Compensation in the form of interest

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Ankita

74 Points Posted on 27 August 2013

Dear All,

ABC Pvt. Ltd Co entered into a Joint Venture with Mr X. But ABC Pvt Ltd was unable to execute the activities as per the JV and hence the Joint venture was cancelled. As per the JV agreement ABC Pvt Ltd was liable to pay compensation in the form of Interest on outstanding Deposit amounting to Rs 60 Lakhs. The same was in kind (land was transferred to the Mr X by ABC Pvt Ltd's Partnership firm and the same debited to ABC's Current Account) Will this compensation be allowed as an expense to ABC Pvt Ltd?

Replies (3)

CA LOVELY ARORA

C.A. B.Com (H) Graduate

1985 Points Posted on 27 August 2013

Dear Ankita,

yes, the said amount will be allowed as an expense to ABC Pvt. Ltd, as it is incurred in the business...

Ankita

74 Points Posted on 27 August 2013

Thank you for the prompt reply..

But could you please provide a supporting case law for the same..As we had earlier claimed it u/s 37 but the same was disallowed

CA LOVELY ARORA

C.A. B.Com (H) Graduate

1985 Points Posted on 27 August 2013

Dear,

case of CIT v. R.D. Sharma & Co. (Bom. HC):-
https://www.indiankanoon.org/doc/724509/

case of Central Trading Agency v. CIT (All. HC):-
https://www.sitcinfo.com/content/directTaxes/decisions/displayNamDetails.asp?rCase=Central+Trading+Agency+Vs.+CIT&GoToRec=1&Scroll=Move

and the same would be covered u/s 37(1) only... kindly quote the cases and be assured.

Best Regards,
CA Lovely Arora
ca.lovelyarora @ gmail.com