INTEREST ON BORROWINGS

The assessee took loan and invested as a partner's contribution in a firm. He is also paying interest on such loan. He also has his proprietory business. The share of profit is not taxable in his hands. But the partner should also be getting salary from firm. If he is not getting salary,then he can show such interest as loss from the firm business and can subsequently set it off u/s 70 from the proprietary business as set off of loss under same head of income.!!!!!

 Hello Ashish,

I would like to draw your attention towards Sec 14 of Income Tax Act 1961 whick says that No expense incurred for earning income whose source is exempt can be set off against any taxable income.

Now, Mr X has borrowed money and invested in partnership firm. The purpose of such borrowing is earning Profit, Interest and Remuneration from Partnership firm. Hence, it can only be setoff against such income.

The share of profit is exempt. Hence you can only set off against interest or salary of partner but not against any another income.

Agreed with Krutesh. The Partnership Firm should pay you Interest on Capital to allowable limits and you set of the interest against that. However, the payment of interest and salaries HAS TO BE authorised in the Partnership deed.

Dear Mr. Murali,

You need to take care of section 14A r.w. rule 8D befor carry-forwarding the Interest expense as a loss of B & P.

Section 271(1)(c) take care of penalties in case of furnishment of wrong information of Income (inappropriate/wrong claim for loss).

Thanks and Regards

Juzer