My query is this:
The shareholder of a company interested in investing in the company has directed the share application money to a third party from whom the company has acquired assets. That is, the company has procured the assets using the share application money but the money is not flowing into the company's accounts at all.
Is this permitted under law through a memorandum of understanding between the company and the shareholder?
How will the accounting be done? As the share application money but it is not flowing into the company's accounts, how will it feature in the books?
Further, if this is not possible, can the money be treated as a shareholder interest free loan and the company repay him? (this is provided the person becomes a shareholder before the monies are given to the third party)
In the above situations (i.e. if the first option is possible) what are the tax implications under the Income Tax Act, 1961?
Please advise at the earliest.
Thank you,
Lekha Balakrishnan
CAclubindia
