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Mou/ agreement

Sunny (CA Business) (401 Points)

15 February 2016

There are two parties XYZ Pvt. Ltd. and A & Co - a proprietorship firm. XYZ Pvt. Ltd. provides services to various clients. This services are either performed by XYZ Pvt. Ltd as well as XYZ Pvt. Ltd outsources the same to A & Co. (unrelated party).

Queries:

1. Whether any agreement/ MOU is required between XYZ Pvt. Ltd. and A&Co for performance of contract. ? Whether MOU between two parties executed is sufficient enough instead of formal agreement on stamp paper?

2. If A&Co, regularly raises bills (with mutual consent but no formal agreement/ MOU) to XYZ Pvt. Ltd, whether it is sufficient enough? All the legal compliances of deducting taxes at the prevailing rate by XYZ Pvt. Ltd. is peformed.

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2 Replies

CHIRAG VASANI (Chartered Accountant) (22 Points)
Replied 15 February 2016

Dear Sunny sir

1.It is not compulsory to enter MOU, But it is advisable to entere in to formal agreement on normal paper (contract of outsourceing) between the both the party. as it usefull in case of future disput beween the party.

2. Even if persone issuing bill on mutul consent basis and payment made to that after deducting tax in not a sufficiant enough. Issue will arose when we have to prove that on what basis payment made/receive, so it is advisable to enter in agreement or MOU.

Thank you

Sunny (CA Business) (401 Points)
Replied 17 February 2016

Appreciate your prompt reply.

The other side - If a person makes a purchase of goods, then simply based on Invoice - payments are made. No such agreements / MOUs are made in majority of cases specifically in SMEs.