Can a music director create LLP?

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A celebrated music director, currently taxed as an individual, is considering forming a Limited Liability Partnership (LLP) for tax planning purposes, particularly to avoid high surcharge rates. While forming an LLP is generally permissible, questions arise regarding the tenability of such a structure when the income stems from individual creative talent and the other partner makes no contribution. Furthermore, the director wishes to transfer income to his wife for her business, raising concerns about income clubbing under Section 64. The advice suggests that while LLP creation is unlikely to be challenged, income gifted to the wife and not invested in her business may indeed be clubbed back with the director's income.

Anu

Anu (Querist)
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06 August 2021 A celebrated movie director (assessee) is likely to get a substantial amount as revenue in the current financial year. As a part of tax planning, he wants to create to an LLP. So long his income was taxed and filed as an individual. Can he create an LLP and transfer his income so that he can avoid high surcharge rates? Since his individual creative talent is being used, will forming an LLP be tenable?

Also, he wants to transfer this amount, (after paying relevant tax on this) to his wife, who will later invest this in her business (sole proprietary). Will section 64 get attracted in this case regarding clubbing of income?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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06 August 2021 Yes, music director can create LLP.
Section 64 not applicable on business income earned.

Anu

Anu (Querist)
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07 August 2021 For a music director, the professional income arises out of his creativity. Will it be tenable to create an LLP, where there is no contribution from the other partner?

Regarding section 64, if a substantial part of Assessee's professional income (on which tax is paid) is gifted to his wife who has her own business, will income from such transfer (assuming not invested in her business) clubbed with the assessee instead of her?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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07 August 2021 No body/ no law will question such LLP creation.

Yes, it will be clubbed.

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