depriciation and interest to partner

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CA Kapil Matani (Querist)
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20 March 2010 Hi all,

machinery introduced by partner of Rs. 10 Lakh in the firm. Whether interest on capital introduced in the form of machinery of Rs. 10 lakh is allowed and also whether we can claim deprication on machinery in the books of firm.
reply its urgent.

CA. Deepak Narula

CA. Deepak Narula (Expert)
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20 March 2010 in my view the firm can claim dep u/s 32 of IT Act and also firm can pay interest to partner. there is no such kind of restriction.

take the other way, if partner had brought cash then firm could pay interest and also could but the machinery with such cash and claim dep.

capital introduced in the form of any asset doesn't create any restrictions.

thank u

Amit Bajaj

Amit Bajaj (Expert)
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20 March 2010 Ya agreed. The interest on capital introduction by way of any asset or in any form can be given. But the overall interest on capital should not exceed 12% P.A.

When asset has been introduced by partner in the firm then it becomes the asset of the firm the depericiation can be claimed on it.

CA Kapil Matani

CA Kapil Matani (Querist)
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20 March 2010 Whether any formalities required for the introduction of capital by a partner in the form of machinery. Whether any agreement of transfer is required.

Amit Bajaj

Amit Bajaj (Expert)
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20 March 2010 No formalities as such or agreement is required. An entry to that effect in the books of accounts of the firm will be sufficient.

One Additional thing the transfer of capital asset to the firm by the partner results in sale of the asset by the partner to the firm and attracts capital gain provisions.

The partner will have to pay tax on the capital gain arising by transfer of such asset to the firm by intriduction of capital in the firm