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Selling property to directors of pvt. ltd. company

Mayank (Director) (30 Points)

05 September 2011

We have a private limited company with 2 whole time directors/promoters. The company owns a residential property. Can the company sell this property to the Directors singly or jointly? If yes, is there any restriction in terms of the price it can be sold at? In other words, does it matter if the property is sold at a profit/loss/no-profit-no-loss?

If Corporate Law is silent on this, is there any restriction from IT side? If the property is sold deliberately at a lower value than market price, does it attract any taxes?

Regards

Mayank

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5 Replies

nidhigoel89 (Company Secretary ) (594 Points)
Replied 06 September 2011

Hello,

I dont think that there is any restriction under Co. Act u just need to disclose abount that transaction. Pl. consider Sec 293 of Co. Act and Sec 40 A 2b of IT Act simultaneously.

If i am missing out any sc then pl. do write.

Regards

Nidhi

1 Like

Mayank (Director) (30 Points)
Replied 06 September 2011

Nidhi

Thanks for your response. While I have limited knowledge of the law, I could understand only a few things from the sections. If you could help me with some more info, it would be great.

Basically, we do not want to set off the loss on sale as a deduction in any way. The property was just bought in company name earlier because of paucity of funds in the directors accounts. Now, since funds have build up, we would like to bring the property under the individual name. Hence the transaction will be of a sale from the company to the director(s) but lower than the purchase value.

So we need to understand if law raises an eye on such a transaction OR it is not bothered because it essentially does not affect my tax calculations in any way. Essentially, the company is selling off it's asset for a loss.

Thanks again for your help.

Mayank

nidhigoel89 (Company Secretary ) (594 Points)
Replied 06 September 2011

Mayank,

I am trying to answer ur query further my IT Act Knowledge is nt so good.

Further i would say that Loss form shot ter or long term capital gain cannot be set off with other heads. And u can sell the proerty o the name of the director at a low price bt at the time of assessement u may ask to clarify about the same. As practically and generally it occurs at Market Price. So you should have a good and genuine reason for doing so.

Further chk th compliance under Co Act like approval of shareholders in case it requires.

As such there is no such prohibition for the same.

Nidhi

Vikramaditya Deo (ADVOCATE) (25 Points)
Replied 09 April 2012

Hi Nidhi,

I m a practicing lawyer at Nagpur. I followed the communication between u and Mayank, regarding selling of the company's property. I just wanted to know whether the Occupiers of the property, which is being sold by a pvt. ltd co., being the Directors in the company invalidates their taking of compensation from the buyer for vacating the premises?

Regards

Vikramaditya Deo

Advocate

Nagpur