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Parth Maken (Querist)

29 January 2011 Dear Friends,

I shall be grateful if any one could help me out with the following:

There is a LLP firm with A,B&C as partners.
Partner A had introduced a building in his name as his capital. Till date Ground floor of the building was on rent and the rent was collected in the name of LLP. Now partner A wants to rent out first floor of the building in his personal name to which other coparceners do not have any objection.

Kindly guide me how to help partner A so that he has no tax complications in future ?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

29 January 2011 If entire building has been introduced as his capital then the ownership vested with the LLP.

As such rental income will go to LLP only.

However, if only ground floor has been introduved as Capital in the LLP, then only A may be treated as "owner" of the other part or floors of the building.

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CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)

31 January 2011 I am reproducing the query with answer as under :

"There is a LLP firm with A,B&C as partners.

Partner A had "introduced" a building in his name as his capital.

( It means some money say Rs.10 lacs have been taken as his capital ).

Till date Ground floor of the building was on rent and the rent was collected in the name of LLP.

( Since the building was taken as capital of A; hence the firm is entitled to collect rent in its name, it means so).

Now partner A wants to rent out first floor of the building in his personal name to which other coparceners do not have any objection.

( He can withdraw his capital contribution in the firm by mutually agreeing with the other partners. The value would be taken proportionately what was taken initially).

Kindly guide me how to help partner A so that he has no tax complications in future ?

When one partner has introduced something as a capital and from the facts of the case; it is clear that he has not sold his property to the LLP. Neither he has registered the property with the Sub-Registrar in favour of the LLP.

Hence he can easily withdraw the part of the property; if all the partners are agreeing to that.

An LLP can modify the terms and conditions hence there is no problem in withdrawing that part of capital by A.

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CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)

31 January 2011 Note :

.

The problem has arised due to wrong treatment of the property by the LLP.

.

There is neither a Lease Agreement nor the Sale Deed in favour of the LLP.

.

Even if the rent was collected by the firm; it should be treated like addition to the Capital of A.

.

However; without knowing the full facts of the case and terms and conditions of the LLP; the matter can't be resolved to a satisfactory level.

.

Better take advice of one practising CA after showing all the facts to him.

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Parth Maken

Parth Maken (Querist)

01 February 2011 Thanks a lot!

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