Subject: Investment by a Company in an LLP with the same individuals owning and managing business affairs of both the Company and the LLP
I was looking for advice on whether a company can advance loans to an LLP wherein the LLP and the Company have the same individuals as Directors cum Shareholders (Company) and Designated Partners (LLP) without invoking the provisions of Section 2(22)(e) wherein loan given by a Company to the body corporate (LLP in this case) is taxed as deemed dividend in the hands of the shareholder.
My understanding of the relevant sections:
As per Section 185(2) of the Companies Act, a company can give a loan within limits as per section 186 to a body corporate (LLP is a body corporate) in which director (shareholder cum director in our case) has more than 25% shareholding (Company giving the loan does not need to be a member of the LLP). However, Section 2(22)(e) of Income Tax Act considers the loan as a deemed dividend if the shareholder is substantially interested in the LLP.
If the company also becomes a partner of the LLP along with the directors cum shareholders, is deemed dividend section still attracted for loan given by Company to LLP in the hands of the shareholder? What should be the Capital sharing ratio in the LLP of the directors / shareholders and the company to not attract the deemed dividend section, if that is possible.
Regards
CAclubindia
