A Pvt Limited company, with following attributes:
1. No operations in ten years,
2. With no assets except open land in City A and two constructed properties in City B & C,
3. With no operations and trading activity, as all plants and machinery were disposed.
4. Having Four directors. One of the director have got directorship and shareholding due to
transfer in succession of death of his father.
5. All the directors are paternal relatives and sharing properties, group companies and
shareholdings due to inheritance, further properties distribution (including both personal
properties and properties owned by group companies) were made in lieu of civil court family
settlement order.
Case Facts:
That deceased director used to get rents from Constructed properties in Cities B & C in his personal bank
accounts, not in the name of company. As that director got these properties in lieu of family settlement
civil court order, further he got power of attorney from board of director & from civil court to have
beneficial ownership of those properties. Therefore, no income were booked in company accounts and
not in company returns to.
Management has disposed those properties from books as they used to say substantial risk and rewards
of those properties were transferred to deceased director. Further as per concept of substance over
form, benefit of those properties were no more available to company.
But due to death of director he wasn’t able to transfer ownership title in his name, therefore, in land
revenue department, properties are still in the name of company.
Opinion Sought:
1. Whether management treatment & explanation is in line with regulatory requirements? Such as
whether they can disposed company owned property in lieu of civil court family settlement
order, in the name of director or not?
2. Whether those properties in Citites B & C, and their beneficial ownership can be transferred
through power of attorney to his children (Who are director and shareholder by succession),
same like previously transferred to deceased director?
3. Further, future agreements for rents to be made in the name of company or in the name of
director (Deceased director children), as this will reflect in his tax return?
4. If we have to show those properties in companies books, then rental income; the benefit of
which will be taken up by deceased director children, will reflect as receivable in company
books, which may not be paid by director in future to company.
Note: Please corroborate your answer, by taking consideration of taxation laws, accounting and
regulatory requirements of IFRSs/IAS and Companies Act etc.
