Inter corporate loan between related parties

Qasim (ca final) (51 Points)

09 November 2020  

Company A gives loan to Company B for funding purpose. Both companies has Mr. A as common director as well as common shareholder holding 50% Paid up share capital of both the companies. The reason for loan is that Company B is a non-revenue generating company, which is in the stage of research and development. Both are IT companies.

 

What are the implications of this transaction in companies act and income tax act? What to be taken care of in this regard before transaction and remedy if the transaction already is done.

In simple words, is it allowed that loan like above to be given, and if yes what are the compliances to be followed. If no what are the remedy available for a loan already given?

Thanks