Closure Process for Private Limited Company with Property and Financial Assets on Books

Since this have very technical points to discuss, can we set up a call ? 

- Apply for removal of name of company u/s 248 of the Companies Act,2013

- Please share copy of latest audited balance sheet. Without review of balance sheet it is difficult to give a precise reply on costs, tax implications and inheritance

For detailed discussion you may opt for phone consultation

Here is a preliminary advisory from Witcorp India Advisors LLP on how your father-in-law (80 years old) can close down his defunct private limited company that holds immovable property and FDs, with the least tax impact, minimal expenses, and ensuring smooth inheritance planning.

🧾 Situation Recap:

• Company is not carrying on any business for ~20 years.

• Company owns a flat + office + fixed deposits (FDs).

• Rental income is being received in the company’s name.

• The promoter is now aged 80 and wants to wind up the company.

🎯 Key Goals:

1. Close the company legally.

2. Minimize tax liabilities on transfer of property/FDs.

3. Transfer or inherit assets efficiently to family/heirs.

4. Avoid complications with ROC, Income Tax Dept., or GST (if registered).

✅ Step-by-Step Preliminary Advisory:

1. Assess the Asset & Liability Position

• Obtain the latest audited balance sheet.

• List all:

  • Immovable assets: flat, office (with value, acquisition cost, and date).

  • FDs: maturity values and interest accrued.

  • Liabilities (if any): statutory dues, loans, creditors, etc.

  • Shareholding: confirm shareholding pattern to understand inheritance exposure.

This will be key to plan for capital gains, stamp duty, or distribution tax implications.

2. Explore Two Main Closure Routes

Option A: Voluntary Liquidation under IBC

• Appoint a registered liquidator.

• Liquidator sells or distributes company assets to shareholders.

• Capital gains tax may apply when assets are transferred in kind to shareholders.

• This method is clean and legally binding, but involves professional costs and NCLT filings.

Option B: Strike Off under Companies Act, 2013 (Section 248)

• Cheaper and simpler if:

  • Company has no liabilities.

  • Has not carried business for past 2+ years.

• Problem: Cannot strike off with assets in the balance sheet. You must dispose of or transfer all assets first.

Hence, Option A is more viable if you want to distribute company-held property/FDs to heirs legally.

3. Transfer of Assets to Shareholder (Father-in-law)

Before winding up, assets need to be transferred to his name. Two methods:

✅ As part of liquidation distribution:

• Considered a deemed transfer, triggering capital gains in hands of the company.

• Then, any asset received by the shareholder is taxable again under Section 2(22)(c) as deemed dividend if it exceeds accumulated profits.

✅ Sell assets from company to shareholder (or heirs):

• Company sells property to him at FMV.

• Pay capital gains tax in company.

• Purchaser (father-in-law or heir) pays stamp duty & registration charges.

• But this may be more costly.

🟨 Inheritance planning requires careful tax analysis to avoid double taxation.

4. Alternate Route: Transfer Shares Instead of Assets

This is clever for inheritance:

• Let your father-in-law retain assets within the company.

• Instead of transferring property, gift or bequeath company shares to heirs.

• Upon his passing, shares are inherited, and the new shareholder controls the company and its assets.

✅ Pros:

• No capital gains tax now.

• No stamp duty (on shares gifted).

• Rental income continues via company.

⚠️ Cons:

• Annual compliance continues (ITR, MCA filings).

• Not a closure, just succession planning.

Thanks
Damini
Founder- Witcorp India Advisors LLP
Witcorp Global Consultants, UAE
www.thewitcorp.com

Thank you for this important follow-up, and at Witcorp, we want to highlight that while the idea of transferring assets from the private limited company to a proprietary concern may seem like a way to “empty the books” before striking off the company, it comes with serious tax, legal, and compliance implications.

Let’s evaluate this in full:

🧾 Situation Summary:

• The company has immovable property (flat + office) and FDs.

• Accountant suggests transferring these assets to a proprietary concern (run by wife/daughter).

• After this transfer, company will be struck off under Section 248 of the Companies Act (easy closure method).

❗Legal Status: Is it Valid?

Technically Possible: Yes, a company can sell or transfer assets to any person or business, including proprietary concerns of related parties.

But:

• It must be a bonafide, arm’s-length transaction.

• Must be supported by documentation, such as:

  • Board resolution

  • Registered sale deed for property

  • Bank transfers for consideration (not gifts!)

• Cannot be a “sham” transfer done to evade taxes or regulatory scrutiny.

Red flag: If the transfer is done below market value, it may trigger tax penalties, deemed income, or anti-abuse provisions (like GAAR or Section 56(2)(x)).

Aspect

Requirement

Valuation

Use fair market value (FMV) certified by a registered valuer

Accounting

Record as asset sale in books of the company

Tax Audit Trigger

If related party transactions exceed ₹5 crore

Documentation

Sale deed, board resolutions, stamp duty paid

Tax Implications: For the Company (Seller)

Tax Component

Details

Capital Gains Tax

Property transferred → LTCG on difference between sale price and indexed cost of acquisition

Income Tax on FD interest

Accrued till date → taxable in company’s books

GST

No GST on sale of immovable property (if not under construction)

MAT (Minimum Alternate Tax)

If applicable, MAT @ 15% on book profits

Tax Implications:  For the Proprietary Concern (Buyer)

Pros of This Route

• Enables strike-off by emptying company of assets.

• No need to go through costlier liquidation process.

• Properties shift to individuals' hands, possibly easing inheritance planning.

Cons / Risks

Risk

Explanation

Double Taxation

Company pays capital gains, and proprietor may pay income tax u/s 56

GAAR / Anti-Avoidance

If intent is tax evasion, could be challenged

Stamp Duty Cost

Transfer of immovable property will attract full stamp duty (5–7%)

Long-Term Audit Risk

Related party transaction → can attract scrutiny even after years

No rollover of depreciation or tax base

In proprietary concern, unless structured well

Suggested Safeguards (If Proceeding)

1. Registered valuer report to support FMV for each asset.

2. Sell at FMV, with actual bank transfer as consideration (even if routed back).

3. Execute registered sale deed, not MOU or “nominal transfer”.

4. Pay stamp duty and record income in recipient's books.

5. Document board resolution, form MGT-14, and SH-4 if share transfers also occur.

If you’d like to explore this further, we can assist with:

• Valuation & tax computation for each transfer.

• Drafting transfer deeds and board resolutions.

• Stamp duty & ROC documentation.

• Inheritance structuring through gift or will.
  

Thanks
Damini
Founder- Witcorp India Advisors LLP
Witcorp Global Consultants, UAE
www.thewitcorp.com

Based on your father-in-law's situation, here is my preliminary advice:

1. Company holds immovable assets and FDs but has been non-operational for 20+ years.

2. Strike-off under Section 248 is not permitted unless all assets/liabilities are removed. So first, assets must be transferred or distributed.

3. Three practical options:

   • Voluntary Liquidation: Appoint a liquidator to distribute assets. Cleanest but involves professional fees and NCLT process. Capital gains tax applies.

   • Sell Assets to Proprietary Concern: Legally possible, but must be at FMV, with proper sale deed, board resolution, stamp duty, and tax paid. Risk of double taxation (LTCG + Section 56(2)(x)).

   • Retain Company, Transfer Shares: Most tax-efficient for inheritance. No immediate tax, no stamp duty. But company remains active with annual compliance.

4. Recommendation: If inheritance planning is the goal and annual compliance is manageable, transferring shares to heirs is the cleanest option. Else, we can assist with FMV valuation and structured asset transfer to proceed with strike-off or liquidation.

Let me know if you'd like a consultation to proceed with balance sheet review and action plan.

Best regards,
CA Shubham Goyal