U/S 28 OF INCOME TAX

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This query is : Resolved

hiren gala (Querist)

15 June 2011 IF I HAVE ONLY LET OUT OF PROPERTY INCOME THEN CAN I MAKE THAT AS A BUSIESS INCOME? IF NOT THEN INTEREST PAID ON CAPITAL OF PARTNERS OF PARTNERSHIP FIRM WHOSE INCOME IS ONLY LET OUT OF PROPERTY, CAN I TAKE THE INTEREST SUCH INTEREST AS DEUCTION UNDER SECTION 24(b) OR NOT?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

15 June 2011 INCOME FROM HOUSE PROPERTY is a specific head
to include the property rental income. It can not be treated as business income.

Hence it is to be shown as IFHP only.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

15 June 2011 Query : if not then INTEREST PAID ON CAPITAL OF PARTNERS OF PARTNERSHIP FIRM WHOSE INCOME IS ONLY LET OUT OF PROPERTY, CAN I TAKE THE INTEREST SUCH INTEREST AS DEUCTION UNDER SECTION 24(b) OR NOT?

Reply-
A firm pays interest to partner for the capital invested in the firm.
Generally partnership firms hold assets in the name of its partners only, and by virtue of Section 26, each partner is treated as a co-owner of the property.
So a limited view in this type of situation emerges in the direction that in-spite of showing the Rental income in the firm, the partners can show such income as their own income and can share according to their investment in the property.

The liability of interest to partners can be reduced by the firm by taking out the property from the firm's balance sheet.

Further, partners may claim interest u/s 24b provided they have taken loan from banking or financial institution to purchase the property in co-ownership.