shankar (Proprietor) (31 Points)
Replied 10 April 2011

No. the gift connotes giving something out of love and affection without cosnideration. while like a normal contract gift can be given, company being an artificial person, the gift isnot possible.

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yuvak (Practising CA) (144 Points)
Replied 10 April 2011

Hi..thanks for your response..but just a thought that there is no explicit restriction under the Co statute..also 'dieties/ gods' are also artifical persons but are eligible to receive GIFTS out of love/ affection/ faith...then why not a company and as its director, one would have a natural inclination for its growth and well being..so why not allow a GIFT to it...also I informally spoke to some officers at ROC and they do not see any issue..

My second issue is regarding Documentation and Accounting/ Disclosures in Financials...

Shankar (Proprietor) (31 Points)
Replied 10 April 2011

While your argument appears valid enough I am not sure if a parallel can be drawn between deity and a corporate. In case of deity the offerings are for something you want it could be money, position, health, peace of mind or any prayer you make or even to donate for development. further deity is not an artificial person. Deity is a invisible person or non existant depending on the position of theist or atheist. In a formal gift deed the donee has to accept the gift and still this could be argued that company can act through humans.

No disclosure. But I think income tax will be attracted as non relative and more than 25000 cash gift will be taxed in the hands of receipient as other sources. this includes cash and non cash gifts. hence review the advantage of the gift.

accounting gift will be credited to capital or reserves account depending on if the shares are alloted or otherwise.

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yuvak (Practising CA) (144 Points)
Replied 10 April 2011

Thanks Shankar for your detailed thoughts...

As for the ITax, Section 56(v) and 56(vi) are applicable only to Individuals and HUFs (and not other 'assessees')..therefore, ITax would not have a issue..

The company does not want to dilute shareholding and therefore no equity or preference issue..in case of credit to Reserve, can this be General Reserve and if yes, reporting requirements..

Cheers