Intt. on partners capital


04 June 2013

xyz a partnership firm incurred a Business loss of Rs. 2 lacs and earned a interest of RS. 10 lacs on investment made by firm.

now xyz paid a sum of RS. 4 lacs as interest on capital to partners.

now my question is:

that interest income included in book profit?if not whether it is taxable under head "Other Source"? if it is taxable under other source can we pay interest to partners on their capital from that interest income?

that intt. on capital allowed as deduction (as partnership act provides intt. in case pof profit only)?

please reply as soon as possible

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