Page 17 - Newsletter

CS Monica Nahar
Company Secretary

SHELL COMPANIES - A CONCEPT UNVEILED UNDER
THE COMPANIES ACT, 2013

The word “Shell” which is being used in
different contexts has a simpler dictionary
meaning i.e, “the hard protective outer
case”. In general connotation; it would not
tend to have a gruesome impact but instead
in legal terms it is a safe haven. As we all
are aware, the term “Shell Company” has
not been described under the Companies
Act, 2013. The significance of a Shell
Company can be derived from the acts of
the human mind and its derogation towards
monetary benefits. In a common language,
the term Shell Company – is a corporate Shell companies in India have been used
entity without active business operations or for rotation and siphoning off of funds by the
significant assets. The purpose for promoters through fictitious sales, inflated
establishing such companies are primarily purchases, unjust commissions or for
to avoid taxes and many big companies creation of equity for ultimate owners who
create shell corporations to avoid taxes are shielded by cloaks of deceit.
without attracting legal actions. However,
this could not be termed as tax planning and This is a case wherein the transactions
rather considered as illegal. Shell have been taking place as a strategy of
companies unload their black money, camouflage. Company A is in requirement
carryout illegal transactions and sometimes for cash and writes a cheque to the Shell
act as facilitators of money laundering. Company for payment of commission. Shell
Often, shell companies remain untraceable Company returns the money as cash (after
and happen to be the vehicle of choice for retaining few sums). This way the Company
money launderers, bribe givers and takers, has catered to its requirement for cash and
tax evaders and financiers of terrorism. also safely deposited their black money,
and further managed to make false entries
Shell companies shall have a record of in the books of accounts. Further, the Shell
bogus and illicit transactions; which may Company shall treat the cheque to be a
include help the big corporates and contractual income rather than commission
unscrupulous minds to convert their white to avoid Service tax. They further transfer
money into black money and vice versa.

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SIRC eNewsletter/January 2017