Int on borrowed capital and deduction
hdshardik
(Querist) 17 November 2013
This query is : Resolved
WHEN FUNDS ARE BORROWED BY partners in his individual capacity and contributed as capital in firm , in such case , interest received on partners capital is taxable in the return of his , can against this interst paid on the borrowed capital is allow for the deduction? kindly support with any case laws is permissible?
Surrender K Singal
(Expert) 21 November 2013
Surely, net of interest earned after deucting interest paid on borrowings would be taxable in individual's case ! You do not need any citation for it ! Cost of funds for taxable Income has to be deducted from gross income !
R.V.RAO
(Expert) 19 February 2014
In the following case law ,the point raised in your query was replied.
Allahabad High Court
Commissioner Of Income Tax vs Shri Aji Prasad on 9 August, 2005
Equivalent citations: (2006) 204 CTR All 292, 2006 283 ITR 142 All
the relevant portion of judgement ony is reproduced below.
......Under Section 67(3) of the Act if any partner borrows any, money for the purpose of investment in the firm and pays any interest on such borrowed money the amount of interest is to be deducted while computing his income chargeable under the head "Profits and gains of business of profession" in respect of the share income of the firm.
Thus a person is entitled to claim deduction of interest only if the interest has been paid on the money borrowed for earning income or for investment as capital in the firm in the case of any partner otherwise not. Interest paid on money borrowed from any source for defraying the personal expenditure is not to be allowed as deduction while computing the income chargeable........
R.V.RAO
(Expert) 28 February 2014
thanks sri singalji
